Made out of people

Mortgages and Politics

I mentioned that I'm thinking about mortgages. Fortunately, they are a lot less eye-bleedy now that I've started reading up.

(Side note: I reached mutual agreement on a place on Saturday. If there are really, really good reasons why I shouldn't live on First Hill, near the Swedish Hospital² off Madison, now is the time to tell me.)

One of the things I've realized, though, is that one's mortgage profile really reflects one's political outlook, especially in toda'ys low-interest-rate climate. Pretty much everyone agrees that interest rates will never be much lower than they are today: they will rise. Whether they rise fast or slow, sooner or later, they will wander upwards¹. Combine this low price with the recent election, and we have a great testbed for linking politics to economics that the Crooked Timber crowd might be into.

(More below the fold...)

Today, a mortgage agent explained it to me this way: 90% of homeowners refinance or sell within 5 years. And interest rates have stayed below 7.9% for 180 of the last 200 years. And houses appreciate 5% per year. So it really doesn't matter if I sign up for a 5 year ARM or a fixed-rate mortgage: it really doesn't matter. After all, in five years, my mortgage will be a thing of the past, an artifact of my changed work and social life, a memory of my old single life or of my time living in Washington or of my time in a condo.

The last time that mortgage rates were high was the dot-com boom. Before that was the cold war, and the junk-bond crash of the mid-90s. None of those apply today. Not only that, but we have redefined "full employement" from 5% to 4%, and the job market is taking on more jobs. The Fed has done an excellent job of keeping interest rates low, and Europeans and Asians continue to be hungry to buy up American debt. I'll have no trouble selling at a profit in five years, or rates will be low enough to refinance handily.

A cynic might note that all twenty of the years with high interest rates have been in the last 40. That the US trade deficit is at astounding levels, and that today's news has the president proposing another few billion of debt. That the dollar is being propped up by Asian investors, who may stop paying for it. That serious inflation may be in our short-term future and we may not dig ourselves out of it for a decade or more -- after all, this just happened in Japan. In five years, rates may be impossible and everyone will be hunkered down or paying discount prices for expensive houses. And I'll be stuck with a floating mortgage at 10%.

Now, I suppose if one follows the Way of the Elephant, one is likely to believe the first scenario, which lines up well with their party line; if one follows the Path of the Donkey, one is more likely to believe the second. If one believes the first, one is likely to buy an adjustable, short-term mortgage.

So, what does the red/blue financial map look like? Are houses in red Orange County going with ARMs, while condos in blue San Francisco attached to 30 year fixed rate?

Do any sociologists around here have a copy of local economic news, and a decent voting map? There's a confounding variable or two in here ("people who are buying houses", for example), but the raw data should be interesting. I know there have been studies looking at things like "optimism," or "consumer confidence", but I'd like to see how these fairly simple parameters line up against each other.

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¹ Papers that model Adjustable Rate Mortgages (ARMs) as less risky are kind of startling to me. An ARM is never going down, after all. It might come back to the same rate, but not much better than that.

² Hey, if we can have a Jewish Hospital in St. Louis, there can be a Swedish Hospital in Seattle, ok?

December 6, 2004 10:21 PM | in Other