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Old 06-12-2009, 07:12 AM
 
Location: Summerville, SC
1,149 posts, read 3,925,860 times
Reputation: 1122

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Quote:
Originally Posted by Pilgrim21784 View Post
Perspective: I purchased my home in Aug 1983 at a 13.5% interest rate (a good deal at the time for someone with excellent credit). It is long since paid off, after numerous refi's. Younger folks ought to understand that the current, incredibly low interest rates (whether 5/6/7%) are an anomaly and unlikely to continue. A 30 year fixed rate mortgage is a huge bargain at current levels. Don't be surprised if rates go up significantly in the not too distant future.
The point is, how much did your house cost compared to what your salary was at the time?

"I have always kept my housing costs at or below 20% of gross income, it makes life much easier to avoid financial stress and related problems."

Well, sure, wouldn't that be nice if we could all do that? Look at the salaries that people are making today, then look at housing prices. Even with buying a foreclosure which may or may not need work done, it is VERY hard for people to manage what you did when they are starting out, at least. A 30 year mortgage is hardly a bargain when people's salaries don't keep up with inflation.

And it's hardly limited to just housing prices. Just look at the prices of cars from back then in relation to salaries, then look at car prices today. I could go on and on.
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Old 06-12-2009, 09:48 AM
 
Location: Columbia, MD
553 posts, read 1,563,705 times
Reputation: 393
Quote:
Originally Posted by StarryEyedSurprise View Post
The point is, how much did your house cost compared to what your salary was at the time?

"I have always kept my housing costs at or below 20% of gross income, it makes life much easier to avoid financial stress and related problems."

Well, sure, wouldn't that be nice if we could all do that? Look at the salaries that people are making today, then look at housing prices. Even with buying a foreclosure which may or may not need work done, it is VERY hard for people to manage what you did when they are starting out, at least. A 30 year mortgage is hardly a bargain when people's salaries don't keep up with inflation.

And it's hardly limited to just housing prices. Just look at the prices of cars from back then in relation to salaries, then look at car prices today. I could go on and on.
There has actually been a lot of DEFLATION in electronics/autos/technology since the early 80s; in fact, it's probably the only thing which has gotten cheaper relative to the cost of living.

Look at what a computer or an ATARI 2600 cost back in the early 80s, and look what the same amount of $ buys now. For what 1 Apple 2e cost, you could buy a a netbook, 2 laptops, and a high end PC today. For what an Atari 2600 cost, you could buy a Wii and a Nintendo DS.

Likewise, a phone bill including long distance, phone rental, and taxes in the early 80s might be $150/month. Today that $150/month should get internet, unlimited local/long distance phone, and cable, plus premium movies.

It's a shame about salaries...even with both husbands and wives working, it still doesn't work out to be a good deal.

Once people "get" that home prices need to adjust down to historic levels given salaries won't catch up in real dollars, well, it's going to get ugly.
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Old 06-12-2009, 08:15 PM
 
220 posts, read 984,010 times
Reputation: 170
You guys crack me up LOL
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Old 06-12-2009, 09:49 PM
 
3,320 posts, read 5,039,043 times
Reputation: 11125
Got 4.875 back in Feb
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Old 06-13-2009, 01:15 PM
 
Location: Great State of Texas
86,068 posts, read 76,194,094 times
Reputation: 27636
Quote:
Originally Posted by StarryEyedSurprise View Post
Look at the salaries that people are making today, then look at housing prices.
That's exactly it..the bubble and lax regulations drove prices up unrealistically.

Your salary went up 3-5% each year for the last 10 years (let's say).
Did home values do the same ? No..they increased double and in some cases triple digits.

If the qualifications had stayed in place there would never have been a bubble as not many would have qualified.

Now we have to wait for the deflation to bring home prices back in line with salaries and affordability. That is what hitting the bottom will do but we are not there yet.

"Patience young grasshopper"

Uncle Sam throwing you $15K is as bad as all those "we don't care what your income is" mortgages floating out there.
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Old 06-13-2009, 08:53 PM
 
Location: Central FL
1,382 posts, read 3,435,800 times
Reputation: 1189
The government has no control over interest rates anymore. I've done a lot of research into this lately. Basically it comes down to the bond market. The US government needs to sell debt (and A LOT of it) in the form of treasury bills (t-bills), notes, and bonds. We all know that mortgage rates are now at 5.67%, having recently jumped quite a bit at once. What happened was that investors are now demanding higher interest rates if they are going to purchase US government debt. Investors are worried about inflation (it's bad for bond holders), and they could also be worried about the long term ability of the government to pay off these bonds (esp. getting to the long end, like 30 year). So the bond market is not letting the government keep interest rates low (mortgage rates are tied to the bond interest rates). Some people feel that because the economy might be showing signs of turning around, money that would go into the safe haven of bonds is instead flowing into the stock market, which is what has recently caused bond interest rates to rise in order to attract more buyers. Either way, rates have jumped up quickly which is bad news.

Anyway, my point is that interest rates have no where to go but up from here. The government will not be able to get them back down. Of course, as interest rates rise above 6% again, any "green shoots" that we've seen in the housing markets will be trashed. The recent rise in interest rates has takes about $10,000 off of the price point at which a buyer would have qualified with the rate under 5%.

Second, this bill was introduced by Senator Johnny Isakson (R) here in Georgia. It is nothing more than a means to pacify the huge homebuilder lobby. Isakson and the like love to scream "no bailouts," "fiscal responsiblity" and so on, but GA has been hit hard by the slowdown in construction. The homebuilders here are huge donors to the Republicans. This tax credit is a feeble attempt to jump start home sales again. (just today I drove by a development that has only sold one lot. There is a sign that says "all lots 20% off")

At best, this new credit will do nothing more than offset the recent rise in interest rates. At worst, it will continue to prop up a bubble market and cause the US government debt to grow even more. (so much for fiscal responsibility) Which leads us, of course, back to those pesky government bond auctions. We better hope and pray that someone (anyone!) keeps buying our debts (and at a reasonable interest rate - we won't be able to make the interest payments if rates rise too high) Our only other option is to buy our own debt instruments, which is defacto default. (Wait, we already did that, to try to keep rates low. Guess that didn't work either)
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Old 06-16-2009, 12:16 PM
 
Location: Columbia, MD
553 posts, read 1,563,705 times
Reputation: 393
Quote:
Originally Posted by MovedfromFL View Post
The government has no control over interest rates anymore. I've done a lot of research into this lately. Basically it comes down to the bond market. The US government needs to sell debt (and A LOT of it) in the form of treasury bills (t-bills), notes, and bonds. We all know that mortgage rates are now at 5.67%, having recently jumped quite a bit at once. What happened was that investors are now demanding higher interest rates if they are going to purchase US government debt. Investors are worried about inflation (it's bad for bond holders), and they could also be worried about the long term ability of the government to pay off these bonds (esp. getting to the long end, like 30 year). So the bond market is not letting the government keep interest rates low (mortgage rates are tied to the bond interest rates). Some people feel that because the economy might be showing signs of turning around, money that would go into the safe haven of bonds is instead flowing into the stock market, which is what has recently caused bond interest rates to rise in order to attract more buyers. Either way, rates have jumped up quickly which is bad news.

Anyway, my point is that interest rates have no where to go but up from here. The government will not be able to get them back down. Of course, as interest rates rise above 6% again, any "green shoots" that we've seen in the housing markets will be trashed. The recent rise in interest rates has takes about $10,000 off of the price point at which a buyer would have qualified with the rate under 5%.

Second, this bill was introduced by Senator Johnny Isakson (R) here in Georgia. It is nothing more than a means to pacify the huge homebuilder lobby. Isakson and the like love to scream "no bailouts," "fiscal responsiblity" and so on, but GA has been hit hard by the slowdown in construction. The homebuilders here are huge donors to the Republicans. This tax credit is a feeble attempt to jump start home sales again. (just today I drove by a development that has only sold one lot. There is a sign that says "all lots 20% off")

At best, this new credit will do nothing more than offset the recent rise in interest rates. At worst, it will continue to prop up a bubble market and cause the US government debt to grow even more. (so much for fiscal responsibility) Which leads us, of course, back to those pesky government bond auctions. We better hope and pray that someone (anyone!) keeps buying our debts (and at a reasonable interest rate - we won't be able to make the interest payments if rates rise too high) Our only other option is to buy our own debt instruments, which is defacto default. (Wait, we already did that, to try to keep rates low. Guess that didn't work either)
Great post!

It's actually even worse than you're describing. The FCBs will keep buying our treasuries...they have to - they have huge reserves of them and don't want to inadvertently cause them to be devalued. But they will scale back dramatically and if we auction too many bonds we're in jeopardy of having a failed bond auction, which would be very very bad.

And, the government has the capacity to drive rates lower, but it comes with a price. We're seeing that unfold this week. Money flows eg liquidity are being yanked out of equity markets and they're flowing to bonds.

The end result? Stocks go down, there's a flight to bonds, the yields go lower. You just need to look at the DOW, S&P, or NASDAQ so far this week to see the result.

But eventually that won't work. If too much liquidity is pulled out of the equity markets, it will crush the retirement savings and confidence in our economy.
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Old 06-18-2009, 11:36 PM
 
78 posts, read 233,158 times
Reputation: 34
Not to derail but where is the best place for clarification on bonds, interest rates, etc? It's been a long time since my college economics class and things have faded.
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Old 06-19-2009, 11:59 AM
 
Location: Lowcountry
764 posts, read 1,481,955 times
Reputation: 416
Quote:
Originally Posted by trickymost View Post
Great post!

It's actually even worse than you're describing. The FCBs will keep buying our treasuries...they have to - they have huge reserves of them and don't want to inadvertently cause them to be devalued. But they will scale back dramatically and if we auction too many bonds we're in jeopardy of having a failed bond auction, which would be very very bad.

And, the government has the capacity to drive rates lower, but it comes with a price. We're seeing that unfold this week. Money flows eg liquidity are being yanked out of equity markets and they're flowing to bonds.

The end result? Stocks go down, there's a flight to bonds, the yields go lower. You just need to look at the DOW, S&P, or NASDAQ so far this week to see the result.

But eventually that won't work. If too much liquidity is pulled out of the equity markets, it will crush the retirement savings and confidence in our economy.
Good supporting information.

Seems like the govt is focusing on the 1st time home buyer with all this 'assistance' - the group they should be focusing on is the move-up market segment which has all but evaporated.

With little to none move-up buyers, this specific RE market across the country will just languish - and add rising rates, qualifing issues, tightened credit, unemployment, etc - what we have is the makings of a disaster more so in the mid to high end segment.

They did nothing more than put a bandage on a sucking chest wound and told the patient to 'suck it up'....they've seemed to neglect the meaning of triage....
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Old 06-19-2009, 03:10 PM
 
1,662 posts, read 4,137,373 times
Reputation: 537
Quote:
Originally Posted by Flat2MT View Post
Good supporting information.

Seems like the govt is focusing on the 1st time home buyer with all this 'assistance' - the group they should be focusing on is the move-up market segment which has all but evaporated.
I think they figured the move-up market would take care of itself ...
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