[hipmatt]

The fed affects short term rates, the fixed rate loans are based on other things,

Understanding why mortgage loan rates fluctuate can be difficult, but there are some basic factors that come into play when banks decide their current rate offerings.

* Bonds. If you’re ever at a party and a hot girl or guy asks you to tell him or her why interest rates rise and fall, just smile, run your fingers through your hair, and say, “Because of bond prices. Now let’s make out.” Sure, it’s a bit more complicated than that, but higher bond prices typically mean lower mortgage rates and vice versa. To make a long story short, when you get a mortgage loan from a bank, the bank will turn that loan into a bond for investors to buy. When the bond market is hot and investors are willing to pay more for those bonds, the banks can afford to drop their rates. But when the bond market fizzles, they’ll need to bump up the rates on your loan (and, thus, on the resulting bonds) in order to attract investors again. And in case that explanation is too long: bond prices go up, mortgage rates go down.
* Inflation. When inflation is high, you’re going to be paying more money for things. Rampant inflation typically means the economy is growing very quickly, so the Federal Reserve steps in to raise interest rates and stop the economy from growing too quickly. So until inflation and prices get back under control, mortgage rates will typically rise with other interest rates. And when the economy slows, inflation drops and so do mortgage rates.
* Demand for mortgage loans. If lots of people want to buy homes or refinance, then most of them will need mortgage loans. And when people are climbing hand over fist to get a loan, lenders can get away with jacking up their rates. Similarly, a low demand for mortgages means lenders must cut their rates in order to intice people to apply for them.
* Housing prices. Higher home prices typically mean that people will need to borrow more to buy them. And if interest rates are too high, they can’t afford to get a loan for those super-expensive houses. Thus, as housing prices climb, interest rates usually come down to compensate.
* Value of a dollar. If the value of the U.S. dollar (or whatever your country’s currency is) goes up, that’s a good sign that inflation is falling. And as I mentioned earlier, inflation typically takes mortgage rates in the same direction.
* Many other economic factors, but to lesser degrees. In a way, every transaction involving money anywhere in the country will have some sort of an effect on the economy and a resultant effect on mortgage rates. A single positive earnings report from a big company could push stock markets higher which would temporarily draw investors away from bonds, sending mortgage rates higher. A slew of other factors, such as personal income and spending, housing starts, retail sales, gas prices, and even the political climate can have some sort of an effect on mortgage rates. To put it simply, anything that can affect the economy can also affect mortgage rates.

[hipmatt]

I also appreciate this site tremendously and I feel that I have made better financial decisions too. I usually pop in every day for over a year now.

Just remember everyone, that this has been the biggest and longest housing bubble ever in this country’s history. To think that its gonna take only 1-3 years to bottom is a little naive considering that the last correction took about 6 years (1990-1996) and that was following a 4-5 year bubble(1985-1990). This has been a 10 year bubble period. (1996-2006). I just think it is possible that we won’t see a bottom until after 2010, maybe up to 2012. Housing prices aren’t falling as fast as we thought they would, and they haven’t really fallen that much at all, yet…

Maybe this will be different due to MASS foreclosures and “internet awareness”, but I expect the fed + current homeowners + the whole RE industry/home builders/lenders to come up with numerous ways along the road to try and prevent economic nature from running its course so that they can lock in profits, buy time to get out, keep shareholders invested, or postpone the inevitable, and blame the next guy or pass the buck.

If I had to guess what was more likely to happen in the next 6 months..

Scenario A: the dollar continues to lose value and inflation remains very high(higher than the fed wants us to believe) due to the fed creating even more credit and/or lowering rates again. This scenario would have its own problems, the first being that the purchasing power of the dollar is lost, thus goods and services cost more, and our quality of life suffers.

Scenario B: America gets smart, realizes its mistakes, and lets housing do its thing (collapse) and then the stock market follows, then employment follows eventually leading to a (somewhat healthy)recession. I call this the REAL wake up call.

I tend to think scenario B is the best thing to do, but I think scenario A is easier to do, and will catch less “flack” from investors/wall street. If they choose A, they can kind postpone scenario B, which someone else may have to deal with and take the blame for. BTW scenario A will make scenario B much worse. I think America needs a wake up call, but I’m afraid they don’t have the strength, so I will put my money on A for now.

Think its never been done before, Alan Greenspan did it for about 5 years, then handed a strong “looking” economy over to Bernake last year. Take away the easy credit(including subprime), and now how strong are we?

Hopefully this time, the housing correction happens faster than in the past, but I really don’t expect any big bargains in 08 or 09. Hopefully I’m wrong. Happy investing.

[hipmatt]

Greenspan and Bernake are responsible for the complete DESTRUCTION of the US $$$$$ and high inflation. Bernake and his groupies don’t seem serious about fixing this problem.

Greenspan + SubPrime Lending (and lack of lending standards)+ Really dumb Americans + Speculators + Mainstream Media are responsible for any housing or lender related crisis as well as the hugely inflated home values.

I am as much against gov. regulation as most any republican, but I do feel that there needs to be regulation in loans for homes. We need to get back to down payments, fixed rate, and away from int. only and 40 year loans. For those who buy a second home or speculators, a higher down payment should be required. This will greatly stabilize housing prices(lower them initially), and you will still see nice appreciation.

[hipmatt]

Submitted by FormerSanDiegan on March 26, 2007 – 10:24am.

No Way.

Three reasons:

1. I would never buy a house that I intended to own for less than 5 years.

2. I would not a buy a home now in Southern California

3. I would never buy a home in Lancaster.

 

Pretty much exactly what I was thinking! 

[hipmatt]

It would have to be $200k max for me to even think about it. If its a fixer, in that neighborhood, and prices are gonna go down to 2000 prices, then 200k is still high. Its only 1100sqft. In 3-4 years it may be worth less than 200k.

[hipmatt]

Not that this is a surprise, Perris is the armpit of the IE, and is largely populated with low income earners with little education as well. Being that it was the last “cheap” area in socal, this doesn’t really come as a surprise. Sounds like a subprime lenders dream come true, until now. There is HIGH crime, Gangs, and poor schools. No one there is educated enough to know that housing is way too high and that subprime loans suck. This is half the problems facing this area.

Could Perris become our own “Fallujah” after housing crashes there too?

[hipmatt]

Just wait at least 3 years, and you will do fine!

[hipmatt]

sorry this is a duplicate post

[hipmatt]

I’m glad this pissed you all off as much as it did me. I feel the same way you all do, I have a savings, and rent responsibly, and am waiting to buy again, but this type of gov. behavior will reward everyone who shouldn’t deserve the help. It’s like giving a gambler cash after he’s blown it all.

Please let your voices be heard, or the dumbing down of America will continue.

[hipmatt]

The best thing we can do to prevent this is to email this to every responsible american you know, and then ask them to write Dood and other congress members. I already gave Dodd a piece of my mind. Make this issue known!

[hipmatt]

They are proposing that tax payers bail out the sub prime and thus housing….
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1x64z58hsB4&refer=home

[hipmatt]

What a shame that congress is even considering this. The
irresponsibility of Americans has gotten even more out of hand.
People need to be bailed out of their toxic home loans? Whose fault
is it that these people paid ridiculous amounts for a home that they
could not afford, with little or nothing down, with adjustable loans?
These loans are what is responsible for the current housing bubble,
and to bail out these idiots would be another huge mistake that the US
would make. They signed all the loan docs, how many times? It is
buyer beware. It is their responsibility,

The best way to deal with this is to hold the lenders, mortgage
backers, and home owners responsible. It will be a tough lesson, but
we will not duplicate the mistakes if we let nature run its course.
Penalizing the few who know how to manage their money, and avoid the
most ridiculous housing bubble in over a decade, is wrong. I feel
that our abuse, misuse, and large appetite for credit and debt is the
single largest problem with our country, which is why we have a
negative savings rate, a huge housing bubble thats just begun to
crash, a stock market that has been faked up to look good, but is now
suffering, and a weak dollar that is becoming even weaker to other
world currencies like the yen, euro, pound, etc. This is a shame.

[hipmatt]

The bargains won’t be here for a few more years at least, so stop looking!

[hipmatt]

I feel that at least a 10% down should be required for all home buyers. And at least 20% for second homes or investment properties. Home prices would be much cheaper, and it would be easier to save up for 10% of 200k vs. 500k. If you can’t manage to save up 10%, why be trusted with a loan? Sorry, I know this will offend some people, but its true. If you are financially responsible, you can save up the difference. Besides, the mortgage on most loans that are 100% financing are at least 2x what rent would cost, you should be able to save up quite a bit renting, if you think you can buy. Anyways, how can you consider it owning a home if you owe 100% on it anyways, seems like renting to me.

[hipmatt]

Subprime is about 10% of the market and is decidedly the low end of the market. Of that 10%, 15% might be in troule.

You wish dude! Sub prime in the last 3 years has been closer to 85% for all first time buyers.  Of that, at least 20% right now are in trouble!  Since first time buyers are what drives the market, there is gonna be a big problem.  Who is gonna buy the all the $500k entry level homes (people moving up or into those desirable ares) in SD with what money????  Especially now that the toxic loans are disappearing and when the loans reset this year, and more and more people start to realize that they owe more than their home is worth, they will start wondering why they are living off of PB&J for a lost cause and they will walk.  Its is already happening badly in the IE.  I agree that SD will handle it better.  But it is still relative, and it'll be much more than 1.5%

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