Fed to buy mortgages?

[Free Thinkr]

Originally Posted by Puppycow

Actually the government is driving down the cost of mortgages, which makes it more affordable, not less. There are two factors that make up the total cost of buying a house. There's the price of the house itself and there's the price of the money you borrow to buy the house. The latter is typically what costs more. Mortgage interest rates are now at all time lows, making a great time to buy if you want a great deal.

The lower cost of borrowing results in higher housing prices.

[Puppycow]

Originally Posted by Free Thinkr

The lower cost of borrowing results in higher housing prices.

If you are a buyer you should be concerned with the total cost of ownership, not just the price unless you can afford to buy without borrowing. A home is an asset that can be resold. You are getting a better deal if you pay a low interest rate but a higher rather than a high interest rate.

Just for example,

If you buy a $250K house with a $40K down payment at a 30-year rate of 3% your total cost is $419,441.27

If you buy a $200K house with a $40K down payment at a 30-year rate of 5% your total cost is $426,508.65
(calculator here)

So if it's the same house, the first deal is cheaper. Better yet, if you decide to sell it a couple years later, you want the price to be high, not low. That extra $50K or so will come in handy.

The problem we have now is that so many people are "under water" on their mortgages, meaning that their house is worth less than what they paid for it and less than they owe on their mortgages, so they are stuck and find it difficult to move. There may be better jobs somewhere else. Rising home prices are good news for these people.

[Free Thinkr]

Originally Posted by Puppycow

If you are a buyer you should be concerned with the total cost of ownership, not just the price unless you can afford to buy without borrowing. A home is an asset that can be resold. You are getting a better deal if you pay a low interest rate but a higher rather than a high interest rate.

But as a society, we all ought to be concerned with the actual housing cost.

The idea of driving up the cost of housing is awful.

Quote:

So if it's the same house, the first deal is cheaper. Better yet, if you decide to sell it a couple years later, you want the price to be high, not low. That extra $50K or so will come in handy.

And there's the goal: a giveaway to land owners.

Quote:

The problem we have now is that so many people are "under water" on their mortgages, meaning that their house is worth less than what they paid for it and less than they owe on their mortgages, so they are stuck and find it difficult to move. There may be better jobs somewhere else. Rising home prices are good news for these people.

Problem is, it just kicks the can down the road. The entire problem is that we look upon houses as some kind of money-making investment. They shouldn't be. The result is that not only private individuals, but huge financial firms get involved in "investment" in land, and when the inevitable bust comes, well, here we are.

[Meadmaker]

Originally Posted by Puppycow

The problem we have now is that so many people are "under water" on their mortgages, meaning that their house is worth less than what they paid for it and less than they owe on their mortgages, so they are stuck and find it difficult to move. There may be better jobs somewhere else. Rising home prices are good news for these people.

Indeed it is good news for those people, but if those home prices are artificially stimulated, then when the stimulation stops the prices will fall, and the next generation of home buyers will be underwater on their mortgages.