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If government does not blink and it just keeps raising taxes trying to support a system that is unsustainable, then we end up in the full crash and burn and you are compelled to walk away from real estate. Hopefully, with education understanding the past, we can for once avoid the same outcome and advance in this learning curve of civilization.
Vacation properties are the worst to survive. I bought such a place to live in at about 50% of its 2007 high. So while high-end properties in cities were rising, vacation spots on the beach declined. I wanted beach front. So understanding the cycle helps tremendously for entry and exit points.
The risk of mortgages declining is real. As governments get in trouble, long-term confidence starts to decline. Banks will not longer be able to package mortgages. As that unfolds, the lack of the availability of mortgages means the only cash rules.
...
The Consumer Financial Protection Bureau puts regulations on people buying real estate with a mortgage that has been highly burdensome to normal people. When friend bought a house with his girlfriend, they had to explain absolutely every check where she had written to him each month paying her half of the rent. They made them account not just once, but for every check going back 5 years.
....
The whole reason Franklin D. Roosevelt created the 30 year mortgage was to try to get people to buy on credit. ... Roosevelt created federal agencies that form the basis of the housing market the United States to this day. They provided mortgage insurance, established a secondary market for mortgage loans, and converted 1 million loans into long-term mortgages. There were truly transformational in nature. It did make housing affordable and it made housing, homeownership, sustainable. However, it effectively leveraged the entire real estate market. It was truly that then more people could afford to buy, but as demand rose, so did property values.
The crisis we face is what happens this time when the banks cannot lend money, interest rates rise, and mortgages for 30 year periods vanish?
Like any market, prices will crash. The maximum length of a mortgage was extended to 30 years in the 1940’s, making home ownership even more affordable and leveraged the entire housing market. Today, Roosevelt’s economic fix became the norm. The 30-year fixed-rate mortgage accounted for nearly 90% of all new mortgages.
If the government can no longer subsidize the real estate market, the 30-year fixed-rate mortgage will become too expensive, become far too risky for a lender even if the person does not default by the rise in the cost of money, and it will simply disappear. The long-term mortgage is a bet a lot of lenders don’t want to take on their own.
This is the risk to the housing market. If you have the bulk of your assets in real estate, then one way to keep them is to run out and get a 30-year FIXED mortgage now while you can. You have sold the risk to a third party and it is now their problem. You use the cash wisely for investment into other movable areas.
Interest rates remain at near record lows, restrictions to lending will probably decrease under Trump and you have a city of 10 million people next door who think LI home prices are a bargain compared to NYC prices.
Funny how fast people forget the MASSIVE cottage industry of mortgage companies that lined Rte 110 in 2007...and how they all cratered and took billions in middle class wealth (and jobs) with them...which we then subsidized by loaning the banks money...that fueled massive profits for them and increased fees for us.
Sure, why would that happen again?! Not like we're deregulating again. Not like home prices are inflated again. Not like people are using home equity as ATM's again. Not like stocks are in bubble territory.
It's a party! Yee haa! All will be well. Don't worry about the wizard behind the curtain. He cares about you. He's your friend. Sheesh! Fool me once, shame on me. Twice, shame on you. 75 times? Well, we're just stupid and naive.
We're STILL working through the foreclosures. And if anyone was being truly honest, without Hurricane Sandy, we'd be much worse off. Sandy created a tremendous influx of federal aid money and infrastructure spending that NEVER would have happened otherwise. Not supposed to say these things, hell, on these forums you're not even allowed to THINK such things, lol. Boogeyman!
There is a world of stark reality between "doom and gloom" and "head in the sand denial" and historically, there is plenty of room for concern. Not obsessive Martin level concern (hyperbolic hysteria doesn't really educate people), but not rosy, apologist, all will be dandy optimism either. We have a ton of systemic problems a 4% bump in home prices isn't going to fix, particularly since our taxes go up more than that every year anyway.
Last edited by monstermagnet; 04-18-2017 at 08:00 AM..
Funny how fast people forget the MASSIVE cottage industry of mortgage companies that lined Rte 110 in 2007...and how they all cratered and took billions in middle class wealth (and jobs) with them...which we then subsidized by loaning the banks money...that fueled massive profits for them and increased fees for us.
Sure, why would that happen again?! Not like we're deregulating again. Not like home prices are inflated again. Not like people are using home equity as ATM's again. Not like stocks are in bubble territory.
It's a party! Yee haa! All will be well. Don't worry about the wizard behind the curtain. He cares about you. He's your friend. Sheesh! Fool me once, shame on me. Twice, shame on you. 75 times? Well, we're just stupid and naive.
We're STILL working through the foreclosures. And if anyone was being truly honest, without Hurricane Sandy, we'd be much worse off. Sandy created a tremendous influx of federal aid money and infrastructure spending that NEVER would have happened otherwise. Not supposed to say these things, hell, on these forums you're not even allowed to THINK such things, lol. Boogeyman!
There is a world of stark reality between "doom and gloom" and "head in the sand denial" and historically, there is plenty of room for concern. Not obsessive Martin level concern (hyperbolic hysteria doesn't really educate people), but not rosy, apologist, all will be dandy optimism either. We have a ton of systemic problems a 4% bump in home prices isn't going to fix, particularly since our taxes go up more than that every year anyway.
Back to one of Armstrong's point. What business/who would extend a 30 year loan at 4%? There is no business on earth that would write a loan on those terms. Therefore real estate purchases are being encouraged by the government because the government is making money available for artificially long terms at cheap interest rates.& with tax incentives ; this has some very bad side effects including the inflation of property values.
If government does not blink and it just keeps raising taxes trying to support a system that is unsustainable, then we end up in the full crash and burn and you are compelled to walk away from real estate. Hopefully, with education understanding the past, we can for once avoid the same outcome and advance in this learning curve of civilization.
Vacation properties are the worst to survive. I bought such a place to live in at about 50% of its 2007 high. So while high-end properties in cities were rising, vacation spots on the beach declined. I wanted beach front. So understanding the cycle helps tremendously for entry and exit points.
The risk of mortgages declining is real. As governments get in trouble, long-term confidence starts to decline. Banks will not longer be able to package mortgages. As that unfolds, the lack of the availability of mortgages means the only cash rules.
...
The Consumer Financial Protection Bureau puts regulations on people buying real estate with a mortgage that has been highly burdensome to normal people. When friend bought a house with his girlfriend, they had to explain absolutely every check where she had written to him each month paying her half of the rent. They made them account not just once, but for every check going back 5 years.
....
The whole reason Franklin D. Roosevelt created the 30 year mortgage was to try to get people to buy on credit. ... Roosevelt created federal agencies that form the basis of the housing market the United States to this day. They provided mortgage insurance, established a secondary market for mortgage loans, and converted 1 million loans into long-term mortgages. There were truly transformational in nature. It did make housing affordable and it made housing, homeownership, sustainable. However, it effectively leveraged the entire real estate market. It was truly that then more people could afford to buy, but as demand rose, so did property values.
The crisis we face is what happens this time when the banks cannot lend money, interest rates rise, and mortgages for 30 year periods vanish?
Like any market, prices will crash. The maximum length of a mortgage was extended to 30 years in the 1940’s, making home ownership even more affordable and leveraged the entire housing market. Today, Roosevelt’s economic fix became the norm. The 30-year fixed-rate mortgage accounted for nearly 90% of all new mortgages.
If the government can no longer subsidize the real estate market, the 30-year fixed-rate mortgage will become too expensive, become far too risky for a lender even if the person does not default by the rise in the cost of money, and it will simply disappear. The long-term mortgage is a bet a lot of lenders don’t want to take on their own.
This is the risk to the housing market. If you have the bulk of your assets in real estate, then one way to keep them is to run out and get a 30-year FIXED mortgage now while you can. You have sold the risk to a third party and it is now their problem. You use the cash wisely for investment into other movable areas.
How about you and your hysteria walk away from the CD forums instead?
Back to one of Armstrong's point. What business/who would extend a 30 year loan at 4%? There is no business on earth that would write a loan on those terms. Therefore real estate purchases are being encouraged by the government because the government is making money available for artificially long terms at cheap interest rates.& with tax incentives ; this has some very bad side effects including the inflation of property values.
Actually there are 1000's of businesses happy to give 30yr mortgages at 4%. If prime is 3.25%, cha-ching! Requirements are a little tighter, but plenty of money out there being invested in RE. Problem is on LI, they'll give a cheap mortgage to a borderline customer, but we can't seem to get another nickel in venture capital to develop real tech jobs or entice industry, unless WE pay for it by Cuomo mandate or subsidize it through IDA grants. They have turned off that tap. They don't see the "rosy" LI picture some on here are so insistent is happening. BTW, per the LIA and most accounting, our RE #'s are weak to average, not strong. We lag the nation and still furthest behind in foreclosures. Very high consumer debt loads. I'll say it again, you start seeing them advertise ARM's, look out! That's when they rope in the last of the suckers and a price correction will be imminent! Smooth sailing is great when you can get it, doesn't mean the icebergs disappear.
Actually there are 1000's of businesses happy to give 30yr mortgages at 4%. If prime is 3.25%, cha-ching! Requirements are a little tighter, but plenty of money out there being invested in RE. Problem is on LI, they'll give a cheap mortgage to a borderline customer, but we can't seem to get another nickel in venture capital to develop real tech jobs or entice industry, unless WE pay for it by Cuomo mandate or subsidize it through IDA grants. They have turned off that tap. They don't see the "rosy" LI picture some on here are so insistent is happening. BTW, per the LIA and most accounting, our RE #'s are weak to average, not strong. We lag the nation and still furthest behind in foreclosures. Very high consumer debt loads. I'll say it again, you start seeing them advertise ARM's, look out! That's when they rope in the last of the suckers and a price correction will be imminent! Smooth sailing is great when you can get it, doesn't mean the icebergs disappear.
Some very good points.
Most of the banks "loaning" money are just getting paid origination and servicing fees; the loans are "conforming" which means that they are basketed up into MBS's and then resold.
Mortgages are long dated, and the prime rate is short dated; the difference in terms cannot be arbitraged without absorbing huge risk.
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