The future of interest rates

J

Janet_IHB

Guest
<p>I am wondering: what is the consensus on the future of interest rates?</p>

<p>Many people have used the argument that it is better to buy at a lower price with a higher interest rate, than vice-versa.</p>

<p>At what point do you think this formula shifts?</p>

<p>I am deeply suspect of the argument "I can always refinance at a lower rate".</p>

<p>It took 4 decades for interest rates to reach their recent lows. How can anyone think this with any degree of certainty - especially in light of recent developments in the credit markets?</p>

<p>The long-term implications of interest rate differences can be huge.</p>

<p>I am not trying to be a cheerleader for housing, as I know more trouble is coming. </p>

<p>I simply think this is an extraordinarily important factor - and one that could turn out to be a major miscalculation for many.</p>

<p>Where do you think the "sweet spot" will be - between prices and rates?</p>

<p> </p>
 
Janet....I really don't think rates matter as much anymore verses the availability of credit, just my opinion. With so many brokers now only providing conforming loans to the GSE's standards it doesn't matter what the rates are it matters more about how much money you need. As for all the retail banking institutions you have to be like daddy warbanks to qualify for a loan through them.





IMHO, regardless of what the FEDs are going to do with the rates, which will only help the stock market at this time, mortgages are going to be much more difficult to qualify for and qualify for the amount you need outside of the GSE conforming limits.
 
<p>Mino2126,</p>

<p>The stranglehold you are referring to is easing.</p>

<p>The days of easy money are over, but a middle-ground will be found.</p>

<p>That is an argument for lower prices, but does not address the issue of rates.</p>

<p>There is a point where rates are a factor.</p>
 
<p><em>"The stranglehold you are referring to is easing. The days of easy money are over, but a middle-ground will be found."</em></p>

<p>I doubt it. I think the credit crunch has just begun. The yen is at 114.35 and there are no signs that the secondary market is anxious to buy mortgages or MBSs or CDOs.</p>

<p>But, in answer to your other point, I think it best to wait for credit to get even tighter and rates to go higher and then purchase with cash.</p>
 
<p>Wow - you are a good saver / investor! Kudos.</p>

<p> </p>
 
<p>Awgee,</p>

<p>I wasn't saying I think the credit-crunch is over.</p>

<p>It very well may not be - ever.</p>

<p>I am only going on the communications I get from lenders. Even though I am not doing loans, I still recieve updates from a bunch of lenders. Some are doing non-conforming & ALT-A, and have become a little more un-stuck.</p>

<p>Some of the nations largest banks, like Wells Fargo and Washington Mutual are operating under the assumption that a secondary market will return. </p>

<p>Maybe they are wrong. Maybe they are right.</p>
 
Janet....


<em>"The stranglehold you are referring to is easing."





</em>Uh where is their proof of this? Countrywide just announced that 90% of its loan will be conforming to GSE standards along with Indymac and all the other big brokerage firms. WaMu and Wells Fargo might still be doing Alt-A and Subprime but at a very high cost to the borrower and I would probably be right saying that it is a very small portion of their portforlio right now.

<p><em>"The days of easy money are over, but a middle-ground will be found."</em></p>

<p>I agree the days of easy money are over and a middle-ground will eventually be found. However, hedge funds are exploding all over the world and we have just begun with all the resets so more will be coming. With that in mind some of the larger investment brokers like GS, Lehman, JP...etc have not reported the full extent of how this is going to effect their balance sheets. This is key as they are the main players in originating the secondary markets to buy the CDOs, MBS, and all the other junk.</p>

<p>Also, Moody's and the S&P just downgraded about everyone MBS known to man last week that was originated in '06 as junk.


</p>

<p><em>That is an argument for lower prices, but does not address the issue of rates.</em></p>

<p>I personally don't see what a reduction to the FEDs Funds Rate will do. If they cut it is does not solve the underlying problem which is that nobody on the secondary market wants to buy this collateral. If rates are cut it could 1) fuel inflation and 2) will continue to put pressure on the dollar and its value, an agrument that Awgee has made till he is blue in the face. This is why BB has not done anything so far up to this point. He might be academic but he is stock between a rock and a hard place b/c he has preached inflation inflation inflation and cutting rates will not help with inflation.


</p>




<p><em>


</em></p>
 
<p>Mino2126,</p>

<p>IndyMac is selling ALT-A, on forward commitments, to the agencies.</p>

<p>Wells Fargo is making jumbo and ALT-A loans at acceptable rates. See Register article for "proof".</p>

<p>I'm not going to get dragged into a heated debate with you over this. </p>

<p>This entire argument is already completely detached from my original post - which was: the long-term impact of interest rates on homes. Period.</p>

<p> </p>
 
<p>Mino2126,</p>

<p>You are also mistaken about S&P and the extent of the downgrades.</p>

<p>As a percentage, it was very little.</p>
 
<p>I think in a sensible sound financial world it should have a lot to do with housing prices.</p>

<p>Assume I can only afford 2k a month for housing. At 5% I can afford a 400k mortgage and at 8% I can afford a 350k mortgage.</p>

<p>Assume the banks Will only loan me the amount of money that comes to 2k a month because that is what I can afford. Then yes it will effect the housing prices.</p>

<p>That of course is assuming people don't get caught up buying too much house thinking the rates will go down so they can refinance. </p>
 
Janet...I didn't miss your question nor am I trying to get into a heated debate with you. You asked at what point is the sweetspot for rates and prices.





I simply replied that right now it doesn't even matter what the FEDs Fund Rate is nor in the near future...period. It could be a 1.25% or it could be 8.25% and it really will not affect what the underlying flaw is in the system, which is everyone is over-levered b/c of defaults. We have atleast a yr out before we know what the true impact of the subprime and Alt-A collateral debt is going to have on the global banking system.


















 
<p>Mino2126,</p>

<p>Thanks for the link.</p>

<p>That said that Moody's downgraded 76% of MBS pools rated by it, which are backed by subprime, closed-end seconds originated in 2006.</p>

<p>While this is startling, it is important to note that these are subprime second liens.</p>

<p>That is very different than the universe of mortgage-backed securities - which is incredibly large. </p>
 
<p>Janet,</p>

<p>I agree. I have read that also from another poster who had stated that he rather purchase at a lower price with higher rates. Then he can refi later on. But when is "later on". It could be 10 years from now.</p>
 
<p>Just FYI that is only one of the many downgrades by Moodys. They have downgraded subprime first lien pools, alt-a and even some jumbo pools. I don't have the links right now but I can find them later.</p>

<p>I can tell you that a good majority of the 2006 MBS pools are performing like crap. Countrywide in half of their 2006 subprime pools that I looked at nearly 10% is REO, in foreclosure or BK that is $1.67 billion worth of mortgages. If the other half is anything like that half their 2006 subprime pools the total could be over $3 billion.</p>
 
<p>Thanks Graphrix.</p>

<p>Those are huge numbers, but still a small piece of the pie.</p>

<p>I would like to know more - if you find the time. </p>

<p>Of course $3B is a ton of money, but so is what we are spending on these b-s wars.</p>

<p>Personally, I fear religious fanatics and neo-cons much more than MBS defauts.</p>
 
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