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patientrenter
Participant[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.
In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]
peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.
Participant[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.
In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]
peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.
Participant[quote=peterb]In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.
In delfation, keeping the cash turns out to often be the best “investment” of all.[/quote]
peterb, isn’t 3% down the most common payment on new purchases now? I am excluding people who are buying with prior home gains. For those folks, they are just “playing with their winnings”. Not rational, but that’s how they think.
ParticipantIncentives were indeed a very important part of the problem, and potentially a part of the solution.
But this article does go beyond incentives. For example, investor principals exert weak control over company management. My favorite recent example of this is BoA and the Countrywide and Merrill acquisitions. I had very carefully chosen BoA as my stock for the “TBTF bank” category, because I thought it was the least tainted by risky home loans. That changed with C’wide and then Merrill, but real BOA investors (not the mutual fund managers supposedly acting in their interest) had no control over those transactions. They should have. Changing the system so that CEOs must get permission from their shareholders for major transactions would help enormously. And there must be a way to get mutual fund managers and other agents to have less influence than ultimate shareholders – real principals.
Institutional money managers have added a certain incremental value to the system, by enabling better diversification for small investors, but they may have subtracted more value in the aggregate by letting public company management become far less answerable to the ultimate investors.
ParticipantIncentives were indeed a very important part of the problem, and potentially a part of the solution.
But this article does go beyond incentives. For example, investor principals exert weak control over company management. My favorite recent example of this is BoA and the Countrywide and Merrill acquisitions. I had very carefully chosen BoA as my stock for the “TBTF bank” category, because I thought it was the least tainted by risky home loans. That changed with C’wide and then Merrill, but real BOA investors (not the mutual fund managers supposedly acting in their interest) had no control over those transactions. They should have. Changing the system so that CEOs must get permission from their shareholders for major transactions would help enormously. And there must be a way to get mutual fund managers and other agents to have less influence than ultimate shareholders – real principals.
Institutional money managers have added a certain incremental value to the system, by enabling better diversification for small investors, but they may have subtracted more value in the aggregate by letting public company management become far less answerable to the ultimate investors.
ParticipantIncentives were indeed a very important part of the problem, and potentially a part of the solution.
But this article does go beyond incentives. For example, investor principals exert weak control over company management. My favorite recent example of this is BoA and the Countrywide and Merrill acquisitions. I had very carefully chosen BoA as my stock for the “TBTF bank” category, because I thought it was the least tainted by risky home loans. That changed with C’wide and then Merrill, but real BOA investors (not the mutual fund managers supposedly acting in their interest) had no control over those transactions. They should have. Changing the system so that CEOs must get permission from their shareholders for major transactions would help enormously. And there must be a way to get mutual fund managers and other agents to have less influence than ultimate shareholders – real principals.
Institutional money managers have added a certain incremental value to the system, by enabling better diversification for small investors, but they may have subtracted more value in the aggregate by letting public company management become far less answerable to the ultimate investors.
ParticipantIncentives were indeed a very important part of the problem, and potentially a part of the solution.
But this article does go beyond incentives. For example, investor principals exert weak control over company management. My favorite recent example of this is BoA and the Countrywide and Merrill acquisitions. I had very carefully chosen BoA as my stock for the “TBTF bank” category, because I thought it was the least tainted by risky home loans. That changed with C’wide and then Merrill, but real BOA investors (not the mutual fund managers supposedly acting in their interest) had no control over those transactions. They should have. Changing the system so that CEOs must get permission from their shareholders for major transactions would help enormously. And there must be a way to get mutual fund managers and other agents to have less influence than ultimate shareholders – real principals.
Institutional money managers have added a certain incremental value to the system, by enabling better diversification for small investors, but they may have subtracted more value in the aggregate by letting public company management become far less answerable to the ultimate investors.
ParticipantIncentives were indeed a very important part of the problem, and potentially a part of the solution.
But this article does go beyond incentives. For example, investor principals exert weak control over company management. My favorite recent example of this is BoA and the Countrywide and Merrill acquisitions. I had very carefully chosen BoA as my stock for the “TBTF bank” category, because I thought it was the least tainted by risky home loans. That changed with C’wide and then Merrill, but real BOA investors (not the mutual fund managers supposedly acting in their interest) had no control over those transactions. They should have. Changing the system so that CEOs must get permission from their shareholders for major transactions would help enormously. And there must be a way to get mutual fund managers and other agents to have less influence than ultimate shareholders – real principals.
Institutional money managers have added a certain incremental value to the system, by enabling better diversification for small investors, but they may have subtracted more value in the aggregate by letting public company management become far less answerable to the ultimate investors.
ParticipantWhen I first saw this topic, I assumed it was some proposal to criminalize and actually prosecute the destruction of houses committed by the people who owned and lived in the houses, or at their invitation. As far as I can tell, the greatest loss of value right now from the foreclosures is this destruction, not the neglect by the banks after they gain possession.
What do the RE experts think is the relative importance of these two factors? 50/50? 20/80…?
ParticipantWhen I first saw this topic, I assumed it was some proposal to criminalize and actually prosecute the destruction of houses committed by the people who owned and lived in the houses, or at their invitation. As far as I can tell, the greatest loss of value right now from the foreclosures is this destruction, not the neglect by the banks after they gain possession.
What do the RE experts think is the relative importance of these two factors? 50/50? 20/80…?
ParticipantWhen I first saw this topic, I assumed it was some proposal to criminalize and actually prosecute the destruction of houses committed by the people who owned and lived in the houses, or at their invitation. As far as I can tell, the greatest loss of value right now from the foreclosures is this destruction, not the neglect by the banks after they gain possession.
What do the RE experts think is the relative importance of these two factors? 50/50? 20/80…?
ParticipantWhen I first saw this topic, I assumed it was some proposal to criminalize and actually prosecute the destruction of houses committed by the people who owned and lived in the houses, or at their invitation. As far as I can tell, the greatest loss of value right now from the foreclosures is this destruction, not the neglect by the banks after they gain possession.
What do the RE experts think is the relative importance of these two factors? 50/50? 20/80…?
ParticipantWhen I first saw this topic, I assumed it was some proposal to criminalize and actually prosecute the destruction of houses committed by the people who owned and lived in the houses, or at their invitation. As far as I can tell, the greatest loss of value right now from the foreclosures is this destruction, not the neglect by the banks after they gain possession.
What do the RE experts think is the relative importance of these two factors? 50/50? 20/80…?
ParticipantNo one has a crystal ball, so it’s a question of odds. With that, here are my thoughts.
If you want to give yourself the best odds of the best financial outcome, then you should wait. All the negative factors that hit the lower end of the SD market haven’t percolated through to the high end yet. (A few people here think they never will but, as I said, it’s a question of judging the odds…)
Psychologically, it’s a completely different story. Most people who bought houses in the last few years paid with what I will call “Monopoly money”. That’s why they could bring themselves to write a check for $1 million for a dumpy place. For every 100 people who wrote that check, there were only a few who had actually saved most of that money by spending that much less than their net earnings stripped of capital gains. Most of the others borrowed most of the money, expecting to pay the loans back painlessly from a higher future sale price, or they used prior gains from previous home price appreciation (“equity”). It was therefore easy money, and they spent it more freely.
Based on your comments, I am guessing that you have a large pot of money for this next home purchase, and a lot of that money came for substantial prior home price appreciation. Each $1 of your housing pot didn’t come from a $1 saved by scouring the supermarket shelves for good deals, or taking cheap vacations, or some other self-denial. It came from high previous asset price appreciation, which was pretty painless, so it “feels” OK to spend a lot of it without counting the pennies.
With that (cheap, and worth every every penny) psycholgical profile, I’d say that you should just find a place you like, and make sure that a loss of 30% of the price would not exceed your prior gains.
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