Wednesday, June 19, 2013

The wheels are coming off this bus.

Today's Fed comments were amusing at best. Said in the most sarcastic way. I am not an economist. I look at the market from a consumers standpoint. Mostly when I try to figure out the Fed, I try to figure out what I think it will do - then I try to figure out what consumers will do.

If the Feds goal is to juice housing (which it is!) then, it's encountered a fairly sheer cliff. I say this because I have two houses. One in the jumbo market, one non jumbo. I bought my non jumbo late in 2007, and the jumbo in 2006ish. There are probably very few people outside of real estate professionals who watch the market like I do. It's been a painful few years.

Everything that is viable in the non jumbo market is gone. There is no inventory. There really isn't any inventory in the jumbo market either because if you bought a house before 2006, you are still trapped. Even if you stuck 20% down like I did. Which, judging by the housing crash, that wasn't very common back then. Now maybe you have short saled out, or even jingle mailed your house back to the bank. But there are a lot of people who stuck it out. Every painful moment. I bought my primary right as the market started to turn. So I didn't buy at the top. Though somewhat close to it. This gives me a rough idea of how much further prices have to rise to give relief to those people. It would have to be another 10% at least for people to just break even. This kind of economy can't produce that. At least I'd be very surprised.

I also kinda have an idea of interest rates for the whole recession, and slightly before. I'm still paying 6% interest. It might be 6.25. I know people who are still paying more than I am in interest who bought more towards the top. Now that rates are back up to 4% it really clothes lines the refi sector. By 2007 rates were starting to fall. Anything bought after that has a pretty low interest rate, or one that it doesn't make enough sense to redo. Anything before 2006, and you aren't eligible to refi most likely. Did I mention there is practically no first time home buyer inventory? That is what non jumbo market is.

So... what is a Fed to do? Claim victory and call it a day? You see the market! Right? Housing is fixed. No inventory! You see... right?

Well, except the adjustable rate mortgage problems from 2005 are not behind us. I've got a reset in 2016. I figured there is nothing that can happen in the world that wont be sorted in 10 years. Which is how long I will have owned this house. I am probably some of the last who still have those mortgages. In theory, those people just might say eff it. Although, if they've stuck it out this far, it's less likely. Some of them are really tired though. People have to live somewhere. And they've got a lot invested at this point.

So, to tell you the truth - I don't know how this will sort itself out. It's a little cramped in that box filled with printed money. I expect printing to go on and on and on. Lastly, I should mention mortgage rates again. It only took a couple point rise to get people to start defaulting on their houses. Rates are already up a full point since January. I've blogged about this many times. I estimate rates can only rise maybe a point higher before we are in a huge danger zone. We might already be there now. The economy isn't as strong as it once was. Perhaps it won't hit housing the same way, but people have a lot of debt in other areas and those rates will start killing them.

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