CDZ How Fast and Hard a stop in the Real Estate Market?

[william the wie]

Interest rates are going up for three reasons: 1) to soak up excess liquidity from QE; 2) to prevent wage push inflation; and 3) the mortgage deduction cap has made it much more difficult to convert equity into cash.

Then there is another problem, there is effectively no leverage limit on bonds. With TIPS if we have 5% wage inflation and 5% GDP growth the ten year treasury will yield 10.25% nominal interest and the margin rate will be something like 9-10% depending on demand for CDs. The mortgage market has to compete with the treasury market and that ain't going to be easy because the Mortgage deduction cap is also a real estate appreciation cap. So what will be the result and how soon?

 

[Toronado3800]

I need to see a couple years of Trump policy to really have an idea, good or bad.

My feeling is we're going for another real estate crash in a decade or so. If Trump gets mired in some scandals he can't "Bill Clinton" his way out of or Pence has to take the desk.

Looking at the local markets and projecting an aggressive expansionist idea on Donald's policy's I feel there is a chance we're going to deficit spend our way through it and just devalue every non-new, non-prime location home in the country. The market is pretty hollow here or is creating an amazingly hollow core.

If the latte coincides with a rise in global interest rates near the same time we need to bail out or seriously adjust social security we might begin to suffer very seriously economically/militarily.

 

[BuckToothMoron]

Interest rates are going up for three reasons: 1) to soak up excess liquidity from QE; 2) to prevent wage push inflation; and 3) the mortgage deduction cap has made it much more difficult to convert equity into cash.

Then there is another problem, there is effectively no leverage limit on bonds. With TIPS if we have 5% wage inflation and 5% GDP growth the ten year treasury will yield 10.25% nominal interest and the margin rate will be something like 9-10% depending on demand for CDs. The mortgage market has to compete with the treasury market and that ain't going to be easy because the Mortgage deduction cap is also a real estate appreciation cap. So what will be the result and how soon?

Great question. The cap is for new purchases over $500k, which means lower and middle class Home purchasers will still benefit from the deduction. One could argue that this will push home prices towards the $500k threshold, but could have a severe impact on home prices over that threshold to marginal buyers, because you will only get to deduct on interest paid over the first $500k of mortgage interest.

 

[Wry Catcher]

Interest rates are going up for three reasons: 1) to soak up excess liquidity from QE; 2) to prevent wage push inflation; and 3) the mortgage deduction cap has made it much more difficult to convert equity into cash.

Then there is another problem, there is effectively no leverage limit on bonds. With TIPS if we have 5% wage inflation and 5% GDP growth the ten year treasury will yield 10.25% nominal interest and the margin rate will be something like 9-10% depending on demand for CDs. The mortgage market has to compete with the treasury market and that ain't going to be easy because the Mortgage deduction cap is also a real estate appreciation cap. So what will be the result and how soon?

The unintended consequences (maybe unintended) of the Republican Tax Bill which takes away deductions for real estate taxes and mortgage interest was sure to kill the sales and purchase of homes.

These types of reform are nothing short of stupid, and motivated by greed. Now they can get more money to give to the Military Industrial Complex. Soon to come, if the R's continue in power will be to eliminate Social Security, Medicare and Medicaid, privatize schools and prisons, which will be owned by the Oligarchs - welcome to Russia West.

 

[MarathonMike]

Interest rates are going up for three reasons: 1) to soak up excess liquidity from QE; 2) to prevent wage push inflation; and 3) the mortgage deduction cap has made it much more difficult to convert equity into cash.

Then there is another problem, there is effectively no leverage limit on bonds. With TIPS if we have 5% wage inflation and 5% GDP growth the ten year treasury will yield 10.25% nominal interest and the margin rate will be something like 9-10% depending on demand for CDs. The mortgage market has to compete with the treasury market and that ain't going to be easy because the Mortgage deduction cap is also a real estate appreciation cap. So what will be the result and how soon?

Great question. The cap is for new purchases over $500k, which means lower and middle class Home purchasers will still benefit from the deduction. One could argue that this will push home prices towards the $500k threshold, but could have a severe impact on home prices over that threshold to marginal buyers, because you will only get to deduct on interest paid over the first $500k of mortgage interest.

I believe they changed the mortgage interest deduction cap in the final version from $500,000 to $750,000. I don't understand the negative reaction from Liberals to this cap since it would primarily affect only the affluent. There are very few people classified as middle class who can afford a $750,000 MORTGAGE which with a 10% down payment pushes the home price somewhere north of $825,000.
And it is just that portion above $750,000 that is excluded from the interest deduction. It will be interesting to see the effect on home prices near one million dollars, but I don't see it as a big deal. Multi-million dollar mansions are bought by the ultra-rich who do not need mortgages.

 

[william the wie]

Interest rates are going up for three reasons: 1) to soak up excess liquidity from QE; 2) to prevent wage push inflation; and 3) the mortgage deduction cap has made it much more difficult to convert equity into cash.

Then there is another problem, there is effectively no leverage limit on bonds. With TIPS if we have 5% wage inflation and 5% GDP growth the ten year treasury will yield 10.25% nominal interest and the margin rate will be something like 9-10% depending on demand for CDs. The mortgage market has to compete with the treasury market and that ain't going to be easy because the Mortgage deduction cap is also a real estate appreciation cap. So what will be the result and how soon?

Great question. The cap is for new purchases over $500k, which means lower and middle class Home purchasers will still benefit from the deduction. One could argue that this will push home prices towards the $500k threshold, but could have a severe impact on home prices over that threshold to marginal buyers, because you will only get to deduct on interest paid over the first $500k of mortgage interest.

In most of the nation true. In CA and greater NYC not even close. Other outliers like greater Miami and Austin also exist. These are also the areas where most real estate wealth is and therefore the places where retirees will get royally screwed.

 

[william the wie]

I need to see a couple years of Trump policy to really have an idea, good or bad.

My feeling is we're going for another real estate crash in a decade or so. If Trump gets mired in some scandals he can't "Bill Clinton" his way out of or Pence has to take the desk.

Looking at the local markets and projecting an aggressive expansionist idea on Donald's policy's I feel there is a chance we're going to deficit spend our way through it and just devalue every non-new, non-prime location home in the country. The market is pretty hollow here or is creating an amazingly hollow core.

If the latte coincides with a rise in global interest rates near the same time we need to bail out or seriously adjust social security we might begin to suffer very seriously economically/militarily.

I need to see a couple years of Trump policy to really have an idea, good or bad.

One of the major problems in the housing market that has not yet been addressed are differences in state corporate income tax rates. Job relocations will be the big economic growth engine. Based on the Reagan model we should hit 8% GDP in the second qtr of 2019 and according to the Chinese model double digits by the 2020 election. Dismantling the massive blue state bureaucracies will be messy.