60 minutes: Real estate bust #2 is on its way! (2013, mortgages, property)

[jdrtx]

Originally Posted by nicet4

The American people are paying attention to what is important; American Idol, Survivor and the latest news on Paris Hilton!

What happened to Paris?

[littlefamily]

My question is this.... If the problem with these loans is the resetting of the interest rates, doesn't it help for the Fed to keep the interest rates low? I understand that they are set to different key rates and being underwater on the loan eliminates being able to refinance, but shouldn't some of these loans reset to a reasonable interest rate? Maybe I am missing something....

[Lincolnian]

It would seem that if the Fed is successful in keeping the rates low through the readjustment period it would allow the rates to reset at historically-low rates avoiding potential rate shock over the initial ARM rate. However, the negative-amortization loans with 1% teasers cannot be fixed if the borrower's income can not support market rates. This is assuming that the borrower actually wants to stay in the house and live up to his/her contractual obligations. Since many homes are underwater it has become very popular to just assume a walk away attitude as if positive short-term appreciation was guaranteed.
If one is gainfully employed and their investment in their home is underwater they should be held liable for the debt. Too many people are walking away because they want to move, would like to pursue a better job prospect, or feel that their mortgage is eating up too much of their disposable income limiting their ability to enjoy a less burdensome lifestyle. These are not reasons for not living up to one's obligations.

[texdav]

The fed is doing just that because their sop called plan on housing is going nowhere. We indeed could see rates drop or saty the same.I reaslly thnik taht there is nothing anyone can do about people walkig away because they have no income;what is expected;for tehm to wait for foreclosure?People will do what they have to to survive juts as businesses wiull and that includes bankrupsy if needed which is a way of walking away.

[JMadison]

Originally Posted by banger

Look everyone,

this topic has been bounced around, fluffed and sugar coated many times.

It all comes down to the fact that too many people over bought their homes !!!!

It is every bit this simple. Those who bought what they could afford are fine, those that over bought are defaulting.

Whose fault is this, certainly NOT MINE.

Apparently, the NEW concept of justice is that I can afford mine, so I should have to pay for theirs also.

If you can "saddle" me with enough debt to make me fail also, than those who over bought will be able to feel better about themselves.

Fuzzy logic !!!!

I agree with your sentiments except for one thing...

The alleged financial experts that were making the loans are the ones that should've have not allowed the little people to take on too much debt. After all, they were supposed to be the experts.

The little people over bought because alleged experts told them they could, and that they could earn some $$$ doing so. You know... that prices would continue to rise and that you could sell just before the rate reset and take in some profit, etc.

So in the end the blame really has to be placed on the financial sector, IMHO. After all, was it not AIG that ended up not being able to pay off the Credit Default Swaps it issued?

The pros overextended and talked all the rest of us into it too.

As for me I didn't get into any of this situation. I kept saying, "by traditional yardsticks, that you can afford a house 3x your annual income, I can't buy at the moment and don't know when I will ever be able to if I want a decent house. Everything I can afford sux, and everything that I think is even marginally middle class looking take 2 to 4 times an average income to buy!"

So essentially I was priced out by my own conservatism. But screwed by the meltdown as a whole, because of course, when it all melted down, revenues across the board dropped and layoffs ensued.

So the "pros" essentially screwed us all by creating yet another bubble that everyone took as "normal".

Folks keep talking about a recovery. IMHO that isn't coming... because we are in a *correction* to a *bubble*. You don't *recover* to *bubble* levels. That is if we agree that *bubble* levels means irrational levels.

Of course the question of what is the correct price for anything, is something that economists have debated ad nauseum for ages and there are as many theories on that as theorists.

[JMadison]

Originally Posted by tallrick

I wish I could convert my savings into a few thousand barrels of oil and sit on them for one year to make a killing at resale time. Nobody ever believed me when I said that a real estate bubble was the first sign of economic collapse. Residential real estate does not produce anything, therefore it should never increase in value, only depreciate. You lose money every year in property taxes, so real estate is always a loser unless it is used for farming, mining or manufacturing.

This point is debatable from a supply and demand perspective.

As the number of people goes up, the amount of land per person, on average, decreases. So you could say that the supply of land is fixed, while demand is increasing, thus the price of land should go up.

Then there are other factors, such as location as well. As desirable locations fill up, the demand premium will increase, perhaps even exponentially in some cases.

Bear in mind there is more than one accepted theory of value and price. Many of which have some grain of logic in them.

[baystater]

What the Fed's Decision Means for Mortgage Rates - Yahoo! News (http://news.yahoo.com/s/usnews/20090625/ts_usnews/whatthefedsdecisionmeansformortgagerates - broken link)

1. Mortgage rate trends: Thirty-year fixed mortgage rates plunged to new lows after the Fed announced a series of initiatives beginning last fall, such as purchasing Fannie Mae and Freddie Mac mortgage-backed securities and long-term treasury bonds. But late last month, rates began to spike, surging from 5.03 percent on May 26 to 5.81 percent on June 11, according to HSH.com. The run-up was sparked by mounting concerns over government spending and potential inflation, which pushed yields on 10-year treasury notes--which fixed mortgage rates typically track--sharply higher. More recently, rates have retreated modestly, hitting 5.59 percent yesterday. Still, they remain significantly higher than the all-time lows of less than 4 percent reached during the winter

.


While in the short term, I think we are in a major bout of deflation/deleveraging which will continue to drive down the price of most people's biggest asset (their house). Long term because of the major liquidity push by the fed/government I think longer term we are going to get hit by moderate (not severe ) inflation. which will may/probably lead us into a era of stagflation until the mid or end of the next decade. One good thing though. At least housing prices will probably remain reasonable for a long time. This will allow X'er on down the generation line to be able to afford a place they can raise families.

2. Treasury yields up slightly: Ten-year Treasury yields stood at 3.69 percent late this afternoon. That's up about 0.12 percentage points from before the Fed's announcement, according to Mike Larson of Weiss Research, who called the move "a fairly large intraday reversal." Larson said the increase in yields was linked to disappointed bond traders, who had hoped that the Fed would explain how it planned to one day exit its lending and liquidity programs. The statement, however, made no mention of unwinding such initiatives.

Think the traders are going to be disappointed for awhile yet .

3. Fed intervention: Back when rates were approaching the 6 percent range, some observers believed the Fed might decide to jump in and unveil plans to buy up additional treasury debt or mortgage backed securities in an attempt to drive long-term rates lower. But expanding the asset purchase program is risky, as the additional government debt needed to finance such purchases could stoke fears of future inflation and actually prod mortgage rates higher. But the Fed made no mention of expanding these programs in today's statement. "This indicates that the committee will now wait and see how the implemented monetary (and fiscal) policies will work out and that it will likely refrain from expanding the existing monetary policy programs designed to bring down long-term interest rates, unless the economic conditions take a turn for the worse," Katrin O'Connor, a staff economist at the National Association of Federal Credit Unions, said in a report.

Hey there's an idea. Actually sitting back and waiting to see if the programs that you put in place will actually work. Instead of jumping to on panic strategy to another. what novelty!

4. Rate hike: Although there had been some speculation that the Fed might begin increasing its benchmark interest rate--the federal funds rate--before the end of the year, the central bank's statement appears to indicate otherwise. The Fed "continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period," the central bank said in its statement. Keith Gumbinger of HSH.com says the Fed's statement signals to the market: "Forget about rate hikes; they are not coming [anytime soon]." Although mortgage rates don't move in lock step with the federal funds rate, increases can push rates higher. The American Bankers Association's Economic Advisory Committee--which is made up of top economists from big banks across the country--predicted in mid-June that the central bank will hold the federal funds rate in its current range until the third quarter of 2010.

As the old song to goes. Mo liquidity, Mo problems.

5. Inflation in check: Although the possibility of a future surge in inflation has worked to push 10-year treasury yields--and therefore fixed mortgage rates--higher, the Fed signaled it doesn't consider inflation a pressing concern. "The prices of energy and other commodities have risen of late," the Fed said in its statement. "However, substantial resource slack is likely to dampen cost pressures, and the committee expects that inflation will remain subdued for some time." The Fed's inflation outlook gives credibility to its stated intent to leave the federal funds rate "exceptionally low" for a long time and could help to assuage concerns about future inflation in the bond market.

CREDIBILITY!.................

6. Fed flexibility: While it didn't announce plans to expand its asset purchase or lending programs, the Fed did signal flexibility in operating them. "The committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets," the statement read. "The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted." Gumbinger says this wording suggests that the Fed might not end up buying up all the treasury bonds and mortgage-backed securities it previously indicated it would. "It leaves open the possibility that they might not even spend all of the money they have committed to [the asset purchase programs] if the economy doesn't warrant it," Gumbinger said. "That eases up the concerns about the monetization of debt and the potential for inflationary pressures being stoked by that."[/

..............Hey the fed might actually do something right! Granted, I'll actually have to see the fed's actions but if Mr Gumbinger is right, then we the fed might actually avoid a major (severe bout ) of inflation longer term. (back to comment #1)

7. Mortgage rate outlook: Larson says that although 10-year treasury yields moved higher following the Fed's announcement, it's still too early to tell what impact today's developments will have on mortgage-rate trends. "A lot of times it kind of takes 24 to 48 hours to sort out what the trend is going to be--the first 15 minutes after the Fed's announcement is typically pretty crazy," he said. "[However,] by the end of the week, if we are still selling off in the bond market, then you are going to see more upward pressure on mortgage rates."

We shall see.

[shiphead]

Originally Posted by zman0

What is a "decent" home? 3 bedrooms/2 baths? 4/4? 6/4? Finished basement? Granite countertops, stainless steel appliances, and hardwood floors throughout?

What is a decent home? A good home is a place where people don't make money off of the place they live in.

A good home is made of brick, does not leak, has running water and a proper toilet. The roof does not leak and the house isn't falling apart after the first two years it is built. The floor could be a slab for all I care. There are places like this in Texas, that are affordable, but i don't care too much for Texas. And why do I have to be forced to live in Texas? Sorry to all you Texans.

The problem is all these people are treating the place they live like a commodity and not a necessity. A home keeps you safe and comfortable. Not rich and greedy.

I'd love to grow a 3D farm in my backyard, but im stuck in an overpriced apartment because I don't know if i can get a job at wal-mart since the corp i worked for finally is laying off people.

[darstar]

Houses and cars are not that far apart in price these days .....and , your car is paid off in 4-5 years !.....so should be the house. I am sorry , but , a house is not always a " home" , as it used to be, when people paid cash for it , or , had a very small mortgage. besides , people move a lot , more so , than " adding on" , or trading up with equity only..........so goes the neighborhood. You can't chose your neighbors , nor your relatives , unless , you live in a Motor home.

[baystater]

‘Underwater’ Mortgages to Hit 48%, Deutsche Bank Says (Update1) - Bloomberg.com