Mortgage rates hit record low of 4.0%

Mortgage interest rates continue to drop to record lows with recent rates dipping below 4%.

Irvine Home Address … 92 RINALDI Irvine, CA 92620

Resale Home Price …… $659,900

You think you'll never get it right

But you're wrong. You might.

The sky could fall, could fall on me

Coldplay — Low

The current low interest rates are truly remarkable. We are approaching the all-time recorded low from the early 1950s. The reason for the latest drop in interest rates is more market manipulation by the federal reserve. However, in a broader context, the continually dropping interest rates are a sign of monetary deflation caused by the ongoing write-offs of bank debt.

It can be argued that today's low interest rates are high in real terms. If you accept Mish's definition of inflation as the expansion of money supply and credit, we are currently experiencing deflation caused by all the write downs. When you have deflation, even low interest rates are high relative to inflation.

Another way to look at the situation is from supply and demand. During the housing bubble, lenders created enormous amounts of debt as credit expansion was off the charts. Now we have a huge overhang of debt borrowers cannot support. As we all know, lenders are loathe to write this debt off, so we are left with a large supply of debt. With the return of prudent lending standards based on real incomes, demand for debt is very low. Large supply and low demand makes for lower prices. The price of debt is the interest rate, so lower prices on money mean lower interest rates.

However, you want to conceptualize or explain the low interest rates, it looks as if they will be with us for a while. As long as the economy remains weak, the federal reserve will want to keep interest rates low. Bernanke has publicly committed to keep rates at zero for two years, for whatever his word is worth.

Mortgage rates drop to once unthinkable lows at less than 4%

The Federal Reserve's latest step to prop up the economy means that 30-year fixed-rate loans are available for less than 4%. But many people are in no position to buy or refinance a home.

By E. Scott Reckard, Los Angeles Times — September 23, 2011, 7:40 p.m.

The Federal Reserve's latest effort to prop up the economy has dropped mortgages into once unthinkable territory, with 30-year fixed-rate loans available for less than 4% — a record low.

For people lucky enough to still have their credit ratings, bank accounts and home equity in good shape, the change means the opportunity to refinance at rates that once seemed unimaginable.

Note those exclusions carefully. It isn't lucky people who have good credit and home equity. Mostly, it is savers and buyers from prior to 2002 who didn't HELOC themselves into an underwater condition. The two groups benefiting most from the housing crash are prudent long-term homeowners (other than the loss of illusory equity) who can now refinance, and renters who have waited until prices and interest rates have fallen so low as to make properties affordable.

“I can remember when I thought 7% was a great loan,” said Roger Hornbaum, a retired city of Orange employee who has already refinanced his home on California's Central Coast twice since purchasing it last year. “After the news this morning, maybe I'll be getting another call from [my mortgage broker] and be trying it again sometime soon.”

Hornbaum's broker, Jeff Lazerson of Laguna Niguel, said clients who pay closing costs and a 1% fee to him are refinancing into 30-year fixed-rate loans at 3.75%.

If Mr. Hornbaum has refinanced twice in the last year, it's his mortgage broker who is really happy.

Of course, these days many people are in no position to buy or refinance a home. Many can't meet the stringent lending standards that have prevailed since the housing bust and bank bailout, or they owe so much more than their house is worth that they can't get a new loan at a better rate.

“The phone is ringing off the hook with people who want to refinance,” said loan officer Darin Hardin at Premier Mortgage Group in Ladera Ranch. “But the property values just aren't there.”

The GSEs and FHA will allow underwater refinancing, but the terms aren't very good. Again, the only real beneficiaries are long-term homeowners who didn't HELOC themselves into an underwater position.

The record low rates are driven by the Fed's announcement Wednesday that it would load up on purchases of long-term government bonds and mortgage securities. The extra demand was intended to drive down long-term interest rates, including those for home loans — and it worked.

The yield on the 10-year Treasury bond, which serves as a benchmark for fixed mortgages, had closed at 1.94% on Tuesday. By the end of the day Wednesday it had dropped to 1.86%, and it plummeted Thursday to 1.72%, setting a record low before rising again Friday to 1.83%.

For a 30-year fixed-rate mortgage, the typical rate for solid borrowers had been 4.09% last week and early this week, according to mortgage finance giant Freddie Mac. That's within a whisker of the record low of 4.08% set in 1950 and 1951. The Fed's action dropped it well into record territory.

Mortgage professionals said many companies were making loans slightly more expensive Friday because their loan pipelines were full of more refinance requests than they could easily handle.

Provident Funding, a lender that concentrates on borrowers with solid credit, said on its website Thursday that it could refinance a $300,000 loan on a $450,000 home in Los Angeles County at 3.875% and hand back $3,000 to the homeowner to help with closing costs. On Friday, the rebate on the same loan had dropped to $1,875.

But should the 10-year Treasury yield stay low, there appears to be room for mortgage rates to fall further, industry experts said.

Bernanke is buying 10-year Treasuries to have this effect. He wants to drive down mortgage interest rates to make houses more affordable and spark economic growth by reducing the mortgage burdens on those who qualify for refinancing.

Of course, the flipside to his policy is to reduce the profits accruing the member banks of the federal reserve he is trying to support. Banks were borrowing from him at zero percent, buying treasuries and earning a 3% riskless trade. As long rates go down, the profits from this trade are diminished, and banks will take longer to earn their way out of insolvency.

Refinancing mortgages at lower rates should help stimulate the economy by putting more spending money in borrowers' pockets. Lowering the rate on a 30-year $350,000 mortgage to 4% from 5.5% would cut payments by about $3,800 a year.

Despite this fact, most borrowers are better off walking away from their massive debt loads they can never hope to repay.

Mindful of that fact, the Obama administration is trying to encourage greater use of a program that allows borrowers with loans backed by Freddie Mac and Fannie Mae to refinance up to 125% of their home's value. The borrowers must have kept payments current on the underwater loans to qualify.

According to the Mortgage Bankers Assn., more than three-quarters of all home loan applications are now for refinances, although the volume is more of a boomlet than a boom. As rates sank toward 4% recently, borrowers were refinancing their loans at about half the pace seen in early 2009, when rates cracked the 5% barrier for the first time since 1956.

Each drop in rates prompts some refinancing, but the effect diminishes over time. When rates start going back up, all refinance activity will cease. Mortgage brokers and loan officers are hoping purchase activity picks up dramatically for them to make a living.

Jay Brinkmann, chief economist for the mortgage trade group, said the torpid housing market had produced few new purchase loans in recent years that would be good candidates for refinancing. What's more, many people already have refinanced at rates less than 4.5% or simply never intend to replace an old loan.

“We'll have to see what happens this week with the [latest big] rate drop,” Brinkmann said. “Until a few weeks ago, rates were just back to where they were this time last year.”

Meantime, mortgage borrowing to finance home purchases continues to lag despite the record low rates and home prices that in many areas are down more than 30% from their 2006 peaks. Plenty of families are too stressed out financially to buy. Others are leery that housing prices, which rose a bit in the second quarter, could crater again in a double-dip recession.

It's difficult for most industry veterans to understand how low prices and low interest rates aren't creating demand, but the reality is (1) prudent lending standards, (2) the plethora of foreclosures and short sales, and (3) high unemployment due to the weak economy has greatly diminished the buyer pool. Couple this diminished buyer pool with abundant supplies of distressed properties, and you have a recipe for lower prices and anemic sales volumes.

With a 1-year-old daughter, Joseph and Allison Dillard would normally be prime candidates to stop renting and buy a house.

He is a software engineer and she has a master's degree in mathematics that should allow her to find work when their daughter is older. They have saved enough money for a 20% down payment on a single-family home in Mission Viejo or Laguna Hills, or perhaps a town home in Irvine, she said. And they have been pre-approved for a loan through Hardin, the Ladera Ranch mortgage banker.

Having looked at homes off and on since early this year, the Dillards stepped up the search this month after Joseph settled into a better new job at Google Inc.'s offices in Irvine. But they haven't taken the plunge into ownership.

I know several of the software engineers at Google. I have been to their offices many times. The IHB has spread like a virus there. I wonder if his trepidation about buying is related to the IHB?

“The mortgage rates are so low but we're worried, because we don't know much further housing prices will fall,” said Allison, 30. “We're trying to gauge the potential risks and benefits.”

In any case, the Dillards figure, the economy's precarious state means they'll have at least another year before interest rates rise significantly.

“It doesn't seem like they'll be jumping up any time soon,” she said. “So that's not motivating us to do anything right away.”

He is right. There is no urgency to jump into home ownership. Prices will be flat or down, interest rates will likely remain low, and supply will remain abundant. There are fewer reasons not to buy, but there are few compelling reasons to buy now — not that realtors will admit that.

Buying in a low interest rate environment

realtors generally tell people to buy when interest rates are low. As with most things realtors say, this isn't usually a good idea. The reason is simple, when interest rates rise, money gets more expensive, and future buyers cannot borrow as much to bid up properties. Unless incomes are rising dramatically (or DTIs get out of control), rising interest rates make for tepid appreciation at best.

Ideally, buyers should wait for interest rates to rise so they can refinance into a lower rate and smaller payment in the future. I have endorsed this strategy on several occasions. However, in today's market environment, this advice just doesn't work. It may be seven to ten years before we see the peak of the next interest rate cycle. How long do you want to wait?

The days of making huge gains from appreciation are over. Real estate is going to struggle for years as the supply is absorbed and interest rates slowly rise of the bottom. Both of those factors are going to put pressure on prices for the foreseeable future.

In a low interest rate environment, the primary reason to buy is to save money over renting. This should be the focus of buying decisions for the next several years.

There are many reasons to buy real estate, and it won't be a loser for those buying over the next several years, but buyers need to have realistic expectations. Buy because you want to provide a stable home for the family, but forget the nonsense about appreciation. It isn't going to happen.

Sale-leaseback foreclosure

When a builder puts in a model center, they don't want to leave their capital tied up in the houses they built, so they usually sell these to investors and lease it back until they wind down their sales operation. Today's featured property was purchased by one of these investors who walked away and let the bank take the property back in foreclosure.

Note on interest rates for posts

When I prepare posts for the IHB, I get the current mortgage interest rate from They reported mortgage interest rates average 4.1% rather than the 4.0% mentioned in today's post. The rate I show represents the average in the marketplace not the lowest interest rate attainable. I believe this is more accurate to what the eventual buyer of the featured property will actually pay.


This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707


Irvine House Address … 92 RINALDI Irvine, CA 92620

Resale House Price …… $659,900

Beds: 3

Baths: 3

Sq. Ft.: 1964


Property Type: Residential, Condominium

Style: Two Level, Mediterranean

Year Built: 2006

Community: Woodbury

County: Orange

MLS#: S673564

Source: SoCalMLS

Status: Active

On Redfin: 9 days


REO BANK OWNED PROPERTY!! Stunning 2 story condo with excellent curb appeal. Inside this gorgeous home there are tiled floors throughout the living room and kitchen. The living room has a cozy fireplace and recessed lighting. The kitchen would be perfect for any cook, with the built in refrigerator and the KitchenAide stainless steel appliances. There is a bedroom and a full bathroom located down stairs. There is a laundry room upstairs. This condo is a former model home and the 2 car garage was remodeled into 2 sales offices. Therefore there is no actual garage. The buyer may convert it back at the buyer's expense. This home is turn key ready and is a must see!


Proprietary IHB commentary and analysis

Resale Home Price …… $659,900

House Purchase Price … $956,000

House Purchase Date …. 8/24/2006

Net Gain (Loss) ………. ($335,694)

Percent Change ………. -35.1%

Annual Appreciation … -7.0%

Cost of Home Ownership


$659,900 ………. Asking Price

$131,980 ………. 20% Down Conventional

4.10% …………… Mortgage Interest Rate

$527,920 ………. 30-Year Mortgage

$150,708 ………. Income Requirement

$2,551 ………. Monthly Mortgage Payment

$572 ………. Property Tax (@1.04%)

$400 ………. Special Taxes and Levies (Mello Roos)

$137 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$233 ………. Homeowners Association Fees


$3,893 ………. Monthly Cash Outlays

-$594 ………. Tax Savings (% of Interest and Property Tax)

-$747 ………. Equity Hidden in Payment (Amortization)

$191 ………. Lost Income to Down Payment (net of taxes)

$102 ………. Maintenance and Replacement Reserves


$2,845 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$6,599 ………. Furnishing and Move In @1%

$6,599 ………. Closing Costs @1%

$5,279 ………… Interest Points @1% of Loan

$131,980 ………. Down Payment


$150,457 ………. Total Cash Costs

$43,600 ………… Emergency Cash Reserves


$194,057 ………. Total Savings Needed


48 thoughts on “Mortgage rates hit record low of 4.0%

  1. octal77

    Interesting Statistic

    O.C Metro Magazine, September 2011, pp 22

    “O.C. Housing vacancies rise 64 percent in 10 year period

    2010 Census figures show that 56,126 units were empty last year, up from 34,197 in 2000”

  2. Planet Reality

    Anyone waiting to buy at the next interest rate peak will need to wait 10 – 20 years.

    In the mean time Mortgage rates will be pushed into the 3s% and the trough will be long with prime areas still fetching $3XX+ per sq ft.

    We are a few months from 2012, wasn’t today’s featured property supposed to be selling for $400,000 by now? Those peanut gallery price predictions from yester year are hilarious.

    1. awgee

      Exaggerating other’s positions and calling names does nothing to detract from how right others have been calling a price decrease in the upper end Irvine home market and how miserably wrong you have been. They will continue to be right. You will continue to be wrong, and you will continue to make a fool of yourself by posting transparent logical fallacies and consistent bad calls.

      1. Swiller

        Aw awgee..a little contrite humble pie would serve you well so you can get your strength up to inform people “they are scumbags whether or not they know it”.

        PR was right, whoopty do, it just means more pain for everyone. As the rates lower, the ones who got “modifications” will look to see YET AGAIN, that the fat cats with sh1t tons of equity are PAYING LESS than an underwater homewoner. This will ratchet up the defaults a bit more.

        Again, I hope ALL property value drops another 50%. The ones thinking they are secure might just be a tad less arrogant if a few hundred thousand POOFED from their portfolio’s.

  3. WS

    I think people underestimated the amount of government intervention. This has turned into a long slow bleed – welcome to Japan 2.0. I noticed Dataquick latest median number for the OC showed -6% or -7% YoY drop in OC median home prices and a -12% drop in single family homes.

    As a potential buyer, I look at this and say why bother? Every year I can hold off from purchasing I save 10% (or can buy 10% more). We probably have a few more years of 10% drops don’t you think?

    1. IrvineRenter

      Thank you for the accurate data. The higher up the housing ladder you are looking the less urgency there is to buy. The low end is nearing the bottom, but the high end will continue to crumble.

    2. wheresthebeef

      Don’t present those facts to Planet Reality, he already assured us that THE bottom for Irvine housing was in spring 2009.

      A long, slow bleed is the correct analogy. This is a great time for renters who can save a bunch of money. By waiting a year I can save another 50K to put down on a house and that same house I am interested in will likely lose another 50K in value during that time. Win win situation!

      1. Swiller

        Present those facts, does it change that Irvine has still not bottomed out from 2009? Note as well, you are using data from OC as a whole, and not just from Irvine.

        Liars can figure, but figures don’t lie.

        When the IRVINE prices drop below 2009, then you can call out PR.

        1. wheresthebeef

          Swiller, you need to lay off the caffeine a bit. Nowhere did I say that we are currently below 2009 in Irvine. I was responding to the slow bleed comment that will take Irvine below Planet Reality’s magic spring 2009 bottom. It’s just a matter of time friend.

          1. Swiller

            Don’t get me wrong beef, I’m actually hoping you are right. I would like to see another 50% drop in housing prices.

            However, Irvine is driven by the WEALTHY, so I just don’t see huge drops coming, it’s not the TREND. The trend is for the rich to get much, much richer, and the average Joe to earn less and less. Think illegal mexican pay, but for all americans.


          2. WS

            I really don’t think Irvine is considered “wealthy” is it? Upper middle class maybe? I guess it is all relative.

            Irvine is very vulnerable to the substitution effect of neighboring communities. Perhaps Newport, Laguna and CDM are more insulated but I don’t think Irvine is.

        2. gepetoh

          That’s peculiar… according to Zillow Irvine has dipped from $566K in 1Q09 to $532K in 2Q11. That’s 6% below “the bottom”, no? And according to FHFA, Santa Ana/Irvine/Anaheim area has dipped a shade over 5% in that same period.

          So does that mean we can officially call PR out now?

  4. WS

    I just need to hold off the wife’s nesting instincts as long as possible.

    IR – your blog has been an invaluable tool, every time she gets fired up from browsing Redfin or watching house porn on TV I send her here.

  5. aldjakldfja

    “In a low interest rate environment, the primary reason to buy is to save money over renting. This should be the focus of buying decisions for the next several years.”

    Just curious, I am trying to figure how to do rent vs. buy for my situation (and probably many others)

    If my wife and I were renting, we would be buying a minimal place (like a 1/1) to maximize savings. However, if we were buying we would buy something bigger like a 3/2 to anticipate family growth.

    For rent vs. buy should we be comparing against a 3/2 (that we never plan to rent anyways) or vs. the 1400-1500 a month of a 1 bedroom apartment?

    Up til now, I have been going in the middle and been comparing buying (at least 10% down) a 2/2 vs renting a 1 bedroom apartment. Basically trying to keep the payment close to 1000, so that the remaining H0A/taxes/etc. can cover the remaining 400-500/mo that would go towards rent. Then just assuming if I want to go for a 3/2 that would be an incremental jump.

    1. irvine_home_owner

      I don’t think that’s an accurate comparison.

      You should compare apples to apples… same space, same room count etc.

      It’s easier to compare private SFRs to for sale SFRs (or condos) because of the similar features (such as a private garage) than apartments.

      I understand you are doing this based strictly on numbers but it’s hard to quantify the non-numerical factors such as your own space, no neighbors above/below, private parking etc.

      1. New Irvine Home Buyer

        Agreed. Except it is actually even more complicated than that.

        There is opportunity cost on the down payment.
        There is a cost to the loss of mobility.
        There is a cost to the “Buy all the house you need for the next 20 years right now” vs “rent bigger places as you need them over the next 20 years”.

        Buying a home isn’t and should never have been about making money (saving money on rent is great if it is the case). Buying a home is like buying a mercedes or a BMW. It is expensive to buy, maintain and use. But it is more comfortable, drives well and you are happy (if you can afford it). Treat it like an expense, and judge how much you can spend, and if it is something you want to spend on.

        1. awgee

          I disagree. If your timing is good, you can make a lot of money on residential real estate that you live in. Forget the shoulds and shouldn’ts. They are for losers who need validation to feel good about their decisions. Make your decision based on what works for you. And be prepared to take responsibility if you find out you made the wrong decision.

          1. New Irvine Home Buyer

            Should and shouldn’t are not there for validation. They are there for guidance and to express opinion. You _can_ make a lot of money buying residential real estate, yes. I say people shouldn’t. notice how I used the word “home” instead of real estate. Buying a home should be (yes I used should again) about a home to live in.

          2. aldjakldfja

            yes, I understand it is just a “home” to live in but for my family I would still like to be the best steward of my money. Buying a home doesn’t have to be like “buying a mercedes or a BMW” just like plenty of people have problems due to the fact they drive way much more car than they can afford and have to make sacrifices elsewhere (not saving for college, emergencies, etc.) and they just as easily buy more house than they can afford. Could easily just get by with Honda or Toyota house. Or heck, even just an Acura and save a good amount over the BMW/Mercedes.

            Not saying this is you at all, just that the current (or former, whoever you listen to) recession is proving there are plenty of these people

          3. New Irvine Home Buyer

            I completely agree with you. It boils down to living beyond your means. It is the same type of people who run up credit card debt, who buy fancy cars they cannot afford.

            The point of my post was that home ownership is a comfort or a luxury, not a necessity. It is also an expense not necessarily an investment.

          4. aldjakldfja

            Enjoy your new home. curious, are you new to irvine or your name just mean a buyer of the “new” homes in Irvine? or I guess it could be both haha, both new to Irvine and a buyer of a brand new home

          5. awgee

            My family has been buying and selling HOMES for decades to profit on and live in. I guess we are just bad for not doing as we should.

        2. blobula

          Gawd, American’s obsession with BMWs. Face it, you buy it to show everyone you’re Mr BigStuff, even if you’re naught. I bought my first BMW twenty years ago, before everyone had access to cheap credit and low interest car loans. Everyone hated me when I drove that car…road rage from every beater on the road. Never had any flack when I was in my other car — a ’71 VW bug.

          Do you know what the difference is between a guy in a BMW and a cactus?

          The pricks are on the inside!

      2. aldjakldfja

        thanks for the feedback. I understand what you are saying. Just hard to do that comparison in my head since it would be a comparison between something i would never rent, a 3/2. well not never, but givent the current family siutation or something i would never buy (1/1)

        I guess what I’m saying, say rent is 1450 a month for a 1 bedroom, and 1750 a month for a two bedroom, same amentities.

        You do the rent vs. buy. taking all factors (savings rate, interest deduction,etc.) into account. A 2/2 condo comes out right in the middle at 1600 a month.

        well should you do it? its cheaper than the 1750 a month, but you were never going to rent that anyways. do should then should you compare it to what you were actually going to rent the 1450 a month.

        can just do the same scenario of a 3/2 vs. 2/2. you wouldnt rent a 3/2 but you would never buy a 2/2 due to long term goals for your family (maybe have 1 kid now, but plan for another in 2-3 years) say rent is 1750 for the 2/2 then 2050 for a 3/2.

        once again rent vs. buy comparison, monthly nut is 1900.

        thanks again, just interested in what you guys think. this is usually the dilemma i come across when running the numbers.

        1. gepetoh

          Good point and one that is often overlooked. In all the fervor of discussing fair value we often forget the real-life situations such as yours.

          I would approach it in a hybrid manner. First, do the compare of rent vs. buy on the same property. So in your example of 3/2, $2050 vs. $1900. Once it passes the smell test there (and it does in this example), then make the personal decision as to whether you would pay the extra monthly for a bigger place. So first, stay OBJECTIVE and determine whether the house is priced right. And then, only if it passes the first test, make the very SUBJECTIVE decision of whether you would buy a bigger place or if it is too much for you.

          1. aldjakldfja

            thanks, actually it seems in many places such as South OC my details is kind of a moot point as the 2/2 is cheaper than the 1 bedroom apartment

            We have actually been looking in areas such as Ladera Ranch where the decision would be between renting a 1 bedroom apartment or buying a 3/2 and the dollars would be pretty even

  6. New Irvine Home Buyer

    “In a low interest rate environment, the primary reason to buy is to save money over renting. This should be the focus of buying decisions for the next several years.”

    Beautifully said. I have been reading your site for over almost 2 years now, and waiting and watching the irvine market for just as long. All this time I have been renting, and looking to buy a house when it made sense. Wait and watch was what I did.

    This weekend I pulled the trigger. I dont expect any appreciation in the property value. I am buying despite knowing it isn’t the best “investment decision”. However, when I did the math, I realized that I would be living more comfortably, and paying about $200 less monthly compared to renting a place. (I need a 3 bedroom place regardless of whether I rent or buy. I am married, have 2 kids (sharing a room) and my parents stay with me 6 months a year).

    About 2 years ago, the numbers were coming out even. This year, it looks like when I renew my lease the rent might go up, while my monthly payment on the home (tax adjusted) is about ~$200 less than last year. I am not counting the amount going towards equity.

    Putting a roof over your head, is not an investment decision. It is an expense. It is a cost of living. Treat it as such. If house prices everywhere go down, your costs of living go down. If house prices everywhere go up, your costs of living go up.

  7. whatever

    Yeah, I am one of those that bought in Irvine in ’09 thinking that things would drop a “little” more, but I had the 20% down payment, got a place close to rental parity (versus my Irvine Company appt) and wanted a place to call my own. Basically I got screwed by the tax credit program, which I wasn’t eligible for, but I was bidding against those who were. So I got screwed in both bidding up the price and believing the market had “stabilized”.

    I have now noticed similar floor plans in my area (but worse locations) go on Redfin for well over 10% below what I paid just two years ago. I looked into refinancing at today’s lower rates, but my 20% equity has turned into something like 10-12% equity in only two years, so I can’t refi without putting more $ down, and I am not going to do that.

    I still love my place and am paying about what I would pay to rent, but if I ever wanted to sell, with realtor fees and adding what I paid to move in (new carpet, paint and other work), I am effectively under water on a 20% down mortgage in less than 24 months.

    I was planning to stay “very long term” when I moved in, so there is no loss unless I sell and I am okay financially with paying the mortgage. But the fact I can’t refi, and knowing that my down payment is basically up in smoke is pretty depressing and definitely has an affect on my disposible spending: I am not doing any.

    1. wheresthebeef

      Sorry to hear about your situation. Many of the tax credit buyers are now underwater, add another 10% decline in the market and things could get real interesting.

      Just curious, what month did you buy in 2009?

    2. Swiller

      Aye, sorry to hear this. I’m kind of in the same corner but listen to this, I bought in 2004, put 20% down, and I am STILL upside down in 2011.

      As of now, I’m still paying a tad bit less than a rental, with tax write-off of course. If things change and it gets worse (which is what I’m expecting), I will have to make a decision to walk in order to recoup some of my 20% down.

    3. so_scared

      whatever, you should look into HARP refi. This allows you refi without being at 80 LTV. Also, lots of credit unions have portfolio loans that allow up to 90% LTV with no PMI required.

  8. irvine_home_owner

    I think this is notable:

    However, in today’s market environment, this advice just doesn’t work. It may be seven to ten years before we see the peak of the next interest rate cycle. How long to you want to wait?

    So the High Interest Monster is no longer waiting around the corner. Previously, every time the rates went lower, there was always this “they’ll go back up” rhetoric and to wait for them because prices will go down conversely.

    Is this what people meant by 1999/2003 prices? Because if you factor in low interest rates and inflation… aren’t we there? Larry is buying up property in Vegas, selling to first time buyers and awgee is a homeowner again… the water must be fine… everyone jump in!*

    *Except for certain hoods in Irvine… prices are still at peak levels.

    1. awgee

      Please do not represent me or my situation. We bought a house to live in, exclusively; not as an investment. Purchasing a home in Irvine right now as an investment is a stupid decision, and representing our decision as anything other than an expense is a lie.

      1. screwedbyanelephant

        how is it that when you buy a home now it’s to “live in”… and if someone else buys a home in irvine, it’s “an investment”… why can’t someone buy a home in irvine “to live in”?

        1. screwedbyanelephant

          sorry i read that as “buying in irvine IS an investment”.. i agree buying in irvine now AS an investment is stupid… but buying to live in, well that depends on your situation.

      2. Swiller

        Homes are an expense AND an investment, just like cars. The investment may be returning negative, but that doesn’t change what it is.

        Homes were ALWAYS meant to be an investment where people would pay them off during their working years, and then be able to live on very little income when they retire. That’s not just an expense.

        Everything changed when Glass-Steagall was stripped and housing was entered into the Wall St. casino. But we know that can’t be it because regulation is evil and commie pinko socialism. We all know it was the “scumbags” that caused all this.

        1. awgee

          Swill – Some info just to make you happy. Got a long silver executed at 26.25 USD early this morning, and plan to sell it about a half hour after Comex opening.

      3. irvine_home_owner


        Please explain how I’m representing you or your situation.

        I did not say anything about whether you are investing or living… just that you are homeowner once again after being a renter all these years.

        To anyone else who has been renting and waiting on the sidelines, your move could be an indicator of something. Or does it only count if you made 200% on your money and thus can afford to have such a large expense?

  9. lunatic fringe

    They can’t be serious about the garage still being a sales office, can they? Did this place go REO from the builder?

  10. so_scared

    Of course, the flipside to his policy is to reduce the profits accruing the member banks of the federal reserve he is trying to support. Banks were borrowing from him at zero percent, buying treasuries and earning a 3% riskless trade. As long rates go down, the profits from this trade are diminished, and banks will take longer to earn their way out of insolvency.

    This is not technically accurate. If banks were buying treasures and the fed is now buying those treasures back at higher prices, the capital appreciation or gain would be enormous and actually help immediately add capital to the bank’s balance sheets vs. the drip drip of a 3% net interest profit.

    Bonds aren’t traded on yield. they are traded on price. All the banks are going to book a huge profit on this trade. And if they don’t sell, what difference does it make what the current yield is, they already locked in their net interest delta and will keep earning that 3% delta until short term rates go up.

    (from bloomberg)
    Treasuries due in 10 or more years have returned 28 percent in 2011, exceeding the 24.4 percent gain in all of 2008 during worst financial crisis since the Great Depression, according to Bank of America Merrill Lynch indexes. Not since 1995, when the securities soared 30.7 percent, have investors done so well owning longer-dated U.S. government debt.

  11. IndyLew

    This discussion has generated some issues I have never seen put forth elsewhere, that many banks will profit hugely from the sudden surge of treasuries values they bought a few years back, using zero-cost fed loans (or close to that). You don’t suppose…this plan to load the banks up on treasuries, then goose their values, then the banksters sell…and the public is caught with the losses.
    It is an utter screwing and “can’t lose” by the banks. I will vote for the purposeful conspiracy theory, can anyone put numbers to this for any particular bank’s run of profit on treasuries bought in the last three years…say, bank of America? Because in the tradition of Wall Street/Fed, a “boiler room” does a PUMP and soon after…the DUMP. Like what just happened to silver in an utter crash mode, would then happen to the treasuries (suckers get burned, banks all cashed out first, then the Fed reverses course and all the little people eat their big loss). Silver went from almost $40 to $30, and that market is no where near as manipulated as the Fed can do to the carry-trade treasuries with even modest steps to reverse their policy. Amazing. Likely true, planned, nasty. Time to sell those long, low-yield treasuries, folks, don’t be the last chump out the door, I will wager. Thanks to those who followed up and suggested these facts!

  12. matt138

    Larry, how can we have very low interest rates when we were recently a negative savings rate country?

    Interest rates hinge on the supply and demand of SAVINGS. If current low demand for borrowing savings drives interest rates lower, why did interest rates not soar when the borrowing was manic?

    When a nation is borrowing and spending instead of saving, banks must raise interest rates to incentivize savers and discourage borrowers.

    I doubt this Fed manipulated, slow bleed is going to work. This is setting up a Treasury Bubble and Dollar Rout because the longer we suppress interest rates, more savings is depleted, resources redirected inefficiently, and the higher rates have to go to correct the imbalances. This is a time bomb, not like Japan.

    1. so_scared

      Because america isn’t the only source of savings in the world. The emerging markets are generating massive savings which have to be recycled in the only “savings” account big enough to hold it. US Treasury market.

      also Savings rate is an arbitrary definition. Don’t depend it to see where the supply of money in its broader definitions comes from.

      1. matt138

        So we are counting on continued low interest rates from:

        Continued foreign savings piling into a Treasury Bubble and/or freshly printed money. Sounds sustainable.

  13. IndyLew

    The astute readers who pointed out this Fed-manipulated Lowest Interest Rate in History and Highest Treasuries values, isn’t so much about saving the banks through lower mortage rates yet again (which may work, may not) but a pure gift to the banks making believe it is to help anyone else. Here’s one synopsis of this:
    QB Partners’ Paul Brodsky and Lee Quaintance wrote in a letter to shareholders yesterday: “This is a move to help recapitalize banks under the guise of supporting the housing market… This is all about the banks income statements.”
    Note this treasury-lower-lower-lowest manipulated rate thing ONLY works if some dragged out, manufactured crisis spooks the PUBLIC into buying treasuries, not a (formerly) stronger currency like the Euro…say a Euro crisis involving some podunk economy like Greece, and it is dragged on and on for no reason apparent: thus both the US and European banks that are pulling off the carry trade, now reap that cynical massive profit and THEN announce Euro “salvation”. Time will see if it is that disgustingly obvious and manipulative, but at this time it certainly appears so. The banks net result, they literally printed and helped themselves to money and profits from this carry trade carried to the extreme, at huge public loss. Irvine Housing Blog has pointed out the pieces of the evidence of the Fed’s putting their Biggie Banks as their sole target for profit. This is the easiest carry trade in history, now carried to the nth degree.

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