Read housingbubblecasualty.com; 50 year mortgages are not much lower than the other products.
Even if the Fed lowers rates by 1%, how can it help housing? The Fed knows that it must make debt available to make up for the loss in purchasing power. Real wages are flat or falling, so they have to make cheap debt. The economy is dependent on people willing and able to take on more debt. From the data I see, the American public has taken on about as much debt as they can handle.
Even a 100 year mortgage doesn’t help much. I’ll tell you why: extending the mortgage terms only reduces the principal. You still have to pay the interest, which is the biggest portion!
An I/O loan is cheaper than a 50-year or 100-year or 1000-year mortgage, because you are paying interest only. Even with that loan, people are tapped out!
The only way to make it cheaper is to offer option I/O loans: you pay only part of the principal. We already have that I think. But investors expect to be paid, so these loans come with large prepayment penalties, and they attract subprime borrowers.
Just wait another year. The high foreclosures will bring an end to investors wanting to touch these exotic loans with a 10′ pole.
Another interesting tidbit: the rate of first-time missed payments is up. This means the first mortgage payment was never made.
Keep in mind that historically, the homeownership rate was 65%, for many decades. Now it is 69%. That extra 4 point increase brought in people who are NOT qualified for a mortgage, who needed subprime and liar’s loans to qualify. That is a huge problem for the lenders. It also shows that we are maxed out on the number of eligible borrowers. To bring it to 72%, you would need to give loans to the mentally ill and other extreme groups.
No, the 50 year won’t save housing. The only remedy for housing is the ability AND willingess of CURRENT homeowners to take on more debt, to trade up. But even then, you still have the problem of overbuilding.
There was a KETV.com video (Omaha, NE) yesterday, profiling how long it is to sell homes. Overbuilding, and the highest inventory that a realtor with 26 years in the biz, could ever remember.
