Posted on 09/18/2007 2:43:25 PM PDT by Always Right
I all it less than confidence inspiring when the FED sees the need to drop interest by a full .50%. That tells me they had no confidence looking at the economy ahead. Why should we? Isn’t it somewhat unusual for the FED to make a cut this big?
Because prices will bottom soon and there will be fewer foreclosures. There won't be a bunch of cheap houses flooding the market. Truly a horrible day for those preaching doom and gloom.
Inflation + $ devaluation premium, I think. That will really do wonders for real estate.
I have no idea when you are planning on retiring, of course, but assuming your window is 20+ years I recommend the following strategy:
Take 1/4 and put it in a portfolio of 10 mutual funds.
Take 1/4 and put it in Goldman Sachs.
Take 1/4 and put it in gold and oil
Take the final 1/4 and time the gold and oil markets with it.
We don’t make guarantees in the business, but anybody who knows anything about investing understands that at the end of those 20+ years your total returns will most likely rank in the order that I have listed them. But good luck anyway, and have fun.
Prices will not bottom any time soon. How many potential foreclosures do you REALLY think will be affected by a 0.50% drop in mortgage rates.
Those who have no equity and are upside-down on their loan, still have no equity. That is why they can’t refinance. It doesn’t affect them at all.
Someone going from a 1.25% rate to 6.0% rate they can’t afford, probably can’t afford that 5.5% reset rate either. Without doubt there will be a small number of people who will JUST BARELY be able to afford to keep their homes who would have JUST BARELY been priced out of their home due to this small difference in loan rates. But to suggest that this 0.5% rate cut will save most of the people who have recieved foreclosure notices in the mail, strikes me as naive.
I think you are flat wrong in both your assertions that prices will bottom out soon and that this small reduction in the prime will save very many homeowners who have received foreclosure notices or who are arrears on their mortgage payments.
But to
This rate cut isn’t going to stop the exploding loans from resetting. And it’s not going to inspire the recently vanished CDO investors to start buying collateralized mortgages again. They have now learned how bad this paper is, and they aren’t coming back.
Bubbleland is still doomed. Get your popcorn and watch the show.
I see. That sounds similar to Friedman and Schwartz’s contention, but there’s no way to determine if it’s “the cause”. If I recall Friedman and Schwartz accurately they blame the Fed’s failure to provide liquidity rather than any tightening of the money supply. Considering that their work is “A Monetary History of The United States” I’d be inclined to trust their figures regarding monetary aggregates.
Schumpeter blamed arcane American banking laws that prohibited branch banking. This allowed thousands of rural banks to fail, collapsing the money supply by 30% in three years.
Austrian School analysts blame the prior credit expansion of the 20s, a credit bubble masked by an underlying price deflation. The Fed targeted interest rate and price levels and paid no attention to the amount of credit growth. Austrian business cycle theory predicts that credit expansions are vulnerable to equally large credit contractions.
You know, I rent a decent place for ~$875/mo. with decent neighbors in a decent place. Paid a little bit less 5 years ago when a condo I liked cost $175K. Earlier this year it was going for $475K in Santa Clarita. WHOA! That’s not worth it. So I plowed excess cash into my investments and they steadily go up. I could buy a place outright but why? 2 people can build up a whole lot of liquid assets without owning a property. And live well. And transfer to a new job in a month anywhere.
I don’t see how some people keep trying to marginalize the effect of all these foreclosures. People keep saying it’s only 2% of homeowners.
Seems to me when the Dot Bomb imploded, the techs were only about 2% of the market, but they dragged the entire S&P 500 down with them.
Another item that is getting lost in the shuffle: 2% of homes going into foreclosure have nice big neighborhoods that their drop in value drags down. If the foreclosed home sells for 20% below everybody else, it makes it pretty hard for Joe Neighbor to get much more on his house.
Finally, 2% of homes is just what is currently at risk. We still have 18 months of ARM resets to boil through, and who knows how many of those currently solvent homeowners will go into delinquency and on into foreclosure. Who knows, this could hit 5% of all homes when said and done. And the residual value on all those refinanced ATM homes that aren’t being sold will just slide down along with the foreclosed dogs.
Pass the popcorn.
I’m not really liking this because I don’t like to see people get hurt. But I value my own logic and like to see it confirmed. When homes double in value in 3 years when incomes are stagnant, it brings to mind the saying, “if it’s too good to be true...” I’m just looking for the order in the chaos, and I’m not seeing how home prices can stay where they are with incomes where they are.
Then there is my own selfishness. Being a renter sitting on cash, I’m hoping both homes and stocks plunge so I can get deals on both. But I admit that is just selfish and probably colors my outlook.
Bide your time until housing costs approximate 120 times monthly rent. That’s one ratio RE investors use for determining whether to buy. Prices in SoCal can easily get cut in half, and more. You will need a downpayment now that lenders are wising up. Just be patient and be picky. Renters are looking smarter all the time.
It's called "whistling past the graveyard". A lot of people are invested, psychologically and financially, in prices remaining where they are. Prices are going to return to tracking incomes and inflation. Which may be a bummer for those who bought during the bubble, or HELOCed themselves into debt hell.
The bright side is, they'll get to be renters, too.
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