Low rates forever

Looks like the US fed isn’t very optimistic about the recovery. They say Japan style interest rates until 2014. Will this help a US house price recovery, or will buyers wait if they know there’s no rush for bargain rates?

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Makaya
Member
Makaya

"Will this help a US house price recovery"

Did it help in Japan?

Noname
Guest
Noname

@Makaya: It sure helped Japanese property buyers who waited. They we're able to scoop up property at half price at rock bottom rates.

WS
Guest
WS

Potential buyer here, living in Orange County. Simple answer…I wait.

They have slowed the bleed with the artificially low interest rates, but prices are still dropping 4-8% a year. It just a way for the insolvent banks to earn there way out of it. I'll wait as long as I can convince my wife – maybe another 18months to 3 years. Hopefully till this slow bleed flattens out.

There is just way too much supply hanging out there with distressed inventory.

I'd like to buy when people around here can barely say the word "real estate" without spitting. We are getting closer.

See your future Canada.

patriotz
Member

"Will this help a US house price recovery"

"Recovery" is really the wrong word as it implies that US house prices are currently too low. In fact the US average price is still well above historical norms. So the correct question is will it reinflate the bubble.

The answer is no for a number of reasons. Uncertainty about employment, household debt, many more foreclosures in the pipeline, and continuing new supply.

jesse
Member

"Will this help a US house price recovery"

Better question: will this help absorb inventory overhang and increase new construction project starts? That's the stat to watch for an indication when the Fed starts closing the tap. Right now, based on the US's employment trajectory, 2014 is about right.

http://www.calculatedriskblog.com/2012/01/decembe

The second graph shows how sluggish employment growth has been. But it is growing, as is the population. Comparisons to Japan aren't exactly 1:1.

WFT?
Guest
WFT?

Boomers are driving virtually all of the increase in Canadian household debt. That's scarry.

But they probably know that younger taxpayers will be forced to foot the bill for their irresponsibiliy in the form of higher CPP premiums and possibly new government programs so that Boomers can have their inflated houses and eat their children too (by having them pay for the retirement and healthcare that Boomers failed to save up for.)

http://www.theglobeandmail.com/report-on-business

Best place on meth
Member
Best place on meth

Why did the Fed feel the need to extend ZIRP to the end of 2014 now when they had already committed to 2 more years of it just recently?

Because they saw this:

http://news.yahoo.com/home-purchases-fall-2011-wo

Patiently Waiting
Member
Patiently Waiting
Extremely bad news for our economy. The minority who've taken on the most debt are about to hit the wall financially. No way are those with more sane borrowing habits going to pick up the slack. Less spending across the board. http://www.cbc.ca/news/business/story/2012/01/26/… "a third of families that have debt now hold 73 per cent of all household debt in Canada." … "It's not only the amount of debt Canadians are carrying, but how many are getting close to the limit of their borrowing capacity," said Shenfeld. "It would have been nice to have found that the rise in debt was coming from those with a lot of room to borrow, but instead what we see is those with a lot of debt are piling on more." "The debt-to-gross income ratio of those most indebted families is 160 per cent. The… Read more »
mac
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mac

@WS:

Are you saying that Orange County prices haven't come down that much? What neighbourhood are you looking in? What or who is keeping prices up if you don't mind me asking.

paradox
Guest
paradox

I cant resist sharing the good news here…

Finally, after years of waiting for some sanity and affordability to no avail, I am moving next month to California.

Got the E2 visa today.

I never thought it will come to this, but I see no opportunity here other than selling real estate to rich Chinese.

I am confident fundamentals will eventually prevail, but I cannot live on the expectative for ever.

I mostly agree with the bear argument, yet the reality is that for the last 10 years it has been so wrong. Ant that is a very long time.

I only hope bears will eventually be right for the sake of the new generations. I am out of here. Good luck

trash crash alert
Guest
trash crash alert

The real estate market is imploding and the recent stats confirm this for 99.9% of the market except that super high end including that purchase on Belmont which will help to disguise the damage in the short-term. But the crashing wave is too big to stop now, implosion will surprise everyone – the funny thing is, the majority are not aware of this until it is too late.

And all what will be left with is a bunch of cheaply built cardboard houses – the crash will be bad for government revenues. The artificial money wealth machine gig is up just like what happened in the U.S.

NDP will win next election and Chinese investors take their money back home. And LOW rates won't stop this puppy from crashing.

WS
Guest
WS
@Mac Orange County has dropped about 35% from the peak. SFH median for all of OC is now at about 450K. Dropped ~8% in 2011. Poorer inland areas have dropped 40-50% from peak, wealthier coastal areas maybe about 25% from peak. I think we are getting closer to a bottom, but still have a ways to go in certain slowing moving inventory areas. (i.e coastal). The price/rent ratios are normalizing as rents have been on the rise (because so many have lost their homes). You are starting to see cash flow positive houses in some areas. However there is still loads of foreclosures being sat on by banks (huge shadow inventory), the delinquency rate is way too high and demand is not there for many reasons (still record low sales volume). If you are interested in Orange County this blog… Read more »
Patiently Waiting
Member
Patiently Waiting

@paradox: Congrats. Its the next ten years you need to worry about, if the bears are right. We are at the beginning of a "lost decade" in Vancouver. I wish I could leave with greater ease right now.

WS
Guest
WS
@Mac Sorry – you asked what has held up prices in Orange county. It is just not a free market. 1. Artificially low interest rates 2. Insolvent banks not wanting to foreclose (mark to market) especially in high price area. Avg foreclosure takes almost two years from NOD to auction now. They'll move on foreclosures in LV or Phoenix, but the banks are sitting on their hands in OC and other wealthier areas. Lots of stories of people not making a payment for three plus years and still squatting in the house. 3. Federal government first time home buyer credit programs in 2008/2009 to help prop up the market. 4. Federal government foreclosure prevention programs (HAMP) 5. Federal government took over the lending market. 3% down FHA financing is the norm now. 6. Bank ineptitude. Robo-signing scandals. Not staffed to… Read more »
Patiently Waiting
Member
Patiently Waiting

OMFG five days of free rent. Where do I sign?

http://vancouver.en.craigslist.ca/van/apa/2819506

YLTN @ Work
Guest
YLTN @ Work

@Patiently Waiting: Ha, check out those "newer" kitchen appliances. It looks like they bought the fridge before measuring as there is a big gap beside the stove where the original apartment size fridge used to be, now they have it sitting outside the kitchen against the wall and a big hole where it should be.

This place should rent for $700

Anonymous
Guest
Anonymous

#13,

you got no string attached here, just leave your rich sister, it makes you feel greater ease. join the guy in ottawa.

Guy Smiley
Member
Guy Smiley

Hey WS, can you, or anyone else i suppose, clear up a couple things for me?

When we talk about the oversupply in the states, the shadow inventory, the overhang etc – what % of these are houses empty? Have the banks become landlords in any or many cases (on a typical owner/non-mortgage payment basis i mean)? Or do foreclosed homes just get vacated and put on the market?

Did a great number of people consolidate into fewer homes and up the household density? Or were there a large number of homes unoccupied when the shtf?

patriotz
Member

@paradox:

"I mostly agree with the bear argument, yet the reality is that for the last 10 years it has been so wrong"

The bear argument hasn't been around for 10 years because 10 years ago prices were less than 1/2 of what they are now.

Our argument is based on numbers, not emotion or ideology.

ReadyToPop
Guest
ReadyToPop

 BofA, Citigroup Among Banks Facing Margin Pressure From Fed’s Rate Stance

Ironically, the banks down there are complaining too (I'm sure the tears will be falling around here 🙂 ).

alx
Member
alx
Yesterday I saw this on the most recent Canadian Business cover: "CRASH! Why house prices are about to fall" http://www.canadianbusiness.com/issue/66623–issu… Here is the specific article on it: http://www.canadianbusiness.com/article/65694–pr… I was actually quite surprised when I saw it, thinking "wow has it really made into the mainstream media?" I continued to be in a state of disbelief when I started reading the article because it was surprisingly good. It mentioned the key points of a bubble: How it is driven by psychology, which can turn and work to pop the bubble too. How low interest rates looks like the main culprit that enabled the borrowing binge. How there is no data on foreigner buying, but even if that's the case, it means they will start dumping even faster when prices stop rising. How even if the economy improves, there is little… Read more »
patriotz
Member

@alx:

“As long as you buy with the expectation of having a place to live and not an investment, it might be ok”.

That's a polite way of saying "If you don't care about losing money, go ahead and buy".

rp1
Guest
rp1

#20 @ReadyToPop: People always forget how super low interest rates put immense pressure on profits and incomes. The US is going Japanese, for a little while anyways. Their demographics and immigration policies suggest the long term picture will be different.

That being said, slipping in and out of deflation can raise living standards across the board. It becomes difficult to make money by buying and hoarding. Could North Americans have a few things to learn from Mrs. Watanabe ?

WS
Guest
WS
@Guy Smiley I think official (U.S. Census) national housing vacancy rates are in the 2.5% to 3% range. Up from pre-recession norms of around 1.5% to 2%. However it is very regional getting up to 6-8% in the worst areas – Florida, AZ, NV and the worst California spots. They overbuilt in those areas the most and there was excess supply of unoccupied homes. FL, LV and AZ were driven by speculator dreams. Also many people (young and old) have moved back home with families or doubled up. The banks (or loan servicers)often don't follow through with a foreclosure and leave families in the home to squat for free. Or just as often they foreclose, boot out the family and leave the house empty for months (years) before auctioning it. Corelogic reports there is 1.6 million homes nationally in the… Read more »
Best place on meth
Member
Best place on meth

Look, they're still making more land!

http://www.flickr.com/photos/28634332@N05/5425018

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