patrick.net

zzyzzx says

If they start growing marijuana and renting out rooms by the hour the payment should be no problemo.

Holy Freaking Cow.

I use short duration treasuries to manage the cash. (Not I-bonds, Hipsters, as there's a low limit for the purchase amount).

The brokerage notices of execution came in at annualized rate of 3.895%. I looked back one year, seen I picked up some in July of 2021 at 8 basis points.

I've reckoned for a long time that the 3 month and 6 month treasuries are reasonable proxies for interest costs that businesses including small businesses like farms pay for revolving credit to fund operations.

If my arithmetic is right, the borrowing cost for those folks has increased by a factor of about 48x from 14 months ago. Much of that increased cost will have to come out of margins for many businesses as folks will only be able to pay the higher prices for stuff like food at home, rent, utilities and medical.

B.A.C.A.H. says

use short duration treasuries to manage the cash.

How are you doing this?

zzyzzx says

use short duration treasuries to manage the cash.

How are you doing this?

Fidelity, Vanguard, ETrade brokerage accounts broker these at no cost to the customer. No commissions, no premiums.

I get the same rates at auction at the brokerages as in my Treasury Direct account. Treasury Direct is a bit of a hassle to use as we must link it to a retail bank account. I have a few longer duration treasuries plus the ibonds there, but mostly use the accounts at the brokerages, which have a check-writing feature, for treasuries.

I don't know how the companies make money on it. Maybe they don't.

zzyzzx says

Let me understand this. This person bought it early this year. He was fine with everything till now. He probably got the cheapest mortgage rate too.

This is more like buyer’s remorse. Feels like he’s afraid of losing his job. Then his down payment and remodeling money will be down the toilet with a foreclosure. This is what happens when other determines his faith (his employer).

zzyzzx says

Looks like money laundering.

Patrick says

Looks like money laundering.

Redfin and Realtor do not show this sale. They show last sale in 2021.

https://www.redfin.com/AZ/Buckeye/1093-S-225th-Ave-85326/home/27414771

https://www.realtor.com/realestateandhomes-detail/1093-S-225th-Ave_Buckeye_AZ_85326_M15441-03402

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https://www.remax.com/az/buckeye/home-details/1093-s-225th-ave-buckeye-az-85326/15132725937338060195

From what I have seen in the past, the 30-year mortgage rate usually was around 2 to 2.5% higher than the Fed Funds rate. That's when there is stability in the economy and the Fed Funds rate is steady with no expected increases.

So technically with the Fed Funds rate now at 2.5%, then the mortgage rate should be around 5%.

The mortgage rate is around 6% now given the market expects further increases in the Fed Funds rate.

I would not be surprised if the Federal Reserve raises the Fed Funds rate to 3.5% this month, and not the expected 3.25%.

Either way, the Fed Funds rate has been below 3% since 2008. Obama had essentially 0% interest rate during almost all his Presidency.

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Realtors and Mortgage Brokers are praying for a crushing job recession or they're going to starve.

They don't have a market if there's no buyers and no inventory to sell even if they had buyers. They don't care if prices are going up or down - they grift off of the transaction.

Meanwhile you've got the biggest generational cohort looking for their first home but holding off because the combination of 6% mortgage's and prices 60% higher than 2018 have them stuck paying rent until something gives.

That something has to be sellers either (a) repricing to the point where the monthly payment is affordable, (b) forced selling from a credit defaults aka 2008 or (b) COVID Vax killing off enough home owners to make a meaningful impact on inventory.

Honestly, (c) seems to be the most likely option. The potential sellers are mostly sitting on 3% mortgages and they have to live somewhere - likely they can easily afford the payments and so there will be no bubble pop. The thing that could change this overnight is if a material number of these comfortable home owners lost their jobs.

stfu says

The thing that could change this overnight is if a material number of these comfortable home owners lost their jobs.

Very good analysis. I see the Fed wanting housing median price to return to mid 2020 levels. Maybe it will overcorrect and drop to 2018 levels.

Stocks are way too volatile as compared to 1929, 2000 and 2008 because there is just a larger percentage of population who now day trade or invest. That is why bear markets now are shorter lived.

If there is that much job losses involving comfortable homeowners, then we would already be in a deflationary environment, which means the Fed Funds Rate likely already peaked around 4.25% and had many months of Quantitative Tightening (QT) (aka: reverse-Quantitative Easing).

Then we are back to no more than 1% for the Fed Funds Rate and Quantitative Easing.

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Toll Brothers getting desperate:

6.42% is still too low.

Unless it’s above inflation like 10% it doesn’t matter much.

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https://www.msn.com/en-us/money/realestate/housing-starts-collapse-in-single-family-permits-is-the-real-story/ar-AA122Ba5

Residential starts — including both single- and multi-family units — increased 12.2% last month to a 1.575 million annualized rate from 1.404 million in July, according to government data released Tuesday. The consensus expectation by Econoday was 1.440 million.

But applications to build declined 10% to an annualized rate of 1.517 million units in August from 1.685 million in July. The consensus expectation by Econoday was 1.621 million.

“As a general rule, when starts and permits move in opposite directions, trust the permits numbers, which lead and usually are less noisy," Shepherdson added. "The surge in headline starts was concentrated in a 31% leap in the multi-family component, lagging prior gains in permits."

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As far as zzyzzx post a few posts above that shows the listing price, the house can be found at: https://www.redfin.com/AZ/Phoenix/13828-N-41st-Ave-85053/home/27619549

I would price its bottom around $305,000 which is about 5% annual appreciation since it was sold in 2017. I can't see it sinking below that price.

Phoeniz along with Las Vegas and Boise is a major hot real estate market.

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https://www.cnbc.com/2022/09/21/existing-home-sales-fall-in-august-and-prices-soften-significantly.html

Existing home sales fall in August, and prices soften significantly

https://slate.com/business/2022/09/home-owner-personal-finance-advice.html

I Was Part of the Home-Buying Rush. I Deeply Regret It.

It seems to me like I bought a home at what was probably the peak of the market… Maybe even the same week it started to turn—when we didn’t realize it was turning from a seller’s to a buyer’s market. And, unfortunately, I don’t love the place (long story) and am not dying to be here for very long. The mortgage should be manageable if everything lines up but is higher than what would be truly comfortable.

What should I do, practically, to make sure it’s not a loss? And, more philosophically, how do I not obsess about the timing of this decision?

Realtor recommends that parents should buy a house for their child now because they will never be able to afford one in their lifetime

https://www.instagram.com/reel/CijHdUCg9-Y/?igshid=NmNmNjAwNzg%3D

When house prices drop materially, the shit is going to hit the fan because everyone is going to know that the government caused the drop because they raised interest rates. The government will have nobody to blame for this they are going to have to face the pitchforks.

The Fed is supposed to have a mandate for price stability. When they intentionally drop the price of the largest asset most families have by 20% putting millions of families upside down on their houses' equity, expect some shit.

Misc says

everyone is going to know that the government caused the drop because they raised interest rates.

No, the government created the ridiculous run-up in house prices (and other asset prices) by keeping interest rates stupidly and artificially low. What is happening now is just a correction. Saying the government caused a real estate house price crash by raising rates is like a drunk blaming his hangover on the fact he stopped drinking.

Misc says

The Fed is supposed to have a mandate for price stability. When they intentionally drop the price of the largest asset most families have by 20% putting millions of families upside down on their houses' equity, expect some shit.

Most consumers who are subject to inflation are not buying a house every day or every week or every month, like they are for other stuff. If they have underwater equity that does not increase the cost of the monthly mortgage payment.

The equity you write of is only an "asset" for one who's selling (can you say, Flipper?) that can only be otherwise exploited with HELOCs (more debt) or Reverse Mortgages (exploiting Old Folks). Otherwise, the equity's not really an asset. If folks get pitchfork angry for the loss of something they never really had, then I think they have an issue with Anger Management that will not be fixed by the fed (not part of the government) relaxing the overnight lending rate to pour gasoline on the inflationary fire.

The un-destructed capital of upside down equity is the creditors' problem, not the underwater homeowners'. I know a few folks here in non-recourse California who walked away from their underwater problems in 2006 - 2009. The underwater equity became destructed capital for the creditors, - not the problems of those who walked away.

On the other hand, the high gasoline prices staring them in the face every time they drive past a filling station sign, the inflationed grocery prices every week at the supermarket, monthly higher and higher utility bills, are a constant source of stress and anger.

For the 7-14 million families that bought their houses at the inflated price and now cannot make the mortgage payment because of consumer price inflation, dropping the price of their house by raising mortgage rates, puts them in a bind. They cannot sell to get out of the trap.

Everything will go along until collectively they all hit the credit limits on their credit cards at once.

Rents ain't gonna drop because there is a housing shortage and new construction has basically stopped. Add a few more million illegals and you get what you get. With OER and rent making up about a third of the CPI we need more housing. The FED has fucked themselves.

Misc says

For the 7-14 million families that bought their houses at the inflated price and now cannot make the mortgage payment because of consumer price inflation, dropping the price of their house by raising mortgage rates, puts them in a bind. They cannot sell to get out of the trap.

I get our point, but the government does not set interest rates.

Nor does the federal reserve, except the overnight lending rate between its member banks.

The fed (not part of the government) influences all other rates that are set in the marketplace, but it doesn't set those rates. Yes, yes, I know, the fed's actions forced rates down with Quantitative Easing (Money Printing) which set artificially high demand for debt and so its actions dominated the rates, which are set in the marketplace by auction for treasuries and bid/ask for other debt types.

Now they're using their influence to skew rates higher, in an effort to slow the inflation and slow the suffering for the homeowners you cite, - with their fixed-rate non-inflationary rate mortgages.

Or, in a formula it seems like you're suggesting, the fed can make matters worse by letting inflation turn into a conflagration.

Come'on bro, interest rates are still extremely low. Maybe too low to extinguish inflation. The still-low rates continue to punish savers including Mom and Pop retirees (can you say, fixed rate mortgages?) and make pension funds scramble to fund their liabilities.

Most homeowners did not over borrow (at fixed rates, bro) to over pay for a crapshack in the past couple or so years like those you cite. The huge majority of homes were purchased long before that.

Misc says

When they intentionally drop the price of the largest asset most families have by 20% putting millions of families upside down on their houses' equity

I see this is a no-factor as long as unemployment does not rise about 7%. A lot of them bought with a 30 year mortgage rate of 3% to 3.75%.

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B.A.C.A.H. says

Most homeowners did not over borrow (at fixed rates, bro) to over pay for a crapshack in the past couple

Anyone who bought in the last 2 years overpaid though.

Booger says

Anyone who bought in the last 2 years overpaid though.

Agreed. And if they all walk away from underwater loans we'll have another financial crisis.

But they are a small part of the overall homeowners.

That said, maybe Misc. has a point if the other 90% or so of homeowners were serial re-financers taking out their vapor equity to spend.

My partner and I did fairly well over the decades but could not afford all the sh*t my contemporaries spent on and consumed for. In my opinion the most egregious of that stupid sh*t spending was the timeshares. Maybe they were discreetly paying for it with cash out refinancing.

The government does set interest rates. It can buy up unlimited amounts of mortgage bonds to even push rates into negative territory (as has been done in Europe), and just the threat of it selling a couple trillion dollars of mortgage bonds would push mortgage rates to over 10%. The market is government controlled and it lets insiders know what is going to happen. If anyone gets carried away however, they simply get crushed.

With mortgage rates at over 6%, they are high, having doubled in the past 18 months. Construction has basically stopped because nobody can sell SFH to people requiring a mortgage and make a profit.

Misc says

Rents ain't gonna drop because there is a housing shortage and new construction has basically stopped. Add a few more million illegals and you get what you get. With OER and rent making up about a third of the CPI we need more housing. The FED has fucked themselves.

I see regression as we collectively tighten our belts and as a result, you get more people getting roommates to help pay for home expenses.

That is why if you went to Northern Virginia such as Manassas and Manassas Park, you will see two or three families living in one home.

I used to live in a boarding house and paid $700 a month in Manassas back in 2011 because my job was in Manassas. At least I had my own bedroom and bathroom. It as a 5 bedroom, 4 bathroom home built in the mid 1990s.

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Misc says

With mortgage rates at over 6%, they are high, having doubled in the past 18 months.

Historically the 30-year mortgage rate has trended or tracked about 2 to 3% above the Fed Funds rate.

If current home prices are priced based when the mortgage rate was 3%, then prices should drop about 30% based on a 10% drop for every 1% increase in the 30 year mortgage rate.

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Misc says

The government does set interest rates. It can buy up unlimited amounts of mortgage bonds

I get your point but it's not the government, its non-governmental agencies like the fed, Freddie Mac, etc. And those agencies don't set the rates either but they created artificially high demand which in a debt auction marketplace the bid goes to the lowest bidder.

Yeah I know, everyone wants to be a victim and blame the Big Bad Government.

The Big Bad Government didn't do those things. Fed and agencies' actions were political in response to political imperatives of whomever is in power elected by folks like us, not "the government".

Plenty of blame to go around and cry victim about. However, problems are not solved till we identify the source of the problem which will require a look in the mirror. We've coveted living beyond our means for decades. Politicians were all too happy to pressure entities like the fed to do some smoke and mirrors to keep the gig going for a while. Now we wanna blame everyone except our own selves.

Kind of like we Coastal Californians who live in a natural desert expecting copious amounts of cheap water to keep our lawns lush and top off our swimming pools,

Patrick says

zzyzzx says

Looks like money laundering.

Redfin doesn’t show that sale price. Maybe just a print error?

It is not the price of the house that changes (although it does to a certain extent because of inflation). It costs about the same to build a house from year to year. It is really the price of the land that changes. When you think that historically 80% of the purchase price of a SFH was the house and the other 20% the value of the land with a total price move of 20% you see how 3rd world the US real estate market is.