Just for a mental exercise, go to the chart and choose a 3 year chart instead of a 3 month chart.  You can see that, all else being equal, mortgage holders did have a chance to refinance (and a warning to do so) each year.  Mortgage rates in ‘06 and ‘07 peaked above where they are now.  We refinanced to an ARM when the rates were low and then a year later, once we got the benefit of the introductory rates and could see that the short term rates were starting to rise, refinanced again.  Our new fixed rate was (gasp) 6%, right up there with the ARMs on the chart—but I can still remember rates of 12% and 13%.  Now that’s scary!

A lot of people in California bought more house than they could normally afford because of the low interest rates, filled their big new house with brand new furniture bought on credit or cash out from their home loan,  did nothing toward paying down the principal while the interest rates were low, and now are in a pinch and eager to blame someone else, egged on by the media and politicians. 

How’s that for a heartless rant!  I do not work in the mortgage industry, in case anyone wonders.  I just think the whole subject would benefit from a little perspective.

My first reaction was simply that rates, though higher than they have been recently, are still well below the levels of past years.

And my reaction is, “Recovering?  What do you mean recovering?  Houses resuming their insane, irrational, year over year growth?”

For too long, housing experienced an unrealistic, unsustainable rise in prices.  That needed and needs to be corrected.  It can either be corrected by a sharp drop in prices, or stagnation of prices over a period of time, until “time catches up” to where the prices are.  In this case, “recovering” would be a return to the madness instead of the deflation of the bubble that needs to occur.

When a fairly ordinary 1,750 square foot cookie-cutter home is still $700,000 in Orange County or $500,000 in Newton, Mass., we should not be asking ourselves when the housing market will “recover.”

“Cookie-cutter” homes here in Los Banos are averaging @ $250,000 now.

If you think 6.5% is bad, what would you have thought about the rates during the Reagan years when inflation was so high. (Mortgage rates tend to track a 2 to 4 percent above inflation.) Demand also plays a part in the current rates. Just wait until the government starts trying to re-finance all those US notes in the Social Security “lock box” in a couple of years to start making the Boomers’ SS payments.

This is not news. Historically, rates rise every summer, then taper off in the fall. Same pattern this year.

Marie, Reagan inherited the high rates in 81 from the 79-80 stagflation recession.

I bought my first house back in 1993.  I was paying 7.125% and I thought it was a bargain.

It’s bad now because:  the GOP/Cheney/GWB cabal got us into the mess in Iraq, and they cut taxes on the wealthiest citizens during wartime.  Insanity that has left us something like 9 TRILLIION in debt, and the dollar is falling with no end in sight.  Many of us mourn for the GOP that was the party of fiscal responsibility….but they learned under Reagan that all one has to do is ‘smile and deficit spend’, and one will have political success!  His deficit spending was phenomenal, it was ‘borrow-borrow-borrow’ and talk of how some wealth will ‘trickle down’ to the working people of the US.  Even his budget director later admitted it was all politics, and didn’t work.  Barry Goldwater must be spinning in his grave to see the legacy the current GOP Presidency and Congress has left us.

our mortgage is adjusting in month 13 (July 2008) from 5.75 to 5.25, saving us $400 a month.  not every story is a horror story.

We took out a 3-year ARM when we moved in 1997, because the interest rates went up from Feb. (when we started looking) to June (when we FINALLY settled, but that is another story!).  Planning this move, I had tracked interest rates in the preceeding years, and like #6. above knew they would recede come winter.  Missed the first winter dip, but nailed it the second winter for a rate of 5 1/4%.  Also, did not get a house that was more than we could afford.  Now, we have refinanced and cashed out some money for some much needed renovations at the same rate we got on our first mortgage.  Still have 45% equity in the house.  I am NOT a real estate mogul that has the brains to do this on purpose, just enough sense to check out what I am getting into before I leap.  AND we didn’t let a real estate agent con us into more than we could afford.  Washington, DC housing market never got quite as hot as California, but many people let their eyes get bigger than their checkbooks here as well.  Prices will slide down for awhile, and realistic interest rates will correct this “bubble” like the stock market corrected.  When I married my husband (1989), he had a 16% interest rate on his first house (we refinanced to 9% and thought we had made a killing).  This whole mess was caused by greed; on the part of people feeling “entitled” to mansion sized houses, lenders whose greed led to true stupidity about who got how much mortgage, and Wall Street who created those “securities” worth nothing.  Everybody is getting their comeuppance.  Thank you Jesus for giving me a humble heart which didn’t need to “keep up with the Jones’s”!  I pray that you comfort and heal those who have to suffer the consequences of their actions, and let them learn from their mistakes to make us a stronger, resilient, wiser people.  AMEN