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Suzanne

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Reply with quote  #1 

Hi all,

 

What is the opinion of this board about the next Fed meeting?  Do you anticipate a "let's coast-keep the rates the same" OR a rate reduction?  Is there even a chance for a rate reduction?

 

Suzanne

Kang

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Reply with quote  #2 

Last I read, mortgage rates were ticking downward. The Fed will once again look at how the economy has responded so far to all of the increases. It takes a while before you actually see the results. My guess-no increase. Of course there is a thousand variables that could blow my guess to pieces.

rog56

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Reply with quote  #3 
Or a rate rise.

Whichever way, it seems unlikely that the collapse of the RE market will be halted. Price declines could be occurring for years after rates are cut.

Subcranium

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Reply with quote  #4 
It's a tough one. With housing and the economy slowing, the Fed will lean toward easing. Bad inflation news could take precedent, though. Better a recession than inflation.

We're just amateurs in this rate game. The best place to look for the odds is in the bond market spread. Those guys are playing the betting game with big money, and are likely to call it right, given the information available at the time.

niravmd

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depends on whether the FEDs will confess there's inflation and have the courage to fight it, or will they keep on lying about it and whimp out.

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hessj

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Dollar will tank if he lowers he will pause. If they lower rates I'll pull CD's into forein bills.

HiddenMarket

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Reply with quote  #7 

It seems likely that the steady stream of rate hikes is over. 

 

Good news for those that have financed with ARMs.


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steveM

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The real story is that we have no idea, right.  BB was supposed to be more open than Greenspan, wasn't he?

 

I bet BB already knows which way he is going to go, as do the rest of the voters.  Why keep everyone in the dark?   Why not some clear guidance and clear wording?   At the very least they could say "at the moment we are leaning this way....."   Instead more Greenspan code and code deciphering. 

 

So he is waiting for numbers on the economy to come in?  What numbers???? Numbers his underlings will produce or at least skew whatever way they want.   Lying about inflation for soooo long, losing the M3, credibility is lost.  And what is BB's real stance on keeping the $ from falling farther?

 

Chaos as a form of control?   If we had a good idea which way things were going to go we could invest intelligently and that would be bad I guess?

 

If homeowners had a good idea which way things were going to go they could make an intelligent decision on whether to Refi that ARM now or wait.   Instead the Fed may monkey around until prices drop so much people can no longer Refi without bringing big $$$ to closing?  Thanks Ben. 

Subcranium

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Reply with quote  #9 
>>I bet BB already knows which way he is going to go, as do the rest of the voters.

I bet he doesn't. He's said a thousand times that he's "data dependent." The fed votes on what to do based on the data they have up to that point. Of course, the data includes both forward-looking and backward-looking measures, so you have to decide what to believe at the time. And everything the fed does takes lots of time to work through the system. I don't think they paused because they thought it was really time to pause. I think they paused because they want to see what effect all the lifting has done.

I don't understand all the fuss. I think the real story is that people want a crystal ball. No one has one, even the fed.
Subcranium

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Reply with quote  #10 
From a Bloomberg story today:

>> Odds of an 18th increase in the Fed's rate target for overnight loans between banks, to 5.5 percent, by year-end are 43 percent, the December fed funds futures contract shows.

In my opinion, that 43% is what this topic is about. Everything else is blah blah blah.
mike

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Reply with quote  #11 
Quote:
Originally Posted by Suzanne

Hi all,

 

What is the opinion of this board about the next Fed meeting?  Do you anticipate a "let's coast-keep the rates the same" OR a rate reduction?  Is there even a chance for a rate reduction?

 

Suzanne

Personally, i see him holding rates until early next year when the data will indicate a recession. At that point he may drop them a bit. What the market will do, bond market, mortgage lenders, etc to rates we can't say.

 

My gut tells me that if the data starts looking really bad before next year the fed will still try to just hold rates and not cut too soon. At a minimum i think they will try to save face and not admit they have gone too far.

 

So the crux of this question is what type of financing should i use? I prefer fixed as i know what my costs will be in the future. If i pay more vs variable financing i accept it as an "insurance" cost. That said there are lot's of reasons to think rates will stay very low. What would drive them to 12%? So it might make sense to use variable rate financing in your case if you can handle the potential pitfalls.

Mike

 

 



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Reply with quote  #12 

100%. pls keep this reply handy for comment in 7/2007.  There is no way the Fed will be blind to all the ARM resets or ignore pressure from the MBS market on Wall Street.

 

"small bubble in Tampa"

 

IMO

steveM

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Subcranium

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Reply with quote  #14 
Well then it's obvious. No hike at the next, but a hike after that. To be followed by a drop in December.

If they really do all that, BB is a wild and crazy guy!

Suzanne

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Reply with quote  #15 

This is a brillian team on this site.  I love it!!

 

Question:  How does the bond market, rate hikes and real estate relate to each other?  I hope this question doesn't seem silly to you guys but I remember Bruce Norris saying something about the bond market a few years ago at one of our meetings and I've been fascinated by that ever since.  Any definitions or explanations?

 

Suzanne

Subcranium

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Reply with quote  #16 
The bond market is where the future is played out in the most straightforward way. You can buy government paper that comes due at different times in the future. So the spread between two different maturations tells what traders are willing to bet on. That's the yield curve you hear so much about.

Also interesting are the spreads between treasuries and TIPS (the tips are inflation adjusted, so you can see what people think inflation will be).

Inflation and interest rates are two different things, but if inflation accelerates, the Fed will raise interest rates until inflation is killed. Note that everyone is talking about how a slowing economy will make the Fed ease, but that's still dependent on inflation being tame.

The predictions made aren't guaranteed to come true, of course. But it's the market's best guess based on current info. That's why people watch the bond market immediately after data comes out, or after the Fed makes a statement.

Real estate is affected because the house that a given person can afford depends on interest rates. If I want to buy a house and rates go up, all of the sudden I can only afford a $400,000 house and I can't buy your $450,000 house like I could before. So you have less demand and pricing power for the house because your pool of potential buyers became smaller.

When rates go up, house prices should come down. Hasn't been happening lately, and that's one reason we have affordability problems now. And tons and tons of houses on the market.

Suzanne

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Reply with quote  #17 

Thank you Subcranium!

 

So I assume then that an investor making offers on an investment property would have to take into consideration the following:  A higher interest rate, the carrying costs, rehab costs, longer market time, and a selling price below a gestimate of what the comps will be at some time in the future-say 2-6 months from purchase date.  No wonder people are willing to pay birddogs for true leads on a good deal! 

 

Suzanne

Subcranium

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Reply with quote  #18 
I don't think many people are playing the flip game anymore. And income is a lot more picked-over now than usual.

It's just a bad time to start. But the trick is knowing when to jump in. I'm not willing to jump back in until inventory is cleared. Even then I may wait until casual investors have been ground down and spit out.
dansimo

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Reply with quote  #19 
I keep recalling what I thought I heard Bruce Norris say at a meeting last year...that "interest rates don't dictate, or are not an indicator of pricing trends"
(I put quotes merely to discern what I remember him saying)

that's stuck with me and I've always thought about that every time we talk about interest rates and their effect on housing.

It seems odd, and I remember not understading his point then...but that's how I remember it.

Anybody else know what I'm talking about???


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Suzanne

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Reply with quote  #20 

Dansimo, I have the same memory of a Bruce Norris talk.  I wish I could get a recording/video of that because I remember him talking about the bond market, interest rates, and base closures which caused the last market "crash" in CA.  I've been trying to understand that - particularly in light of the current market changes.  Subcranium-again thank you for your response to questions re: the bond market!  It's getting a little clearer...It's all very complicated so I'm trying to keep it simple.

 

Subcranium, I come across really trashed properties.  Some that have gone to auction with a very low start price and no one bought-thus they are sitting on the books!  Couldn't these properties be worthwhile now-in this market-

if one gets a great price for it-from the bank, etc..?Suzanne

biophase

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Reply with quote  #21 
Quote:
Originally Posted by Suzanne

 

Subcranium, I come across really trashed properties.  Some that have gone to auction with a very low start price and no one bought-thus they are sitting on the books!  Couldn't these properties be worthwhile now-in this market-

if one gets a great price for it-from the bank, etc..?Suzanne

If you can get these properties at a great price, fix them up (cheaply) and rent them out and still cashflow they could be worth looking at.  Also, after you fix them up hopefully you are still under 75% FMV.

mike

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Reply with quote  #22 

Quote:
Originally Posted by dansimo
I keep recalling what I thought I heard Bruce Norris say at a meeting last year...that "interest rates don't dictate, or are not an indicator of pricing trends"
(I put quotes merely to discern what I remember him saying)

that's stuck with me and I've always thought about that every time we talk about interest rates and their effect on housing.

It seems odd, and I remember not understading his point then...but that's how I remember it.

Anybody else know what I'm talking about???

Robert Campbell talked about this in his book as well. He has 5 indicators i believe and only 1 is interest rates. I believe he noted it's the weakest indicator, but can add fire to the flames or grease to the skids. In his book i believe he had examples of RE booms during high and/or rising interest rates.

 

So although rates directly effect affordibility, rates don't necessarily effect the local factors driving demand, which is really what drives prices. So for example if i am moving to an area that has good job growth, but interest rates are high and rising, the interest rates may have no effect on my decision if i can still afford the house. Rates only appear to have an effect when you are on the edge aka you absolutely can't pay more...

 

Mike

 

dansimo

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Reply with quote  #23 
Thanks Mike...


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