patrick.net

Well said tatupu! Exactly my point.

Joshua, the stress argument is valid - I agree. It's a personal decision.

I agree with Patrick, in that some areas it makes sense to buy, but in the desirable parts of California it doesn't. Simple pre-bubble, bubble price trends are pretty clear.

And yes, most of us on this board live in the price insanity parts of CA.

My personal stance - is put at least 50% down, have at least 6 months of cash backed up in the bank, and pay your debt off as quickly as possible. Some of us are just flat out allergic to debt. In which case, when I'm ready to buy/find what I'm looking for - I won't have a mortgage or pay interest to a bank.

Curious as to what zipcode in LA you are speaking of.

tatupu70 says

You keep saying a 30 yr. note is foolish. Why? Renting is a lifetime note.

Do you know how much you pay in interest over the lifetime of a 30 year mortgage? Does it bother you?

Yes, you have mortgage interest deductions, but from my personal experience - that argument is highly overrated and sold by mostly Realtors. When I owned in the past (and carried a mortgage), it didn't do a whole lot for me come tax time. Maybe the planets didn't align properly - but I don't find that argument convincing anymore.

I find it (almost annoying) that people find the need to strap themself to a 30 yr. note.... If you can't pay for it in a shorter time frame, with a fat chunk down - you can't afford the darn thing.

About 50% of my co-workers are underwater by $100k + ... Some come into work looking like they are going to have a heart attack - many are worried that if they lose their job, they don't know what they'll do. Some have stopped paying - some are in negotiations with banks.

Sorry - I'm just ranting at this point. Tired of our overextended society, and seeing people try to maintain this image of wealth.

And yeah, you can do 100% financing with the idea that if they drop too much more, you can just walk away yourself (which seems to be the mindset around here) - so if this is the case, we could be in a downward death spiral.... lol.

Mr.Fantastic says

tatupu bought in St. Louis based on a double income, with only 20% down. He’s the definition of subprime.

Dude, you've posted this same comment about 43 and a half million times.

SF ace says

How confident are you that May 2012 Case Shiller will show a yoy decrease in a non Nevada, FL, Arizona, Inland CA market?

I'm looking at the wider picture here. Let's see what happens with the state's finances 1H11 -- and the nation's for that matter -- before we start popping the champagne on the return of positive appreciation.

We're certainly in an inflection point now, but we are far from a place where I will be priced out forever if I wait on events.

"(20%down 30yr loan)" - welcome to indentured servitude. 30 Years is a very very long time.

SF ace says

Troy,
That’s the whole point, waiting is fine, but buying in the case of the OP is fine as well. I just don’t agree with the overly pessismistic stuff. His carrying cost is 700 lower than renting and happy and I doubt he has much depreciation risk now.

That's assuming all of your conditions are met - right? $150k down ... 180-200k steady income? etc...?

You're right, it's all a matter of preference. My anti-debt attitude gets in the way about 99% of the time.

If we didn't have mortgages, real estate would have never gone through this mess (not to this extreme), and it would be a lot more affordable.

joshuatrio says

Do you know how much you pay in interest over the lifetime of a 30 year mortgage? Does it bother you?

Yes, but if your payment is the same as your rent then I don't see the argument. How is paying interest worse than paying rent?

I agree though that a 15 yr. loan is usually better if you can afford it. I'm just not in the camp where I'd eat ramen noodles every meal to try to save enough so I can get a 15 year mortgage instead of 30 yr. Life is too short.

joshtrio, what is your time frame for buying and how long do you expect it to take to pay it off? If you don't expect to buy for 5 years and then take 15 years to pay it off, then yes, you finish 10 years ahead of someone who gets a 30 year mortgage today, assuming they don't pay it off early. But everything comes with risks. Prices could rise, possibly delaying or extending your ending period. Inflation could rise dramatically, enabling the 30 year pay off to be expedited or at least paid with cheaper dollars. 30 years is a long time, but it isn't set in stone. Selling the house, refinancing to a 15 yr loan, paying off early, etc. are all possible. I don't see the 30 year loan as the death sentence you do.

tatupu70 says

joshuatrio says

Do you know how much you pay in interest over the lifetime of a 30 year mortgage? Does it bother you?

Yes, but if your payment is the same as your rent then I don’t see the argument. How is paying interest worse than paying rent?
I agree though that a 15 yr. loan is usually better if you can afford it. I’m just not in the camp where I’d eat ramen noodles every meal to try to save enough so I can get a 15 year mortgage instead of 30 yr. Life is too short.

Actually, a 30 yr. note on 300k is higher than my rent per month - assuming nothing down - NOT including closing costs, property tax, PMI or maintenance. You seem to be over looking those factors. It ends up being significantly more per month.

If you factor in depreciation, hell, even a minimal 5% which is $15k - there's your rent. Or factor in closing costs - what's that, like $5-10k? So in one year of super conservative price depreciation during one of the greatest busts in history, you're already down $20-25k.

Like I said. I'm allergic to debt. My perception is probably radically skewed, but all of those $50k/yr. households taking out mortgages over 200k with no money down aren't thinking properly.

No, we don't live off Ramen. I save around 50% of my income each month, eat like a king, and stick to a budget - and no debt. It's really that simple. But I also have the freedom to take job opportunities anywhere in the world, not stress about if my home if going up/down (did that back during my mortgage days), and have the ability to drop cash for a home of my liking.... my point is, is that we're not done with the housing collapse - and if you're not shopping for a monthly payment, it's going to get quite a bit more affordable in the future.

ch_tah says

I don’t see the 30 year loan as the death sentence you do.

Me neither, since it is true that I will be paying rent regardless.

Actually, complicating matters is that I will be inheriting a place in Fresno (with its Prop 13 $100/month property tax) in this time period. Maybe that's powering my conservatism here.

joshuatrio says

My perception is probably radically skewed

pretty much, yes. Interest on a $300,000 30-year mortgage starts out at $800/mo and goes down from there.

one thing when looking at buy-vs-rent is not counting principal repayment, only the opportunity cost of principal paydown.

30 year mortgage does not mean you have to pay it back over 30 years - there is no pre pay penalty...I like the fact that the payment is low and in a good year I add money towards principal and in a bad year I pay - well, what I would have to pay in rent anyways. Yes, if I somehow go into the crapper with my business...then things are bad - but I don't like to setup my life expecting that I will be broke, unemployed and sick...if that happens, I'll be screwed either way. Renting won't save me.

30 year makes total sense. You could do a 15..but then you are forced to pay it off in 15 years. Makes no sense to me, as I can pay it off in that time anyways if I want to but with the freedom of having a lower payment if I need money for something else.

SF ace...thanks for laying out the terms - you know your math, its spot on!

ch_tah says

joshtrio, what is your time frame for buying and how long do you expect it to take to pay it off? If you don’t expect to buy for 5 years and then take 15 years to pay it off, then yes, you finish 10 years ahead of someone who gets a 30 year mortgage today, assuming they don’t pay it off early. But everything comes with risks. Prices could rise, possibly delaying or extending your ending period. Inflation could rise dramatically, enabling the 30 year pay off to be expedited or at least paid with cheaper dollars. 30 years is a long time, but it isn’t set in stone. Selling the house, refinancing to a 15 yr loan, paying off early, etc. are all possible. I don’t see the 30 year loan as the death sentence you do.

I'll probably consider buying (depending on gov intervention) in the next 2-3 years. Had the tax credit not kicked the can down the road, it would probably be sooner - we've been seeing price declines in the three markets I monitor almost weekly for the past several months, so the downtrend is underway again.

Right, we could have crazy inflation - so hedge with PM's. Or we could have massive deflation (don't want to start that argument) instead.

It's all a gamble - but if you guys are so confident that the housing collapse is finished - why do you spend so much time on a housing crash site, trying to convince us bears that it's going back up? It seems as if a lot of you guys are worried you made the wrong decision.

funny how once a bearish renter buys, they become very bullish on real estate.

Troy says

ch_tah says

I don’t see the 30 year loan as the death sentence you do.

Me neither, since it is true that I will be paying rent regardless.
Actually, complicating matters is that I will be inheriting a place in Fresno (with its Prop 13 $100/month property tax) in this time period. Maybe that’s powering my conservatism here.

Probably :)

Syphilis says

funny how once a renter buys, they become very bullish on real estate.

Kind of what I was thinking - then they come back on a crash site trying to convince others how great a deal they got... or they come looking for reassurance....

Troy says

ch_tah says

I don’t see the 30 year loan as the death sentence you do.

Me neither, since it is true that I will be paying rent regardless.

The history of the actual word “mortgage” is very interesting. In the word “mortgage”, the “mort”- is from the Latin word for death and “gage” is from the sense of that word that means a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a dead pledge.

joshuatrio says

So mortgage is literally a dead pledge.

It's just an agreement between lender and borrower, usually secured by a trust deed where the property is deeded to a trustee until the debt is paid or defaulted on.

Borrowing to buy a home has historically made good financial sense every decade since WW2.

1940s -- good time to buy
1950s -- good time to buy
1960s -- great time to buy
1970s -- good time to buy
1980s -- good time to buy (except 1988-89)
1990s -- good time to buy
2000s -- good time to buy (except 2004-2008)

Now, I don't know what's going to happen this decade, everyone here should be already familiar with my theses so I'll leave it at that.

Troy says

It’s just an agreement between lender and borrower, usually secured by a trust deed where the property is deeded to a trustee until the debt is paid or defaulted on.

I'm aware of that - just a little history/sarcasm :)

joshuatrio says

It’s all a gamble - but if you guys are so confident that the housing collapse is finished - why do you spend so much time on a housing crash site, trying to convince us bears that it’s going back up? It seems as if a lot of you guys are worried you made the wrong decision.

See, I would argue almost the exact same thing for many of the bears on Pat.net. It seems like they spend a lot of time trying to convince the bulls that housing is going down. Maybe they are worried that they should have bought...

joshuatrio says

ch_tah says

joshtrio, what is your time frame for buying and how long do you expect it to take to pay it off? If you don’t expect to buy for 5 years and then take 15 years to pay it off, then yes, you finish 10 years ahead of someone who gets a 30 year mortgage today, assuming they don’t pay it off early. But everything comes with risks. Prices could rise, possibly delaying or extending your ending period. Inflation could rise dramatically, enabling the 30 year pay off to be expedited or at least paid with cheaper dollars. 30 years is a long time, but it isn’t set in stone. Selling the house, refinancing to a 15 yr loan, paying off early, etc. are all possible. I don’t see the 30 year loan as the death sentence you do.

I’ll probably consider buying (depending on gov intervention) in the next 2-3 years. Had the tax credit not kicked the can down the road, it would probably be sooner - we’ve been seeing price declines in the three markets I monitor almost weekly for the past several months, so the downtrend is underway again.
Right, we could have crazy inflation - so hedge with PM’s. Or we could have massive deflation (don’t want to start that argument) instead.
It’s all a gamble - but if you guys are so confident that the housing collapse is finished - why do you spend so much time on a housing crash site, trying to convince us bears that it’s going back up? It seems as if a lot of you guys are worried you made the wrong decision.

I'm not trying to convince anyone of anything other than either extreme is bad. Permabulls and permabears are absurd. Saying 30 year mortgages are indentured servitude is absurd to me. Saying housing is still going to drop to 1998 levels or 50% from here in prime areas of the BA is ridiculous to me, so I point it out. The reason I come back to patrick.net is that I've been reading the site since about 2007, and I still like checking it out. And if the catastrophic crash occurs like some on here say, I'd probably buy another investment property, so this is a good source.

As for the comment of turning bullish on housing after buying, that's actually backwards. I bought because I'm bullish on housing and because of life's circumstances; buying the house didn't turn me bullish.

tatupu70 says

See, I would argue almost the exact same thing for many of the bears on Pat.net. It seems like they spend a lot of time trying to convince the bulls that housing is going down. Maybe they are worried that they should have bought…

Dude - you're on a crash site. Not a house appreciation site. It seems to me that your comments would be more suitable on trulia.com.

Congrats Bubble Bobble!!

ch_tah says

Saying 30 year mortgages are indentured servitude is absurd to me.

That's almost your entire working career !!! Assuming you start working full time out of college at 22, and retire at 62.

What do you consider indentured servitude?

Bubble Bobble says

im in the process of buying a very nice 2006 4bd 2.5 ba 2 story 2400 sqft on .2 acre,
my mortgage will be less than renting my 1929 3 bd 1 ba 1800 sqft .25 acre POS.
I’d be stupid not to do it!

Reno is a much different market. You can buy yourself a very nice home and survive on minimum wage.

joshuatrio says

ch_tah says

Saying 30 year mortgages are indentured servitude is absurd to me.

That’s almost your entire working career !!! Assuming you start working full time out of college at 22, and retire at 62.
What do you consider indentured servitude?

As other people said before, how is that different from renting, except renting has no time limit? Either way you have to pay for shelter. And as stated above, it doesn't have to remain for 30 years. Things can change.

edit: and renting prices aren't fixed.

joshuatrio says

why do you spend so much time on a housing crash site, trying to convince us bears that it’s going back up? It seems as if a lot of you guys are worried you made the wrong decision.

Realtors and others deeply tied down to RE market. CA with a population of 35M has nearly 1M realtors. Thats 1 Realtor for every 35 people in the state. And like many its all about selling you and convincing you to buy.

Oh what fun it is to actually talk to one... especially if you ask a couple of them if there is a RE bubble in the market. I dont think many can still utter those words.

ch_tah says

As other people said before, how is that different from renting, except renting has no time limit? Either way you have to pay for shelter. And as stated above, it doesn’t have to remain for 30 years. Things can change.

Because of this:

Troy says

LOL. My rent is under $20,000/yr. Prices are still falling $20,000/yr. Free rent, sucka!

Simple enough ?

joshuatrio says

tatupu70 says

See, I would argue almost the exact same thing for many of the bears on Pat.net. It seems like they spend a lot of time trying to convince the bulls that housing is going down. Maybe they are worried that they should have bought…

Dude - you’re on a crash site. Not a house appreciation site. It seems to me that your comments would be more suitable on trulia.com.

I never understood why taputu is here exactly either. Sounds like he ended up buying at a very bad time, lost lots of money and blaming his regrets onto others here instead of where the blame is due.

joshuatrio says

That’s almost your entire working career !!! Assuming you start working full time out of college at 22, and retire at 62.

thing is, I only look at the COST of buying, and principal repayment doesn't have anything to do with it.

The bulk of the interest expense hits in the first 10 years of the loan.

And there's no denying we've been in a very inflationary environment since the 70s if not earlier.

The system seems to need to generate wage inflation to survive. $35,000 was the decent journeyman wage in the South Bay in the 80s, now its 3X that. Thirty years from now wages will probably be $300,000/yr on average, if history is any guide.

joshuatrio says

ch_tah says

As other people said before, how is that different from renting, except renting has no time limit? Either way you have to pay for shelter. And as stated above, it doesn’t have to remain for 30 years. Things can change.

Because of this:
Troy says

LOL. My rent is under $20,000/yr. Prices are still falling $20,000/yr. Free rent, sucka!

Simple enough ?

That assumes falling prices. I don't think anyone would disagree with you that if prices continue to fall, renting is better. That has nothing to do with your point that 30 year mortgages are indentured servitude.

thomas.wong1986 says

Thats 1 Realtor for every 35 people in the state.

getting a full broker's license does make financial sense for someone looking to buy multiple properties.

You can save 3% off the top being your own broker, plus the education required to pass the state test is useful in its own right. I had great fun in my first RE class in 2008.

You won't see this Chris but people like you amuse me. If someone disagrees with your view, you ignore them. That's a very dangerous way to go through life...

ch_tah says

That has nothing to do with your point that 30 year mortgages are indentured servitude.

yeah I agree that's pretty dumb, especially in a no-recourse state like Cali.

ch_tah says

That has nothing to do with your point that 30 year mortgages are indentured servitude.

When you see people sinking in 50% of their take home pay as was the case during the bubble years and today, not saving a dime for the long term. I too would call it certainly indentured servitude. Back when I bought no one would even consider paying these prices compared to their incomes. We were still able to save and invest. But today hype and irrational behavior have sunk these people in long term financial slavery.

You look at some of these home and you know its not worth $1.2M when only a few years before it was well under $350K. People have lost their minds, and taking the rest of us with them.

You guys are funny - this is a crash site so lets all be negative and tell each other just how bad its gonna get and that we are SO happy to waste our money every month and that its the right move...its so nice to be in misery together...

And damn...now somebody comes in here and tells us how he bought a house - must be a realtor!! or worse...a mortgage broker..or BOTH!! It's a trap!!

Come on!!

You gotta be a bit more open minded like that.

I started this threat because I figured there are a lot of families like mine out there..that got priced out around 2003 and have since lived in shitty rentals in disbelief that the market went up and up and up - then finally - it crashed...yes...and it crashed more and more...and more...then you go out and look just to find out - damn, its still too pricey, I can still not afford it. You got to patrick.net - you find sympathy and other spirits that think alike...it feels good not to be alone.

But then another year goes by - you go out and look again and all of a sudden it looks like..Hey, I CAN afford to buy a nice house - Wow!! You can't believe it. You have waited for it for 8 years. You throw in a low offer and it gets accepted. Before you know it, you are in you're own home at the same price or only little more than your rent.

So you come to see your fellows at Pat.net to share that experience and then a bunch of downers call you a mortgage broker/ realtor...and throw you out because "this is a crash site dude" - how lame!

Let's not turn it into politics. It's just simple math you gotta do in your own situation. If it makes sense, go for it...if it doesn't...then keep renting. There is no wrong or right here - We don't know the future. Nobody does. So all those premises are BS. There are so many BUTS and IFS...

All I know is..that you have to rent for a whole life to live somewhere. You are at the mercy of your landlord. You cannot improve your home. Rents will go UP. So in 30 years, you will still rent and have to come up with $3000/month (or whatever its gonna be then, could be way worse) out of your retirement for rent- EVERY MONTH. I will be free and clear, pay my $7000 prop tax and thats it. I have frozen my rent and set it on a time limit. 30 years is very long but I may cut it down by putting extra money towards the principal.

That's all! Sorry for disturbing the negativity and crash site vibe with my positive message...

To me...The Glas is half full! :)

Troy says

You can save 3% off the top being your own broker, plus the education required to pass the state test is useful in its own right. I had great fun in my first RE class in 2008.

Today, its makes more sense to hire an attorney and pay a few hundred dollars for 2-3 hours of work. All you you need is a good contracts attorney. At the end of the thats what matters the most.

If paying for a house for 30 years is indentured servitude, what's paying for food and clothing for the rest of life labelled as?