[Rich Toscano]

[quote=SK in CV][quote=Rich Toscano]But this actually doesn’t really matter. Even if rates went up but home prices didn’t go down, I’d still be able to offer a lower-than-market rate, which would presumably increase the market price for the home from what it would have been with a non-assumable loan.

[/quote]

But, on the other hand, if rates went up and prices did fall, you’re upside down and the value of that assumable loan just disappeared. (Maybe. I have no idea if upside down loans are assumable. I’m guessing that an appraisal is part of the assumption process. Though I’m also assuming that reasonable standards are included in FHA rules. What am I thinking?)[/quote]

Good point, SK, but on the other hand, having an assumable loan should increase the value of the home from what it otherwise would have been… so maybe you won’t be upside-down after all?

[Rich Toscano]

pri_dk – You are right, there not much of a correlation between home prices and rates. (Nominal rates anyway… it occurs to me that I need to do a correlation between prices are real rates — but I digress).

Anyway, while there is not a great historical correlation, each time period is different, and I could see a scenario where rates could actually hurt prices. It kind of depends on what’s driving rates… if it’s wage-driven inflation, that might not be so bad; if it’s a run on sovereign debt (and/or mortgages), I think that could definitely hurt prices because you wouldn’t have the offsetting wage inflation.

But this actually doesn’t really matter. Even if rates went up but home prices didn’t go down, I’d still be able to offer a lower-than-market rate, which would presumably increase the market price for the home from what it would have been with a non-assumable loan.

If you look at it that way, you’re right, it’s more a “derivative” than it is insurance.

But, I think that a rising rate environment which is driven by decreasing confidence in govt debt would be just a generally bad environment for housing, both from the direct rate rise and indirectly from the negative economic effects — so I see an assumable loan as providing some protection against that potential outcome.

[Rich Toscano]

Here is an article from someone who has run the numbers on the value of assumability: http://www.washingtonpost.com/wp-dyn/content/article/2010/02/18/AR2010021806648.html

Of course the estimates vary based on assumptions, but under some circumstances it could be very valuable.

That’s the more important set of assumptions, in my opinion, because under the current conditions I see assumability as a form of insurance. You have to pay a little more (via the higher costs to FHA loans), but IF rates do go up a whole lot, that money will pay itself back many times over.

When I consider buying, the biggest risk I see is the high probability of much higher rates in the years to come. By getting an FHA loan, I can mitigate this risk to a pretty good degree. So I see the assumability as an insurance policy that protects me to some degree from rising rates, and since I think a steep rate rise is likely, it is very much worth the higher cost for the FHA loan.

[Rich Toscano]

Yes, what FSD wrote sums up my opinion. I think there is a high probability of much higher rates, so assumability strikes me as very valuable. I admit that I haven’t actually run the numbers, though. (That said, the assumption fee seems nominal, as far as I can tell).

[Rich Toscano]

[quote=bearishgurl] Why not take the $12,771 and add it to the downpayment and try to buy FF with a 95% LTV mortgage? (PMI is surely the lesser of two evils.)
[/quote]

Because FHA loans are assumable.

[Rich Toscano]

PS – Anyone who thinks I am actually shocked is invited to watch this 20-second clip: http://www.youtube.com/watch?v=-Gf8NK1WAOc

[Rich Toscano]

[quote=AN]Are you just being sarcastic Rich? [/quote]

Most certainly. The only thing unexpected is that it’s only FHA (for now).

[Rich Toscano]

[quote=markmax33] Even Rich agreed with the fact the fed and Fannie Mae and Freddie Mac were the enablers of the housing bubble. [/quote]

Can you please stop A) dragging me into your debates and B) misquoting me?

[Rich Toscano]

Thank you for the nice compliments on the blog. I didn’t really write about Austrian economics (the exception being that super short Economist letter, which btw they edited down), but I have written about the cause of the bubble in a way that’s been influenced by Austrian thought, eg in the other article I linked to for ucodegen above. Unfortunately, like I mentioned, the blog format makes it hard to home in on topics like that (tagging might have been good? oh well…), so I’m afraid google is the only option.

[Rich Toscano]

Sure, ucodegen, I can share. Markmaxx wrote me suggesting that I write more about the Fed as the cause of the bubble and he clearly hewed to the Austrian framework. I replied to explain why I probably wasn’t going to write any further on that topic (basically, what I said above), but thought he’d be interested in a couple things I wrote:

1. A letter to the Economist – http://www.economist.com/node/14164057
(in response to this article: http://www.economist.com/node/14030288 )
2. A bailout-era rant at Voice of SD – http://www.voiceofsandiego.org/toscano/article_cafc616f-234a-5649-8df2-c56c650f4f35.html

[Rich Toscano]

[quote=markmax33]
I’m not attacking Rich, I’m just saying that I emailed him and he didn’t seem to think reform of the FED was an important thing.[/quote]

I have no idea where you came up with that. What I said was:

– I am more interested in looking forward at what happens next than doing a post-mortem on something that already happened
– It is a waste of time to argue about policy anyway because everyone is already decided on what’s best and you just end up going in circles
– I don’t have much time to write any more so I focus my housing-related efforts these days on documenting what’s going on in the present

I also pointed you to a couple things I’d written that were in support of the idea that people ought to pay more attention to the Austrian economic framework (that being the topic you emailed me about) in diagnosing the economic cause and effect. So again, I have no idea where you came up with the paraphrase above as I never said anything of the sort.

As for the idea that I am uninterested in or oblivious to the causes: during the bubble I spent a tremendous amount of time discussing and theorizing as to the causes of how the bubble came to be. The conversation has already happened… it’s not a good use of time to rehash something that I’ve already written in the past. Such are the limitations of the blog format that it can be difficult to find older stuff, but just because you didn’t find (or, from the sounds of it, look for) writings on a given topic doesn’t mean you should assume that the topic was never addressed.

Other topics:
– I suggest you familiarize yourself with the political threadjacking policy of this site: http://piggington.com/threadjackers_will_be_persecuted_maybe_even_prosecuted . I agree with you that discussing the causes of the bubble is a valid topic, and that the Austrian economic framework has a lot to offer in that regard. But that’s different than spamming the forums with political cheerleading posts. So please try to keep the discussions more oriented towards causes and less towards Ron Paul boosterism.
– Sorry, but this is a peeve of mine: it’s “Fed,” not “FED” — the word “Fed” is not an acronym; it’s a shortened version of “Federal Reserve.”
– As for how I feel about the Fed, I think the quote sdduuude dug up sums it up pretty nicely.

Rich

PS – my thanks to sdduude and patientrenter, both of whom I respect a lot and value highly as forum participants, for the kind words.

[Rich Toscano]

lifeizfun — I think you make a lot of good points in there. I tend to be very sympathetic with your point of view… the “value” in the house investment is taking advantage of these super-low subsidized rates, and the ensuing grinding down of your real monthly pmts via inflation. However, you have to actually keep the house indefinitely to benefit from that, which is why I think buying is a good move for some but not for others.

jstoesz – I am not sure that analogy is right, because in Argentina houses were transacted in US dollar terms. Prices plummeted, as you say — but in dollar terms. But how did they do in the local currency, which also plummeted? And more to the point, how much are they worth now in the local currency as compared to before the hyperinflation. Unfortunately I do not know the answers to these questions. I’d be really interested to hear if anyone does. (Please note, this is not a prediction of hyperinflation here… I just think it would be instructive).

[Rich Toscano]

PS to Dan… I lol’d at Wolfram and Hart. Nice callback.

[Rich Toscano]

[quote=briansd1]Did you not notice that, since I started responding tit-for-tat, the rants from the other side have stopped.[/quote]

No… they “stopped” because I just delete them now when I see them. As I recall it, your “tit for tat” responses only fueled the flame(war)s and made the problem worse. (That said, I do appreciate that you’ve stopped instigating things yourself).

[Rich Toscano]

[quote=briansd1]Despite all the money printing and government spending, inflation did not take off in Japan. That’s the Japan lesson.
[/quote]

What money printing? Japanese money supply growth averaged about 2% a year all through the 90s (and beyond). The Japan lesson, as I keep trying to point out, is not that a central bank is unable to create inflation during a credit bust — it’s that the Japanese central bank didn’t try.

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