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Hurry! Hurry! Because Mortgage Rates are Going...
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2010 Oct 8, 4:37pm 22,188 views 86 comments
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Long term mortgages used to be (still are to some extent) securitized into mortgage backed securities.
I’m pretty sure that securities market is completely dead now. I think no one at all is buying mortgage-backed bonds made from jumbo loans, because they can’t be guaranteed by Fannie/Freddie/FHA.
The vast majority of loans are well under the Jumbo threshold. Mortgage backed securities are alive and well.
That’s total BS, Mr. Kevin. Here are some statistics from Zillow.com:
Mountain VIew National Ratio
Median Household Income $69K $44K 1.5x
Median House Price $734K $180K 4xAlso, what you call a median house in Mountain View is only fit for farm animals in other parts of the country. These types of houses which they have the tenacity to sell in MV for $750K are only bought for demolition in other parts of the country.
The city's official data says that the median household income is 73,850, and 112,500 for a family of 4 (national data says 38k and 52k respectively). Yeah, my numbers are a little off. For a family of 4 it's ~ double in mountain view vs the national average.
The median sales price for July-September 2010 (most recent data I can find) is 628K. National numbers say $180k for the same period. So that's ~3.5
So, assuming that:
1. Mountain view housing in no way justifies a price multiple greater than the rest of the country (a pretty weak argument, considering housing density and disposable income levels)
2. People won't just hold onto their current prices (because they can't afford current payments?)
The, yeah, you *might* see a 40% decline in prices in mountain view, which would give you a median sales price of $376k.
That gives you a mortgage for about the same as rent on a one bedroom apartment.
Good luck with that. My bet still stands. See you in 20 years.
There’s really little reason to believe that the prices in silicon valley will fall 75 or even 40%. Mountain view currently has a median house price that is ~3x the national average, and a median household income that is ~2.5x the national average.
So maybe you’re claiming there’s going to be a 40% drop in national housing from its current levels rather than 80%. I doubt even that’s the case, but at least you’re starting to make an argument that makes sense.
Its happened before and certainly can happen again. Income/salaries are what local employers are willing to pay. As in prior decades, jobs/salaries when they become impossible to maintain have moved further out into other states and countries.
http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.trends.php
"No one wants to recognize it, but between 1989 and 1992, prices dropped 30 to 40 percent. There's no question that could happen again. Everything has a cycle and real estate is no exception. It's foolish to think prices will go up forever. In the longer term they will, if you can weather the downturns in between. There's no way to know," Dancer said.
Its remarkable that this guy was warning about price drops even in 2000 when prices were disconnected from incomes.
No one wants to recognize it, but between 1989 and 1992, prices dropped 30 to 40 percent.
Yeah, there's a few problems with this:
1. Prices have already fallen substantially (probably not 40% from peak yet though). 40% from where they are today just sounds like wishful thinking from someone who makes a high 5 figure salary thinking that they'll be able to own a house near stanford some day.
2. Prices didn't actually fall 40% from 1989 to 1992 in PA. It was more like 15%, or about 10% when adjusted for inflation. I'm positive some homes lost 30-40% of their value. I'm positive some homes lost 100% of their value. That's not what we're talking about htough.
I'll even agree that the *inflation adjusted* prices could fall back to 1975 levels at the national level. Shit, they already practically have:
Median national price 1975: $39,000
Median national price 1975, adjusted for inflation: $167,778.62
Current median price: $180,000.
But that's not what mr mc crazy pants is arguing. He's arguing that prices are going to fall back to 1975 in absolute terms. That, my friends, is crazy, and it isn't going to happen.
I don't know what the inflation adjusted price in PA would be, but I'll wager that it's not 80% lower than whatever it is currently (and, of course, ignoring the very real population and job growth that has occurred in the area since 1975 is absurd).
But that’s not what mr mc crazy pants is arguing. He’s arguing that prices are going to fall back to 1975 in absolute terms. That, my friends, is crazy, and it isn’t going to happen.
Your right, prices will not go back to 1975 in absolute terms. 1996-97 adjusted for inflation will do just fine.
Did people hold on to their Sun stock when the price crashed from 130 to 2.
People don't live and raise their children in their Sun stock.
Now, you still didn’t consider the quality of a house you get in Mountain View, which, means you still need to multiply by a factor of 2.
Why, because you say so? Mountain view houses tend to be smaller, but with higher end finishes than the majority of the country. The "quality" difference is already priced in, in the sense that you get a lot less house for the same price. Actual construction quality and the like are more or less the same.
So, at current levels prices in Mountain View are about 5x overpriced relative to the rest of the country. If you assume that a median price goes down 20-30% in the US,
I don't assume that. In fact, I assume that national house prices will go down by less than 10% from where they are now. More likely, I think they'll just go sideways for a few years. But weren't you just claiming that they were going back to 1975 levels a few posts ago?
how much should the MV price drop to get to a fair price valuation relative to the rest of the country - or is it that our sh*t don’t stink in Mountain View.
I don't really know, because you can't make such a statement looking at price : income ratios alone. Do you also think that NY real estate should be priced similarly to the rest of the country, despite historically having a price: income ratio more than double the national average? Do you believe that Silicon Valley's economy is comparable to that of Detroit? How about Cleveland? How about Houston? No? Ok.
But that’s not what mr mc crazy pants is arguing. He’s arguing that prices are going to fall back to 1975 in absolute terms. That, my friends, is crazy, and it isn’t going to happen.
Your right, prices will not go back to 1975 in absolute terms. 1996-97 adjusted for inflation will do just fine.
On a national level, they already have. In 1996 the median price was $132,000. Adjusted for inflation that would be $179,000, which is roughly where we are today.
That's why I don't think national housing prices will go down significantly from where they are right now, if at all. There's just no real reason for that to happen.
Inflation is far, far more likely. Once interest rates start inching upward, expect the printing presses to flow.
On a national level, they already have. In 1996 the median price was $132,000. Adjusted for inflation that would be $179,000, which is roughly where we are today.
I was thinking locally to Bay Area-South Bay using late 90s figures. Our bubble started out post 97 while the rest of the nation started out after 2002-3.
Many other national metros have corrected nicely already and dont expect too much fluctuations from here. Yes, it makes more sense NOW to buy that vaction home in SoFLA for $100K vs $400K a few years ago.
bubblesitter
2010 Oct 10, 8:38am
"Now is the best time to buy, rates are super low" -- speaking for LY of NAR.
I was thinking locally to Bay Area-South Bay using late 90s figures. Our bubble started out post 97 while the rest of the nation started out after 2002-3.
I don't know what "South Bay" refers to, but based on the numbers I can find online, the whole bay area is actually below it's inflation-adjusted 1996 prices (should be $450k, is about $400k right now).
What was the median price in the "South Bay" in 1996? (hey, for that matter, what was it in 1975?)
“Now is the best time to buy, rates are super low†— speaking for LY of NAR
Eventually you so see Blood in the Streets.. No not in SF Bay Area, but in Miami or other places! If prices went down by large % from peak and have adjusted to normal levels comparable to prior decades adjusted for inflation, yes its a good time to buy. This may not be the case in your or mine town/city. But it certainly gives you an idea where the real bottom is.
I don’t know what “South Bay†refers to, but based on the numbers I can find online, the whole bay area is actually below it’s inflation-adjusted 1996 prices (should be $450k, is about $400k right now).
What was the median price in the “South Bay†in 1996? (hey, for that matter, what was it in 1975?)
sure, South Bay is Mt View to South San Jose. As some call Silicon Valley.
we have yet to see prices fall fell back to 1996 adjusted, but getting there.
What was the median price in the “South Bay†in 1996? (hey, for that matter, what was it in 1975?)
It wasnt unusual to have seen fairly priced, affordable homes in South Bay (Santa Clara County) back in 1995-96. After 1997 and into 2000 it all went bonkers.
http://www.housingbubblebust.com/OFHEO/Major/NorCal.html
See figures, below chart
That looks like some kind of price index. Are there actual numbers somewhere?
That looks like some kind of price index. Are there actual numbers somewhere?
Yes its a price index and is fairly approximate to prices as well.
You would have seen prices in say 1996-97 for a home for 225K or so.
Same home went to 450K by 2000 and then 650K by 2006. Same home! Seen
similar homes today down to 500K.
So now what the price inflation of 100% as it relates to 1998-2000 years ?
That looks like some kind of price index. Are there actual numbers somewhere?
Yes its a price index and is fairly approximate to prices as well.
You would have seen prices in say 1996-97 for a home for 225K or so.
Same home went to 450K by 2000 and then 650K by 2006. Same home! Seen
similar homes today down to 500K.
So now what the price inflation of 100% as it relates to 1998-2000 years ?
Ok, I get that, but what was the median for the south bay? I can find the median for the whole bay area without issue. Not trolling, I genuinely want to know.
bubblesitter
2010 Oct 10, 2:07pm
That looks like some kind of price index. Are there actual numbers somewhere?
Yes its a price index and is fairly approximate to prices as well.
You would have seen prices in say 1996-97 for a home for 225K or so.
Same home went to 450K by 2000 and then 650K by 2006. Same home! Seen
similar homes today down to 500K.So now what the price inflation of 100% as it relates to 1998-2000 years ?
Ok, I get that, but what was the median for the south bay? I can find the median for the whole bay area without issue. Not trolling, I genuinely want to know.
Why don't you just go backward using today's median with 3% inflation. Put your calculator to work.
Ok, I get that, but what was the median for the south bay? I can find the median for the whole bay area without issue. Not trolling, I genuinely want to know.
There are a number of sources...
(1) FHA data http://www.fhfa.gov which used as data points on the chart
(2) published data at Dqnews.com http://www.dqnews.com/Articles/archive.aspx
(3) just general search in historical Google (timeline)
(4) http://www.archive.org/web/web.php
using archive.org + dqnews only back to Dec2000 data..
http://web.archive.org/web/20010304002000/www.dqnews.com/ZIPSFC.shtm
loads slow! so be patient...
Sorry, maybe I'm not clear -- I can't find median house prices for the *south bay* specifically, from 1975. Greater bay area, and current data for the south bay is easy to find.
I definitely know my way around Google ;)
The data from 1996 is a reasonable point, but I already saw that and pointed out that we're already back at that level, at least for most of the counties.
Much of the SB data was published by newspapers San Jose Mercury news and would require a fee to access the info. Was not on the internet. Or pay dqnews.com for data directly.
Much of the archived data requires paying some fees to someone these days.
Nadda, not even close to 1996 or 1997 plus inflation today. You most likely would laugh at prices then... take 2000 prices and cut in half will get you 1997 prices.
Starting in mid 70s, New York apartments started going up, yuppies appeared and mortage rates went sky high.
Between 1980 and say 1989-90 we (Santa Clara County) saw a genuine economic boom in tech. Employment/salaries went up across all income levels and so did home prices. By mid 90s they corrected for number of reasons. Even though we had fall in interest rates, raise in new construction, prices didnt boom over 75-100% compared to the after 1997 as prices inflated by 300%...
1975 would be a far stretch for Santa Clara County.
yuppies appeared and mortage rates went sky high
Hell of a coke habbit them yuppies! but thats New Yorker Yuppies for you!
So where did they go after 2000, look no further than tech companies and south bay!
God I hope they leave one day!
Nadda, not even close to 1996 or 1997 plus inflation today. You most likely would laugh at prices then… take 2000 prices and cut in half will get you 1997 prices.
The numbers I'm finding say 1997 prices were 250-320k depending on county. That puts us at 320-430k adjusted for inflation, which is right around the current bay area median sale price.
Yeah, Santa Clara and San Mateo are still a bit off from that, but really not that much. Remember Santa Clara includes the shitty parts of sunnyvale and san jose, and San Mateo includes EPA.
It wasnt unusual to have seen fairly priced, affordable homes in South Bay (Santa Clara County) back in 1995-96.
Well, I’m a lot older than you, but this is what I remember.
Before the mid 70s people didn’t talk about “real estate†as finance. You got a house, and you lived in it. Starting in mid 70s, New York apartments started going up, yuppies appeared and mortage rates went sky high. Life in my parents middle class family changed forever, as what seemed like a gradual uphill path, turned into doing the dog paddle to keep from drowning.
In my view, all of the housing inflation starting from 1974 on is only justified as a bubble.
Hence, prices will return to those levels.
It's good to know that you believe that housing is immune to inflation (because building materials grow on trees and labor is free!). Housing is only slightly higher than where it should be going on inflation data alone (national should be ~$168k, but it's actually $180k right now...about 8% over valued)
Shit, and that's using the official government inflation numbers.
But keep on beating that drum. I'm sure if you just keep on waiting you'll be picking up that lovely 4 bedroom in PA for $50k before you know it. And everyone else will apparently be out of a job, but that won't result in unrest worse than 1930s europe. Either that or everyone will still have their jobs, but will for some reason not want to buy houses that they can afford with their annual bonuses.
Good luck!
But keep on beating that drum. I’m sure if you just keep on waiting you’ll be picking up that lovely 4 bedroom in PA for $50k before you know it.
You were saying:
http://goo.gl/4eXW
5BR/1BA Single Family House - Pottsville5 beds: $50,000
Palo Alto, not Pennsylvania. Jesus.
What you don’t understand is that at one point in this country people were not working all week long just to pay the rent or mortgage.
Which is pretty much where we ended up.
There was a very brief period in this country where that was true, from about 1945 until 1980. It had very little to do with house prices.
Not having a job all the time, but owning a house, could make us a better and more independent country.
The kind of country where a guy could spit at bigwig or politician and not fear losing everything….because he still had his land, his business, his home…
Party like it's 1799 man.
The numbers I’m finding say 1997 prices were 250-320k depending on county. That puts us at 320-430k adjusted for inflation, which is right around the current bay area median sale price.
Yes! thats about right! and $32OK would be the high end in Mill Valley and Palo Alto/San Jose...
Crazy times after 1997!
Nov-96 Nov-97 Chng.
Alameda ................................$207K $230K 11.1%
Contra Costa...........................$197K $210K 6.6%
Marin.........................................$343K $349K 1.7%
Napa.........................................$175K $180K 2.9%
San Francisco .............................$270K $307K 13.7%
San Mateo .................................$285K $339K 18.9%
Santa Clara.................................$259K $311K 20.1%
Solano........................................$138K $147K 6.5%
Sonoma.....................................$185K $199K 7.6%
Bay Area....................................$229K $260K 13.5%
Inflation cal... http://www.westegg.com/inflation/
What cost $200000 in 1996 would cost $270706.09 in 2009.
What cost $25000 in 1996 would cost $338382.61 in 2009.
What cost $300000 in 1996 would cost $406059.13 in 2009
What cost $350000 in 1996 would cost $473735.65 in 2009.
But not yet there!
LAO
2010 Oct 12, 4:07am
So it’s your theory that banks are somehow forced to make loans at some arbitrary rate based on LIBOR or the 30 yr treasury?
The mortgage rate, in fact, is tied to the 30yr T-bill, or Libor rate, which sports an artificially low interest rate
Thank you for asking the questions that have bothered me for a couple of years now! WHY do mortgage rates vary with Fed decisions, or LIBOR? I still don’t understand the exact connection.
If a bank thinks inflation is going to go up, it should lend at a high enough rate to compensate for that inflation. Also, if a bank thinks a mortgage is risky, it should tack on points to compensate for that risk.
Given that inflation may rise, and that mortgages are very risky now, why would any bank lend for 30 years at only 4%? It just doesn’t make sense. Except for the case where the bank can quickly dump the risk onto Fannie/Freddie/FHA, etc. Which may be exactly what is going on.
Come to think of it, jumbo lending is completely dead from what I hear. That would fit perfectly with the banks not lending at all in the case where they can’t push the risk onto taxpayers.
On the third hand, Wells Fargo is offering 5% jumbo loans:
https://www.wellsfargo.com/mortgage/rates/
Why would they do that if they can’t stick the rest of us with the risk?
I think the the banks "have to loan at lower rates" because if they didn't offer these rates, then the market would tank harder.. and they'd have more foreclosures and they'd be worse off. If banks started offering 7% loans tomorrow... literally tomorrow. Home sales would crash harder.. and home prices would follow. Putting more people underwater, causing banks more foreclosures... The banks are in a sense forced to keep rates enticingly low. Right now they can do so without risk of too many people taking the bait.. which is kinda what they want.
tatupu70
2010 Oct 14, 10:58am
How’d that work out for IndyMac or Countrywide?
IndyMac was a savings and loan, not a bank really.
Countrywide was spun off from IndyMac as a separate
http://en.wikipedia.org/wiki/OneWest_Bank
Small Fry who weren’t part of either the banker’s cabal or Wall Street — but both groups made out like bandits for the ‘collapse’ thereof.
Either way, their depositors where made whole and the golden parachutes paid out. So, where was the risk to the folks in charge who made the decisions?
Was anyone prosecuted? If so, then I’d have to revise that statement for THESE particular cases. Otherwise, I stand firm.
Well, IndyMac owners didn't do too well, did they?
Or Countrywide owners?
http://www.advfn.com/p.php?pid=qkchart&symbol=NY%5ECFC (click on 5 year graph)
So, unless you think the employees wanted to bankrupt the company and lose all of their owner's money, I think you're off base.
Eventually, the gov-t will be the lender of last resort for 100% of the mortgages, and, as foreclosures increase, they will be the owners of all the worthless real estate.
Wrong, the American public will be the owners of all the worthless real estate.
Thank you for asking the questions that have bothered me for a couple of years now! WHY do mortgage rates vary with Fed decisions, or LIBOR? I still don’t understand the exact connection.
banks are in the business of borrowing money from one party in order to lend it to another. If libor is 5% and they lend at 6% that's a winning proposition. Often the party a bank is borrowing from to lend to somebody else is another bank that doesn't have good use for their loanable funds (thus the INTERBANK part of london intererbank offered rate.)
Either way, their depositors where made whole and
Its a myth that some depositors are made whole...
FDIC slashes estimate of IndyMac's uninsured deposits
August 12, 2008 | 6:04 pm
From Times staff writer E. Scott Reckard:
It’s looking like substantially fewer big depositors will end up losing money in failed IndyMac Bank.
John Bovenzi, who was named to head the Pasadena bank when the Federal Deposit Insurance Corp. took control of it July 11, said in a memo to the staff today that "it now appears that there were about $600 million in uninsured deposits" when the government seized the lender.
So, unless you think the employees wanted to bankrupt the company and lose all of their owner’s money
It's not that they wanted to. It's just that bankrupting the company you work for is irrelevant if you are personally profiting. Just ask Andrew Mozillo.
You all are right to some degree, about the many detailed elements engineered to create SOCIALISM! It's like a baker's conference convention, arguing about how many eggs, salt, flour, temperature, yeast, yolks went in to make the end result THE CAKE (Socialism).
It's all perspective. I don't even know how much it cost to use a pay phone these days; do they still have them? My father always stressed, keep a dime tucked away in your wallet, and at the very least, you'll be able to call someone if you need help. Now, you have a good idea of my age!
Regardless of rates, what a potential buyer must be comfortable with, aside from obtaining a non-clouded title, is how much further the drop will continue. I live in the suburbs of Maryland, so I have been extensively looking at the right-coast values. In my opinion the fall is 2/3's complete, on average these properties have fallen 32%, and I feel 50 - 53% will be the settling point here. With the newest twist in the scandal, most likely, as with all market corrections, the bottom will be overshot, and then ultimately begin a steady appreciation, at a point 53-55% down from 2006 highs!
Based on the area a prospective buyer is looking, based on the assumption of a home currently in the 200k range, even if you could get 3% fixed for 30 years, is now the time to pull the trigger? I still say; NO. The downward pressure could erode 30-40K from the value over the next 2 years. At 3%-30 with 20% down, P&I is $675. Effectively you are also financing the loss, which pushes the carrying cost to $823 per month, P&I. Keep in mind taxes and insurance were omitted. So, realistically it is effectively costing $823 per month to borrow $125K - 200K Purchase -40K DP -35K potential further loss. That 3% loan is now 6.87%+/-!
tatupu70
2010 Oct 15, 2:06am
And those two entities were not banks, as I said. Patrick was talking about banks…and by reference I took to mean the big ones, too. That is the context in which I responded.
What exactly is your point? IndyMac had $32Billion in assets. In what universe is that not considered "big"? And why distinguish between savings and loans and banks? Is there some reason why a bank would feel safer than a savings and loan w.r.t. government aid?
How about WAMU? Are they "big"?
I’m pretty sure that securities market is completely dead now. I think no one at all is buying mortgage-backed bonds made from jumbo loans, because they can’t be guaranteed by Fannie/Freddie/FHA.
Hmmm…I thought Congress re-authorized those limits just a few months ago. Maybe not. I haven’t been following it closely but I recall reading about it back in the summer that it was in the works
Congress just extended the limits a couple weeks ago. So, until at least September of 2011, the conforming loan will continue to enjoy a cap of $729k in so-called high cost areas (like SF, NYC, LA, etc.)
dunnross says
Eventually, the gov-t will be the lender of last resort for 100% of the mortgages, and, as foreclosures increase, they will be the owners of all the worthless real estate.
Wrong, the American public will be the owners of all the worthless real estate.
I disagree. Is there nothing scary to you about the gov't holding the title to 20%+ of US residential property? I dare the "American public" to knock on the door of the White House and claim our due. Gov't will socialize the liabilities and taxes and privatize any future asset values.
It'll be Louis XIV landlording the swamps to the peasantry.
Japan has been trying for almost 2 decades to create inflation; albeit... Unsuccessful! There will be no inflation in the US for a LONG; Time. Just because the treasury is burning out the bearings on the money printers, it is in, and of itself, not inflationary. I'm convinced the banks will look back five years from now, and view the mortgages created now as having very attractive yields. Americans continue to be very gullible, in that the fear and consume mentality is still very much in play. Influenced by big ad dollars, main stream media beats the drums, influenced by players as Bank of America, for example, splashed all over MSNBC, FOX, and the likes, and those networks play up the thrust of their message that rates are headed up, and inflation is on it's way; this is simply not the case. It's just propaganda, in an attempt to stoke consumption. The fact that consumption increases are not occurring, in not that Americans have learned their lesson, and are now savers, it's simply they are tapped out! The only way for inflation to be injected into the equation, would be a huge ramp up in jobs. There would have to be record breaking job creation, and not even that would assure re-inflation, let alone inflation, or hyper-inflation. The longer this takes; job creation, the smarter Americans will become. From pain, comes gain. Americans will make it through this carnage, and when they do, will have learned their lesson, and force the government to actually build an economy that is not heavily dependent on consumer spending, to be successful.
It’s all perspective. I don’t even know how much it cost to use a pay phone these days; do they still have them? My father always stressed, keep a dime tucked away in your wallet, and at the very least, you’ll be able to call someone if you need help. Now, you have a good idea of my age!
Regardless of rates, what a potential buyer must be comfortable with, aside from obtaining a non-clouded title, is how much further the drop will continue. I live in the suburbs of Maryland, so I have been extensively looking at the right-coast values. In my opinion the fall is 2/3’s complete, on average these properties have fallen 32%, and I feel 50 - 53% will be the settling point here. With the newest twist in the scandal, most likely, as with all market corrections, the bottom will be overshot, and then ultimately begin a steady appreciation, at a point 53-55% down from 2006 highs!
Based on the area a prospective buyer is looking, based on the assumption of a home currently in the 200k range, even if you could get 3% fixed for 30 years, is now the time to pull the trigger? I still say; NO. The downward pressure could erode 30-40K from the value over the next 2 years. At 3%-30 with 20% down, P&I is $675. Effectively you are also financing the loss, which pushes the carrying cost to $823 per month, P&I. Keep in mind taxes and insurance were omitted. So, realistically it is effectively costing $823 per month to borrow $125K - 200K Purchase -40K DP -35K potential further loss. That 3% loan is now 6.87%+/-!
that's where my head is at as well. i'm in the sf bay area, i'm not certain the declines will be as steep as in your example, but i anticipate declines nonetheless. it's interesting to see what interest rates will be roughly equivalent to a 5% drop in housing prices.
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...Down!
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/08/AR2010100800371.html
Remember all this year, when the argument from almost everyone was the other way round?
#housing