Bill Gross from Pimco made the comment about 2 years ago I believe that we could be in a Japan-style recession where interest rates went to 0% and housing still fell for years. It was the closest business model to anything we experienced post 9/11. We obviously won’t see zero but we could see 4%. We will eventually get back to 7 or 8 % but I don’t think you’ll see it for 3-4 years minimum. If we see 7-8 % prices would have to be significantly lower than they are right now.
30 Years
Interest rate: 7.500%
Loan amount: $ 500,000.00
Monthly payment:$ 3,496.07 a month
Ratchet that up another 1/2 % and its $3,668.82 a month
Add in taxes, HOA, utilities, car payment etc. and it’s a tough nut to crack for the average Joe. I’m sorry but going forward with the outsourcing and downsizing going on we’re not going to be seeing the kind of salaries that can make this mortgage payment. It’s exactly the environment that has been unsustainable today. A $300,000 loan @ 7.5 % is at least at a more manageable $2097.64. That’s where the scales tilt in buy vs. rent favor again. How many houses are there in these ranges and buyers with enough equity to make the deal? Not many. Prices are still 2-3 x higher.
The gov’t is in a squeeze between keeping the dollar low enough to attract foreign money to buy our goods and balance our trade deficit and maintaining attractive enough rates to spur more dollar-denominated investments. We’re on the cusp of a bad recession with inflation everywhere you turn. Banks are taking more writedowns and we haven’t seen the end of it. This could go on for another year or more. The losses won’t be as bad but there will still be a fair amount of red ink flowing.
Citi says UBS may need up to $18 billion in writedowns
With the feds keeping interest rates down banks can get more qualified – and I mean QUALIFIED buyers into homes again. The problem is the ratio of qualified buyers to available properties is probably going to be 1/50 which doesn’t lend itself to brisk business levels. Time will tell.
