Good news, bad news

Mortgage applications at all-time low. But lack of demand has driven mortgage rates to an incredibly low level, at least for this writer, whose first mortgage in 1981 was 14.5%, and housing prices are now well below 2005 levels. So cheap mortgages, less expensive houses, it might make sense to buy something. Depending, of course, on how you read the market. I believe we’ll see increased interest rates in the future, but that will probably cause house prices to fall further. So what to do? My suggestion is to find a bargain that you like and buy it now, but stay away from houses priced as though 2007 is returning any time soon.


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10 responses to “Good news, bad news

  1. Anonymous

    Cheap house prices and mortgages won’t really clear the market when most of “homeless” have insecure jobs and can rent

    And the financially secure already live in decent shelter and aren’t interested in corrupting personal balance sheet with depreciating, illiquid assets

  2. HG

    Anon @ 9:09–I think CF’s advice is good, and very moderate. Any renter with positive net worth should consider how close they want to call the bottom of the market. A house has real, unchangeable value; the cash in their pocket has a value that is most directly determined by whether Obama, Congress and Bernanke implement sound economic policies.

  3. atticus

    My sources say residential RE is resetting to about 1999 levels.

    Did you ever see:

    CT is fighting a LT slide.

  4. Retired IB'er

    HG wrote:

    “A house has real, unchangeable value…”

    The ONLY unchangeable value a house has is as shelter: and that costs money to maintain. As to financial value not so much (as the last three years have taught us); and, a house’s value, moreover, is highly correlated to public policy just as the dollars in your pocket.

  5. JoeKnows

    Thanks for the link – interesting article!

  6. HG

    IB’er: A house’s value is subject to public policy, but not as much as the dollars in your pocket, whose value is more volatile. Cash has a lot of virtues but the widespread perception that it has stable value is not one of them. Zimbabweans killed people for land and buildings; not paper money.

  7. Retired IB'er


    What do you think would happen to the value of houses if Congress eliminated the mortgage deduction?

    What do you think would happen to the value of housing stock if the government stopped subsidizing mortgage rates?

    I could go on and talk about levels of employment and other issues that government policies directly impact and which in turn impacts housing, but the point is that assets (and especially houses), at this point in history particularly, are highly impacted by public policy.

  8. HG

    IB’r: I concede that my initial “unchangeable” comment was overstated. Elimination of the mortgage interest deduction would hurt.

    I think your bet on continued deflation has some decent arguments in favor.

    Arguments against: the worst period of deflation in US history lasted only four years (1929-1933) and our recent experience began at least two years ago (July 2008 for CPI, as far back as ’06 for house prices); CPI bottomed around the beginning of ’09; Case-Shiller index bottomed in Aug; employment and incomes are improving, though weakly. I think the best argument against continued deflation is the Fed has said basically that it will print dollars such that home prices cease to fall (# dollars / # homes = prices to some extent).

    My question for you is, what is the price at which one should buy? There are many ways you could express this (price / rent; price per sq ft + land value; a specific % decline from here) but how can someone make a rational decision without having some firm view of price? Otherwise aren’t you just waiting until other people start buying?

  9. Retired IB'er


    The short answer is you should buy when you get tired of renting I suppose. I say this because at the end of the day I personally do not look at my house as an investment. It is, as you pointed out, mostly shelter, though being a reasonable store of value would be nice.

    From a financial perspective, my own view is that prices will continue to decline for the foreseeable future: and even if I’m wrong, I’m very confident they will not be appreciating. Affordability is still way out of whack and until it really returns prices will go down. I do not see how we can have a recovery in housing prices until employment returns in a meaningful way and incomes start to rise in meaningful ways. Add to that the inventory overhang and the potential for increasing mortgage rates and I conclude housing ain’t going anywhere for the foreseeable future.

    Finally, as relates to deflation/inflation debate, how that plays out over time is anybody’s guess. My personal view is that we are currently in the throes of deflation and I do not see that changing in the near term. I do see the potential for inflation intermediate term. That having been said, I think stag-flation could well be what experience, which would be the worst of all worlds: high unemployment, wages not keeping pace, and commodity prices skyrocketing. Housing will likely not do well in that environment.