(Rated R): The Fed's housing aim - Mercedes-Benz Forum

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post #1 of 37 (permalink) Old 11-10-2005, 09:30 AM Thread Starter
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(Rated R): The Fed's housing aim

Everyone, Would love to hear some serious comments from you guys. I am in the market for a house and the price are way too high (500K+ for a decent Single Family House). I am waiting for this housing bubble to burst and then make a move.

And, this thread is Rated R for comments from mature members only[;)]
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It looks like the rate hikes are hitting their target. Let's hope the aim stays true.


NEW YORK (CNN/Money) - No Federal Reserve official could ever publicly admit it, though everyone in the financial world seems to believe that it's true: the Fed is going to raise rates until it's taken the heat out of the housing market.

And if it as true as everyone thinks, these tight-lipped Fed folk must be secretly doing a little victory dance behind the thick gray walls of the Board of Governors in Washington.

First we see that home affordability has fallen because home prices are leaping -- what the Fed is
worried about -- and because interest rates are rising -- the Fed's weapon to fight it.

Then we see shares of homebuilding giant Toll Brothers get hammered because they see signs of softening demand in some regions.

The latest tally of mortgage applications form the Mortgage Bankers Association shows a blip up after three weeks of declines, but applications are now down nine percent from last year. In fact the MBA points out in its press release today that mortgage applications last week fell below their 2004 level for the first time in six months.

Anecdotally a friend who is looking to buy an apartment in the NYC area reports that sellers are calling back after three or four weeks to say that they have lowered their asking price. That's something that never would have happened three years ago, this potential homebuyer observes.

So, the fact that the Fed has succeeded in pushing mortgage rates higher is definitely having an effect.

Many have blamed the Fed for, if not a housing bubble, a bubble-like market in many areas, saying that their steep rate cuts after the 2001 recession created a pool of cheap money that poured into housing. And their dogged insistence on raising rates is seen as an attempt to correct that.

How much further do they go? Will they overshoot and really crack the housing market? It is surely a risk they are aware of and one we can only hope they take seriously in the policy decisions ahead.


Thanks, D.
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post #2 of 37 (permalink) Old 11-10-2005, 10:58 AM
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RE: (Rated R): The Fed's housing aim

I'm in the same boat (well sorta). Looking at purchasing first home. Probably going the fixer upper route and then renting after a few years.
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post #3 of 37 (permalink) Old 11-10-2005, 11:37 AM
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RE: (Rated R): The Fed's housing aim

It will never burst. I remember my parents buying a huge house in Lakeview in the late 70's for $24,000, which was considered quite high. They sold it 7 years later for 198K without any significant updating. The market has yet to cease escalating since that time.
Your best bet is to look at soon to be hot neighborhoods. Bucktown and Wicker Park are done and Humboldt Park is almost completely gentrified.
You can still get a semi-decent deal in Uptown if you don't mind the junkies and winos, but one thing is for sure, the sooner the better, if I had purchased all the places I hemmed and hawed and turned down, I'd be laying on a beach in Mexico drinking Margharitas without a salt rim and putting Strychnine in the Guacamole.

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post #4 of 37 (permalink) Old 11-10-2005, 12:41 PM
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RE: (Rated R): The Fed's housing aim

Homes will get cheaper if you can afford to wait awhile.
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post #5 of 37 (permalink) Old 11-10-2005, 12:49 PM
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RE: (Rated R): The Fed's housing aim

Quote:
ThrillKill - 11/10/2005 11:37 AM

Humboldt Park is almost completely gentrified.
Say what? What the hell happened to that candy-ass town since I left? I nearly got my ass handed to me more than once at Humboldt for just being there. This is very disappointing...

"If spending money you don't have is the height of stupidity, borrowing money to give it away is the height of insanity." -- anon
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post #6 of 37 (permalink) Old 11-10-2005, 12:49 PM
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RE: (Rated R): The Fed's housing aim

Quote:
firstmb - 11/10/2005 9:30 AM

Everyone, Would love to hear some serious comments from you guys. I am in the market for a house and the price are way too high (500K+ for a decent Single Family House). I am waiting for this housing bubble to burst and then make a move.
Way too high where?

"If spending money you don't have is the height of stupidity, borrowing money to give it away is the height of insanity." -- anon
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post #7 of 37 (permalink) Old 11-10-2005, 12:57 PM
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RE: (Rated R): The Fed's housing aim

New housing market well have to slow first.
I don't see that happening very soon.
post #8 of 37 (permalink) Old 11-10-2005, 01:05 PM
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RE: (Rated R): The Fed's housing aim

I live in the second most expensive housing market in the US; here prices have just spiraled out of control. And if you don't believe interest rates had anything to do with it, have someone do the mirror-to-the-mouth test on you.

That said, the effect interest rates have on home prices is directly related to supply and demand. Where there's lots of supply, interest rates are almost meaningless to the price of the house. However, where demand outstrips supply, and particularly when people get into bidding wars, the interplay between the limited supply, excessive demand and lowered interest rates results in housing prices that increase almost exponentially. Basically, since the lower interest rate means the same payment can fund a higher cost house, that's what people are willing to pay.

Thus, when interest rates jog up in such markets, the same payment won't afford the higher prices, so the price structure will adjust downward to something approaching the "real" price. Those folks who've only been in a house a couple of years and want to sell will find out that they are upside-down on their homes and will ultimately be trapped for a few years, because even they wouldn't be able to afford their home with the higher interest rate.

I gave up on home ownership when I moved where I am. Partly that's because I want to avoid a commute in horrible traffic and entry-level homes in my area start in the 500K+ range. (Yeah, that's a 2 BR 1 BA home without a garage.)

At any rate, good luck. [:)]
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post #9 of 37 (permalink) Old 11-10-2005, 01:06 PM
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RE: (Rated R): The Fed's housing aim

Quote:
Shane - 11/10/2005 1:41 PM

Homes will get cheaper if you can afford to wait awhile.
You're smoking something that is illegal in most states.

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post #10 of 37 (permalink) Old 11-10-2005, 01:24 PM
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RE: (Rated R): The Fed's housing aim

Well her in California its skyrocketing. Home over here is over half a million and not a great location. We have a home in Houston it it was brand new, 5 BRD 2.5 bath for 180K but we upgraded it to 220K. I was watching the news couple weeks ago and home price are going down. I suggest that it will go down in the next couple of months. I hope it does
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