Mortgage rates and the housing market

[dgies9156]

whoops, not 4.25.

2.75.

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

[jficke13]

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

I'm happy for them to be mad at me. They wrote the loan on fixed rate terms. It's not like they can be surprised by the fact that when rates increase, low rate mortgagees with fixed rates are incentivized to maintain their existing loans.

[Skatastrophy]

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

[jficke13]

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

Especially now given that all buyers' agents do is a tiny bit of form paperwork. It's not like there's some mystery to finding homes that are for sale.

[dgies9156]

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

Much depends on the agent and the market you're in. I admit, I have a generally low regard for real estate agents but there are times when they're useful.

A Realtor(c) brings access to the MLS, for one thing. It's not the only way to sell a home, but it's a proprietary network and probably the best opportunity to get noticed.

Secondly, the adept real estate agent, stages, helps prepare things for sale and has a pool of potential buyers.

Two years ago, I sold two houses and bought one within six months. The selling agent in Florida helped stage our home, got everything "perfect" and attended every showing to ensure the features of the house were fully explained. The selling agent in Illinois on my home there was good at staging but once the house was listed, we never saw her again.

I'll agree the buy side in Florida had limited utility but I'll also admit, I know real estate finance better than most people. We found the house we live in now; we knew the neighborhoods where we wanted to live; and, we ultimately set the price. The agent was our messenger but their idea on structuring a deal helped us get the house we wanted.

It's interesting that in Illinois, the real estate agent presents the buyer and then lets counsel for both sides negotiate a transaction. In Florida, the agents do the negotiation and legal counsel drafts the definitive agreement.

Much of the value of real estate agents depends on the customs in a region and their "connections." In both communities, we already had access to financing, attorneys and anyone else we needed. My concern with most agents is why they are recommending certain folks and whether there's kickbacks between the referral and referral source. Maybe it's because I lived in Illinois too long and no one's hands are clean!

[MU82]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

[dgies9156]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

Brother MU:

The problem with discount brokers comes from real estate agent behavior. In effect, if there isn't a satisfactory commission in it for the Realtor(c), they won't show the house. That, frankly, has been one of the reasons why the National Association of Realtors(c) was sued and ultimately lost!

You're a smart dude in a good neighborhood. That makes life a lot easier, I'll concede. But not everybody knows the market as well as you or has the time to assist in the set-up and sale.

A good real estate agent knows the market well and knows how to position a home to sell. The problem, in my mind, was commissions were not negotiable, agents were lazy and the set-up/marketing work sucked. I found the quick way to separate real from pretend real estate agents is to ask "who would buy my house?" and "how many clients do you and your agency have that you will show this house in the first week?"

[Hards Alumni]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

We did the same in 2012.  It was very easy.  Sure there wasn't a ton of showings, but we were in no hurry to leave or sell below what we thought our property was worth.

Also, I wouldn't for a moment consider using an agent to sell in 2024.  The market is still red hot and you're giving up a ton of money for someone who is a glorified pencil pusher.  People are buying homes sight unseen, and without contingency or inspections. 

[MU82]

Brother MU:

The problem with discount brokers comes from real estate agent behavior. In effect, if there isn't a satisfactory commission in it for the Realtor(c), they won't show the house. That, frankly, has been one of the reasons why the National Association of Realtors(c) was sued and ultimately lost!

You're a smart dude in a good neighborhood. That makes life a lot easier, I'll concede. But not everybody knows the market as well as you or has the time to assist in the set-up and sale.

A good real estate agent knows the market well and knows how to position a home to sell. The problem, in my mind, was commissions were not negotiable, agents were lazy and the set-up/marketing work sucked. I found the quick way to separate real from pretend real estate agents is to ask "who would buy my house?" and "how many clients do you and your agency have that you will show this house in the first week?"

Well, buying agents definitely WILL show the house if offered 2-3% (using local norms).