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IMO: High cost f housing and rents a result of supply and demand due to manipulation by banks and government. Do you agree or disagree- and why?
AGREE! The Fed's low interest policy has created an effect in which just about every home owner has refinanced at the lower rates so in order to move would mean paying a higher interest rate hence a higher mortgage payment so many are not moving creating a shortage in supply. The low interest rates has caused many investors to purchase properties which are rental income so they are not selling either creating more supply issues. The Fed has been creating these boom to bust- distortions for many decades and eventually will find that when the next recession/ depression occurs there will be no further levers to use to "bail out" the struggling economy. Real growth will have to occur to earn the recovery.
The upshot? With unbelievably restrictive lending requirements and most contractors prostrate, it became much harder to build.
Risk is dependably under-priced in good times and over-priced in bad times. Banks et al. set their own lending standards. Attempts to shift blame away from such are futile.
The Fed's low interest policy has created an effect in which just about every home owner has refinanced at the lower rates...
Many of the smart ones were able to refinance more than once. There isn't much of a down-side to free money after all.
Quote:
Originally Posted by oneslip
...so in order to move would mean paying a higher interest rate hence a higher mortgage payment so many are not moving creating a shortage in supply.
Refi's carry a market rate just like standard sales. The difference against a standard sale is that in the case of a refi, the buyer and seller are the same person.
Current dollars and future dollars are not worth the same thing. With a 15-year note, you pay more per month over a shorter period of time as compared to a 30-year note. It is not certain that this front-loading of outlays will be to a borrower's advantage.
Considering that the typical lifespan of a mortgage is well less than 10 years, it might be that simple cash-flow would be the appropriate measure to look at in any case.
There's no doubt that the longer mortgage will result in John Q. having more money in his pocket as a new buyer, but people who make mortgage payments their whole life are just glorified renters. A common claim is that if you can invest the difference. That is the party line of bankers and investment counselors who want to pick your pocket. What you are really doing is borrowing money that you don't have to speculate, while the people loaning you the money are investing in a sure thing. If the markets go south, you are the one left holding the bag.
At the height of the housing boom, I consulted for twenty different real estate developments, ranging in size from 30 homes to 2,000. In 2006, when the FHA yanked the rug on jumbo loans over $300,000, I immediately began counseling my clients to quit building. But developers are not exactly long-term thinkers. Only one of them trimmed his sails, and he's the only one still in business today.
While the revision of lending requirements was justified, Dodd Frank swung the pendulum too far in the other direction, choking off commercial lending to almost all large clients. Case in point? My wife is CFO for a large commercial real estate firm with a sterling credit record, and even they were having to jump through unbelievable hoops to get financing, forcing them to pay down loans according to the arbitrary whims of Federal bank regulators. So you can imagine how hard it was for your garden variety contractor to get financing for his 20-home development, no matter how good the demographics looked. Keep that in mind when you read a column by a financial writer wondering aloud how come historically-low interest rates did not juice the economy. A low interest rate does no good if the bank won't actually lend you the money.
The upshot? With unbelievably restrictive lending requirements and most contractors prostrate, it became much harder to build.
Excellent point. Some years ago I was refinancing to lower my mortgage interest rate 2.5%. I went to Wells Fargo and they wanted me to jump through all sorts of hoops, including sending out a husband-wife appraiser team that was straight out of American Gothic who appraised my home at less than 50% of market value. I got tired of their BS, so went to a mortgage broker, who took our credit rating and financial statement and said, "OK." Ironically, six months later they sold the mortgage to Wells Fargo, who ended up dropping our interest rate another percentage point to discourage churn. Many times, banks are not a good place to borrow money.
A common claim is that if you can invest the difference. That is the party line of bankers and investment counselors who want to pick your pocket.
Real return on the S&P has been 7%/yr since 1950. It doesn't take any more smarts or discipline than making house payments. Plug that number into your calculator when comparing 15 yr loans vs 30 and see what you come up with.
There's no doubt that the longer mortgage will result in John Q. having more money in his pocket...
No wonder so many John Q.'s prefer it. From a consumer standpoint at least, it's really a shame these days that 40-year mortgages are not more common. Especially perhaps in some of these West Coast areas where so many complain about affordability
Quote:
Originally Posted by Larry Caldwell
...but people who make mortgage payments their whole life are just glorified renters.
Glorified renters who exercise all the rights of ownership.
Quote:
Originally Posted by Larry Caldwell
If the markets go south, you are the one left holding the bag.
Only in the event that you are somehow forced to sell.
A sane person would not be apt to assume more than a net real rate of return of 2% on his investments going forward. After all, the last person you should try to fool is yourself.
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