How low will mortgage rates go in the next two years?

Submitted by XBoxBoy on August 26, 2010 - 11:20am
Less than 2.5%
7% (4 votes)
Less than 3.0%
16% (10 votes)
Less than 3.5%
15% (9 votes)
Less than 4.0%
33% (20 votes)
Less than 4.25%
18% (11 votes)
They're not going any lower. This is it. All up from here.
11% (7 votes)
Total votes: 61
Submitted by XBoxBoy on August 26, 2010 - 11:21am.

Today the 30 yr fixed conforming is 4.36% and I keep wondering, just how low will mortgage rates fall. So, what will be the bottom rate in the next two years?

Submitted by enron_by_the_sea on August 26, 2010 - 12:04pm.

I am of the opinion that the bottom on 30-year fixed is about ~3.75% with ~$3000 cost. This is for the primest of the prime conforming mortgage. The cost would include actual costs like escrow/appraisal etc and not things like prepaid interest. Of course you can get a lower rate by paying more upfront and vice versa.

Today such a loan for similar cost maybe obtained for 4.125% So I think we can fall another 0.375%.

Why?

10-year treasury is now at ~2.5%. The absolute lowest it has ever been was 2%, which happened in ~1936 and then again for a brief period in late-2008. It is hard for me to believe that times today are anywhere near as worse as 1936, so the bond investors will not be happy with anything less than 2%.

So the 10-year may fall another 0.5%.

The spread of 30-year over 10-year bond is now about ~1.625% for the said loan. IMO it is about as low as it can possibly get. Chances are that if 10-year drops anymore it will be accompanies by some panic - and the spread will actually rise, like what happened in late-2008.

So at best 0.5% drop in 10-year accompanied by some increase in the spread, will mean maybe 0.375% real drop in 30-year fixed rate (if we ever get there).

edit: From what I remember reading, mortgage rates were ~7% even during the great depression, implying spreads of ~5%+ as a result of tight monetary policy.

Submitted by stockstradr on August 26, 2010 - 12:45pm.

I'm voting for less than 2.5% on the 30-year fixed, paying no points.

My personal rule is this: NEVER forget the underlying fundamentals and always identify the conspiracies.

We are in a deflationary environment, where most mortgages are insured by our tax dollars.

So that which is insane, meaning 2% rates, can and probably will be seen before it is all over.

Let's talk about the conspiracies.

Think about what is feared most by Those in Power (with decision making power over the economy, banking, financial markets)

They fear the tipping point, a point of no return when average home values have declined so much that most homeowners with underwater mortgages not only walk away - but also walk aways gain popular widespread momentum, making it a self-reinforcing snowball-rolling-downhill kind of thing. As more walk away, housing prices drop more, causing more to walk away.

They know and fear that the tipping point must be reached if housing prices decline much more (10%? 20%? nobody knows at what point it occurs)

I believe it is inevitable the tipping point will be reached, creating panic in our country's decision makers, who in their twisted deluded minds will launch completely insane degrees of additional government intervention.

Many insightful blogs have written on the existing conspiracy already happening between the Treasury dept, the Fed, our nation's banks, congress, and the FDIC (and numerous other political entities)

And many Americans are such dumb sheep they are not even aware of that conspiracy, one that will have radical impact upon their lives.

The conspiracy starts with keeping secret the fact that many of our largest banks are already insolvent, when properly audited from a mark-to-REALITY basis. I'm talking about really big banks, like Wells Fargo.

Next the conspiracy stands upon our congress having allowed mark-to-FANTASY accounting, which magically turns insolvent banks into being "solvent and strong."

The FDIC is in on it because the DIF at the FDIC is already bankrupt, and the FDIC knows it doesn't have either the bandwidth to process the true number of already failed banks, nor the balls to ask the congress for the amount of money required for the DIF to handle the actual number of banks insolvent on a mark-to-REALITY basis.

So the FDIC wants to control (redefine) the bank failures to only be a "trickle" they can handle.

So the conspiracy is to use mark-to-fantasy and then *cross their fingers* HOPING TO GOD the housing market and economic turnaround reverses mortgage failures thus floating the failed banks back up into true solvency. And the conspiracy includes multiple forms of intervention to keep housing prices from falling further.

(of course much of this applies to both commercial real estate mortgages and mortgages for private homes)

The conspiracy also involves the financial institutions (holding large amounts of Option-ARMs) to use various nonsense tactics to DELAY the resets by many years, because they know the resets will cause mortgage failures, which are difficult to hide even with mark-to-fantasy accounting.

Look at how Wells Fargo is delaying resets on the $120 billion of crap Option-ARMs it got when it acquired Wachovia.

http://healdsburgbubble.blogspot.com/200...

And the conspiracy further involves financial institutions holding back their inventory foreclosed homes (that's your shadow inventory) and merely trickling them into the market to try and avoid further pricing declines.

(I'm sure I'm also forgetting here multiple other aspects of this overall conspiracy. You can do your own detective work/brainstorming to think of them.)

My overall point is in order to start guessing how low mortgage rates will go, you gotta first dig really deep behind the lies to see all the conspiracies in place being applied to hide or delay impact of the true magnitude of the fundamental underlying problems (that will eventually hit the fan). Then knowing the true magnitude, you can run simulations in your head about how it will all play out (and affect mortgage rates) once it all hits the fan.

A second overall point is to myself as an investor. I try to remember that these conspiracies may have markets behaving in VERY odd ways for many years before we see the inevitable impact upon markets and economy. For example if the problems can be hidden and ignored for a few years, the stock markets and economy could see a "recovery" that might last another several years.

Submitted by bubba99 on August 26, 2010 - 1:21pm.

Your comments are dead on. And unfortunately low rates is one of the paths to keeping people in their houses. If 30 year rates go to 1%, mortgage payments are on par with rents. And buying a house becomes a good investment because you are building equity (after a while) and it does not cost any more than rent.

No mark to market, the refis are performing - if you can get fantasy apprasials - or better yet, no apprasials - the loans are all insured by FNMA. Big five all get back their balance sheets, and the American tax payer foots the bill with interest rates below inflation.

You gotta love capitalism.

Submitted by UCGal on August 26, 2010 - 1:53pm.

I'm waiting for the no cost 3.5% to refi.
I refi'd last year at 'historic lows' last June with a 4.25/15 year. Same loan is around 3.75...

I have 4 coworkers talking to Sheldon this week. He's got to be loving these low rates.

Submitted by Huckleberry on August 26, 2010 - 4:40pm.

Personally, I feel the real question for the RE market is, how long will rates stay down at the 3.5 to 4% level?

End of 2010? All the way through 2011? Thoughts?

My belief is, as long as yields keep getting pushed down, fence sitters will keep waiting. But, once they see rates start to continually creep up, everyone will rush in to purchase.

Submitted by bearishgurl on August 26, 2010 - 5:00pm.

stockstradr wrote:
. . . The conspiracy also involves the financial institutions (holding large amounts of Option-ARMs) to use various nonsense tactics to DELAY the resets by many years, because they know the resets will cause mortgage failures, which are difficult to hide even with mark-to-fantasy accounting.

Look at how Wells Fargo is delaying resets on the $120 billion of crap Option-ARMs it got when it acquired Wachovia.

http://healdsburgbubble.blogspot.com/2009/05/reset-chart-from-credit-suisse-has.html

Thank you for drawing my attention to this blog, stockstradr, as this is one of the areas on my retirement "short-list" :) I'm actually gratified right now to see it depreciating at the moment and that 60% of the properties in Sonoma County have changed hands in recent years.

IMO, it doesn't matter if WF delays these (neg-am affected) "Option-ARM" mortgages it inherited from Golden West. Already, the ten years that these affected borrowers are receiving until their first contractual or 125% recast is generous as most banks only allowed five years on similar programs. The end result is the same as that of a loan mod - their deferred interest will never go away - the can is just kicked down the road. These borrowers ALL DID IT TO THEMSELVES! These loans aren't "crap." Remember, they are "OPTION-ARMs" which were >90% made to prime and alt-A borrowers. The vast majority of Golden West's (now WF-inherited) foolish (sh*t-for-brains) "Option-ARM" borrowers simply chose the "wrong payment option" every month. But they had the choice to amortize all along. No lender ever twisted their ARM (pun intended) to choose the option (1 of 4 avail) which deferred interest and failed to reduce their principal balances. WF purchased GW's loans knowing full well the terms of ALL the blocks of loans in their portfolio and no doubt obtained deep discounts on some categories of loans, including those blocks of Option ARMS that had not amortized at all at the time of acquisition. Both WF and these borrowers now deserve everything that is coming to them.

The fallout due to misuse of these Option ARMS, including walkaways (due to inability to refi) and foreclosures will just add to all the reasonably-priced inventory for me to consider in the coming years when I am, once again, "in the market" to purchase :=)

Again, stockstradr, thanks for the link!

Submitted by stockstradr on August 26, 2010 - 5:02pm.

No mark to market, the refis are performing - if you can get fantasy appraisals - or better yet, no appraisals - the loans are all insured by FNMA. Big five all get back their balance sheets, and the American tax payer foots the bill with interest rates below inflation.

Thank you. You've noted there a very important part of the larger conspiracy that I forgot to mention, which is to dump the whole mess upon the American taxpayer.

And that implies something else. We already know America cannot dig itself out from under our ponderous debt burden.

So what is implied is the future destruction of the American dollar and additional destruction of the American economy and our standard of living.

Implied because simple math shows it will never be politically feasible to enact the budget cuts + tax increases at the continuing levels that would be required for American taxpayers to directly cover the total debt burden, especially when it also includes the trillions of dollars in failed mortgages.

So we will pay for it "indirectly" when the government inevitable prints massive amounts of dollars as an attempt to manage the debt.

Submitted by stockstradr on August 26, 2010 - 5:13pm.

bearishgurl, yes obviously I agree with your point about the guilt of those homeowners who got mortgages from Golden West (passed to Wachovia, passed to WF).

They did it to themselves.

Also, yes, I gave thought to what must have been WF's strategy when they gobbled up Wachovia. I believe (unproven) that Wells Fargo went after market share, despite knowing they were probably taking on toxic mortgages making WF effectively insolvent, but Wells Fargo PLANNED on dumping all those losses upon US taxpayers based upon a "Too Big to Fail" bailout.

That translates into two (albeit) risky investment opportunities:

1) Short Wells Fargo before the public comes to recognize Wells Fargo is insolvent.
2) Go long Wells Fargo stock after the stock slide but before it is announced that WF is off-the-hook when it is conspired to dump all those toxic WF mortgages upon American taxpayers.

Submitted by bearishgurl on August 26, 2010 - 5:19pm.

Huckleberry wrote:
Personally, I feel the real question for the RE market is, how long will rates stay down at the 3.5 to 4% level?

End of 2010? All the way through 2011? Thoughts?

My belief is, as long as yields keep getting pushed down, fence sitters will keep waiting. But, once they see rates start to continually creep up, everyone will rush in to purchase.

Re: this "herding mentality," I don't think its wise to "rush to purchase" simply based upon how short-term interest rates move up or down. Within reason (up to 7%), I would focus on PRICE and LOCATION only and whether I NEEDED to buy RE at the time.

I would think a >6% mortgage interest-rate market would be MORE FAVORABLE to purchase in than the current market. Remember, you can ALWAYS refi (or sell) later, but can NEVER CHANGE THE PRICE YOU PAID.

Submitted by sdrealtor on August 26, 2010 - 5:57pm.

LOL...Tell all the underwater homeowners that they can ALWAYS refi or sell later.

Submitted by Veritas on August 26, 2010 - 7:01pm.

Well said stockstradr and bearish. Between the placebo economy being sold to us by Washington under the guise of the "recovery" and fantasy accounting being done by CBO, I wonder if we are going Weimar republic in the near future. Precious metals are starting to make sense for survival.

Submitted by Scarlett on August 26, 2010 - 7:04pm.

Huckleberry wrote:
My belief is, as long as yields keep getting pushed down, fence sitters will keep waiting. But, once they see rates start to continually creep up, everyone will rush in to purchase.

That's what I said earlier too...They should try pushing the rate up a bit, let's say for 6 months, a half point, and watch what happens!

Submitted by Aecetia on August 26, 2010 - 7:12pm.

All eyes on Ben:
"The so-called quantitative easing announced in August involves the Fed replacing its maturing mortgage securities with Treasury securities, which in essence keeps the Fed balance sheet stable. In theory, it also could prevents a passive tightening.
The Fed also left the door open to further easing, which some in the market believe could ultimately be multiple trillions in Treasury purchases. The expected outcome would be that the Fed's purchases would help force down rates, helping to spur lending. Traders have been gaming how and when the Fed might act."

http://www.cnbc.com/id/38872170

Submitted by CA renter on August 27, 2010 - 12:46am.

stockstradr wrote:
No mark to market, the refis are performing - if you can get fantasy appraisals - or better yet, no appraisals - the loans are all insured by FNMA. Big five all get back their balance sheets, and the American tax payer foots the bill with interest rates below inflation.

Thank you. You've noted there a very important part of the larger conspiracy that I forgot to mention, which is to dump the whole mess upon the American taxpayer.

And that implies something else. We already know America cannot dig itself out from under our ponderous debt burden.

So what is implied is the future destruction of the American dollar and additional destruction of the American economy and our standard of living.

Implied because simple math shows it will never be politically feasible to enact the budget cuts + tax increases at the continuing levels that would be required for American taxpayers to directly cover the total debt burden, especially when it also includes the trillions of dollars in failed mortgages.

So we will pay for it "indirectly" when the government inevitable prints massive amounts of dollars as an attempt to manage the debt.

Pretty much agree with everything you've said here and in your previous post (about the conspiracies).

Submitted by ocrenter on August 27, 2010 - 1:07am.

stockstradr wrote:

Implied because simple math shows it will never be politically feasible to enact the budget cuts + tax increases at the continuing levels that would be required for American taxpayers to directly cover the total debt burden, especially when it also includes the trillions of dollars in failed mortgages.

So we will pay for it "indirectly" when the government inevitable prints massive amounts of dollars as an attempt to manage the debt.

agree with this.

in fact this is the only way out.

seem like this would indicate inflation from this point forward. or am I looking at things from an overly simplistic view?

Submitted by CA renter on August 27, 2010 - 2:27am.

ocrenter wrote:
stockstradr wrote:

Implied because simple math shows it will never be politically feasible to enact the budget cuts + tax increases at the continuing levels that would be required for American taxpayers to directly cover the total debt burden, especially when it also includes the trillions of dollars in failed mortgages.

So we will pay for it "indirectly" when the government inevitable prints massive amounts of dollars as an attempt to manage the debt.

agree with this.

in fact this is the only way out.

seem like this would indicate inflation from this point forward. or am I looking at things from an overly simplistic view?

I'd guess inflation at some point, but not necessarily from *here* (could be years out, with penty of deflation in the meantime). Whoever gets the timing right on this will be very lucky.

Submitted by waiting hawk on August 27, 2010 - 5:13am.

UCGal wrote:
I'm waiting for the no cost 3.5% to refi.
I refi'd last year at 'historic lows' last June with a 4.25/15 year. Same loan is around 3.75...

I have 4 coworkers talking to Sheldon this week. He's got to be loving these low rates.

I just had Sheldon (HLS) refi my house to a 4.6 30 year. I paid a total of 240 bucks (130 back the lender gave). Im lookin to call him if i can get 3.75 ona 30. If that happens then 15's may hit 3.25 in which case ill do that.
Sheldons the shiznet.

Submitted by NotCranky on August 27, 2010 - 9:11am.

CA renter wrote:
ocrenter wrote:
stockstradr wrote:

Implied because simple math shows it will never be politically feasible to enact the budget cuts + tax increases at the continuing levels that would be required for American taxpayers to directly cover the total debt burden, especially when it also includes the trillions of dollars in failed mortgages.

So we will pay for it "indirectly" when the government inevitable prints massive amounts of dollars as an attempt to manage the debt.

agree with this.

in fact this is the only way out.

seem like this would indicate inflation from this point forward. or am I looking at things from an overly simplistic view?

I'd guess inflation at some point, but not necessarily from *here* (could be years out, with penty of deflation in the meantime). Whoever gets the timing right on this will be very lucky.


It's better to be bulletproof than it is to wonder about one's luck.

Submitted by XBoxBoy on August 27, 2010 - 9:12am.

Worth noting: Bernanke's remarks this morning at Jackson Hole seem to be preparing everyone for more quantitative easing. (Most likely purchasing of more treasuries) If this comes to pass, then seems to me mortgage rates will follow treasury rates down. Perhaps a lot lower than most of us would think.

Submitted by XBoxBoy on August 27, 2010 - 9:12am.

Worth noting: Bernanke's remarks this morning at Jackson Hole seem to be preparing everyone for more quantitative easing. (Most likely purchasing of more treasuries) If this comes to pass, then seems to me mortgage rates will follow treasury rates down. Perhaps a lot lower than most of us would think.

Submitted by sdrealtor on August 27, 2010 - 9:21am.

I called for 4% rates for everyone over a year ago. Looks like they are on the way. IMO its one of the best stimuli they could implement. Getting more discretionary income into the hands of the most responsible members of society that have the equity in their homes to refinance is very powerful. Contrary to what is beleived by many around here, these folks far outnumber the "Bubble Bumblers" (maybe I should trademark that one). Once these folks have confidence in the economy the spending they can unleash is unfathomable to me.

Submitted by briansd1 on August 27, 2010 - 9:45am.

XBoxBoy wrote:
Worth noting: Bernanke's remarks this morning at Jackson Hole seem to be preparing everyone for more quantitative easing. (Most likely purchasing of more treasuries) If this comes to pass, then seems to me mortgage rates will follow treasury rates down. Perhaps a lot lower than most of us would think.

And to think that government intervention doesn't work...

That reminds me that I need to compute what Year 2000 nominal mortgage payments would have been for the San Diego areas I'm interested in.

Submitted by sdrealtor on August 27, 2010 - 10:04am.

I can tell you with 100% certainty that the P&I payment on a $320,000 loan for a purchase with 20% down for a prime borrower with 800+ FICO's on a 5/1 ARM in late 1999 was $2150:)

Submitted by DWCAP on August 27, 2010 - 10:05am.

I really doubt mortgage rates get much below 4% on a 30 year. There are just structeral boundries that wont be broken. Even if the Ten year fell to 2%, and the spread stays so very very low at ~1.3-1.5%, you are looking at 3.4 or so as a max when you take into account fee's.
My guess goes that if things get worse, and Big Ben desides to go QE2 on us, Rates will go no lower than 3.9% on a 30 year.
Mind you, just a few years ago, that was a usual introductery APR on a CC for alot of people.

Submitted by andymajumder on August 27, 2010 - 10:21am.

sdrealtor wrote:
I can tell you with 100% certainty that the P&I payment on a $320,000 loan for a purchase with 20% down for a prime borrower with 800+ FICO's on a 5/1 ARM in late 1999 was $2150:)

I am in the process of buying and my loan amount is slightly higher than that (around 350) with 20% down, getting 30 yr fixed @ 4.375 and my monthly (P&I) payment is significantly less than that. In fact, since my place has no HOA and MR, afer tax savings and deducting principal being payed down, I dare say I am doing better than renting a similar place.

Submitted by andymajumder on August 27, 2010 - 10:26am.

andymajumder wrote:
sdrealtor wrote:
I can tell you with 100% certainty that the P&I payment on a $320,000 loan for a purchase with 20% down for a prime borrower with 800+ FICO's on a 5/1 ARM in late 1999 was $2150:)

I am in the process of buying and my loan amount is slightly higher than that (around 350) with 20% down, getting 30 yr fixed @ 4.375 and my monthly (P&I) payment is significantly less than that. In fact, since my place has no HOA and MR, afer tax savings and deducting principal being payed down, I dare say I am doing better than renting a similar place.

Of course, 400K in 1999 would have fetched you way more than what ~450K would fetch you now.

Submitted by NotCranky on August 27, 2010 - 10:26am.

sdrealtor wrote:
I called for 4% rates for everyone over a year ago. Looks like they are on the way. IMO its one of the best stimuli they could implement. Getting more discretionary income into the hands of the most responsible members of society that have the equity in their homes to refinance is very powerful. Contrary to what is beleived by many around here, these folks far outnumber the "Bubble Bumblers" (maybe I should trademark that one). Once these folks have confidence in the economy the spending they can unleash is unfathomable to me.

So how does it play out from here. The cheap money pulls supply from the future and the banks can get higher rates from current fence sitters at very similar or higher nominal prices as todays?

Submitted by NotCranky on August 27, 2010 - 10:33am.

I don't think Andy, sdrealtor or Rustico will be selling for a long time.

Submitted by bearishgurl on August 27, 2010 - 10:59am.

sdrealtor wrote:
LOL...Tell all the underwater homeowners that they can ALWAYS refi or sell later.

You just bolstered my point here, sdr. Your UNDERWATER homeowners got that way because they PAID TOO MUCH for their property, no doubt during a FRENZY when the masses were RUSHING TO PURCHASE. They're also UNDERWATER because they elected to REDUCE LITTLE TO NONE of their principal balance over their ownership period and/or because THEY ALREADY REMOVED THEIR EQUITY (and then some) from their properties.

IMO, the BEST TIME TO PURCHASE RE is when HARDLY ANYONE IS INTERESTED IN DOING SO, because the HERD is only interested in what their size of P&I is going to be, (or, if they're smart, PITI + HOA) without regard to THE PRICE THEY PAID. PURCHASE PRICE and LOCATION are the MOST IMPORTANT considerations when purchasing RE. ALL OTHER CONDITIONS CAN BE FIXED . . . EVENTUALLY.

As an agent, I'd rather be slumming around trying to locate a doable up-leg for a Starker client who is unable to sell their building than working in the current govm't-infused and "supervised short-sale" environment, rife with inexcusable delays all stemming from utter incompetence.

As a buyer, I'd rather slum around with a high FICO score and low income in a >7% mortgage-rate market and stumble upon a FANTASTIC BUY in one of my coveted areas where I can work out an owner-carryback on the seller's kitchen table and/or assume their current mortgage (however low) WITH NO COMPETITION than deal with all the fake frenzied crapola going on in the market right now. Lay it on me . . . balloons, straight notes . . . h@ll, I'll draw them up myself! I've got the templates. Let's get it on . . . bring back 1983 . . . lol.

Paying too much for RE (ESP in the wrong location) is a recipe for financial ruin. I don't care if your mtg interest rate is 1%.

Submitted by sdrealtor on August 27, 2010 - 11:01am.

I just dont think cheap money is that effective at pulling supply from the future. People buy when they are ready and while they may move a little quicker I dont see people en masse moving their buying decisions up a few years.

The exception is move up buyers which many around here dont beleive exist. For long time residents with equity it is a phenomenal time to move up. Just spoke with one yesterday that moved up from an 11 year old home that they never extracted equity out of. Sold for $750K and left with $600K of it. Bought a new house for 830K, put 500K down and used $100K for upgrades/landscaping. Now they have a $330K mortgage for about $1600/month. Both have guaranteed recession proof jobs and income that will keep them her another 20 years. The move up gets them a brand new highly upgraded home that is 500 sq ft bigger and has a view. It also gets them in the school district they needed as their kids will soon be in Jr High.

Submitted by sdrealtor on August 27, 2010 - 11:03am.

BG
Its still sunny out there. How about those heartwarming stories? Still waiting for some to make me smile.

Submitted by Aecetia on August 27, 2010 - 11:45am.

Have you heard the discussion about getting rid of the mortgage deduction? I guess that would really drive the final nail in the coffin of real estate! Just wondering what you insiders think the chance of that happening or might they just lower the percentage of deductions for houses at a certain level, say 1 million. Your thoughts... We all know the federal government is a hungry beast that constantly needs to be fed.

Submitted by bearishgurl on August 27, 2010 - 11:47am.

sdrealtor wrote:
I just dont think cheap money is that effective at pulling supply from the future. People buy when they are ready and while they may move a little quicker I dont see people en masse moving their buying decisions up a few years.

The exception is move up buyers which many around here dont beleive exist. For long time residents with equity it is a phenomenal time to move up. Just spoke with one yesterday that moved up from an 11 year old home that they never extracted equity out of. Sold for $750K and left with $600K of it. Bought a new house for 830K, put 500K down and used $100K for upgrades/landscaping. Now they have a $330K mortgage for about $1600/month. Both have guaranteed recession proof jobs and income that will keep them her another 20 years. The move up gets them a brand new highly upgraded home that is 500 sq ft bigger and has a view. It also gets them in the school district they needed as their kids will soon be in Jr High.

If the mortgage interest rates continue to sink, I think people "en-masse" who are currently renters will try to buy if their credit is good enough and they can find something they like without regard to purchase price. They will be much more focused on their monthly housing exp-outlay than purchase price. It's just human nature. This is especially common with FHA and VA buyers (w/little to no down-payment). They just end up paying too much for a (usually overtaxed and HOA'd) inferior location and are practically instantly underwater.

sdr, WHERE (zip code) was your long-time resident (11 years is actually a "recent transplant") "move-up" buyer's property located which they obviously purchased for <$210K in 1998-1999 and sold in 2009/2010 for $750K?? And how much of their own $$ did they put into it (remodeling/repairs) during the 11 years they owned it?

You emphasized here HOW EASY AND PAINLESS it was for them to recently purchase new construction but do you HONESTLY THINK the new construction they just purchased is WORTH the $830K they paid for it?? Did they give the extra $100K to the developer for "upgrades and landscaping" or did they contract the work themselves after closing? Would YOU purchase the same (or similar) property in this development for the same (or similar) price? Where are the sales comps used to base the $830K (+ $100K outside of escrow??) sales price on. Are there actually any sales comps around it at all to justify $830K? Would YOU, immediately after purchase, sink another $100K into the $830K purchase price on this property (or another one in this development)? Do you think it was wise for them to sell their (low-expense) home they had for 11 years and do what they did? If you were in their circumstances, would YOU do this, paying the price they paid?

You're stating here WHAT MOVE-UP BUYERS DO and that there are many of them but, knowing what you know, ARE THE RE DECISIONS THEY'RE MAKING WISE OR IN THEIR BEST INTEREST FOR THE LONG-TERM? That's my point here.

Submitted by moneymaker on August 27, 2010 - 12:01pm.

sdrealtor wrote:
I just dont think cheap money is that effective at pulling supply from the future. People buy when they are ready and while they may move a little quicker I dont see people en masse moving their buying decisions up a few years.

The exception is move up buyers which many around here dont beleive exist. For long time residents with equity it is a phenomenal time to move up. Just spoke with one yesterday that moved up from an 11 year old home that they never extracted equity out of. Sold for $750K and left with $600K of it. Bought a new house for 830K, put 500K down and used $100K for upgrades/landscaping. Now they have a $330K mortgage for about $1600/month. Both have guaranteed recession proof jobs and income that will keep them her another 20 years. The move up gets them a brand new highly upgraded home that is 500 sq ft bigger and has a view. It also gets them in the school district they needed as their kids will soon be in Jr High.

Why didn't they go for a 15 year loan? I think the term is no brainer there.

Submitted by NotCranky on August 27, 2010 - 12:05pm.

sdrealtor wrote:
I just dont think cheap money is that effective at pulling supply from the future. People buy when they are ready and while they may move a little quicker I dont see people en masse moving their buying decisions up a few years.

The exception is move up buyers which many around here dont beleive exist. For long time residents with equity it is a phenomenal time to move up. Just spoke with one yesterday that moved up from an 11 year old home that they never extracted equity out of. Sold for $750K and left with $600K of it. Bought a new house for 830K, put 500K down and used $100K for upgrades/landscaping. Now they have a $330K mortgage for about $1600/month. Both have guaranteed recession proof jobs and income that will keep them her another 20 years. The move up gets them a brand new highly upgraded home that is 500 sq ft bigger and has a view. It also gets them in the school district they needed as their kids will soon be in Jr High.

I wasn't speaking exclusively to the idea of buyers pulling supply from the future because of lower rates , but to current and near future holders of property refusing to sell in the slightly more distant future because of the rate on their notes.

This goes back to the argument that prices drop radically when rates go up( and tangentially to "you can always refinance to a lower rate"). All this cheap money now and until the current over supply problem could be mopped up and inflated away, isn't leaning in favor of the buy cheap when rates are high crowd. From where I am looking it has equal potential of allowing banks to get higher interest for the same nominal prices(or higher) in the future.

Submitted by sdrealtor on August 27, 2010 - 12:17pm.

You make way to many inaccuarte assumptions. Without getting into too much detail they mved about 2 miles away. The house they sold cost more than 210K and was also a move up. They have been in the areamuch longer than 11 years.

The property they paid $830K is definitely worth it and I would pay that if I was in the market. Total monthly payment is about $2500 and monthly income is over $12K.
Homes have sold well over $1M in this community recenty. They also got about $25K in incentives from builder. I would defintely invest (not sink) the $100K to make it right for me. Comps easily support it and are every where to be found. I think it was a very wise decision as the alternative was private school at close to $10K each for their kids who now get to stay in the same schools with the kids they have attended elementary school with. Yes I would do exactly what they did. In the long term their new home will appreciate more and hold value better for a handful of reason.

I never said there were many of them, I said they exist. I heard another similar story yesterday of buyer selling small Carmel Valley home for about 800K to move up to gorgeous So Carlsbad nearly new home with pool and 1500 sq ft larger for 950K. Great move up for them too.

Submitted by sdrealtor on August 27, 2010 - 12:16pm.

threadkiller wrote:
sdrealtor wrote:
I just dont think cheap money is that effective at pulling supply from the future. People buy when they are ready and while they may move a little quicker I dont see people en masse moving their buying decisions up a few years.

The exception is move up buyers which many around here dont beleive exist. For long time residents with equity it is a phenomenal time to move up. Just spoke with one yesterday that moved up from an 11 year old home that they never extracted equity out of. Sold for $750K and left with $600K of it. Bought a new house for 830K, put 500K down and used $100K for upgrades/landscaping. Now they have a $330K mortgage for about $1600/month. Both have guaranteed recession proof jobs and income that will keep them her another 20 years. The move up gets them a brand new highly upgraded home that is 500 sq ft bigger and has a view. It also gets them in the school district they needed as their kids will soon be in Jr High.

Why didn't they go for a 15 year loan? I think the term is no brainer there.

I dont know and did not want to make that assumption. They might have.

Submitted by bearishgurl on August 27, 2010 - 12:17pm.

Russell wrote:
I wasn't speaking exclusively to the idea of buyers pulling supply from the future because of lower rates , but to current and near future holders of property refusing to sell in the slightly more distant future because of the rate on their notes.

Russell, are you saying here that, due to many current owners (and potential sellers) being able to refi at unheard-of low rates, that rather than market their properties at an unfavorable time, they will just hang onto them and perhaps put them into service as rentals if they have to move out of them, thus keeping potential inventory out of the market?

Russell wrote:
This goes back to the argument that prices drop radically when rates go up( and tangentially to "you can always refinance to a lower rate"). All this cheap money now and until the current over supply problem could be mopped up and inflated away, isn't leaning in favor of the buy cheap when rates are high crowd. From where I am looking it has equal potential of allowing banks to get higher interest for the same nominal prices(or higher) in the future.

How can banks get higher nominal interest on loans secured by the same (often distressed) properties (many in their own portfolios) when there seems to be a dearth or buyers (and borrowers) even at the current low rates? Maybe I'm not understanding what you're trying to say here.

Submitted by sdrealtor on August 27, 2010 - 12:18pm.

Russell wrote:
sdrealtor wrote:
I just dont think cheap money is that effective at pulling supply from the future. People buy when they are ready and while they may move a little quicker I dont see people en masse moving their buying decisions up a few years.

The exception is move up buyers which many around here dont beleive exist. For long time residents with equity it is a phenomenal time to move up. Just spoke with one yesterday that moved up from an 11 year old home that they never extracted equity out of. Sold for $750K and left with $600K of it. Bought a new house for 830K, put 500K down and used $100K for upgrades/landscaping. Now they have a $330K mortgage for about $1600/month. Both have guaranteed recession proof jobs and income that will keep them her another 20 years. The move up gets them a brand new highly upgraded home that is 500 sq ft bigger and has a view. It also gets them in the school district they needed as their kids will soon be in Jr High.

I wasn't speaking exclusively to the idea of buyers pulling supply from the future because of lower rates , but to current and near future holders of property refusing to sell in the slightly more distant future because of the rate on their notes.

This goes back to the argument that prices drop radically when rates go up( and tangentially to "you can always refinance to a lower rate"). All this cheap money now and until the current over supply problem could be mopped up and inflated away, isn't leaning in favor of the buy cheap when rates are high crowd. From where I am looking it has equal potential of allowing banks to get higher interest for the same nominal prices(or higher) in the future.

Russ
Not sure I understand what you are saying but it brought up another thought. Owners that refi into historically low rates are more apt to hold onto properties in the future as long term rentals as they will cash flow even better in a higher interest rate environment with inflated currency.

Submitted by andymajumder on August 27, 2010 - 12:21pm.

Aecetia wrote:
Have you heard the discussion about getting rid of the mortgage deduction? I guess that would really drive the final nail in the coffin of real estate! Just wondering what you insiders think the chance of that happening or might they just lower the percentage of deductions for houses at a certain level, say 1 million. Your thoughts... We all know the federal government is a hungry beast that constantly needs to be fed.

Not going to happen anytime soon. I think the homebuilders, banks and housing industry in general have enough lobbying power to stop something like that from happening. Also, its not like interest deduction matters during the entire duration of the loan...its only the first 10 yrs of your loan that you benefit from it, one's pricipal become the sizable portion of you monthly payment you might be better off taking the standard deduction (of course depends on what other deductions you qualify for).

Submitted by briansd1 on August 27, 2010 - 12:29pm.

If the government wants to increase consumer spending immediately....

The best way would be to immediately pass new legislation to cap credit card interest rates at 5% so people can feel free to charge away. Also pass simultaneous legislation to prohibit banks from canceling credit card, decreasing credit lines and charging penalty fees.

This will have long term problems, but would work in boosting immediate demand.

Submitted by bearishgurl on August 27, 2010 - 12:53pm.

sdrealtor wrote:
You make way to many inaccuarte assumptions. Without getting into too much detail they mved about 2 miles away. The house they sold cost more than 210K and was also a move up. They have been in the areamuch longer than 11 years.

The property they paid $830K is definitely worth it and I would pay that if I was in the market. Total monthly payment is about $2500 and monthly income is over $12K.
Homes have sold well over $1M in this community recenty. They also got about $25K in incentives from builder. I would defintely invest (not sink) the $100K to make it right for me. Comps easily support it and are every where to be found. I think it was a very wise decision as the alternative was private school at close to $10K each for their kids who now get to stay in the same schools with the kids they have attended elementary school with. Yes I would do exactly what they did. In the long term their new home will appreciate more and hold value better for a handful of reason.

I never said there were many of them, I said they exist. I heard another similar story yesterday of buyer selling small Carmel Valley home for about 800K to move up to gorgeous So Carlsbad nearly new home with pool and 1500 sq ft larger for 950K. Great move up for them too.

So, the truth of the matter is, a good portion of the $600K your move-up friends extracted from their old home at sale WAS THEIR OWN DOWNPAYMENT. You still didn't state (if you know) how much $$ they invested over the years to recently command a $750K purchase price. This amount would have also come off their "profit," even though they may have used the improvements themselves prior to sale. In reality, these buyers of new construction may have just made a modest profit of <=6% per year of ownership of their old residence, or less, if they put improvements into the property. This is actually neither an "exceptional" return, nor rocket science.

You're also saying that these buyers made this (very expensive) move strictly to live within certain "middle school" attendance boundaries. Otherwise, their existing "middle school" (2 mi. away??) was going to be so bad that they were going to pay $20K annually for private school. ($20K x 3 yrs = $60K and $20K x 6 yrs = $120K.)

You're also stating that you would buy in this development and would also immediately pay to upgrade your purchase (before the ink was dry on your docs) and that the comps in and around the development support the current asking prices, plus any immediate improvements buyers elect to make.

sdr, please correct me if I don't have this "happy story" right.

Submitted by sdrealtor on August 27, 2010 - 1:27pm.

More inaccurate assumptions. The $600K is their house money that has accrued over years of home ownership. The house was new in 1999 and maintenance was fairly minimal. I never claimed exceptional returns or rocket science. These are very ordinary people with very ordinary occupations. The point wasnt that they are smart or that they made lots of money, the point is that there are in fact move-up buyers and that moving up makes sense for some people. Nothing more, nothing less.

The school reasons are complicated are beyond what I want to get into.

All the rest is spot on. If I was in their position I would buy what they bought, I would invest at least what they invested, I would have 100% confidence that the comps supported the purchase price plus the improvements and I would consider it a bargain. I would be very happy with the move up I was able to make.

Submitted by bearishgurl on August 27, 2010 - 1:59pm.

Understand it all, sdr. Except the school issue is a little puzzling. One would assume that some of your move-up buyer's children's elementary-school classmates must have also lived in their old neighborhood and would be following their children to middle school.

I'm actually not that bearish in certain coastal locales that are not overtaxed and also encumbered by CC&R's.

But, if you've read any of my previous posts, you would see that I'm extremely skeptical of new developments "straight out of the gates." I feel the asking prices are trumped up by whatever the developer thinks they can get, NOT based on any REAL sales comps to support them. The developers often bring in their own lending teams who will give buyers MORE incentives to go with them instead of an outside choice. These in-house loan officers just try to make the overall monthly "expense pkg" look "good enough" (40-yr. loans, interest-only seconds, etc.) to unsophisticated buyers without regard to the actual purchase price in relation to the value of surrounding properties (if any). And the total costs of fees (even though disclosed in writing) aren't properly explained to buyers who almost immediately go into payment shock after move-in.

Even though OT here, new construction projects (and the shenanigans they pulled to secure buyers in recent years) have played a HUGE part in the pain we're all feeling now due to way too much distressed inventory in certain markets, IMO. In South County, these 2003-2007-built projects are now down in value 25% - 50%. ALL OF THEM are overtaxed and HOA'd. Every single one.

Submitted by sdrealtor on August 27, 2010 - 2:49pm.

Its complicated and they dont nor have they ever attended elementary school in the neighborhood they live in. Around here the elementary school (Encinitas Unified) and the secondary school district (San Dieguito) are different, on different calenders and have different rules. Its complicated and lots of folks move around her based upon that alone.

Around here the new developments have no problem with comps as they are very consistent and easy to find. If anything, the new developments are a bargain relative to similar sized existing homes that were built in the last 10 years. All the ptifalls you describe pertain to the old way, when in house lenders abused unqualified buyers slamming them into homes they had no business buying so the developer could close out a community. Its not like that anymore under new lending guidelines. Around here at these prices buyers are generally more sophisticated and well educated. They are far more likely to understand the costs of ownership unlike the disasters you have seen in the South Bay.

Submitted by sdrealtor on August 27, 2010 - 3:15pm.

FYI, around here the MR are pretty mellow. They are only $800/year and are a CFD specifically for funding improvements to the San Dieguito Schools.

Submitted by bearishgurl on August 27, 2010 - 3:28pm.

sdrealtor wrote:
FYI, around here the MR are pretty mellow. They are only $800/year and are a CFD specifically for funding improvements to the San Dieguito Schools.

Here, in South County, the school construction/improvement bonds are NOT CFD's. They were voted in and are spread across ALL the taxpayers of the region.

What are the avg. monthly HOA dues in your local construction projects built in the last five years?

Submitted by moneymaker on August 27, 2010 - 4:59pm.

I'm sorry but your numbers don't make sense, even with a 30 year loan payment on 330,000 principal would be no where near $1600 a month. You must have your facts mixed up!

Submitted by andymajumder on August 27, 2010 - 9:31pm.

threadkiller wrote:
I'm sorry but your numbers don't make sense, even with a 30 year loan payment on 330,000 principal would be no where near $1600 a month. You must have your facts mixed up!

Why not...30 yr fixed, for a 330K loan, monthly P&I comes to $1672 @4.5%, at 4.375%, its about 1647 month.