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interestrateripoff

Has Bernanke Decreased House Values By 11% Over 30 Years?

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http://market-ticker.org/akcs-www?post=179487

Those who say "don't" are delusional fools. Witness the following chart:

So the 10 year Bond has gone from 2.33% to 3.7% in less than four months. 30 year mortgage money, no points, has gone from about 4% to just over 5% (no junk fees) in the same time.

This is an immediate 11% reduction in the implied value of every home in America, and it is exactly the opposite of what Bernanke said he was going to do.

Here's the math; don't believe me, get out your HP12c and run it yourself.

$100,000 borrowed, 30 years, 4% interest rate = $475.83 P&I.

Same P&I, 30 years, 5% interest rate borrows only $89,007.56.

That's an 11% loss of value and since 90% of the buyers purchase a payment in the housing market, not a price, this is an immediate 11% deflation in home values.

Now if I'm not supposed to "fight the Fed" then I should have believed that Bernanke's policies were going to support home values. That they would keep mortgage rates low. And that the 4% 30 year money would become a benchmark for the intermediate term, allowing me to buy this coming spring.

This is what he stated he was not only capable of doing, but would do.

None of that happened. Instead, what occurred is that Bernanke has lost control of the long end of the curve even though he explicitly stated that he could control it prior to initiating QE2.

He was wrong. Again. The same thing happened during QE1. And yet you have had every fawner in the universe falling over themselves licking his shoes.

What they should be doing is kicking his ass from here to Toledo.

Of course that would require intellectual honesty. That you will not find among the media.

So what's likely here? Well, pick one - if rates continue to back up, and they will if QE2 continues, housing will continue to get hosed. At 6% we'll be looking at a housing value loss of an additional 20% from November's numbers and of course if it keeps going.... The other alternative? Yank liquidity and watch the corporate leverage index come back to earth from it's current level of 12.

"Earth", incidentally, is somewhere between 2 and 4. You do the math on that one.

Housing recovery? Not a snowball's chance in Hell so long as the money printing continues.

How do you like the steel trap you set for yourself Ben? You're such a stupid bar steward you not only constructed the damn thing while standing inside it but you welded the door closed with the last of the oxy-acetylene supply!

Is Dennigers maths here accurate? To be honest I have no real idea what he's talking about with this so I'll ask for opinion from those that may understand what he's saying here.

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Is Dennigers maths here accurate? To be honest I have no real idea what he's talking about with this so I'll ask for opinion from those that may understand what he's saying here.

When I read this post, I was also confused as to what Denninger meant.

Interestingly enough, ZeroHedge is advancing the same thesis today (I think).

The 30 Year Fixed Rate mortgage, that indicator of just how much "piggy bank" value US housing has, just jumped by a whopping 24 basis points in the last week to 5.05%, the highest since April 2010.

...

In other words, in the last 2 months, housing, at least that part that has a mortgage associated with it, has lost roughly 10% of its value as incremental purchasing power has just declined by the same amount courtesy of the spike in rates.

Clearly higher IRs -> higher mortgage repayments for variable rate borrowers -> lower purchasing power.

But does this equate to housing losing 10% of its value? I doubt it.

Are they talking about NPV ?

Any bright minds out there with a better explanation?

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When I read this post, I was also confused as to what Denninger meant.

Clearly higher IRs -> higher mortgage repayments for variable rate borrowers -> lower purchasing power.

But does this equate to housing losing 10% of its value? I doubt it.

Are they talking about NPV ?

Any bright minds out there with a better explanation?

I too was hoping that someone could shed some light on this, it would appear that Denniger is now talking on a mathematical level far above anyone's understanding on HPC.

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It isn't complicated maths - it's just the effect of compound interest. When discount rates go up, the present value of all assets (effectively "black boxes" producing a stream of free cash flows), including houses, goes down.

Well, that's what my question about NPV implied.

If your interpretation is correct, they are just saying that the net present value of US houses viewed as financial assets has fallen over 10% as a consequence of 30yr rates going from 4 to 5 pct.

But in real life houses are not priced purely as financial assets, are they?

If they were, the next HPC in the UK would be 100% guaranteed ;)

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Yes, you clearly understood - just that it didn't seem to have got through to interestrateripoff, so I thought I'd try and make it a bit clearer. (Reading mine back, I'm not certain that the word "clear" springs to mind. :lol: )

Sometimes I just need the idiot guides :lol::lol:

I read it and it just didn't sink in, I read it again it I just couldn't work it out, now I've read it again after the posted comments I get what he's saying. The light has suddenly gone on, although I think it will quickly go out again.

If you can only afford to pay back $475.83 a month you can now borrow less.

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Sometimes I just need the idiot guides :lol::lol:

I read it and it just didn't sink in, I read it again it I just couldn't work it out, now I've read it again after the posted comments I get what he's saying. The light has suddenly gone on, although I think it will quickly go out again.

If you can only afford to pay back $475.83 a month you can now borrow less.

theres alot of complex maths that goes into Denningers calculation , i suggest you vectorise it with scalars and all that shit, throw in a bit of guass jordan anova malarky and it all becomes crystal applying the Appel–Haken proof

Edited by Tamara De Lempicka

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theres alot of complex maths that goes into Denningers calculation , i suggest you vectorise it with scalars and all that shit, throw in a bit of guass jordan anova malarky and it all becomes crystal applying the Appel–Haken proof

Yes I can see that now... :ph34r:

I just wish he'd make things idiot proof. :lol::lol:

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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