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The Dark Side Of Soaring Rates: A Housing Market That Lost 16% Of Its Value In Under Two Months

Tyler Durden's picture


A week ago, we provided a simple, irrefutable analysis of "What The Recent Surge In Rates Means For Your Home Purchasing Power" in which we demonstrated how the average home affordability goes down (due to the declining marginal purchasing power in a rising rate environment) as interest rates (for mortgages and all rate-sensitive products) go up. What this means is that all else equal, absent a massive increase in disposable income (especially when the opposite is happening to disposable income), the average home affordability plunges as rates go up.

So here is the benchmark price-rate curve updated for a reality, in which the national average 30 Year fixed has exploded from 3.40% on May 1 to a whopping (for the New Normal) 4.875% as of today for Wells Fargo customers. The matching affordability collapse: from $450K to $378K, or a stunning 16% equilibrium price drop in under two months!

So much for that wealth effect...


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Mon, 06/24/2013 - 14:34 | 3688069 fightthepower
fightthepower's picture

Fuck You Rothschilds!

Mon, 06/24/2013 - 14:43 | 3688114 NewThor
NewThor's picture

Did the wheels come off when Obama bitch slapped Bernanke?

Mon, 06/24/2013 - 17:49 | 3688781 Dingleberry
Dingleberry's picture

Can someone explain why Obama wants Ben gone? He freely spent (printed) more than any Congress in my memory. Seems like he did what any good Krugmanite liberal would do.

How is that anti-Democratic party?

Or Repub for that matter.

Mon, 06/24/2013 - 21:22 | 3689447 Go Tribe
Go Tribe's picture

Because Shalom printed a lot, just not enough. The US economy was supposed to be in total collapse by now to usher in the Fuehrer's second millenium, I mean term. Shalom proved too conservative.

Mon, 06/24/2013 - 14:43 | 3688120 Obchelli
Obchelli's picture

So where is this misterious buying came from? Dow is going green

Mon, 06/24/2013 - 14:47 | 3688137 maskone909
maskone909's picture

plunge protection team inc.

Mon, 06/24/2013 - 15:14 | 3688230 The Thunder Child
The Thunder Child's picture

Covert QE

Mon, 06/24/2013 - 15:36 | 3688336 NewThor
NewThor's picture

I am confused.

Are the down arrow guys PRO obama? or PRO bernanke?


Mon, 06/24/2013 - 15:40 | 3688351 rqb1
rqb1's picture


Mon, 06/24/2013 - 15:07 | 3688206 ejmoosa
ejmoosa's picture

Think the Fed could not suggest some buying of 30 specific stocks to a few of their closest friends?

Mon, 06/24/2013 - 14:49 | 3688151 Banksters
Banksters's picture

Stress about shelter elevates cortisol.  It is a great way to keep  people unhappy and confused.   

Mon, 06/24/2013 - 15:09 | 3688212 Son of Loki
Son of Loki's picture

You mean those Aliens (the NAR keeps talking about) aren't coming to scoop up those 15,000,000 empty houses?


Mon, 06/24/2013 - 15:15 | 3688236 wee-weed up
wee-weed up's picture

And all those MSM Obama sycophants who were recently trumpeting a housing recovery...

Where are they now?


Mon, 06/24/2013 - 15:30 | 3688311 Renewable Life
Renewable Life's picture

This should drive the BS "investors" out of housing in a hurry, but uh oh BOA and Uncle Warren, what will you guys do with all that secret inventory? 

But that pales compared to what Walmart and Target are going to do, when China freezes their banking system and they cant get their plastic trinkets on the cargo ships, hope they have LOTS of excess capacity!!  The population will be screaming for $18 razor packets that are manufactured for 22 cents almost immediately! I hope walmart doesnt have any cheap bond debt it sold lately, to finance their BS operations, those idiots are fucked if the Chairman says freeze it up for a couple weeks or longer!

Shit housing loses will seem like a victory then!! Buckle UP! Oh BTW, don't get any silly ideas about oil getting cheap or fuel getting cheap, because no matter how fucking bad it gets, the House of Saud isn't taking less then 80 inflated dollars for a barrel now, these fucks have to pay the princes and the population not to rebel and the cost of extracting and storing is nearly $60-$70 now! So stuff that fanatsy about deflation makes the oil cheaper BS, Saudi will unload 7000 missles on Iran first, or vice versa before this shit goes under $80 again!!

Call Grandpa and find out how he got that windmill going in 1945, because your going to need to get water somehow!

Mon, 06/24/2013 - 14:34 | 3688070 SheepDog-One
SheepDog-One's picture

Highly leveraged all of it too makes for multiples of that 16% loss. 

Mon, 06/24/2013 - 14:35 | 3688073 orangegeek
orangegeek's picture

rampapalooza had an early start today - around 1230 - Dow Jones has climbed back 220 points in two hours.


isn't that special???

Mon, 06/24/2013 - 14:37 | 3688083 SheepDog-One
SheepDog-One's picture

Whatever....good luck to the fraudsters they're going to need it big time now.

Mon, 06/24/2013 - 15:27 | 3688297 stocktivity
stocktivity's picture

Maria "Well Off The Lows" Barturomo is having a field day on CNBC. You'd think it was Christmas Day over there.

Mon, 06/24/2013 - 15:30 | 3688310 The Shootist
The Shootist's picture

Fucking hilarious!

Mon, 06/24/2013 - 15:48 | 3688385 The Shootist
The Shootist's picture

Maria's been orced to say, 'we are worsening again.' (Frown. )

Mon, 06/24/2013 - 15:48 | 3688386 The Shootist
The Shootist's picture


Mon, 06/24/2013 - 14:35 | 3688075 gatorengineer
gatorengineer's picture

they have turned it here..... time once again to go long for a trade....


We all know how this ends but right now BTFD.....

Mon, 06/24/2013 - 14:41 | 3688108 SheepDog-One
SheepDog-One's picture

Drops on big volume....creep it back up on zero out carefully here 'trading long' and watch out for the slingblades.

Mon, 06/24/2013 - 14:44 | 3688122 gatorengineer
gatorengineer's picture

well that tells me that nobody is short (volume on the rip), when its real the bear boat will be full up, and they wont find it so easy to stuff 200 + points straight up.....

Mon, 06/24/2013 - 14:46 | 3688130 gatorengineer
gatorengineer's picture

btw positions NUGT at 5.90 and EDC at 20.05......  Looking for 6.40 NUGT and 21 plus EDC... like I said a trade......

Mon, 06/24/2013 - 14:48 | 3688141 SheepDog-One
SheepDog-One's picture

Just shows how totaly fake it all really is.

Mon, 06/24/2013 - 14:56 | 3688174 gatorengineer
gatorengineer's picture

we are also comming into quarterly window dressing season.....

Mon, 06/24/2013 - 15:27 | 3688298 fonzannoon
fonzannoon's picture

is it me or if one were window dressing they would want to show a lot more cash and a lot less stocks and bonds?

Mon, 06/24/2013 - 14:46 | 3688129 Obchelli
Obchelli's picture

Yes we know but who cares about volume in manipulated market? Loss is a loss if you are short and this is painfull. What takes billions of shares 10 shares can undo - they just employee windows of opportunity when selling pressure disappears just taking it up on no volume so making all sellers LOSERS

Mon, 06/24/2013 - 14:47 | 3688135 Hippocratic Oaf
Hippocratic Oaf's picture

Excellent eval, sheep d.

Makes you wonder.

Mkts sold off hard to about 450mm......then rallied

Mon, 06/24/2013 - 14:36 | 3688077 NotApplicable
NotApplicable's picture

Luckily that's merely a paper loss, given there's NO real buyers.

Mon, 06/24/2013 - 14:36 | 3688079 SheepDog-One
SheepDog-One's picture

'There's never been a better time to buy than now! Well, maybe 2 months ago...but come in and speak to an agent today and BUY! (because all we actually care about is our comission)


Mon, 06/24/2013 - 14:36 | 3688080 Bosch
Bosch's picture

Can't believe they are let me buy DOG & SH at $30/share this afternoon. 

Mon, 06/24/2013 - 14:39 | 3688098 gatorengineer
gatorengineer's picture

they will let you buy it at 29.70 too.....

Mon, 06/24/2013 - 14:37 | 3688082 Dr. Engali
Dr. Engali's picture

Good maybe we can get a forced clearing in the housing market some time.

Mon, 06/24/2013 - 14:38 | 3688085 SheepDog-One
SheepDog-One's picture

We're seeing a lot of 'tent-up demand' here at the Army Surplus stores.

Mon, 06/24/2013 - 14:40 | 3688099 SheepDog-One
SheepDog-One's picture

Sure when we figure out a way to kill off most of these useless eaters, around 50% of the population,  then there wont even be much need for pesky houses anymore.

Mon, 06/24/2013 - 14:41 | 3688106 Dr. Engali
Dr. Engali's picture

The upcoming war should serve to get rid of a few million of them.

Mon, 06/24/2013 - 14:46 | 3688134 SheepDog-One
SheepDog-One's picture

They're looking at getting rid of a few billion, at least. Should be very interesting to see how they start doing that soon.

Mon, 06/24/2013 - 14:50 | 3688150 Toolshed
Toolshed's picture

You are thinking much too small. The global casualties from upcoming WW3 should number in the billions. Hopefully anyway. Let's face it, the REAL problem humanity faces is too many humans and too few resources. I pity the young.

Mon, 06/24/2013 - 14:43 | 3688119 NoDebt
NoDebt's picture

Doc- you mind if I get Mom's old house sold off first?  I've been balls-to-the-wall getting it market-ready.  I've been running it like one of those "flip my house" episodes where they're still installing countertops 2 hours before the first buyer walks through the place.  It's going up on Wednesday.  Can we PLEASE not tank the real estate market for a few weeks?  Please.

It's for the CHILDREN, after all!  (Me, my brother and my sister)

Clear the real estate market all you like after that.

Mon, 06/24/2013 - 14:38 | 3688090 Sequitur
Sequitur's picture

"Forget housing. I'm charting a new direction. Use our customer's brokerage money and load up on Greek debt. Win-win."

- John Corzine

Mon, 06/24/2013 - 14:44 | 3688121 Stormtower
Stormtower's picture

Well.......I guess that'll take care of the "No Inventory" meme.............

Mon, 06/24/2013 - 14:44 | 3688124 SheepDog-One
SheepDog-One's picture

You ever notice too when the markets are selling down on high volume the financial blowhorns hardly even mention anything, but when they fake ramp back up theyre all giddy with exitement? Yea well good luck it's all crap from here on out now.

Mon, 06/24/2013 - 14:45 | 3688132 FieldingMellish
FieldingMellish's picture

They can always rent from their masters.

Mon, 06/24/2013 - 14:49 | 3688147 khakuda
khakuda's picture

I was emptying out a storage locker yesterday and ran into 3 young guys moving stuff in.  They said the landlord had raised the rent on their house by $1,000 a month (from $3,000 to $4,000) because property values had risen so much since they last signed 2 years ago.

Yet another example of Ben's inflation/speculation economy wealth effect working its magic on the lower income groups.

Mon, 06/24/2013 - 15:00 | 3688186 DrDinkus
DrDinkus's picture

my landlord recently tried to hike rent on our 4 BR in nyc from 5600 2 years ago to 7500 a thanks.

Mon, 06/24/2013 - 15:19 | 3688262 jbvtme
jbvtme's picture

my neice just paid 20k over ask on a house in ma (350k)

Mon, 06/24/2013 - 18:06 | 3688828 GrinandBearit
GrinandBearit's picture

Just wait until the social unrest happens.  Get the hell outta there.

Mon, 06/24/2013 - 14:49 | 3688148 lolmao500
lolmao500's picture

Lulz... -$70 000 in a month and a half!! LOL!

Mon, 06/24/2013 - 14:53 | 3688165 Temporalist
Temporalist's picture

Not to worry, Aapl is at generational lows.

Mon, 06/24/2013 - 14:56 | 3688175 syntaxterror
syntaxterror's picture

Ouch. That's a 20% increase in monthly payments for those keeping score. More interest to write off on taxes so it's still all good. Time to buy now for sure! They're not making any more land AND interest rates are going up! Bullish!!!

Mon, 06/24/2013 - 15:03 | 3688190 Never One Roach
Never One Roach's picture

<the average home affordability goes down>


So Naughty ... using that four letter word, "DOWN" in the same sentence as "HOUSING MARKET."


Go stand in the corner while the NAR figures out how to send you to Guantanamoe.

Mon, 06/24/2013 - 15:10 | 3688219 yogibear
yogibear's picture

When they keep raising rents people will search for cheaper alternatives. The landlords can be stuck with high taxes and utility costs with vacant apartments. This time many were purchased as investments. The higher costs will drain their funds so they will lower rents again just to make something on them.

Mon, 06/24/2013 - 18:37 | 3688923 pursueliberty
pursueliberty's picture

Thats for sure.

I also have a strong feeling that the rate resets on the balloons that finance a lot of rentals will get the landlords also.  My rentals are all a 3-5 year balloon at low 4% rates, as of today they would be high five rates.  Let them get reset with a 7-8% rate and look at that rent jump.  I haven't been able to buy a decent rental for almost two years now due to everyone and there momma getting into the property rental game.  Most of these people need to call someone to do anything other than change a light bulb and here you have them buying multiple properties.

There are those with cash though and they didn't have anywhere to put it.  There are worse things than owning a home outright.  You might not always get a 10% return, but when do most ever.

Mon, 06/24/2013 - 15:20 | 3688266 Bay of Pigs
Bay of Pigs's picture

Someone qucikly for the finger at China. It's all their fault.

"Thousand points of light"? LOL... 

Mon, 06/24/2013 - 15:26 | 3688289 Typing Typer
Typing Typer's picture

Nice anlaysis. Too bad about reality returning and all.

Mon, 06/24/2013 - 15:28 | 3688296 yogibear
yogibear's picture

The housing market has been Shanghaied.

Mon, 06/24/2013 - 15:36 | 3688332 Seasmoke
Seasmoke's picture

Next Up a van down by the River

Mon, 06/24/2013 - 15:57 | 3688421 wdmitch666
wdmitch666's picture

OR, lenders could simply give more money even though the borrower cannot afford to re-pay the difference. tell'em they can re-fi later. heck - make the rate variable while you are at it.

worked like a dream in 2008.

Mon, 06/24/2013 - 16:13 | 3688479 Colonel Klink
Colonel Klink's picture

Trying to give a fuck.  Request denied!

Mon, 06/24/2013 - 16:13 | 3688481 W74
W74's picture

So, is this going to help savers any?

Mon, 06/24/2013 - 16:34 | 3688552 FranSix
FranSix's picture

OT:  This Hobbit house just sold for $2.89CDN in Vancouver:

Seasonal price spike on average monthly home prices Toronto: 

Mon, 06/24/2013 - 16:46 | 3688588 Voicefather
Voicefather's picture

I've been looking at houses for 4 months now. See so many I would love to put a bid on, but too damned scared to do it. In this time that I have been looking I've had 2 nurses, 1 ER doctor, 1 diesel mechanic, 1 banker, 3 RE agents, 3 high school teachers, 1 software salesman and 1 PhD scientist tell me housing has definitely bottomed and I am a sucker if I don't buy now while interest rates are low because they haven't been this low in 40 years. Not one single person, aside from the people on this kook dingbat conspiro-doomer website, has told me now is a bad time to buy.


So, who the fuck am I supposed to believe and why?

Mon, 06/24/2013 - 16:57 | 3688621 W74
W74's picture

Whatever you do don't believe realtors or mortgage lenders.  What incentive do they have to work in your best interests?

Go with what YOU want to do as long as it's best for YOUR life and damn what anyone else says.  Trust your own gut and go with something you can afford.  Don't get into the buying process and then try to upsell yourself, if anything you want to think about downsizing right now.

Homeownership beats renting as long as you're responsible.  It's definitely a good thing financially in the long run, though I'd have to say that there are some types of people who should NEVER own.

Do what's best for YOU.

Mon, 06/24/2013 - 17:14 | 3688671 HalinCA
HalinCA's picture

erty, things do get more complicated ....

Mon, 06/24/2013 - 17:14 | 3688673 HalinCA
HalinCA's picture

If you can a fixed mortgage and intend to live in the house you are buying for at least two years, and expect to be be able tomake the payments, buy a house.  If you are looking at this as a rental investment property, things do get more complicated ....

Mon, 06/24/2013 - 17:15 | 3688678 chubbyjjfong
chubbyjjfong's picture

If it is a nice house that you feel very comfortable living in and a house that you can afford then you will never regret it. If you leverage up and plan on renovating and sell then that is a different story. Having your own property, that makes you fell happy being in will always be a good thing. If I could get to that stage I would certainly grab it. I think many on this website would agree that living in a peaceful place and manner, well within your means, with space to grow food enjoying friends and family, is a heck of a good plan. All the best..

Mon, 06/24/2013 - 18:43 | 3688940 pursueliberty
pursueliberty's picture

Like I said above, there are worse things than owning a house.


Here is the deal though, you might have missed the interest rate boat, and prices will take awhile to reflect the above loss of purchasing power. 

If you listened to everyone on ZH you'd own a massive stack of undervalued gold and would never buy anything other than farm land and seeds.  A house is no worse than gold for sure, you've got to live somewhere.  What you can buy here for $800/month and rent here for $800 a month a completely different in every way.  To be honest, I probably would live in a single wide in the country over the $800 rental

Mon, 06/24/2013 - 21:39 | 3689499 Notarocketscientist
Notarocketscientist's picture

The housing market is built on quicksand.   Prices only started going up when Bernanke started to print 45B extra per month which he gave to institutions like Black Rock at ZIRP to purchase foreclosed properties.

Without that boost prices would continue to drop.

Of course some fools are also charging in believing this is a big run up again.  It is not. They will be BURNED BADLY.

Think about it - 20% of the US population is on Food Stamps and Disability.  Students are coming out of school up to their ears in debt and without good jobs.  The baby boomers are selling out of the market and downsizing.  Banks are delaying foreclosures by the millions to attempt to squeeze supply and artificially boost prices.

This is a MASSIVE bubble - again.  And it is gonna implode just like the last one.

Hold tight - prices will be a fraction of what they are now in the near future

Mon, 06/24/2013 - 17:29 | 3688717 jarboejl
jarboejl's picture

This is exactly what I keep trying to explain to so many folks. People don't buy a house at a price they buy it at a payment. The concept seems to be lost on so many.

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