“Didn’t housing prices go up as mortgage rates went down?
Wouldn’t prices drop enough to encourage buying? I knew people who purchased houses during the late 1970s stagflation. I swear I remember the mortgage interest was more than 20 percent at that time. They survived. The rest of us survived.
No one is saying that’s going to be easy.”
You bring up a good point but I’d fill in a couple of missing points. First, homes had not blown up in price so far outside of their long term price envelope, roughly equal to 3x median income. Secondly, qualifying for loans back then was quite conventional, requiring solid down payments. Most homes during that era were sold with seller-financed second mortgages. When rates later came down, there was ample opportunity to refi to lower rates. I think I was paying 13% on a first mort and 11% on a seller second on a home I bought in 1983.
Why the current situation is different is because: Despite their recent decline, homes are still selling for prices outside that 3x median income benchmark, and with rates already so low, there is likely to be no great opportunity to refi. Indeed, mort rates have actually risen in response to the Fed lowering rates just recently.
That is soooo important! Back then lenders handed out toasters and calendars, we joked that the only way you could get a loan was to not need it.
So I wonder, why bail out lenders who started handing out loans? They lost. Why bail out those who bundled the mortgages on a global scale and exploded the credit bubble. They lost. Look at $2/share Bear Stearns. They lost. Hey! it's capitalism. You takes your chances. I thought all these guys hated "government interference." Now look at 'em crowding around Washington.
And you're correct. The housing prices are still relatively high. But what about next year? I wonder.