Thursday, October 26, 2006

Housing in California




Centex, one of the nation's largest homebuilders, advertises in the Bay Area that "for a limited time", if you buy a home from them, they will keep your monthly payments low for 5 years. The buyers are promised to pay "below market rates".

Centex is joining the game shady lenders have been playing for a long time: your monthly payment is "low", say 1%, but your yield is still 6%. The way this works is that the principal is increased every month.

This latest campaign will keep new home sales higher than they would be without such incentives - at least for now. It does, by the way, also keep banks happy. Accounting rules require bank to record (in the example above) the full 6% in income as long as the mortgage holder does not default on his or her 1% payment.

The automotive industry could push out their demise with enormous subsidies for some time; let's see how long the home builders can keep things going. For now, home builders are given a lifeline because long term interest rates have not moved up much.

Former Federal Reserve Chairman Alan Greenspan said on Thursday the U.S. economy was pulling away from the shoals of a sharp housing-sector downturn and that the outlook for growth was "reasonably good."

"Most of the negatives in housing are probably behind us," Greenspan said at a conference sponsored by the Commercial Finance Association. "The fourth quarter should be reasonably good, certainly better than the third quarter."

Thought: Greenspan created the greatest housing bubble in history. So what the Maestro now says about the housing picture I take with a large grain of salt.

1 Comments:

Blogger Gliderflyer47 said...

How ridiculous an article to suggest Greenspan made the housing bubble. The "Maestro" merely controlled inflation/deflation and facilitated excomic expansion. The economic expansion that Americans were begging for. You need to get into a macroeconomics class.

To suggest that finance programs that have been created by some of our most highly respected lenders are programs are shady? Please! Creative yes, they do cater to the American craving for getting more for less and they take advantage of every tax advantage that Congress give them.

Do you not take advantage of every tax law when you do your returns?

I didn't see you complaining when rates were lower and I'm sure when the Feds reverse rates probabaly sometime in the first half of 2007, you'll not be bashing the banks them.

Discloser:I'm not involved in real estate or lending, I'm a currency trader by profession.

WillyT

12:41 PM  

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