Any Educated Guesses to where 30 Year Fixed Mortgage Rates will be in 2009/2010?

Lendingmaestro,



Thanks man... you are one cool dude. Panda is not worrying anymore, He is happy now. LET THE 30 YEAR FIXED MORTGAGE RATES RISE TO 30% BY 2010.



So here is the next million dollar question? Where is the best and safest place to park your down payment CASH from now until 2010?



A) In Gold and Silver?

B) Under your Pillow? <- recommended by flmgrip

C) Money market account at Countrywide Bank (Savings Link) that currently pays 3.75% APY? <-this is where i am currently parked

D) Euros / Yuan / Bitish Pound?

E) Canadian Index Mutual Fund



Good point flmgrip, I didn't think about the tax payments going down with lower home prices due to higher interest rates. The assumption that we can refinance our mortgages in the future when rates are lower could be false. I think mortgages rates from 1970 - 1980 just shot straight up. We may never see 6% mortgage rates in our life time again.
 
Depends on how much money you have. You can buy T-bills and 2 year T-notes. As long as you don't sell prior to maturity, you don't have to worry about reductions in face value. Also pick up some FDIC insured CD's.
 
[quote author="Masterofdamoney" date=1213587852]If are are waiting to buy a home, you actually want a 20% interest rate.



If interest rates were 20%, home prices would HAVE to fall to a level where income could qualify at 20% interest rate.



Therefore you get the home much cheaper (loan amount smaller).



Then, when rates drop again, you can refi, and WALLAH - you have a small loan amount with a low interest rate!</blockquote>


This is what I keep on saying, but no one takes me seriously. Maybe it just sounds too outlandish. And I think most people feel more comfortable following the crowd and doing what the crowd does. Most people will buy when interest rates are low and prices are high. Oh well.


I am starting to believe that most people would rather lose money than make money as long as everybody else is in the same boat. It appears to me that a few areas in Orange County are in the middle of a dead cat bounce. IMO, that is a sign that the next big drop is about to occur and it will be a doozy.
 
[quote author="PANDA" date=1213592907]



So here is the next million dollar question? Where is the best and safest place to park your down payment CASH from now until 2010?



</blockquote>


Anything which does not depend upon faith in the US governement or the Federal Reserve in order to retain value.
 
[quote author="awgee" date=1213599220][quote author="PANDA" date=1213592907]



So here is the next million dollar question? Where is the best and safest place to park your down payment CASH from now until 2010?



</blockquote>


Anything which does not depend upon faith in the US governement or the Federal Reserve in order to retain value.</blockquote>


Awgee,



Can you give me some examples of some assets that i can invest in that is not dependent upon faith in the US government or the Federal Reserve in order to retain value?
 
[quote author="PANDA DREAMING OF IRVINE" date=1213601362][quote author="awgee" date=1213599220][quote author="PANDA" date=1213592907]



So here is the next million dollar question? Where is the best and safest place to park your down payment CASH from now until 2010?



</blockquote>


Anything which does not depend upon faith in the US governement or the Federal Reserve in order to retain value.</blockquote>


Awgee,



Can you give me some examples of some assets that i can invest in that is not dependent upon faith in the US government or the Federal Reserve in order to retain value?</blockquote>
Try European bonds or municipal bonds
 
[quote author="PANDA DREAMING OF IRVINE" date=1213601362][quote author="awgee" date=1213599220][quote author="PANDA" date=1213592907]



So here is the next million dollar question? Where is the best and safest place to park your down payment CASH from now until 2010?



</blockquote>


Anything which does not depend upon faith in the US governement or the Federal Reserve in order to retain value.</blockquote>


Awgee,



Can you give me some examples of some assets that i can invest in that is not dependent upon faith in the US government or the Federal Reserve in order to retain value?</blockquote>


Commodities and precious metals.
 
European bonds are subject to interest rate risk and currency risk.



Muni's are subject to interest rate risk.



Commodities and precious metals are subject to currency risk (which, is kind of a corralary play on interest rates).



If you play this, you need to factor in the cost of the options to hedge your transactions against currency risk. Interest rates go up (and nobody thinks they won't) and it's game over for these.



There is no way the US goes back to the gold standard. Leaving the gold standard didn't cause this market to get overheated. Too much dumb money running around did. It's drying up and the economy will cool accordingly. The world economy cannot continue to accelerate at $130 a barrel oil.
 
Something to remember - high *real* interest rates are the friend of renters and savers. But high interest rates due to *inflation* favor homeowners, or at least homeowners who can take the cash flow hit for a few years while inflation obliterates their mortgage.
 
[quote author="FairEconomist" date=1213660554]Something to remember - high *real* interest rates are the friend of renters and savers. But high interest rates due to *inflation* favor homeowners, or at least homeowners who can take the cash flow hit for a few years while inflation obliterates their mortgage.</blockquote>


It appears you are assuming that residential real estate prices will rise during higher inflation or that wages will rise. I would not assume either.
 
[quote author="awgee" date=1213673305][quote author="FairEconomist" date=1213660554]Something to remember - high *real* interest rates are the friend of renters and savers. But high interest rates due to *inflation* favor homeowners, or at least homeowners who can take the cash flow hit for a few years while inflation obliterates their mortgage.</blockquote>


It appears you are assuming that residential real estate prices will rise during higher inflation or that wages will rise. I would not assume either.</blockquote>


My friend told me that too that real estate prices will rise from high interest rates due to *inflation*, however I don't quite understand the logic behind it. FairEconomist can you explain further on the "WHY?" this will occur?



Panda
 
The year my mom decided to go to real estate full time interest rates shot up to 17%. Inflation was running at 11% though and wages were going up accordingly. Mortgages were very costly, so the financing was the key. A lot of sellers were carrying seconds for buyers.
 
Assuming your debt (mortgage, student loan, etc) is at a fixed rate and payment, inflation will make each payment less burdensome to you. IF your WAGES are increasing. The term inflation is broadly used to mean everything goes up; however many people may be experiencing stagflation. If your wages are not increasing than you won't benefit from pure price inflation.
 
[quote author="FairEconomist" date=1213513093]Don't worry, Panda, if rates rise it will just push prices down further. They're going to rent equivalence.



However, I don't think it's possible for rates to get above 8% or so. If they get to those levels almost everybody with an ARM from the past five years will be driven from their houses by the adjustments. The flood of bankruptcies, foreclosures, and bank failures will in turn drive us into a deep recession, which will kill loan demand and push rates back down.</blockquote>


Exactly! The higher the interest rate, the bigger the drop. Overall it should be break-even. Then the higher the inflation, the more likely you will see your home gain value while your payments are fixed.



I am not sure that higher interest rates (on loans) will be reflected on CDs or savings account. The increase in interest rates is driven by inflation AND margin. Banks have to recover a lot of money and be on the safe side going forward, therefore they will charge a large premium to loan money. Also, the supply of loans should decrease, reducing competition; therefore increase interest rates further.



At the end of the day, this won't help the housing downturn, it will hurt it an accelerate it's descent.
 
So you guys still on board that the bottom median Irvine Home Prices will be at $419,000 by 2010? or do you guys think it will get lower than that when rates shoot upward to 8 - 10% by 2010. I am really interested to see if we will start to see some sweet prices on Villa Rosa and Rosemoor in Woodbury. These homes have had their prices SO firm in the high $900s range, they won't budge. If rates get up to 10% by 2010, where do you guys think the prices of these tracts will be at? I am looking at the 2600 square feet homes. PANDA SHOUTS "LET THE MORTGAGE RATES RISE TO 30%!!!!!!"



I also like the Camelia tracts in Northwood II because it is off Bamboo Street.



Panda
 
If rates get near double digits, I think 419K median is high, I bet it could go lower. Now that's assuming wages don't increases inline with inflation. It's pretty hard for corporations to dole out large COLA adjustments when they are being price squeezed left and right. How many companies do you see giving raises this year because of inflation? Not many and those that do are probably bound by union or some other contract to do so.
 
Inflation has two benefits for homeowners:



First, it eats away their mortgage. Every year they owe less in real terms. Alternatively, it drives up the cost of renting, and thus the value of owning the house.



Second, in an inflationary environment, people want to own inflation-resistant real assets, rather than inflation-vulnerable financial assets, and a house is one of the few real assets readily available to middle-class people.



If real wages plummet, that is bad new for house values. But that's completely orthogonal to inflation. Real wages can plummet or soar in either inflation or deflation.
 
[quote author="FairEconomist" date=1213701640]Inflation has two benefits for homeowners:



First, it eats away their mortgage. Every year they owe less in real terms. Alternatively, it drives up the cost of renting, and thus the value of owning the house.



Second, in an inflationary environment, people want to own inflation-resistant real assets, rather than inflation-vulnerable financial assets, and a house is one of the few real assets readily available to middle-class people.



If real wages plummet, that is bad new for house values. But that's completely orthogonal to inflation. Real wages can plummet or soar in either inflation or deflation.</blockquote>
All of my professors in grad school said the same thing....hard, tangible assets like gold, other metals, and real estate tend to be good inflation hedges. As you stated, if inflation is going up then the present value of your loan amount decreases (assuming your interest rate is fixed). For inflation to keep increasing significantly you also need nominal wages to increase in-line with inflation or else inflation will slow down because there won't be enough money chasing those goods. I hardly doubt that companies will be passing out 5%+ annual increases just because inflation is higher.
 
[quote author="FairEconomist" date=1213701640]Inflation has two benefits for homeowners:



First, it eats away their mortgage. Every year they owe less in real terms. Alternatively, it drives up the cost of renting, and thus the value of owning the house.



Second, in an inflationary environment, people want to own inflation-resistant real assets, rather than inflation-vulnerable financial assets, and a house is one of the few real assets readily available to middle-class people.



If real wages plummet, that is bad new for house values. But that's completely orthogonal to inflation. Real wages can plummet or soar in either inflation or deflation.</blockquote>


That is true in a normal environment. However, this time, homes won't retain their value and will plummet even if inflation is high.



Wages usually follow inflation, but this time around it won't because inflation is caused by higher raw costs not higher demand.
 
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