Posted on 01/12/2022 11:50:14 AM PST by blam
I'll take the 5th., lol. Honestly, I think the inflation is going on even in items flowing freely through the market.
I don't claim to have a real grip, but then neither do most of the so-called experts ...
Still, given what Joe’s doing (or should I say the puppeteer, Obama) I worry about persistent INFLATION right now.
That doesn’t make any sense. A mortgage lender lends money. It doesn’t buy an equity stake in an asset. When I borrowed money to start a business, was I supposed to share the profits with the bank?
Mortgage lenders could switch to the five-year adjustable rate mortgages which I believe are common in Britain.
In an adjustable rate mortgage environment, people won’t overpay say 50% for house simply to lock in a low interest rate.
A house worth $300,000 would sell for $300,000 instead of for $450,000 ($300,000 for the house + $150,000 for the Federal Reserve-backed, below market rate of the mortgage).
The FED could easily sell off 5-year ARMs for near the principal amounts. Its 3% 30-year fixed rate mortgages might only be merchantable at say a 25% discount.
“I have heard for 40 years the country is going into another depression and the stock market will collapse. Has not happened yet.”
I first heard the total-currency-collapse-only-gold-will-save-you story in 1965, 57 years ago. Adjusted for inflation, Gold made its last high in January, 1980.
That would explain why the mortgage on my recently purchased home was sold by my bank to Freddie Mac before I made a single payment on it.
The bank makes maybe 3% on its money overall and pays less than 1% for the use of my money.
Over time, most of the money lent by the bank will eventually be of its own capital.
“That doesn’t make any sense. A mortgage lender lends money. It doesn’t buy an equity stake in an asset. When I borrowed money to start a business, was I supposed to share the profits with the bank?”
You are correct. I’m a private mortgage lender. I am very happy when the properties I lend on go up in value, they are my only security for the mortgage! The last thing I want is flat or down values while I hold mortgages.
If I want equity, I buy real estate. If I want income secured by property, I loan on it.
I meant inflation. Typing on a phone can be hit or miss when you can’t read the damned screen.
“The bank makes maybe 3% on its money overall and pays less than 1% for the use of my money.
Over time, most of the money lent by the bank will eventually be of its own capital.”
I’ve been part owner of 2 banks and I have no idea what you are trying to say. Banks don’t have any money of their “own”, they have your money and they can lend many times the amount you keep on deposit. The first bank I bought into was started by 45 investors putting up a total of $3.5mm to get it off the ground. We got stock in the bank at $10 a share for whatever amount we put up. Minimum investment was $25k.
Those shares we bought for $10 sold when the bank got gobbled up by a larger band 7 years later. The shares sold for 55 dollars a share.
The latest Official RPI [Retail Prices Index] figure i.e. annual retail prices inflation, here in the UK is 7.1%
But no one in officialdom is shouting about it.
This strikes me as “Bill James” or “Moneyball” stuff. There’s definitely something to it, but there are plenty of dumb people who would ignore what the numbers are saying.
Mortgage rates have already risen.
“The latest Official RPI [Retail Prices Index] figure i.e. annual retail prices inflation, here in the UK is 7.1%”
Thanks, that’s interesting. Can you remember what it was when Covid first hit?
The difference is that Fedgov has pumped ungodly, record-breaking amounts of money into the economy. And much of it is in the hands of investors, from large companies to wealthy individuals. That money has to go somewhere. That may prevent real estate prices from declining much, if at all, in high-demand markets.
I just bought a house in Sarasota. We made offers on 6 houses before we nabbed one. Cash offers took the first 5. Interest rates aren’t as important to folks like that.
The house has likely appreciated 10% since late November when our offer was accepted.
The Fed is saying 3 hikes in 2022. Likely a quarter point each. 0.75% will barely dent this market in places like Sarasota. Prices won’t rise as fast, but they will continue to rise.
If the Fed can increase by 2% or so, and that flows down to fixed rate investments, then some of the money currently finding its way to real estate will be diverted elsewhere, a lot of non-cash buyers will be priced out, and real estate will cool.
But by the time the Fed gets there, in some markets, prices could rise another 20% or more.
“That doesn’t make any sense. A mortgage lender lends money. It doesn’t buy an equity stake in an asset. When I borrowed money to start a business, was I supposed to share the profits with the bank?”
There are reasons why financier J.P. Morgan was able to afford to buy a lot of art.
Mortgage rates change every morning and are good for the day. Mortgage rates are set by adding a markup to the current yield of the 10yr Treasury Bond.
The 10yr today is at 1.735%
Some years ago when I was more involved daily, the spread was about 1-4 to 1.5% + the 10yr yield. That would equate to about 3.2% for a 30yr mortgage. That spread may have changed but that’s probably still fairly close.
Read later.
“Banks don’t have any money of their ‘own’.”
It’s called ‘capital’ and long ago banks would make it a point tell you how much they had.
They now will make the information known quietly.
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