I think that the $475k house that he bought will be worth no more than $300k in 10 years so when the interest only portion is up, he will start paying for P&I for 30 years for an overpriced property. The bottom for housing prices in SoCal won’t hit until at least the end of 2011 but most likely 2012 or later. When the bottom hits, prices will not go up for years because the average incomes for buyers in SD don’t equal what it takes to get a loan. Prices will only be able to rise according to income rising along with inventory & demand. After this fiasco, banks will not be handing out loans like candy to trick or treaters and buyers will not be so eager to buy a home that they can’t use as a get rich quick scheme or an ATM.
If he’s happy with the loan, more power to him but it’s not something I would advise any of my children to do.
