That's kind of messed up about interest rates, even though I agree with the premise here. But when demand for money (mortgages) is high, money get expensive (higher rates). If there's not as much demand for money, then the price falls--interest rates get lower.

Mortgage rates aren't just determined by demand for mortgages alone, and today's low rates aren't because no one's buying homes, but you wouldn't point to low rates as a sign of a healthy housing market.

But cheap money enables a healthy housing market.

Please consider the source for that WaPo article. Kenneth Harney is a shill for the real estate industry, as a simple Google search will turn up. He's no more trustworthy than David Leareh.

But cheap money enables a healthy housing market.

Absolutely. What's messed up is his phrasing, the way he points to low rates as an indicator of a strong market. If anything, it's the opposite. He says it like this:

With gloom-and-doom purveyors forecasting imminent crashes in dozens of metropolitan areas, how could such key fundamentals as jobs, interest rates and even pending home sales simultaneously be trending in the opposite direction?

Jobs and pending sales are decent to strong indicators of a good housing market. But low rates mean demand for credit is weak, among other things, and that is not indicative of a strong RE market.

Decent analogy: Low gas prices might lead to more family vacations, but you wouldn't call low gas prices indicative of a strong vacation season.

I agree but ... the inverse would certainly spur a crash.

And demand for credit has been at an all-time high during the recent boom, yet rates were still low (due to competition). As you know, they are loosely pegged to factors beyond demand.

Most importantly for a crash, low interest rates facilitate the relative maintenance of house prices, as these prices are tied to income-determined borrowing power, and rising incomes are sticky indicators in a brightening employment market. As you say, it doesn't mean the market is good, but it's a pivotal factor in the market not turning awful. Fast. Which is what a bubble "bursting" actually looks like.

Which is why I agree with the thrust of his piece but think his phrasing piss-poor.

There's no market quite like RE. It's about impossible to be objective about it since one's investment judgement comes part-and-parcel with some other baggage. IMO, there's always some wishful thinking once you own a home and some real doom-mongering if you don't.

I want to believe there's no other shoe waiting to drop, and I don't think there is. But I know I can't trust my own judgement either.

Never felt that way about AMZN or ORCL, that's for sure.

You have a skewed version of how lending works. Mortgage rates are not determined by supply demand of mortgagtes, more along the supply demand of bonds. 30 year fixed rate mortgages generally follow the 10 year Bond. Adjustable rate mortgages follow whatever there Index is with teh proper add ons for its fixed period. Low interest rates drive the housing market more than the housing market drives interest rates. What drives investors to buy or sell their bonds is what controls interest rates. And if you can figure that out let me know cause I'll make both of us rich.

Who are you addressing? I'm generally aware of how rates are determined ("As you know, they are loosely pegged to factors beyond demand."). As I'm aware, there is still a smidge of play in what can be offered due to competition among products and lenders ("competition"). Otherwise, I wouldn't be able to shop around for loans.

I mentioned demand to refute the idea that the rates were pegged to demand, given that rates were low as demand was at an all-time high. The rates help influence the demand, not the other way around. (again, if you are addressing me. if you aren't, nevermind :)

sorry,

I was addressing spongeworthy. I kinda wrote that in a hurry. When I saw his comment about the how demand leads interest rates, I had to write something.

And if you're addressing me, I'd suggest you reread the comments. I've been trading bonds for 25 years for the biggest mortgage lender in New Jersey.

(Arguing from authority saves a lot of time! I'm going to do more of it!)

"But when demand for money (mortgages) is high, money get expensive (higher rates)."

this statement is directly discredidet to Bill's statement "And demand for credit has been at an all-time high during the recent boom, yet rates were still low"

Where in the comments exlpains any other factor. You complain about one of three indicators of a good housing market with out backing it up.

Your analogy of the gas prices is good, but it can bite you. If two other good indicators of family vactions are showing trends that the next summer is going to be a hot vacation summer, Low gas prices could be a factor combined with the others. But alone it would be a worthless comment.

So what is to explain the current market of rates? Why is your lender's secondary market still able to set rates to their wholesale and retail lending departments at considerably low rates. Why did rates go down yesterday when Bernanke announced short term rates would stay level?

Theres too many factors which drive rates than only mentioning demand for money. Trying to simplify your argument for why you didn't like one of Three indicators of a strong RE market becuase by it self it isn't an indicator, but combined with the other two it is a factor of the housing market. Low rates help keep a housing maket going.

(Kind of like Voltron. The yellow kid w/ glasses was usless without the rest of the team, but together they kicked ass!)

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