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I hope interest rates go up to 10%. Then I'd just keep all my money in el banco. Housing prices will drop. And when I have enough compounded interest and savings I will buy a house with cashes. Yea!
It would actually be nice to get more than 1% on my savings. Maybe then people will put money away and earn something and then buy it...rather than these horrible trend of borrowing money because the interest rate is low.
Will housing prices go up? Or just interest rates?
Just rates. The housing market still looks grim. Forclosure's are still keeping inventories high and banks own a lot of houses. Cities that were less affected by the initial drop in prices are seeing continued drops. The areas that fell hardest, AZ, FL, CA will start to recover sooner than areas that didn't fall so hard.
MikeyKid - investors are buying stocks. A lot of people have been in cash, bonds, and some crazy stuff like gold coins. People are now getting back into stocks and soon the market will be over-bought, especially now that bonds are doing so poorly. A lot of the market leaders in small/mid cap are priced way over earnings estimates, that much is true (which has made 2010 frustrating for stock-pickers who watch fundamentals) but there are a lot of healthy companies with cash on the books and are priced reasonably.
I don't disagree with much else of your last post, but not having a central bank isn't the cure, IMO. Bernake is definately fueling the markets (and yes, he is less than honest when on TV). But even bad decisions can be better than doing nothing.
I hope interest rates go up to 10%. Then I'd just keep all my money in el banco. Housing prices will drop. And when I have enough compounded interest and savings I will buy a house with cashes. Yea!
why do you think housing prices will drop? if we get that high it will mean the economy should be humming along. historically we get our best home appreciation between 7&8% mortgage rates.
here in nyc the folks who were on the fence about buying a home and were waiting for prices to fall further got a rather unpleasent surprise... home prices held steady for the most part and now the increase in rates brought the monthly payment up to the point that it made it the same as if the home price shot up by 10%
Maybe instead of acting like the world is going to end, people could start thinking constructively.
First off housing is a mess, but its already there. Housing construction levels are as low as they have ever been, so any more hits to the housing market aren't going to have much impact on the economy as a whole because new construction is the only real growth driver to an economy barring people treating their homes like ATMs again. What houses are selling for is a wash to the economy for the most part. Someone buys a bargain, someone sells a loss in many cases, but so what? The only way its affecting people at this point is its getting a small percentage of people to give up and creating a needless foreclosure for "strategic" reasons. But if your neighbor's house gets sold for 5% less than he might have sold it for last year, it doesn't make any difference to you if you plan to live there the next 15 years. This is the missing link in all these discussions. Rates are going up, a very very slight negative to the marketplace, but as long as rates don't spike 200 points in three months I venture a guess slowly increasing rates will make very little difference to housing sales. Housing sales at this point are a function of jobs and job security, which very understandably have been in the gutter. Backwards looking at the data this much is clear and we aren't breaking new ground here.
Going forward I believe the real issue to watch is the Fannie/Freddie saga. How much will the government really pull out of the guaranteeing of home loans is a huge factor. If they cut it off cold turkey, which few sober people would expect, then rates are going to jump 3% and terms are going to be much tougher in terms of shorter terms, bigger down payments, and possibly an end to lifetime fixed rates. This is a very real shock to the system and what needs to be watched. The likely hybrid type solution they can politically pass probably won't be so hard on the system, but will inevitably cause some increased rates no matter what the bond market does.
A 1% bump up from rates no one thought would ever happen up until 2009 isn't newsworthy or really that significant. When a rational home buyer who plans on living in the house for years comes to think about it, if they pass on 5% rates today, they have a very real chance of never securing a 5% mortgage for the rest of their lives. So why would they not buy because rates have moved up? The easy refinancings are gone, those who would get a better rate refinancing today probably haven't done it because they don't have enough equity in the home or they shot their credit. Refinancing is about to go to sleep for awhile.
So where does it rationally leave us? Housing is on the sidelines where it has been for a couple of years now. Some markets are still busting a bit and others are settling into current conditions. But its much calmer and much less significant to the economy as a whole. And there is the key. We'll get to a more stable economy when things which should be in the background go back there. People shouldn't be so fixated on housing, its shelter and a slow builder of wealth. People shouldn't be so fixated on the banks and their capital levels and whatnot. They are providers of capital, the grease which moves the economy. People shouldn't be so fixated on living like the world is never going to get better, inevitably the sun rises and we as a human race eventually move forward and become more productive. These things all will settle down and take their rightful place and we'll all be better for it.
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