Posted on 11/20/2005 12:23:42 PM PST by ex-Texan
Excellent warning! I know you have become unpopular with some people for beating the drum on this topic, but I think you will be proven to be on the right side of history..
Reno area is much more FReeper friendly, especially home prices, which are still affordable. Good luck there. My FReeper friend writer33 and his wife live there.
Congress will be called upon to bail out the people that took the "interest only" loans in order to buy more house than they could normally afford. Just watch!
I was gonna say something, but you beat me to it : )
"Excellent warning!"
Well, if you feel the need to counter the risk you perceive, just don't hand your money over to the hack that wrote this, then.
Anybody who is thoroughly freaked out about the bubble thing should go to Everbank.com and open up a CD denominated in Swiss Francs, a gold-backed currency.
At least you won't be paying commission to some fear-mongering @-hole who's fanning the flames for his own benefit.
But, to complicate matters for the dollar-collapse crowd, the dollar has been rising of late. This will eat into any putative return you might make on any foreign currency denominated account. Sooner or later, the dollar will ease again, which would increase the rate of return, provided that the currency you chose remained stable or rose.
And, no, I have no affiliation with Everbank. I do have a couple of CDs there, including one denominated in Swiss Francs. Just in case the you-know-what ever really does hit the fan, lol.
Even if Congress can bail out the interest only people, at this stage of the game our entire economy is so dependent on real estate that a major recession may be inevitable. That's what most people overlook, the impact on the economy.
What's this guy talking about? Loans over 80% have been routine for decades. Even ignoring the obvious example of FHA loans, 81% - 95% conventional loans with PMI have been a huge portion of originations for at least 25 years.
Anybody who still has an ARM in the present environment of unbelievably low fixed rate mortgages deserves what they get. There is no excuse.
I suspect that housing price rises have been closer to the inflation rate than officially shown. The average rise in the price of gold is a pretty accurate measure of the rate of inflation. That shows a doubling in maybe 6 years.
The official CPI removes inconvenient factors by being re-presented as the "core" rate of inflation, i.e those prices that are rising faster than the desired pereived rate are removed from the calculation. Oil and housing are thus not included. That's like in a famine saying that all-in-all people are healthy and happy as shown by the "core" rate of health because food availability has been removed from consideration due to its abnormal situation.
The 500K tax exclusion added at least 20% premium. This analysis ignores that.
In the past 25 years, someone taking a variable rate loan has not had to pay a rate higher than he would have under the fixed rate at the time he took the loan.
There is a premium paid for the security and the market prices the fixed rates above the expected future variable rates.
In other words, fixed rates are for suckers.
"81% - 95% conventional loans with PMI have been a huge portion of originations for at least 25 years."
I bought my first house in 1993, with a "sweat equity" down payment equal to 5%, with closing costs paid by the builder. It took five years to get rid of the PMI. Even with PMI, it was still cheaper than rent. I've got around $90,000.00 equity in it now, even though the market in my area was flat for three years, 2000 - 2003. Not bad for no money out of pocket.
Nope. I bought my two houses at sane prices with good, old-fashioned, 15 year fixed rate loans and I no longer have to worry about such matters.
Three million home owners with ARM loans just got a BIG surprise in the mail.
That's nothing compared to the orchietomies that those who have stretched their budgets to buy over-priced real estate with Interest Only loans will get when the "interest only" grace period expires.
You're right - and if they flip after two years (this might have changed again) the profit isn't taxed. The money can be invested. When (or if) the housing market slows, the interest only loan can be switch to a fixed rate and the "renter" becomes a home owner in 30 years... Looks like a win-win to me.
The economy is doing great.
The housing bubble is a separate issue that will explode in the face of a certain percentage of Americans who made foolish decisions.
Wanna buy a Beanie Baby for $25,000?
Well, I've only been in the real estate business, including as a broker, owner of a mortgage company, appraiser, secondary marketing, (including sale of mortgage-backed securities and servicing), and every other aspect of the business for over 30 years. Enlighten me some more. Especially the part about how having an adjustable-rate loan is smarter than taking a 30-year fixed-rate loan (presently around 5.5%).
"In other words, fixed rates are for suckers."
That was true when interest rates were stable or declining. It's not true now, when interest rates have risen a full point in a month's time, with further increases anticipated.
House prices are ultimately determined by how much the buyer can afford to pay per month.
The drastic lowering of that payment with "$0 down/interest only" gimmicks, has allowed sellers to charge highly inflated prices that the buyer will not be able to afford once the grace period expires.
If you like their house, save up your cash for the day the "interest only" grace period ends and they are forced into foreclosure.
We're all going to be eating dirt some day.
Try and enjoy the ride until then.
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