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$80K for a house and a 15% mortgage in 2014 - Peak Oil Preparedness
at the end of the world, will you feel fine?
theheretic
peakoil_prep
theheretic
$80K for a house and a 15% mortgage in 2014
If you're like me, you don't yet own a house. You knew that the Housing Bubble was insane so didn't buy one and are waiting, cash in 401K ($20K is untaxable for first time home buyer from 401K). I chafe at living in an apartment, but that's what I've got to do. The ARM adjustments end in 2013. Those still owning homes but underwater will likely hang onto them sacrificing their savings on unaffordable payments as less well defended buyers bail out, driving down prices even faster, until all the pre-Crash ARM-loan buyers are foreclosed. This is important. There's a kind of inertia that takes place in systems, and mortgages are a hell of a system. They govern the place you live, where you keep your stuff, where your neighbors and connections to the community are. People hang onto their homes longest of all. The Euro may die this week. The Germans are having a court case where a judge decides whether Merkel had the right to force the Germans to bail out the bad loans to Greece or whether the bailout violates the Maastrict Treaty, on which the EU is based. This is really important. If he says Violation, Germany pulls out of the EU effective immediately by refusing further coverage of other member state's bankruptcies, leaving Greece and Italy to default. Both are likely to take as much money as they can then cut loose from the EU and reissue their original currencies, poke their fingers in their ears, shut their eyes and go "LALALLA!" really loud. That's what the USA is doing, btw.

Why does it matter to you? Well, two reasons. One, those two dominoes were enough to topple out the reserve bailout funds for the rest of the EU, leaving no money for Spain, Portugal, Ireland, and eventually the UK. The second is you can forget about access to scooter part exports from Italy. This is bad because the Italians make about half the quality scooters in the world, and scooters get around 90 mpg, which is DOUBLE what the Prius does, for a fraction of the cost and resources. How is a scooter valuable? Top Gear, Season 12, Episode 8. Watch it.

The upshot of EU collapse is that the dollar is the place most fearful of Euro collapse run to, but the dollar has hit a prime rate of zero, meaning it can no longer be used as a tool to control inflation. Its runaway now. If it kicks in, we can't stop it.

And it gets better. See, with inflation being so predicted to be high, and home buyers refusing to play with ARMs anymore, lenders will go with high interest rate mortgages with a fixed rate, gambling that they won't go too high and lose money on the loan or stay low and lose business. Last time around, when economic conditions were like this, Governor Moonbeam (Brown) presided over 15% interest rates on mortgages. Since available money by home buyers is at an all-time low, as unemployment is high, people can't afford much of a loan payment and still eat. So this puts more of the payment into interest and less into principle, meaning the actual house price, in the face of high default and foreclosure rates, will fall. Cheap houses, expensive loans, roughly the same payment per month. If wages fall, or unemployment rises as predicted, then house prices will fall even more. I think we'll see something like $80K for a Bay Area or LA house, after 2013-2014. With mortgage rates around 16%, maybe higher depending on inflation factors, you'll still pay a lot per month, but if you have savings you can tap, that improves your downpayment dropping your monthly payment quite a bit, or allows you a much shorter term loan, which would give you a lower interest rate. 30-year mortgages can be very expensive if inflation is in play. Might be unaffordable. We could see 10-year and 5-year mortgages make a comeback since it is less risky for banks.

I should also point out, being this is the Peak Oil Prep group, that if we see a dramatic cut in oil production, most cars will end up repossessed, causing a similar crash in auto financing as we saw in the housing bubble. Once bankruptcies in housing and car loan defaults get too common they stop being meaningful in a loan context. Most places may just stop giving loans and either sell for cash only or only sell stuff cheap enough it can be bought for cash. Like scooters and 3-wheeled trucks and mini-trucks (4 wheel but very cheap). They're a sign of poverty, but they're also our future with expensive oil and synthetic fuel having to be manufactured from algae. Nothing is free, and companies won't sell for less than they can make a buck. We'll have to live with that, and at $33/gal for algal diesel and more for synthetic gasoline, since it will be refined from synthetic diesel, we should really expect to have to pay through the nose. It will become a significant calculation in your job and commute. Which will impact where you live and what you pay to live there, funneling back into your housing costs.
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Comments
squidb0i From: squidb0i Date: September 6th, 2011 03:22 pm (UTC) (Link)

Repo Arms Race?

Perhaps there's growth in secure garages to keep the repo-men at bay.
Which of course would cause growth in repo-strike-teams. Rinse, repeat.
theheretic From: theheretic Date: September 6th, 2011 11:49 pm (UTC) (Link)

Re: Repo Arms Race?

If you can afford to pay for a secure garage, you can afford your car payment so repo men wouldn't be coming. Just car thieves.
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