bostonbubble.com

[admin]

[CL]

Admin - I think your buying strategy is sound. If I were you, I will add the cost of renting (expense) to compare to cost of buying (mortgage interest expense + potential loss + maintenance cost)

[DC2MA]

[quote="admin"]

[admin]

[CL]

Just my 2 cents -

Short interest rate, and to an extent long interest rate and mortgage rate, is heavily manipulated by Fed. While it is unwise to speculate what politicians will do, I think it is safe to say (judging from past action) that if Fed have to choose a mistake they will rather raise rate later than sooner (i.e. wait for the recovery evidence to emerge before raising rate).

I think the rate is going to revert up either through an economic recovery leading to inflation risk and Fed raising rate (not particularly imminent I think), or people start to dump long term T paper to seek more risk (not likely without a solid recovery). My point is that by design of Fed policy, I think rate will raise only after the economy (and to an extent, housing) is on very solid footing, and even than, they probably will act slow and late.

The world needs to be on a very strong growth mode and strong inflation backdrop for mortgage rate to come back to 7%.

[admin]

I think that's a plausibly fine first order approximation of how things might play out, though I would note that there are some other very major factors holding down rates, in addition to The Fed. Off the top of my head, I would also add that Euro area instability and high foreign investment by China are also factors substantially pushing rates down right now and which could also change independently from what The Fed would like. I would also count US political volatility as a risk factor (as you pointed out), as politics impact who is selected to run The Fed.

- admin

[john p]

My current thinking about the housing market is based on Archimede's Principle

http://en.wikipedia.org/wiki/Archimedes'_principle

Picture the value of a house or the housing market as a weight sitting like a ship on the sea of the liquid money supply.

When the vapor or derivatives wealth gets enough pressure, it trickles down and raises the water level of liquidity below and house prices rise as people get richer. As house prices go up, the weight of the market increases and prices weigh more pushing downward on and displacing more of the liquid below.

Now the Goverment is doing two things, first the FED is changing the properties of the water that the market sits on by changing the value of the currency by printing more and more money and the Federal Government offering first time homebuyer benefits as well as allowing others to refinance and actively pursuing policies which keep mortgage rates low is sort of like trying to fill a hot air balloon, so even though the water level might be losing it's density, they can change the weight of the housing market by lowering the cost of capital so the price levels can float in the atmosphere and be buoyant regardless if the water level is dropping.

It seems to me that the FED is sort of allowing the housing market to sit back on the water to see how much of a fundamental buoyancy it will have and how far it will drop acting on fundamental rule of thumb supports i.e. how would far would prices drop if people had to put 20% down and meet all the historical fundamental criteria. Then, after testing its buoyancy, it heats up the balloon through affecting policies that affect mortgage rates to supplement the value.

I look at the Money Supply like strata of density. Years ago, people could buy cars with cash, so that market rested upon the cash level of the money supply. Once financing was used for cars, it buoyed it to the derivaties level of the money supply and it floated above the value that would have been displaced by the density of the cash strata.

Overall, prices floated into the air of the derivatives atmosphere because credit was extended so far.

My question to you all is, given this analogy, would inflation be represented by the water evaporating or the water level going up?

I hope all of you are well!

[Guest]

Are you planning to update the chart for January 2012?

[admin]