There is a great article on the disconnect between home prices and other key indators on efinance directory. The piece explores the relationship that typically exists between the price of homes in a given market with rent prices, median income, etc., etc. They point out that while real estate prices continually rise, what’s different in this “bubble” is that home prices have risen quite disproportionately to these other key indicators. This not only sheds light on what is different about what’s happening now (and what’s already happened in the last few months) and what typically happens in a hot real estate market it also helps you to understand how to succeed in predicting future real estate prices. This is very educational information and I highly recommend you take the time to read and digest it. Don’t miss this one. Click here for the full story.
Archive for the 'Finance' Category
Is There A Disconnect Between Home Prices and Other Key Indicators?
Published by 10 months, 1 week ago in Housing, Real Estate and Finance. 0 CommentsA More Personal Look At the Mortgage Mess
Published by 10 months, 2 weeks ago in Real Estate and Finance. 2 Comments
Most articles dealing with the mortgage problem deal with things on a “textbook” level, meaning they examine the theory behind what happened and what the likely outcome is. In this piece in the Washington Post, they look through the eyes of investors, examining how they got into the mess, and what is likely to happen from that perspective. This is a good piece and puts a face on what has, up to this point, been a nameless problem. To read the whole story, click here. Be sure to read down. It gets more interesting as you go.
Clinton Wants “Penalty” for Predatory Lenders
Published by 10 months, 4 weeks ago in Finance. 0 Comments
My dad always said there were two topics on which you should keep your opinion to yourself, politics and religion. Normally, I’d say that’s good advice, but I just can’t help but pick this one up. USA Today is reporting that Hillary Rodham Clinton is lobbying for penalties for predatory lenders and a big $1 billion (yes, with a “B”) bailout for those who were the victims of such practices.
Now, I hate to dwell on the obvious, but isn’t going out of business a big enough penalty for making bad loans? Becuase that’s basically what’s happening to those who made those loans. Do we need and additional “penalty” to let them know the government thinks what they did was a bad idea? Perhaps some additional legislation to ensure they never do it again would be a good idea too. You can never have too much legislation.
And what about victims — er, borrowers? Poor innocent people who had no idea they couldn’t afford to pay back what they’d just signed for. We should give them enough money to bail them out, becuase they didn’t read (or ignored) the contracts they were signing. I know several “victims” who figured they’d ride the horse as long as it would continue moving forward, and then get off when the party was over. I know of some who figured if the lender was stupid enough to offer the money, why not take it and live the vida rica for awhile?
I’d say the lenders learned a lesson about lending to people who can’t afford to repay. I’d say, based on recent changes, the investors who provide money to the lenders also learned a valuable lesson. I’d also say the borrowers learned a lesson about reading the contracts and calculating the costs of their decisions. Everyone had a learning experience and we don’t need more legislation and we don’t need additional penalties.
It’s like when your child burns his finger after touching a hot stove (which you warned him was hot.) The lesson is learned. There’s no additional value in grounding him to the yard for two weeks. The pain in his finger is a constant reminder of why he should listen. Grounding accomplishes nothing. And on the other hand, why would you want to take away the pain of the burn (in effect, bailing the child out)? It’s the pain that teaches the lesson. Do we really want to teach the child that it’s okay to touch the stove? That it wasn’t his fault he got burned? That we’ll always be there to “bail him out” when he does something he shouldn’t? Are those the lessons we really want to teach?
Come on! Legislation and penalties will accomplish nothing that hasn’t already been accomplished by the natural consequences of the actions. Everyone in the decision-making pipeline learned something by what happened, and the market changes indicate those lessons were well learned. Get big government out of our lives and out of our pockets. We don’t need more big government. We need people who are responsible. That comes from making bad choices and feeling the consequence of those choices.
It looks like zero down mortgages may well be headed for extinction. I spoke to a friend in the mortgage business the other day, and he told me things are changing almost hourly in the mortgage business. Then I ran across this story in the Washington Post confirming his comments. According to this article, four out of every ten home mortgages in 2006 and 2007 was a zero down arrangement. When the whole sub-prime thing started, zero down loans dried up for those whose credit was not up to par. But as more and more mortgage companies are taking it on the chin, zero down loans are even drying up for those of us with great credit. It looks like this trend is going to continue for some time. There is no evidence of any kind of reversal in the near future. Things are getting increasingly dicey in the mortgage industry, and the once readily available money supply has started to dwindle. If you would like to read this very informative article, click here. Dont’ miss this one.
Mortgage “Crisis” Overblown?
Published by 11 months, 1 week ago in Uncategorized, Mortgage and Finance. 0 CommentsThe title of the article in MSN Money by Robert Walberg states, “No crisis for mortgage lenders.” He goes on to explain, in short, the following:
The U.S. mortgage market totals about $10 trillion, of which we may face losses of around $50 billion to $100 billion, according to Federal Reserve Chief Ben Bernanke. Those are big losses, but they represent no more than 1% of the overall total — hardly the definition of a crisis.
I agree with Walberg on this one. It’s easy to get caught up in things by only looking at one piece of a very complex puzzle, then think you know it all and start making important decisions. When you say, “Losses are expected to be $50 - $100 billion,” I say, “Wow! The sky is falling. When you say, “They’re going to experience a 1% loss.” I say, “Big deal. Retailers lose 10 - 15 times that much to shop lifters alone.”
It’s kind of like the perceived value of money. You wave a $100 bill in front of a 10 year old, it represents all the money in the world. You wave it in front of the executive that makes a seven-figure salary, it means nothing. It all comes down to how many zeros you’re accustomed to dealing with. This story is one you should read. It gives a very balanced feel for how things really are. Click here for the full story.
