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toooo late my friend , rates jumped big time on our debt already , the long term bond is up in interest almost 80% since last december. the ten year over 50%.. the rates on treasuries already soared.. the fed is trying to fight the markets from bringing up the rates on mortgage backed securities to match .
It's difficult to handicap 2010, IMO. Yes the bond market is rumbling, but at the same time, FNM and FRE have been given unlimited access to funds.
Reading the tea leaves here, my .02 is Obama is fed up with the too big to fail banks not modifying mortgages and allowing underwater borrowers to refi, and this being an election year, they will keep their foot on the throat of interest rates through the elections.
At the same time, I'm guessing the new assurances for FNM and FRE mean we'll see a program launching sometime in the next 4-8 weeks (maybe it'll be announced during the state of the union address?) where Obama says any homebuyer, regardless of their lender, will be able to refinance or modify their mortgage through FNM/FRE at a low, low interest rate (sub 5%).
Also, it was very educational to read the Bernanke interview in Time when he won their man of the year award (which by 2011 will be a running joke). He laid out his intentions with liquidity, and he doesn't care what he has to do, he'll keep the presses running longer than is necessary and isn't afraid of pissing off markets, foreign creditors (he said the Chinese), anyone - until the threat of deflation is in the rear view mirror.
After elections, all bets are off though.
So for now, I say they find ways to keep rates artificially low, regardless of the longer term consequences. Gravity takes over after elections when Obama and Congress will be allowing the Bush tax cuts to sunset (retroactive to 1/1/2010), when new taxes on consumers are enacted for cap & trade, and some new and currently unforeseen taxes are added to the healthcare legislation, we start to see TSHTF in a big way.
I say 3.5-4% 30 year fixed rate mortgages before Q3 2010, then 6+% by 12/31/2010.
At the same time, I'm guessing the new assurances for FNM and FRE mean we'll see a program launching sometime in the next 4-8 weeks (maybe it'll be announced during the state of the union address?) where Obama says any homebuyer, regardless of their lender, will be able to refinance or modify their mortgage through FNM/FRE at a low, low interest rate (sub 5%).
So, if this prediction comes to be true, are we assuming the house prices will go up?
wish we new but my best guess is yes lower end prices may rise as that old we better buy now before we can afford less house kicks in for all those on the fence about buying.
historically best gains in appreciation are in 6-10% range for mortgages. usually by then the ills of the economy are fading and inflation is rearing its head increasing prices.
If I recall interest rates around 1988 was around 12%. We built a home at that time and rates were high. We refinanced that loan at some point when we got the great rate of about 9.5% Home mortgage rates peaked around 17% about 1990.
The high increase in prices and inflation was about 78-85 after Vietnam & the Oil embargo. We bought our 1st home in 80 and sold it 3 years later at about a 60% profit. Even the Govt had instituted wage and price freezes to bring inflation under control.
The government never instituted wage and price controls in the 1980s. The Nixon administration did that in 1971 and it didn't work so well.
Interest rates were high in the 1980s, but prices were lower than relative to income. The original poster is right that higher interest rates generally mean prices lower than they otherwise would have been with low interest rates.
The government is trying to keep rates low now to keep prices from further dropping, because that will mean that even more people will be under water on the overleveraging that they did, which will mean more foreclosures, bank failures, etc.
But we're painting ourselves into a corner, because there's only so long we're going to be able to pull this off. At some point, the foreigners on whom we're dependent to finance our deficits will balk at buying our debt without higher interest rates, and then mortgage rates will be affected.
So, if this prediction comes to be true, are we assuming the house prices will go up?
In most markets, I say no, prices stay flat or drip lower very slowly.
In Los Angeles, prices may go down 1-2% in nominal dollars/year for the next decade, regardless of what happens with Alt-A resets, inflation/deflation, recession/depression, and other banking and financial crises. Others like DC metro should see steady 1-2% appreciation YoY as the government creates more and more jobs in the area since the private sector won't be contributing jobs to any recovery, double dip recession, or further economic depression.
There is nothing which supports rising house prices except job creation and wage growth, and unfortunately, I don't see either let alone both for most metro areas in the country anytime soon.
If (big if...I'm only speculating) the administration sets up a program to modify and refi existing homeowners, this is only to stabilize housing and prevent more bank failures by becoming a "bad bank" for mortgages and toxic assets - not to reflate the housing bubble.
The good news is if the government continues providing liquidity, even when rates rise, it should keep home prices from falling in nominal dollars. In real dollars, though, prices will decline as inflation makes its way around the consumer economy. If inflation is running at 4-10% annually for the next couple years, and even if workers get raises of 2-8% and fall further behind accounting for higher costs, their mortgages will become cheaper.
As math and a couple others pointed out, we are painting ourselves into a corner, though. As early as this time next year we'll have a good sense of how painful dealing with the consequences of the extra liquidity from the past 2.5 years will have been. If I had to wager, we'll have very high inflation (greater than 10% annually) at the same time we have rapid dollar depreciation. This would scare the world economy out of stocks and back into treasuries, which is good for the government to mop up the liquidity.
On top of that, all those derivatives which really caused this problem in the first place - I've read the market for those has grown exponentially since the crash of 08, to the point where the dollar value of the derivatives out there is several quadrillion. I guess the banks haven't learned anything except how to cheat the public to enrich themselves.
Looking further out to 2014-2015 it becomes harder to forecast, but right now, I'd guess the economy will be the worse than it was during the depression, and will culminate with a giant deflationary crash.
ha ha im very married.... your right im 2nd in control... ha ha ha
You need to assert yourself man! I am President and Commander-In-Chief in my home! My wife is given only the perfunctory cabinet positions. I make all the really critical decisions, such as whether we go to war with Iran or not, and she takes care of the mundane stuff like what we spend money on, spend time doing, where we go, etc. You have to be firm with women or they'll run all over you.
Back to the thread, the commercial property bust, continued un-employment and mortgage defaults, tightening credit and the un-folding CDW disaster will all synergize and drive prices down...a lot.
since thats what everyone thinks at this point thats exactly why everyone will get blindsided by something not even on the radar and cause the opposite to happen...
think of this: every major downturn happens when nothing could look more favorable. there is nothing on the radar and everyone believes we are going higher. then boom some unexpected event or news sends us plunging.
every major upturn comes when it looks like everything will only get worse. when there is nothing on the radar that shows we have a snowballs chance in hell of going up from here. things never go as planned when the majority are on the same side and feel the same way.
look at last march in the equities markets... holy cow what a rise from the depths of hell out of left field. some of my positions are up over 100%...
soooooooo fasten your seat belts as we see what surprises are in store for 2010
Last edited by mathjak107; 01-09-2010 at 04:18 AM..
wish we new but my best guess is yes lower end prices may rise as that old we better buy now before we can afford less house kicks in for all those on the fence about buying.
historically best gains in appreciation are in 6-10% range for mortgages. usually by then the ills of the economy are fading and inflation is rearing its head increasing prices.
So what if rates rise? Smart buyers do not care what rates do and won't be 'tempted' to get off the proverbial fence.
I also hear that 'buy now before we can afford less house' mantra from many who don't understand simple economics. If this was a sellers market, then it may hold water. But it's not so it won't.
With such a glut of inventory especially at the higher end price points, prices will come down substantially.
So if you are a seller and want to continue to chase the market down, that's your choice. But you may want to think about bailing while you can or forever be priced in this market.
Oh, and we need to consider the risk that property taxes are going to go thru the roof - that's a given. Now just couple this with depreciating homes, growing strategic defaults by those significantly underwater, rising interest rates, failed government efforts to influence free markets, continued rising unemployment, rising personal and corporate BKs, out of control federal spending, rising commodity prices, overpriced stock market, etc (I can go on but you get the picture) and it just isn't prudent for anyone to buy today unless they are paying no more than 50% of the value.
There is just way too much risk.
Some day this is gonna end...but not any time soon
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