Spencer Rascoff, Zillow CEO, discusses whether a spike in mortgage rates will likely stall the housing recovery, and reveals why now may be the best time to sell your house.See the complete video by going here Open House With Zillow's CEO
Every economy is different. Every residential real estate market has its oddities. The current situation is unprecedented in history, so all pundits are making their prognostications against a backdrop of massive unknowns. Here are a few knowns:
- Interest rates are as low as they are going to get, give or take a few basis points. Trying to outwit the market and get a mortgage at the very bottom is a fools errand.
- The current residential home shortage will not be solved by building more units, at least not in most markets. There is no place to build units where there is the most demand.
- By the estimate of Rascoff, 20% of all homes sold in the last year or so have been purchased by investors, large and small, who are buying for the long term. This is establishing a floor on prices. This has never happened before.
- The effects of new government laws and regulations still to be written under Dodd Frank have reduced the demand on homes and mortgages as many who might buy no longer can get financing.
- Net immigration is down, therefore reducing demand on both purchases and rentals. If immigration increases again, demand could spike in an already tight market.
- The economy is in a very slack recovery with the lowest level of workplace participation in generations. If the economy picks up and discouraged workers return to the work force, there will be upward pressure on rents and purchase prices.
- As Rascoff points out, there are still many homeowners who have negative equity in their homes and are trapped, unable to sell. This is keeping properties off the market
- Many homeowners have refinanced to take advantage of sub 4% interest rates and are unlikely to ever sell those properties. They will either stay in the homes or rent them if they want to move. It would rarely make good financial sense to lose those mortgages.
"Imagine yourself buying a $300,000 home today, and in four years you may want to trade up to a $500,000 home," he said. "That home is not just that much more expensive—but because mortgage rates are going to be higher—it's significantly more expensive. So the trade-up market is going to be very troubled in a couple of years."
This is the affordability trap that we pointed out in this post Los Angeles: Mortgage Interest Rates Soar on Fed Speculations . At some point consumers just can't afford the payments or the rents.
For the moment, however, most pundits feel that home prices will continue up for the foreseeable future, though Rascoff feels that the current rate of increase will moderate.
New Contact Information for Bill Rayman
Bill Rayman Home Mortgage12121 Wilshire Blvd
LA CA 90025