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Friday, July 2, 2010
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25 comments:
Contrarian-
I am confused is there something special about the home sales you listed or was that just a random list of homes for sale?
All-
It looks like the very slow recovery continues. Excluding the census workers payrolls continue to grow, but at a pace that is slower than population growth, so either this will need to pick up or we will find ourselves in a double dip recession.
It looks like even record low rates haven't been a push to get buyers out there.
housebuyer,
how low do you see the rates can go 1)with & 2)without gov't interventions?
i don't follow/understand rates but think mortgage rates can't be going the opposite direction of general interests rates. is this correct?
Well that is the thing about the low rates, etc.
The government threw pretty much everything it could think of at this right from the start.
How long have people been hearing that these are "record low rates" and that they will never get better than this? Off and on for years...
As for the "recovery" it looks to me that things are more or less treading water right now.(and that is the optimistic view) Adding jobs slower than the population grows can hardly be seen as a "recovery" in my book, all that means is that we are falling behind slower than we used to be.
...and, as many have said here, low rates do not necessarily mean "time to buy" for buyers, if prices drop when rates rise.
Don't worry Ace, I'm sure the industry propaganda machine will adjust itself when rates are much higher. It will sound something like this:
"High interest rates have driven down the affordability of housing and crushed prices. Take advantage of these low prices now and refinance in the future when rates are lower. It's a win-win!!!"
I threw that back at my mortgage broker a while back after his "buy now" pitch, and he more or less agreed with me. They all know it's true, they just do whatever they can to push people now to keep their income stream flowing along.
Yes, Kevin, you live long enough, and you will hear that speech. And I heard it when I bought my house in 2000--actually it was this variation, from a lender:
Me: Why are you trying to charge me a higher rate than advertised? My credit score is high.
L: Really, you shouldn't worry about x%. In a year, you're going to refinance anyway because rates will be lower then.
Me: Please give me the lowest current rate, AND if rates go down, I'll refinance then. Otherwise, I am sure I can find another lender.
L: (calling me various names under his breath)
Such a pleasant conversation.
For whatever reason, the RE industry is a magnet for self-serving cockroaches. That, or it just turns normal people into them. Maybe my mindset will change when I get my RE license, but more likely it will be reaffirmed.
MM-
Yes mortgage rates will very likely move in whatever rate the 10 year treasury goes. They are usually about 1.5% higher than the 10 year treasury. If things continue to get worse I would not be surprised if the fed buys another 1-2 trillion of government debt and MBS to push rates lower. If this is the case both the 10 year treasury rate will fall and mortgages would probably only be 1% above the rate instead of 1.5%. I don't think this is likely, but it is definitely a possibility.
Personally I think we are near the lowest rates we will see unless we have a double dip in which case rates may fall another 0.25% without government intervention and possibly 1% with government intervention. If we don't have a double dip I expect rates to rise to ~5% over the next 6-12 months.
"HB said...Personally I think we are near the lowest rates we will see unless we have a double dip in which case rates may fall another 0.25% without government intervention and possibly 1% with government intervention. If we don't have a double dip I expect rates to rise to ~5% over the next 6-12 months."
Not saying it will happen, but if we got prolonged, persistent deflation, couldnt rates fall to 0%?
If you think about it, in a true prolonged deflationary environment (not a disinflation environment like we have now), a lender should theoretically be able to charge negative interest rates and still come out ahead.
Of course, if that were the case, lenders wouldnt lend at all (hence the reason why rates are "zero bound") in the real world.
Still, while I dont find this likely at all, isnt it presumably possible that the repubs get a majority & start pushing austerity measures (i.e. quit printing money), resulting in full bore deflation, and interest rates at 0-0.25%?
Anon-
Excluding short term lending, interest rates can not get to 0% of several reasons. First, banks need to earn a spread between what they borrow at and what they lend (so they can pay their employees and make a profit), no person would be willing to loan to the bank at a negative interest rate, because they can always just put their money in a safe which would have a 0% rate.
Also banks would not lend at 0%, because there is risk that they might not get there money back. So instead they would just keep the money in their safe and for sure they would have the exact same amount of money in the future. If they lend at 0% the best case is they get their money back and there is risk the person could default. (The risk is actually pretty high, because deflation is bad for debtors)
Anon-
I actually think Republicans will likely have a majority after the 2012 elections, but I just don't see fiscal austerity for a while after that. I hope that within 3+ years the recovery will have sturdy enough feet that it can survive a little austerity.
This can't be good for home values in and around Reston:
Sallie Mae to move headquarters from Reston to Delaware, taking hundred of jobs
The HQ workers probably had some nice homes, so maybe the inventory out there will skew toward the upper bracket next spring.
Jeremy-
I agree that you will see some extra sellers in the upper part of the housing market, but it probably will be minimal ~100 extra nice houses spread over the Reston, Tysons, Loudoun area will not be an enormous impact. Although since inventory will already be high it will help bring prices down.
Contrarian-
Interest rates would not be negative during deflation. People would rather just hold on to their cash and get the 0% rate then lend it out and get a negative rate.
"contrarian said...
In deflation, interest rates will become negative, but CRT has assured us deflation is not a concern"
I love how you keep going back to that quote. Clearly, CRT got under your skin.
He is not saying we cant have deflation, he is saying you are a permabear -- and he is right.
CRT's quote:
"Contrarian disagrees and refuses to accept any answer other than deflation, no matter how much time goes by or how many signs we see to the contrary."
Its been 13 months since that quote. In that time, INFLATION has added 2.3% to the CPI.
"CRT's quote
As the years go by, if this isnt playing out like a deflationary grand whatever, the rest of us will slowly dissipate to the winds, purchasing homes and living our lives. Still im sure he will still be here, angrily calling us all fools and saying it just hasnt happened - yet. Do you really see that ending well for him?"
Again, exactly right. Look at whats happened to half the posters on that thread.
CRT -- gone.
John Fountain -- gone.
Cara -- gone (more or less).
@j@ -- gone.
Doug -- gone.
Sarah -- gone.
Novawatcher -- gone.
Tabitha -- gone.
Each and every one of them have "slowly dissipated to the winds" and quit posting. All of them either own or "purchased homes and are living their lives". Yet, just as he predicted, you are still here today, still "saying deflation just hasnt happened -- yet".
All of us are now one year closer to death, and inflation has caused prices (CPI) to increase 2.3% in the interim. I have another 6 months here and then I am gone. Most everyone else should be gone by 2012. Yet, you will still be here, calling for deflation and deleting posts.
Hopefully Harriet keeps this going for another 5, 10 or more years. It will be an interesting science experiment to see how long before you capitulate and decide "gee, I guess home prices will not collapse 90% -- time to buy". Personally, I think the day that happens is the day we hit the peak of the next cycle...
Contrarian-
I know what deflation is and understand that it is terrible. I think disinflation is very likely and deflation is still unlikely. Can you show me any evidence of negative nominal interest rates during the great depression. table 1 The governments interest rate did not go negative, so why would someone agree to negative rates when they could lend to the government and get a positive rate. There may have been a few small cases (we have also seen treasury rates go negative a few days in the past year)
Jeremy beat me to posting about Sallie Mae leaving Reston for Delaware. I don't think it's a huge deal but certainly in the "bad news" category for Fairfax County real estate.
---
Seems like low interest rates are here to stay. Frankly, these days, going down to 4.5% seems almost more likely than going up to 5%.
I no longer view interest rates as something to worry about. I do still think unemployment, underemployment, pay cuts, and pay freezes are a major issue. As are the impending higher taxes Congress will likely enact this fall or in 2011.
If Republicans take over or get enough seats to block any tax increases then I think they will be forced to find significant budget cuts. If so, that's even worse for our region's economy.
I also think shadow inventory is a real issue and foreclosures will be an above average part of the market until 2012 or 2013.
But I've given up any hope that interest rates are going up significantly any time soon. I can easily see us being in the 4.5-6% range between now and 2012-13. That's not enough change to affect market psychology much.
Er to be clear I don't think higher taxes will harm our region's economy but will be a negative on the housing market. If withholding on someone's paycheck goes from 30 to 33% that's a little less each month and lowers what they probably will spend on rent/mortgage.
Contrarian
Do you think it will hit a stable plat
Eau in august
Contrarian-
I know that interest rates went negative. My last sentence said this happened, but it was only on short term treasuries for liquidity purposes, because in the short run large companies can't actually store the cash. I was contending that interest rates can't go negative on long term treasuries for a extended periods of time. You contended this happened in the great depression, I showed a chart saying it didn't. I might be wrong, but can you show me something where interest rates stayed negative for more than a few days (aka not just a liquidity event).
Also I laughed when I saw the vide you posted, the guy can't even do math. He says that home prices are 150 on the case shiller index and they will go to 100 (the 2000 price level) which is a 50% drop from here. In reality going from 150 to 100 is a 33% drop, I have a little trouble respecting a money manager who can't even do basic math.
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