Feds most likely will drop rates 1/2%-1%

[hardflex]

Kramer on CNBC was just saying to go buy Real Estate, rates were going to 3.5%.

[turbo6bar]

Hehe, the talking heads are suddenly experts on housing when they previously denied the existence of a bubble.

If this was the bottom, the homebuilders wouldn't be crying so badly and starts wouldn't be sitting on all-time record lows. The flood of distressed properties is too large and it's about to get a helluva lot worse. Oh, well...

[126coupe]

Fed cuts prime rate 3/4% to 3 and 1/4% Yeah!!!!

[jyl]

Fed took target range to 0% to 0.25%. Actual rates were effectively there anyway, been 0.18% recently. Main signal is that Fed is done cutting rates, now fully moved on to "unconventional" tools that have long been discussed by Bernanke and others, e.g. directly buying agency debt to pressure down mortgage rates. I think also Fed wants to encourage money to move from cash hoard to investment uses, by reducing the interest rate on cash to almost nothing.

[turbo6bar]

Ripped from a blog:
Saved by zero

Wonder what the prime rate was back then?

[turbo6bar]

The dollar. That's the big question.

[Axeman]

Originally Posted by hardflex

Kramer on CNBC was just saying to go buy Real Estate, rates were going to 3.5%.

When I hear people like Kramer, I tell them to watch this so they know what's coming.

http://www.youtube.com/watch?v=shYJ_KkbzWg

We are nowhere near the bottom. Maybe by 2015 hopefully!

[turbo6bar]

I don't understand. Investment banks and rating agencies said housing prices could not go down. Is this Bizarro World?

[jyl]

Originally Posted by turbo6bar

The dollar. That's the big question.

Three issues really.
1. Dollar vs other currencies (FX).
2. Dollar vs goods/services (inflation).
3. Dollar vs time (interest rates).

I'm thinking dollar holds up vs GBP and EUR currencies because UK and EU are in dire straits themselves, only other major currency is JPY and that might appreciate vs dollar, bad for Japan.

As for inflation, there is almost none to be had. Demand is plunging so hard that deflation is the worry. Think need to see demand improve - i.e. economy recovering - before see inflation as concern. At that point, hopefully Fed can pull back some of the money it has pumped into bankings system etc.

Interest rates could be bad. Not right now - everyone wants low-risk Treasuries. But when we get our risk appetite back and start selling Treasuries to buy corporate debt, munis, stocks, you've got to worry. Perhaps result is that rising interest rates mutes the economy's recovery.

[911Freak]

IMHO

A very wise and successful investor once told me "buy when the talking heads tell you not too, sell when they say it's time to buy"


So what can we make of all this information?

It's a bit confusing isn't it!

If your smart, you invest for the long hold. If you're a gambler or need to try to recoupe some losses "day trade", if you want into the housing market for security; complete your due diligence and invest in the home that fits your budget now, expect to hold for a minimum of 7 years. Why 7 years?

That's how long it's going to take to clean up this mess!

Until banks start lending money to one another, thus starting the process of buying debt, mortgages (not MBS) and CDO's our constipated financial system will not return to normalicy...

Very sad situation now...

[hardflex]

Well Mortgage rates of 3.5% is what got my attention.

Anyone have a chart of the M1 money supply over the last few years?

[turbo6bar]

john, I don't think anyone has a clue what will happen in the next 12-18 months. Hopefully, cooler heads will eventually prevail.

I remain optimistic, but the truth is, best case scenario, we get back to our days of debt binging. We will quickly forget lessons from this crisis.

[turbo6bar]

Originally Posted by hardflex

Well Mortgage rates of 3.5% is what got my attention.

It's definitely great for qualified borrowers to lower debt servicing, but unfortunately does little to address the huge oversupply of housing, and the looming oversupply of commercial RE (retail/industrial space).

IOW, if you can refi to lower payments or have a HELOC or credit tied to Prime, you will see relief. The folks in the gutter are just flat out screwed.

[Hugh R]

My 15 year fixed is 4.625% with nine years left. I may revisit, with a 9 year loan or less. It's foolish to go back to a 15 or 30.

[therotman]

Originally Posted by cantdrv55

I'm doing a refi right now. Fixed at 4.875% at 1 point for 30 years. With the savings I'll be seeing, I can almost make double payments and reduce the time to less than 15 years.

30 year payments start out paying mostly interest.


If you make double payments you will pay your 30 year mortgage off in 10 years, not 15!

[jrdavid68]

We have a 30 year fixed at 6.00%. Anything under 5% and especially near or below 4% would be great.

When we purchased the house in late 2005, I didn't buy in to the stupid loans (not that the loan broker didn't pressure me to), but rather, used all availble monies including the left over from the sale of the previous house as a down payment.

The end result was a 30 year fixed at 6% with a loan to value around 50%. However, with the falling prices and based on Zillow (however accurate that might be), we are now hovering at 80% loan to value.

While waiting for better rates, I also risk going over the 80% LTV threshold for a conventional 30 year loan.

A 30 yr at 4.8% with one point would save us $400 / month and take approximately 1.5 years to break even

A 30 yr at 4% with one point would save us around $550 / month and take around 1.25 years to break even.

I've started the discussion with a broker as I would like to get things lined up for when I feel the time is right, however, I'm also a little worried about waiting to long...

[cantdrv55]

Originally Posted by therotman

30 year payments start out paying mostly interest.


If you make double payments you will pay your 30 year mortgage off in 10 years, not 15!

Agreed but I'm not going to make double payments until I've stashed away 12 months worth of the savings into a savings account.

[pwd72s]

Originally Posted by turbo6bar

The dollar. That's the big question.

Agreed. Think it might be time to short the dollar?

[Vintage Racer]

Originally Posted by jyl

As for inflation, there is almost none to be had. Demand is plunging so hard that deflation is the worry. Think need to see demand improve - i.e. economy recovering - before see inflation as concern.

I have been buying TIPS lately. I happen to think that the federal government's massive attempt to provide liquidity to the system will result in inflation. They have poured $2T into the economy, and Obama wants silly New Deal government spending.

I prefer buying before the financial instrument goes up in value. If I'm wrong, there is nothing safer than an obligation of the U.S. government.

[turbo6bar]

Originally Posted by pwd72s

Agreed. Think it might be time to short the dollar?

I'd like to, but don't want to lose my shirt. I faded equities and housing, and now is a good time to sit still. Well, I am still buying equipment and hunting for RE deals that increase productivity and cash flow. The economy might go to heck, but it doesn't mean one cannot survive and perhaps even prosper.