patrick.net

I guess government really want us to buy houses while we are getting crap interest return from banks...

The lowest interest rates in 50 years and real estate continues to slump. The next big hit in real estate will be on the commercial side. This is not good news for the real estate & financial markets nor for the economy in general. New unemployment claims figures were just released and they were “unexpectedly high." I keep waiting for "Hope & Change" to kick in. So far the only "change" has been for the worse.

thunderlips11 says

What would homes be worth if the interest rate was a normal 7%?
Probably at least 10-15% lower. More like 20% I think.

But you don't have normal (7%) interest rates coming out of a recession. You could just as easily ask this hypothetical--What would home prices be if we were getting normal 3% wage growth? Probably at least 10-15% higher...

Rates follow the overall economic activity. Until the economy improves, rates will be low.

I bought my first home in California in 1984 ......... Even with fantastic credit, the going home loan interest rates were 13% and I refinanced a few years later to a 11 7/8% rate which I was glad to get! I know for young folks these are eye popping rates, but that's the way life was in the late 70s and early 80s. On the up side though, I also had money in CD's at 10% so as you can see, interest rates were high compared to today.

You also get to appreciate the attractive over-priced taxes for the next 30 years.

1.9% would be great. Then I'd feel better when I start paying the bank to keep my money for me- oh, wait, I already do that.

Anyone know how much they charge extra in points for an investment property? Is it generally a full point? I have one at 5.5% fixed atm and wondering how low rates need to go before its worth a refi.

Historically low interest rates. Low demand and falling prices. Why does this sound like deflation to me?

7% may be "normal" but

Japan's mortgage rates are something like 1.5% so we could have a ways to go. .

Here's a hint, fellas. If the economy were indeed anywhere even remotely close to "recovering" interest rates would not be dropping like this.

The Fed would also not be keeping FF rate at 0-0.25%.

Everybody knows the Titanic is going down except for the clueless dolts who are enjoying the violin music (now playing on deck as some of the folks were noticing the water in their glasses on the tables in the dining hall tilting a bit).

axmcmillan says

Anyone know how much they charge extra in points for an investment property? Is it generally a full point? I have one at 5.5% fixed atm and wondering how low rates need to go before its worth a refi.

It depends on the lender. Mortgage brokers make their money on fees, i.e. closing costs, etc. (and then sell the loan on the secondary market). I have seen closing costs vary quite a bit from lender to lender. Check around for the best rates and closing costs. As far when it is in your favor, you'll need to work the math. You'll need to get, in writing, a Good Faith Estimate on your closing costs along with the interest & APR rate stated in order to do the math. Reputable lenders have no problem giving you a GFE in writing. If they won't, don't do business with them. Simply subtract your new payment based on the refi rate from your current rate to find out how long it will take to recoup your closing cost money. Obviously, it depends on how long you will keep the property as to whether or not the refi is in your best interests.

schmitz_kris says

Here’s a hint, fellas. If the economy were indeed anywhere even remotely close to “recovering” interest rates would not be dropping like this.
The Fed would also not be keeping FF rate at 0-0.25%.
Everybody knows the Titanic is going down except for the clueless dolts who are enjoying the violin music (now playing on deck as some of the folks were noticing the water in their glasses on the tables in the dining hall tilting a bit).

I agree 100%. I've read several books on the Titanic and there are a lot of parallel lessons. I always found it amazing that when the first lifeboats were lowered, they had a difficult time getting people into them because "everyone knew the Titanic was unsinkable." I started to see fundamental problems with our economy back in the 1980's and whenever I'd get in a conversation about it people, for the most part, didn't want to talk about it. Now, literally, everywhere I go, just about everyone has a negative comment about the direction our country is going, i.e. jobs, illegal immigration, trade, etc. We are at the point where the water hasn't quite reached the main deck area, but it won't be long. One major event, like another 9/11 and the rest of the cards come crashing down.

Nomograph says

What exactly do you mean by “the Titanic is going down”?

How much free time do you have? I could go on for days, weeks perhaps.

Let's start with this tidbit:

http://www.gallup.com/poll/141692/Wells-Fargo-Gallup-Small-Business-Index-Hits-New-Low-July.aspx

Gee, there sure is a lot of headlines with "record low" in them these days. There's also a few with "record high" in them, however, such as this one:

Foreclosures in US 2Q 2010 hit record high

http://article.wn.com/view/2010/07/17/Foreclosures_in_US_reach_a_record_high/

Also hitting new all-time record highs is the deficit, the number of individuals underwater on their mortgages, the number of States being forced to borrow to pay unemployment insurance benefits, the number of pensions that are seriously underfunded, the number of individuals simply not paying their mortgage at all, etc.

I mean, I could spend hours typing up all of the statistics and headlines, but a great, simple way to put it is that "the Titanic is going down."

If we look at flow of funds, it's evident that many private individuals (such as myself) as well as institutions wholeheartedly agree with this movie analogy (it's a perfect one). The markets clearly indicate that a rush to the emergency exits (lifeboats) has been happening for quite some time now. We see this in the precious metals markets, treasuries, short funds, etc. There have been repeated "record highs" and "record lows" in those markets as well, of course. These are all signs (loved it - any film with aliens is just a great one IMHO).

As someone who aggressively shorted pound sterling during the 2008 financial collapse I assure you I most definitely have thought this through.

Did you make any money during the economic chaos, or are you just some sort of mainstreamer ignoramus who is too frightened to investigate the deeper layers of our eCONomy?

When I see "record high" in the headlines to me it means "not going to last" or "at the turning point"

just like housing prices in 2007 were at a record high.

There is nothing inherently unsustainable about a new record high/low if it's based on fundamentals (human population keeps hitting new record highs because of fundamentals, for instance).

If the USA had experienced significant growth in inflation-adjusted wages, incomes, employment in real, productive sectors, etc. the rise in RE prices would have been a logical and sustainable outcome. This was not the case, however, and the bubble burst/continues to burst. People seem to have a very hard time differentiating speculative manias from fundamental rises/drops. Much of that difficulty/confusion in the economic arena happens when/if money is excessively cheap (due to improperly low interest rates).

toothfairy says

When I see “record high” in the headlines to me it means “not going to last” or “at the turning point”
just like housing prices in 2007 were at a record high.

Housing prices were at a record high in 2004.......2005.......2006.....So just because the Titanic is taking on water, doesn't mean it's sunk......yet.

Jeremy says

yet

One of the most meaningful little words in the English language.

RayAmerica says

On of the most meaningful little words in the English language.

especially for investors.

Most people in coastal California are signing up for a $1 million trip, when you add up all of the payments. That's a lot of money to rent, for nothing but a place to live.

Nomo just keeps Ray honest. It's like Siskel and Ebert .. with benefits.

You are confused. The negativity did not precede the facts and figures - it's vice versa. Events in the financial markets CAUSED the negative opinions and sentiment to form, not the other way around.

There is nothing empty about any statement reflecting the seriousness of the present-day US economy. The situation is dire, and that is why money is flowing in the direction it is flowing.
Perhaps you are in possession of positive financial news the markets do not have? IF SO, FOR GOODNESS SAKE PLEASE GIVE IT TO THEM - we would all like to see US equities higher now than in 1998 or so and interest rates at the local bank at 7%.

Why do you think the FF rate is at 0-0.25? Why are we seeing treasury yields like this? Why are we seeing nearly ALL of the indicators that I mentioned (and many more that I did not go into)? It is because the situation is NEGATIVE.

If the economy is self-correcting, doesn't the constant government "help" only gum things up more?

We're still in the recession, and it has been 2.5 years and counting.

http://www.nber.org/cycles.html

EastCoastBubbleBoy says

If the economy is self-correcting, doesn’t the constant government “help” only gum things up more?

Right on. The Government doesn't solve problems, government is the problem. Ronald Reagan hit it out of the park with that one because it is so full of truth. The TARP money went to the banksters to cover their toxic loans. The American people were told it was all about freeing up the credit markets. What a joke. Granted TARP started under Bush, et all (voted for by McCain & Obama), but it is being managed under Obama. This was nothing other than a money grab from taxpayers to pay off the banks for all their sloppy and often illegal lending practices and their multi-layered derivatives.

I read somewhere that the FED indicated that they would rather err on the side of too much stimulus rather than too little.
So FF rate will not go up until the recovery is well underway.

EastCoastBubbleBoy says

If the economy is self-correcting, doesn’t the constant government “help” only gum things up more?

The economy is not self-correcting.

I got that Greenspan book as a gift when it came out. Makes a good doorstop.

The only house I ever owned I purchased in 2000, with a 30-yr fixed rate of 8.5%. (I sold in summer of 2004 and started renting.)

Nothing seems so fundamentally different about the world now that rates couldn't go back to 8.5%. They were in that range for years, and it was no big deal. It would be no big deal again. If it happens, it will drastically cut how much of a loan people can qualify for.

I can't imagine how people with modest net worths can purchase a house now without being afraid of that. I have no idea whether rates are going to rise significantly from their current all-time lows, but it seems very possible. Owning a house now seems like owning a house without insurance against fire.

I'll rather pay 12% than pay 4% at the current prices in the bay area.

With 1/8 the US population on food stamps I would suggest doomsday is approaching.

Yes I would like to buy an overpriced house. But only if it is magnificent and the entry way says "come on in daddy" - well that would be my criteria for buyin an overpriced house - cuz I could - and cuz I can

I'd rather rent than buy a 600K piece of crap at 4%.

thunderlips11 says

It was compounded by the great easing of credit and the hyperfinancialization of the economy that really began to take off in the 1980s.

This I agree with. Debt is almost always bad, and in the 70's and 80's federal and private debt began to grow essentially exponentially. That is the core of our problem, we became a debtor nation and people.

thunderlips11 says

Many companies move to Canada from the US in order to get the health insurance - the cost of their tax payments is offset by the savings of not having to pay employee health care premiums.

I say let them go, anyone who trades freedom for "security" deserves neither and shall lose both. (btw how to you define "many"? haven't heard of mass migrations to the frozen north)

If you really want to understand when America was at the height of power and prosperity I suggest you look at "The Rise and Fall of the Dollar" posted today by Patrick. ?source=patrick.net

The height of American Power and prosperity in the past 100 years was roughly 1940-1950. After that debt and the warfare-welfare state forced the destruction of the dollar to the point where now husband and wife each working two jobs is often barely enough to get by and consumer and federal debts are crushing us all. In reality presidents and leaders on both sides of the aisle from FDR to present day have been leading America to destruction by debt and debasement of our currency.

I think something big is happening. Me and 4 other friends that have offered on short sales on different dates, negotiating with different banks, were all responded to TODAY. It's strange. Do they know something that we don't?

Why is it that every time there is a discussion about the future collapse of the US economy, it's all about finger-pointing and blame-shifting? Does it really matter who caused the problem? Does it matter what policies caused the problem? Does it matter who is in control of the government right now? No! All that matter is that something has to be done about it and soon.

The real story is the total failure of the government to make the hard decisions that will get us out of this mess. It's not a failure of the democrats or the republicans or the president or the supreme court, it's a systemic failure. And by extension, it's a failure of we, the people, because we elect the government.

As Johnny Rotten once said, "No one is innocent." So how about we get over the partisan bickering and start a meaningful discussion about how we are going to solve our problems? How about well-reason and rational suggestions instead of dogmatic bullshit that's been proven not to work? And finally, how about we take JFK's words to heart and "ask not what your country can do for you—ask what you can do for your country." instead of the "me-first" attitude that is rampant in today's society?

I-man says

And finally, how about we take JFK’s words to heart and “ask not what your country can do for you—ask what you can do for your country.” instead of the “me-first” attitude that is rampant in today’s society?

Unfortunately, the private banksters of the Federal Reserve and the gangsters on Wall Street don't agree with any of that.

Both parties and all Americans think alike. From Liberal bay area residents to Redneck Texans. Their views are all identical. From the most liberal to the most conservative. Everything we do is hair splitting to differentiate them.

If you want to see different values and systems go to the remote mountains of Pakistan or Afghanistan. Those are different cultures. Those people have different views.

Our problems will correct themselves when they become emergencies. We're good at dealing with emergencies. Everything else is ignored. If we didn't ignore it, then every person on every street corner would be out there promoting their beliefs and what is wrong and we would be trying to "fix" ourselves. We only fix ourselves when it's an emergency, but when there are claims of said emergency, not when we appear to be heading towards said emergency, but when we're actually there.