There are 3 options:

1. Pull the Fed rate subsidy and housing prices WILL fall further, the only question is exactly how high rates will go and exactly how low prices will fall.

2. Keep the Fed rate subsidy program going indefinitely. The price of housing measured in dollars will be higher, but measured in anything else, gold, gallons of gas, gallons of milk, or loaves of bread, it will be lower.

3. Pursue real pro-growth policy that leads to higher wages and allow those higher wages to drive up prices.

One thing the prior decade showed us is that asset appreciation brought about by financial engineering is unsustainable. The supports being offered now are merely financial engineering, be it on a much larger scale than Wall Street.

See his full comment here.

Do you agree that those are the only options? What do you want the Fed to do (or not do)?

Posted by Jamie Smith Hopkins at 3:29 PM | Permalink | Comments (5)
Categories: Comment of the day, Mortgage rates, Mortgages
        

Enter "A Financial Analysis of Consumer Mortgage Decisions," a new report by the Research Institute for Housing America and the Mortgage Bankers Association. It discusses various mortgage choices and when it makes sense to get what, including a refinancing.

The authors' advice: Don't just consider interest rates. Look sharp at the closing costs.

Play around with this "Optimum Mortgage Refinancing Calculator," noted in the report, and you'll see how cosing costs can make a difference.

Say you've got a 6 percent interest rate on a mortgage with a balance of $250,000. You're contemplating a refi into a loan that has a 5.5 percent interest rate and 1 discount point.

If your closing costs add up to $2,200 and you roll that into your new mortgage along with the point, you'll save $137 a month over your old loan.

But what if you have $5,000 in closing costs, at the higher end of what LendingTree says the range can be?

Then your monthly savings are $121. That's $192 less a year than the savings with the cheaper closing costs.

Ah, you say, but a savings is a savings. Who cares about the closing costs if you can roll them into the mortgage amount and still pay $121 less a month?

Because, the authors say, you want to think about the "opportunity cost" of refinancing now only to see rates fall further. If you refinance now, it might not be in your best interest to refinance later as well.

"If closing costs are significant, say 3 percent of the remaining principal, and you refinance every time there is a 50 basis point drop in rates, you may never fully recover the cumulative closing expense incurred," they write. (And meanwhile your principal keeps growing. That's why the "serial refinancing" encouraged by some -- ah -- "helpful" folks in the mortgage industry isn't a good idea for a typical borrower.)

The mortgage calculator I linked to above attempts to take all this into account and tell you whether -- given your potential interest rate and costs -- it's a great, OK or bad idea to refinance. Its opinion on the refi opportunity with $5,000 in closing costs: Pass. It dubs the one with $2,200 in closing costs "OK, But Not Optimal." (What would be optimal in this case? Closing costs under $1,250. Or $2,200 in closing costs with a 5.4 percent interest rate rather than 5.5 percent.)

The authors dub this "refinancing efficiency."

What do you think of this way of looking at refinancing options?

And something to consider in today's environment: Does it make sense to hold off refinancing on the chance that rates could go lower when the prevailing expectation is for increases?

Posted by Jamie Smith Hopkins at 8:39 AM | Permalink | Comments (1)
Categories: Mortgage rates, Mortgages
        

In a press release today, the trade group points to several factors, including the fast-growing federal debt and the expectation that the Federal Reserve will eventually have to "withdraw the substantial liquidity it has injected into the financial markets to keep a lid on expected inflation." That substantial liquidity has helped keep rates low-low-low, so when it's gone, rates will probably go up, the mortgage bankers say.

The group notes, though, that some believe "continued anemic growth and high unemployment will combine to hold down inflation and the demand for debt" -- keeping interest rates more or less where they are. So if you're trying to decide when to get a mortgage, you might want to invest in a crystal ball.

The mortgage bankers group also said it expects people will get fewer mortgages this year than it anticipated in the spring. Its new forecast is for $2.03 trillion in new home loans, down more than $700 billion from what it forecast in March. Why? Buyers getting smaller mortgages because homes are cheaper, investors snapping up properties with cash, fewer people refinancing and "very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program."

Posted by Jamie Smith Hopkins at 10:39 PM | Permalink | Comments (11)
Categories: Mortgage rates
        

That's because mortgage rates are below 5 percent for 30-year fixed products. Freddie Mac, releasing its weekly survey Thursday, said it was 4.78 percent -- the lowest since it started tracking the figure in the spring of 1971.

You know, this is exactly the sort of situation that cries out for a graph.

Here you go:

The higher line is the annual average; the lower one is points. There's no 1971 (only a partial year of data from Freddie Mac) and no annual average to be had for '09 yet, obviously. But you can imagine the line dropping from '08.

I included points because they've ranged a lot over the years -- from more than 2 percent to less than half a percent.

I updated the graph above on 4/6 to show the rate and points separately -- which I should have done from the beginning. Desk, meet head.

Posted by Jamie Smith Hopkins at 8:11 AM | Permalink | Comments (4)
Categories: Mortgage rates