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Hmm, my house would rent easily for $3200/month or $38400/year. At 4% interest that’s $960,000 that my house is worth. But Zillow lists a market price of $760,000. So is it a great time to buy?
If interest rates go to 5% then it’s worth $768,000. That would be break even territory with this math.
he government backing frees banks to lend to people who would otherwise be considered too risky. That is, a bank would normally want a down payment and a home worth sufficient collateral before making a loan. With the government taking the risk of default, the banks can throw money around to non-savers and reckless buyers. Have you forgotten the price run ups in 2003-2008 caused by anyone who could fog a mirror getting a loan?
Similarly, the price of a house should be approximately the annual rent (minus upkeep, etc) divided by the current interest rate. If the house brings in $10,000/year in profit, and the current interest rate is 5%, then the house is worth $200,000. At that price, it's the about the same to rent or to buy.
My beef is that government backed mortgages are "easy" money. I don't see that at all.+1000 This is EXACTLY why gov't-backed loans distort the housing market.
The government backing frees banks to lend to people who would otherwise be considered too risky. That is, a bank would normally want a down payment and a home worth sufficient collateral before making a loan. With the government taking the risk of default, the banks can throw money around to non-savers and reckless buyers. Have you forgotten the price run ups in 2003-2008 caused by anyone who could fog a mirror getting a loan?
HeadSet saysHappy - sorry, but you're wrong on this one. If the government backs the loans, banks will absolutely take a more risky approach to loans because downside risk is limited, while upside is there.he government backing frees banks to lend to people who would otherwise be considered too risky. That is, a bank would normally want a down payment and a home worth sufficient collateral before making a loan. With the government taking the risk of default, the banks can throw money around to non-savers and reckless buyers. Have you forgotten the price run ups in 2003-2008 caused by anyone who could fog a mirror getting a loan?
That's nonsensical. Banks loan out money as an investment and only do so when their analysis shows it will meet an ROI and generate profits. They will not make unprofitable loans just because they have additional money.
The bubble was caused by poor understanding of risk and outright fraud.
HeadSet saysThe government backing allows too much easy money which is what drives up prices. Without government backing, the irresponsible borrowers would not be able to bid up prices. The only people in the market would be people who saved up the down payment and then the houses would be affordable enough to buy with a 10 -15 year loan.
All that would do is create more landlords and higher rents. That would increase inequality and hurt the middle class. Housing prices would not fall much because anybody who is no longer a buyer becomes a renter and drives up the rental cost. This means investors can and will pay more for housing.
That's nonsensical. Banks loan out money as an investment and only do so when their analysis shows it will meet an ROI and generate profits. They will not make unprofitable loans just because they have additional money.
It's the same as when government encourages women and minority to buy stocks at the stock market cycle peaks.
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https://www.marketwatch.com/story/housing-market-now-reminds-me-of-2006-robert-shiller-says-2018-10-30