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Fishordie and others,
After a few years, all the people whose homes were foreclosed will become eligible for FHA homes loans. These people will be considered as first time home buyers and will be eligible for minimum down payment. When that happens (3-5 years), will that make the housing market return to normal? What is you opinion on that? Thanks.
Hi PB,
The question is an interesting one however there is one very large fly in the ointment. On the surface this scenario appears to lead one to believe the market in 3 - 5 years could once again be filled with qualified buyers looking to purchase a home. Ahhhh but is that really a true scenario??
The answer to this question lies in how one believes the Fed will continue handling the rate the Federal Government charges banks when the lender borrows money from the Federal Government which in turn was to be used by the banks to lend to individuals, corporations and other entities. As you may know the real use from some of these Federal Government borrowed funds after De-regulation was to invest in derivatives and other highly speculative loans in order to obtain the maximum return for the banks. When the stock market took a dive and the housing market tanked we saw the Too Big To Fail fiasco where not only were big banks lent large sums of monies under the Tarp Bail out but the Fed lowered the discount rates the government charged the banks to almost zero percent interest. This so called Stimulus was the Feds attempt to bolster the real estate and business markets as well as provide additional investment monies to the banks to keep them afloat. For those who could qualify this led and still leads to incredibly low interest rates on home loans. However, though we may be seeing a stabilizing and even price increase effect in some real estate markets the majority of the market is still fairly weak. This perceived weakness in the market has been noted by the Fed who in turn noted interest rates would be kept artificially low at least until 2014. What is most interesting is the Federal government relies on some reasonable rate of return on these monies loaned to banks but is receiving almost nothing at this time and for the last several years. Thus, in most economists minds including mine, this is a very, very artificial interest rate that cannot be maintained at these low levels. It is plain to see the government is in very bad need of money and this historic source of revenue and the issuance of Government bonds for the government will need to once again be a source of revenue. This means interest rates the Federal government charges the banks must increase to normal historic levels which in turn means higher home loan rates from banks to borrowers not only in the home buying market but on across the board loans. Additionally Government bond interest rates will need to rise in order to get investors to start lending to the government again. What is really interesting is the Fed (Not the Federal government) is largely overseen and owned by....... Banks. Imagine Federal Policy regarding interest rates, Treasuries, etc. is largely made by.... Banks. Hmmm Banks lending to banks lending to banks and lending to the Federal Government (Including non American Banks) at ridiculously low rates....Makes for an interesting read.
As a note the real issue about the Fed which is different from the Federal Government is the policy created by the Fed is what drives interest rates on Federal borrowing or borrowing vehicles such as Treasury notes and Treasury bonds. How the two entities borrow and pay each other is fascinating and alarming. I won't get into how this all works but it really is an interesting discussion.
Now, knowing we still have a fragile home market (Other than the low end rental market I talk about all the time) even with this artificially created low interest rate scenario trying to stop the slide of prices in real estate AND increase borrowing for other uses such as hiring or increasing production rates in businesses (Also very fragile) the big question is what will happen after 2014 should and when the Federal government through the Fed start to once again earn a reasonable revenue from lending money to banks by having the Fed raise interest rates to the banks(Discount Rate) which in turn raises home loan rates. Here in lies the conundrum the Fed is facing every day
as should interest rates be raised we will undoubtedly see another slide in the prices of homes and less borrowing overall creating more foreclosures as old loans go further under water and new loans start to be under water. To say all this artificial rate setting has put the real estate markets teetering on a cliff would be an understatement.
It's funny, even if we saw a 1 percent rise in the discount rate and a 1 - 2 percent rise in home loan rates borrowers would still be in a historically low interest rate position as far as the percentage the borrowers pay in interest. However, we Americans perceive any rise in interest rates as a negative situation and will adjust for that negativity by offering less for the homes in question. As interest rates go up our ceilings on what we pay for goods and services, including homes, goes down. This is because unlike the Federal Government borrowers must actually, at some point, be accountable for bad borrowing practices as unfortunately borrowers cannot simply print more money. I say this somewhat tongue in cheek as at some point even the Federal Government will have to pay the piper for its over spending and over printing of money but that is for another discussion.
Thus, your time line of 3 - 5 years may just exceed the time line for the Fed to be required to raise interest rates which in turn could result in another down turn in the markets as though those whose credit will now be cleared up they borrowing power their incomes will allow will be lessened especially in the Real Estate Market. Also remember the ease of borrowing policies which were one reason the real estate market saw such a huge up side then giant slide when borrowing policies tightened may still be in this money tightening position. It is possible borrowers will actually have to qualify for the loans they receive... Gasp....leaving many not in a position to purchase the homes of their dreams until prices fall again. In a supposed free market society when any entity attempts to artificially control how the markets interact we have some form of financial chaos and that is where we find ourselves. Another interesting point is what is good for the masses is not good for the government. Lower home prices and lower interest rates are great for the masses but lower prices of homes yield lower property tax revenues for State Governments and lower income for banks due to lower interest rates. Gee, in a Bank Driven normal economic climate just how long do you foresee interest rates staying this low??
Finally, the term "Normal" as it applies to real estate needs to be defined. Normal to me means how the markets would react without intervention from the Fed. To me this means the prices of homes still have a ways to fall to get back to a real value unless the fed continues to artificially keep interest rates low which in turn places the U.S. in a precarious position in the world economy as the value of our dollar gets crushed and the national debt continues to rise. Ahhh what a tangled web we weave.
Hey you did not expect a short answer did you?? LOL
FOD
Last edited by fishordie; 08-07-2012 at 09:47 AM..
I dunno what you're talking about "gasp borrowers will have to qualify". They have to qualify today. Qualification standards are already pretty strict. Yes there are FHA loans available with a low down, but you still need a documented job/income and some credit. Stated income and no doc loans simply don't exist any longer.
BTW, the 3-5 years out is already here. People who were short selling in 2009 can buy today. Plenty of people were already short selling in 2009.
Quote:
Originally Posted by fishordie
Hi PB,
The question is an interesting one however there is one very large fly in the ointment. On the surface this scenario appears to lead one to believe the market in 3 - 5 years could once again be filled with qualified buyers looking to purchase a home. Ahhhh but is that really a true scenario??
I dunno what you're talking about "gasp borrowers will have to qualify". They have to qualify today. Qualification standards are already pretty strict. Yes there are FHA loans available with a low down, but you still need a documented job/income and some credit. Stated income and no doc loans simply don't exist any longer.
BTW, the 3-5 years out is already here. People who were short selling in 2009 can buy today. Plenty of people were already short selling in 2009.
Jeff,
I think you need to re-read the link you noted. It actually bolsters my points and position in just about every paragraph. You might also see the majority of the T-Bills were purchased by dealers. Just as importantly read on in your link to note how the market really feels about these safe havens. Remember, Tbill participation tends to reflect the attitudes and concerns of the buyers as it relates to the health of banks, other investments as it applies to cash and or the economy. Your article actually discusses that issue.
As far as qualifying I see you have failed to notice the presence, once again , of no document loans (Not having to verify income). In fact they are out there and being used again. Perhaps you might perform a bit more due diligence. This is a short term ruse to try and stabilize the market. Perhaps you read about the ruling about the government not going to force or finance the reduction of outstanding home mortgage balances to qualified borrowers who have not paid their mortgages even though the current policy makers offered to pay over 60 cents of every dollar lost to the banks should they lower these balances (That was cancelled by a smart independent analysis). The results of this ruling should be fairly gruesome as it applies to new foreclosures by banks and homeowners who were waiting for a more positive ruling. Perhaps you have overlooked government programs to help buyers get back into the market, reduce their mortgages or newly get into the real estate market. Not everyone can qualify but these programs are out there and are very attractive but again are very artificial in nature.
What is really disconcerting is the number of programs out there once again allowing for minimal down payments on FHA type loans. Even folks with short sales in their histories can qualify 2 or 3 years after the short situation. Imagine, should the markets go down again how quickly would these same folks opt out of paying their mortgage if they have so little skin in the game and have benefited previously from the short sale and or non payment of mortgage. Please do not fool yourself, these programs are the result of real government concern for the economic health of our country and for the health of our real estate markets. Why else would the government once again risk your tax dollars on such iffy programs.
And yes, some folks who ended up in a short situation can now purchase again. The guidelines are fairly lenient as to how credit is and was effected or the ability to obtain FHA loans or other loans. A real issue is those same folks lost any and all equity they might have once had in their short sale. Most folks in those situations also had other outstanding debt be it credit card, car loans or ???. Many of these same folks lost large portions of their retirement portfolios in the stock market and no longer have a reasonable down payment. As I noted above not having much skin the game for these folks is just a recipe for disaster. I do not believe a large segment of the home buying population will come from this group until prices really drop significantly. But that is just my opinion based on a fair amount of factual evidence readily available for reading.
Yes, it is very attractive to pay such low interest rates on home loans today. In many cases your mortgage, taxes and maintenance could be less than the rent you would pay. However, nothing is free and the downside risk to owning properties which cannot yield a reasonable ROI must be taken into consideration unless you can predict the future and know for sure you will not have to move in the next 10 years.
However, this is the way you feel so as always we can agree to disagree.
FOD
Last edited by fishordie; 08-07-2012 at 11:39 AM..
The low end of the market has actually dropped a little since January. But the high end continues to increase in price..and has pulled the overall average and medians up. The price is flat to down a little below $75,000 and up increasingly as you go up toward half a million.
There are less than 400 foreclosures, less than 1000 shorts and 3000 classics in the inventory. Volume appears to be dropping The list prices on all categories is well above the price at which the category is selling. But the ones that are selling are pretty much getting list. This would lead to expectations of increasing price or dropping volumes or both.
GLVAR numbers for July will be out today or tomorrow. I would expect increases in both median and average and lower volume.
The Las Vegas real estate market is not comprised of 20-30 year olds (which normally accounts for the bulk of home buyers), it's predominantly investors and retirees. I wonder, if and when they decide to sell who will be buying(?)
When it comes to settling down, the younger generation will be seeking areas that are safe for their children and offer amenities like decent schools and of course the number one attractor... jobs! Can Las Vegas provide these things? Will they be available in 2-3 years? What about reduced tax revenue, how will this impact public services?
The real reason that the Govt. mortgage giants have refused to consider principal reductions is because the underwater loans are not evenly distributed. FHFA data points out that 70% of homeowners who are underwater reside in one of ten states but these ten states only account for 39% of the U.S. population. The FHFA does not view it as a "national" problem.
The states suffering will just have to suck it up.
My sense is that there will be more price erosion in Las Vegas.
The Las Vegas real estate market is not comprised of 20-30 year olds (which normally accounts for the bulk of home buyers), it's predominantly investors and retirees. I wonder, if and when they decide to sell who will be buying(?)
When it comes to settling down, the younger generation will be seeking areas that are safe for their children and offer amenities like decent schools and of course the number one attractor... jobs! Can Las Vegas provide these things? Will they be available in 2-3 years? What about reduced tax revenue, how will this impact public services?
The real reason that the Govt. mortgage giants have refused to consider principal reductions is because the underwater loans are not evenly distributed. FHFA data points out that 70% of homeowners who are underwater reside in one of ten states but these ten states only account for 39% of the U.S. population. The FHFA does not view it as a "national" problem.
The states suffering will just have to suck it up.
My sense is that there will be more price erosion in Las Vegas.
Tax Report for May 2012 - Last available.
Statewide Sales Up 10.4%
Clark County Sales Up 10.0%
Washoe County Sales Up 4.9%
Merchant Wholesalers – Durable Goods Up 13.7%
Motor Vehicle and Parts Dealers Up 20.8%
General Merchandise Stores Up 6.2%
Clothing & Accessories Stores Up 8.9%
Food & Beverage Stores Up 11.2%
Home Furniture and Furnishings Up 3.5%
Accommodations Up 87.9%
Food Services & Drinking Places Up 7.8%
Does not sound to terrible does it?
Picked up a new client this afternoon. 19 year old marrying a 22 year old sailor in September. Looking for a place in Providence...$150,000. VA Betcha $50. they have one before they get hitched...
I dunno what you're talking about "gasp borrowers will have to qualify". They have to qualify today. Qualification standards are already pretty strict. Yes there are FHA loans available with a low down, but you still need a documented job/income and some credit. Stated income and no doc loans simply don't exist any longer.
BTW, the 3-5 years out is already here. People who were short selling in 2009 can buy today. Plenty of people were already short selling in 2009.
I agree with FOD, those record low yields on treasuries are troubling and investors are behaving like economic growth is in real trouble (Euro collapse and return to individual currencies?) Realistically, I don't see how this helps...
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
As for the comment about short sellers buying homes I believe this only applies to those who did not have a second lien.
I agree with FOD, those record low yields on treasuries are troubling and investors are behaving like economic growth is in real trouble (Euro collapse and return to individual currencies?) Realistically, I don't see how this helps...
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
As for the comment about short sellers buying homes I believe this only applies to those who did not have a second lien.
All quite absurd. Trying to sell a hyperinflation crash in an economy that is bordering on deflation.
Tends to show how little Schiff and his acolytes actually know.
I am now convinced (more than ever) that the crash is near.
That is a little over the line. Such self self deprecation is not healthy.
You must have some redeeming virtue...albeit not in the economic domain.
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