Fed ends Mortgage Intervention - Means what to LI? (for sale, real estate)

[jmax]

If the Fed stops buying mortgage backed securities - how does that effect house prices on Long Island?

[Elke Mariotti]

Originally Posted by jmax

If the Fed stops buying mortgage backed securities - how does that effect house prices on Long Island?

If the banks don't start raising rates right away, I don't really see much of an impact...

[kmrlongisland]

Originally Posted by jmax

If the Fed stops buying mortgage backed securities - how does that effect house prices on Long Island?

I think it's safe to say the longer term mortgage rates will see a bump up. Even with the Fed sopping up all the MBS in the past year they still were not able to drive down the 30 year to their target of 4.5%.
As to the housing prices they are a function independent of rates. Given the tax base and median salary it is hard to make a case of any increases in rices over the next five years.

[Interlude]

If you figure it out, let me know so that I can make a ton of money on this information!

[ocabrera7]

real estate is regional for the most part....regardless, if mtg rates creep up 50bps to 75bps that is not a huge effect on a 300k mortgage ($1610 at 5% vs 1750 at 5.75%) most people do not know how to do this calculation so they think it is a big difference on a percentage basis (rather than on a $ basis) so it may affect their decision making some....at the end of the day. High taxes and bad prices is what keeps homes on the market too long. not mortgage rates. If you were to see mtg rates in the 7-8% rate we can all assume that is beacuse the economy is doing well at that time so people will buy homes regardless cos they have positive feelings about the future....fortunes turn quickly in the downturn. What does this all mean?? if you are considering buying a home you should buy the best home you can comfortably afford and buy one with taxes inline with the norm. because high taxes will keep a property from being sold in bad times such as now when perhaps you need to sell the most. homes at 5-6% for 30 years are cheap.

[FrmlyBklyn]

In the short-run (3-5 years), housing prices will come down. Economy is not recovering, maybe the stock market, albeit somewhat when you consider 14,000 was the high and we are still down 30+% from that point. Economy recovers when you have unemployment levels in the 7% range - we are nowhere near those levels, employers continue to layoff and make do with what they have. Local governments are strapped and short of living within their means only means one thing - more layoffs and higher taxes. Mortgage financing will still be there for qualified buyers, but rates will be higher.

6% is expensive when you consider that anyplace (risk-free) you put your money is yielding 0% to 0.5%. Paying 550bps over that is an expensive spread.
The only ones making out here are the lenders.

[TomMoser]

Since the financial market crash, FHA loans have become the dominant financing vehicle, replacing conventional loans. Since they have always carried a 100% government guaranty the secondary market for FHAs was not affected. When the Fed stops buying MBS, it will tighten the already tight conventional loan situation, but overall I don't think it will have much affect on the Long Island housing market. (We've got other problems to worry about)

[mathjak107]

its wierd but if mortgage rates rise which they will now ,home prices may rise too.

before you go thats crazy think about this: most of our home appreciation historically comes in periods of rising rates ,usually between 6-9 %.. the historical average is 7%....

the reason is ,remember a 1% rise in rates on a 400,000 buck home now has the effect of the home haven risen to 440,000..

since home buying is more emotional then other asset classes what happens is all those that were sitting on the fence about buying suddenly feel motivated to buy before they can afford even less home.

historically that has seen home prices rise every time... the supply of homes may be great but many many of them are crap.. most are ill maintained or just plain something you wouldnt want to buy.

there could be 100 homes for sale in your area but maybe 2 will appeal to your wife...the rest dont matter.

of course we got the weight of the banks and unemployment on the markets but remember only a few homes need to sell in your area and all homes are lifted with the tide.


the fed found it harder and harder to fight the tide trying to hold mortgage rates down as investors want them higher to compensate for risk.


in one mbs trading session about a month ago the fed had to shoot in a trillion dollars in one session to wrestle rates back down again.

the longer term mortgages usually follow the intermediate term treasury bonds pretty closely but the fed artificially manipulated that link... the 10 year bond has risen almost 60% since a year ago... that means mortgages have a bit of catching up to do which they mmay do very quickly now that the manipulation stopped

[mathjak107]

Originally Posted by FrmlyBklyn

In the short-run (3-5 years), housing prices will come down. Economy is not recovering, maybe the stock market, albeit somewhat when you consider 14,000 was the high and we are still down 30+% from that point. Economy recovers when you have unemployment levels in the 7% range - we are nowhere near those levels, employers continue to layoff and make do with what they have. Local governments are strapped and short of living within their means only means one thing - more layoffs and higher taxes. Mortgage financing will still be there for qualified buyers, but rates will be higher.

6% is expensive when you consider that anyplace (risk-free) you put your money is yielding 0% to 0.5%. Paying 550bps over that is an expensive spread.
The only ones making out here are the lenders.

your trying to compare short term bank rates against long term mortgages . these not comparable .

a mortgage is compared to the 10 year treasurey rate which is paying just shy of 4% .. the 30 year bond is just shy of paying 5%

you can get 5 year cd's paying 3.25 % but those are still to short to be a good comparison.


as far as the stock markets anyone who expects to sell anything at the top or buy anything at the low is fooling themselves.. what the peak was may not mean very much . its like buying google at 80 and selling at 650.00 even though it hit 800.00 . equities are a long term investment . anyone who thinks that even money they put in the last decade was a guarantee to make money is also fooling themselves. but go 12-15 years and its almost guaranteed... we maybe down from the all time high but money i committed to nothing special mutual funds back in 1987 is up long term 1200% today even at these levels... dont forget even at age 60 money thats going to be used to eat or pay bills 15-30 years away is still long term money and it needs 12-15 years to mature in long term investments.... if you merely rebalanced at the lows you are not down anywhere near 30% at this point...most folks who had a strategy and rebalanced and are diversified are down anywhere from 10% to even .

even a simple mix of gold, long term treasuries ,equities and cash would have even grown your money over 9% average annual return the last decade thru it all.

again you cant take short time frames and apply them to long term investments.