The bottom line..do I have it right?

[Stu949]

Many good points – as I have also wondered if the Fed will bail the housing market out. So what is the Fed going to do?

They could slash rates again; however, the dollar sell-off would be significat. The dollar has already been selling off, and that is in an environment of rising Fed rates. With a dollar sell-off, long term rates would rise dramatically. As it is, Iran and Russia are working to sell oil in a basket of currencies (or primarily the Euro). Once these oil bourses get up and running, many of our dollars will come back home – this will only add to the rampant increase in the current money supply.

As it is, we borrow close to 3 billion from foreigners every day. To add to that, here is a quote from Rich Dad’s Robert Kiyosaki about the state of our government’s finances: “According to the U.S. Treasury Department, America’s first 42 Presidents, from George Washington (1789) to Bill Clinton (2000), borrowed a combined total of $1.01 trillion from foreign governments and financial institutions. From 2000 to 2006, the Bush White House has borrowed $1.05 trillion alone. Yes, that means we have borrowed in the last 5 years what we had previously borrowed in the first 211 years of our country.”

What does all of this ultimately mean? The Fed will continue to raise interest rates, but will halt at some point. They will let the housing market take a hit before they realize how bad it will really get. By the time they think they will be able to lower rates again, we may be on the brink of a dollar collapse – read up on Germany’s hyperinflation in 1923, John Law of France in 1719, and Rome’s inflation around 300AD. Inflation happens when humans control the flow/amount of money in circulation – it is inevitable.

As some posts stated above, it will probably be good to get out of high-density cities. Unfortunately, people will get desperate. It is probably prudent that people prepare now – the government is not going to bail us out. With the national guard overseas, immigration issues coming to a head, and an economy that is headed for an eventual fall, our security is at issue. Prepare for it the best you can.

[sdduuuude]

I think most, including you powayseller, underestimate how bad a 10% drop in median home price really is, or how long it takes. I agree, most pepole buy the “soft landing” theory and think that means a 5-10% reduction.

Of course, they don’t realize that is $50,000 on a median home !!!!! Alot of money. Two years of after-tax salary over and above basic living costs for many.

Consider the last bubble deflation was really quite nasty and the median price dropped ‘tween 10 and 15%. So, when people say “only 10%” I don’t think they realize – that is a deflating bubble not a soft landing.

Also, I think few realize how long it takes. A fast drop of 10%, then back to “normal” wouldn’t be so bad. It is the years of langushing that cause pain. It is more like torture than a simple injury that heals right away. As you pointed out – like a frog in cold water that slowly starts to boil.

20% would be nasty, nasty, nasty, especailly if it lasts for 7+ years.

[powayseller]

I took a 5% hit on my home sale in December 05 (offer in mid-Dec), and this is based on the most recent comp of August 05. I still made money, but a similar hit would be painful for people who bought at the top.

[powayseller]

Was it #3 in the early 90s? I checked johnelcos’ link and mortgage rates were pretty high during SD’s last housing runup in 88-90, running above 10% most of that time. Then during the housing bust, rates went down. They were between 8 and 9%, and varied a lot, but even went as low as 6.5% in 10/93. But housing in SD was not saved by this.

I think we need to look at the other factors in place at the time: debt levels, umemployment, wages.

Just looking at numbers from one period to the next, while ignoring the other factors, doesn’t help to predict the future.

What I learned from your research, Chris, is that one cannot just look at one or two factors on a chart to predict where we go from here.

[powayseller]

You raise an interesting point – lowering short term rates will really raise long term rates. While homeowners can get short term loans, such as ARMs, the government will have to spend too much money paying interest on the federal debt.

[4plexowner]

Here’s Adam Hamilton (www.zealllc.com) talking about real interest rates and gold:

http://www.zealllc.com/commentary/realgold.htm

[dukes]

Maybe…maybe not. We could have another round of massive Asian interference, or shall we say, buying of our treasuries which would once again validate the new so called Bretton Woods II agreement.

I am hoping you guys are right. That a dollar that is becoming uncoupled from the monetary world will force the Asian tigers to divest themselves of our treasuries thus forcing up rates.

Basically I would hate to see another round of fiscal insanity like we just witnessed in the past few years.

[dukes]

Maybe…maybe not. We could have another round of massive Asian interference, or shall we say, buying of our treasuries which would once again validate the new so called Bretton Woods II agreement.

I am hoping you guys are right. That a dollar that is becoming uncoupled from the monetary world will force the Asian tigers to divest themselves of our treasuries thus forcing up rates.

Basically I would hate to see another round of fiscal insanity like we just witnessed in the past few years.

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