The reason the Government is trying to get as many people to refinance into a 5% 30 year fixed mortgage is unforeseen by most investors.
First off, I think that 5% 30 year fixed mortgage will be the lowest it will go.
Sooner rather than later I expect the government to lose control of longer term interest rates. (As if they have much control now.)
Once that happens, you'll see rates rise back up to 8%.
House prices are a function of interest rates and rental rates so house prices will have to fall much further with an 8% interest rate.
A significant amount of the people that have refinanced into a 5% mortgage will be underwater. They will be asking themselves if they should just default on the mortgage or keep the current payment. It will be a much tougher decision for someone who has a 5% rate. The Government is hoping that the lower rate will be enough to keep them from deciding to default. Unfortunately the government isn't factoring in a sustained 10% unemployment rate. With unemployment that high people wont have a choice to keep making their mortgage payment because they wont have money to make it with.
If I were in the market to buy a house I would wait until the prices fell further and write off the higher mortgage interest rate on my taxes. You can't write off the decline in your home value on your taxes. (Unless you sell it.)
As an investor I don't want anything to do with mortgage bonds.
If I had to make a non speculative non cash investment right now then I would buy a 5 to 10 year Verizon or AT&T bond yielding 6.5%.
Invest accordingly.
2 hours ago
Posts
