Posted on 05/10/2022 3:34:39 AM PDT by Kaslin
Washington never learns. Never. Politicians are like collective Alzheimer's disease patients. They have no short-term memories.
Does anyone remember 2008? It was only 14 years ago. Then, America suffered through one of the most significant and most painful financial crises in our nation's history -- and the worst losses since the crash of 1929. Millions of people lost their jobs. Hundreds of thousands defaulted on their mortgages and lost their homes.
Trillions of dollars of lifetime savings and wealth evaporated. Central billion-dollar banks and investment houses that were thought to be invincible were swept away like straw huts in the face of a tsunami.
The calamity resulted from government policies that intentionally inflated a housing bubble year after year. Few saw the bursting of the bubble coming. When it popped, the carnage was everywhere and felt from coast to coast.
Now there are many of the same flashing signs of a housing bubble -- and again, no one is paying attention.
A well-respected housing affordability index fell last month to near the lowest level ever as home prices surged.
Mortgage interest rates now exceed 5.2% -- up from 3.6% just two years ago. In some markets, rates are nearing 6%. And the Fed is raising rates again, as it should, but this too will likely further inflate mortgage rates.
The average mortgage payment is now $1,800 a month -- 70% higher than before COVID-19 hit. Many people live paycheck to paycheck and are already financially squeezed due to prices rising faster than paychecks. The only other time home payments were as high as they are today was in 2007. Yes, on the eve of the Great Financial Crisis.
A popular mortgage monitor called Black Knight shows home prices are up 19.9% over a year ago. Yes, that's good news for homeowners as their home equity surges. But these gravity-defying home prices are killers for homebuyers, especially young, first-time buyers.
Loan-to-income levels are also rising, which makes defaults more likely. If housing prices fall, borrowers will start to be pushed underwater with unpaid loans more outstanding than the house's value. They will walk away as millions of borrowers did in 2008 and 2009.
If this housing run-up were simply a result of natural supply and demand market forces, there wouldn't be a great cause for concern.
Alas, Congress, the Fed and housing agencies such as Fannie Mae are pumping air into the bubble. The Fed has artificially held interest rates too low for too long as part of its "stimulus" strategy. Meanwhile, the Fed has encouraged home loans by purchasing $2.7 trillion of mortgage-backed securities, and they are held on the central bank's balance sheet. That's precisely what it did in the early 2000s.
Congress has been passing out hundreds of billions for taxpayer-funded rental and mortgage assistance, propping up housing.
Meanwhile, Fannie Mae, the federal guarantor of trillions of dollars of mortgages, is now insuring mortgages of more than $1 million. This program was supposed to help lower-income and first-time homebuyers. Now, millionaires are getting subsidized loans thanks to the tremendous power of the housing lobby made up of realtors, mortgage bankers and homebuilders.
If and when the bubble bursts again, everyone gets hurt. Homeownership rates will crash again -- which is the opposite of the desired result from all of these government programs.
These are the laws of unintended consequences that Congress never learns.
“trillions of dollars of lifetime savings and wealth evaporated”
bubbles are how grossly excessive liquidity is drained from an economy ... generally, the peasants get drained the most ...
I think they will - after a brief leveling-off due to the rise in interest rates. The low end will temporarily be more impacted since fewer new buyers can manage the payments with higher interest rates, but they still want to buy and will just reduce their expectations for the amount of square footage and amenities they can afford.
Measured against gold, oil, and other commodities, housing is still reasonably priced - relatively lower than in the early 70's, in fact.
Every recession looks like a housing bubble. But housing is a symptom.
People obtain loans they can afford when times are good. And then a recession hits and they lose their jobs. Or inflation hits and they can’t afford the mortgage. Or both. Either way. Mortgages default. Foreclosures increase, Properties come on the market at fire sale prices, and voila, must have been a housing bubble.
It’s a recession.
You know what causes a recession? Increased oil prices. Too much offshoring of jobs. Lack of protectionary tariffs. Tax increases. Interest rate hikes, And supply shocks.
Biden is directly responsible for that first one. And the second and third one as he exempted a ton of products.
“This is the end of a debt bubble, which is characterized by ‘speculative investments’. I’ve always held that ‘cryptos’ are todays flavor of Tulip mania, and that all the flavors or coins were just variations on the same theme with tulips. “
indeed ... grossly excess liquidity in an economy always seeks the riskiest returns because less risky investments return almost nothing when an economy is pregnant with cheap money ... and i too have always thought that cryptostupidity was the vehicle that would send excess liquidity to its grave ... the sad thing though is that the naive youth are the ones most likely to fleeced because they’ve been led to believe that crypto is the “next big thing” ...
“we’re caring for millions of poverty-stricken people’s healthcare, education etc”
Water + ENERGY...
True enough, but all investments are a gamble — even for massive expertly run funds buying up residences in a hot market. Zillow’s unit doing that just got burned badly by high renovation and carrying costs and diminishing sales prices. After large unexpected losses, Zillow shut the operation down and took a write off.
Yes, they are. Zillow particularly stuck their neck out with their model. I was just observing that there are more complex, potentially contradictory, forces in play here beyond a simple investment bubble. Risk, of course, is generally a component of the greatest potential returns.
Yup. I know attorneys who tried settling mortgage foreclosures only to find that the banks were often uninterested. They preferred keeping the properties in limbo until the regulators finally got wise to the scam.
Risk comes in many forms. In practice, large investment funds and large companies and organization have scale and depth but are rarely nimble enough to avoid ebbs and flows and turns in the market or able to revise their business model on the fly. As the old line goes, the small and quick often end up eating the big and slow.
My observation of houses in Silicon Valley over 40 years is that when times got bad, housing prices leveled off for a year or two, and the number of homes sold went down, BUT, the prices did not go down.
They just did not go up for a while. Then, as the economy recovered, the prices went up again. It always seemed like a ratcheting effect.
I expect that in the prosperous areas of the US, the same will happen over the next few years.
The bigger the fund the more challenging it is to keep finding honest alpha.
Read later.
Quite true. In nature and in markets, a long enough run will exhaust even the most robust bulls. Or, to put it analytically instead of metaphorically, the potential for real economic gains has already been served by enough investment capital. Unlike two to five years ago, there simply do not appear to be major innovations on the cusp of winning market share that can justify high valuations based on future earnings.
“Two years ago I refinanced my mortgage at 3.75% and paid off my credit cards so that’s the only debt I have now.”
___________________________
Three years ago we didn’t have the foresight to refinance our mortgage to pay off our considerable credit card debt. No, instead, we knuckled down, cut up the cards and snowballed our credit card debt. Next, we took the remaining funds post credit card, put it against a parent plus loan for our daughter. Once that was paid, put the remaining funds against our mortgage. Now we have no credit card, parent plus or mortgage debt. $91K paid in 3 years. Stupid I know.
Yeah, we had to use an actual budget and stick to it. Yeah, we had to do without things we wanted. The only downside is we are totally debt free and are now forced to put 40% of our income into 401k & Roth’s. No gratification in that, man.
We (Ms. fatboy and me) have to admit though that we are too stupid to still have a mortgage. Smart savvy people have better places to put their money instead of their primary residence. I speculate that my Mom might have dropped me on my head when I was young.
We find that while inflation is a concern, we have the money to buy our food and fill our gas tanks. Sora sucks I have to say because I really miss the financial security and low interest rates having a mortgage offered and having 4 credit cards in my wallet for emergencies. This really hit home last week when I ordered pressure treated lumber to rebuild our deck. We just paid cash for the decking and had it delivered. We were deprived of the thrill of swiping a plastic card at the checkout.
So, what is my snarky point? To make the point, refinances are fine but unless you do so to shorten the time remaining on a mortgage, using those freeded up funds is paying off unsecured credit card debt with secured debt which happens to be your primary residence. You might save a few hundred dollars/month in the short run in cc interest rates but you are looking at added time measured in years paying off your home. Consider instead getting on a no frills budget, getting serious and changing the spending habits and then follow through. While not my first choice because they are not what they seem to be but introductory (18 month) no-interest cc balance transfers might serve the determined to be debt free individual better than prolonging the life of an existing mortgage. I can say that one of our CC had $18k @ 15% we snowballed it without modification in 11 months so it can be done.
It’s a great feeling to have zero, zip debt and allows us to view the current financial crisis more as a concerned spectator than a participant.
6.5% on credit line compared to adding balance to mortgage and refinancing at 3.75% was a no brainer.
This is my first home which I purchased late in life compared to family people who likely have their homes paid off by now.
At my age, if I live long enough to pay off the mortgage, the mortgage company wins. Since I don't expect to live that long and will likely die before it's paid off, I win.
I you think you will not survive too much longer then why worry about paying off your credit card balances?
American oligarchs are real and easy to spot.
—Net worth of over a billion dollars
—Hire lobbyists in DC to protect their interests and ^%$# over the competition
—Several own or control large mass media or Big Tech companies to propagandize “the great unwashed” to get them to fight among themselves and ignore the power and control of the oligarchs
—Feed at the trough of big governments—military/industrial complex, big health care/big pharma, big education/indoctrination, etc—These companies usually have multinational interests
These folks rule and everybody else drools.
If I'm not mistaken, you yourself just admitted that paying them off will result in hundreds of dollars in my pocket per month until I die.
What is smart in maintaining a 5.45% mortgage rate and a 6.5% on the line of credit when they both can be consolidated into one mortgage loan of 3.75%?
In my view there is nothing really smart about having debt of any kind. Not even debt on my abode. There really isn’t any real free money out there and for me having climbed out of a monster debt hole I intend to my last day remaining debt free. But I think it risky to pay off unsecured debt using secured borrowing but again I’m stupid. Have a nice day.
Mortgage debt made sense when the interest was tax deductible, but the Trump tax reform of 2018 changed that game for most people of modest means.
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