bostonbubble.com

[balor123]

Looks like interest rates are heading even lower! If you don't own a home, then you'd have to be a sucker to buy right now. Interest rates won't last at 4% for long and when they start to slowly rise house values will plummet. The Fed has a good plan for fixing the housing problem though because it spreads the losses among more people. Consider for example a house worth $150k in 1998 that rose to $600k at peak. Downpayment plus payments for that homebuyer maybe equates to $100k at this point. Lowering rates allows a new buyer to come in at $500k, putting another $100k down. As rates rise some more that homeowner loses the equity and sells to someone else, who then loses their downpayment. In this example, the bank was able to recover $300k in losses between 3 people vs letting the price fall on its own and losing $450k all on the first person. This example assumes that everyone will sell and of course the majority of houses won't be traded but their values still fall from those few that do. The difference between the upcoming rate increases and the ones in 2005 is that this time everyone will be in fixed rate loans backed by the Fed. Anyway, the more rates fall the more downside you can expect on housing prices as rates rise back to inflation. This analysis assumes that the Fed can't subsidize housing forever.

[john p]

So you predict a major collapse right?

The State unemployment rate is somewhere around 9% or so, and it was trending upward since that last reading in January or so.

2007 seemed to carry a lot of the same load we have today. The surcharge of 08 was the ARMS and the surcharge of 09 is the unemployment problem, the second wave of Alt-A' resets and the difficulty to get a loan due to sellers who might be upside down or buyers that don't qualify with the higher standards.

I'm a big fan Baylor, but you have to ask yourself, how many people are feeling the brunt of this. To many others, they are cruising along with cost of living increases since 07 and people were buying in 07 and with more people with more buying power the question is the ratio of those with this new buying power versus those that are upside down. We'll find out soon enough. Not everyone is out of work and many are thinking about finding a deal while the tide is out because they know that their pickings might be fewer once things rebound.

I wouldn't rule out buying a major discounted deal that you'd be happy in for a while unless I believed that we were going to see an even worse collapse.

So, what do you think the unemployment rate will be in June in Mass?

I see this year as some people cruise right along, some people might get a salary decrease, and others getting hammered. Take for example this one school district. The union negotiated a 3 percent raise but the town wanted to level fund it. With wages representing 75-80% of the Budget, there isn't enough other stuff to cut to keep everyone. So essentially, some people will get their 3% increase and others will get laid off. Imagine that, both pay their union dues but one union member gets the benefit of the pay increase and because tha increase outpaced inflation and does not reflect the current market conditions others of their so called "brothers" lose their job. Again, both pay the same union dues but one wins and the other loses BECAUSE the other wins. My point is that although people are complaining that we're going to lose teachers and policemen, the OTHER teachers and policemen have MORE buying power.

[Guest]

I don't predict collapse because I think the Fed will gradually release mortgage rates. I think that the chances of a housing rebound in the next few years just became lower.

[Guest]

housing will not noticeably appreciate for 15 years minimum

give it some thought ..........

the worst time to buy a house is when interest rates are low

if you give it some thought, you will undrstand why

hint:


what happens to house prices when interest rates rise

[balor123]

That was the point that I was trying to make Lower rates are great for people who bought their houses when rates were high and can now refinance but bad for first time home buyers because they'll be stuck when the rates rebound. Maybe they'll stay at 4.5% for a long time but I don't think so.

[john p]

You should add the caveat that buying a house with a substantially lower price and substantially higher mortgage rate works out better for those that can put a decent chunk down on their down payment.

Mortgage rates don't hop up and down, it usually takes many years to see swings from really low to high. The question is how your game plan aligns with your time horizon for wanting to be established in a home. I think either you or admin suggested that you can establish yourself into a community and still not buy. It is kind of how you frame your strategy.

Do you guys think it is kind of surreal to see things playing out kind of like many of us are discussing? I grossly underestimated the magnitude of the impact of the subprime loans. On the one hand, I often scratched my head when I'd see all these people working blue collar jobs with new trucks, season tickets to the Patriots, adding on to their property, going to Disney, etc. I was working my ass off and was excited to scrape and save here and there and I was living very cheaply. I should have kept my eyes on the fact that many of the masses were in an unsustainable course. I assumed that the banks and lenders were watching out for their own interests and wouldn't allow mass amounts of risk. It angers me to think about how our own government told the banks to take on more risk for the benefit of those that couldn't afford to be in those homes. This in of itself has changed my political disposition. It's kind of like hiring someone for a job they are not qualified for, it is actually more painful to have wasted their time and have to let them go.

[Boston ITer]

[admin]

You were right, balor123:

http://www.bostonherald.com/business/general/view/2009_03_19_Mortgage_rates_drop_as_fed_opts_to_buy_debt:_Loans_tie_record_low/

[Boston ITer]

[john p]

this adds some historical perspective...

http://www.usmessageboard.com/economy/47013-the-users-guide-to-fiscal-calamity.html

[CC]

It's very interesting! I also read the following article and have few questions.

reuters: Fed plan may lower rates, but at what cost?
http://www.reuters.com/article/ousiv/idUSTRE52I7J420090319

I can understand the inflation issue in the future. But can someone explain:

1) why this will lower yields and also lower the mortgage rate?

2) why would Fed want to do that? The Federal Reserve is a Private Financial Institution. Does it get anything?

3) I am not sure I fully understand the system, though it looks like Fed gets money from US Treasuries and lend money to other banks or mortgage companies. Why would Fed buy treasuries? The interests return seems to be very low. Or they will resell the treasuries to someone?

Thanks!

[balor123]

Did they have a crystal ball when they wrote this?

[balor123]