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Opinion on National Debt and Home values and Mortgage Rates

Opinions? thx.

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March 09 2011 - Chandler
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Answers (10)

SnowDesert,

As long as the Treasury continues to print money to pay for the increasing debt, they will drive mortgage rates higher.  As for home values, they will remain flat until we can work though the foreclosures.  After that, home values will begin to rise, but how fast depends on mortgage rates, health of the economy and government policys on lending. 

Right now, government has not done anything that actually helped housing so it's going to take another year or two to work ourselves out of this mess. 

If we're lucky, governement will tie itself up in knots trying to fix the problem.  I think that's the best possible outcome.  Just keep Government out of the way and the system will eventually fix itself.
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March 15 2011
Please keep in mind, that is all this is, a collection of opinion's from various people.  Opinions, like a person's favorite color tend to vary.

I think now is a good time for first time home buyers or anyone looking to buy their primary residence, I am holding off on buying any as an investment only.  I do think there is a lot of inventory and rates are still "good", in a couple of years will not be surprised at all if rates are in the 6's or 7's.

It is a lot like trying to "catch a falling knife" with stocks (buying at the 52 week low).  It is easy to look backwards in hindsight and say I should have bought here or sold there.  I advise my clients to look at their own financial situation, tax advantages of home ownership, to speak with a CPA, lender, and even a financial consultant to help them determine if now is a "good time for them to buy".
Best of luck.
Spirit
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March 10 2011
The indicators I see from financial advisers is that interest rates will and inflation will start going up to compensate for the monumental debt which will push up home prices and rental prices.  Get ready for the ride!
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March 10 2011
If I had 30 pages in which to respond, there would still not be enough room or time in which to detail all of the possible scenarios.
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March 09 2011
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How will the debt affect rental prices?  

What affects rental prices are incomes and expenses. Rent is based on what can really be afforded to spend each month. You can not finance your rental costs.

If prices of food and energy get to high it is possible rents might have to decrease as people can not afford to pay that much any longer. It is hard to say. Rental prices could go up, go down, or stay the same.



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March 09 2011
rates obviously will go up.. they HAVE to go up.. for things to stabilize.. artificially low interest rates do a lot of harm

debt will go up HIGHER.. we all know that :) .. no crystal ball needed for that one.. in the time it took for me to write this.. it already went up by quite a lot.. probably my yearly income!

right now 25% of the homes are underwater.. it will not be drastic to expect 30-40% of the homes being underwater before things get better.
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March 09 2011
Dear Snow:

Let me plug in my crystal ball. While it is warming up....If anyone tells you they know the answers to these questions. My crystal ball has told me in the past that they do not know.

Of course, since you did not put a time frame on your question (1 year, 5 years or 10 years) the answer is easier.

The National Debt will continue to go up in the near future.

Home mortgage rates are so low now, they will be going up.

Home values will go up after remaining flat for a while yet. Major real estate cycles historically take 10 years to play out.

Jeff Masich
Arizona Homes and Land
HomeSmart
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March 09 2011
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The house I'm purchasing will be rented out, and I'm financing w/ a 15 yr conventional loan w/ 25% down. How will the debt affect rental prices?  
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March 09 2011
If Fannie and Freddie are abandoned/dismantled rates will go up.  Currently lenders are able to provide rates through fannie mae and freddie mac that have guarantees.  These guarantees effectively limit risk for the lenders.  The treasury dept and other branches of govt have discussed winding down Fannie Mae and Freddie Mac in favor of private lending.  If this is the case than interest rates will ultimately rise. 

Regarding home values, many areas are still depreciating/under performing while select pockets are actually improving.  Whether home values will decline or increase is more a matter of circumstance based on a myriad of factors that include, neighborhood, school district, general economic strength of an area, unemployment, condition of home etc. etc.

I do believe that housing may continue to decline over vast portions of the country.  There are many factors at work that are dragging home prices down; unemployment, short sales, foreclosures, shadow inventory etc. etc.

All things being considered it is still a great time to purchase a home.  Rates are still very low, real estate in most areas has already seen the vast majority of declines and if you plan on staying in the home for an extended period of time it is still a great place to invest your money. 

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March 09 2011
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This is tricky. It all depends on what happens next. Is the national debt going to be given a new higher limit or not? Even if a higher debt limit is agreed to will investors keep buying us treasuries?

The federal reserve keeps creating more money with nothing behind it. That is devaluing the money we now have. Not could, not might, it is happening. Look at commodity prices. They are going up. Why? The dollar is worth less. Oil is increasing due in part to a less valuable currency called the dollar.

The federal reserve can not print extra money forever with no consequences. We WILL have major inflation in the future. When incomes do not rise much if at all and all costs go up the prices for things like houses will drop.

Just going from 5% to 7% will take away 23.7% of buying power. That turns a $200k 5% monthly payment into about a $153k 7% monthly payment. Yet what leaves your wallet is the same for each payment.

That means buy now before interest rates rise right? Wrong! It means that prices must fall as interest rates rise. Buying with higher interest rates at the same monthly payment is much safer long term. If you need to sell you lose less money.

This shows the impact of interest rates on affordability. Expect house prices to reflect the ability of people to pay for a house.
"Do low interest rates really make it a good time to buy a house?"

I expect interest rates to rise very quickly when inflation hits hard. That is the only solution for the problem. Even if the federal; reserve does not raise interest rates quickly on bank accounts expect mortgage rates to quickly rise. If interest rates do not also go up to combat inflation the economy and currency could end up looking like Zimbabwe.
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March 09 2011
 
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