Wasting time in the housing market

[JWM in SD]

Yes, but you see Mr Angel doesn’t think prices will go down that much and there in lies his perceived dilemma.

Nice try Alex, but you are not fooling anyone here…especially me. Go scare some sheeple some where else.

[PerryChase]

Our standard of living has increased compared to generations past. All thanks to credit, we live in bigger houses with better amenities. We drive fancy cars with all the gadgets. On the other hand, our quality of life and happiness is a whole other topic.

Well, Rustico, is this sustainable? It depends for how long. 50 years?

Did you read about the development of credit industry? There was also a Frontline show on that topic. By lowering monthly payments, they grew the industry, made more profits and provided credit to about the entire population. They don’t loose anything until debtors en-masse stop servicing their debts (hasn’t happened yet). If defaults increase, they increase rates and fees to make up for the loses. Consumers benefit in that they can get the goods right now. The trade off is indebtedness which the consumers willingly take on.

People these days don’t think about purchase prices (the Realtors will tell you that). They think in terms of monthly minimum payment costs of housing, transportation, clothing, etc… It is a form of servitude. However, unless you’re independently well-to-do, you have no choice but to participate in order to fit in your social group. It’s part of our society now, and the richer a person is, the higher that person’s debt is.

Perpetual credit first started with TVs and washing machines, then cars and now houses. Leasing cars was considered crazy in the 1980s but the majority of cars are now leased. Drivers are used to trading cars and as long as the monthly payment is within their budgets, they are OK with it. Buyers live about 5 years in their houses and continually trade from one house to another; racking up fees, points and transactions costs and never paying off their homes.

I think that this credit regime has staying power and will last as least until the boomers are 5 years into retirement (sorta like society’s ARM reset), despite the coming housing recession.

[PerryChase]

Our standard of living has increased compared to generations past. All thanks to credit, we live in bigger houses with better amenities. We drive fancy cars with all the gadgets. On the other hand, our quality of life and happiness is a whole other topic.

Well, Rustico, is this sustainable? It depends for how long. 50 years?

Did you read about the development of credit industry? There was also a Frontline show on that topic. By lowering monthly payments, they grew the industry, made more profits and provided credit to about the entire population. They don’t loose anything until debtors en-masse stop servicing their debts (hasn’t happened yet). If defaults increase, they increase rates and fees to make up for the loses. Consumers benefit in that they can get the goods right now. The trade off is indebtedness which the consumers willingly take on.

People these days don’t think about purchase prices (the Realtors will tell you that). They think in terms of monthly minimum payment costs of housing, transportation, clothing, etc… It is a form of servitude. However, unless you’re independently well-to-do, you have no choice but to participate in order to fit in your social group. It’s part of our society now, and the richer a person is, the higher that person’s debt is.

Perpetual credit first started with TVs and washing machines, then cars and now houses. Leasing cars was considered crazy in the 1980s but the majority of cars are now leased. Drivers are used to trading cars and as long as the monthly payment is within their budgets, they are OK with it. Buyers live about 5 years in their houses and continually trade from one house to another; racking up fees, points and transactions costs and never paying off their homes.

I think that this credit regime has staying power and will last as least until the boomers are 5 years into retirement (sorta like society’s ARM reset), despite the coming housing recession.

[ibjames]

I have a on/off switch in my brain about this all the time. I want things to fail, I want people to learn lessons the hard way, for prices to fall and for me to scoop up a place at a bargain.

Then I think for that to happen my wife or I will lose our job and will not be able to take advantage of it anyway. I used to keep around 3k on my credit cards at all times, I didn’t think it was bad, I could afford it. Then I married a girl in finance and we started computing and it quickly was paid off. I can’t imagine ever going back. I’m hoping it’s the same lesson many learn.

[ibjames]

I have a on/off switch in my brain about this all the time. I want things to fail, I want people to learn lessons the hard way, for prices to fall and for me to scoop up a place at a bargain.

Then I think for that to happen my wife or I will lose our job and will not be able to take advantage of it anyway. I used to keep around 3k on my credit cards at all times, I didn’t think it was bad, I could afford it. Then I married a girl in finance and we started computing and it quickly was paid off. I can’t imagine ever going back. I’m hoping it’s the same lesson many learn.

[bobby]

if you think about it in term of total housing price instead of how much monthly payment you can afford, it’ll make more sense.

[bobby]

if you think about it in term of total housing price instead of how much monthly payment you can afford, it’ll make more sense.

[NotCranky]

one_muggle I said what I did about Perry’s new paradigm topic to bring out discussion. I know the mostly pay as you go ,calculate risk vs reward still works.I knew credit bubbles aren’t sustainable. As you have both pointed out it is best to understand what Perry is demonstrating wether it is sustainable or not, to which I agree it is not. In fact sometimes it seems so crazy that I think the elite power broker/credit broker class sees the end of American economic dominance and is playing robber baron with these scandoulous bubbles and wars until the gig is up. I am not saying it’s true I am just saying it makes me wonder.In fact I actually doubt we will come to that extreme now.However sometimes I think that maybe they finally won’t stop short of milking the cow to death?

[NotCranky]

one_muggle I said what I did about Perry’s new paradigm topic to bring out discussion. I know the mostly pay as you go ,calculate risk vs reward still works.I knew credit bubbles aren’t sustainable. As you have both pointed out it is best to understand what Perry is demonstrating wether it is sustainable or not, to which I agree it is not. In fact sometimes it seems so crazy that I think the elite power broker/credit broker class sees the end of American economic dominance and is playing robber baron with these scandoulous bubbles and wars until the gig is up. I am not saying it’s true I am just saying it makes me wonder.In fact I actually doubt we will come to that extreme now.However sometimes I think that maybe they finally won’t stop short of milking the cow to death?

[Coronita]

Save for a down payment. It will put you in a better cash position in case rates go up. It's better to buy a home at a lower price and higher interest rate then a home at a higher price with lower interest rate, even if the monthly payment is the same. If rates go down you can refi, but your purchase price will stay the same. Also only your interest payment is higher, not your principal payment. Your taxes will be lower also. It's also better when you go to sell. You don't want to sell a home that cost you 600K for 500K even if your montly payment is low. Your cost basis is a lot more important than your monthly obligation.

 

You're assuming that rates are actually going to fall in the forseeable future. What if for the next say 10-15 years we have nothing but interest rates go up and up? Take your mortgage and imagine a 15% mortgage on that. BTW: if mortgages are 15%, can you imagine what the APRs on other financing will be like? Don't think 15% is possible, talk to someone that bought a house back in the early 80ies. 

 

I think the misconception some folks have is that they think home prices are going to have a sustained downward trend, but that mortgage rates are going to rise and then stay flat or even fall, when in reality, home prices are going to continue to fall, and mortgage rates are going to continue to creep up. Along with that, the cost of living is going to go up. Health care is going to get more expensive, daily necessities is going to get more expensive. Transportation is going to get more expensive. Meanwhile, wages are going to stay flat or rise at a lower rate…As we globalize, companies will find cheaper and cheaper labor elsewhere. The plight of the middle class isn't too promising moving forward.

[Coronita]

Save for a down payment. It will put you in a better cash position in case rates go up. It's better to buy a home at a lower price and higher interest rate then a home at a higher price with lower interest rate, even if the monthly payment is the same. If rates go down you can refi, but your purchase price will stay the same. Also only your interest payment is higher, not your principal payment. Your taxes will be lower also. It's also better when you go to sell. You don't want to sell a home that cost you 600K for 500K even if your montly payment is low. Your cost basis is a lot more important than your monthly obligation.

 

You're assuming that rates are actually going to fall in the forseeable future. What if for the next say 10-15 years we have nothing but interest rates go up and up? Take your mortgage and imagine a 15% mortgage on that. BTW: if mortgages are 15%, can you imagine what the APRs on other financing will be like? Don't think 15% is possible, talk to someone that bought a house back in the early 80ies. 

 

I think the misconception some folks have is that they think home prices are going to have a sustained downward trend, but that mortgage rates are going to rise and then stay flat or even fall, when in reality, home prices are going to continue to fall, and mortgage rates are going to continue to creep up. Along with that, the cost of living is going to go up. Health care is going to get more expensive, daily necessities is going to get more expensive. Transportation is going to get more expensive. Meanwhile, wages are going to stay flat or rise at a lower rate…As we globalize, companies will find cheaper and cheaper labor elsewhere. The plight of the middle class isn't too promising moving forward.

[PD]

The point that many are trying to make is that there is (or should be if lenders weren’t so whacked) a fixed amount that the average family can pay per month. Currently, you can get a low interest rate but high loan amount. It is much better to have a higher interest rate but smaller loan. In both cases, your monthly payment is the same at the outset. With the second situation, however, you MIGHT get the option to refinance into lower payments. You will also greatly increase your chances to make money in appreciation.

[PD]

The point that many are trying to make is that there is (or should be if lenders weren’t so whacked) a fixed amount that the average family can pay per month. Currently, you can get a low interest rate but high loan amount. It is much better to have a higher interest rate but smaller loan. In both cases, your monthly payment is the same at the outset. With the second situation, however, you MIGHT get the option to refinance into lower payments. You will also greatly increase your chances to make money in appreciation.

[Coronita]

PD,

The point i’m trying to make though. Is that higher interest rate on a mortgage isn’t going to occur in just a vacuum. Everyone is talking about if mortgage rates go up, home prices come down, they can go off and buy a home.

BUT, I think those people are neglecting that when mortgage rates are going up, everything is going to go up. Credit card aprs, car payments, utilities, etc. Inflation is going to be rampant. And companies are going to have harder time financing themselves.. Meanwhile, point me to a job that average joe’s have where the salaries are rising faster than inflation…

Those that are hoping for higher rates so that house prices fall may have a rude awakening. Unless you’re NOT average Joe that doesn’t need to work, you’re going to get hurt with higher interests across the board, anyway.When that happens, the economy is going to come to a standstill. most folks won’t have the financial capability to buy when prices are that low imho. Happened in the 80ies. Gonna happen again.

Given the choice, I’d settle for the lower interest, higher home prices..not necessarily for my own interests. I do think lower borrowing costs have generally stimulated other parts of the economy that wouldn’t have been possible.

[Coronita]

PD,

The point i’m trying to make though. Is that higher interest rate on a mortgage isn’t going to occur in just a vacuum. Everyone is talking about if mortgage rates go up, home prices come down, they can go off and buy a home.

BUT, I think those people are neglecting that when mortgage rates are going up, everything is going to go up. Credit card aprs, car payments, utilities, etc. Inflation is going to be rampant. And companies are going to have harder time financing themselves.. Meanwhile, point me to a job that average joe’s have where the salaries are rising faster than inflation…

Those that are hoping for higher rates so that house prices fall may have a rude awakening. Unless you’re NOT average Joe that doesn’t need to work, you’re going to get hurt with higher interests across the board, anyway.When that happens, the economy is going to come to a standstill. most folks won’t have the financial capability to buy when prices are that low imho. Happened in the 80ies. Gonna happen again.

Given the choice, I’d settle for the lower interest, higher home prices..not necessarily for my own interests. I do think lower borrowing costs have generally stimulated other parts of the economy that wouldn’t have been possible.

[Author]

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