WP: Low Mortgage Rates Defy Expectations

[DeepModem Mom]

Low Mortgage Rates Defy Expectations

By Nell Henderson
Washington Post Staff Writer
Thursday, June 2, 2005; D01


Mortgage rates were supposed to be rising by now, helping to gradually cool the nation's red-hot housing market.

The Federal Reserve has been raising short-term interest rates steadily for nearly a year. The economy is growing at a healthy pace. Energy costs are up. If history were a guide, long-term rates would be rising, too.

But they are not. Even Fed Chairman Alan Greenspan has called this a "conundrum."

Defying predictions, U.S. mortgage rates are lower than they were a year ago and are falling. That's a large part of why home sales and prices are at record highs and are fanning worries of a real estate investment bubble....

***

While home buyers cheer the bargain borrowing costs, some economists admit to being puzzled and concerned. If mortgage rates keep sliding, they will pump up any bubble. But if rates snap up suddenly, a bubble could pop, with both prices and investment dropping sharply, hurting many borrowers and investors....


http://www.washingtonpost.com/wp-dyn/content/article/2005/06/01/AR2005060102020_pf.html

[Bush_Eats_Beef]

1. I'd like to see a few of these "investors" ruined...

...the ones that buy multiple houses and "flip" them before they make the first mortgage payment. That's how crazy it is...these bastards make a down payment, sell the house almost immediately, and sometimes walk away with $50 K or more times the number of houses they "flip." That money goes into more houses, more profit, blah blah blah...

Meanwhile, Mr. & Mrs. Johnny Lunchpail just want a home to LIVE IN, so they end up with a tiny $500K "fixer upper" in a crap neighborhood.

Because of these "investors." The ones that lead Bush to say that the economy is "strong, and gettin' STRONGER."

I really, really, really want to see this frigging bubble pop. SOON.

[Rainscents]

2. I'm with you on this one! It will happen, it's matter of when.

[Bryn]

3. Lots in Hot Springs Village, AR were grabbed by greedy investors from CA

My mother lives in Hot Springs Village (gated community) in Arkansas which is approx. 15 miles wide. There were plenty of lots at reasonable prices until that damn "group of investors from California" came there and grabbed those lots and are now trying to re-sell for much much more money which pisses me off because in a few months I am moving up there and would love to buy a lot to build a house up there, but can't for a while, will stay with Mom. I just want to live there...make it my home so it sucks. I hope those investors get ruined also!

[Bush_Eats_Beef]

4. Want to get REALLY angry? Read this Fortune article.

http://www.fortune.com/fortune/investing/articles/0,15114,1061371,00.html

REAL ESTATE FRENZY
Riding the Boom
They snap up real estate, flip it, then chase the next hot market.They’re the new day traders—and they’re dancing on the edge of a volcano.
By Grainger David

Zareh Tahmassebian is on the way to look at two of his houses in Phoenix. He is lost. Most people don’t get lost driving to their own residence, but then, Tahmassebian has never actually been to these particular homes. There are a few reasons for that: (1) He has no intention of ever moving into them, (2) he lives in Las Vegas, not Phoenix, and (3) he owns six other houses—and a half share of seven more—in the greater Phoenix area. "Sometimes it’s hard to keep track," he says.

Tahmassebian, just 22, is a big, affable guy who dresses the way a budding young speculator should: black trousers, a blue-and-white-striped shirt, cuff links, a Cartier watch, black suede loafers, and rimless purple sunglasses. The son of Armenian immigrants, he has spent the past four years in Las Vegas working as a mortgage banker, a job that he says paid him $250,000 in salary and commissions last year. He has taken the day off to fly to Arizona for a "frame inspection." The houses he’s inspecting are somewhere inside the Cholla Ranch development that’s being put up by KB Home, one of the nation’s largest builders. Right now he’s in the general area—cruising southeast down Highway 10 in a white Chrysler 300M rental car—but lacking specifics. "Is that Tempe?" he asks. "I think I have some houses there."

After several uninterrupted miles of cactus, desert, and tumbleweed, it becomes clear that he’s missed the turn, and he exits the freeway while dialing his broker. "Papa John!" Tahmassebian says into his cellphone. "Where are my houses?" To get more help, he dials KB Home on another phone, and soon he has a gleaming silver clamshell at each ear. For a moment the car drifts dangerously across the exit ramp, until I reach over to grab the steering wheel. "It’s okay," Tahmassebian whispers, nodding toward the place where his trousers meet the bottom of the wheel. "This knee can drive."

When we finally arrive at the first construction site, on Paradise Lane, Tahmassebian begins his inspection. "See this wood?" he says, gesturing to the slatted frame of the unfinished house. "This wood made money for me! I don’t own it—but I own the rights. I put a 10% deposit down, I haven’t even made a mortgage payment yet, and it’s already gone up $45,000. What a country!"

[DeepModem Mom]

5. Unbelievable. Thanks for posting, BEB. nt

[Bryn]

13. Like a bandit!

Thanks for the article. I wish there's a law against "investors" like that. More and more "investors" are getting rich by grabbing land, then turn around to sell them for ridiculously high prices that even nice middle class people who just want homes for themselves can't afford. And lots of time, it's very bad for environment. For example, those greedy investors would buy a great nice land then divide them up into small lots and have houses built too close to each other. I hate that and won't buy a house that's too close to other houses!

[DrRang]

7. Same thing's happening on Albuquerque's West Side. n/t

.

[Stuckinthebush]

11. The investors are playing the market

They are taking advantage of the bubble by reselling for a profit. That is part of the American dream, make money by selling assets. I don't feel anger toward the flippers. The majority of them will be fine anyway, even if the bubble bursts. They have taken a load of cash out of the bubble, and even if they are stuck with a dud, their long term profitability will be in the black.

Now, the people that I have issue with are mortgage companies that push foolish loans onto lower income home buyers. The flipper can (and should) take an interest only or ARM loan because she knows that she will be selling in the short term. The long term investor (AKA "Homeowner") will get seriously screwed when and if the bubble bursts. Therefore, I do not hope the bubble bursts but slowly deflates. This way, fewer of the most vulnerable get seriously injured by rapidly increasing ARM payments.

[converted_democrat]

12. That's not a cool thing to say.......

My husband and I used to do this for a living. I used to work 18 hour days fixing up the properties we owned. We got out because we believe the market is going to go south, but wishing bad things on people is just wrong. Do you want to pay my doctor bills? Do you want to pay my mortgage? I agree that there are people out there abusing the system, but wishing bad things on other people has never done anyone any good, and it's tacky. Karma can be a bitch.

[bunny planet]

16. There are millions of other of Mr. and Mrs. Johnny Lunchpail that will go

down with that ship, the investors have probably already safely stashed their profits offshore. It won't affect them, just the 'little people'. Be careful what you wish for, I wouldn't wish that kind of misery on all those families. A slow leak of the bubble will be best, save lots of people from foreclosures and homelessness.

[LibDemAlways]

6. There will always be real estate investors ready to jump in

and make a killing. Back in 1979 I bought a small new condo in Southern Calif. for $34,000. There was an investor in the sales office who bought a block of them - 8 in all - and paid cash. He made out like a bandit, because right after I bought, prices started going up. Within three years I sold for $77,000, which by today's standards is nothing. I doubt the investor held on this long, but if he had, he could now sell those places for over $300,000 each.

[Jamison]

10. Especially nowadays

With the DOW, NASDAQ, & SP 500 just stagnating, a lot more money can be made with real estate investments vs. the markets.

[Tracer]

8. I see the rate rising every single month.

18 months ago, I took out a $10,000 home equity loan for needed repairs and to pay off an 8.75% mortgage.

The rate was a lovely 3.75% ARM. What I missed in the fine print was that the bank could adjust the rate AT ANY TIME, not just once a year.

The bank has raised the rate by .25% just about every other month. It's now 5.75%, which is still quite low by historical standards, but I don't expect the rate to do anything except rise.

I count myself lucky that I am paying this loan off quickly, and am now down to an $1,800 balance.

[DFWdem]

9. The bank isn't responsible for your rate increases

The Federal Reserve is. HELOCs (home equity lines of creit) are tied to the short term fed rate. Your interest rate is determined by taking the prime rate (which is at either 5.75% or 6%, can't remember which at the moment) and adding on your margin. Generally speaking, the better your credit, the lower your margin. It's pretty common for people with good credit to have a margin of about 2.25%. Add this 2.25% margin to the short term interest rate (the one the Fed Reserve decided whether or not to adjust each time it meets) and you get the rate for your HELOC. Essentially, anytime the Fed raises rates, which it has done by .25% each time it has met over the last 12-18 months, your interest rate increases.

Standard mortgage loans, in contrast, are tied to the price of the 10 year Treasury note, so when the Fed increases short term rates it doesn't necessarily correlate into higher mortgage rates.

[David__77]

14. This concerns me.

This does not reflect strength. It's laying the basis for a dangerous speculative trend. The housing market is unsustainable in the long term. People are highly leveraged right now and average household savings are negative and at a historical low.

[stickdog]

15. This is just another symptom of the fact that the productivity gains of

BushCo's "recovery" have not been shared with US workers.

US consumer demand is being kept artificially high because of the re-fi craze. When this bubble bursts, consumer demand will drop and cheap labor conservatives will find they've killed the golden goose for their own shameless short term gains.