Randy_H's Discussions

Fed rates are not historically very well correlated with housing market metrics. For the best example of this look at the period from about 1973 through 1986. When rates were ludicrously high, like 16-18%, home prices went *up* because general inflation was going up, including salaries.Housing activity does correlate well to wages. During this bubble the new variable was free-money-liar-loans.

>>and if so, how do you justify buying a lower priced home while paying a higher interest rate?<<Simple justification, for California at least:Prop 13Interest rates will go up, they will go down, then back up, then back down. I can refinance.Taxable base will *NEVER* go down. Paying $2,300 per month taxes versus $1,500 per month taxes makes for a lot more $$$ that can go into the mortgage payment.

PacitaThanks for enlightening me. I guess I'm neither "serious" nor "savvy". The fact I've owned homes for years in the Bay Area is entirely irrelevant. "Good deals" are to be found everywhere, and "we should jump on them".Here's a novel idea. As a realtor -- who makes money on commissions produced by transactions, not on prices of homes that don't sell -- why not go convince sellers to ... wait for it ... "lower their prices". You'll make more money, unenlightened, no savvy meanies like me will buy, and the seller might even get out from under their suicide loan without being foreclosed. It's a win/win/win I tells ya.

>>A good economy and low interest rates.That and in the areas that are now down, a buyer's frenzy. Anytime you have things going up double digit for more than three years you're risking a downturn. But compare where you are after the downturn to where you began, and in most cases you'll still be up. The real question is where you'll go next. The answer to that is not that obvious.<<Buyer's frenzy, yes. A good economy and low interest rates, no. a) Interest rates do not correlate well to house prices, despite what gets repeated over and over. In fact, one of the larger run ups in prices occurred in the 1970s during a time when interest rates were 16-18%. Prices went up because general inflation was high, including wage inflation.b) A generally good economy would fundamentally support real estate appreciation only at inflation + ( population growth - capital stock creation ) + 1%. Make that 2.5% on the coasts, and then only during the last 35 years.Stupid borrowing yes. Lending practices not changing much over the years, no. Lending practices have changed tremendously over the years.a) There was no MBS or CDO market prior to the mid/late 1990s.b) There were few hedge funds to buy such instruments before the early 2000s.c) The US current account balance and shift in global capital flows changed massively over the past 10 years causing a fundamental shift in the demand for US paper, which has been increasingly fulfilled with MBS paper.d) Perhaps most importantly, progressive banking deregulation permitted the rise of non-bank originators and bank-sourced repackaging.e) All the above produced unprecedented demand for mortgages at practically any cost of risk. This in turn resulted in widespread Alt-A abuse and irresponsible subprime underwriting. Very little of that existed prior to the bubble, and where it did exist it was considered criminal exception, not generally accepted rule.

DanielThe problem with that analysis is that, at 4x earnings, you're talking about the better part of a $250,000/year family income to get into a starter home. $1,000,000 condos or 2BR ranchers are not uncommon in the Bay Area. That was my point about our old, first starter home. Ten years ago that house was $350K, in a bad school district, non-prime city, which was high but was about 3.5x a reasonable income for a late 20s 2-income couple.That house sold last year for the better part of $1,200,000. But the neighborhood is still mostly first-time buyers. Did I fall asleep and now everyone is making $150K/year salaries straight out of school? Unless these folks are all being omitted from median salary data, these houses are *massively* overpriced.That's the real problem. I _know_ we can afford much more than current prices suggest. It's just that all the houses that _should_ be in our range are being camped in by 15x f'd buyers with suicide loans. Or they are those f'd buyers' neighbors and now they think they can get 125% more for their houses too.Problem is the market is now out of buyer liars and buyer fools.

Lisa "I Sell Homes"One question for you: Do prices ever go down?With 2 years in the industry perhaps you're not familiar with the notion of real estate cycles.And I hate to do this, but what they taught you in realtornomics class was just silly. The *definition* of price is what is paid for a transaction _when the market is made_. What did they teach you a "market" is, anyway?

I apologize for the off topic comments I've left. I have been honestly unclear as to whether the format of these forums is meant to be more blog-like, or more self-moderated topic driven. Since anyone can start a thread, but they are unmoderated, it appears to be a bad mesh of both.

I am dismayed that both the doomsters and the NAR cheerleaders seem to agree that the Fed is some evil cabal which causes us neverending suffering.I hear a theme that either the Fed should be (a) put under political control or directly elected, so we can vote them out, or (b) be abolished.Let me clarify the immediate and absolute effect of either of those proposals:a) Imagine the politician you hate the worse, whomever he or she is. Now imagine them holding a giant lever in their hand, labeled "UP = Less Votes / Down = More Votes". Never mind the small print below down, which reads "rampant inflation".b) Imagine we give that giant lever to China and anyone else who does have a big Central Bank and a currency policy.We have a central banking function because at least one other country in the world will always have one too. It's simple game theory. Didn't you guys watch the original Star Trek or Twilight Zones as kids? Sheesh.

It's not simply supply and demand. Saying that implies that the real estate market is a perfectly-competitive market, with no frictions, perfect information symmetry, and that all houses are pure commodities.Housing market economics is a wildly complex subject which many academics and industry economics have studied very intensely, including huge aspects of behavioral economics. But the Econ 100 S&D curves really don't tell you anything about pricing in real estate markets.

LOL at the goldbug "gold backed currency" arguments. I've yet to meet anyone who promotes that theory who really understands how the gold standard worked, or how it was and wasn't different from fiat. Hint: gold standards suffered from terrible, uncontrollable inflation cycles, and they were regularly and quite nefariously debased by both domestic and international forces.Why do you care if other countries have central banks? Does the US trade with anyone else? You see, if you give China that big lever then they get to export their inflation to us whenever they want. As it stands now, we're getting a free ride by exporting our inflation to China and the Middle East (petrodollars). I guess the real question is, are you willing to give away about 28% of your standard of living? If so, then you can have your wish.