Today is Mrs. Irvine Renter’s birthday. Since I manage to forget to get a card for her every year, I thought I would wish her a very public happy birthday.
Hopefully, this Valentine’s Day I will remember a card so I won’t have to write another poem.
I suppose you have to wonder about a guy who would drive around with this license plate:
It is rather entertaining to see the reactions of people in my rear-view mirror…
I want to let everyone know that I will not be as active in the comments over the next week. I have family coming to town to visit for the holidays. I suspect I will have enough downtime to see what is going on, but if you ask me a question in the comments, it may not receive a response.
{book}
So what do you think now that money is free? We joke about the free money during the bubble, but with interest rates a 0%, the FED really is giving away free money to any bank wanting to borrow it.
I saw at Calculated Risk that either banks aren’t lending or borrowers aren’t borrowing because mortgage equity withdrawal has turned sharply negative.
Then there is this scary report that says subprime was only the tip of the iceberg.
What is going on in your world this weekend?
IR,
I probably should have sent an email rather than posting here, as you might not see it…. However if you do… I have heard that there are some substantial newly-homeless encampments in the LA area and some in the IE. I have not seen photos or write ups yet. Do you know much about this issue and is it a problem at all in OC that you are aware of?
Happy Birthday to your lovely wife and happy holidays to you and everyone here, too!
Another sobering report on what’s in store for California from Mish Shedlock.
http://globaleconomicanalysis.blogspot.com/2008/12/california-implodes-in-multiple-ways.html
Of course, Irvine is special and immune to all that is going on around us (bla bla bla).
Where are all the IHB commenters who repeatedly argued that “the Fed can’t control mortgage rates” and “mortgage rates are only going up”?
The Fed’s sure doing a good job lowering the Fed Funds Target Rate and buying Treasuries considering mortgage rates are at a 37 low. I’m not suggesting this will prevent housing from reaching fundamental values; I’m simply pointing out that many people with great conviction in their forecasting fortitude regarding interest rates were wrong… very wrong.
Predicting rising interest rates was a low-risk prediction given that interest rates were already at historic lows. It proved to be incorrect, at least in the short-term, because few anticipated how desperate the FED would become and how low they would push interest rates.
Ordinarily, the FED only buys and sells 30-day Treasuries to influence the Federal Funds rate. Now that they have driven that to zero, they are buying longer term treasuries to drive those rates down as well. They have never done that before. I don’t recall anyone predicting “quantitative easing” (buying long term Treasuries). The FED is acting in ways it has never acted before. We can debate whether or not their actions are good or bad, but that these actions are unprecedented is quite clear.
At this point, it would not surprise me if interest rates stay low for a long time. Japan has had 0.5% to 1% interest rates for almost 20 years. Bernanke will leave interest rates that low until inflation returns because he wants negative real interest rates to stimulate lending and borrowing. Inflation will not return until the economy hits bottom. When this will occur is anyone’s guess. In all likelihood, Bernanke will leave interest rates low to devalue the debt that was issued during the recession. Adding 20% to the nations debt is not as much of a problem if you inflate away 20% of the currency’s value.
At this point, it is not a stretch to predict a rise in interest rates. I don’t think they can go below zero. At this point the only real question is when do they go up and by how much.
Many people missed this including myself. I think we all under estimated the leverage ratios on theses assets…. and how critical it is to attempt to keep the asset prices from dropping catastrophically. Now I would not be shocked to see mortgage rates head to 3.5% and stay low for close to a decade.
This is another interesting read:
http://globaleconomicanalysis.blogspot.com/2008/12/humpty-dumpty-on-inflation.html
After you read that article from Mish…. you might appreciate this…
I wonder if we will be seeing inflation propaganda like this soon:
https://www.youtube.com/watch?v=99Dzdc1H0wM
History buffs will really enjoy that.
“Way down south in the land of cotton, old black Joe and all his relations will be bending low.”
Happy days are here again! LOL
It’s a period piece from 1933.
The Mish analysis shows that we increased the money supply at a similar pace during the Great Depression. There were also artificially low real interest rates around 0% during the Great Depression. This could not stop deflation. I think the leverage ratios are worse this time. It’s true that common stock traders had leverage ratios of 10 X in the late 1920s. However, Hedge Funds were mega players this time around, many with leverage ratios of 50 X or greater.
Then you watch that 1933 propaganda video on inflation; how different is it this time? Sometimes I watch CNBC and I feel like “experts” are trying to scare us into inflation. Just something to think about.
Conforming loans. For anything over the jumbo conforming limit, it’s a different story.
things are changing so quickly these days, I wonder if that will change with the pending Jumbo Prime, Option Arm, Alt-A implosion….
There will certainly be pressure to tweak conforming and “jumbo conforming” loan limits further due to the huge risk spread on jumbos.
I have similar concerns. The uncertainty generated by government policies keeps both buyers and sellers sitting around waiting to see if a new better deal will pop up. Buyers are waiting because home prices are too high and are falling. However, they are also waiting for reduced interest rates or the next special federal subsidy.
Sellers are even worse, hoping to be bailed out by one of the many current or upcoming plans.
What’s odd is the conforming 30Y fixed is 5% (give or take 1/8th) while the conforming 30Y 5/1 ARM is near 6% (give or take 1/8th).
“Yes. Please give me your 5/1 ARM and I’ll pay a full point more for 5 years and then I’ll accept all the interest rate risk on my balance sheet in 2014 ’cause I think rates will be even lower then.”
Crazy!
Wow, that is crazy. That sure rebuts what that financial analyst was saying in the comments a few days ago about this being the perfect time to get an ARM loan.
Yes, I missed it. I missed the willingness of the Government and gullibility of the masses to turn the dollar into the Peso in an effort to keep speculators and banks solvent.
We all want to have our cake and eat it too, the responsible and irresponsible alike.
It’s a fine catch 22 we are in. Those of us who have saved cash reserves would like to be the vultures cleaning up the carcass, but at what expense?…. will we have jobs? what will our salaries be after all these asset values crash? It’s easy to forget that each home sold at a mega loss to a lender is a leveraged loss putting more distressed assets at risk and sending our economy down the deflationary death spiral…
Personally I would rather deal with the free market solution and pain. Our government is shooting for an L shaped solution.
Well…
Not just our economy. When CA housing prices go down, CA renters who have been wanting to buy are the clear winners.
Once you get losses beyond typical downpayment sizes, the people suffering are PMI insurers, MBS investors, Fannie Mae, Freddie Mac, etc.
In other words, we are exporting a huge portion of California’s housing losses outside of CA, and even outside the US. Much of the bailout efforts focused on banks are helping foreign banks and owners.
In a global meltdown clear winners are few and far between. There are plenty of clear losers, and mostly just a lot of waste and destruction. There are very few people who are not impacted by the uncertainty that lies ahead…. even those of us who have played our cards right. We are living during a very disruptive time period; lacking the economic productivity for all responsible parties to benefit.
With the US govt bailouts and walk aways, I don’t know if the renters will gain.
I see:
The Winners:
1. HELOC and no money and negative money down as the winner. Walk away with cash in the pocket and the bank, then tax payer holding the bag.
2. Money Lending Brokers who got their 1 to 2% for handling the loans.
3. Flippers who only got caught on one bad deal (especially a nothing down deal).
4. Real Estate Agents, sales people, and others who got 0.5-2% out of each transaction or bonus from the transactions.
Smaller Winners: Local govt that go excess tax revenues for x years.
People who broke even:
1. Bought at the high with nothing down or did a HELOC to make it nothing down and can walked away.
Smaller Losers:
1. Renters who paid higher rents for the last 10 years. High housing prices were partially off set by higher rents.
Big Losers:
1. People that had large down payments and didn’t abuse the HELOC system.
2. Investment funds, 401k’s who were left holding the bag with banks, insurance stocks, bad loans
Negative mortgage equity withdrawal is a form of savings. If aftertax interest rates on CDs are far lower than HELOCs and mortgages, paydowns make a lot of sense. If you have a 6% mortgage or an 8% HELOC, paying those off can be much better than buying a 2.5% CD.
This is also true of auto loans and credit cards. In those cases, interest isn’t tax deductible and often the loans can be quickly paid off in full quickly. That paydown can easily free up hundreds of dollars from the monthly budget.
Happy Birthday to your wife IR!
Aww…That’s a sweet license plate.
I thought for sure your holder would say “Don’t laugh-it’s paid for-I rent my house”.
My wife is demanding me to get one.
Fortunately, my wife doesn’t read this blog or she would be wanting me to get one too!
Around Detroit:
“My car is worth more
than your house”
If a bank borrows money at zero interest, they still have to find a borrower who will pay it back.
I picked up this flyer http://nothinbutnetworks.com/house_flyer.pdf the other day.
Now, I’m all for FHA and what they do, but the concept of 48% DTI is just blowing my mind. There is NO WAY a family of 4 can have a responsible budget spending that kind of money. Even making ~$105k/yr!
Also, 92646 (Hunt Bch) lost $95k in its median MoM according to dataquick. We’ll see those prime areas drop soon enough 🙂
I cannot perceive any family making a bit more than $9k/month paying only 3% down on a house. Where the hell does the rest of the money go to?
Only in America, I guess.
Happy Birthday to your better half ! 😉
Happy birthday to Mrs. Renter!
Mish also wrote recently he has an interest only mortgage tied to the 1-month LIBOR and is annual rate is going to drop to 1.75%. So the Fed is having some effect on arms that were going to reset and increase the mortgage payment. Mish predicts the Alt-A disaster may be mitigated by the Fed’s actions.
As the guys said in the 20’s: I love my wife but oh you kid.
IR…my bad…forgot to say happy B-day to your other 1/2.
Be grateful that at least you have a nice warm roof over your head.
http://www.ocregister.com/articles/people-night-shelters-2263137-house-santa
http://www.designs.valueinvestorinsight.com/bonus/pdf/T2_Housing_Analysis.pdf
Thanks for the primer on the housing loan market. 3X income for house is a great formula. Too bad people lived by that rule are paying the price (taxation to pay for the bailouts). It looks like the rest of the USA are going to pay for the states with hyper “appreaciation” on home that when poof.
I think the potential is there for worse to come, hopefully the measures taken will alleviate it. One must wonder what the world would look like if Al Gore won in 2000.
Gerard Hagan – Edmonton Homes