The Payment Paradigm
“Get a LOW mortgage payment!”
“Payments YOU can afford!”
“OWN a condo! Payments under $1995!”
I’m sure that many of you have seen similar signs or advertisements out there. It’s all about the payment baby!! It seems the housing industry has taken a page from the car finance industry. “Sell the payment, not the price!”.
I know I have touched on this issue before, but this article by Rich Toscano of Professor Piggington fame, got me thinking again.
In the last asset bubble that burst a mere 5 years ago, the new paradigm was the ‘new economy’ and that P/E ratios could defy logic for long periods of time. This time we are looking at the “Payment Paradigm” (PP)!
That is all that anybody cares about anymore. When I’m getting the information needed to price a loan for a broker, I ask “what kind of loan is the borrower looking for?” The answer I get more than any other: “Lowest mortgage payment possible…”.
Ever wonder why the auto finance guys always want to talk payment, and “what are you willing to spend per month?”. The finance guys will find a way to make the payment fit. Even wonder why car payments terms have gone from 48 months to 60, 72, 84, and even 96 months? If the auto industry ever takes a page from the mortgage industry, then they could start doing option-ARMs to get more people into ultra-luxury cars, and exotic sports cars. You thought Bentley’ and Ferrari’s were expensive now…just wait until the option ARM gets the payments down on those bad boys!!
The same thing is going on in the mortgage industry. First it was the ARM loan. Rates were declining, and there was still a decent spread between short and long term rates. COOL…payment goes down a bit, I can ‘afford’ a more expensive home.
Next you have the Interest Only (I/O) loan. This is usually tied to an ARM, with an interest only period of 2-3 years for most subprime loans, and up to 5, 7, or 10 years for your alt-a or a a-paper borrowers.
But as property kept appreciating…the payments were essentially ’staying the same’….for the short term anyway. Who cares if the house is 200k, or 600k, the payment is the same! That’s all that matters right?
After all, most people are moving every 3-5 years now. Since not many people are staying for 30 years, why get a 30yr mortgage?!?!? Get an I/O ARM, that will keep your payments low until you move.
The prices kept going up, but the mortgage industry found a way to keep “payments” low. Enter the option-ARM, or neg-am loan. This beauty of a loan has a 1% payment option…in addition to an interest only payment, a 15yr amortized payment, and a 30yr amortized payment. Notice I didn’t say fixed…because the rates are not. Even the 15 and 30 year payments are tied to an index that fluctuates. Your payment will be amortized over 30 years whether the rate is 5% or 9%. So even your 30 year “fixed” payment will adjust with these loans. But let’s get back to the 1% payment.
Let’s take a $1,000,000 loan. The 1% payment is only $3,216.40 a month!! Hey, not bad for a million dollar loan!! Even with property taxes of $900-1000 a month, I know here are lots of families that could ‘afford’ a $4200 monthly payment. Just to give you something to relate to, the interest only payment would be about $5000 a month (yes, that is about $1800 a month of negative amortization). The problem is that, even at a 6.25% rate, which is pretty low for a fixed payment in a million dollar loan, the payment would be $6,157 a month…before taxes. Not many people can afford a $7200 monthly mortgage payment…no matter what the price of the home. But who cares, I’ll take the $4200 payment!! After all, property only goes up, and I will ‘automatically’ make money when I sell!! …right?!?!?!?
Welcome to the ‘new’ “Payment Paradigm”. Never mind the price, just worry about the monthly. Get in trouble? …get a HELOC, take out a second, refi INTO an option-ARM if you aren’t there already!
Like most other “new paradigms” that stray too far from the fundamentals, I think this one will pass. I think the next 24 months are going to be very telling for the entire industry. Most of the “PP” depends on these artificially low payments for shorter, fixed periods of time. The clock is ticking now, but in 2007 1.4-1.5 trillion dollars worth of loans are going to put this new paradigm to the test.
How do YOU think it will turn out?!?!?
I’m going to go price out a new Lamborghini while you think about it….
Have a great weekend! If you need more content than just this blog, there are about 400 posts (and growing!) to read in the forums. As usual, I look forward to the comments and feedback!
SoCalMtgGuy
February 10th, 2006 06:04
I see one mortgage company “restating” many loans from “temporary nonperforming status” and posting a 4th quarter loss on margin squeeze and defaults. The PP can be fixed with one tiny GAAP change; don’t allow unpaid but accrued debt interest and repayment to be recorded as current income.
February 10th, 2006 06:06
SoCalMtgGuy - another interesting post! I sure love reading your posts. You have an interesting writing style. Anyway, I read something in this post that I do not remember reading anywhere before, not even here: sub-prime borrowers get the 2-3 yr AMRs, good credit borrowers get 5-10 yr ARMs. When we read about the $330bil in 2006 and $1.5Tril in 2007 of loans that are resetting, is that for the subprime market? The loans are too new to be affecting the 10 yr prime market. If so, then we would see only subprime borrowers see their payments adjust over the next 2 years. Right? In either case, what is the effect on everyone else? Prime borrowers will not see their payments go up for many more years, and will hunker down in their houses, waiting for prices to come back up. Why sell now, at a guaranteed loss (or so they’ll think in 2007), when maybe rates will go back down in 2009, before my rate adjusts up? Maybe they won’t even be thinking of their rates going up, unless the media coverage gets going on this, as it probably will.
February 10th, 2006 06:45
“I know here are lots of families that could ‘afford’ a $4200 monthly payment. ”
Let’s do a little (really) crude math. $4200/mo is $50,400/yr. If you’re making good enough money to “afford” this, you’re probably in at least the %25 tax bracket. And, let’s sock away 8% pre-tax for retirement… you did say “afford”.
I calculate that at $146K/yr, you’d be spending %50 of your income on this payment. To get it down to a more reasonable %33, you need to be pulling in ~$221K.
At least in these parts, $221K is not a typical, run-of-the-mill income. I suspect there aren’t a lot of areas where the median family income is anywhere close to this.
People may be stretching into these payments; but I don’t think many can truly “afford” them.
And that, I believe, is what will really break the back of this bubble. At some point (and we may already be there) prices climb so high, that affordability collapses, even with the craziest suicide loan. Prices will stall. And once they stall, I believe they have to fall. The only reason to justify “stretching” into one of these payments is to reap the yield on the ever increasing property appreciation curve. Take that incentive away, and affordability will once again assert it’s influence on the market.
February 10th, 2006 06:51
Hi from Phoenix
SoCal, your post was exactly what I was thinging when I put the post below on Ben’s blog yesterday. I have heard the focus on the payment from several realators and I can’t help but think that line may come in handy when they are forced to sell used cars for a living.
I bought my house in 1993. Since that time I have had hundreds (maybe even thousands) of offers to refinance and lower my intrest rate. I did refinance (7 1/2 percent to 5 1/2 percent) with a 15 year mortgage about 4 years ago. Not once in the 13 years I have owned my house has the bank offered to reduce my principle. NOT EVEN ONCE. I would much rather have a lower principle than a lower rate any day. How many times in a 30 year loan do you suppose you will have the opportunity to lower the rate? Isn’t this “only focus on the monthly payment” a used car pitch?
February 10th, 2006 07:27
Yep, the housing industry has gotten to be just like buying a car. As car prices went higher they had to figure some way to keep sales going. You have to admit they can get pretty creative.I read an interesting article yesterday about the feds loseing the ability to regulate loans because more funding is coming from private and international investors rather that banks.That helps explain the loose credit standards we now have. Everyone is chasing appreciation and a quick buck. Rapid appreciation will run dry and people will panic, flood the market and it will drift into a black hole.
Bottom line, never buy a payment!!! You will pay for it in the long run.
February 10th, 2006 07:27
Think about all those “non-traditional” families where several generations live together, or in one case I know of, where 10-15 college students went together and bought that million dollar house.
February 10th, 2006 07:38
I like your comparison with the auto industry. It seems like with the longer payment terms available for auto financing these days, many of these loans are already negative amortization loans to begin with. Cars are depreciating assets; if you don’t pay it off faster than its value depreciates, you are left with a car that is worth less than what you owe on the loan. Consumers don’t seem to worry too much about this with auto loans - but with a house worth 30X the price of the average car, this same tactic is obviously much more dangerous
February 10th, 2006 07:49
““I know here are lots of families that could ‘afford’ a $4200 monthly payment. ”
Let’s do a little (really) crude math. $4200/mo is $50,400/yr. If you’re making good enough money to “afford” this, you’re probably in at least the %25 tax bracket. And, let’s sock away 8% pre-tax for retirement… you did say “afford”.
I calculate that at $146K/yr, you’d be spending %50 of your income on this payment. To get it down to a more reasonable %33, you need to be pulling in ~$221K.”
Dear god. I have to say, my spouse and I (no kids) make more than that and as far as I’m concerned we STILL can’t afford those payments.
There is a big difference between what one can technically afford and what one is really willing to pay - it all comes down to priorities, and so many people have the wrong ones today (and I don’t completely exclude myself from that, admittedly). However, for now ours have more to do with enjoying life - going to the movies, taking vacations, etc.- than to be strapped into crazy house payments just because everyone else is. We hear it all the time from my parents - I think my mother is ashamed that I don’t own a home, as her friends’ kids (who makes half as much $$ as we do) own places. But I don’t care, and I told her that. I am saving like crazy, have no cc debt (although we student debt) and don’t intend to pay more than 25-30% of my income to housing (tough in the NYC area). I would rather a smaller place than do that. It’s just a shame that so few people are willing to wait it out.
February 10th, 2006 07:56
People make unreasonable jumps in logic. Like the old dotcom days. Remember people who would say something like this:
Pet food is a 10 billion dollar a year industry, If pets.com is able to capture ONLY 10% of that market it will make $1 billion a year!!! Therefore its stock is worth AT LEAST $500/share because it can POTENTIALLY have a huge revenue stream.
Of course, this sort of thinking falls apart when people actually try to sell 50lb bags of dog food on the internet while making a profit.
Now onto the current mania. People think to themselves:
California is a desireable place to live (it mostly is). People will pay a premium to live in places like Malibu (they will. If fact movie stars, CEOs, foreign billionaires will pay a heft premium to live there). Compton is in California, If people will pay $5-10 million to live in Malibu, that “dream home” in Compton is worth at least 10% of that. Therefore it is worth $500K to 1 million dollars!
Of course the problem is that Compton is a complete (insert favorite swear word)hole. Normal, sane people wouldn’t live there for free, let alone saddle themselves with a massive mortgage for the privledge of living there.
So all these places that are NOT desireable have had massive run ups in price due to people thinking that the attractiveness of certain areas translates into attractiveness of ALL areas of California. Combine this faulty thinking with cheap money, anybody with a pulse underwritting, and a media that happily spreads the mania, and you have a tulip mania for the 21st century. It would be funny if it wasn’t so destructive.
February 10th, 2006 08:11
I think most of you get my point about ‘affording’ the $4200 payment.
You are all going about it ‘logically’. Think about the emotional inmpact (for some people) of ‘owning’ a “million dollar home”.
The example is a bit extreme, but I think most people in SoCal will agree that million dollar homes are EVERYWHERE now. They are not just isolated to the coasts or other exclusive areas.
As ‘pushing it’ as a 4200 payment would be for most people…it is nothing like the $7200+ payment that would ‘normally’ be required to buy a million dollar home. For this example, I not even taking into account down payment, or even total housing price…just to show how ‘cheap’ the payment can be for a MILLION dollars.
Remember when that used to be a lot of money?!?!?
SoCalMtgGuy
February 10th, 2006 08:11
(Of course the problem is that Compton is a complete (insert favorite swear word)hole.)
I heard yesterday that a house on Wynonna Street in the East New York section of Brooklyn sold for $700,000.
For those not knowledgeable about NYC geography, Brownsville and East New York, far out from Manhattan to the east, are the poorest part of Brooklyn, and during the crack epidemic they were NYC’s murder capital. An assistant DA who told me about the sale said he handled four murder cases on that street in one year once.
Now crime is way down in NYC, and most of the decline has happened in places like East New York (most of the city was always pretty safe, despite the hype). But $700,000?
February 10th, 2006 08:31
Yeah- I know SoCal; I understood what you were getting at, and didn’t mean to diminish the point you were making.
But, I just know what a $4200 payment would do to my lifestyle; and I know that I make more than most (at least around here). I suppose I could swing it; but not without severe compromises on all other aspects of my lifestyle.
The lenders know it too. Simply put- there’s a reason everybody is going “stated”.
February 10th, 2006 09:19
I’d like to ask you a question, So Cal…
With the yield on long bonds tanking, are we headed for lower rates? Or at some point, do the lenders have to respond to what may really be going on (inverted curve, slowing RE market, rising delinqencies, etc, etc) and start demanding higher rates commensurate with the actual risks? Maybe we see higher rates for everyone but the best borrowers? How’s the MBS market responding to all this? What’dya think?
February 10th, 2006 09:23
I’m sorry but $4200 per month is a $150/night hotel room. I can’t even imagine what $4200 leases would buy. Oh wait, I do know. My neighbor has $4000/mo, acre, 4br, 2.5ba, 2500sqft but it also isn’t renting. Based on the current 2.5:1 rent:own ratio it’ll rent for $2800.
February 10th, 2006 10:24
It’s as Dave Ramsey says - those who’s first question is, “How much down and how much per month?” will never be rich.
February 10th, 2006 11:00
NJGal,
Patience. How proud will your mother be when all her friends’ children are bankrupt, forcing foreclosure and living back at home with them??
WAIT WAIT WAIT. WE live in Summit NJ and things are coming down drastically. Several homes went 200-350K under asking last year(10-15% declines). Save your money- you’ll be able to pick up a great house for 30-40% less than what you see on the market now. The mania has ended.
February 10th, 2006 11:50
The problem with the $4500 mortgage for me is that in this economy I can afford it, but not in a recession.
February 10th, 2006 11:51
What will happen when $1.3-1.5 trillion ARMS adjust? The answer depends on the amount of equity left in peoples homes. There will be so much equity stripping that strippers will have more class than refi’ers! I think it’s a good time for people who aren’t worried about morals and ethics to get into the appraisal business. Because these equity strippers will be whoring themselves out to appraisers once they see the end is near, and the only thing that can save them is to “find” some value in their “asset”. Haha. I’ll be sitting back with a cold one watching the madness from my rental.
February 10th, 2006 13:40
Just for the record, I got my first mortgage in 1994, and the first thing I was asked is “How much are you looking to spend per month?”, so I don’t think this is necessarily a new phenomenon.
February 10th, 2006 13:49
SoCal - in your last response, you didn’t answer the question I posed about the subprime vs alt-a ARMs, and the impact of the alt-a ARM resets delayed by 5 - 10 years from now.
February 10th, 2006 14:23
I’ll tell you when folks will start thinking that $1 million is a lot of money again. When they have to repay it by working for the money. People throw around big numbers and have lost appreciation for what it takes to actually bank that kind of money. I personally don’t believe that the banks are going to let people off the hook, california not withstanding, most states don’t have bankrutcy laws that are so understanding of being a dumbsh*t. I can easily see a scenario developing where 50-60% of the buyers for the last 5 years end up being indentured servants to the banking industry for the next twenty years. That is when $1 million dollars will start getting some respect again.
February 10th, 2006 14:25
mtnrunner2
Most ARMs tend to be 1,2,3,5 years. The 7 and 10 year came later. The longer term ARMs are mostly A-paper, and some alt-a. The market has become a lot more ‘blurred’ the past few years as far as subprime/alt-a/a-paper is concerned.
As far as the ARMs resetting…that is just ARMs. Makes no difference if it is a 1,2,3,5yr ARM. Subprime calls them 2/28’s and 3/27’s (fixed for 2 years…adjusts for 28). A-paper calls them 3/1, 5/1, 7/1, 10/1 ARMs.
I think the reason that subprime loans are for shorter periods of time is that ’subprime’ loans used to be priced higher, and were mainly used so that people could ‘get back on track’ and get into an a-paper loan. I don’t think people ever expected subprime borrowers to want or need a 10yr ARM. Get a 2 or 3yr ARM, get your credit up, pay your bills, then refi into an a-paper loan. At least that was the plan before the subprime market eroded the risk premium.
Hope this helps some…
SoCalMtgGuy
February 10th, 2006 15:11
I resent that comment about Compton. I bought a house and lived there in 2003. Sold it in 2005. Then moved out of state. Thank you Compton
February 10th, 2006 16:44
Compton in the hiz-ouse!
Get an ARM with IO for your house in the CPT.
February 10th, 2006 16:52
I believe it was John Kenneth Galbraith who said ” When you see reference to a new paradigm you should always, under all circumstances, take cover”.
February 11th, 2006 00:02
Buyers enter into a car loan knowing full well that the car will depreciate from the minute they drive it off the lot. They are under no illusion that they will be able to sell the car for more than they paid.
They think, “Can I afford $500 a month for the next five years?” If so, they buy. After five years, they own the car free and clear. They can drive it for free for another few years or trade it in.
With exotic mortgages, buyers may be thinking they are buying a car, but they have the expectation of appreciation. As you wrote, no one expects to live in a home for 30 years. So even if they take out a traditional 30yr mortgage, they will never pay it off. And with all of the neg-am, I/O loans, they won’t be paying ANYTHING off.
If they paid $700,000, they will still owe $700,000 in five years. The home had better appreciate or they are stucco.
I think you’re right though. Many buyers today are so conditioned to “buy the payment”—likely from their experience with car loans and credit cards—that they don’t realize what they are getting themselves into. Everything must go right, otherwise they are up a creek. But the past 5-10 years of RE asset inflation has blinded them to the possibility that RE may in fact decline in the years ahead or enter into a long slump where prices just go nowhere at all. Either way, it’s very bad news for folks who are not paying down their mortgages in a timely fashion.
Buying RE today is very different from buying a car, even though both seem to fall under the “buy the payment” rationale. A RE purchase has essentially become a leveraged speculation—a levered bet on future appreciation. Much riskier than even the stock market which has far stricter rules about leverage and margin. You must put down at least 50% on stocks—more if the stock is low-priced—-whereas RE buyers are leveraging at 10-1, 20-1 or even infinity-to-one (in the case of no money down or neg-am.) Works like a charm when RE prices rise. Not so well when they fall or stagnate.
February 11th, 2006 04:39
How do YOU think it will turn out?!?!?
A rhetorical question, but here’s what many recent McMansion purchasers fail to realize: their home’s value is predicated on the continuing availability of aggressive financing. After all, Joe and Mary couldn’t afford their home with a “legitimate” loan, so it stands to reason that future purchasers will need similarly aggressive financing. Here in Loudoun County, VA, I’m amazed at the number of $1M+ homes that have gone up — entire sprawling subdivisions. This is a fairly affluent area, but there aren’t that many folks here earning the $300-500K/year that it would take to afford a $1.75M McMansion (or a $700K townhouse, for that matter) with a 30-year fixed loan.
This lending insanity will be brought to an end by one of two things: either the Federal government will crack down and make it nearly impossible for ordinary Joes to obtain stated-income and neg-am loans, and/or the problem will fix itself as lenders and MBS investors get killed with defaults and the whole pool of funny money runs dry. When Joe and Mary put their million-dollar crackerbox on the market, there won’t be any more $80K wage earners that can obtain a loan to buy it. And those making the $300K/year that it takes to get a million-dollar place will have nicer places to live in (could you imagine a chief of surgery living in this dump???)
February 11th, 2006 07:57
Well, it all depends on whether those with these loans will be able to stay on the bull when bear starts chasing them. For some it will be a rough and scary ride but they’ll hold on.
However, for what seems like will be a lot recent buyers, when the loans adjust they’ll find their reins made of tissue paper and their hands sweaty. When that happens, they’ll be tossed off the bull and the bear market will eat them alive.
Question is how fat the bear will get and how long before it is sated. And how traumatized the rest of us will be by the carnage.
But we’re just being paranoid. According to the commercials, there are SmartLoans that save you thousands a year compared to the fixed 30 year loan the suckers take out.
You get a nice affordable payment and a lifetime sentence on the hamster wheel. Sure you could end up being able to afford a better maze but it’s still a cage.
February 11th, 2006 08:59
Long term interest rates
Deb, LT rates can’t be controlled by the Fed any longer. Once foreigners get a whiff of the amount of currency the Fed is creating and the amount of inflation this will cause, they will no longer be so generous with loaning us money. Since inflation is ACTUALLY at 7-10% (please don’t fall for those phony CPI numbers), and since most creditors want a real return of 3-4%, that means LT rates must go to 10-14% for starters. Who in their right mind would hold a 30 year bond for less once the truth of inflation gets out? Also, given Helicoptor Ben’s predilection for inflation, there may be a few percentage points of ‘risk premium’ above that level.
If LT rates go that high, just what do you think will happen to housing?
February 11th, 2006 09:31
SoCal - I’m thoroughly confused now about the ARMs. I thought when we talked about ARMs resetting, that it referred to the end of the introductory low rate, or the end of the interest only period.
Are you saying that regardless of the length of the interest-only period, that the loans reset annually anyway? But there is a ceiling to that. Do you have any information on the increases that are being seen?
February 11th, 2006 10:17
Mtnrunner2,
There are a lots of different varieties of ARMs. When we talk about ARMs adjusting, we are talking about at the end of the fixed period.
Once the fixed period is over, there are many different ways the payment can adjust (monthly, 6-months, etc).
Didn’t mean to confuse you.
In 2007 for example, you are looking at the 2-year arms from 2005, 3-year ARMs from 2004, and 5yr ARMs from 2002 adjusting. Does that make more sense?
That is all that stat is saying. So somebody who got a really low rate on a 3/27 in 2004, is going to see payments jump up noticibly.
I hope this clarifies.
SoCalMtgGuy
February 11th, 2006 20:01
Apollo,
Also, given Helicoptor Ben’s predilection for inflation, there may be a few percentage points of ‘risk premium’ above that level.
I disagree. About the only thing Mr Bernanke has provided a definite philosophy on is inflation targetting, with a lower bound of about 1% (hence all his anti-deflation comments including the helicopter quip which will haunt him forever). More importantly an upper bound of about 3%.
If inflation starts to really accelerate, even the phony CPI numbers will reflect this and the markets will expect suitable upwards adjustment of official interest rates, regardless of FB pain.
You won’t see an additional risk premium unless this upward adjustment doesn’t happen.
(And I also think there are currently some very big debt holders {think Asia} who are happy with any real return above zero, and in some circumstances will for political reasons take less.)
February 12th, 2006 07:30
SoCalMtgGuy - what is the percentage of A-paper ARMs vs. sub-prime? What you explained just above is the way I had understood it. I was confused by an explanation in your post, where you mentioned 10 year ARMs, and that made me think that the A-paper ARMs won’t reset for another 7 -8 years. So the impact of feeling higher payments is delayed for that group of borrowers.
I suppose there is no data for howm any people are seeing their ARMs reset. I’m going to see my realtor friend next week, and I’ll ask her what she’s seeing out in the field. I had been told by one realtor in October, that she knew of 10 people in Carmel Valley? (subdivision west of Rancho Penasquitos) who were selling due to loan resets.
February 12th, 2006 09:34
The longevity, magnitude and eventual direction of the US economy–consumption,governmental and corporate investment is in the hands of the Chinese. The key question is in their attempt to stabalize and grow their own economic dominance how long will they be willing to accept negative investment returns in their US $ holdings and purchases.
As of this writing the yield curve is inverting and all rates hover around the 4.5% mark. All defecits –trade, governmental, individual and US Corporate are worsening. Despite US Gov’t attempt to state inflation rates of 3% or so, it is my opinion that true inflation is in the realm of 5.5% to 7$. The net effect is the Chinese are losing about 2 to 3% annually with the portend worsening.
How long will this be acceptable to them? Will we wake up one morning with the dollar creamed and rates much higher or will the Chinese continue to take a pummeling and not face up to their domestic overinvestment totally dependent on the US consumer staggering like a total drunk slouched over the bar willing to absorb another cheap drink?
Mortgage rates to prime selective borrowers go easily go to 9%, short term loans for mortages will be non-existent, banks will totter with their already rotten portfolios and the financial institutions will go even deeper for fees, late charges, etc (currently 1/3 of their profits).
February 12th, 2006 10:53
Question: Who is holding this nations MBS?
I have read that 80% of mortgage originations are securitized and sold as either agency paper or private label.
I’ve read that over 70% of the nation mortgage’s “pass-thru” Freddie/Fannie, and that they retain “at least 1/3″ of them, securitizing the rest.
I have also read that 10% of MBS is private label and that “foreign entities” purchase 20% of all MBS.
So, to summarize:
20% of mortgage originations are unsecuritized and held by commercial banks.
70% are Fannie/Freddie, of which 35% is held and 35% of which becomes securitized agency paper.
10% are securitized as private label MBS.
The above is information that I pieced together from dozens, if not hundreds, of web links, some of which slightly contradicted others and some of which were 2 or 3 years old.
In other words, I question how accurate they are.
Does anyone (MORTGAGEGUY?) have a link to a source where this info. is available and updated in one place?
February 12th, 2006 23:09
I don’t see RE market collapsing. I see Bernanke printing money and buying long bonds on the open market to keep rates low(Greenspan even suggested this as an option back during last recession).
I think if the choice is between economic collapse(house deflation) or higher inflation(through printing dollars and using them to buy long bonds) Government will vote for latter as they have every vested interest in keeping the boat afloat.
Incomes are starting to rise and will rise faster and faster. Incomes growth will once again outstrip debt increases as it has done for the past several decades.
February 12th, 2006 23:12
In other words from above post,
My parents bought a house in early 1970’s for about $16k.
With my parents current income, they could pay cash for this house in 6 months.
I think when these people are paying 500k for a condo, 30 years from now that 500k will be like six months savings. incomes will eat away the debt increases.
February 13th, 2006 02:56
DataWonk - how much MBS can Fannie hold, when they do only conforming? All of Southern CA and other bubblicious cities have mortgages that would be too high for Fannie’s limit. Remember, the limit was in the mid $300Ks until a few months ago. With 100% financing, an the median price in the mid $500Ks, there would be very few that qualified to go to Freddie or Fannie.
February 13th, 2006 08:28
I disagree with thurth’s comments #36 and #37. This is not the 1970s, and $17K for a SoCal house was cheap at the time, not at the bubble top. The Fed decisions of the 1970s have been so discredited in the financial community that it is hard to believe that Bernanke would even suggest them. His constituency wants low inflation: rich folks who have stashes of cash, Treasury Bond holders, and the people who want to sell more TBills. The inflationary path only benefits FBs and the shadowy holders of MBS (SHOMBS). They will be readily sacrificed. Their only hope is if the Fed or many others in Washington realizes that the downfall of the FBs means that we all go down with them. Only the biggest housing bears believe this so far. I would venture that the views of the housing bears wont become widely held before its too late to halt the crash.
But maybe the worst wont happen and we will get cheaper houses. Hard to tell so far.
February 21st, 2006 08:35
Ron from Atlanta asking if you have an rss subscription feed for your blog?
March 9th, 2006 15:31
The finance guys will find a way to make the payment fit. Even wonder why car payments terms have gone from 48 months to 60, 72, 84, and even 96 months? If the auto industry ever takes a page from the mortgage industry, then they could start doing option-ARMs to get more people into ultra-luxury cars, and exotic sports cars.
You’re the expert on this stuff, and so obviously right on the money. It would be ironic if the auto industry started marketing 30-year loans on cars, especially since some poor folks might end up living in them after this bubble pops.
Cheers,
Cole @ The Boy in the Big Housing Bubble
August 19th, 2007 00:58
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September 7th, 2007 17:41
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February 20th, 2008 16:32
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