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Los Angeles Renter says

So take a $300k home in 1998 at 7% interest rates… The monthly mortgage would just under $1600 a month. Say in 2011 the home is back on the market for $400k at 4.75% rate the monthly mortgage is around $1670… $100k more house for $80-90 more a month.

Huge glaring problem with this part is that buying at low interest rates is a double whammy. Once interest rates go up a buyer is upside down and cannot refinance. While buying during high interest rates you get more of a tax deduction and later refinance making it even better.

Of course some areas are still heavily ballooned, mainly in CA and NY is what I hear.

ChrisLA says

Huge glaring problem with this part is that buying at low interest rates is a double whammy. Once interest rates go up a buyer is upside down and cannot refinance. While buying during high interest rates you get more of a tax deduction and later refinance making it even better.
Of course some areas are still heavily ballooned, mainly in CA and NY is what I hear.

Not if u have an FHA loan.. FHA loans are assumable and in 5 years they can sell their house along with that 4.75% interest rate to the next buyer. What is kinda messed up is those buying with 20% down traditional loans today, may have less "marketable" homes in 5-10 years than all the 3.5% down FHA buyers. Assuming interest rates are at 10% in 5 years... Im betting you will see alot of FHA loans on the market advertising their "assumability" as a big selling feature. Pay half the monthly mortgage of your neighbor.. Assume my low interest loan!

ChrisLA says

Once interest rates go up a buyer is upside down and cannot refinance

Why would you ever refinance when interest rates go up??? You are hoping to increase your payment?

tatupu70 says

ChrisLA says

Once interest rates go up a buyer is upside down and cannot refinance

Why would you ever refinance when interest rates go up??? You are hoping to increase your payment?

Your payment is increasing if you have an ARM, in which case, you're totally fucked. I'd rather buy a $300k house at 8% than a $400k house at 5% which will fall in value to $300k.

klarek says

Your payment is increasing if you have an ARM, in which case, you’re totally fucked. I’d rather buy a $300k house at 8% than a $400k house at 5% which will fall in value to $300k.

But if interest rates stay low as long as Japan's has, then you will have all waited in vain.

klarek says

Your payment is increasing if you have an ARM

I haven't heard of a single sane person getting an ARM loan in the last 3 years.... Banks still offer them.. sure... But it's pretty risky. Still, historically... Interest rates have never risen more than 1% in a single year... So for interest rates to get really out of hand... It would take 5 years minimum to be approaching 10% interest rates.

I'm starting to believe the low interest rate trend may be a permanent trend in our society. At least until our society creates some sort of energy breakthrough and starts growing GDP by leaps and bounds.

I think it's years away... But i find it very promising the idea of solar power in the U.S. deserts eventually powering the entire west coast. If we could ever get the proper technological breakthroughs to make solar power viable and less costly... Clean energy could be the next industrial revolution of our time... Which would eventually drive home prices and our economy to prosperity again.

Los Angeles Renter says

I haven’t heard of a single sane person getting an ARM loan in the last 3 years…

My mortgage broker was trying to push one on me a few weeks ago. Trust me, they are still making them.

klarek says

Your payment is increasing if you have an ARM, in which case, you’re totally fucked. I’d rather buy a $300k house at 8% than a $400k house at 5% which will fall in value to $300k.

Of course. But historically, houses haven't fallen 25% when interest rates rise 3% so it's not really a true choice..

I have a hard time using that as a general rule since it doesn't take into account supply and demand. which is what ultimately determines prices.
Using some year plus inflation tells me that a house in San Jose should be the same price as a house in Detroit.

if you use something like price/rent ratios in area like Detroit where industry has dried up. rents go down along with prices. Possibly far below 1998 plus inflation. Looking at that alone doesn't tell me if it's a good price.

tatupu70 says

Of course. But historically, houses haven’t fallen 25% when interest rates rise 3% so it’s not really a true choice..

Leveraged demand will decrease by that amount. Sure it won't impact things like cash-only purchases, but in a purely leveraged and flexible market, that's where prices would go.

klarek says

tatupu70 says

Of course. But historically, houses haven’t fallen 25% when interest rates rise 3% so it’s not really a true choice..

Leveraged demand will decrease by that amount. Sure it won’t impact things like cash-only purchases, but in a purely leveraged and flexible market, that’s where prices would go.

History proves otherwise. I'm sure you understand why that is--interest rates don't rise in a vacuum. Other factors affect home prices more than interest rates, and they affect them in the opposite direction.

vain says

But if interest rates stay low as long as Japan’s has, then you will have all waited in vain.

The gov. can't keep rates that low for that long. They're already talking up raising them a bit to defend the dollar. Only reason Japan was able to pull it off was because they conned most of their citizens into buying up the debt for retirement purposes (so very little is foreign held) and their economy is heavily export based.

Their economy has also never recovered either BTW. You don't want the US to be like Japan.

Los Angeles Renter says

I’m starting to believe the low interest rate trend may be a permanent trend in our society. At least until our society creates some sort of energy breakthrough and starts growing GDP by leaps and bounds.

Inflation can occur for reasons other than wage and economic growth, for instance if your gov. heavily deficit spends while printing trillions of cash... Also recent history (ie. 1980's) has shown that rates can rise very high indeed in a modern and powerful economy like the US.

Los Angeles Renter says

I think it’s years away… But i find it very promising the idea of solar power in the U.S. deserts eventually powering the entire west coast. If we could ever get the proper technological breakthroughs to make solar power viable and less costly… Clean energy could be the next industrial revolution of our time… Which would eventually drive home prices and our economy to prosperity again.

You mean decades away if ever right? Short of getting cheap mass produced super conductors working AND fixing the load balancing issues of solar you will never see mass solar fields in the deserts like you're describing. They're like barely in the super expensive lab toy phase of developing that stuff and even the guys working on it aren't very optimistic about getting ANYTHING working at all much less something that is cheap and mass producible. They're estimating 50 years or more at this point before they can even being to pull it off.

tts says

Their economy has also never recovered either BTW

Sure would be nice we had most of THEIR export market, auto/truck, heavy equipment, high tech, electronics, shipping, and much much more. As FU'ed their economy may seem to you, they still manage to dominate all global markets. Have any of these industies even skipped a beat. It may not seem like it, but they pretty much wiped us out US mfg/producers in major global industries and markets. How many Honda, Toyota, Yamaha, Toshiba, etc etc.. do we see... not bad!
And they have as much US debt as the Chinese.

thomas.wong1986 says

tts says

Their economy has also never recovered either BTW

Sure would be nice we had most of THEIR export market, auto/truck, heavy equipment, high tech, electronics, shipping, and much much more. As FU’ed their economy may seem to you, they still manage to dominate all global markets. Have any of these industies even skipped a beat. It may not seem like it, but they pretty much wiped us out US mfg/producers in major global industries and markets. How many Honda, Toyota, Yamaha, Toshiba, etc etc.. do we see… not bad!

And they have as much US debt as the Chinese.

Apple, Facebook and Google >> Japan

thomas.wong1986 says

tts says

Their economy has also never recovered either BTW

Sure would be nice we had most of THEIR export market

Their export market without the depression would be nice but won't happen. You could shit can all unions and cut all workers wages in half in the US and we still wouldn't be competitive on labor costs with China.

Future Cash Buyer says

Apple, Facebook and Google >> Japan

You going to compare all these dinky advertising/media companies to all the massive goods and products controlled by Japanese industries. Most of the components/parts that go into IPods are from Japanese companies anyway. Open an Apple product one day.. read whats on the chip and storage device.

The world business doesnt run on advertisng and ipods... LOL!

We are really FU'ed when people think like this.

tts says

You could shit can all unions and cut all workers wages in half in the US and we still wouldn’t be competitive on labor costs with China.

Cause no one wants to do it. No back bone. I think there is plenty of talent in the US and plenty of people who would be more than willing.

thomas.wong1986 says

tts says

You could shit can all unions and cut all workers wages in half in the US and we still wouldn’t be competitive on labor costs with China.

Cause no one wants to do it. No back bone. I think there is plenty of talent in the US and plenty of people who would be more than willing.

They could have all the talent and will in the world and it wouldn't matter if it doesn't make financial sense, which it won't. BTW even if you did succeed in bringing in lots of manufacturing back to the US by cutting wages in half you'd just end up ruining the standard of living for the country, which is counter productive to say the very least. We need more middle class blue collar jobs. Not heaps of shitty minimum wage at best jobs, which BTW is what most Chinese effectively have.

thomas.wong1986 says

You going to compare all these dinky advertising/media companies to all the massive goods and products controlled by Japanese industries. Most of the components/parts that go into IPods are from Japanese companies anyway. Open an Apple product one day.. read whats on the chip and storage device.
The world business doesnt run on advertisng and ipods… LOL!

Who cares if the guts of apple products are made overseas... Those memory chip profit margins and touchscreen profit margins are TINY... Apple is all about the power of the brand and marketing and most of all Design....America still has the market cornered on creativity. Id take Apples profit margins over its chip supplier anyday!

Would you invest in the frying oil company that supplies McDonalds french fry grease? Or McDonalds the brand!?

Dude what are you talking about? Most design is being done over seas too these days, not just in the electronics but cosmetically too. Whatever edge the US had in these areas is tenuous or rapidly slipping these days. Looking at what sort of students the colleges are churning out (finance and statistic oriented rather than engineering and R&D) and the eagerness of our industries in outsourcing everything they can to save a penny somewhere and there no reason at all to be optimistic about even the possibility of the US maintaining a lead or even tie in these fields.

I'd rather invest in the guys who supply McD with cooking oil and chicken than McD themselves since the cost of commodities is still trending up while McD will be stuck trying to sell to a population with less and less to spend on fast food. Further shrinking profits.

on the ARM vs. fixed debate....it depends on the spread...frankly, the spread was about 2% for me since I got a discount on the ARM product...so a 5/1 at 2.75 with a max of 7.75 (not until year 10) seemed less risky to me than fixed at 4.75....

I plan on playing what the 4.75 payment would have been....even assuming worst case scenario of 3.75 in year 6, 4.75 in year 7, 5.75 in year 8, 6.75 in year nine and 7.75 in years 10-30 my P&I will never be higher than what fixed would have been (due to faster retirement of principal) plus it is paid off more than a few years early.

Higher interest rates are priced into the market in these fixed products...that's what people don't understand...most everyone expects interest rates to rise....if my ARM was fully indexed right now it would be 1.75%....so I'm taking a gamble that on the average, over the next 30 years, interest rates will be somewhere less than 3% (or nearly triple) higher than they are now. Maybe I am right, and maybe I am wrong...but if I hedge my bet by paying principal down quicker...then I don't lose at all...and have the potential to retire the debt very early.

If fixed vs. ARM was a closer spread...then its a debate, risk vs. reward. YMMV.