I probably shouldn’t, but…

chrisjones — Wed, 27 Jul 2011 19:37:41 +0000

I don’t do politics here much anymore, and almost never do mortgage stuff, but today, I can’t resist. So you’ve been warned.

If you’ve been hiding under a rock, you don’t know that there’s a debate going on in Congress about how to go about raising the debt ceiling. I used to live in D.C. and can translate the gibberish from both sides. Here’s the truth:

The ceiling is going to be raised. It is almost certainly going to be raised by the August 2 deadline.
There will be budget cuts. They will almost entirely be illusions, projected for years in advance, so that the “$2.2 billion” in “cuts” will be backloaded for future Congresses to deal with, and they will not be actual cuts, only smaller increases in funding.
There will be tax increases. Real ones, starting right now. On you, and me, and especially “millionaires”, which is defined as those making $250,000 or more per year. Not indexed to inflation.

Comforting? Yeah, me too.

The real danger is NOT that the US will default on its obligations. That’s not going to happen, with or without an agreement. The real danger is that unless the US achieves $4 trillion in actual, no-fooling budget CUTS, US bonds will probably be downgraded to AA (from AAA), and that will cause mortgage interest rates to jump about half a point.

In other words, what you’re reading right now about avoiding default is largely irrelevant, and what you are NOT reading is that unless Congress cuts meaningfully from the budget, you and I and the neighbors are going to take it in the shorts.

Mortgage bonds are not liking this. Bond traders don’t watch the propaganda coming out of MSNBC and the White House, so they are not confused by the talking points, and they are selling, causing rates to rise. We’re up to about 4.75% (5.012 APR) on the average conventional, and about the same on FHA. ARMs continue to be stellar, over a point lower in rate than the 30-year fixed.

I’ll keep you posted.

Wasn’t I Just Saying That?

chrisjones — Tue, 19 May 2009 19:58:22 +0000

A couple weeks ago I posted about debt and spending in A Conundrum Wrapped in a Paradox, Stuffed in a Burrito. The point was that we as a country can get – and have gotten – to a place where we can’t keep spending as we have, because we weren’t spending our money, and now the debt service is so high that we can’t pay it all back unless we start economizing.

Today, here’s this from the San Francisco Fed:

In the long-run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes. For many U.S. households, current debt levels appear too high, as evidenced by the sharp rise in delinquencies and foreclosures in recent years. To achieve a sustainable level of debt relative to income, households may need to undergo a prolonged period of deleveraging, whereby debt is reduced and saving is increased.

Bingo.

» debt

I probably shouldn’t, but…

Wasn’t I Just Saying That?