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(CNBC)   ARMs up 100% *waves at 2007*   (cnbc.com) divider line
    More: Followup, Mortgage loan, Mortgage, Mortgage rates, lower rates, last week, Total mortgage application volume, Interest, highest rate  
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1111 clicks; posted to Business » on 27 Apr 2022 at 1:05 PM (23 weeks ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook



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2022-04-27 11:43:53 AM  
Getting an ARM at the front end of increasing interest rate cycle sounds like good planning.

/s
 
2022-04-27 1:08:35 PM  
cdn.vox-cdn.comView Full Size
 
2022-04-27 1:10:24 PM  
So knives out?
 
2022-04-27 1:13:46 PM  
I got a 7/1 in 2003.  I sold 6 years later before I had to refi.
 
2022-04-27 1:15:24 PM  

edmo: Getting an ARM at the front end of increasing interest rate cycle sounds like good planning.

/s


It all depends on when/if you plan to refi and when you think rates will return to a more moderate rate.  If you get a 5/1, rates might be in a better place in 5 years.  If you get a 3/1, the risk is higher.
 
2022-04-27 1:19:37 PM  

Rapmaster2000: edmo: Getting an ARM at the front end of increasing interest rate cycle sounds like good planning.

/s

It all depends on when/if you plan to refi and when you think rates will return to a more moderate rate.  If you get a 5/1, rates might be in a better place in 5 years.  If you get a 3/1, the risk is higher.


Yeh that's what I was thinking.  5/1 is actually a pretty savvy move.
 
2022-04-27 1:24:35 PM  
This is called an ARM because it's a mortgage, that the rates change on?
Well, if you're that stupid, go for it.  If you lose your house, you can just blame the bankers.  Like we did before.
 
2022-04-27 1:33:30 PM  
Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.
 
2022-04-27 1:33:39 PM  
The earlier increase in housing may have created a housing bubble but at least we were dealing with fixed rate mortgages.  If ARMs are on the rise then we may well see a repeat of 2007-2009 when the bubble burst as soon as the rates adjusted at the same time housing prices collapsed.
 
2022-04-27 1:34:47 PM  
Americans seem pretty spoiled, what with their fixed rate mortgages for the entire amortization period.

Here in Canada you can have a 30 year mortgage, but you have to refinance every 5 years or so.
 
2022-04-27 1:35:07 PM  
And wave them like you just don't care!
 
2022-04-27 1:36:57 PM  
Have Biden ban adjustable rate mortgages and cap mortgage interest rates at 3%.  And mandate that everybody who would have qualified for a loan in 2020 gets a loan now.

Yes there will be side effcts.  But there always are.  At least this time we should make the billionaires bail us out instead of us bailing the billionaires out.

Or give us blood sacrifices this time when they bail out the too big to fails.  Bail out the mega corps but make the executives of the corps eat the CEO in a zombie cannibal feast.  No utensils.  They have to tear the ceo apart with their own hands and teeth.  And it has to all be in youtube in 4k60hz.  No age restrictions.  We all need to see how desperate the mega corps are for bailots and subsidies.
 
2022-04-27 1:37:52 PM  

thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.


The banks own the politicians.  They will get a bailout.  Too big to fail.
 
2022-04-27 1:43:13 PM  
How many people in this thread besides Rapmaster knows how an ARM actually works?
 
2022-04-27 1:45:30 PM  

DaMannimal: 5/1 is actually a pretty savvy move.


I have no way if knows that's true.  There's nothing to say that rates can't go higher and stay higher.  They certainly can stay above where they are now for decades.
 
2022-04-27 1:49:10 PM  

Arkanaut: How many people in this thread besides Rapmaster knows how an ARM actually works?


1.  Banks give out arm loans and make profits.
2.  Banks roll the loans into other securities and profit.
3.  Ratings agencies rank all the securities as AAAAAAAAA++++++!!!! and profit.
4.  Economy tanks and threatens profit.
5.  Government bails out the too big to fails and the too bigs to fail profit.
6.  Government says it wont ever bailout the too bigs to fail and will fortify the economy.
7.  Politicians like the money bukkaki party the banksters jizz on their faces so they dont actually fix the problem.
8.  Repeat after a while because the too stupids to care got their jetskis.

What else is there to know?
 
2022-04-27 1:53:16 PM  

AmbassadorBooze: What else is there to know?


Everything that you just said about ARMs, applies to normal fixed-rate mortgages.
 
2022-04-27 1:56:52 PM  

cryinoutloud: This is called an ARM because it's a mortgage, that the rates change on?


Yes. Now on HD streaming with targeted ads to feed my gluttonous consumer desires.
 
2022-04-27 1:56:53 PM  

Arkanaut: AmbassadorBooze: What else is there to know?

Everything that you just said about ARMs, applies to normal fixed-rate mortgages.


Then it sounds like we can count on a bailout party for the too bigs to fail.

I will bring the beer.

Sweet feathery jesus.  This season on Bailout! there better be a blood sacrifice.
 
2022-04-27 1:58:13 PM  

Rapmaster2000: DaMannimal: 5/1 is actually a pretty savvy move.

I have no way if knows that's true.  There's nothing to say that rates can't go higher and stay higher.  They certainly can stay above where they are now for decades.


Yeah, I'm not sure I'd bet on rates being lower than today with the fed currently fighting inflation. Rates are still super low and the fed has been looking to pull rates up slightly to give them room to act in future recessions anyways so I don't see them backing down on higher rates unless inflation goes back to nothing or into deflation.

Yes they could reverse course over the next 5 years but I wouldn't really count on it. Essentially you are betting that a recession will hit near the tail end of the arm locked period that will force the fed to act again.

I had an arm back in 2006, my payment dropped significantly after it went beyond its introductory period and helped get me through the recession, but I was damn sure I locked in at a lower rate once my finances had stabilized and again last year at 2.375%. Arms aren't necessarily bad if things are headed in the right direction, but coming off a period of historic low rates and in the middle of inflationary pressures? No thanks, I'm happy with my fixed.
 
2022-04-27 2:04:57 PM  
The real question is whether home values are going to survive a period where new mortgages have 10%+ interest rates, which is what we're headed towards.
 
2022-04-27 2:07:43 PM  

Scythed: The real question is whether home values are going to survive a period where new mortgages have 10%+ interest rates, which is what we're headed towards.


Bailouts will solve the problem!  This season on Bailout!
 
2022-04-27 2:32:27 PM  

AmbassadorBooze: Arkanaut: How many people in this thread besides Rapmaster knows how an ARM actually works?

1.  Banks give out arm loans and make profits.
2.  Banks roll the loans into other securities and profit.
3.  Ratings agencies rank all the securities as AAAAAAAAA++++++!!!! and profit.
4.  Economy tanks and threatens profit.
5.  Government bails out the too big to fails and the too bigs to fail profit.
6.  Government says it wont ever bailout the too bigs to fail and will fortify the economy.
7.  Politicians like the money bukkaki party the banksters jizz on their faces so they dont actually fix the problem.
8.  Repeat after a while because the too stupids to care got their jetskis.

What else is there to know?


You do understand that the low ARM rates allowed a lot of lower middle class families to afford a home, right?

Get rid of ARMs with rates below conventional and those families remain renters.

Why to you hate the lower middle class?

/in all seriousness, the only bad step you outlined was #3 - if they were properly rated they wouldn't have been held by low-risk investors
 
2022-04-27 2:33:27 PM  
Fark user imageView Full Size
 
2022-04-27 2:37:45 PM  

thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.


Yeah, but in 5-10 years it is highly likely that the housing price bubble will have burst and you'll have people underwater in mortgages that they are trying to refinance. That's what happened in 2008, when you had a lot of people with ARMs not able to refi so their best option was to just walk away.

Car loans will likely be a mess in 5 years or so, with a LOT of people owing way too much in vehicles that they paid $5k to $10k too much for and also may have rolled payments on a previous vehicle into the new loan. I foresee a lot of repos in the coming years if a recession hits.
 
2022-04-27 2:39:09 PM  

thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.


Funniest post I've seen on fark in a long time
 
2022-04-27 2:39:18 PM  

thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.


It would be nice if there were new homes being built that weren't 3500sqft monstrosities or 800sqft 1bd condos in "luxury" buildings, other with massive association fees.

But the profits lie there, not in 1500sqft bungalows.  What people actually need is not what is being built.
 
2022-04-27 3:06:14 PM  

madgonad: AmbassadorBooze: Arkanaut: How many people in this thread besides Rapmaster knows how an ARM actually works?

1.  Banks give out arm loans and make profits.
2.  Banks roll the loans into other securities and profit.
3.  Ratings agencies rank all the securities as AAAAAAAAA++++++!!!! and profit.
4.  Economy tanks and threatens profit.
5.  Government bails out the too big to fails and the too bigs to fail profit.
6.  Government says it wont ever bailout the too bigs to fail and will fortify the economy.
7.  Politicians like the money bukkaki party the banksters jizz on their faces so they dont actually fix the problem.
8.  Repeat after a while because the too stupids to care got their jetskis.

What else is there to know?

You do understand that the low ARM rates allowed a lot of lower middle class families to afford a home, right?

Get rid of ARMs with rates below conventional and those families remain renters.

Why to you hate the lower middle class?

/in all seriousness, the only bad step you outlined was #3 - if they were properly rated they wouldn't have been held by low-risk investors


Yes.  But the profit.

As to the effects of no arm loans.  No mattrr what we do, the low and middle class are gonna be hit hard.  No mattrer what.  But if we play the cards right, we can eliminate the upperclass.  We can make them suffer, for once.  The bloodening is coming, all classes should share in the festivites.

And if there were no arms, the ratings agencies couldnt rate them super a ok plus.  And if the government hadnt bailed the too bigs then the too bigs wouldnt be around to attempt the grift this time around.

We all know how this goes.  Everybody but the elites suffer.
 
2022-04-27 3:16:00 PM  

AmbassadorBooze: And if there were no arms, the ratings agencies couldnt rate them super a ok plus.  And if the government hadnt bailed the too bigs then the too bigs wouldnt be around to attempt the grift this time around.


There is nothing wrong with ARMs.  The ARMs and their terms weren't inherently bad.  There are plenty of ARMs that are held by prime borrowers.  I haven't seen any evidence that prime ARM borrowers fared worse or defaulted more than fixed borrowers in the crisis.

The problem was too many subprime borrowers steered into any mortgage a broker could get them.  There wre no doc loans and balloon mortgages.  Those are sophisticated products that are meant for developers.  Regular people got those from their mortgage broker.  Many people got interest-only loans or got LIBOR loans without understanding what their mortgage broker was setting up for them.  Have you ever met a mortgage broker?  They're hustlers just trying to do anything to flip a sale for commission.

There were multiple real problems that had 0 to do with ARMs themselves such as quant models used by investment banks that didn't properly model the risk of a loan failure relative to another loan failure.  They didn't correctly model how a default can influence other defaults.

There is a conflict of interest between ratings agencies and investment banks.  S&P is paid by Citibank to rate their bonds (a CDO - a collection of loans - is a bond).  You can see the problem here.  If S&P won't give Citi a AAA, then they'll take their business to Fitch.

20 years later everyone is yelling about bailouts - even the Republicans, but nobody can tell you what happened besides "the rich always win".
 
2022-04-27 3:27:33 PM  
Rapmaster2000:

Its academic, arms exist. So I concede that.  And we cant trial a 2008 where arms didnt exist.

I guess we will see if there will be bailouts this time.  They might not be because of arms.  That i also conceed.  But I am betting there will be bailouts.  Or subsidies.  I also bet the elites will not be cut down much relative to the rest of us.  And the politicians will sell it as "just this one last time.  To stabilize the economy.  We promise.  This time we really will stop bailouts and make the pofits and losses private.  Absolutely no more socializing the losses while privitizing profits."

And then after some time it will all happen again.  And again.  And again.  And the nutballs on the internet calling for blood sacrifices will be nutballs and told "this time is different.  It is a one time thing.  We dint need blood for the blood gods.  And if we do need blood, that is why we have proxy wars and kill the poor and brown.  The blood gods NEVER want the blood of elites. "
 
2022-04-27 3:39:18 PM  

AmbassadorBooze: Yes.  But the profit.

As to the effects of no arm loans.  No mattrr what we do, the low and middle class are gonna be hit hard.  No mattrer what.  But if we play the cards right, we can eliminate the upperclass.  We can make them suffer, for once.  The bloodening is coming, all classes should share in the festivites.

And if there were no arms, the ratings agencies couldnt rate them super a ok plus.  And if the government hadnt bailed the too bigs then the too bigs wouldnt be around to attempt the grift this time around.

We all know how this goes.  Everybody but the elites suffer.


The real challenge right now is the inventory. Every farking house being built is targeted up. There are hardly any 'starter' homes being built any more. Middle class home buyers are overleveraging to grab a piece of the American dream - but they are also getting a whole lot of 'nice to haves' so they aren't biatching as they show off their Open Floor Plan, granite countertops, and oversized bathrooms.
Yeah, they are leverage to max, but that's what is available in new homes.
 
2022-04-27 3:39:36 PM  

AmbassadorBooze: Rapmaster2000:

Its academic, arms exist. So I concede that.  And we cant trial a 2008 where arms didnt exist.

I guess we will see if there will be bailouts this time.  They might not be because of arms.  That i also conceed.  But I am betting there will be bailouts.  Or subsidies.  I also bet the elites will not be cut down much relative to the rest of us.  And the politicians will sell it as "just this one last time.  To stabilize the economy.  We promise.  This time we really will stop bailouts and make the pofits and losses private.  Absolutely no more socializing the losses while privitizing profits."

And then after some time it will all happen again.  And again.  And again.  And the nutballs on the internet calling for blood sacrifices will be nutballs and told "this time is different.  It is a one time thing.  We dint need blood for the blood gods.  And if we do need blood, that is why we have proxy wars and kill the poor and brown.  The blood gods NEVER want the blood of elites. "


Or Dodd-Frank mostly works and the same problem doesn't happen again in the same way.

There will be financial calamities as always.  We had financial calamities for hundreds of years before the rollout of mortgages to a mass consumer.  They were even worse than recessions.  They were panics.  And the banksters led by JP Morgan fixed the problem by guiding the creation of a Federal Reserve.  Then, they moved off of the gold standard and fixed the problem of 10% year over year deflation for 3 years that destroyed the American farmer in the Great Depression.

So sure, there will be more calamities where the elites do their elity things and get off scot free, but it won't be the exact same calamity again.  If you can identify the next calamity, I'm all for it.
 
2022-04-27 3:43:10 PM  

AmbassadorBooze: thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.

The banks own the politicians.  They will get a bailout.  Too big to fail.


Tell that to Disney.
 
2022-04-27 3:52:26 PM  

madgonad: AmbassadorBooze: Arkanaut: How many people in this thread besides Rapmaster knows how an ARM actually works?


You do understand that the low ARM rates allowed a lot of lower middle class families to afford a home, right?

Get rid of ARMs with rates below conventional and those families remain renters.

Why to you hate the lower middle class?

/in all seriousness, the only bad step you outlined was #3 - if they were properly rated they wouldn't have been held by low-risk investors


Are you saying ARMs are being given to people who are more marginal risk, so we should be in favor of ARMs?
I would argue that it's the inability to save up a downpayment, and lack of starter-home inventory, that's keeping people renting, not interest rates.
 
2022-04-27 3:55:41 PM  

Lish: madgonad: AmbassadorBooze: Arkanaut: How many people in this thread besides Rapmaster knows how an ARM actually works?


You do understand that the low ARM rates allowed a lot of lower middle class families to afford a home, right?

Get rid of ARMs with rates below conventional and those families remain renters.

Why to you hate the lower middle class?

/in all seriousness, the only bad step you outlined was #3 - if they were properly rated they wouldn't have been held by low-risk investors

Are you saying ARMs are being given to people who are more marginal risk, so we should be in favor of ARMs?
I would argue that it's the inability to save up a downpayment, and lack of starter-home inventory, that's keeping people renting, not interest rates.


It's not the people who have ARMs that are higher risk.  It's the ARMs themselves because the term is set to float at the completion of the initial period.  A 5/1 is a low rate for 5 years, but then might go up in year 6.  That's the increased risk accepted by the borrower in exchange for a lower rate.  They're not easier to get than a fixed.
 
2022-04-27 3:57:30 PM  
Most of the houses around here, that are under $250k are all cash offers.  I dont know if raising interest rates are going to make more inventory available, if big intuitional buyers keep buying up all the inventory.   I bought my house in 1999, at the time 90+% of the houses in my neighborhood was owner occupited.   Now it is between 50-60%.   Not all of them are rentals, some are just investments to some LLC.   The keep them in good shape, mow the lawns ect, but no one lives in them.  One around the corner has been vacant for a couple of years.
 
2022-04-27 4:20:23 PM  

Lish: Are you saying ARMs are being given to people who are more marginal risk, so we should be in favor of ARMs?
I would argue that it's the inability to save up a downpayment, and lack of starter-home inventory, that's keeping people renting, not interest rates.


No, I'm saying that ARMs are the last resort for buyers to qualify at a monthly payment price that their lender says they can afford. That can be a lower income borrower trying to get a $150k 3BR ranch or a middle class family trying to get a $600k McMansion.

The math is pretty simple. The old metric is that they won't let you monthly mortgage/tax/insurance cost exceed 1/3 of your monthly income. An ARM with a lower introductory rate lets you buy more house.

For example, a $300k house with 5% down in Missouri with insurance and PMI will cost $2267/mo if you have a 30yr conventional at 5.847%.
Change that to a 3/6 ARM and the lower rate lets you buy a $320k home for the same payment.
If you are trying to buy as much house as you can - ARMs allow it.
 
2022-04-27 4:20:33 PM  

tobcc: Most of the houses around here, that are under $250k are all cash offers.  I dont know if raising interest rates are going to make more inventory available, if big intuitional buyers keep buying up all the inventory.   I bought my house in 1999, at the time 90+% of the houses in my neighborhood was owner occupited.   Now it is between 50-60%.   Not all of them are rentals, some are just investments to some LLC.   The keep them in good shape, mow the lawns ect, but no one lives in them.  One around the corner has been vacant for a couple of years.


An empty house seems like a really bad investment.  My guess is they are tax dodges.
 
2022-04-27 4:30:45 PM  

trialpha: Americans seem pretty spoiled, what with their fixed rate mortgages for the entire amortization period.

Here in Canada you can have a 30 year mortgage, but you have to refinance every 5 years or so.


That's not a 30 year fixed rate mortgage.
 
2022-04-27 4:44:55 PM  

Mad_Radhu: thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.

Yeah, but in 5-10 years it is highly likely that the housing price bubble will have burst and you'll have people underwater in mortgages that they are trying to refinance. That's what happened in 2008, when you had a lot of people with ARMs not able to refi so their best option was to just walk away.

Car loans will likely be a mess in 5 years or so, with a LOT of people owing way too much in vehicles that they paid $5k to $10k too much for and also may have rolled payments on a previous vehicle into the new loan. I foresee a lot of repos in the coming years if a recession hits.


As it's been said many time, there is no bubble. Demand is higher than ever because a huge portion of the population has shifted to remote work. Supply was already at a record low going into the pandemic, and supply chain issues have slowed the construction of new homes (and not to mention that most new homes are 2,000 sf, making them larger than many people can afford). Plus, in some markets, up to 30 percent of homes are now being bought by investors and turned into rentals.

I don't think homes will keep appreciating 20 percent a year, but the current prices are here to stay.

And given that a lot of people were able to refinance when mortgages hit record lows, or bought at that time, a lot of folks are in very affordable 30 year mortgages.

Final reason why the 2008 comparison doesn't work. In the run up to 2008, some years as many as 30 percent of all mortgage applications for mortgages were ARMs, and they were giving out 1 year ARMS. Since then, the percentage of ARMs has been under 9 percent.
 
2022-04-27 6:38:24 PM  

AmbassadorBooze: Arkanaut: How many people in this thread besides Rapmaster knows how an ARM actually works?

1.  Banks give out arm loans and make profits.
2.  Banks roll the loans into other securities and profit.
3.  Ratings agencies rank all the securities as AAAAAAAAA++++++!!!! and profit.
4.  Economy tanks and threatens profit.
5.  Government bails out the too big to fails and the too bigs to fail profit.
6.  Government says it wont ever bailout the too bigs to fail and will fortify the economy.
7.  Politicians like the money bukkaki party the banksters jizz on their faces so they dont actually fix the problem.
8.  Repeat after a while because the too stupids to care got their jetskis.

What else is there to know?


You... you didn't actually address anything about ARMs there.  You seem to be hung up on securitization of loans (a good thing, BTW).
 
2022-04-27 7:18:39 PM  

Lish: madgonad: AmbassadorBooze: Arkanaut: How many people in this thread besides Rapmaster knows how an ARM actually works?


You do understand that the low ARM rates allowed a lot of lower middle class families to afford a home, right?

Get rid of ARMs with rates below conventional and those families remain renters.

Why to you hate the lower middle class?

/in all seriousness, the only bad step you outlined was #3 - if they were properly rated they wouldn't have been held by low-risk investors

Are you saying ARMs are being given to people who are more marginal risk, so we should be in favor of ARMs?
I would argue that it's the inability to save up a downpayment, and lack of starter-home inventory, that's keeping people renting, not interest rates.


That's not right at all. Rent prices don't track interest rates.

If you're putting 20 percent down on a home, depending on the APR, a 1 percentage difference could be 11 to 12 percent increase in what your monthly payment is to the bank (so with a $400k home, that could be $200+ per month). And the higher your APR is, the more you pay in interest, which is money into the ether. In general, renting is a better deal if you're in the house for fewer than five years -- the higher the interest rate is, the longer you need to be in the house for buying to be better.

The NYT has an excellent rent vs buy calculator; go plug in numbers and adjust the mortgage rate:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

And paradoxically, putting more down to lower the cost of the monthly payment to the bank actually makes renting a better deal because the average annual returns of the stock market are usually twice the annual average appreciation rate of a home.
 
2022-04-27 7:23:11 PM  
Mortgage rates went to 18.45% in 1981.

That was how the federal reserve fought double digit inflation.

https://www.google.com/amp/s/finance.yahoo.com/amphtml/blogs/just-explain-it/why-mortgage-rates-matter-152241574.html

It's a great thing we aren't in a high inflation period right now.
 
2022-04-27 7:38:29 PM  

edmo: Getting an ARM at the front end of increasing interest rate cycle sounds like good planning.

/s


You can lock in for like 5 to 10 terms an ATM that is lower than the 30 year fixed. It can make sense if you plan to bail before that is up but with houses so over inflated that's a great way to be stuck underwater with a ticking time bomb.
 
2022-04-27 8:01:37 PM  

thornhill: And paradoxically, putting more down to lower the cost of the monthly payment to the bank actually makes renting a better deal because the average annual returns of the stock market are usually twice the annual average appreciation rate of a home.


Not really. Also, if you buy a house and die before it is sold the capital gain is deleted with a step-up. Also, while the overall market has risen strongly there will need to be a whole lot of trading to 'remain current'. Trading means taxable gains.

While the tax benefits of deductible interest have faded there are still overall greater benefits in ownership.
 
2022-04-27 9:08:59 PM  

thornhill: Mad_Radhu: thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.

Yeah, but in 5-10 years it is highly likely that the housing price bubble will have burst and you'll have people underwater in mortgages that they are trying to refinance. That's what happened in 2008, when you had a lot of people with ARMs not able to refi so their best option was to just walk away.

Car loans will likely be a mess in 5 years or so, with a LOT of people owing way too much in vehicles that they paid $5k to $10k too much for and also may have rolled payments on a previous vehicle into the new loan. I foresee a lot of repos in the coming years if a recession hits.

As it's been said many time, there is no bubble. Demand is higher than ever because a huge portion of the population has shifted to remote work. Supply was already at a record low going into the pandemic, and supply chain issues have slowed the construction of new homes (and not to mention that most new homes are 2,000 sf, making them larger than many people can afford). Plus, in some markets, up to 30 percent of homes are now being bought by investors and turned into rentals.

I don't think homes will keep appreciating 20 percent a year, but the current prices are here to stay.

And given that a lot of people were able to refinance when mortgages hit record lows, or bought at that time, a lot of folks are in very affordable 30 year mortgages.

Final reason why the 2008 comparison doesn't work. In the run up to 2008, some years as many as 30 percent of all mortgage applications for mortgages were ARMs, and they were giving out 1 year ARMS. Since then, the percentage of ARMs has been under 9 percent.


Even cities that have supposedly lost population are seeing supply shortages. My understanding is that normal people are having a hell of a time buying a home now because investment firms are buying up a lot of the properties for cash, which is a good scam because it artificially limits supply and drives up the price of your investments.

https://www.msn.com/en-us/money/realestate/suburbia-is-standing-up-to-wall-street-investors-who-are-scooping-up-houses-bullying-people-out-with-cash-offers-and-making-the-neighborhood-shabbier/ar-AAWrOHB?ocid=BingNewsSearch

This whole housing market seems super sketchy. I'm expecting a crash as investors rush to sell when prices start to fall, which could leave a lot of desperate homeowners who paid a premium underwater. The prices just aren't sustainable and something has to give.
 
2022-04-27 9:28:03 PM  

Mad_Radhu: thornhill: Mad_Radhu: thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.

Yeah, but in 5-10 years it is highly likely that the housing price bubble will have burst and you'll have people underwater in mortgages that they are trying to refinance. That's what happened in 2008, when you had a lot of people with ARMs not able to refi so their best option was to just walk away.

Car loans will likely be a mess in 5 years or so, with a LOT of people owing way too much in vehicles that they paid $5k to $10k too much for and also may have rolled payments on a previous vehicle into the new loan. I foresee a lot of repos in the coming years if a recession hits.

As it's been said many time, there is no bubble. Demand is higher than ever because a huge portion of the population has shifted to remote work. Supply was already at a record low going into the pandemic, and supply chain issues have slowed the construction of new homes (and not to mention that most new homes are 2,000 sf, making them larger than many people can afford). Plus, in some markets, up to 30 percent of homes are now being bought by investors and turned into rentals.

I don't think homes will keep appreciating 20 percent a year, but the current prices are here to stay.

And given that a lot of people were able to refinance when mortgages hit record ...


If they are buying these places up as rentals, it seems that eventually we'd hit saturation in the rental market, and yet rent keeps increasing.  The rental market is competing with the homebuyers market for homes.

My personal guess on the longer term: housing eventually deflates, but not this year or next year... more like 10-20 years when Gen Z's smaller size isn't able to keep demand up.  It'll be even worse if we go on a building spree in the next decade for this temporary shortage.  The only real way to stop it would be a "cash for clunkers" type of scheme (perhaps under the guise of eliminating housing for environmental restoration).

In the near term, even if housing cools off, I don't think we'll ever see a drop like 2007-12.  Seeing how upside down loans unraveled the system... we'll inflate the currency and let the overall prices rise to meet housing before we let housing drop again. 2008 was the only time in the last 70 years we've had a drop in nominal prices.  We had drops in real home values as they shot up and then inflation ate away the gains, but we'll never do the deflationary home market again.  Money printer will go brrrrrrrrr before that ever happens. .
 
2022-04-27 9:47:51 PM  

Izunbacol: Mad_Radhu: thornhill: Mad_Radhu: thornhill: Well it depends.

The introductory period of an ARM goes up to 10 years, so a 5 to 10 years period gives you a while to wait for rates to drop and then refinance as a 30-year mortgage. And with rising home prices, it seems hard to believe that the Fed would allow rates to stay above 7 percent or so for a prolonged period of time (especially because higher rates discouraging new homebuilding, which shrinks supply, and pushes up demand).

I also think banks are going to be slightly more cautious about how much they loan to people via an ARM incase they cannot refinance. I mean, if this blows up for the banks, I don't think any of them are assuming they'll get the same kind of bailout as they did in 2008.

Yeah, but in 5-10 years it is highly likely that the housing price bubble will have burst and you'll have people underwater in mortgages that they are trying to refinance. That's what happened in 2008, when you had a lot of people with ARMs not able to refi so their best option was to just walk away.

Car loans will likely be a mess in 5 years or so, with a LOT of people owing way too much in vehicles that they paid $5k to $10k too much for and also may have rolled payments on a previous vehicle into the new loan. I foresee a lot of repos in the coming years if a recession hits.

As it's been said many time, there is no bubble. Demand is higher than ever because a huge portion of the population has shifted to remote work. Supply was already at a record low going into the pandemic, and supply chain issues have slowed the construction of new homes (and not to mention that most new homes are 2,000 sf, making them larger than many people can afford). Plus, in some markets, up to 30 percent of homes are now being bought by investors and turned into rentals.

I don't think homes will keep appreciating 20 percent a year, but the current prices are here to stay.

And given that a lot of people were able to refinance when mortgages hit record ...

If they are buying these places up as rentals, it seems that eventually we'd hit saturation in the rental market, and yet rent keeps increasing.  The rental market is competing with the homebuyers market for homes.

My personal guess on the longer term: housing eventually deflates, but not this year or next year... more like 10-20 years when Gen Z's smaller size isn't able to keep demand up.  It'll be even worse if we go on a building spree in the next decade for this temporary shortage.  The only real way to stop it would be a "cash for clunkers" type of scheme (perhaps under the guise of eliminating housing for environmental restoration).

In the near term, even if housing cools off, I don't think we'll ever see a drop like 2007-12.  Seeing how upside down loans unraveled the system... we'll inflate the currency and let the overall prices rise to meet housing before we let housing drop again. 2008 was the only time in the last 70 years we've had a drop in nominal prices.  We had drops in real home values as they shot up and then inflation ate away the gains, but we'll never do the deflationary home market again.  Money printer will go brrrrrrrrr before that ever happens. .


This market is really irrational though. For example, real estate prices spiking in Miami when it is likely you'll have a lot of the property uninsurable in 10 years as the sea levels rise and storms become more powerful and frequent, plus boomer retirees will soon be hitting their life expectancy limits. Not to mention all the Russian money in that town could get cut off long term.

Makes no goddamned sense aside from investment money just chasing quick profits and hoping to unload their investments on suckers when the music stops.
 
2022-04-28 12:32:32 AM  

Rapmaster2000: I got a 7/1 in 2003.  I sold 6 years later before I had to refi.


Well that was ... dumb. Weren't interest rates lower in 2009 than 2003? And you could have rode that interest rate down all the way to last year.
 
2022-04-28 7:22:39 AM  

Chagrin: Rapmaster2000: I got a 7/1 in 2003.  I sold 6 years later before I had to refi.

Well that was ... dumb. Weren't interest rates lower in 2009 than 2003? And you could have rode that interest rate down all the way to last year.


It's not anything.  It's irrelevant.  I bought a better house.
 
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