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American Capital Agency Corp. Message Board

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  • onion1273 onion1273 Feb 1, 2013 8:06 AM Flag

    U.S. Mortgage Rates Rise With 30-Year Highest in Four Months

    The price of homes is not controlled by short term rates.
    Its controlled by long term rates. Hence QE1, QE2 and now QEForever
    When the Fed stops buying bonds the prices of homes will fall again.

    Once rates are higher people will fund their purchase with Adjustable Rate mortgages.
    the lowerst interest rate mortgages tied to 1yr or 3yr treasuries.

    This housing bubble is far from over in my opinion.
    I live in suburban NY so real estate prices will differ but;
    When I bought my first house I paid 2x my annual salary at the time. (1989)
    my mortgage rate was 10.25%
    it was enough to pay the bills, we clipped coupons , contributed to our savings, etc.
    When I look at the price of homes today (post crash) and I meet the neighbors I am sure these young couples are not making 50% of what they are paying for these houses.
    how do they live?
    the price of the asset has got to come down more.

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    • For decades I heard people say you cannot lose money in RE. I would wonder what time frame they were really considering. I would also wonder if they were actually considering all the associated costs. Many times it is cheaper to rent/lease. But I always knew they had a location concentric view. There were many historical cycles in the states but more internationally.

      After equity cycles__you often hear talk that many will not participate in equities again. I wonder if this RE collapse will have the same effect on desired home ownership. Will it remain the main asset class for many Americans. I know people who are still viewing it in relative terms__I remember when a house in that neighborhood was going for X.

      [the price of the asset has got to come down more}
      That may also be more location concentric. But overall their is still false support in the RE market__RE tax and mortgage deductions for example. I do not that think the US is that far away from changes in some of the supports. That would have to be a headwind on demand.

      Canada is an interesting comparison (as is Europe and Japan) on how RE financials are handled.

    • Rather than compare the cost of the home it is better to compare the cost of the loan.
      200,000 at 10.25 vs 200,000 at 3.75 is roughly half today, so if one were to buy your home today they would be essentially getting it for half of what you paid back in 1989 and paying in cheaper dollars.
      Imagine paying half price for some other asset after 24 years

 
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