the housing market

Archived discussion from Toril-2.
sok
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the housing market

Postby sok » Fri Aug 31, 2007 3:21 am

it's gone to hell in a hand basket.

2 years away before our current union contract expires. man oh man, i'm pissing in my pant. hopefully, things will right themselves before we go on strike.
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Postby Kegor » Fri Aug 31, 2007 6:54 am

Nod. You definately don't need Time magazine to tell you that either.
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Postby Corth » Fri Aug 31, 2007 1:52 pm

Entirely predictable this would happen. For years I had to put my foot down on this one issue with my wife who acted like if we didn't buy a house we would eventually be priced out of the market and the world would end. Nesting instinct is powerful...

But really, anyone with common sense could see it was coming. Historically, there is always a relationship between average household income and home prices. Home price increases cannot exceed inflation in the long term unless you have a corresponding increase in household incomes. You will have fluctuations at times due to supply and demand spikes, but generally speaking it will revert to mean. Specifcally, you will see a ratio of median residential home prices to median gross household income of around 3.5 to 1. When you start seeing that ratio spike to 8-1 or 10-1 then you know the market will soon correct. Even the 5.5-1 in my area (long island) is frothy. The fact of the matter is that real household incomes have not increased at all since 2000 (yes, I said 'real' meaning inflation adjusted). There was no fundamental justification for RE values increasing 10-15% per year. It was pure speculative mania. The only thing that allowed it to happen was an over-abundance of cheap money available to anyone with a heartbeat.

Watch and see though.. they have been characterizing this mortgage crisis as a 'sub-prime' one. That is entirely not the case. Sub-prime borrowers are the most vulnerable for a number of reasons so they're loans are defaulting first. Ultimately though, prime borrowers are going to be defaulting at the same rates. Instead of a 1 year rate reset, they maybe have 3, 5, or 7 years.. but it will still reset. Prime borrowers were taking out 100% LTV loans just like sub-prime. Doesn't make sense to pay your mortgage for long if the price of the house is worth a lot less than what you owe. Especially in California, where if I remember correctly (I might be wrong), the banks cannot get a deficiency judgment against a residential borrower.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth

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Postby teflor the ranger » Fri Aug 31, 2007 2:56 pm

It goes up... it comes down.

If you were surprised or made a huge mistake... find me and we'll have a chat.

Oh, and sometimes it just comes down. If you don't believe me, check out Youngstown, OH.
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Postby Birile » Fri Aug 31, 2007 3:40 pm

Corth wrote:Entirely predictable this would happen. For years I had to put my foot down on this one issue with my wife who acted like if we didn't buy a house we would eventually be priced out of the market and the world would end. Nesting instinct is powerful...

But really, anyone with common sense could see it was coming. Historically, there is always a relationship between average household income and home prices. Home price increases cannot exceed inflation in the long term unless you have a corresponding increase in household incomes. You will have fluctuations at times due to supply and demand spikes, but generally speaking it will revert to mean. Specifcally, you will see a ratio of median residential home prices to median gross household income of around 3.5 to 1. When you start seeing that ratio spike to 8-1 or 10-1 then you know the market will soon correct. Even the 5.5-1 in my area (long island) is frothy. The fact of the matter is that real household incomes have not increased at all since 2000 (yes, I said 'real' meaning inflation adjusted). There was no fundamental justification for RE values increasing 10-15% per year. It was pure speculative mania. The only thing that allowed it to happen was an over-abundance of cheap money available to anyone with a heartbeat.

Watch and see though.. they have been characterizing this mortgage crisis as a 'sub-prime' one. That is entirely not the case. Sub-prime borrowers are the most vulnerable for a number of reasons so they're loans are defaulting first. Ultimately though, prime borrowers are going to be defaulting at the same rates. Instead of a 1 year rate reset, they maybe have 3, 5, or 7 years.. but it will still reset. Prime borrowers were taking out 100% LTV loans just like sub-prime. Doesn't make sense to pay your mortgage for long if the price of the house is worth a lot less than what you owe. Especially in California, where if I remember correctly (I might be wrong), the banks cannot get a deficiency judgment against a residential borrower.


Ditto. Totally freakin' predictable. The area I grew up (Catskill Mtns. of NY--think the setting from Dirty Dancing) saw a huge influx of 21st-century NYC yuppies into the area and was one of the first areas to see people buying houses at an inflated rate. It's helped the area, as the yuppies want everything to look nice so they're putting lots of money into what was once a dying area. But in general, yeah, this current issue was REALLY predictable...
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Postby Ghimok » Fri Aug 31, 2007 6:59 pm

I've no doubt that the proverbial sh*t has hit the fan with the mortgage market. I work at a bank and see it first hand. And it's not just sub-prime like Corth said. It's been a bit of a thorn in our side already, and we have very stringently followed lending policies.

However, in my area it was pretty easy to justify buying a modest home. I pay less now for my mortgage and utilities than I was paying for rent. But I guess that's the case when you only pay around $64k for your house (6 years ago). Oddly enough the house with only minor upgrades appraised (not assessed) for $121k last year, which is totally an unjustly inflated amount.

Either way it'll be paid for in another 5-7 years depending on my ambition level. Then I can figure out the best way to bankroll my upgrade to a small acreage with some outbuildings and room to raise some cattle and/or buffalo.
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Postby Ragorn » Fri Aug 31, 2007 8:03 pm

I live in the DC area, in Fairfax County. Housing around here has grown exponentially every year for the last 15 years. I can tell you with an absolutely straight face that residential condos near commercial areas start in "the high 300s." This isn't NYC, this is 20 miles outside of DC. A single-family home on a 1/10th acre lot will easily price half a million dollars in this county, and McMansions over the million mark can be found in every development. Imagine paying seven figures for a stupidly big house on a quarter-acre lot. I live in a townhouse in the ass end of one of the smaller towns, and it's assessed at $340,000.

So yeah... not really looking to buy a house this year. Pop, bubble, pop.
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Postby Lathander » Sat Sep 01, 2007 3:50 am

A site I visit at least every couple of days.

http://ml-implode.com/
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Postby Ambar » Sat Sep 01, 2007 11:11 am

Real estate has been ridiculous here for years, in this area they are trying to build up the *city* .. real estate assessments have skyrocketed, the house we live in is a modest 3bedroom/1.5 bath with attached single car garage .. I have seen the *value* go up by about 100k over the last 3 years without any exterior or land improvements .. houses half the size of ours just across the street go for 250k where 5 years ago they were 60-70k .. house directly across the street is being rented at 1300/month no garage, 1 bath, 3 cigar box bedrooms, no dishwasher or garbage disposal .. (older houses/neighborhood) .. interest rates are ridiculous, and who the HELL would get a home loan for 40 or 50 years .. Friend of mine did get into a 10 year mortgage a couple years ago at like 4 or 5% and has only 6 or 7 more years

Because of my own stupidity with credit just after i got out of the navy, I jumped into an ARM 2 years ago (hehe after 20 years job stability i went to "unverified income") .. just refinanced a few days ago to get out from under that STUPID ARM (was due to adjust in april at *UP TO* 12%)


Corth hit this on the head 2-3 years ago, if i had gumption I'd search it out, just dont feel like it ..
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Postby Corth » Sat Sep 01, 2007 12:46 pm

This thread can turn nasty real quick if we start talking about the necessity, desireability, or feasability of a mortgage bailout. :)
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Ashiwi » Sat Sep 01, 2007 1:35 pm

In the last three years since I bought my property, the cost of unimproved land in my area has jumped from 2500.00 per acre to 4000.00 per acre. In the last two years I can count eight new housing additions that have started to build near the highway, land that was once gently rolling hills and very pretty to look at. Each of the homes going up in the new additions is a slight variant of the same model, and far larger than any cookie-cutter home built twenty years ago. Every single one cries out for a family who believes they have the inherent right to spacious living inside their own little city pocket out in the country. In the last two years one of the local convenience chains staked out their holding in the area. It won't be long before fast food shows up there, too. Then maybe a large shopping outlet. Wal-Mart built their superstore here in Skiatook just over two years ago. Shortly after that came the McDonald's. With these two giants came something else Skiatook had seen as only the occasional aberration... a Hispanic population.

One of my worries is that if the housing market bellyflops that these housing addition sites will end up leaving partially constructed eyesores dotted across the landscape. Unfilled, unlandscaped holes, maps of concrete road that go nowhere except into the prairie grass. Next is that we don't have the resources out here to support such a heavy influx of convenience-driven consumers. The convenience will follow the consumers, and it won't be long until the little spot of country that used to be such a pretty landscape off the main highway will be just one more extension of the metroplex, but if the housing market crashes the neighborhood that finishes off filling up the empty homes won't be from quite the same niche the original occupants were. Fuel continues to rise in cost. If the economy takes a downturn then those median-income people who stretched their pocketbooks to get out of the city are going to find you have to give a little more to get a little less.

It all seems like a badly stacked house of cards to me. We've been living for years without a thought toward the consequences of our actions. People always want more, but the technologiy hasn't yet been created that will belch something out of nothing. Somebody's gonna have to belch up a new school out here for this influx of Suburbanites who think their dollars don't stink. The ones that are already here can't support the incoming population. So the people who have been happy out here for years and years will pay the cost in higher taxes and congested roads to support the exploding housing market in the area.

People need to re-focus their impulse buying on condoms and contraceptive foams, instead of real estate.
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Postby Corth » Sat Sep 01, 2007 2:09 pm

They paved Ashiwi's paradise to put up a parking lot...
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby avak » Sat Sep 01, 2007 2:44 pm

Hey Corth

I could do my own homework on this, but I'm locked into a 30 year first time homebuyer's loan at like 4.9% with no plans of moving, so I don't think about it too much. Mind giving us the cliff notes version on what happens after an implosion? One thing I am wondering about; are real estate prices going to drop substantially so that someone with some means could capitalize at the right time?
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Postby Lathander » Sat Sep 01, 2007 3:05 pm

For every buyer there is a seller. Just look at the smart guys like Sam Zell.

The interesting thing is that real estate is not just having trouble in the hot areas like CA, NV, and FL. Areas where real estate did not really take off like Detriot and Cleveland are some of the worst areas as well. Ultimately, real estate is based on the local economy. There will be areas hit hard and others that are not hit hard at all.

The biggest areas of trouble for individuals are: subprime, jumbos, and large home equity loans. Subprimes are where they are because they can't manage their credit well. It is no shock that they continue this. The jumbo's to some degree are as Ashiwi says buying big homes. They will be ok even if they do have to pay a bit more interest as long as they keep their jobs. The home equity folks are a mixed bunch. You have people using it for smart things, and dopes using it as a credit card. The ones that can't keep up deserve the consequences.

The bigger trouble is what the investment banks have been doing with those alt-a, subprime and home equity loans to get rid of them...
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Postby kiryan » Wed Sep 05, 2007 10:40 pm

you'll end up upside down in your loan (owing more than your house is worth). Also, you'll basically have made a poor investment in that your asset won't appreciate for probably at least 10 years because you overpaid.

The upside is that you plan to live there a long time so you won't be taking any big hard losses except on paper.

---

Is anyone else not surprised that greenspan left and bankruptcy laws got changed before this unwound?

Been seeing it coming for several years.
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Postby kiryan » Wed Sep 05, 2007 11:25 pm

For the last couple years I have been thinking seriously about selling the farm I bought in 98 and realizing a pretty large profit.

I just could never figure out where to put the money if I did it. I've felt the stock market was inflated as well and government bonds just earn so little interest.

Does anyone know where the smart money goes now?
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Postby Yasden » Wed Sep 05, 2007 11:28 pm

Overseas.
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Postby kiryan » Wed Sep 05, 2007 11:43 pm

http://efinancedirectory.com/articles/W ... _Idea.html

mainly i posted this because of the graph in the middle where they identify three asset bubbles a 6 year in the late 70s, a 5 year one in the late 80s and a 12 year one that we are currently in. The scary part, in the 6 and the 5 year bubbles, the high point was hit in the middle. We're close or still at the top of the current one which is already 12 years long... based on the pattern you're looking at 12 years of decline. I kinda doubt it will be that long, but depends on what the government and lenders do. It's bad politics to kick families to the curb and have a crappy economy.
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Postby kiryan » Thu Sep 06, 2007 12:19 am

overseas...

The dollar is awfully weak to be making foreign investments in the stable areas (EU, YEN). I don't see the dollar falling significantly more against the EU or the YEN.

gold and precious metals are at all time highs.

i got burned in south american debt once already =).

The European financial giants are just as involved in this problem.

China might be a decent bet for investment, if you can guarantee their government won't steal your money on a whim and their monetary policy doesn't explode...

Maybe Japanese assets, but the yen still feels too strong to me. If it was around 100 to $1, I could tolerate the risk better. A decline in the yen could easily offset any appreciation.
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Postby Corth » Thu Sep 06, 2007 2:47 am

If the socialist politicians of both parties end up trying to bail out this mess, the dollar is toast. So then maybe precious metals are worth looking at. Adjusted for inflation metals are nowhere near their historic highs. On the other hand, a credit contraction is by definition deflationary since it involves the destruction of money, so from that perspective you might want to avoid commodities like metals and buy up treasuries instead. Personally, I think this mess is too big to bail out. Our government is in the business of selling its debt and will have to protect the dollar. So im expecting the dollar to go up, and the american homeowner to go down.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Yasden » Thu Sep 06, 2007 4:22 am

I'm saying smart money buys foreign products. I didn't literally mean invest your money overseas. That'd be completely stupid at this point in time. American quality these days is about the same as our government....shoddy. Take foreign cars, for example.

I own a 2004 Hyundai Tiburon GT and it was the best purchase I've ever made (in terms of quality vs. depreciation). In fact, I'm fairly certain that every new car I buy from here on out will be an import of some sort.

The American automotive economy is declining because of increasing dissatisfaction with the Big 3 banking on warranties and aftermarket parts, instead of placing a greater emphasis on fuel economy and quality. Sure, it keeps jobs....for the short term. Look at the layoffs now because no one wants to buy an American car anymore.

So, if you want to invest wisely, purchase everything from a reliable foreign company.
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Postby Kifle » Thu Sep 06, 2007 4:42 am

Ok, as far as real estate goes, I'm barely less ignorant than your average person, so... I sold my house a couple of years ago and started renting (cheaper for the short term/divorce/etc...). Anyway, at the moment, would it be smarter to buy a house (me and the wife have been thinking about it), or would it be best to rent for a few more years, save up, and wait for the market to level out a bit?
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Postby Corth » Thu Sep 06, 2007 4:44 am

Magic 8-ball says: Don't count on it.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Kifle » Thu Sep 06, 2007 5:00 am

Corth wrote:Magic 8-ball says: Don't count on it.


So basically stay renting or piss my money away and hope to break even in 10-15 years?


Also, wtf are you doing up so late? Don't you have like... a career or something?
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Postby Latreg » Thu Sep 06, 2007 12:58 pm

Kifle wrote:
Corth wrote:Magic 8-ball says: Don't count on it.


So basically stay renting or piss my money away and hope to break even in 10-15 years?



It never hurts to look. You can still find good deals, the longer, and more time you take to find a home you wish to buy, the better imo. We moved to VA 2 years ago, the market was hot unfortunately. We came down for a week and road with a realestate agent from the morning until night looking at places. On our last day we looked at the house we bought. We actually offered a little more than the asking price. I love the house and the area (it's in an upper class area) it actually appraised for more than we bought it for, which you need to have for a loan. Even 2 years later it's worth 30 or 40 k more than we paid. However there are a lot of places forsale in our area. So just because it's worth more doesn't mean anyone will buy it. Not that I want to sell it. I think there are still a lot of people selling in the hopes to make a huge profit. So bargins can be hard to find. In our case the previous owner was a widdower and was put in a nursing home. An empty house will be less than someone who is still living in it. I guess the point is you can still find a deal, it will be difficult but do your homework and it will happen.
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Postby Corth » Thu Sep 06, 2007 1:01 pm

Renting is pissing money away the same way leasing a car is pissing money away. Your paying to use something over a period of time. Is it a better deal than buying? Nobody can predict the future and give you the answer you want. Personally, I plan on renting for two more year minimum, and possibly longer than that. But I live in an area where home prices are still inflated. If I lived somewhere else I might be buying right now.
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Postby Ambar » Thu Sep 06, 2007 1:34 pm

Renting to me is the equivalent to paying someone else's mortgage unless they own it outright and can afford a lower rental offering .. but they make all the repairs and get the tax break

Buying you get the tax break and to fix everything that is wrong

You CAN find a home worth buying but it may take some time (several months)

Also .. do you have the money required to put down on it .. do you have the money to fix whatever you settled into (sellers market they can get away with fixing less)

I still say buy .. do not buy into more than you can afford, do not go for anything more than 30 years (less is better) do not go for an ARM unless you are selling before it adjusts .. typically 2-3 years ..

Do not offer anything more than they want (unless going against another family and you REALLY want this)

If you are a fixer upper and buy one .. be VERY careful, but that is another option .. also HUD foreclosures (people rip out light fixtures by the wires and also put cement down the garbage disposal .. be VERY careful with HUDs) Go with a reputable appraiser and get the seller to fix anything you can ..

Seriously you can do it if you look hard. be smart about it .. and take your time in looking up the area and typical prices homes are selling for in an area
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Postby teflor the ranger » Thu Sep 06, 2007 3:13 pm

Renting is fortunatly easier to get off the hook for than buying. If you have an undeniable skill set, or a strong career in a currently and traditionally stable field, then always consider buying.

Alternatively, if you're not exactly stable, you may not want to put yourself on the hook for for a mortgage that may be worth more than your house will be as it depreciates or the market comes down on your head.

Ownership of something well within your reach, however, is just about always preferred. The problem is not the question between ownership and rental, but how much you can afford. If you buy something you can just barely afford today, what the heck do you think is going to happen when the rate ups a quarter of a percent on your ARM?
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Postby Corth » Thu Sep 06, 2007 4:27 pm

There are no hard and fast rules. Sometimes its a smarter decision to rent. Sometimes its a smarter decision to buy. Anyone who tells you its always better to do one instead of the other doesn't know what he/she is talking about.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby teflor the ranger » Thu Sep 06, 2007 7:55 pm

There are definitely hard and fast rules.

Don't buy if you can't afford it.
Don't buy if you might not be able to afford it later.
Don't buy if it's not going continue to become more valuable.
Don't buy if you have no income stability.
Don't buy on floodplains.
Don't buy in wildfire corridors.
Don't buy in aging infrastructure areas (80 year old pipes, 90 year old telephone lines).
Don't sign any mortgage without understanding exactly what the product is, what it does, what it can do, and what your worst-case scenario is.

There you go. Teflor's checklist to keep yourself from screwing yourself.
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Postby Ragorn » Thu Sep 06, 2007 8:02 pm

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Postby kiryan » Fri Sep 07, 2007 4:41 pm

I finally found the greenspan criticism I've been waiting to see.

http://money.cnn.com/galleries/2007/for ... ne//7.html
If we want to talk about one player that certainly had the power to put a stop to the excesses, we have to look at the Federal Reserve, which sets interest rates and therefore heavily influences the amount of lending that takes place in the economy.

The chief charge against the Fed is that former chairman Alan Greenspan kept interest rates at very low levels far longer than necessary, which in turn sparked the bubble in housing prices and mortgage lending. Looking back, the Fed's behavior does seem bizarre. It kept the key Federal funds rate at 2 percent or lower from November 2001 right through to the end of 2004.

Those rate decisions showed that Greenspan had chosen to use the housing market as his main instrument to prop up the economy after the 9/11 attacks. Using monetary policy to encourage a rise in home prices would be a highly unorthodox move for a central bank. But evidence suggests that Greenspan was overly keen to use housing for exactly that.

In 2002 he called mortgage markets a "powerful stabilizing force" because they allowed people to extract equity from their homes, and in 2004 he said that homeowners should consider using adjustable-rate mortgages to save on interest and prepayment costs. In 2005, when a record $625 billion in subprime mortgages were made, Greenspan gave a speech that blessed the creation of new loan products, including subprime home loans.

As a result, Greenspan has lost a lot of favor in Washington. In March, Senator Christopher Dodd, chairman of the Senate Banking Committee, laid much of the blame for the current crisis at the feet of Greenspan's Fed, saying that it "seemed to encourage the development and use of adjustable-rate mortgages that today are defaulting and going into foreclosure at record rates."

Are we being fair? Is the Fed really this culpable? On the subprime issue, a person close to the Fed at the time responds, "It was only when we got to early 2006 that the Fed had any real data on what was going on in subprime. The first time we saw the data, we thought it must have been a mistake because the amount of subprime origination was so high. We then thought about the implications." But why didn't the Fed work harder to find the data?

And was monetary policy too lax for too long? The person adds, "There is a glaring fact, which people who make that criticism do not consider. And that is that interest rates - long-term interest rates - have been going down for 15 years. And it's a worldwide phenomenon."

So is the Fed off the hook? "That's nonsense," says Paul Kasriel, economist at Northern Trust. "The fact is, the Fed should have tightened earlier. That way they probably wouldn't have had this dilemma." So the Fed has to accept a large slab of blame for the current crunch. Perhaps it even deserves the lion's share.
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Postby kiryan » Fri Sep 07, 2007 5:36 pm

lol ragorn.

--

home ownership, socially acceptable debt for social status seekers. Be the envy of your friends for buying something that you'll pay interest on for 40 years to the tune of a total price of 3x the original.

Renting is not always bad. You want to talk about throwing money away, look at the interest you pay on a typical 30 year home loan. Sure its tax deductible, but you're still throwing away 70% of that money, plus maintenance. I just put 4.5k into repairs on my well.

Maintenance is no small thing either, everything from 3k to fix a roof to a couple k to fix dry rot to 10k for siding. It's may all be tax deductible, but at the end of the day for every 10k you pay for the privilege to own a house, you're only going to net 2-3k on your taxes (assuming its tax deductible). Now factor in the renters tax credit, the utilities you may not have to pay for... the time you don't have to spend fixing crap mowing the lawn ect... There is something to be said for owning a house, but you really need to be objective.

When I bought my farm, I bought it as an investment, I bought it because my dad wanting somethign to tinker around with, I bought it because it would rent for anywhere between 75-100% of my mortgage payment (depending on the renter and the market), I bought it because my mortgage was about 30% of my disposable income. I've always intended to make double payments, but in 10 years, I've made 0 extra payments. So far this investment has paid off well for me, and if push came to shove I'd have a home that I could afford working a couple of minimum wage jobs.


should you buy now, depends on your market and your financial situation. If you think you have the finances, go talk to a well established real estate agent (employed in the local market for at least 10 years preferably 15-20). Then disbelieve probably half of what they say since they are sales oriented by nature and typically have a rosey outlook.

I do believe this is the time to start getting prepared. I think that sometime in the next 3 months to 2 years there will be a golden opportunity to buy. We may be on the cliff of an incredible drop in home pricess (or we may not) and at a time when interest rates are quite low (compared to the distant past). We may not. Just be real objective, don't get excited and pull the trigger that isn't an outstanding deal by today's standards because it may just be an average deal by tomorrow. If you waste another year or 2 years in rent, whats the big deal? It may be a waste, but you're potentially saving yourself from wasting tens of thousands of dollars.

Be real careful about buying something that costs you more than 40% of your DISPOSABLE household income. This is especially true today because in the past people could open home equity to offset difficult financial times, with the real risk that your house may be worth less in the near term you will absolutely need some sort of a financial safety net and that most likely means minimum 6 months of savings or wealthy parents.
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Postby Sarvis » Fri Sep 07, 2007 5:37 pm

teflor the ranger wrote:There are definitely hard and fast rules.

Don't buy if you can't afford it.


Gotta love pithy, oversimplified advice. Buying things you can afford can still add up to a total you can't without you realizing it. Just ask my friend who just figured out he's spending like $300/month eating lunch every day.

Don't buy if you might not be able to afford it later.


So then never buy? This is stupid. There is always risk you will lose your job and your assets.

Don't buy if it's not going continue to become more valuable.


So buy nothing but a house? Yeah, have fun walking to work every day barefoot.

Don't buy if you have no income stability.


No one can expect a stable income these days except CEOs. Your job could be outsourced tomorrow.

Don't buy on floodplains.


Mrs. Saleswoman? Is this a floodplain? No? Oh, ok.

Don't buy in wildfire corridors.


The US as a whole should just not utilize huge portions of it's land mass then, eh? When combined with floodplains, hurricanes, tornados... really you're just left with the northeast and then you still have blizzards and ice damage.

Don't buy in aging infrastructure areas (80 year old pipes, 90 year old telephone lines).


Ah, so don't buy anywhere in the US. That clears things up.

Don't sign any mortgage without understanding exactly what the product is, what it does, what it can do, and what your worst-case scenario is.


It's a house. It provides shelter. It can keep you warm and provide privacy while changing clothes. Worst case scenario is that someone could break in, rape you and kill you.


There you go. Teflor's checklist to keep yourself from screwing yourself.


Gee. Thanks for unwarranted, pithy and stupid advice. Think I'm more afraid of the worst case scenario.
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Postby Corth » Fri Sep 07, 2007 5:43 pm

<img src="http://rathipon.com/pedantic.png">

I've been so waiting to use this.. :)
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby kiryan » Fri Sep 07, 2007 5:46 pm

oh and if you hire a real estate agent make sure that you are getting one that is a "buyers" agent that has had experience outside of the recent bubble market.

Things are tight now, agents are clamoring for any listing and potential buyers they can get. You really want someone who knows how to negotiate for the real value oh a house, not someone who has primarily been listing houses for inflated values and sitting back and picking the best of a dozen bids or someone who really hasn't had any experience other than trying to put together the best possible bid.

You want someone who is going to put the screws to the homeowner and get you the best deal possible.

Also, look out for the agents who don't want to do anything. Most have left the industry, but there are still plenty who expect you to do all the work and give them a hefty commission for their limited participation.
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Postby Corth » Fri Sep 07, 2007 5:50 pm

Any RE agent who is compensated via a commission based upon a percentage of the sale price is always primarily looking to complete a deal rather than getting the best price for either party. There is nothing inherently wrong with that. But if you really want an agent to 'put the screws' to the other party, as Kiryan says, you are better off hiring someone for an hourly fee than a percentage commission.

Example:

Suppose your RE agent gets a 3% commission based upon the sale price. The property is listed for $350,000. If it sells at the listed price, the commission is $10,500. If an offer comes in at $320,000, and its accepted, the commission is $9,600. Obviously, for only $900 more, it is not worth it to the RE agent to risk losing the deal entirely in order to try and get the homeowner any additional money. The RE agent has an incentive to convince the seller that this is a good price. But to the homeowner, that additional $29,100 they would get if they received an offer for the full listed price might make it worth it to hold out.
Last edited by Corth on Fri Sep 07, 2007 6:04 pm, edited 1 time in total.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Sarvis » Fri Sep 07, 2007 6:01 pm

kiryan wrote: Now factor in the renters tax credit,




The what now?
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Postby Corth » Fri Sep 07, 2007 6:06 pm

Yeah I'm curious about this renter's tax credit too :)
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Kifle » Fri Sep 07, 2007 7:34 pm

Corth wrote:Yeah I'm curious about this renter's tax credit too :)


Oh please let it be true!

Edit: My wife just informed me that, yes, the renters tax credit is real, but it is very small and insignificant. :(
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Postby sok » Sat Sep 08, 2007 3:07 am

just finish reading all the post.

so far on paper, i've gain 20% on my home. however, i'm still a little afraid. if price is going to drop a total of 50% in the next 5 year, i'm hurting. in hindsight, i should've brought in the early 2000 and sold in 2005. use that money on att stock when it was around $15 and sold it a couple months ago when it was at $42. take that money to vegas and put it all on rampage jackson when he was 3-2 underdog.

man oh man i would've been filthy. of course i dont have a crystal ball, so i will just try to wait it out w/ my 30 year fix.

--------------

investments. i hope you are putting your allotted 4k each year for a roth ira. maximize your 401k. get a fiancial advisor, buy whole life insurance, and put some money into mutual funds. yahoo had some easy tips on making $1 million dollar. all about the compounding interest. anyways, it's the end of my shift so i can't look up the links for you. maybe monday.
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Postby Lathander » Sat Sep 08, 2007 3:54 am

The big advantage to buying a house is the cheaper carrying cost. The mortgage interest in most cases is going to be tax deductible. That means in higher tax brackets, you are getting back a third or more of the interest you pay as a deduction on your tax return.

In numbers, if you are paying 6.25 percent on a thirty year mortgage, your actual cost is around 4.1%. Over the long term, real estate does pretty well, not as well as equities, but it does well. The cost of capital is what really makes buying a home attractive.

In regards to paying a mortgage faster, I'm not a big fan of that. See, you can break up a thirty year mortgage into three parts. The first is mostly interest. The second is a balance of interest and principal, and the last portion is mostly principal. It makes more sense to get the interest deduction and save/invest the additional payments you would have made into something that earns more than the carrying cost after taxes. Then you pay it faster by taking that money you invested with growth and putting that into paying the mortgage off faster.
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Postby teflor the ranger » Sat Sep 08, 2007 4:13 am

sok wrote:just finish reading all the post.

so far on paper, i've gain 20% on my home. however, i'm still a little afraid. if price is going to drop a total of 50% in the next 5 year, i'm hurting. in hindsight, i should've brought in the early 2000 and sold in 2005. use that money on att stock when it was around $15 and sold it a couple months ago when it was at $42. take that money to vegas and put it all on rampage jackson when he was 3-2 underdog.

man oh man i would've been filthy. of course i dont have a crystal ball, so i will just try to wait it out w/ my 30 year fix.

--------------

investments. i hope you are putting your allotted 4k each year for a roth ira. maximize your 401k. get a fiancial advisor, buy whole life insurance, and put some money into mutual funds. yahoo had some easy tips on making $1 million dollar. all about the compounding interest. anyways, it's the end of my shift so i can't look up the links for you. maybe monday.


Don't worry Sok. It's hard to tell just exactly when the housing market will tank and in which areas. People have been worrying about the housing market 'crash' for about four years.

You should have invested in IBM over the last decade or two. I don't know how well they will do in the future, however...
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Postby Corth » Sat Sep 08, 2007 4:15 am

Hey Sok..

Don't buy 'whole life' insurance. Big ripoff. Buy term.
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Lathander » Sat Sep 08, 2007 7:04 pm

Yea, I'd like an explaination on the Whole Life myself.
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Postby Corth » Sat Sep 08, 2007 9:51 pm

With regard to the mortgage interest deduction, one part of the equation is routinely left out in these conversations.

The mortgage interest deduction only helps you to the extent that your mortgage interest plus other deductions exceed the standard deduction. Often times, especially if your house didn't cost much, you get very little benefit from the mortgage interest deduction because your itemized deductions barely exceed what you would have gotten if you had taken the standard deduction.

And then there are the rapidly growing class of people who end up getting caught up in the so-called Alternative Minimum Tax, which again limits the tax benefit of your mortgage interest.

Corth
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Lathander » Sat Sep 08, 2007 11:38 pm

Well, to benefit from the deduction anyway, you need to be in a higher tax bracket (25% and up) anyway. Someone in that range is likely to have at least a 200K mortgage.

AMT does not affect the mortgage interest deduction. It does effect equity lines or second mortgages, but it has no effect on your primary. That's why for tax efficiency, a bigger mortgage for a bigger house is a good thing for higher income people.
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Postby Corth » Mon Sep 10, 2007 5:17 pm

http://drhousingbubble.blogspot.com/200 ... -look.html

Interesting case study of a foreclosure in sunny California. Things can go down the tubes pretty fast for the typical overextended homeowner. As home prices continue to decrease over the coming months and years you will see more stories like this. In the past, rapidly appreciating home values made it easy to get out of a tight squeeze. You could just refinance or sell. Not anymore.

We'll start seeing some pretty heavy credit card defaults soon as well. If your credit is going down the tubes because of a foreclosure, you may as well just spend to the limit on your credit cards and default on those too.

Unemployment rates have just bottomed and will continue to increase. As people lose jobs, mortgages reset, and houses are foreclosed upon the housing 'slump' will become exacerbated because more houses will be on the market (supply increase). The economy will go into recession. More job losses. Home prices will drop even further.

Anyone who thinks this is a 'subprime' problem is badly mistaken. Its a problem for the economy as a whole, and particularly people who are in debt. The subprime borrowers may be the first to default, but ultimately asset depreciation and job losses do not discriminate. And unlike previous recessions, this time we have had years of low to negative rates of saving.

If you think the Federal Reserve will save us, you are again badly mistaken. Yes, the Fed can inject a certain amount of money into the economy. A so-called 'helicopter drop' of money has been discussed by Bernanke in the past in this regard, though of course that is not literal, and there are easier ways for the Fed to accomplish this purpose. However, this type of intervention cannot be relied upon to bail out a mess of this magnitude. The Fed will not kill the dollar to bail out debtors, as the value of the dollar is the source of its power and credibility. Talk of 'helicopter drops' of money are all bark and no bite. Ultimately people will realize that the Fed is impotent and not prepared to hyperinflate the dollar which is the only means at its dispoal to truly bail out debtors.

The exact opposite of hyper-inflation will occur. Credit destruction through foreclosures, bankruptcies, and charge offs will increase the value of the dollar, as there will be less of them in supply. Ultimately what we are seeing is the beginning of a prolonged deflationary recession. The first one since the great depression. Cash is king!
Having said all that, the situation has been handled, so this thread is pretty much at an end. -Kossuth



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Postby Sarvis » Mon Sep 10, 2007 5:33 pm

But I thought under the free market everything would be a Utopia?

/duck
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Postby rylan » Mon Sep 10, 2007 5:52 pm

No no, its a Utopia under the socialist dreamland where everyone has the same thing regardless of how hard they work! ;)

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