Thursday, November 03, 2005

More on the Bubble...

Unless you are living in a cave under the ocean you have read at least two or perhaps a hundred articles about the Housing Bubble and the imminent threat of it's crash. The boys at UCLA have been predicting the crash for years while the boys at Wharton think all is well.

Jane Bryant Quinn from Newsweek has written an excellent article Reality Check on the Bubble. I think this is one of the most balanced pieces I have read on the housing market and what you may expect in the future.

If you plan to own a home for at least four years this is a must read. I especially like her advice on getting into the market with a stable mortgage as opposed to some of the magic voodoo loans pushed by many mortgage companies.
If you don't like the idea of a fixed rate then choose a variable rate that makes sense. Negative amortization is not a good choice in this market. If you are getting a second that is an equity line of credit; remember that equity lines of credit are tied to the prime which have gone up every three months as the FED raises rates. So be sure to read the terms of your loan and have your lender give you a spread sheet for five years on how your loan can move.

Waiting for prices to drop? If you bought a home today at $800,000 with 20% down and a loan of 640,000 at 5.75% your monthly P+I payment would be $3,717.... If prices fall 10% the new price of that home would be $720,000( looks good doesn't it) with 20% down your new loan would be $576,000( WOW) but if the rate jumps to 7% the payment is $3,809.. almost a $100 more per month at a lower price(hmmm)....

Make no mistake rates are going up and will be at 7% before long. The FED has clearly stated that it will continue to raise rates and I suspect that 7% may be the target for long term rates.

Just one more thing to think about...

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