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Housing ATM is Back (But it won't work any better this time)

By Patrick following x   2018 May 19, 4:54pm 756 views   20 comments   watch   sfw   quote     share    


https://www.themaven.net/mishtalk/economics/housing-atm-is-back-but-it-won-t-work-any-better-this-time-trunzHgVrU669xlvp8Ti6Q/

It makes little sense to refi at these rising rates. But here we are. ...

But why is there any refi activity all at all?

In September 2017 the MND mortgage rate rate was 3.85%. In June 2016, the MND rate was 3.43%.

It makes little sense to refi at 4.70% when one could have done it less than two years ago a point and a quarter lower.

At these rates, refi activity should be in the low single digits. Yet, 36% of mortgage applications are refis.

Housing ATMs

Are people pulling money out of their houses to pay bills?

That's how it appears, as Cash-Out Mortgage Refis are Back.

What's Going On?

1. People feel wealthy again and are willing to blow it on consumption
2. People pulling money out to invest in stocks or Bitcoin
3. People are further and further in debt and need to pull out cash to pay the bills

I suspect point number three is the primary reason.

Regardless, releveraging is as wrong now as it was in 2007. Totally wrong.


1   Kakistocracy   ignore (0)   2018 May 20, 4:30am   ↑ like (0)   ↓ dislike (0)   quote        

Few more parts have to fall into place for a complete redo but getting closer all the time.

2   Tenpoundbass   ignore (11)   2018 May 20, 6:55am   ↑ like (1)   ↓ dislike (0)   quote        

Hopefully Trump wont let the ghost inventory be manipulated to keep the market artificially inflated. Like a certain So & So did the last time.
3   bob2356   ignore (1)   2018 May 20, 7:37am   ↑ like (0)   ↓ dislike (0)   quote        

Tenpoundbass says

Hopefully Trump wont let the ghost inventory be manipulated to keep the market artificially inflated. Like a certain So & So did the last time.


Maybe instead he should pass a bill hat gives big tax breaks to re investors encouraging even more buying of re for investment. Plus reduce the corporate tax rate so stock buybacks give stock holders lots of cash that is going to flow into the re market because the stock market is overvalued. That way that way the already tight housing inventory will totally dry up and prices will go through the roof. Even better the federal government should borrow the money to do it.

Oh wait, he did that already. Never mind.
4   CBOEtrader   ignore (2)   2018 May 20, 7:41am   ↑ like (0)   ↓ dislike (0)   quote        

bob2356 says
Even better the federal government should borrow the money to do it.


https://www.bloomberg.com/news/articles/2018-05-10/u-s-posts-record-monthly-budget-surplus-as-economy-picks-up

Perhaps you meant vastly improve the finances of the federal govt?
6   bob2356   ignore (1)   2018 May 20, 9:41am   ↑ like (0)   ↓ dislike (0)   quote        

CBOEtrader says
Perhaps you meant vastly improve the finances of the federal govt?


There is always a budget surplus in april. Duh. Did you read the article? I mean past the headline? Nah, that would spoil all the fun.

“But really, this is not due to a major economic change,” he said about higher government revenue. “Every April is going to show an even bigger bump just because of inflation and wage growth.”

Overall, the deficit for the first seven months of the fiscal year widened to $385 billion, from $344 billion a year earlier, according to Treasury.

An extra 40 billion in debt for the year SO FAR in a booming economy is vast improvement? HaHaHaHa.
7   Strategist   ignore (1)   2018 May 20, 9:43am   ↑ like (1)   ↓ dislike (0)   quote        

APOCALYPSEFUCKisShostikovitch says
Time for a tax cut!


I agree. My wife already spent the savings from the last tax cut.
8   Malcolm   ignore (1)   2018 May 20, 9:53am   ↑ like (0)   ↓ dislike (0)   quote        

If people are refinancing at an increased rate, that is clearly a sign that this economic growth is being financed by another housing bubble. Everyone is partying again and again the median price is at a record high in San Diego, but as I point out, that is what happened last time. The sales volume is dropping, foreclosures are climbing and smaller houses are sitting while only heavily discounted larger homes are moving.

There are many horse properties nearby that are sitting. Some are starting to seem attractive.
9   lostand confused   ignore (0)   2018 May 20, 12:19pm   ↑ like (0)   ↓ dislike (0)   quote        

Maybe I should wait a few years and buy property in the west instead of looking for rentals in other places. If CDs give 5%, that would be nice.
10   joshuatrio   ignore (0)   2018 May 20, 12:28pm   ↑ like (1)   ↓ dislike (0)   quote        

I'm ready for the next down turn. Plan on buying a vacation home/rental.
11   everything   ignore (1)   2018 May 21, 12:02pm   ↑ like (0)   ↓ dislike (0)   quote        

Money creation and debt is a wondrous amazing thing, might be a fake economy, but it's an economy. Not to long ago, I was propositioned for a cash out by quickenloan I suspect many have been approached. Reverse mortgage commercials are back too.

For the banksters it does make sense to re-finance at these rates, wages are up for many, and the lemmings can service the larger payment.

Look at it this way, the refi rate is cheaper than what the credit card company charges and rolling that CC debt can get tricky eventually. Many financial advisors will tell people to consolidate their loans as well.

We can learn some of what is really going on with the average consumer by watching TV commercials on certain channels, at certain times.
12   MrBark   ignore (0)   2018 May 21, 1:22pm   ↑ like (0)   ↓ dislike (0)   quote        

I have a 4.0% rate, however I have $270 a month PMI. I have 35% equity now and could re-fi, but if I get a 5+% rate, it doesn't make any sense to refi at the moment.
13   CBOEtrader   ignore (2)   2018 May 21, 1:25pm   ↑ like (0)   ↓ dislike (0)   quote        

Lets get to the important questions. What effect will a crashing housing market have on bitcoin?
14   everything   ignore (1)   2018 May 21, 2:46pm   ↑ like (0)   ↓ dislike (0)   quote        

Holy mother, 270 a month PMI! I took a loan with a specific request to get out from under the PMI from the get go. Less than two years later was the summer of 2016 when we hit our near record interest rate bottom, refinanced into a 2.625% 15 year. But, my property was cheap, since 2014 the price has gone up 25% on it, to bad for me, my taxes are up, (yearly assessment) equity is better, but who cares about equity if you don't own the place, as it is my payment went up $100 a month switching from a 30 to a 15 and the condo dues have gone up $50 since I moved in, my income is going down because health care premiums come out of my paycheck. I can only compensate by working more hours, and spending less otherwise. Now, with the rate so low it doesn't even makes sense to make an extra payment, or pay it off early, inflation is eating away at the loan balance faster than I can pay it off.

You have to run the numbers to see if getting out from under the PMI will be a lower payment vs. a higher rate, or you can bite the bullet and pay up front for mortgage points to get your rate lower, it all depends on if you plan on staying in your home for a longer period of time.

OR, wait it out (this is what I would probably do now, i.e. Germany right now has the lowest average mortgage rates in the world at 1.9%), because the next time we get a recession (not an if but a when), rates will be at zero again, possibly negative, probably be a few years yet, but could be longer because interest rate is still way, way, way below historical levels, and QE is still playing out in a myriad of ways.
15   MrBark   ignore (0)   2018 May 21, 4:29pm   ↑ like (2)   ↓ dislike (0)   quote        

Purchased my childhood home in coastal Southern California (3 miles from the beach) in April 2015 from my parents. No greedy realtors involved. 4bd/4ba, 1600sqft, 6800sqft lot.

Selling price was $429k (market value at the time). I put $10k down and $10k upfront PMI on a 4%, 30-year fixed. My income is $120k and I'm single.

Kept the Prop 13 assessment and my property taxes are only $2400 per year. Spent the last three years remodeling everything, probably put in about $40k cash.

Currently valued around $675k and my balance is $390k.

Mortgage Payment, Taxes, PMI and Insurance total out to $2550 per month and I rent one room to a friend for $600 a month. The homes across the street are renting for $2800 and $2900.

Current plan is to start adding $500-$800 per month to the principal and wait to see what the market and rates do. I have no plan on selling unless there was some change to Prop 13 laws. Ideally I would rent this place out someday.

Patnet will absolutely love this one too... 6-months after I bought the house, I got laid off from my job at a large tech company after 10 years. Got a nice severance, collected unemployment, looked for work but never really found anything local (I don't live in a big city and it takes over an hour to commute into LA). After about 8 months of unemployment, I applied for Keep Your Home California. I got approved and they started making payments (including payment, taxes, insurance and PMI). Two months later, I was gainfully employed making better than my old salary. I called them on my first day of employment to let them know to stop payments. They then proceeded to tell me that they would then make the payment for the month I was re-employed AND for the next 3 months after that. So I basically got $16,000 in payments for free. AND... if I got a job that paid less than I had before, they would have put money in every month to make up for the discrepancy. Catch is that I need to pay them back if I sell and if you re-fi you cannot pull money out. All good by me, I won the California liberal lotto.
16   Goran_K   ignore (1)   2018 May 21, 4:31pm   ↑ like (0)   ↓ dislike (0)   quote        

joshuatrio says
I'm ready for the next down turn. Plan on buying a vacation home/rental.


Exactly. If another crash happens I'm buying an apartment building or 10 condos.
17   DASKAA   ignore (3)   2018 May 21, 4:35pm   ↑ like (0)   ↓ dislike (0)   quote        

MrBark says
if I got a job that paid less than I had before, they would have put money in every month to make up for the discrepancy.


I didn't quite catch this part: they would pay you the difference between your old and your new salary? This sounds too outrageous even for CA. Can you explain in more details?
18   MrBark   ignore (0)   2018 May 21, 4:47pm   ↑ like (0)   ↓ dislike (0)   quote        

Hassan_Rouhani says
MrBark says
if I got a job that paid less than I had before, they would have put money in every month to make up for the discrepancy.


I didn't quite catch this part: they would pay you the difference between your old and your new salary? This sounds too outrageous even for CA. Can you explain in more details?


Let's say you make $100k a year. You are used to making $100k a year and paying your $2600 mortgage payment, which is around 35-40% of your net income.

You become unemployed via layoff (didn't get fired or quit your job). New job you find pays you $70-80k a year – now your mortgage payment is closer to 45-50% of your net and that can be seen as a stretch for affordability. Since the program's key goal is to keep your in your home and to avoid foreclosure, Keep Your Home California program will kick in a percentage of extra money toward your payment each month based on your new lower income.

There was also a principal reduction program where they would pay something like up to $120k to reduce your underwater mortgage balance. I believe the unemployment program I was on was up to 18 months of mortgage payments while unemployed. Part of me wanted to take advantage of the entire 18 months and live like a bum with a house – but it's just not in my blood, I like my lifestyle too much.

Those 8 months I was unemployed, I really did work my ass off looking for a job. I treated it as its own job, woke up early every morning and mush have had 3-4 solid interviews every month. I didn't turn to the program until 6-months into being unemployed when I only had about 4 payments left in the bank.
19   DASKAA   ignore (3)   2018 May 21, 5:04pm   ↑ like (0)   ↓ dislike (0)   quote        

MrBark says
Let's say you make $100k a year. You are used to making $100k a year and paying your $2600 mortgage payment, which is around 35-40% of your net income.

You become unemployed via layoff (didn't get fired or quit your job). New job you find pays you $70-80k a year – now your mortgage payment is closer to 45-50% of your net and that can be seen as a stretch for affordability. Since the program's key goal is to keep your in your home and to avoid foreclosure, Keep Your Home California program will kick in a percentage of extra money toward your payment each month based on your new lower income.


Got it, thanks for the explanation.
20   pkennedy   ignore (0)   2018 May 21, 5:08pm   ↑ like (0)   ↓ dislike (0)   quote        

4. Refinancing to get rid of PMI
5. Credit score has gone up decently, and refinancing makes sense
6. Refinancing because you've been offered a lower monthly payment (probably over a longer period)

There are plenty of reasons to refinance beyond trying to take out cash.




The Housing Trap
You're being set up to spend your life paying off a debt you don't need to take on, for a house that costs far more than it should. The conspirators are all around you, smiling to lure you in, carefully choosing their words and watching your reactions as they push your buttons, anxiously waiting for the moment when you sign the papers that will trap you and guarantee their payoff. Don't be just another victim of the housing market. Use this book to defend your freedom and defeat their schemes. You can win the game, but first you have to learn how to play it.
115 pages, $12.50

Kindle version available


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