IMF says:Australian Housing a SURVIVOR on the World Stage

[MichaelW]

I'm going to be a stereotyped stubborn bugger and not let anyone buy it for less than I want for it, which is the main reason that houses sit for a long time on the market and the reason that bubbles like this can take really long times to pop - stubborn sellers.

Elf,

Simple equation isn't it really...

Interest Rate Cuts = Reduced Forced Selling
Reduced Forced Selling = Stubborn Buggers on price
Stubborn Buggers on price = floor under price
Floor under price = no bubble popping

Well, I think its simple...

Cheers,
Michael

 

[Token Funder]

No. They can't easily refinance because...

1) They have to pay break fees. Many of these borrowers are sub-prime and need all their spare cash for booze and weed. Where will they find the money for the break fee? What's in it for the banks if they let all their fixed borrowers refinance at lower rates with no penalty. Do you think the banks just like to take on this extra risk for fun?

Wrong.

Fixed rate loans in the US usually don't have break costs (or pre-payment penalties as they are described in the US). To the extent they do apply they are an option a client will take to get a lower rate. Also, they tend to be structured like Deferred Establishment Fees , can be selected for a period of 1-5 years and the penalty is usually just paying x months worth of interest payments.

Remember, It's Different Here.

 

[boomtown]

I'm just waiting for the Great Property Crash of 2008 to get pushed out to 2012.

Hey Steve Keen - are we there yet?

 

[Shadow]

Wrong.

Fixed rate loans in the US usually don't have break costs (or pre-payment penalties as they are described in the US). To the extent they do apply they are an option a client will take to get a lower rate. Also, they tend to be structured like Deferred Establishment Fees , can be selected for a period of 1-5 years and the penalty is usually just paying x months worth of interest payments.

Remember, It's Different Here.

Thanks. Can you link to some articles etc. that cover this. I couldn't find anything from a quick google search. Do you have a link to something that shows that the majority of US fixed borrowers incur no penalty to move to a lower rate? Does it also apply to the majority of fixed subprime borrowers?

Cheers,

Shadow.

 

[Perp]

Can you link to some articles etc. that cover this. I couldn't find anything from a quick google search. Do you have a link to something that shows that the majority of US fixed borrowers incur no penalty to move to a lower rate? Does it also apply to the majority of fixed subprime borrowers?

My research supports what TF says; most break fees are in the first 1-5 years, so the vast majority (or all) people whose 5-year honeymoon is just finishing should be able to refinance without any penalties (including sub-prime borrowers, who are more likely to have a pre-payment penalty). This article on the Federal Reserve website explains some of the basics of ARMs quite well, including reference to pre-payment penalties.

Strangely (to our way of thinking), ARMs seem more likely to have pre-payment penalties, and higher pre-payment penalties, than FRMs (fixed-rate mortgages). Don't know whether anybody knows why this would be?

 

[Ms Jade]

...Strangely (to our way of thinking), ARMs seem more likely to have pre-payment penalties, and higher pre-payment penalties, than FRMs (fixed-rate mortgages). Don't know whether anybody knows why this would be?

Maybe it's because most of the ARMs have a honeymoon rate and it's when it comes off to a much higher rate that people want to get out of it? I imagine there are less people having trouble with the fixed rate mortgages; rates for those were not bad.

 

[BayView]

Maybe it's because most of the ARMs have a honeymoon rate and it's when it comes off to a much higher rate that people want to get out of it? I imagine there are less people having trouble with the fixed rate mortgages; rates for those were not bad.

This is exactly what was happening.

Where everyone got caught was they expected their property to have gone up in vlaue enough by the end of the honeymoon period to cover the capitalised interest on the loan.

This didn't happen, and many people were left with a loan they couldn't service, a house worth less than they still owed on, and many other people trying to sell at the same time, under the same circumstances to few buyers.

The people on the fixed rates, which are typically 15,20,30 years in the US, were not affected.