<p><a href=“Why gazillionaires, conservatives, and industrialists are begging the Fed to cut interest rates.”>Why gazillionaires, conservatives, and industrialists are begging the Fed to cut interest rates.;
<p><a href=“Businessweek - Bloomberg”>Businessweek - Bloomberg;
<p>So what should we buy now? ;)</p>
<p>Probably some of the mortgage backed bonds investors are afraid of. ;)</p>
<p><a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?;
<p><a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?;
<p>I am having a hard time seeing where the money to invest in housing is going to come from. It’s not coming from Germany. 
Well, I see the money, but I see less money going into housing. Less money means lower prices. Unless we are going to see drastically lower interest rates and those lower interest rates find their way into housing. In other words, unless we repeat the actions that led to the bubble, the bubble is going to burst. Do we really want to repeat what we did for the last 5 years?</p>
<p>If housing prices drop 10% across the US and stay there for a couple of years, is that really so bad? I’m having a hard time with the idea that housing prices double in 5 years, then sell off 10% and we have a calamity. If housing sells off and we get more people able to afford homes, isn’t that good?</p>
<p>If people stop using houses as piggy banks and actually put real money in savings accounts, or invest that money, isn’t that better than what we have done in the last 5 years?</p>
<p>If people only borrow what they can pay back, isn’t that good?</p>
<p>dstark,</p>
<p>I have wanted to jump in the earlier thread but was too much in agreement with you to find anything worth adding to the discussion.</p>
<p>Being a homeowner in CA and about 10 years from retirement, I have some skin in this game, for sure. There were times just last year, when house prices had skyrocketed here, where I thought about early retirement given the windfall I could get from selling then. Wasn’t quite ready to pull the trigger. Guess I’m going to have to wait until the next bubble here. :(</p>
<p>It’s about cycles and trends here; both are important. The trends come from the old adage that they can’t built any more land so there is also some upward pressure on real estate prices. But the cycles can really overwhelm the upward trend, especially considering the impact of interest rates. If we set aside the issues of the subprime loans for a minute, the really low interest rates of earlier this decade allowed more people to buy homes and allowed them to buy more house than they could afford earlier. If every home loan was a fixed-rate, there really wouldn’t be much of a probelm unless there was some sort of signficant recession. The low rates did push up home prices since there was more demand. When mortgage rates went up a couple of years ago, that should have cooled off the market a bit as fewer people should have qualified for loans or not been able to afford as big a house.</p>
<p>The party was extended foolishly by the increase in the number of variable rate loans (into a rising interest rate environment) and the increase in the subprime loans, which allowed poorer credit risks into the market. The underlying assumption by both lenders and borrowers in these cases was that real estate would continue to go up at a signifcant annual increase, which read too much into the “trend” aspect and not enough into the “cycle” of these things.</p>
<p>In the meantime, other homeowners were borrowing against the perceived increase in their home values and some of these loans were at variables rates. Others still were counting on increased home values for future spending needs, such as retirement. The psychology involved goes like this: if housing values around here (whereever that is for you) have been going up the past several years at double-digit increases, surely that trend is going to continue.</p>
<p>But we’ve run out of new buyers, or at least we’re down to the bottom of the well. Rather than sticking with reasonably tight underwriting rules and safer loans, the finance industry has accelerated the buying process, fueling large price increases but drying up the future inverntory of homebuyers (for the time being, anyway). There are still people looking to buy but current prices are darned unattractive at today’s interest rates. But everyone was counting on having more buyers TODAY than what we’re seeing. We could have had a longer up cycle in prices had we not been quite so greedy, but that’s not human nature, is it?</p>
<p>dstark, I think in most of the major metro areas, we’re looking at a lot more than a 10% drop. Buit even so, if the drop was only 10%, that still hurts a lot of people, especially those that were leveraged and anybody else who was counting on a never-ending increase in the price of homes. For people who bought recently, a 10% drop could be signficant.</p>
<p>There will also be a lot of pain caused by what is essentially unwinding a lot of these subprime and variable rate deals as loans are foreclosed. Probably, most of these loans should never have been made and probably, these loans should go into default so that the market can reset iteself back to a more balanced state. But we are still talking about real people and the loss of a home and other disruptions and what not.</p>
<p>If the governement bails out the folks (borrowers or lenders) with the variable rate loans, then aren’t we really rewarding bad decision making. Taxpayers would end up subsidizing the risk taken by others. In other words, we’d be paying for other people’s gambiling losses.</p>
<p>My cold heart says that housng prices need to come down more so that more people can afford to buy under clear resonable terms. That will hurt a lot of people, sorry to say.</p>
<p>My advice for anyone interested in buying a home soon is to wait a year. Let sellers come to the realization that the party is over for now and lower their expectations. More importantly, let rates drop a bit more and let the credit industry fix itself.</p>
<p>Dadguy, I agree that a lot of people are going to be hurt. It looks unavoidable to me. And there is going to be collateral damage.</p>
<p>I used 10%. I didn’t want to be too much of a doom and gloomer. :)</p>
<p>On the positive side, the stock market isn’t down much from its highs this year. It’s still up for the year. Interest rates for credit worthy corporations are still low. </p>
<p>Dadguy, your post was true and rational.</p>
<p>“Probably some of the mortgage backed bonds investors are afraid of.”</p>
<p>I was thinking commercial REITs.</p>
<p>“I was thinking commercial REITs.”</p>
<p>You may be right.</p>
<p>I did see this which does make me wonder.</p>
<p><a href=“http://www.cnbc.com/id/15840232?video=487287141&play=1hy[/url]”>http://www.cnbc.com/id/15840232?video=487287141&play=1hy</a></p>
<p><a href=“http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-09-01T193138Z_01_N01303543_RTRIDST_0_USA-ECONOMY-TAYLOR-UPDATE-1.XML[/url]”>http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-09-01T193138Z_01_N01303543_RTRIDST_0_USA-ECONOMY-TAYLOR-UPDATE-1.XML</a></p>
<p><a href=“Bloomberg Politics - Bloomberg”>Bloomberg Politics - Bloomberg;
<p><a href=“Bloomberg Politics - Bloomberg”>Bloomberg Politics - Bloomberg;
<p>Am I the only one that likes gold?</p>
<p>I think part of the problem is that same old situation of people wanting more than they can afford. It’s not that they can’t afford a house, they just can’t afford the house they feel they “deserve”. ( icck) It used to be that your first home was a “starter” home - usually few bells and whistles, maybe a little smaller than you would like. As your career progressed you traded up - eventually able to purchase that “dream” home - if you were lucky, smart, etc. Some were never able to reach that dream. Today, it seems that folks just skip right to the dream home part - even if it means scary financing, interest only loans, etc. They feel they “deserve” to have the home that befits them…I don’t want to bail them out, that’s for sure.
I hope my husband and I have taught our kids fiscal resposibility because this is a scary trend.</p>
<p>The other problem is that the size of the average home has ballooned just like fast food meals. People don’t know what a normal house size is any more. House size has increased 50% since 1950. 1 in 4 people think they need a three car garage. Kids don’t share bedrooms or bathrooms. Everyone thinks you need a great room in addition to a living room.</p>
<p>Added to this discussion of house size and cost I will bring up the 7 year car loan. The finance the new car and roll in the upside down on the existing car. That sure looks like part deux of this housing discussion.</p>
<p>hazmat - I believe that is another part of the problem. With home equity loans being used for everything BUT home improvement ( ie, car purchases, credit card debt), people are mortgaging away any equity they may have built. It’s scary. When car loans went from 3 years to 5 I freaked, now it’s 7??
I hadn’t heard that. My husband and I drive 1998 vehicles so we haven’t shopped for a car in years. LOL
mathmom- good point - I can’t believe how large so many of the new homes are - I wouldn’t want to have to heat/cool or clean that much square footage!</p>
<p>FWIW nobody cleans their McMansion…haven’t you seen the droves of cars filled with smiling girls all working for a Happy Cleaning Service? BuzzKill cleaners. Drycleaners for the laundry and daycare for the kiddies. Yup suburban sprawl has lots of McMansion support built right in. None of this is free.</p>
<p>I wish I could see the newer kid’s faces when they realize they have to share a toilet seat and dorm room.</p>
<p>Oh and it’s a 50% increase since 1970 not 1950 - typo there.</p>
<p>“FWIW nobody cleans their McMansion…haven’t you seen the droves of cars filled with smiling girls all working for a Happy Cleaning Service? BuzzKill cleaners. Drycleaners for the laundry and daycare for the kiddies. Yup suburban sprawl has lots of McMansion support built right in. None of this is free.”</p>
<p>Once again rich people mean opportunity for poor people.</p>
<p>Capitalism…Of course prosperity feeds down the chain.</p>