[X3pilot]

So the Fed bond buying has caused the mortgage interest rates to rise, according to the news, yet Fed interest rates of money to the banks remain almost 0, so the banks make money by rising rates. Fed bond buying causes dollar to devalue so commodity prices rise (oil) so gas goes through the roof so oil companies make money (and investors).

Unemployment is at all time high and wages will most likely freeze so less disposable income for all.

Fed/Fed/Fed....do I detect a trend or am I just stupid. (Dante, don't answer that! lol)

 

[Pesqueeb]

It's easiest when you just have to go by what one person says, as opposed to trying to figure out "the masses".

How's mom doing with all that?

 

[dante]

So the Fed bond buying has caused the mortgage interest rates to rise, according to the news, yet Fed interest rates of money to the banks remain almost 0, so the banks make money by rising rates. Fed bond buying causes dollar to devalue so commodity prices rise (oil) so gas goes through the roof so oil companies make money (and investors).

Unemployment is at all time high and wages will most likely freeze so less disposable income for all.

Fed/Fed/Fed....do I detect a trend or am I just stupid. (Dante, don't answer that! lol)

Too late.

Fed bond-buying has caused mortgage interest rates to fall, not rise. The Fed buying bonds raises the price which keeps effective interest rates low... Lets just say that you have long-term bond with a face value of $100 and a coupon (annual interest payment) of $4. When it sold for $100, it was paying 4% interest. Now lets just say that fed bond-buying pushes the price for that bond up to $120 (more demand, same supply). Suddenly, if you're looking to purchase that bond, it's only going to pay a 3.3% interest rate.* Anyone offering bonds for $100 face value only has to pay 3.3% interest. Basically what the Fed is trying to do is keep the cost of borrowing (offering bonds) low to generate economic growth and reduce unemployment. It's also being used to re-capitalize the banks, as borrowing costs (for them) are kept relatively low and yet the rates that they're charging for credit cards / car loans / etc are quite high.

When the Fed was purchasing mortgage bonds directly it affected the mortgage rate, but now there's just an indirect effect. Lower overall interest rates mean lower mortgage rates as well, although mortgage rates are pegged on to what people will buy them for (Mortgage Backed Securities).

The Fed buying caused the dollar to depreciate somewhat, but inflation was kept in check by the fact that there was still little-to-no demand. Commodities weren't that much higher a couple months ago than they were earlier in the summer/late fall. What REALLY just caused the recent jump in long-term inflation prediction was the "tax compromise" that was just pushed through. The 10y treasury was pushed down to ~2.3% by the Fed, and now has jumped up to 3.4% in the past month. That's pushed mortgage rates from 4.25% a month ago up to 5.0% today. Basically our creditors don't think that we can actually be fiscally responsible....

What the Fed giveth, Congress taketh away.

 

[dante]

How's mom doing with all that?

She had a conversation with the financial consultant from her 403(b), and it turns out that almost all of her investments were already in uber-stable fixed investments. Like CD/Money-Market stable, probably from the last time she panicked and sold everything (2002?). She'd been watching the news and had been too afraid to open her statements due to the possibility that the values may have plummeted. I've given up trying to give her investing advice, and just add her totals in to whatever I advise my dad.

What's interesting is that my dad's IRA is at almost an all-time high, and up almost 40% since he retired 5 years ago (including only the mandatory withdrawals for the past 2 years). Simple mix of 50/50 stock and bond funds, rebalancing every year or so when things got too far out of whack. Nothing glamorous, but good solid long-term returns so far.

 

[Pesqueeb]

Wasn’t sure if I should put this here, start a new thread, or according to the folks at ZH, put it in the wikileaks thread. I'll say it again, if wikileaks has proof anyone of these big banks is insolvent, its gonna get ugly real fvcking fast.

PHOENIX — Attorneys general in Arizona and Nevada filed civil lawsuits Friday against Bank of America Corp., alleging that the lender is misleading and deceiving homeowners who have tried to modify mortgages in two of the nation's most foreclosure-damaged states.

Bank of America violated Arizona's consumer fraud law by misleading consumers who tried to reduce their monthly payments to keep their homes, state Attorney General Terry Goddard said. The bank also violated the terms of a 2009 consent agreement requiring its Countrywide mortgage subsidiary to implement a loan modification program, the Arizona lawsuit alleges.

Hundreds of homeowners kept making their mortgage payments because Bank of America repeatedly assured them that their loans were being modified, Goddard said. Instead, many lost their homes anyway.

"Those people could have used that money for something else," Goddard told The Associated Press. "They were deceived into continuing to make mortgage payments when they had no hope of saving their homes."

Rest of the article here

From ZH

At this point it appears Bank of America can't wait for the alleged Assange secret fraud trove to finally be released and put the bank out of its misery: not a week passes without someone suing the bank for gross mortgage fraud. One would almost think that if we had a functioning legal system in which perpetrators of crime, instead of those protesting it, were arrested that BofA may actually be a sell on the f#&^@!g dip. The latest reason why the best job in the world these days is to be BofA's outside counsel, is that as Reuters just reported, Arizona has sued the bank as a result of the latter "consistently misleading consumers about its home loan modification process." Perhaps a greater crime is BofA's consistently misleading the SEC into settling every single case of multi-billion bonus dispersal at or about the time the banks receives a $15 billion taxpayer funded TARP bailout. And while this latest case will also be settled promptly and quietly, to not give some other plaintiffs the idea that such a thing as equitable compensation exists, in the meantime the actual damages sought by Arizona AG Terry Goddard is $25,000 per violation. Ball park estimate of 500,000 of those countrywide (not just Arizona) , and there goes the firm's Christmas Bonus.

Then there was this absolutely brilliant assessment by a ZH commenter:

Why should they mod the loans when the payout on the PMI is so ridiculously more valuable?

BofA (countrywide) takes a loan out on a house in 2004 worth $500,000. Includes private mortgage insurance in the loan.

Owner defaults. House value drops to 300k.

BofA forecloses on house, evicts former owner.

Changes locks, submits insurance payout request to HUD.

HUD approves 100% of payout amount to BofA.

BofA sells REO on market for $200,000 claiming its a steal at this price.

BofA loss on Loan: $500,000 minus a few years of payments at variable interest rates.

BofA gain on loan: $500,000 PMI payout + $200,000 resale price.

If you think BofA has any legit reason to modify ANY of its loans, you are crazy. They are making a killing right now, and no one has a clue about it.

Someone needs to find out who Countrywide's original PMI provider was. I almost guarantee it goes back to AIG.

 

[ridiculous]

Buy when people say sell, sell when people say buy. the masses are hysterical and stupid. Took me thousands in losses to figure that out.

Bagholders v. Smart Money. Works for the equity markets as well.

 

[mattmatt86]

Buy when people say sell, sell when people say buy. the masses are hysterical and stupid. Took me thousands in losses to figure that out.

"Be fearful when others are greedy. Be greedy when others are fearful."
-Warren Buffett

In 2005 people wished they had bought in 2000. In 2010 people wished they didn't buy in 2005, and in 2015 people are going to wish they bought in 2010.

I'm really not that worried, but then again I don't really have an skin in the game at the moment. If everything does go belly-up I'll refer to this thread: What would make you leave the U.S.?

 

[SkaredShtles]

Wasn’t sure if I should put this here, start a new thread, or according to the folks at ZH, put it in the wikileaks thread. I'll say it again, if wikileaks has proof anyone of these big banks is insolvent, its gonna get ugly real fvcking fast.

Rest of the article here

From ZH
Then there was this absolutely brilliant assessment by a ZH commenter:

Maybe if they go tits up I won't have to pay my mortgage.

 

[trailhacker]

Then there was this absolutely brilliant assessment by a ZH commenter:

Quote:
Why should they mod the loans when the payout on the PMI is so ridiculously more valuable?

BofA (countrywide) takes a loan out on a house in 2004 worth $500,000. Includes private mortgage insurance in the loan.

Owner defaults. House value drops to 300k.

BofA forecloses on house, evicts former owner.

Changes locks, submits insurance payout request to HUD.

HUD approves 100% of payout amount to BofA.

BofA sells REO on market for $200,000 claiming its a steal at this price.

BofA loss on Loan: $500,000 minus a few years of payments at variable interest rates.

BofA gain on loan: $500,000 PMI payout + $200,000 resale price.

If you think BofA has any legit reason to modify ANY of its loans, you are crazy. They are making a killing right now, and no one has a clue about it.

Someone needs to find out who Countrywide's original PMI provider was. I almost guarantee it goes back to AIG.

Sorry, but I am not sure how PMI actually works.
Does PMI insure the complete ORIGINAL value of the loan, or just the outstanding portion of the loan?
Is it like they (PMI) are totaling the car (the banks car in this case) even though it isn't damaged enough to merit that, and then they let them keep the car to re-sell too?
Please tell me this isn't how PMI works?!?

 

[ridiculous]

For those of you hoping to escape this crisis in Australia...


Median Household value v avg wage.

 

[Pesqueeb]

Hellooooo Australian real estate bubble.... Buy the dip bitchez!

 

[dante]

For those of you hoping to escape this crisis in Australia...


Median Household value v avg wage.

2010 Median Wage - $67,000
2010 Median Home Value - $524,000
Vale/Wage ratio - 7.8/1!!!!!!



It looks like there is still some wage inflation going on, but if that dries up, look out below!!

 

[Toshi]

http://economix.blogs.nytimes.com/2010/12/22/buy-vs-rent-an-update/?src=sch&pagewanted=all

Many cities are still overpriced as evidenced by rent ratios. My favorite cities of Portland, Seattle, and SF are all very overpriced. Hmph.

 

[dante]

http://economix.blogs.nytimes.com/2010/12/22/buy-vs-rent-an-update/?src=sch&pagewanted=all

Many cities are still overpriced as evidenced by rent ratios. My favorite cities of Portland, Seattle, and SF are all very overpriced. Hmph.

When we bought our house, the ratio was ~12. It would have cost us ~$100/month more to rent than to buy with a 20% downpayment (including mortgage, property tax and insurance). After we refinanced that number jumped to around $200/month. When you figure in the $2,000 we save by being able to write off our mortgage interest, it suddenly became very clear as to whether to rent or buy.

Toshi, those numbers you linked to seem.... suspect. Apparently they're pulled from this website, but it's numbers (at least for my area) are *WAY* off. As I noted, a house almost identical in size to ours (and similar, but not as great of a neighborhood) would have rented for more than we were paying for a mortgage. As such, the price-rent ratio should have been 12, but this website seems to think that Madison, WI is around 21??

I'm honestly not sure how they actually calculate rental vs purchasing, and whether it's free-standing homes vs free-standing homes (and multi-unit vs multi-unit), or if it's just a general idea based on square footage...

 

[ebarker9]

2010 Median Wage - $67,000
2010 Median Home Value - $524,000
Vale/Wage ratio - 7.8/1!!!!!!

That's clearly insane, but what is a "good" ratio? 3/1?

 

[johnbryanpeters]

That's clearly insane, but what is a "good" ratio? 3/1?

I think it was order 3:1 when I bought (1976).

 

[dante]

I think it was order 3:1 when I bought (1976).

Traditionally (as in, the last 75 years or so) it's been 3:1. That's not necessarily what someone should shoot for, since only 65% of people own their own home that leaves 35% (who don't buy a house) to pull down the median income.

In the US it was most recently 4-1 ($50k median income, $200k median home price), but the home prices have fallen to ~$170k right about now. So basically we're still slightly above the traditional "affordable" level.

 

[Pesqueeb]

Home prices dropped more than forecast in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year.

The S&P/Case-Shiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. The decrease exceeded the 0.2 percent drop projected by the median forecast of economists surveyed by Bloomberg News.

A wave of foreclosures waiting to reach the market means home prices will remain under pressure in 2011, representing a risk to household finances. Federal Reserve policy makers this month said “depressed” housing and high unemployment remained constraints on consumer spending, reasons why they reiterated a plan to expand record monetary stimulus.

“We’ll remain in negative territory for several more months,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who forecast a year-on-year drop of 1.3 percent. “The housing market does remain weak and none of the recent data suggest a substantial pickup.”

After retreating briefly, stock-index futures remained higher after the report as a jump in holiday sales boosted the outlook for consumer spending. The contract on the Standard & Poor’s 500 Index maturing in March rose 0.2 percent to 1,255.5 at 9:23 a.m. in New York. The yield on the benchmark 10-year note rose to 3.36 percent from 3.33 percent late yesterday.

Survey Results

The median forecast was based on projections of 17 economists surveyed. Estimates ranged from an increase of 1.4 percent to a decline of 1.3 percent. Year-over-year records began in 2001. Prices rose 0.4 percent in the year ended September.

The gauge fell 1 percent in October from the prior month after adjusting for seasonal variations, matching September’s drop which was larger than previously estimated. Unadjusted prices decreased 1.3 percent from the prior month.

Eighteen of 20 cities showed a decrease in prices in October, led by a 2.1 percent drop in Atlanta, and decreases of 1.8 percent in Chicago and Minneapolis. Denver and Washington were the only two that posted gains.

Six markets, including Atlanta, Charlotte, Miami, Seattle, Tampa and Portland, Oregon, reached their lowest levels in October since prices started to retreat.

“The double-dip is almost here,” said David Blitzer, chairman of the index committee at S&P. Sales aren’t “giving any sense of optimism.”

The 20-city index was down 30 percent in October from its July 2006 peak.

The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

The Case-Shiller gauge is based on a three-month average, which means the October data was influenced by transactions in September and August.

The drop in prices represents a setback for housing after values recovered earlier this year, thanks to an $8,000 homebuyers’ tax credit that lifted purchases.

Reports earlier this month showed the housing market is stuck near recession levels even as the broader economy is recovering. Housing permits fell in November to the third-lowest level on record, while starts rose for the first time in three months, the Commerce Department reported Dec. 16.

Sales of new and existing homes last month rose less than projected by the median forecast of economists surveyed by Bloomberg, reports from the Commerce Department and the National Association of Realtors showed last week.

Price Outlook

Atlanta-based Beazer Homes USA Inc, which builds and sells single-family starter homes in the southern part of the country, projects prices will not increase.

“We expect new-home selling prices to be somewhere between flat and down 3 percent in 2011,” Beazer’s Chief Executive Officer Ian McCarthy said on a conference call last month. “While there are clearly risks of further home-price declines, we believe that new homes are well positioned relative to non- distressed existing homes.”

Today’s report may be a reminder why Fed policy makers, who met Dec. 14 for the final time this year, say housing is lagging while the economy rebounds. They cited declines in home values as one of the constraints on consumer spending.

“The housing sector continues to be depressed,” Fed officials said in a statement after the gathering, at which they reiterated a plan to expand record monetary stimulus and said economic growth is “insufficient to bring down unemployment.”

Even so, economists in the past two weeks have boosted projections for fourth-quarter growth, reflecting a pickup in consumer spending and passage of an $858 billion bill extending all Bush-era tax cuts for two years. The legislation also continues expanded unemployment insurance benefits through 2011 and cuts payrolls taxes by 2 percentage points next year.
http://www.bloomberg.com/news/2010-12-28/u-s-property-values-decline-more-than-forecast-in-s-p-case-shiller-index.html

The good news is that if you still have a job, house prices might actually get back down to a 3:1 ratio.

 

[stoney]

Hope to Jebus that you have sizeable cash reserves if we go depressionary. I believe that we will in the shorter term (<2 years) then into inflationary. Just think about the amount of cash pumped into the mkt and how rates are flat, with inflation also effectively flat.

 

[SkaredShtles]

Ours personal situation is in the 3:1 ballpark... but that may get way more "nice" if the wife lands this sweet telecommute job.

 

[stoney]

As I'm not a RE guy, to confirm the ratio is House Px:Income? and is that pre- or post-tax income?

 

[KavuRider]

I am in the 3/1 area now.
And I don't make $hit.

So that's good news...

 

[Pesqueeb]

As I'm not a RE guy, to confirm the ratio is House Px:Income? and is that pre- or post-tax income?

Don't hold me to it, but IIRC its figured off of gross income.

Hope to Jebus that you have sizeable cash reserves if we go depressionary. I believe that we will in the shorter term (<2 years) then into inflationary. Just think about the amount of cash pumped into the mkt and how rates are flat, with inflation also effectively flat.

If I had "sizeable" reserves I wouldn't be working at all. We have enough for a short term (<2 year) rough spot unless it really goes pear shaped. The crowd over @ZH is really starting to fling poo over this, lots of terms like "accelerating double dip" and "cleptocratic oligarchy" being used.

 

[stevew]

maybe i'll look to start construction of my unabomber shack in pagosa springs in the next year or two....

 

[SkaredShtles]

maybe i'll look to start construction of my unabomber shack in pagosa springs in the next year or two....

Wife and I are contemplating land purchase... Pagosa is a nice area.

 

[stevew]

Wife and I are contemplating land purchase... Pagosa is a nice area.

this is all i need....

 

[stoney]

Don't hold me to it, but IIRC its figured off of gross income.



If I had "sizeable" reserves I wouldn't be working at all. We have enough for a short term (<2 year) rough spot unless it really goes pear shaped. The crowd over @ZH is really starting to fling poo over this, lots of terms like "accelerating double dip" and "cleptocratic oligarchy" being used.

1) That's what I thought. Which leads me to conclude that I will never be buying a house in the Bay Area.

2a) We're in the same boat. All my medical issues in the last few months really sapped our savings to the tune of a few grand. We still have an uncomfortable 4-month with no income (for both of us) buffer, but it's not a position I like to be in. I'd prefer a comfortable 6-month assuming no income buffer. I won't spend a penny on a house until I have a 20% deposit in cash and it's no greater than 2.5x our income (to assume wifey might stop working).

2b) Chicken little says those boys be crazy.

 

[stoney]

this is all i need....

I would like one of these:
http://green.yahoo.com/blog/daily_green_news/8/twelve-amazing-shipping-container-houses.html

 

[SkaredShtles]

I would like one of these:
http://green.yahoo.com/blog/daily_green_news/8/twelve-amazing-shipping-container-houses.html

Nice and simple:

 

[stoney]

A couple of Yurts (bedrooms) linked around a large central (kitchen, living room, etc) would be awesome. Unfortunately, I could never get wifey on board. Now if we could afford to buy a large property then build a house on the property while living in the yurts, that would be awesome.

 

[Pesqueeb]

I would like one of these:
http://green.yahoo.com/blog/daily_green_news/8/twelve-amazing-shipping-container-houses.html

There is a, um......, container home north of my house a long the bike path out in the boons. Except its still on wheel's, has a couple of windows cut into it and has a full plywood "wall" on the door side of the container with a sliding door used as the "entrance". I would love to get a close look at this monstrosity as it has every appearance from a distance of being near the pinnacle of redneck engineering. Guessing a lot of duct tape and bailing wire were used in its construction.

A couple of Yurts (bedrooms) linked around a large central (kitchen, living room, etc) would be awesome. Unfortunately, I could never get wifey on board. Now if we could afford to buy a large property then build a house on the property while living in the yurts, that would be awesome.

The wife and I have discussed this several times. She is totally on board but we keep hanging up on the thought of raising a kid in the middle of nowhere in a yurt. I guess were just not hippie enough to make that leap while were raising a kid.

 

[eaterofdog]

Spent some time looking/working at the investment house this weekend. New door locks and such. It is in great shape, just need to powerwash. Actually the damned thing is nicer than my house.

 

[mattmatt86]

Don't hold me to it, but IIRC its figured off of gross income.

It's gross, because it takes into consideration that after purchasing you'll have more in tax returns from writing off your mortgage interest. My company uses 35/45 as one of the benchmarks for qualifications. No more than 35% of monthly income can go to PITI and no more than 45% for PITI + all other (credit based) monthly debt. Our ratios are slightly higher than others because we build Energy Star certified homes so we take into account you'll be saving 20-30% on energy bills. These ratios aren't the only deciding factor, I sold a home to women two weeks ago that had ratios of 44/45 but she has tons of cash in the bank and is putting 120k down on the home.

 

[stoney]

There is a, um......, container home north of my house a long the bike path out in the boons. Except its still on wheel's, has a couple of windows cut into it and has a full plywood "wall" on the door side of the container with a sliding door used as the "entrance". I would love to get a close look at this monstrosity as it has every appearance from a distance of being near the pinnacle of redneck engineering. Guessing a lot of duct tape and bailing wire were used in its construction.


The wife and I have discussed this several times. She is totally on board but we keep hanging up on the thought of raising a kid in the middle of nowhere in a yurt. I guess were just not hippie enough to make that leap while were raising a kid.

We're not talking full off the grid hippie, just far enough off that we can get an acre or two with good wooded seculsion. As long as I am within 45m to 1h of the city I am onboard. I've been looking at property in upper Marin and there are lots of that size description within 45m. I am currently 25min away, so bumping to 45m is not a big issue to me. Plus, if I can get a fully custom built house. Here is my current master plan (made in Paint of course)

 

[SkaredShtles]

Geodesic dome FTMFW!

 

[SkaredShtles]

<snip>
The wife and I have discussed this several times. She is totally on board but we keep hanging up on the thought of raising a kid in the middle of nowhere in a yurt. I guess were just not hippie enough to make that leap while were raising a kid.

Yeah - we're just planning on using it as the ski lodge/summer cabin...

 

[Pesqueeb]

Joker, have you looked at what a yurt sets you back? I mean I like the plan and all, but if your buying that many of em you might as well just build the house straight away.
http://www.coloradoyurt.com/
http://www.yurts.com/

Wife and I are contemplating land purchase... Pagosa is a nice area.

Back on topic, you might think about waiting a year.

"It's pretty clear the housing market has already double dipped," says Roubini. "And the rate of decline is stronger than in previous months," he said of the new housing data.
...........

Roubini adds that there are other ominous economic signs on the horizon including: "The eurozone shock, long-term structural deficits, and state and local governments [operating near] bankruptcy."

And, if homeowners begin walking away from their properties en masse, those negative trends might well pick up steam:

"12 million households are already in negative equity and 8 million more have an LTV btw 95 and 100%. Thus even a 5% fall in home price will push an extra 8 million in negative equity with risk of millions walking away from their home&#8212;i.e. jingle mail," Roubini wrote me in a text message earlier today.

Read the rest of Mr. Sunshine's predictions here:
http://www.cnbc.com/id/40828545

 

[SkaredShtles]

Joker, have you looked at what a yurt sets you back? I mean I like the plan and all, but if your buying that many of em you might as well just build the house straight away.
http://www.coloradoyurt.com/
http://www.yurts.com/




Back on topic, you might think about waiting a year.

Read the rest of Mr. Sunshine's predictions here:
http://www.cnbc.com/id/40828545

If the $hit really hits the fan we may buy a condo in Steamboat AND a condo in Summit County...

 

[Pesqueeb]

If the $hit really hits the fan we may buy a condo in Steamboat AND a condo in Summit County...

Thats what I'm talking about. Or an underground home in Durango.

 

[Andyman_1970]

this is all i need....

SWEET