Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (55397)	11/2/2004 2:40:36 AM
From: Maurice Winn	Read Replies (1) \| Respond to of 74559

I suppose the amount of money that can be commercially loaned is up to the lenders and borrowers, using money loaned by the government. With lower interest rates with longer fixed terms, that makes home ownership more preferable to renting. Renting involves a lot of costs and taxes which owning a house doesn't. When one owns a house, one doesn't have a landlord inspecting, rent to mess around with, taxes to be paid on the rent, books of account to maintain, maintenance to be discussed with the landlord, having to move if the landlord sells, and so on. But when interest rates are high, then paying rent is essential for more people, so borrowings are lower. When interest rates are low, borrowing makes more sense to buy a house because the extra costs and hassles of renting become relatively larger. So, I can see that borrowings have increased for a decade or two as interest rates have reduced after the high rates and inflationary pressures of the 1970s and some of the 1980s. That makes sense to me. With interest rates at 5% or so it's not surprising that people are taking on more debt: freep.com <October 31, 2004 BY JEANNINE AVERSA ASSOCIATED PRESS Mortgage rates declined again last week, with 30-year mortgages dropping to the lowest level since early April and giving the housing industry more of a boost. Rates on 30-year, fixed-rate mortgages averaged 5.64 percent for the week ending Oct. 28, Freddie Mac said in its weekly survey. That was down from 5.69 percent the previous week and was the lowest level since they averaged 5.52 percent for the week ending April 1. This year, rates on 30-year mortgages hit a high this year of 6.34 percent the week of May 13 then headed lower as markets responded to various signals that rising energy prices were acting as a drag on economic growth. The lower mortgage rates spurred sales of new and existing homes. Home sales in September climbed to the third-highest level in history. Analysts believe sales for all of 2004 will set records as well. "Low mortgage rates drove the uptick in sales during September," said Frank Nothaft, Freddie Mac's chief economist. "And with mortgage rates at their lowest level in six months, home sales should continue strong through the autumn months." For 15-year, fixed-rate mortgages, a popular option for refinancing, rates dropped last week to 5.01 percent compared with 5.07 percent the previous week. For one-year, adjustable rate mortgages, rates fell to 3.96 percent, down from 4.02 percent. Both were the lowest levels since the spring. ... continued...> It all makes sense to me. Lower rates, increased debt. No worries. Fix it for 30 years and forget about it! A friend in the USA got a hefty loan [but manageable thanks to a long term low interest mortgage] to buy a house. At the old higher rates, she couldn't have done that. She'd be renting. Therefore, total debt has increased, but I don't see any systemic risk due to her loan or the hordes of others doing the same. Their debts are manageable. Mqurice