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Are you priced out of where you like to live too?
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PostPosted: Fri Dec 23, 2016 11:54 am GMT    Post subject: Reply with quote

Quote:
All of them are upgrading, by selling what they currently have, and put the profit as down payment, and carry $800,000+ to $1,000,000+ mortgage.


I have been wondering how could people feel comfortable buying million dollar home, even though the low interest rate make the monthly payment within reach of their maximum or close to maximum monthly payment limit. Below article gives out some good suggestions of how much income you need at least, to afford a million dollar house; and how much income you should have, in order to afford a million dollar house comfortably.

https://blog.getwela.com/pastblogposts/2016/07/18/afford-1-million-dollar-mortgage?rq=afford


I do see in many towns, such as Brookline, Newton, Wellesley just to name the top few, that 1+ million dollars is really a requirement, in order to purchase a still decent mid 2000 SQ feet SFH there.
If you were willing to move further out west with double the commute time, then you should get the price tag lower by 20 to 30%.

As we all know mortgage interest rate will directly affects home price inversely, and it is currently in the up trend. This is not equal to the FED would really jack up the rate high enough to make house price crash, nor to say the FED will never lower the rate back even further, due to any economic downturn bring with the trend of rate hike.
On the surface inflation rate is what the FED looks to predict which direction the interest rate will go, under the curtain it is all about maintaining the dominate position of American dollar, and how to keep the economy afloat.

Last point to mention. For a 1 million mortgage, the payment difference between 4% and 5% 30 year fix is only $600 or so. Therefore if you could afford the million mortgage with 4%, you might most likely be able to afford it with 5%. People should only start to feel the pinch at 6% rate, but I doubt the FED would dare to reach 6%, unless some black swan events occur that force this to happen.
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admin
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Joined: 14 Jul 2005
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Location: Greater Boston

PostPosted: Fri Dec 23, 2016 2:10 pm GMT    Post subject: Reply with quote

Anonymous wrote:
People should only start to feel the pinch at 6% rate, but I doubt the FED would dare to reach 6%, unless some black swan events occur that force this to happen.


Mortgage rates were 6+% a mere 8 years ago, and a lot higher before that http://www.bankrate.com/finance/mortgage-rates-history-0112.aspx . I wouldn't extrapolate from the last 8 years and assume it will stay that way forever. Maybe the last 8 years are the black swan. The Fed need not dictate this either - the market could, and will if inflation picks up.

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admin
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PostPosted: Fri Dec 23, 2016 2:27 pm GMT    Post subject: Reply with quote

Also, we're about to find out what an orange swan does to rates.

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Former Arlingtonian



Joined: 23 Oct 2013
Posts: 141

PostPosted: Fri Dec 23, 2016 2:33 pm GMT    Post subject: Lets review where we are and how we got here Reply with quote

Right on Admin and thank you for keeping this site going.

People need to remember that in the long run Governments have never been able to control interest rates.

Why? Every government in history at some points finds the economy stuck and they seek ways to push money into economy to stimulate growth/add jobs/make voters feel good. Ultimately, pushing money into an economy through low rates causes things to get expensive and inflation becomes a major concern. Inflation forces the hand of Government and they have to raise rates to protect the value of the currency.

https://fred.stlouisfed.org/graph/fredgraph.png?g=ccII

What could possibly go wrong!
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PostPosted: Fri Dec 23, 2016 7:22 pm GMT    Post subject: Reply with quote

I too don't see how the FED would like to raise interest rate above 6%, doesn't matter how bad the inflation is. I am always skeptical on low inflation rate situation that the FED told the public for the last 5 years.
Based on the fact that we owe the world a lot of money. Won't raise interest rate causing us a heck more on interest payment of our national debt? Why would the FED like to payment more interest on the ever raising national debt?
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PostPosted: Fri Dec 23, 2016 7:26 pm GMT    Post subject: Reply with quote

Outstanding debt is already at a fixed rate. For future debt, if the rest of the world doesn't buy it, then there is no choice but to raise the rates until they will.

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Former Arlingtonian



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PostPosted: Fri Dec 23, 2016 8:18 pm GMT    Post subject: Do the Fed control Interest rates - the tight control Reply with quote

Here is a fairly good explanation on how the Fed can effect interest rates in short term, but in the longer term - NO

http://www.econlib.org/library/Columns/y2013/Hummelinterestrates.html

The important part - is the conclusion:
"Conclusion
None of this is to deny the existence of the Fed's initial, short-run liquidity effect. As I conceded at the outset, central banks can affect interest rates somewhat. What is incorrect is the now-common but simplistic belief that the liquidity effect is so powerful that it allows the Fed to put interest rates wherever it wants, irrespective of underlying real demands and supplies in the economy. Nor do I deny that central banks have other far-reaching economic repercussions, often detrimental.17 But in a globalized world of open economies, the tight control of central banks over interest rates is a mirage. Central banks remain important enough players in the loan market that they can push short-term rates up or down a little. But in the final analysis, the market, not central banks, determines real interest rates."
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PostPosted: Sat Dec 24, 2016 4:16 am GMT    Post subject: Reply with quote

Quote:
Outstanding debt is already at a fixed rate. For future debt, if the rest of the world doesn't buy it, then there is no choice but to raise the rates until they will.


Admin,
I can not agree with your statement at all. I don't think the interest rate for our national debt is fixed. There are tons of articles out there saying how the rise of interest rate from FED will increase our interest payment. Things still not adding up here.

http://www.schwab.com/public/schwab/nn/articles/Will-Rising-U-S-Debt-Levels-Keep-the-Fed-On-Hold
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PostPosted: Sat Dec 24, 2016 4:35 am GMT    Post subject: Reply with quote

The article you linked to is referring to future borrowing costs being higher. Existing debt has a fixed rate, apart from things like TIPS, which make up a small portion of outstanding debt. "A treasury note is a marketable U.S. government debt security with a fixed interest rate" http://www.investopedia.com/terms/t/treasurynote.asp

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Former Arlingtonian



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PostPosted: Sat Dec 24, 2016 1:53 pm GMT    Post subject: Reply with quote

Admin,

I think the disconnect is that people don't understand how much money the US government borrows every week to continue to operate by issuing Treasuries.

At some point, Quantitative Easing, The Federal Reserve had been buying as much debt as possible - the more buyers of Debt the low interest rates drop.

OF course the little wrinkle is the Federal Reserve was buying Debt with Money /US Dollars that the Federal Reserve conjured out of the air or created.

So, the money in existence in the USA Federal Reserve system and on reserve in the Banks of USA accounts is massive.

Equally hard to understand is that Quantitative Easing experiment has NEVER been tried in the history of Banking. 100 years ago the Federal Reserve would have had to hire printing press to create money and thanks to computers it is like magic.
https://fred.stlouisfed.org/series/EXCSRESNS
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bugelrex



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PostPosted: Mon Jan 16, 2017 3:37 am GMT    Post subject: Re: Feels like the boom will never end Reply with quote

Former Arlingtonian wrote:
I will sound like a broken record - but, this real estate boom will end and you don't want to have over paid for a home when that happens.

f


I would argue that it can be ok if you buy a home to plan to live for at least 15 years. Buy with 30 year fixed, a home big enough for a growing family and close enough to jobs so commute is manageable. You can ride any downturn in this scenario.

Unfortunately that house would be close to 1 million and the loss of one spousal income (or both) is high if the pop is severe. But this income loss problem still exists even if u were renting, u could at least take on tenants in your large house
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PostPosted: Mon Jan 16, 2017 5:30 pm GMT    Post subject: Re: Feels like the boom will never end Reply with quote

bugelrex wrote:
Former Arlingtonian wrote:
I will sound like a broken record - but, this real estate boom will end and you don't want to have over paid for a home when that happens.

f


I would argue that it can be ok if you buy a home to plan to live for at least 15 years. Buy with 30 year fixed, a home big enough for a growing family and close enough to jobs so commute is manageable. You can ride any downturn in this scenario.

Unfortunately that house would be close to 1 million and the loss of one spousal income (or both) is high if the pop is severe. But this income loss problem still exists even if u were renting, u could at least take on tenants in your large house


The reality is that over 90% of the people who buy do not lose their homes to shorty sales or foreclosure. They are able to ride out the downturns. The unlucky 10% were the ones who were stretching to buy, barely had any savings and live paycheck to paycheck. Someone putting 20% down in a town like Newton with hundreds of thousands in retirement savings have the ability to ride out most downturns. It's still painful when you buy at the top of the market and see your equity disappear in the downturns. The real problem is that we allow high risk, cash poor people to buy with so little down and they are the ones who end up in trouble.
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victorgbishop



Joined: 03 Oct 2016
Posts: 25

PostPosted: Tue Jan 17, 2017 7:27 pm GMT    Post subject: Re: Feels like the boom will never end Reply with quote

guest wrote:
bugelrex wrote:
Former Arlingtonian wrote:
I will sound like a broken record - but, this real estate boom will end and you don't want to have over paid for a home when that happens.

f


I would argue that it can be ok if you buy a home to plan to live for at least 15 years. Buy with 30 year fixed, a home big enough for a growing family and close enough to jobs so commute is manageable. You can ride any downturn in this scenario.

Unfortunately that house would be close to 1 million and the loss of one spousal income (or both) is high if the pop is severe. But this income loss problem still exists even if u were renting, u could at least take on tenants in your large house


The reality is that over 90% of the people who buy do not lose their homes to shorty sales or foreclosure. They are able to ride out the downturns. The unlucky 10% were the ones who were stretching to buy, barely had any savings and live paycheck to paycheck. Someone putting 20% down in a town like Newton with hundreds of thousands in retirement savings have the ability to ride out most downturns. It's still painful when you buy at the top of the market and see your equity disappear in the downturns. The real problem is that we allow high risk, cash poor people to buy with so little down and they are the ones who end up in trouble.


I am really glad that you wrote this because....it touches on what is completely wrong with this freaking market. If you have a school loan, have kids, married and are paying rent in the GB area - you have NO WAY of putting down 20% or getting into communities like Newton, Wellesley, etc. I have great credit have worked for close to 20 years and still don't have enough for a 20% down payment in these area. Prices in the area are out of control for housing AND rents. Family of 3, professionals, 19 m/o boy and 21 weeks preg, hoping to buy in these towns is impossible. What you need is more help for the middle class to buy in these areas. We barely make over the threshold for Mass housing - which offers a no PMI loan. so we live pay check to paycheck hoping for some assistance.
Even with our parents who gifted us 10-15K, still don't make it....
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Former Arlingtonian



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PostPosted: Tue Jan 17, 2017 7:40 pm GMT    Post subject: Patience- you will be rewarded Reply with quote

Stay calm - I agree the current pricing of homes and rent is criminal.

Irrational markets won't last forever!

Stock market is up, real estate prices are up, unemployment is an historic low what could go wrong??

1999 - https://www.bls.gov/opub/ted/2000/mar/wk4/art03.htm

Keep the faith - that what we are all experiencing is painful - and temporary.
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victorgbishop



Joined: 03 Oct 2016
Posts: 25

PostPosted: Tue Jan 17, 2017 7:44 pm GMT    Post subject: Re: Feels like the boom will never end Reply with quote

guest wrote:
bugelrex wrote:
Former Arlingtonian wrote:
I will sound like a broken record - but, this real estate boom will end and you don't want to have over paid for a home when that happens.

f


I would argue that it can be ok if you buy a home to plan to live for at least 15 years. Buy with 30 year fixed, a home big enough for a growing family and close enough to jobs so commute is manageable. You can ride any downturn in this scenario.

Unfortunately that house would be close to 1 million and the loss of one spousal income (or both) is high if the pop is severe. But this income loss problem still exists even if u were renting, u could at least take on tenants in your large house


The reality is that over 90% of the people who buy do not lose their homes to shorty sales or foreclosure. They are able to ride out the downturns. The unlucky 10% were the ones who were stretching to buy, barely had any savings and live paycheck to paycheck. Someone putting 20% down in a town like Newton with hundreds of thousands in retirement savings have the ability to ride out most downturns. It's still painful when you buy at the top of the market and see your equity disappear in the downturns. The real problem is that we allow high risk, cash poor people to buy with so little down and they are the ones who end up in trouble.


I am really glad that you wrote this because....it touches on what is completely wrong with this freaking market. If you have a school loan, have kids, married and are paying rent in the GB area - you have NO WAY of putting down 20% or getting into communities like Newton, Wellesley, etc. I have great credit have worked for close to 20 years and still don't have enough for a 20% down payment in these area. Prices in the area are out of control for housing AND rents. Family of 3, professionals, 19 m/o boy and 21 weeks preg, hoping to buy in these towns is impossible. What you need is more help for the middle class to buy in these areas. We barely make over the threshold for Mass housing - which offers a no PMI loan. so we live pay check to paycheck hoping for some assistance.
Even with our parents who gifted us 10-15K, still don't make it....
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