Mortgage rates have fallen to yet new lows. According to this article at CBS Money Watch, the average 30 year rate is at 3.62%. This is the lowest level in the history of the U.S. mortgage market.
The 30 year mortgage started in the 1950’s. Why are mortgage rates today the lowest ever? It can be explained by the easy money policy of the U.S. government. The government has been flooding the world with money, especially since the financial crisis of 2008.
Despite all the best efforts (or maybe because of the best efforts) of the government to prop up the housing market, the price of a home has fallen to its lowest point in nearly eight years. And, yes, that includes points during the “Great Recession”–or the pending “Great Double-Dip Recession.”
That means the housing market is officially in a double-dip recession pattern.
Prices fell 3.6 percent in March. And prices have dropped in all 20 major metropolitan markets, except one.
You’re dying to know which one, aren’t you. Well, if you’re wondering if the stimulus program worked, it sure did. If you’re a homeowner in Washington D.C. Prices rose 4.3 percent.
The market pretty much shrugged off this news. What about you? Should you be worried about a double-dip housing recession?
This article on Yahoo Finance talks about how the housing market is continuing to decline. As with most government intervention, the effect of the first time buyer’s credit had a short term benefit and I think it will have a long term negative effect.
Besides that, it enticed the most naive and inexperienced buyers to buy at the worst time possible. The housing market is going down and there is nothing to slow it down. Unemployment is high and the economy is weak. It is quite easy to see that housing prices are not likely to rebound any time soon.
After reading this article on Forbes.com, I feel like the writing is on the wall, and I have posted about it before. The government’s massive spending may not have been enough to turn the economy around. It was enough to delay the destruction, but in doing so only makes it worse.
Many people who bought houses in the last year thought that they could get a free $8,000 just by buying a house. Hate to break it to you, but it’s not that simple. The reason the government was giving away the money was in an attempt to prop up the housing market. The only problem is that it was unlikely to work.
Right now I am reading The Big Short by Michael Lewis. It is the story of Mike Burry, a one-eyed medical student, and his ability to pick value stocks. His hedge fund was a runaway success, and his investment career is really amazing.
Ultimately, his success seems to be caused by his ability to see things differently. He has the confidence to analyze a stock, and decide for himself what the value should be. It’s a pretty common strategy for value investors.
He used his ideas for analyzing stocks and applied them to the housing market. By 2005 he was convinced that the housing market would come down and that many of the subprime loans would default. The interesting thing is that when he started investing in derivatives that would make him hundreds of millions of dollars (if not billions), everyone else was oblivious. Including the people on Wall Street.
One of the most powerful and least talked about investing strategies is disaster investing. What’s that? Disaster investing is buying after a disaster occurs, which could be natural, financial or political.
Once I went to buy a cat from a Russian lady, and she told me the story of how she bought a house in Beverly Hills for $200,000. In 10 years the house appreciated to over $2,000,000. How did she do it? She bought it right after a large earthquake. Continue reading →
As the effects of the government stimulus plan are seen, there are more and more signs that the recession is ending. The media is quick to pick up on any changes and report that the economy is recovering. This article at Yahoo Finances is all about the improving housing market. Yet I think that all the positive news is only one side of the story.
The other side is that the fundamentals have not really changed. Unemployment is high, and is rising. There is no evidence that it will improve. All of the improvements in the economy are from government spending: Cash for Clunkers, First Time Home Buyers Plan, etc. These measures are good at getting people who aren’t financially responsible to spend money. It is a short term improvement but will have a longer term negative effect.
Recently, as the stock market soars, there has been a large amount of news about how well the economy is doing. They say that the housing market has hit bottom, and that the economy is recovering. However, this article by the Associated Press is about how unemployment is rising.
Regardless of what the newspapers say, it is important to look at the fundamentals that drive the economy. The government has created massive band-aids to prevent a depression, and they seem to have worked. But it is important to understand the difference between a recovery and a temporary band-aid.
Lately there has been quite a bit of good news about the economy. The stock market is up. Housing sales volume is up. Corporate profits are up.
But I don’t think the economy will improve any time soon. The collapse in the housing market touched off the crisis, and I don’t think the housing market will get better soon. With rising unemployment, there are still way too many sellers. And, the majority of adjustable rate mortgages have yet to readjust. That will happen in the next two years. Therefore, over the next two years the housing market will be flooded with still more foreclosures.
Everyone seems to running around complaining about the economy and unemployment and lamenting the fall in the stock or housing markets. Let’s stop running for a second and ask an important question.
How did we get into this situation?
The markets did not suddenly decide to go down by themselves. They are simply going down after going up for a long, long time. Markets go up and markets go down. It’s part of the grand scheme of things.