[PerryChase]

Thanks for the update, desmoJ.

You story shows that sell your home near the peak has caused stress in your family.

What about all the families that’ll be upside down? Imagine the divorce rate skyrocking. But that’ll probably help the real estate markets since this will create churn in households.

[PerryChase]

LOL, Greedypants McBighouses. I love British humor. 🙂

[PerryChase]

I’m of the opinion that the dot-com boom of the late 1990s created the beginning of a real estate bubble. Then in 2000, when the Fed lowered interest rates to engineer a recovery, combined with the psychology of fear of 9/11, “investors” flocked to tangible real property.

I would look at 1997-1998 housing prices as realistic for San Diego (it was already very expensive back then).

[PerryChase]

Powayseller wrote about this doubling of mortgage payments before (remember that most homeowners only care about monthly payments). It’s only now that the press is writting about this nutron loans.

I beleive that those types of resets, along with the inability to refinance, will cause a flood of inventory to hit the market next year and in 2008. When those homes don’t sell, we’ll see the foreclosures hit the market in 2009.

The “homeowner speculators” (that Rich wrote about) who thought that they could forever buy, sell and move up will soon get suprised without a chair to sit on when the music stops.

Quote for Article
———
They got a 1.2 percent ARM in February with a monthly minimum payment of $1,372. By April, the loan rate had reset, jumping to 8.375 percent, and their loan balance had ballooned by $3,000 in just two months.

Their new monthly payment: $2,216 if they want to pay interest-only or $2,300 if they want to start paying down principal as well.

“I’d call this an obscene loan,” Adam said.
…..

Others aren’t so lucky. A lot end up with negative equity. That makes it very tough to refinance to a better mortgage.

Many struggle to make their new inflated payments, putting them at risk of foreclosure. And selling may not be an option to cure the financial headache given the recent leveling off, or downturn, of home prices in many markets.

[PerryChase]

I drove through Bressi Ranch recently when I was up in Carlsbad. I actually like the mix of house styles. In my view, it’s better than the uniform California/Spanish style that’s so common in San Diego.

I have to say that the new tract developments of today are much better in design and contruction quality than those of 20 to 30 years ago (except for the price and location).

Mass tract developments are one reason why Americans can live in spacious confortable homes (as compared to other countries).

[PerryChase]

I agree with you jg on social security. In my view, retirement simply means waiting for death. That was fine when life expectancy was low.

I plan to work for as long as I’m healthy enough. I may not work full time, but work I shall.

[PerryChase]

Thanks for the post, powayseller. You are the one who got me reading Roubini. He’s not a bear, simply a realist.

I also envy him for living in a loft in New York City. Smart man.

[PerryChase]

carlislematthew, your comments make me recall a situation when I was a financial manager for a company where I proposed that we have monthly pay for salaried employees and bi-weekly pay for hourly employees to save the trouble of weekly payroll processing. I proposed that we pay IN ADVANCE, then adjust differences in arrears as necessary.

I had a revolt and we had to scrap the proposal. Can you imagine that people did not like to be paid IN ADVANCE (like getting paid on the 1st of October for the whole month of October)?!

With that kind of logic, I’m not surprised that our politicians and businesses can pull the wool over our eyes.

[PerryChase]

zk, you expressed exactly what I feel about religion. I think I love you!

[PerryChase]

Beebo, you make a great point about not saving enough.

The problem is that with HEW/MEWs & HELOCs, people are not saving anyway. The savings come from appreciation (not from paying down debt), but as well all know, many have already spent that appreciation by cashing out. If debt is not paid down, the “forced savings” you’re alluding to is illusory.

Public policy should be to encourage/teach the public to save, not to buy overpriced assets.

Assuming housing prices stay constant for the next 3 years, a middle class family in San Diego could save enough to pay for the college eduction of a child by opting to rent rather than to buy. They could then buy in later years when prices are sane. I wish the public would carefully consider their options rather than blindly follow the herd.

[PerryChase]

noone, truth to the BS? I think not.

Nothing prevents you from renting now, save the difference between buying and renting and invest it. You can earn nearly 6% per year risk free on a CD. Can you say the same for a house that you buy today?

Then you can buy 5 years from now, when the cost of owning is closer to that of renting.

Assume that real estate prices stay stagnant for the next 5 years. Do you 10-year analysis and see if buying now or buying in 5 years will be most beneficial.

Dacounselor, I bought in 1989 and now I’m sitting pretty. But I still think that it was a great mistake because 1989 prices were inflated. I could have rented (a similar house and enjoyed the same lifestyle) and saved the difference between 1989 and 1996. Had I done that and bought in 1996, I would have more money today. But at that time, there was no Internet for me to get information. I was young and stupid.

Yes, for good financial planning, it makes sense to buy. It’s good to have your house paid-off by the time you retire. The key is not to buy at the wrong time at stupid inflated prices.

[PerryChase]

Steve B, buyers who bought between 2003 and 2006 may see all their equity evaporate in a downturn, thus substantially or completely eliminating their net-worth.

There are many ways of saving. It doesn’t help to have a house paid-off if upon retirement you have no savings.

I’m not saying never buy. I’m saying don’t buy unless your debt service and costs of ownership are about the same as rent for a similar home. If cost of ownership is more then rent, then rent and invest the difference. You’ll have much more money in the end than if you bought at inflated prices. To me that should be basic home-economics that every head-of-household should understand. Unfortunately, some people would rather be making offerings to the real estate God.

[PerryChase]

noone, I don’t quite understand your logic. It sounds to me like you’re falling into the real estate trap.

For example, even if you could afford to comfortably pay $3,000 in interest, property taxes, insurance, HOA and maintenance, why would you want to? That is especially true if you can rent a similar home for $1,500 all inclusive per month. If you could save $1,500 each month by renting, your house would have to increase $18,000 in value a year to make the purchase worthwhile. I think that, in addition to reporting on general trends, the press should have compare and contrast examples of buy and rent decisions. That will help educate readers on real estate and personal financial management. I’m not sure what kids were taught in school decades ago, but I feel that few people in the general public undertand this issue clearly.

Previously, posters on this board have determined that it costs about twice as much to buy than to rent (inclusive of tax implications). I think this issue should be re-examined periodically as the market evolves. New readers of Piggington might also like to discuss the issue. I’m sure that as the market deteriorates, Piggington will attract many more lurkers and contributors.

[PerryChase]

malfred, if you’ve read sdrealtor’s post for a while, you’d realize that he’s really a real estate bull in a bear outfit. I think that it comes with the job of being a Realtor.

powayseller has done a great job educating us about real estate. She’s written to the press; and for all I know, perhaps some of the reporters writing the real-estate related stories are lurkers on this site.

powayseller also did a superb job of advocating selling, renting and not buying. Her advocacy pales in comparison to the marketing power of the real estate industry that’s telling everyone that “it’s always a good time to buy.”

[PerryChase]

As evidenced by the latest national headlines, there are plenty of “fruits and nuts” in the holier-than-thou crowd. The difference is that they’re all in denial or in the closet.

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