I’ve been having a debate with some local real estate blog folks about whether or not “we’ve hit bottom” in Seattle and USA national real estate.
I keep trying to explain to these people that your house is really only worth what the buyer can pay, which means the mortgage interest rate is a BIG factor….they don’t get this.
take a look at the chart below and tell me that interest rates don’t matter RainCityGuide people…
excerpt:
Easy money wasn’t the only way government induced the bubble. The mortgage-bond market was the mechanism by which policy makers transformed home ownership into something that must be earned into something close to a civil right. The Community Reinvestment Act and projects by the Department of Housing and Urban Development, beginning in the Clinton years, couldn’t have been accomplished without the mortgage bond—which allowed banks to offload the increasingly risky mortgages to Wall Street, which in turn securitized them into triple-A rated bonds thanks to compliant ratings agencies.
The perversity of these efforts wasn’t merely that bonds packed with subprime loans received such high ratings. It was also that by inducing homeownership, the government was itself making homeownership less affordable. Because families without the real economic means to repay traditional 30-year mortgages were getting them, housing prices grew to artificially high levels.
This is where the real sin of Fannie Mae and Freddie Mac comes into play. Both were created by Congress to make housing affordable to the middle class. But when they began guaranteeing subprime loans, they actually began pricing out the working class from the market until the banking business responded with ways to make repayment of mortgages allegedly easier through adjustable rates loans that start off with low payments. But these loans, fully sanctioned by the government, were a ticking time bomb, as we’re all now so painfully aware.
http://online.wsj.com/article/SB10001424052748703363704574503404180541392.html
thanks for the link kurt!
Excerpt from wsj article:
Lending borrowed capital — the essence of banking — is risky. That risk is amplified when interest rates are very low, as they were in the early 2000s because of a mistaken decision made by the Federal Reserve under Alan Greenspan to force interest rates down and keep them down. Because houses are bought with debt (for example, an 80% first mortgage on a house), low interest rates spur demand for houses. And because the housing stock is so durable a surge in demand increases not only housing starts but also the prices of existing houses. When people saw house prices rising — and were assured by officials and other experts that they were rising because of favorable “fundamentals” — Americans decided that houses were a great investment, and so demand and prices kept on rising.
charlie rose continues to tackle the credit crisis on his show…came across this clip on ‘the big picture’ blog. big take away is that the credit rating agencies that gave Fannie/Freddie/AIG AAA rating we’re one of the central causes of collapse.
more about "hedge fund manager bill ackman breaks…", posted with vodpod
Excerpt:
When you look at the graph of the Case-Shiller residential real-estate index, an index dating from 1890 to the present and an index which measures the cost of housing in comparison to other goods, the first thing you see is that the 2001 to 2006 bubble stands out like a fifty foot saguaro cactus in a patch of daisies. There simply has never been anything like it before.
When you know what you are looking at — the biggest bubble in history — it is scary.
here’s ron paul (once again proven right by this current crisis) breaking down how the fed causes bubbles like our current housing bubble. side note: us govt stopped tracking money supply in 2006.
great graphs of how the american banking industry was slaughtered this year. $1 trillion lost, which roughly equal to the amount of new money printed by the govemment over last few years. to me this is a scary relationship - print tons of money, which then gets lost on stupid loans? waaay easier to lend money when you have a feeling you won’t have to pay it back….
from tech crunch: http://www.techcrunch.com/2008/09/16/the-mess-on-wall-street-four-trillion-dollars-down-the-drain/
10 billion dollar tax payer bailout coming….wonder if china will keep covering our debt?
great related article from business week
here’s a video of economist nouriel roubini on cnbc talking about the coming american consumer debt crisis (consumer debt = student loans, credit card debt, pay day loans);whom i wrote about yesterday.
