Quote:
Originally Posted by Philip T
There is more to this.
First, stated interest rates could stay Zero for a decade and make no real difference. As is, the big banks (the only ones we really care about), get to charge 30% on consumer credit and there is something like a Trillion plus of that out there for them to gorge upon.
Even housing -- which as you have observed is a make believe price driven by whatever monthly payment can be derived from it -- has make believe elements to it. That is what drove the housing bubble. A low monthly payment by whatever fake cause -- at least for the first year or two, and the loan would be approved for whatever crazy total number was attached to it.
Nothing is stopping all that from going again. The only thing that shut it down was some started to come due at the higher re-set rate and higher monthly payment, and the banks started running short of fools to sell the bad mortgage packages to.
Housing prices will come down (more) when the banks have off-load the 7 million or so units they are sitting on while pretending their asset value is worth more than it is. The banks are avoiding doing that because once the true lower values are factored in the banks are worth a whole lot less, and some will go under. Meanwhile they are sitting on the REO (real estate owned) and trying to cover themselves by screwing anyone/everyone else.
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Indeed. But there's no denying the primary correlation in the US between pricing and housing demand is
interest rates. The reason for this is simple. Americans are, demographically speaking,
a country of cash-broke FICO addicts. All their buying power is derived by how much they can actually borrow. Talk about an oxymoron. I'm rich because I can borrow a lot
. We're THAT broke of a collective. This also removes the income level of differing social groups out of the equation. They too will be stretching their budget and spending money they don't have, just in a different scale.
When none of the people in your open house have a real penny to their names (again, this has nothing to do with these people's monthly income), you're not in the driver seat anymore. The Fed determines what you get for your house, period dot. That's the American housing market in a nutshell.
The idea of using the paper wealth of a previous house to afford the new one is further indication of the cash-broke nature of Americans, which is also evidence of the wage erosion and diminished purchasing power that has gone on covered-up by credit easement in the past 30 years (to include the emergence and acceptance of dual-income households when measuring purchasing power).
So yes, give me low purchase price at high interest rates any day of the week and twice on Sunday. People who understand the dynamics want this. It's just like health insurance. If an MRI didn't cost a small car I wouldn't need insurance in the first place. Likewise, if houses were in line with real material income I wouldn't need to borrow jack chit to afford the roof over my head. But the peanut gallery hates that idea because it uncovers how broke they really are and it puts their faux wealth at peril since interest rates can ONLY go through the roof (driving asking prices down, thence their equity goes POOF) when they're sitting at 4-5% for a long time. We just don't want to take our medicine. It will happen regardless.
I long for the day where a median income earner can afford the national median house price. That'd be the ticket. Alas, that's another thing we got going against us. The dual income household. Talk about being job-st00pid. This country believes that the solution to a diminished purchasing power lies (complete with disconnected social moral adjudications) in tacking on a second and third Taco Bell job, and put the house cat on the payroll too for good measure. Even on these boards you hear the asinine "get a second job maaaann.." from the frugality nazi youth in here. Like tracking backwards while rowing foward on a canoe....
You don't get ahead working 11 jobs like a scheming Jamaican, you just die tired and get less time to do things you actually went to work for in the first place by doing so. Maslow's pyramid at work.
Everybody swears up and down their housing market is different, and that everybody lives in this cash-rich homogenic sea of smiling faces and white picket fences. It's a fantasy. The house I'm sitting on went through three contracts in six months because the 3 couples before me fell through on financing. I rest my case. The sellers were so tight after losing one job from the couple, that they had to unload a 115K house. A 115K house on two incomes? Are you kidding me? I almost felt bad for the saps. I pretty much did them a favor by purchasing for what they paid for it while they went easter egg hunting with grandma, the girls scout and put the wife at the corner trick spot, to come up with half my closing costs and the 6% skim their bookies wanted out of the deal (the RE agents, fat bastards..). Their settlement costs were about half mine, and I was the one putting a downpayment for Christ sake! Housing FAIL for those two. You bet they're renting today. Conversely, I stand to lose my behind on the house once the interest rates go sky high. That's ok by me 'cause Obama put my downpayment for me (thank you tax payer) and a 110K will simply not devalue much more since it bumps up against mobile home market, effectively setting a price floor. But I ain't making money off the deal, and that's OK by me. But it's NOT OK for the peanut gallery who bet the farm to get the biggest and baddest their FICO scores could afford them. They stand to lose their azz. So watch another wave of price resets when the Fed finally can't afford to prime the pump any longer without outright causing creditors from dumping the dollar.
Low price, high interest. That's what you want out of housing. Where do you think those self-righteous baby boomers are coming from when they talk about "well, I had 20% down when I bought my first house bla bla bla"? They're talking about double digit interest, which afforded them CHEAP housing, and the avoidance of the factoid that 20% of a jack chit purchase price back then was still.....um, about jack chit. And they made more than today's age-equivalents adjusted for inflation. And then they rode this credit bubble for two decades and sold when all the FICO addicts could command the kind of jack these folks were demanding out of their houses. Not so uphill both ways now was it?
Winner winner chicken dinner for them and the buyers get to hold an empty bag when they realize low interest rates mean diddly squat when the average american household unloads properties in 9 years and the average private employer tosses you out like garbage every 5-7 years. We deserve what we get, honestly.
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