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Real Estate and interest rates
Old 08-06-2011, 01:23 PM   #1
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Real Estate and interest rates

Sooo it seems likely that the drop in credit rating for the US will result in increased interest costs for consumers. In the interest of piling on, here's a story about possible changes to mortgage risk, interest, and qualification coming from another quadrant. Upshot? may be a good time to re-fi and/or buy if you have that in mind and don't have a bucket of bucks to dump on a down payment..

Thanks Dodd-Frank.

Is Federal Goverment About To Make It Harder to Buy a Home? - ABC News
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Old 08-06-2011, 01:56 PM   #2
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So true!

Houses in my neighborhood are not selling at all, no matter what the interest rates or asking price. I think many potential buyers here are "hunkering down" and waiting for the bottom. But when the bottom is reached, their interest rates may be higher.
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Old 08-06-2011, 02:02 PM   #3
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Houses in my neighborhood are not selling at all, no matter what the interest rates or asking price.
+1

Our neighbors down the hill from us have had their house on the market for just over two years. With record low interest rates and at least three reductions in price, still no sale. Both have health problems and want to move closer to their children who live 'up nort'. They can't even walk away from their mortgage - they don't have one.
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Old 08-06-2011, 02:09 PM   #4
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Very interesting. Thanks for sharing.

Hope the ending is true and they reach a better compromise on the down payment required.
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Old 08-06-2011, 04:04 PM   #5
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This article strikes me as being ghost written by banking lobbyist.

I really don't understand why it is bad to require banks and other lending institutions to keep 5% of the loans they make. The can still securitize the other 95%! My gut reaction is they should require banks to keep 5% of ALL loans they make. If they want to make an exception for safe loans, and let banks securitize 100% of them ok.

Second I reject the notion that low down payments didn't help cause the mortgage credit. In a nutshell it was cause by making risky loans, and there are 3 elements to loan risk, the income of the borrower, their credit score, and the size of the down payment. Low down payments were major contributor to the crisis, and if the reporter had done some home work like reading the Big Short, or House of Cards, or Too Big to Fail he'd know that.

The article makes BS assumptions about how hard it is to save for a down payment.
10% down for 172,000 median house is a $17,200. I think it is BS that would take a teacher 14 years to save that kind of money that which is only $1200/year. I know a couple of teacher that have saved 25% down for 1/2 dozen homes and they don't even have 14 years of teaching between both of them. If people can't save more than 5% of their salary I am not sure they should be homeowners or they very least they should buy starter homes instead of average homes.
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Old 08-06-2011, 04:16 PM   #6
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I have long felt from a most unscientific standpoint that the continuing low interest rates have worked against a housing market recovery--no one feels any urgency to buy because not only might the prices go lower, the interest rates might also go lower. The sense that interest rates will rise might start some dominoes falling.
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Old 08-06-2011, 05:22 PM   #7
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In a nutshell it was cause by making risky loans, and there are 3 elements to loan risk, the income of the borrower, their credit score, and the size of the down payment.
I agree with you that it was caused in large part by making risky loans, and those three are the main elements (type of loan - such as ARM, can add more risk as well), however I am not qualified enough to know what role each of these elements play,

If solid research, and not just some shill's opinion, say that a borrower with a good income and high credit score is very likely to not default on their loan, regardless of the percent down, then give them a loan.

It would be... less than ideal.. if the housing market was kept in a continually poor state by imposing arbitrary restrictions that didn't make the loans that much better, but locked out lots of buyers.

If said buyers actually don't present much larger of a risk when not having enough down payment, then let them have a loan. But bottom line is figure out the risks, and set criteria based on that. If sufficient income is necessary for paying a loan (and I'd think it would be), make that an absolute. But maybe you could have the down payment on a sliding scale (i.e. credit scores high enough, you qualify for less down, lower scores means you need more down, etc.) We have PMI to cover when there's not enough down, but certain types of loans (such as FHA) let you put down very little without PMI. That shouldn't happen, IMO. If a loan is riskier, the compensation out to be higher.

My point is that we need to figure out exactly what factors lead to other default and base guidelines on those factors. IMO, the down payment is the hardest for most people, but if the statistics show that they have sufficient income and credit scores that they will pay their mortgage, I don't care that they're not disciplined enough to save up for a down payment, as long as they're disciplined enough to pay their mortgage bill. And in the meantime, it's hurting the housing market.

Don't get me wrong - I'd love prices to stay low for the next 5 years or so, as I'm buying. But I'd rather the health of the country as a whole - which includes the housing market - be improved.

Disclaimer: I am biased. I am in the process of getting mortgages, plural. I am putting 25% down on each. I would love to put down less.

Oh, and I fully agree a bank should have to keep part of the loans they make in their portfolio.
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Old 08-06-2011, 05:54 PM   #8
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I have long felt from a most unscientific standpoint that the continuing low interest rates have worked against a housing market recovery--no one feels any urgency to buy because not only might the prices go lower, the interest rates might also go lower. The sense that interest rates will rise might start some dominoes falling.
I hope you are right! The suffering caused by this housing sales slowdown in combination with the scarcity of jobs has been pretty extreme IMO. This seems especially true for some young, ambitious individuals who, in certain occupations, may be expected to move every few years for advancement.
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Old 08-06-2011, 06:12 PM   #9
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To be specific this was my objection.

Quote:
Besides, low-down payment loans didn't cause the Great Recession, says Mechem. In fact, loans with down payments as low as 3% are performing just as well as traditional mortgages with higher down payment rates, according to says John Mechem, spokesman for the Mortgage Bankers Association.
I am willing to bet big bucks that what Mechem is referring to is FHA loans which allow 3% down payments. Left unsaid is that FHA loans are for the most part are designed for young first time home buyers like yourself. They have very strict requirements on debt to income ratio, and for much of the country the loan limits restrict people to buying starter homes.

So it may very well be true the performance of FHA loans is as good as 20% down loans. However this isn't a fair comparison. A fair comparison would to look at the number of delinquent loans in places where prices dropped but didn't crater like Vegas or Florida. I bet if you compared borrower with similar credit and debt ratio who bought $1 million dollar homes, the number of those who've default with 20% down is substantially lower than those who put 5%. If the home price has dropped to $700-750K the 20% down person is only underwater $50-$100K and probably isn't too tempted to strategically default the guy with 5% down is underwater $250K, and renting will almost certainly be cheaper for him.
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Old 08-06-2011, 08:44 PM   #10
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Higher interest rates has to be a downward force on prices. In addition, I gotta believe the government will reduce mortgage interest deductions in the future. I also see renting not having the negative stereotype it used to. Lastly people want to be more geographically flexible to keep working.

So all of the above are negative price forces for single family homes.

However, I wonder if all the above are positive forces for rental property. I don't want to be burdened with rental real estate - but I think we will look back at now as a "golden era" to get into rental real estate.
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