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Tuesday, February 02, 1982

02.02.2007 - Groundhog Day Open Thread

This is your open thread for Groundhog Day, February 2, 2007. Please post random links and off-topic discussions here.

Do you ever have deja vu Mrs. Lancaster?

I don't think so, but I could check with the kitchen.

33 comments:

T,V & Mr.B said...

So the big question economically, is whether the Fed will raise interest rates, which we all know doesn't directly affect home loan rates, but that is besides the point. I just want to put out there that the Fed will raise interest rates if the cost of goods continues to rise. We've seen moderate cost increases in core goods, but not enough for the Fed to raise the rates, but what happens when those core goods do increase? What happens when we start to see the cost of goods from ruined crops rise in the stores? what happens when we see the cost of beef sky rocket? These ARE gonna happen. Both of those have been hammered by this winter and we WILL soon see those prices rise substantially. Will the Fed just say, "Oh tough winter, so we won't raise rates"? I think not.

Nolaguy said...

I'm wondering the same thing about the Fed and rates.

News today shows that the unemployment rate is rising - which might cause the Fed to lower rates.

At the same time, if oil continues to rise, they could raise rates to stem inflation.

I read somewhere that they just changed the percentage that oil plays in the inflation rating (need to research) - so who knows how this puppet game will play out...

I'm starting to feel that the Fed is setting the environment to lower rates in an attempt at a soft landing. Just what the US economny needs - more easy credit

T,V & Mr.B said...

Nolaguy,
I really don't think the Fed CAN lower rates. Foreign investment will DUMP the dollar, raising our prices for foreign goods if they do so. The best that they can do is keep it steady, and I don't think that is going to happen. Cattle have been dying, it's calving season and the newborns are dying, the herd is skinny as hell, beef is going to sky rocket. Avacado, citrus and many other crops are dead and it is at least TWO years worth of growth, ruined. I think the Fed is really up the creek. I know the news isn't saying a lot about it and the herd mentality (no pun intended) are jumping on ANY good news and leaping at ANY bad news. The fluctuations we see in the markets are exact predesessors of bad things to come.

matthew said...

The FED will keep rates steady for most of 2007. It has no other alternative.

The Tim said...

Is it just me, or are some of the local blogging real estate "professionals" getting a bit testy?

Schaum said...

I saw an ad on Craigslist yesterday that showed a really interesting (desperate) tactic by a real estate agent.

The agent offered to rent you a house he owns for *any* duration, as long as you eventually purchase a home through him. He also offered to pay rebates on the rent after the home purchase was made.

Unfortunately I can't find the ad today...

plymster said...

The Fed is looking to manipulate the CPI to show that they don't need to raise interest rates.

Bernanke: Well, presumably the projections they're making are in terms of what they think the standard CPI inflation will be. At the Federal Reserve we've done numerous studies of these indices and we do think that the standard CPI does overstate "true" inflation, if we could measure "true" inflation, by some amount between a half and one percentage point.

There's also an interesting study by the Fed about how the US is saving too much.

So the Fed is looking for an excuse to leave rates alone, or drop them. Furthermore, since the Richmond Fed is cycled out of the FOMC vote, Jeffrey Lacker won't be around to dissent with his advocacy of a .25 interest rate raise.

Though I agree with T,V, and Mr. B about the catastrophic nature of lower rates, I'd bet on a drop in rates (and a BIG drop in the dollar) before the next FOMC vote to raise rates.

synthetik said...

So take what is thrown on the net with a grain of salt and consult your local REALTOR for the most accurate advice possible. They are a consumer's best source for current local market conditions.

I realize that your average Joe isn't a rocket scientist, but how stupid do they think we are? Are they actually selling any newspapers? Seriously, WTF!?

Mikhail said...

I doubt the Fed will raise rates much at all in the next few years. If anything, they will cut rates as a recession begins to appear.

But there is no reason to wait for the Federal Reserve to raise rates in order for the housing bubble to implode, it is doing that very nicely all by itself already.

In any event, what the Fed does with interest rates does not have a direct correlation to what happens to mortgage rates. Fed rates can go up, and mortgage rates down, and vice versa.

Nolaguy said...

I thought that ARMs were set to the 12-month Treasury Average Index.

Wouldn't a lowering of interest rates by the FED make ARM rates lower?

synthetik said...

>Wouldn't a lowering of interest rates by the FED make ARM rates lower

you'd think it would but I've never seen any evidence of that. I had two ARM's on the four mortages I've had over the years, both went up slightly or stayed the same despite FED lowering rates during the same period.

When the lending institution is originating the loan, it is in their interest to start with a low rate to get your business. After they've got you locked in, you're pretty much at their mercy from my experience.

These ARM's are much different that what people are buying into today (i.e., NOT sub prime)

What they tell you at closing doesn't seem to correlate with reality when it's time to sell.

What do you mean there is a fee for paying my mortgage off early? (always read the fine print, Thanks Countrywide) My mort. broker put me with Countrywide again a few years down the road and I explicitly told him I wanted to be able to pay off the loan at any time with no prepayment penalty. Guess what? They still tried to get me on that. Didn't seem to matter if I was just paying off early or selling the house in less time than the'd like me to have (i.e., they didn't make enough interest on me)

Those of us who have no debt and pay our CC's on time are a total loss to the banking scam. We all make mistakes in our 20's, myself included.

RE is full of kickbacks galore, all at the expense of the consumer. Have you thought your rate was 6.15% only to be explained at closing that the actual rate of interest was 6.55%?

The pen is already in your hand and you sign it anyway.

biliruben said...

ARMS, after they are past their initial fixed period, are set to a variety of indeces.

I don't remember what mine will reset to. Something like LIBOR+2.5, capped at 10%, and I assume I'll be out of our house before it resets in 2011, but I should go back and check anyway in case of some sort of catastrophic event where we need to stay in the house.

Geez. Here I am bad mouthing idiots who don't read their mortgage docs carefully and understand their loan terms, and I don't even remember my own.

John Doe said...

Food (Beef and crops) are not computed in CPI.

Therefore, it won't even break the skin.

Bernanke is more worried about deflation than inflation in general, but doesn't want runaway inflation.

Look at Money supply, and you'll see what I mean.

T,V & Mr.B said...

OK, From a Realtors mouth to your eyes, (ears) My cousin who is a high end realtor here and makes a very nice living doing that, has a pulse of the market, and really knows her stuff, told me to "Wait" on buying a house. My cousin is an honest person, sees the reality of things, doesn't have as much a vested interest in the boom continuing and of course, has my best interest in mind. Though there it is.

How many of you out there have actually heard those words from a Realtor?

Eleua said...

On interest rates...I'm with Plymster. The FED is itching to drop them, but will manipulate CPI and jawbone, in lieu of raising rates. They don't care about the dollar.

T, V, and Mr. B,

Have I heard an honest RE agent? Yes. They say in very hushed tones, that the market is unsustainable and not to buy. The RE agent I am thinking of is a BI-Windermere agent. All of this is completely off the record, as she has to make hay while the sun shines...

MisterBubble said...

"Wouldn't a lowering of interest rates by the FED make ARM rates lower?"

My own understanding is that mortgage interest rates are more closely tied to bond demand than to the funds rate, but the relationship is nowhere near perfect.

Biliruben is right: most mortgages are indexed to indices like LIBOR (which is the rate that foreign banks charge on loans of US dollars). LIBOR carries a premium over the fed funds rate, which is why it's so frequently used for mortgages -- if you index your mortgage interest to LIBOR, you help to guarantee a return over the cost of capital (i.e. the funds rate).

At the end of the day, the only safe assumption is that the banks will set the rates of their mortgage products to whatever will make them they most money over the life of the loan. Part of this calculation includes the funds rate, but there are a ton of other complicating factors, as well....

MisterBubble said...

Hey...actual data! I just found this graph which shows pretty clearly the (lack) of relationship between the fed funds rate and mortgage interest rates.

Is the source reliable? Good question. But it's certainly better than my half-informed speculation....

MisterBubble said...

Here's a great article from the same source, discussing the sources of mortgage rate movements.

WTF said...

Will that last sane person leaving Seattle, please turn off the lights...

B said...

Why leave?

My rental costs per month for a view apartment in a great Seattle neighborhood are 45% of what PITI would be on a SFH "fixer" in an uh, "developing" (crack town) neighborhood right now.

There are plenty of sane people in Seattle. They just didn't buy in 2005-2007.

shotsix said...

I'm a biologist, not an economist, so I'm confused about the interest rate thing... isn't the negative savings rate we've experienced the last 2 years an indicator that interest rates are too low? Doesn't this make us (the dollar) a bad investment? Something seems out of whack.

sash said...

folks, a tidbit - the new construction in redmond education hill seems be going off well this far. the new homes that are not released as yet have been sold to the higher offer!

kim said...

A new, great house is on the market at the low, low asking price of $840,000...

http://www.redfin.com/stingray/do/home?MARKET=seattle#market=seattle&lat=47.73214960856098&zoomLevel=17¤tLocation=27018328&long=-122.28333438258998&search_location=27018328&residential=true&min_price=&max_price=&num_beds=3&num_baths=&time_on_market_range=-2&min_listing_approx_size=&max_listing_approx_size=&sold_within_months=0&listing_id=476056

A quick Zillow search show it last sold in 12/06 for $625,000. Based on the description of "extensive remodel just completed including new paint inside & out" and the timeline, I'm going to guess they, uh, painted. (Though am I alone in not considering painting a real part of remodeling?) How the h*ll is repainting + just under two months off the market reason for a $215,000 price increase? That's 35%???

kim said...

Hmm, my link got cutoff...the MLS is 27018328.

Mikhail said...

shotsix said: "I'm a biologist, not an economist, so I'm confused about the interest rate thing..."

I know that the reasons behind interest rate trends can seem confusing. But it it's heart, it's pretty simple: supply and demand. The greater the demand there is for US treasury bills, the lower the interest rates will be. The lower the demand for US treasuries, the higher the rates will be.

It's that simple.

Thus, the low interest rates in the
US are indicitave of huge global demand for US treasuries. Don't forget that it's not just Americans who buy treasuries, in fact these days it is largey (Asian) foreigners.

Now, here comes the hard part: explaining WHY there is a lot of demand for US treasuries. In truth, there is no answer to this since the treasury markets are SO huge, and we can't be sure why everyone is buying or selling. That said, we can speculate.

The best answer I can offer is that the global credit boom has created lots of cash that people want to stash somewhere. Many investors have enjoyed borrowing money in one country with very low interest rates and then buy higher yielding assets elsewhere. This is known as the "carry trade". Japan has been one of the biggest culprits in the carry trade, since their central bank will lend out money at the ridiculously low rate of .25%. This tends to drive down interest rates EVERYWHERE since big investors just keep borrowing bigger and bigger dollops of yen at low rates, and then buy US treasuries, or whatever.

This is what is responsible for driving up all asset prices (copper, oil, real-estate, etc).

But this is just my theory.

biliruben said...

I ride past that house on the way to work. They haven't done a thing to it.

It listed for 600K, IIRC. The two 600 sq ft shackes on either side listed for 425K.

My dream 10 years ago was to someday live in one of the little shacks on either side.

No longer.

People are pricing in potential developer profits for their properties these days. If the high-end market hadn't already started to collapse, I would guess that would be reasonable.

WTF said...

How the h*ll is repainting + just under two months off the market reason for a $215,000 price increase? That's 35%???

They must have put in granite counter-tops...

deepcgi said...

bili:

I guess now you'll just have to settle for renting a place 4 times larger for half the monthly outlay. :-)

shotsix said...

"They must have put in granite counter-tops..."

...and don't forget the stainless steel-like appliances!

Matt said...

MLS is 27018328... hahahahaha, what a holwer!!!

$215,000 increase in under a month? Sweet, I'm hoping that price includes the just-added basement brothel chalk full of high-end hookers?

Because, if you buy that joint, you might as well get f'd while you're getting f'd, eh?

Alan said...

They must have put in granite counter-tops...

Don't you mean granite tile countertops?

kim said...

The thing is, I can't imagine they even put in granite...or even faux granite. Cause if you did ANYTHING to the house in your "remodel", wouldn't you write that up in the description? Not just "painted"?

Will keep renting for cheap and save the oodles of difference between renting and buying for now.

Comrade Chairman Greenspan said...

$215,000 in two months. But no, this isn't a bubble driven entirely by easy money. What a joke.