patrick.net

Q: How do I know who is the author of a post?

A: The long thoughful ones are written by HARM. The short silly ones are written by me.

:)

Just a reminder: the mirror universe has been annihilated by anti-matter. ;)

Normality is restored.

I believe that mortgage interest (house related only) is deductible under AMT. However, property tax is not.

(Not tax advice.)

LafayetteParkPrime, this thread is not for the Evil Twin Game. Facts and logic are encouraged again. ;)

nostradamus, I think 100yr mortgages can be appealing if the interest rate is very low.

At 6%, the payment for a 1M mortgage will be 5995 for 30yr and 5012 for 100yr.

At 3%, the payment for a 1M mortgage will be 4216 for 30yr and 2631 for 100yr.

On the other hand, a 1.5% Option ARM (assuming 5.84% fully-indexed rate) will have an initial payment of 3451 for a 1M mortgage.

I doubt that we will see 3% mortgage...

At 4.5% (more realistic), a 100yr 1M mortgage will have a payment of 3792, which is higher than Option ARM.

BTW, nostradamus, will the Judgement Day come before the housing bubble bursts? ;)

Hey, did anyone see “Wakeboarder-Y’s” post this morning on ‘Evil Twin game’? *Priceless*.

That was a classic.

HARM, perhaps you can consider starting a "Housing Dead pool" thread?

'Jealus', 'spece' ?? --wish we had an automatic spell-check feature here.

We have a semi-automatic spell-check feature. copy/paste your text to Word, run spell-check, correct if necessary, copy/paste the text back here. Done!

Q: How do I know who is the author of a post?

A: The long thoughful ones are written by HARM. The short silly ones are written by me.

Don't know if I totally agree --you've had some pretty thoughtful ones-- but thanks for the compliment. And, yes, I'll start looking into it.

I read an interesting comment on the Aus. property market. Apparently unemployment has risen recently and people are trying to work out what is going on. The economy still appears to be strong but someone said perhaps it was the RE market driving people out of the big cities when even the skilled professionals can no longer buy into it. As they leave the industry follows the labor force and sets up show elsewhere as it's cheaper than the big cities.

I've also invited any knowledgeable forum folks to join us in this debate so if you see any 'gidday mates' you will know why they are here. I also cautioned them that we are a respectful crew and won't put up with any flames or troll tactics.

I'll be back on in a few days as I'll be travelling to Tokyo. Perhaps I can ask them what it felt like as the market started to plummet and what signs they saw to warn of impending doom. Should make me popular in the Karaoke clubs:)

Should make me popular in the Karaoke clubs:)

Watch out for grieved real estate investors with samurai swords.

Josh, thanks for the information.

There are two very important differences that can make this coming bubble bust more painful:

1) Over the course of this current boom, rent is actually declining
2) There is considerably more leverage in this current boom

Our bubble buddy, Escaped from DC, has a great site on the Crash Timeline:

http://www.brenc.com/crash/

Jack, but you do agree that we had increases in rental prices over the 1980's boom, right?

Jack, the current declining rent situation start in 2000 when renters were not rushing to buy.

Also, the direction of rent signifies population and wage trends, which are fundamental determinants for housing prices.

Cheap financing has allowed more renters to make the jump this time.

Hence point (2), higher leverage. ;)

Jack, I do agree that Marin county will be in much better shape than PRIME locations in Solano county. ;)

The streets and schools will become even more unsafe in the coming downturn and people may head to Marin in droves again.

Perhaps I should move there too. The weather is nice, right?

I really do not understand why people will want to buy when interest rate is at historically low. (If I buy when rate is high, the relative principal amount will be less and I will be able to refinance when rate drops, giving more upside potential to the value of my house.)

So the only thing that can save the day this time is rapid job/income growth.

If you believed that real estate prices never went down, then your decision to purchase would be based entirely on rates. People are behaving as though this were true.

Even if "real estate prices never went down" a falling rate environment will still offer more upside than a rising rate environment. This is on top of the fact that your fixed mortgage payment will be decreasing monotonically.

“I hope I’ll be able to spot the next boom and see it for what it is, but I’ll probably be as blind to it as everyone else.”

Let's talk about what to do with the next boom after this bust. ;)

I don't see multi-generational loans anytime soon. There has been so much building out here, that it's only going to take a flattening of the market to have a glut of homes on the market. Especially with 20% of the buyers in the market now being speculators. (that's the figure for the sacto area, not sure what BA stat is) I don't know for certain, but it would make sense that multi-generational loans are more prevalent in areas like Japan, where there really is a lack of land to build on. But that didn't stop their market from falling for an extended period of time. It makes me wonder what type of lending is most common there now. With prices having fallen so much, the MG loans may not be necessary anymore.

Personally, I'm hoping for a slower fall in prices. I don't like to think what a rapid fall would do to the economy. But I think it is inevitable there will be a significant fall in prices. The BA is almost certain IMO to weather a falling housing market than Sacto. We could really end up annhialated, especially if the HP layoff's hit Roseville hard.

I don’t see multi-generational loans anytime soon.

I/O loans and NAAVLPs are already light years ahead of multi-generational loans. We are indeed more creative than the Japanese. However, this creativity could be put into better uses, such as nano-technology and genome therapy.

However, this creativity could be put into better uses, such as nano-technology and genome therapy.

If only our creativity could be harnessed and used for good not evil. ;)

I agree though….. voodoo anal loan products WILL bring on the deaths of millions of people world wide.

Voodoo loans will turn borrowers into sheeps and they will be eaten by wolves.

Prat, who is AetorianPray? ;)

You are only 28?

Ok, I am going to sound really dumb. But could you guys walk me through why higher interest rates are a good thing?

SactoQt, the idea is that:

1. Monthly mortgage payment is constrained by household income, higher interest rate does not usually translated into higher monthly payment.

2. When interest rate is above normal, there is more room for it to come down. When interest rate is already at historical low, there is not much room for it to drop further.

3. Holding a fixed rate mortgage in a declining interest rate environment means refinancing opportunities and lower payment.

4. Even if interest rate stays high one can speed up prepayment to reduce interest cost.

Monthly mortgage payment is constrained by household income, higher interest rate does not usually translated into higher monthly payment.

Let me further expand on this point. All other factors being the same, higher interest rate means lower home prices and lower loan principals.

I can see bulls attacking... ;)

I said "all other factors being the same". Usually, higher interest rate accompanies higher salary income growth, which softens home price corrections.

Existing homeowners love lower interest rate because:

1. They can refinance into lower payments
2. Buyers can "afford" to buy into higher prices

PP: "You are only 28?"

For another few weeks anyway... Why?

@Sqt: Higher interest rates are better for buyers because, as Peter said, by and large housing decisions are made on a "what's the monthly payment" basis. Therefore, higher interest rates mean lower (falling) prices which means people are expecting lower returns on housing and are therefore less willing to bet on appreciation, further lowering the willingness to eat negative cash flow. Furthermore, if you have, say, $3000 a month to dedicate towards a house payment, you would want as much of that payment to be able to be written off as possible. The higher the interest rate, the more you get to write off. Finally, when interest rates do eventually come down, you can refinance your lower-cost-but-higher-interest-rate home into a lower-cost-and-lower-interest-rate home, while people buying at low interest rates end up with higher-cost-and-lower-interest-rate homes, or, worse, higher-cost-and-soon-to-be-higher-interest-rate homes.

Its unintuitive, but that's my theory.

Cheers,
prat

Looking for the 5 months since my indoctrination for the trigger. Looks now as though it could be the yuan depeg. It's going to be fascinating to see the effect on LTRs.

We've all recognized that there may be a "who's left to get in at the bottom" problem. We've also all recognized that higher LTRs will, necessarily, lead to a shrinking pool at the bottom, 2,000 year mortgages notwithstanding.

The thing that's been impossible to predict is if and when LTRs would increase. I read several compelling arguments over the weekend that the depeggin will cause LTRs to ratchet up. I'm fascinated.

"PP: “You are only 28?”

For another few weeks anyway… Why?"

Because you seem more sagacious than most 28 year olds.

What, no time to master X-Box? You waste your time chatting about the future of the world when you could be in there playing Grand Theft Auto, cheats and all?

J: "But I am afraid that the boomer effect is going to play out over a much longer, slower run, making it rather unreasonable that your house will conveniently drop in price in the short time frame you wish."

Sadly, I think jack may be on to something here. This may be the biggest threat to the short-term bear case in housing.

The long-term bear case is actually even more compelling: US population is predicted to peak as early as 2020 or so, and begin declining. Given that boomers will also start kicking the bucket in and around that timeframe, we will likely have falling demand and increasing supply. Sadly, this will make housing an even worse long-term investment for those of us entering the housing-as-shelter market over the next few years.

I'm sure Face will love that: Praetorian predicts housing market crash in 2025!

Cheers,
prat

Jack: "I think you guys have hit a new low with this interest rate argument."

Or... is it that we have hit a new high *so* high that there is a wrap-around error and it just *appears* low? Think about *that* for a little bit...

Jack: "Interest rates were higher right now and have a higher payment"

Thats just it: interest rates will be higher and people will have *the same* payment as right now, because prices will come down. People in parts of california are dedicating 40-50% of their income to housing payments. You expect this to go up as interest rates rise?

Jack: "By the way, low fixed interest rates are not going to look so bad for Fake P and myself if rates go up in the coming years."

Of course. Low interest rates are a great time to refinance and sell. And, as with *all* times, if you are in a fixed interest loan and the payments are manageable, you are going to be just fine. But keep in mind that this does not describe the average buyer in California right now, who we know is ARM'd and who many of us maintain is overextended and betting on appreciation.

_smile_ Does the fact that I rock myself to sleep at night repeating this argument over and over again make it necessarily wrong?

OK, out for the day.

Cheers,
prat

PP: “You are only 28?”

For another few weeks anyway… Why?

You are just a few months older than me. ;)

By the way, low fixed interest rates are not going to look so bad for Fake P and myself if rates go up in the coming years.

Yes, but it would be better for you guys if fixed interest rate drops, right?

Interest rates were higher right now and have a higher payment

This will get resolved soon enough. On the other hand, NAAVLPs are clouding the picture by deferring payment burden.

What I dont get is what (beyond simply not buying) a buyer right now is supposed to do with this information in a practical sense?

It is a conundrum, I agree. I do not know exactly what to do either. Any idea?

We must consider inflation (and expectation of such) as well.