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sdduuuude
ParticipantNot only should you rent for a while to get a feeling for the different neighborhoods, you should also “practice” making your desired house payment, like this:
Lets say you rent a place for $1000/month but if you bought a house, the monthly payment would be $1500/month.
Every month, make the rent payment and put $500 into a savings account of some sort.
After a year, not only will you have made progress towards a down payment, but you will also really understand what it is like to live with a $1500/month payment. Do you both have to work to support this? Could you survive if one of you didn’t, etc.
I make this suggestion to lots of people I know and it always goes over well. In San Diego where rent is $2,000/month and the payment on that same house would be $3,500/month, it is very important to “practice.”
ParticipantImportant questions:
1) What kind of interest rate is the 401k earning? 5% ?
2) What would they do with the extra “income” once they pay off the house? Is that money earning any interest? Probably not.By touching the 401k, you take money that is working and earning interest and getting rid of it. It isn’t a bad decision cuz you are taking money that is earning at, say 5% and paying off a loan costing 15%.
But, you’d do better taking money that is earning 0% and paying off the 15% loan, letting the 401k grow while they pay off the debt with money that isn’t earning interest anyway.
By using their “normal” income, they would have less cash to spend on crap they don’t need. It’s a harder pill to swallow, but you are giving up less because you are not diminishing their capital that is earning interest.
I’d make them do it the hard way.
Also, the difference in interest between a HELOC and a credit card is pretty significant – several percentage points, I’d guess. And, the effective after-tax interest rate of the HELOC is 15% below that if they can write off the interest.
NOTE: One factor in deciding your credit score is your credit limit – to – balance ratio. That is, your credit score would be higher if you have credit cards with a $10,000 limit and a $5,000 balance than if you have a $5,000 limit and a $5,000 balance.
Closing credit cards with no annual fee and zero balance isn’t always a great idea – it can actually hurt your credit rating.
ParticipantFormerSanDiegan – Oh, jeez. That is Hilarious.
ParticipantSeems to me a HELOC would serve them well in this case, if they can keep out of credit card debt after paying the cards off.
The interest rate with a HELOC would be lower and they may be able to write off the interest on their taxes, which they can’t do with a credit card.
Participantpowaseller – you are forgetting that factors other than home price affect sales. 2006 interest rates were higher than 2004, for example. You are looking at complicated multi-variate problem through a simple lense of price vs. sales. No wonder you are confused.
OH, and here’s a link showing there is some cash out there to be invested. Money market investment at an all time high.
Does all this mean I think the housing market won’t go down? No. It just means that there is a safety net down there somewhere between us and a depression.
ParticipantAre you saying the high prices of homes in San Diego did not cause sales to drop?
Perhaps you would adivse sellers today to raise their prices to increase sales activity.
ParticipantTo answer the original post – I don’t think this will lead to a depression in the US. Maybe in China, though …
ParticipantFor every house sold, someone cashed out.
Participant“I’m still not convinced that buyers are going to be lining up in droves to buy those properties at 25% off. ”
Remember all those people who sold in 2004, 2005, and 2006 and made 100% on their money in 5 years? They are waiting for it.
I think most of the doom and gloomers forget that for every screwed speculator and late-buyer, there is someone with a wad of cash who sold the house to them in the first place.
It is hard to put a number on the effect of this, but it must be considered and I rarely see anyone on this forum bring it up – ‘cept me.
ParticipantYour post: 866 words. Mine: 6
ParticipantI’m a fan of the consumption tax method, mostly because we would end up spending less money on accountants, and you would get the IRS out of the hair of individuals because the burden of paying taxes would be on the businesses selling the goods.
We spend sooooo much time and money trying to figure out what our income was. It opens up loopholes and games and it has just gotten messier and messier and messier.
A consumption tax would put the accounting industry in upheaval. H&R Block would disappear. Can you imagine NOT having to file taxes each year?
ParticipantSome investing advice – taken from one of the links on the home page.
” ‘Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.’ These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe. ”
Seems appropriate for this thread.
ParticipantWell, your chart shows in central San Diego roughly half of the zip codes are up and half are down.
In north county coastal, 9 are down and 3 are up.
ParticipantI find that the people on this site have a fairly strong north county bent. Also, it seems north county is leading the charge down while prices elsewhere are actually quite stable.
Perhaps this is why you are expecting to see more “droppage” than the indices are indicating.
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