San Diego Housing Bubble News and Analysis

I would not consider Jane Doe a friend of the family anymore, would you?! That's so condescending it wasn't even funny. According to this, you are patriotic, if you are FB by getting a loan you couldn't afford so she could earn her commission, and getting help from Uncle SAM...pleaseeee. I am glad her income got deferred for a long time.

So the marketing adviser of this loan officer should be shot.

That is the most idiotic letter ever (with the possible exception of something I sent to an ex-girlfriend in college).

I mean really who sends letters shaming and scolding the clients?

I am not as negative on buying as most on this blog but I really think a letter like this is beyond the pale.

I really can't speak to the "friend" part of the relationship but I would be suspect of the professional part.

The loan officer I use sometimes points out the direction of interest rates (that is part of his job) in his marketing pieces. However, if he sent out anything that deliberately alienated clients, he would not get my referrals ever again.

You can probably rent that "$450K" house for $2000/month, gardener and general maintenance included.

You should publish the loan agent's email address so that piggintonians can "educate" her...

nah... Actually, i think that's sort of tame relative to other things I've seen a car dealerships and timeshares.

It really is buyer beware, seriously.

The only thing is, email written with a tone intended to make people feel like a dumbass if they don't do something isn't probably a very successful marketing campaign.

Wow! Is this a "sign of the times" or what!!?
People so down that they'd send out this letter!

But Jane says, you are throwing those $2000 to a trash can....why don't just give it to her

Yeah, she's a family friend. However, you can bet that after that email we won't be using her professional services.

She sent a follow-up email an hour after that saying "oops that wasn't supposed to go to you".

Oops! I'll be using someone else to take out a loan when all is said and done.

I usually prefer a little bit of a softer sell myself. Dinner, roses and some lube...

"As Loan Officers we are not interested in having our income deferred. We want the loan to close NOW. Mr. & Mrs. Potential Home Buyer, you are failing to help stimulate the economy by not acting NOW - shame on you. "

what audacity...

i stuck that through babelfish and oddly, this is what came out:

As Loan Sharks, we are not interested in having our rackets deferred. We want the money NOW. Mr. & Mrs. Potential Fucked Buyer, you are failing to help pay for my country club membership by not acting NOW - shame on you, you miserable loser!

Imagine this scenario on a FHA purchase – a buyer purchasing a home today at $450,000 with 3% down. At today’s rate of 6.375%, the principal and interest payment (including the 1.50 up front MI financed) would be $2764.04. Down payment would be $13,500.

A buyer holding off on their dream purchase in hopes of the market declining another 5%, or in comparison to above, the sales price now being $427,500. That’s nice but what if interest rates were to increase a ½% to 6.875%. The principal and interest payment would be $2764.98 ($0.94 higher). The down payment would be $12,825 ($675 less).

Notice the alternative in this scenario is limited to a 5% loss, and even that possibility is debated.

Let's run the same alternative with a $100,000 discount, not a $22,500 (@5%) discount. Further, let's say the interest rates go to 7%.

At that point, the downpayment will be $10,500, and the monthly - even with the higher interest rate - will be $2,315, a larger percentage of which will be eligible for tax writeoffs.

- Who's to say that $450k home won't decline lower than $350k?

- If I'm saving $100k on the principle and $2,500 on the downpayment, what the hell do I care if the seller doesn't give me concessions.

- If I'm a renter I will have saved $6,200+ dollars in the last year for housing expenses PLUS the $100,000 decline by not being trigger happy. Go ahead, call me a renter; having profited by $106,200 that I didn't lose I can afford it.

- As a home buyer, I'm not interested in losing $100k or more just so you can clear your Beemer payment this month. While we're at it, I should be questioning YOUR patriotism due to your feeble attempts to prolong an adjustment cycle that would be better left alone.

Great one bugs!

One thing I find different since moving to Cali is the constant leaving out of the property taxes as it relates to the house payment.

Is it safe to say the tax "uh-hum, benefits" of owning effectively wipe out the true cost of property taxes?

I just did some elementary calculations and it's probably safe to say that interest benefit wipes out the property taxes with plenty left over.

CardiffBaseball, I think it's pretty safe to say tax benefit cancel out the tax you have to pay. I ran many loan amortization calculation and that's my conclusion as well. That's why I usually just ignore tax benefit and property tax and just concentrate on PI vs rent.

Let's do it slightly differently.

$600,000 house financed with a conforming-jumbo at 6.375%, 20% down, 1.1% property tax rate.
Interest: $2550
Insurance: let's say $50
Property tax: $550

You could have kept your $120,000 down payment, but stock market sucks, and, with interest rates as low as they are, CDs and savings accounts don't yield much more than 3%. You could have been getting $300/month in interest and paying a third of that amount in taxes. Your total downpayment opportunity loss is $197/month.

By owning, you'll be enjoying tax savings; they depend on your specific situation, but we can estimate that you'll be saving (25% + 9.3%) of interest + property tax or $1063/month.

It costs you 2550 + 50 + 550 + 200 - 1063 = $2300/month to own that house.

$600,000 goes a long way in San Diego. You can buy this

http://www.redfin.com/CA/San-Diego/11839...

or this

http://www.redfin.com/CA/Carlsbad/2411-J...

or even this

http://www.redfin.com/CA/San-Diego/11248...

and it would probably cost you more than $2300 to rent any one of these.

esmith, first, lets just assume that we're already at the bottom and we're just going to stay at the bottom for the next 5 years. You can get a 5 year CD at E-Loan for 5.25%. That's ~$350/month after taxes. So, you would have to compare $2300/month mortgage with $2650/month rent.

For $2700/month in rent, you can rent places like:

This or this.

Houses similar to those 2 are selling in the mid 600s right now.

At today's environment, assuming we're at the bottom is pretty bold.

my 2300 already includes $200 lost income from down payment. Your E-Loan CD brings 150 more after taxes.

I don't assume anything, I'm merely making an observation that some houses in desirable areas are currently cheaper to own than to rent. Also, if you buy one of them, your cost to own will remain more or less constant, but the equivalent rent may rise with inflation. In my opinion, it indicates that the bottom may not be too far in those areas. Further substantial declines in places like RB and PQ can only be caused by a substantial rise in interest rates or a drop in rents (maybe because of mass layoffs in IT).

The problem with this calculation is that you forgot to consider Standard Deduction.
When you take interest tax deduction, you lost your $10700 (if file jointly).
So, the saving should be $568, not $1063
So, the cost to own is 2550 + 50 + 550 + 200 - $568 = $2794 or about $2800
By the way, the $568 is the maximum you can save on the first year. In about 15 years, the standard deduction will be raised and your interest payment will be lower and soon there is not much you get to save from the interest tax deduction. Yet, the property tax is forever (and probably higher).

(2550 + 550) * 12 - 10700 is 26500, tax savings of $552/month (federal) and $205/month (state). And that assumes that you have nothing else to deduct. But, at the very least, you can deduct your previous year state tax and all DMV registration fees of your cars.

So the cost of ownership is
2550 + 50 + 550 + 350 (use AN's number) - $552 - $205 = $2743

So, is it the time to buy now ?!

Not if you are in a lower tax bracket, such as 15%. Our last place, we paid $280-$290 monthly for PT; no way did our mortgage interest/PT deductions cancel all that out. More like little more than half.

+ there's hazard insurance (which is more than renter's insurance) and HOAs (if applicable).

My most recent calculation - using Microsoft Money - estimated tax savings of about $160 a month if we were to acquire a mortgage in our price range of mid to uppermid 200s)

What if you can't deduct mortgage interest because you keep hitting against AMT? People who can afford $600k houses are upper income and are more likely to run into this problem, in particular if you are single and have investment income as well as salary based income.

On a side note, I am a bit suspicious of the original article. The statement "- As Loan Officers we are not interested in having our income deferred..." seems to have a bit too much 'cheekiness' in it.

True. I was waiting for someone to call BS. Maybe it was inside-baseball humor. As the OP stated, it was internal and not intended for them.

What if you can't deduct mortgage interest because you keep hitting against AMT? People who can afford $600k houses are upper income and are more likely to run into this problem, in particular if you are single and have investment income as well as salary based income.

Mortgage interest and PMI on your primary residence are deductible for AMT purposes. (Property tax and state tax are not, unfortunately) If you're hitting against AMT, it could even be beneficial to own. One dollar spent on mortgage interest reduces AMT by 26 cents, but it only reduces your regular tax by 15 or 25 cents, depending on tax bracket.

There is a neat tax calculator on http://www.hrblock.com/. Type in a few numbers and it will tell you right away how much you owe in taxes. It even knows how to calculate AMT. You can easily find out how much of a federal tax benefit you would get from owning a house.

Mortgage interest and PMI on your primary residence are deductible for AMT purposes.

I suggest you review tax code and form. There is an overriding 26% which removes all deductions. That is the one I have been hitting due to LTCG. Its at the bottom of the form where you calculate diff between taxed and 26% rate... and if amount is less than 26%, you pay 26%. (Unless less than 173k, at which point 28%). Also Mortgage deductions get added in on line 4, form 6251. It is not near as simple as above and as you make it. I have already run the numbers.. and I would not get the deductions.

I think you are assuming that I am clearing maybe a few thou $ at most in LTCG. Last year my LTCG was $37k after finding every possible loss in my portfolio to hide it (by selling the loss position and then buying back after 31 days). Tax year 2005, it was nearly $60,000 in LTCG (after doing the same with negative positions). The combination of 15% rate on LTCG and taking the resulting CA income tax as a deduction really alters the picture. (California taxes LTCG as income at 9.3% which is deductible on the fed by itemizing).

Form 6251 line 4 contains "mortgage deduction adjustment", calculated using the worksheet on page 2 of instructions. If mortgage is for your main home or your second home, adjustment will likely be 0.

If you're itemizing your deductions:

- form 1040 line 38 contains your AGI
- form 1040 line 41 contains your AGI less itemized deductions (mortgage interest, state tax, property tax, charitable donations, etc. etc.)
- it's copied to form 6251, line 1
- most itemized deductions EXCEPT MORTGAGE INTEREST get added back for the purposes of computing AMT; for example, state tax and property tax are added back on line 3.

So, if you own a house, your AMT is reduced by at least 26% of the entire amount you paid in interest, but your regular tax is only reduced by the amount of interest in excess of standard deduction, times your tax bracket.

This letter strikes me as an internal joke that was accidentally added to their spam cannon. It's a classic, 'oh sh*t, did that go OUT?'