Divot said...
Anyone else notice how much mortgage rates have been sky rocketing lately? 30 year fixed rates went up 18 basis points last week because of lenders fear over increased gas and food prices. I was personally pre-approved 4 weeks ago at 5.58%, today I put a contract on a house at 6.13%. I would like to hear what you guys think but I cant imagine this is going to help out with the recovery of the housing market if mortgage rates continue to trend upward like this. What do you guys think?
GDP news today has some still asking, "Dude, where's my recession?"
"The new GDP reading, released Thursday by the Commerce Department, was an improvement from the government's initial first-quarter estimate as well as the economy's performance in the final quarter of last year. Both periods were pegged at a 0.6 percent growth rate.
However, economists still consider the 0.9 percent growth rate subpar. More normal growth would be along the lines of a 2.5 percent to 3 percent pace, they said. GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the country's economic health.
'The economy is scraping along close to the bottom but it is still afloat,' said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group".
16 comments:
$118,000 Off SFH in Clarendon (after another $70,000 price reduction):
7 GARFIELD ST
Arlington, VA 22201
Original list price: $699,000
New list price: $629,000
Prior sale: $746,900 7/26/07
Listing Date: 3/27/08
-15.8%, $-117,900
With prices falling like this, I don't see why anyone would be motivated to hurry up and buy a house when waiting a few more months is likely to save them tens of thousands of additional dollars off the purchase price.
That is bizarre.
With prices falling like this, I don't see why anyone would be motivated to hurry up and buy a house when waiting a few more months is likely to save them tens of thousands of additional dollars off the purchase price.
It looks like Lehman Brothers agrees and, if anyone knows, they should.
``Housing weakness is far from over,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, who correctly forecast the pace of sales. ``We won't find a bottom in prices until the end of next year. Builders are being very aggressive, but there is still a big correction ahead of us.''
http://tinyurl.com/4tokda
May 27 (Bloomberg) -- Michelle Meyer, an economist at Lehman Brothers Holdings Inc., discusses U.S. home prices and the housing market.
She spoke in an interview from New York.
On economists' estimates about a price decline in a 12-month period:
``There are a few theories that are being released. There is a 20-city and a 10-city composite, and then we're getting into national quarterly data, which covers about 75 percent of the nation. For that index, we are looking for a 14 percent year-over-year drop in the first quarter. That will bring home prices back to about mid-2004 values and down about 16 percent from the peak. It's a substantial decline in home prices.''
On when people will start jumping into the housing market:
``For right now, potential buyers are remaining on the sidelines. And that's largely because people think home prices are going to continue to fall. You don't want to enter the housing market when prices are still falling. So, people are waiting until they feel a little bit more confident that we've reached a bottom.''
``In addition, overall consumer sentiment is very weak right now. People are uncertain about future financial prospects, and in response, they'll probably discourage such large purchases as a new home.''
On the notion that home prices would keep going up:
``That's what sort of fueled this bubble in the housing market. People thought, `Get in while home prices are continuing to rise. It's a guaranteed profit.' But nationally and particularly in some regions, that's been proven very much incorrect.''
http://tinyurl.com/4o5e7e
(22207: $100,000 price reduction)
2704 SYCAMORE ST
Arlington, VA 22207
Original list price $699,000
Current list price $599,000
2008 Tax Assessment $646,500
$47,500 below current tax assessment
Regard to the Mortgage rate ... I took this quote from the San Jose Merc:
Mortgage rates always follow the inflation pressure," said Stanley Tseng, who heads the Silicon Valley chapter of the California Association of Mortgage Brokers. He said rates have already risen higher than the Freddie Mac-reported averages in the past few days, and he expects the trend to continue. "The high inflation rate is not a perception anymore, it's going to become reality."
His point seems to represent the consensus of what I read in other publications.
It sounds like you have a decent interest rate, all things considered. I wonder if this might spark some buying once people crunch the numbers with a long view in mind. I don't think inflation is going away anytime soon, not with forecast of $5 a gallon for later this year.
kob said:
"I don't think inflation is going away anytime soon, not with forecast of $5 a gallon for later this year."
I agree. This is especially true when you consider that what we're paying for gas at the pump is just the tip of the iceberg. Our economy is built on oil .... everything from plastics and all sorts of production materials to the transport inherent in getting these things to where they need to go is based on oil.
We really are doing a re-run of the Vietnam/Post-Vietnam economic period. Why guess what is going to happen in regards to house prices and mortgage rates? Just look back to what happened then when house prices went up at the same time that mortgage rates were soaring ... and the dollar falling in value. Why should things be different this time? The ARMs and the speed of communication may make things happen quicker, but the long term results will be the same. How could it not be when all the same things are happening in regards to oil, inflation, war debt, etc.?
I remember thinking in the late 70s/early 80s how luckly people were who'd locked in their mortgage payments back before this all happened the last time. It seemed rediculous that these people were paying something like $200/month for a mortgage when current mortgages (and rents) where something like $500/month. Of course, now even that $500 seems rediculous. It's incredible what the time value of money does ...
If the fed actually added in the correct CPI, GDP deflater values, we would definitely be in an "official recession, just use the pre-1993 CPI, and we are in a recession and have been since last fall.
lance,
that's not time value of money . . . that's a devaluation of the currency.
Lance:
If you don't overpay, you can always refinance when rates come down. If you overpay, you may find yourself upside-down, with no refinancing option.
Lance,
Good point about the late 1970s/early 80s. I think it was the winter of 1981, right out of college, and interest rates were somewhere around 18%.
When I did buy something in 1987, I got a rate at 9%, which was considered a decent rate at the time ....
Being "upside down" ah, the memories... I lost half my investments in the dot.com bust. I owned a house that was "underwater" during a prior cycle 20 years ago.
So I'm use to breathing through a straw and my advice to people who live in dread about being "underwater" is .. have a beer. I'm probably underwater again. On the scale of things that really bother me, it's way, way down on the list.
It's easy to tell someone to wait until you think the bottom is reached, then buy at whatever rate you can get, and then refinance at some future point when rates are favorable. But that's boilerplate and imperfect advice.
And I don't know if that's a good strategy.
Higher interest rates may mean less of a house. Lower prices may compensate for the higher rate, then again they may not. You don't know. Housing could "bottom" in a period of high interest rates, or during a period when the rate is still moving up and it can stay up for long time. You'll learn of it in your rearview mirrow.
The market may be in for a long, long period before rational interest rates and rational prices and rational lending are aligned. Oh, I have no idea what rational is because I've never seen it.
lance,
that's not time value of money . . . that's a devaluation of the currency.
Yes, inflation has been around for a long time. But why does Lance take it for granted that it will continue? Couldn't we be in a deflationary trend now? I saw multiple rent drops today in my Inbox.
Ben Jones said this today in the HBB Bits Bucket:
‘Look around you - do you see any prices going down?’
Only the most expensive things we buy; houses, land, cars, etc. If gas goes up I drive less. If a food type goes up, I switch to something else. But I have to have a place to live. And rents are falling like a rock; here anyway.
All things electronic are falling. My internet, telecom and entertainment prices are falling. Locally, labor costs are dropping, and people are under-employed. And if there is all this inflation, why are interest rates dropping?
High commodity prices with flat or lower wages isn’t inflation; it’s just a poorer population, which is deflationary.
Regarding deflation. This little ditty in the NYT today:
>
A pair of Levi's 501 jeans cost $50 in 1998, and $46 in 2008. A Lacoste Polo shirt went for $95 in 1998. The retail price in 2008 is $75
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But regarding some of the other points that writer, quoted, is claiming as evidence of deflation are just wrong.
Regarding electronics: Consumer electronics always fall in price, except Bose and a few others. Those BluRay DVD players, which are still around $400 today, will be about half that price once more manufacturing production is ramped up and more makers come on the market. Memory, which underpins most electronics, has declined dramatically in price because of increased production capability. It has been declining price and increasing in capacity for years.
Telecom, Internet services, is falling because of competition and more fiber.
I don't know what type of car that writer is buying. SUVs are going down in price. Hybrds aren't.
Has anyone had experience with the new fannie limits over the last month? I am getting very odd info from my mortgage banker that clearly is outside of what Fannie rules are. Is anyone else hearing 20% minimum dp required? They are also saying the temp limit rise isn't the same as the lower 412k limit interest wise, and I know thats wrong.
"Yes, inflation has been around for a long time. But why does Lance take it for granted that it will continue? Couldn't we be in a deflationary trend now? I saw multiple rent drops today in my Inbox."
The biggest single thing lance is missing, and there are several, is that in order for his inflation scenario to play out you need WAGE INFLATION.
Otherwise we are all just getting poorer...
If prices go up but wages continue to remain largely stagnant then inflation doesn't really help anyone out.
It is perfectly possible for our living costs to increase without our incomes increasing in equal measure. We have already seen some of that over the last several years.
I maintain that what we are going through right now is different than the 70s, but not quite the GD 2.0. I believe we are having for lack of a better term biflation-in terms of prices.
1st off, the current monetary system we are under and have been since 1913 (although it has been much worse since 1973), is designed to do pretty much one thing . . . increase the money supply.
There are multiple ways to increase the money supply. 1) Fractional Reserve Banking--i.e. the bank can lend out 90% of the money you put in the checking account. 2) Federal deficits. 3) Fed. Res. trickery -- -literally borrow money from foreign banks, and create it from nothing. It's really quite sick when you understand the system and see how our entire monetary system is based on debt-(claim on future income/work).
The GD was caused in large part by a) Fed. Res. mucking around the system and b) government intervention.
The early 70s were in large part caused by deficit spending on a war which lead to the abolishment of Gold Standard (already dead since 1913 on the domestic side). Once that link was broken in 1973, things got really crazy.
The key difference between the 70s and now is household/consumer debt, and it is why it will be different than the 70s. Household debt is so high that it has to come down, a main portion of the debt is housing-hence housing is dropping like a rock. But by the same token, we have the Fed. trying to save banks, stock market, prevent a recession, etc. which leads to an increase in the monetary supply, and hence commodities skyrocketing.
I believe that at least for the foreseeable future we will have declining stocks, real estate, and increasing commodities.
Anybody who thinks we're not is a recession, use the GDP inflation deflater used for the 90/01 recession (i.e. same methodology), it will show we are in a recession.
As far as a general decrease in prices is concerned. Austrian Economics has shown that in a economic system with a stable currency there is a gentle but steady decrease in prices. Another reason why I dislike public schools, never taught anything but the current prevailing order.
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