Poll: 4.5% Interest Rates for New Purchases:

Please vote in this poll using the sidebar.

4.5% Interest Rates for New Purchases:

  • good idea to rejuvinate the housing market (18%, 28 Votes)
  • bad idea, will make things worse (20%, 32 Votes)
  • won't really change things one way or the other (62%, 97 Votes)

Total Voters: 157


This poll will be active and displayed on the sidebar through 12.20.2008.

0.00 avg. rating (0% score) - 0 votes

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

17 comments:

  1. 1
    The Tim says:

    Sorry this is so late. I was in SF for the weekend and the drive back yesterday didn’t go quite as planned (i.e. – stopped on I-5 south of Salem for over an hour and a half thanks to nitwits that don’t know how to drive in the snow).

  2. 2
    Dave0 says:

    I’d say bad idea because imho this is the effects it will have:
    1) Give less incentive for lenders to lend, since they won’t get as much money in the end, making it even harder to get a loan.
    2) Make those lenders that do lend more likely to end up in bankruptcy since they can’t cover the expenses/risk of loss in the interest rate.
    3) Encourage buyers to buy before they are ready, because they don’t want to miss out on this interest rate, and feel like they can afford more now.

    We need to let the market take it’s course, not try to manipulate it and extend out everything that caused this bubble in the first place.

  3. 3
    WaileaKid says:

    This is already generating some traffic and agents are expecting an upswing come spring: http://www.raincityguide.com/2008/12/15/sunday-night-stats-best-and-worst/

  4. 4
    DavidB says:

    This may not be new news to anyone here but 60 Minutes had a segment on last night that discussed the huge number of Alt-A loans that are due to reset over the next 2 years. They said the number of foreclosures will be increasing and currently 1 in 10 homeowners are already a month or more behind in their mortgage payments.

    I don’t see how lowering the interest rate to 4.5% is going to entice enough buyers to buy in a market that will likely be declining at double digit rates for the next year or more!

  5. 5
    Sniglet says:

    Low interest rates won’t “hurt”, per-se, but they aren’t going to help either. Once deflationary forces build up (which is what is happening right now), people don’t want to borrow money no matter what the interest rate. Who wants to buy a depreciating asset, even if they don’t have to pay ANY interest?

    More importantly, low interest rates are a VERY ominous signal. Rates are low precisely because we are headed into deflation and everyone is rushing to put their money into government backed securities.

    I have a podcast on why low mortgage rates are something to fear at http://msurkan.podbean.com.

  6. 6
    Scotsman says:

    Reset schedules suggest lots of people will be looking for a rate deal in the coming years, but I suspect too many of them will be in negative equity, and thus unable to refinance. Still, the idea looks good/feels good, and may save a very few. But the reality is the world economies are headed over a cliff.

    http://www.sensibletalk.com/images/mortgage-resets.jpg

  7. 7
    Scotsman says:

    Some perspective on the size of the problem. Remember, all this is before unemployment continues to creep up, interest rates increase, etc. Gary Shilling has some numbers:

    “At present around 12 million homeowners, a quarter of those with mortgages, are underwater with their houses worth less than their mortgages. Among those who bought their homes in the past five years, 29% are underwater. If our forecast of a 37% house price fall is reached, about 25 million, or almost half the 51 million with mortgages, will be underwater. Adding in the 24 million who own their houses free and clear, and one-third of the total will be in trouble. The destruction of the American Dream of homeownership for so many people will force a political response, even though the cost of subsidizing their mortgages down to their house values would be about $1 trillion.

  8. 8
    anony says:

    Dave0,
    The government is driving down rates by buying the mortgage backed securities from the banks, therefore the banks will neither be less likely to lend nor more likely to go bankrupt. Of course they aren’t looking good from either standpoint no matter what.

    As to your 3rd point, I think that is the goal. It may be good to halt the price drop in other places where prices have already adjusted and may overcorrect. There maybe more people should buy but are just scared. It will definitely be bad for the Puget Sound though, where homes are still way overvalued, and this will only slow the correction.

  9. 9
    mukoh says:

    How many of the resets however are able to refinance due to the rate/principal reductions at the current low rates? As well as the bailout programs that are in place with banks now? 10-20-30%? The mortgage resets schedule shows loans originated pre-slowdown.

  10. 10
    jonness says:

    “I don’t see how lowering the interest rate to 4.5% is going to entice enough buyers to buy in a market that will likely be declining at double digit rates for the next year or more!”

    I’m interested in people’s thoughts on building. Will it be a good time to take out a loan to build your dream house on property you already own free and clear? Or will deflation drive down the cost of materials and labor such that it will be cheaper to build 2 years from now?

  11. 11
    mukoh says:

    johness,
    Construction costs are down labor wise 20-25% depending on who you ask. Materials even petrol based have come down majorly. There is probably more room though in the coming future.

  12. 12
    what goes up must come down says:

    well as sniglet has been preaching Ben B. is now making moves to stave off deflation.

  13. 13
    Ben says:

    People who think low interest rates will ‘save the housing market’ are the same people who thought that low interest rates are what caused the bubble.

    Crappy lending standards caused the bubble. The low interest rates added a tiny bit of wind to the sails, but the bubble could not have happened on low interest rates alone.

  14. 14
    Plymster says:

    I don’t think the lower rates will do anything positive for the banks’ balance sheets. I don’t think this will entice any new buyers, because banks aren’t going to be lending to mirror foggers.

    Lowering rates will stem the bleeding caused by resets. Those people who were suckered into teasers won’t actually “reset” right now since many rates are based on the 10-year Treasury. For example, a friend bought in 2005 at a rate of 5.375%, and her mortgage resets in 2010 at the 10-year Treasury Note (currently 2.53%) + 2.75%. Her rate just dropped temporarily to 5.28%.

    This won’t drive the housing markets, but it might keep people from abandoning their homes and mortgages.

  15. 15
    mukoh says:

    The profit the the banks make on a spread really is not that effected by the actual rate.
    Example: Borrow at 3.5% lend at 6.5% or Borrow at 1.5% and lend at 4.5%

  16. 16
    Sniglet says:

    as sniglet has been preaching Ben B. is now making moves to stave off deflation.

    Unfortunately, there is nothing the policy makers can do. Japan tried to stoke inflation with super-low interest rates and massive government spending but it didn’t do much good. It is unlikely things will be any different in the US. Just look at how spectacularly unsuccessful all the bail-outs, and easy lending, have been in the last year. And more stimulus will finally do the trick?

    I have some articles on my blog about why deflation can’t be stopped.

    http://www.surkan.com

  17. 17
    Plymster says:

    Just look at how spectacularly unsuccessful all the bail-outs, and easy lending, have been in the last year.

    I don’t know that they’ve been completely unsuccessful. I remember in September and October, people were talking about Mad Max scenarios (and probably still are, just less imminently). Letters of credit weren’t being honored, commercial paper was in dire straits, and the administration was holding the threat of martial law over Congress if they failed to pass the bailout bill. In fact, going back to the bailout bill, you don’t see that kind of terror in Congress now.

    I agree that deflation can’t be stopped, but if the choice is spend or anarchy, the government doesn’t have much choice.

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Please read the rules before posting a comment.