The National Association of Realtors claims now is the perfect time to buy a home
But what they forgot to tell you is that while the Federal Reserve has recently slashed the funds rate by 1.25%, 30 year fixed mortgage rates are going up:
U.S. fixed-rate mortgages rose in the latest week, according to Freddie Mac’s survey released Thursday. The national average interest rate on the benchmark 30-year, fixed-rate loan averaged 6.04% in the week ending Thursday, up from 5.72% a week ago, but lower than the year-ago 6.22%.
Home owners who get a mortgage today are paying for the money banks lost writing bad loans in the recent housing bubble.
If you are in a market where prices are dropping, expect further savings by waiting out your purchase, as homes keep losing value, inventory keeps increasing, and mortgage rates eventually reflect the Fed’s recent cuts and future cuts.
The most recent issue of Harpers magazine has a cover article by Eric Janszen titled The next bubble: Priming the markets for tomorrow’s big crash. He discusses how banks helped create the housing bubble and how subprime loans were only a symptom of the problem: hyperinflation of real estate. He also hypothesized that the markets may still have a few years of correction in them before housing prices are where they belong. The article also predicts alternative energy to be at the center of the next bubble.
In 1981 the gross national debt, compared to the nation’s annual income, reached its lowest point since 1931, 32.5%. It could have been paid off then more easily than at any time in the previous 50 years. Despite his claim to hate the debt, Reagan instituted unprecedented peacetime deficit spending. This is not partisan politics, this is straight off the White House web site.
The gross (total) deficit is bigger because it takes into account that when the fed’s general fund (mostly military spending) borrows money from the Social Security Trust Fund, it will have to pay it back. Borrowing from Social Security is still borrowing. Deficit lite, which Bush is talking about, assumes there is no such obligation — that Social Security will not have to be paid back. So the more they borrow from Social Security the smaller is deficit lite.
President Bush has been lobbying to strengthen social security by privatizing it. Currently the social security system has a surpluss large enough that it helps the government cook the books by over $100 billion a year, but in about 15 years it will start costing the government more than it takes in. When it does that you can guarantee at least one of the following will happen
sharply higher taxes
sharply lower social security payouts
inflation (and rising interest rates) due to greater borrowing and an increasing currency supply
If you are counting on social security paying part of your mortgage you might be taking a big risk. Due to accouning fraud, the government is hiding nearly a half million dollars of debt owed by each US houshold. A recent USA Today article pegged the number at $516,348 per household. What happens to home mortgage interest rates the day we default on that debt?
