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bubba99
ParticipantTo restate the issue, “Is a $400k house at 8% interest effectively worth more than an $790k house at 4% interest?”
Except for some tax or calculation differences the monthly payment is the same. Taxes are higher on the $790k house, tax deductions also higher. To the buyer, the cost of ownership might be very comparable. And that is a problem. The cost increases driven by low interest to some extent kept the payments even. Now that the rates are being raised, yes price will decrease, but monthly payment stay the same.
To the buyer who needed teaser rates to qualify the market is now unavailable.
To the buyer with a big down payment from the early 2006 sale of his/her over priced home, the market is going to look very good.
To everyone else, the market looks the same (interest) times (price) = payment =/- 4%
ParticipantTo restate the issue, “Is a $400k house at 8% interest effectively worth more than an $790k house at 4% interest?”
Except for some tax or calculation differences the monthly payment is the same. Taxes are higher on the $790k house, tax deductions also higher. To the buyer, the cost of ownership might be very comparable. And that is a problem. The cost increases driven by low interest to some extent kept the payments even. Now that the rates are being raised, yes price will decrease, but monthly payment stay the same.
To the buyer who needed teaser rates to qualify the market is now unavailable.
To the buyer with a big down payment from the early 2006 sale of his/her over priced home, the market is going to look very good.
To everyone else, the market looks the same (interest) times (price) = payment =/- 4%
ParticipantDoes anyone have a good guestimate of how much money we are talking about in CMO/CDO’s? And what about the companies that sold insurance to the buyers of CMO’s – is the insurer at risk? and for how much?
There must be some salvage to CMO’s after insurance, but leverage might wipe that out also?
ParticipantDoes anyone have a good guestimate of how much money we are talking about in CMO/CDO’s? And what about the companies that sold insurance to the buyers of CMO’s – is the insurer at risk? and for how much?
There must be some salvage to CMO’s after insurance, but leverage might wipe that out also?
ParticipantThe fed raises interest rates to cut business investment which in theory slows an overheated economy. The housing boom had longterm interest rates actually lower than prime short term rates. Bernanke’s predisessors did this to stimulate housing knowing that it would not raise the “Official National Inflation Numbers”. And that housing expansion could fuel an economy devistated by 911. And it worked for years, but sooner or later the piper must be paid, and todays housing slump is the price.
ParticipantThe fed raises interest rates to cut business investment which in theory slows an overheated economy. The housing boom had longterm interest rates actually lower than prime short term rates. Bernanke’s predisessors did this to stimulate housing knowing that it would not raise the “Official National Inflation Numbers”. And that housing expansion could fuel an economy devistated by 911. And it worked for years, but sooner or later the piper must be paid, and todays housing slump is the price.
ParticipantInflation and interest rates are oddly not connected. Interest rates pay for capital, not housing expense which goes into inflation rates. This is one of the reasons that inflation rates stayed so low during the housing boom – rents got disconnected from prices, and inflation was neutral from housing.
ParticipantInflation and interest rates are oddly not connected. Interest rates pay for capital, not housing expense which goes into inflation rates. This is one of the reasons that inflation rates stayed so low during the housing boom – rents got disconnected from prices, and inflation was neutral from housing.
ParticipantThe infrastructure for the project is already built by the developer – water, sewer, power, roads. Mello-Roos is for “other”services like schools, fire, police. An expense, not a capital cost. Unless the Mella Roos developments get better schools, or better fire, or better police service, it is again disparate.
As to the arguement that “existing” residents have been paying longer, that would almost make sense if home sellers were refunded their payments and new owners of existing housing paid Mella Roos just like the buyers of new housing.
It is just another bull shit tax on new home buyers along with building permits, meter connection charges, and land offsets for “permission to build”. By the time most new homes are started, the builder is $100k into each housing start because of fees. This should offset the cost of a new fire house, but instead morons argue that any tax you know about is fair.
ParticipantThe infrastructure for the project is already built by the developer – water, sewer, power, roads. Mello-Roos is for “other”services like schools, fire, police. An expense, not a capital cost. Unless the Mella Roos developments get better schools, or better fire, or better police service, it is again disparate.
As to the arguement that “existing” residents have been paying longer, that would almost make sense if home sellers were refunded their payments and new owners of existing housing paid Mella Roos just like the buyers of new housing.
It is just another bull shit tax on new home buyers along with building permits, meter connection charges, and land offsets for “permission to build”. By the time most new homes are started, the builder is $100k into each housing start because of fees. This should offset the cost of a new fire house, but instead morons argue that any tax you know about is fair.
ParticipantProp 13 has its merits and problems, but is not nearly as insidious as Mello-Roos(MR) taxes. For Mello-Roos, the existing residents vote a tax on new residents who cannot yet vote in the elections. It is truly a tax without any representation to those actually paying it. In one city in Northern California, the underlying bonds have been paid off due to higher than anticipated MR revenues, but the city plans to keep collecting for the life of the “planned” payoff period. IT is this type of unfair taxation that created prop 13.
ParticipantProp 13 has its merits and problems, but is not nearly as insidious as Mello-Roos(MR) taxes. For Mello-Roos, the existing residents vote a tax on new residents who cannot yet vote in the elections. It is truly a tax without any representation to those actually paying it. In one city in Northern California, the underlying bonds have been paid off due to higher than anticipated MR revenues, but the city plans to keep collecting for the life of the “planned” payoff period. IT is this type of unfair taxation that created prop 13.
ParticipantBut the -3% we should have seen with the inverted yield curves never manafested itself. All the deflationary pressure was eaten by foreign investors – as they continue to accept negative returns on their dollar investments. Housing and rents stay disconnected from economic fundamentals, and if they return nominal levels – housing crashes and the banks go with it.
The deflation is in the dollar, but not at home. The 6-10% inflation that should be – isn’t yet. Creating new devalued dollars causes the dollar deflation that China, Mid East, and Europe are eating.
Participant“Also like to mention that the KEY factor that drove the boom was buyer *PSYCHOLOGY*. The belief that buying a home was the key to wealth, that homes would appreciate strongly, that if they don’t get on the bandwagon the road to wealth will be missed.”
I could not agree more with the above quote, but when we look as to (Why do buyers believe housing is the key to wealth?) Then we see the shadow of the Federal Reserve Bank. It was insanely low interest rates that drove the prices so high – and the FED is not done yet. Buyers of FED debt are getting only about 4 to 5% on their money while the dollar has devalued by 8.75% since just last July. The Euro deposit rate in London is 5.32% The FED should be raising rates to stop the freefall of the dollar, but they are not. The European investor is getting a negative 3.5% return on US dollar investments.
IMO the FED is trying to hold off on any housing collapse even at the risk of the dollar. Prime is 5.25% and 30 year mortgages are still in the 6% range. 30 years of potential inflation is carrying only .75% premium over short term money. This is not as insane as the inverted yield curves (long term money cheaper than short term) we had in 2002, but still fundamentally unsound economic policy.
We know that significant price drops in real estate will trigger trillions of dollar losses in FDIC banks. The FED will fight this all the way down. Now that M3 money supply is hidden from public view, the FED can create dollars without any public outcry. They added 1.2 trillion in 2006 without so much as a footnote. The days of 2% mortgage money could return.
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