Zero Percent Mortgages Debut: Setting the Stage for next Bull

Although gold dust is precious, it obstructs your vision when it gets in your eyes.
Hsi-Tang

Zero Percent Mortgages Debut

Economists stated that the main trigger for the financial crisis of 2008 was the issuance of mortgages that did not require down payments. The ease at which one could get mortgages in the past drove housing prices unsustainable. Post-crisis, all banks vowed to end the practice forever, or that is what they wanted everyone to believe. When the credit markets froze, we openly stated that the 1^st sign that banks were getting ready to lower the bar again would come in the form of Zero per cent balance transfer offers that had all but vanished after 2008.

A few years after 2008, banks started to mail these offers out, and now everywhere you look you can find 0 % balance transfer offers ranging from 12 months to 18 months. The next step after that would be for banks to lower the 20% down payment required to something much lower. Bank of America and a few other banks offer 3% down mortgages.

Barclays Bank: Back to the future moment

Now Barclays Bank has become the first British bank to turn back the hands of time; it has started to issue 0% down Mortgages under a program called “family springboard”. There is, however, one slight difference. In this instance, a parent would put 10% of the down payment into an account. If payments are made promptly, this amount is returned in three years with interest.

In the US, we like to do things bigger and better than everyone, so it is just a matter of time before this type of mortgage debuts here. As we have stated many times, every bull market ends on a Euphoric note; to get to this level, the small player also needs to have easy access to hot money. So far, this access has been restricted to large corporations and the very rich. However, we feel that it is just a matter of time before the spigots will be opened to the small players. The 1^st sign of this will be the debut of the 0% mortgage.

The supply of housing is already quite tight in the U.S. U.S existing home inventory stands at 2.12 million, down from 2.14 Million last month and down almost 130K years over year. At the current sales pace, there is roughly a five-month supply of homes on the market. A 6 month supply is a healthy balance between demand and supply. Home prices have been slowly rising over the past few years, and the average home price is projected to increase by 5% in 2016%.

Home prices are already rising without the debut of the Zero per cent down mortgage, so one can only imagine how much more they will rise when these mortgages become available in the US. Higher home prices tend to make homeowners feel better off as they view paper profits as real money. This leads them to take on more risk, and one of the best places to do this is the stock market.

We believe that lending standards for mortgages and personal loans will be lowered significantly in the months and years to come, setting up the bedrock for the next stock market bubble. Until the masses embrace this bull market, it will run much higher than the most ardent naysayers could dream of. Over the next few years, we expect housing and the stock market to trend higher. This bull will run into a brick wall one day, but that day is not here yet.

Zero Percent Mortgages: Conclusion

Our main point here is to illustrate that the hot money spigots will be opened even more and that the supply of hot money will not end anytime soon. The Fed is already looking at ways to increase it significantly; after all, that is the only thing that has been powering this economy; end that, and the illusion comes to a grinding halt. For now, the big corporations and the very wealthy have access to this cheap money.

When the small guy finally gets his hands on this cheap money, he will do what he always does, start to speculate and hope he strikes it big. Furthermore, rising home prices will create the illusion of wealth, and when people feel they have money, they tend to take on more risk. After all, that’s what they did before the markets collapsed in 2008.

While we spent most of the time talking about the housing market, the point to keep in mind is that this bull market will probably run a lot higher because it is still one of the most hated bull markets in history. No bull market has ever ended on a negative note, and the cards are lining up to provide this market with the ingredients it needs to take it to the bubble level.

The masses will embrace this market just as the corporate world has done for the past eight years once, and if they do, this market will soar even higher.

Lastly, remember that Mortgage in Latin means Death Grip. You never own the house until you have paid every last cent to the bank. Until that point, you are nothing but a glorified renter.

Hasten slowly, and ye shall soon arrive.
Milarepa

Zero Percent Mortgages Debut: Setting the Stage for Next Bull Market