This man got the loan in 2004, so I assume he has a 4% IO loan, making his payments $20K/year or $1666/month. The realtors who emphasize now is a good time to buy because we have historically low interest rates, forgot that people like this technician CANNOT afford a fixed rate loan even at today’s low sub-7% rates. This is a concern. He is gambling with his house. What if rates are higher in 3 years? What if they are double his 4% intro rate, i.e. 8%? This is a big gamble, and he could lose his house. If he could afford the 6.75% rate, he would take it, I think. Since he CANNOT afford it, he is taking the gamble in waiting.
I think the “these loans serve a purpose” argument is poorly served up. 80% of San Diego mortgages last year were of this type, because people could not afford a fixed rate loan, not because they have alternative investments for all their money. There is too much data showing flat wages, increasing household debt, and bankruptcies, NODs, foreclosures. Even the FDIC is now concerned about these loans and are changing the lending guidelines.
He told me that last year they considered leaving SD for a cheaper state. He thought a $200K house in Texas would suit him, but his kids are still in high school, so he didn’t want to move yet. Now he feels he missed the boat. He was concerned about the high property taxes in Texas.
As far as me saying that a 50% drop in RE is irresponsible, I disagree. I can say anything I want. I can say that I think GDP will be 2% next year, interest rates will be 8%, housing will fall 50% over 5 years.
A realtor has a fiduciary duty, and saying that RE in CA only goes up is historically false. That is a lie. Saying that we are running out of land is misleading, because if you look at Japan, you would know that scarcity of land does not correlate with a new permanently higher plateu.
