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joshuatrio
2011 Feb 9, 3:42am
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.
Â¥
2011 Feb 9, 3:42am
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.
Â¥
2011 Feb 9, 3:46am
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!
joshuatrio
2011 Feb 9, 3:50am
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.
joshuatrio
2011 Feb 9, 3:50am
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 :)
joshuatrio
2011 Feb 9, 3:58am
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....
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 “mortgageâ€, the “mortâ€- 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.
Â¥
2011 Feb 9, 4:07am
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.
joshuatrio
2011 Feb 9, 4:11am
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 :)
tatupu70
2011 Feb 9, 5:18am
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...
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.
joshuatrio
2011 Feb 9, 5:24am
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.
joshuatrio
2011 Feb 9, 5:33am
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?
joshuatrio
2011 Feb 9, 5:36am
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.
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.
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.
joshuatrio
2011 Feb 9, 5:47am
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:
LOL. My rent is under $20,000/yr. Prices are still falling $20,000/yr. Free rent, sucka!
Simple enough ?
FortWayne
2011 Feb 9, 5:51am
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.
Â¥
2011 Feb 9, 5:55am
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.
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 saysLOL. 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.
Â¥
2011 Feb 9, 5:59am
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.
tatupu70
2011 Feb 9, 5:59am
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...
Â¥
2011 Feb 9, 5:59am
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.
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! :)
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?
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…
RE market crashs and Silicon Valley finds itself with 12% unemployment and many from tech industries. We never seen this number so high in prior decades. Wonder why so many engineers and other tech workers are unemployeed ... because of RE prices. Crazy!
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?
When people overspend and overcharge on their credit cards, and have limited incomes its the same. You have heard of people charging 20-40K on CC bills, unable to pay it off?
joshuatrio
2011 Feb 9, 6:25am
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.
And that's what I'm counting on. Prices will continue to fall.
Back to the 30 year debt trap: If prices are falling say $18k/yr and rent is $18k/yr - wouldn't you rather wait till what YOU WANT came on the market at a price you were willing to pay cash for? I would. Bottom line: if you can't afford a home that you would live in, unless you finance it out for 30 years, you're in over your head. Save a DP, and grab a 15 yr. note.
In a few years, you'll probably wish you'd have waited because you'll be able to buy a much nicer pad for what you paid today - or had invested your cash differently. How many people on this board purchased when they thought it was bottom? How many bottom calls have there been by so called professionals?
And that is what's happening folks, now that the tax credits expired, we're seeing price cuts/drops, still high unemployment, shadow inventory, record foreclosures in 2010... Really, you think that crap is going to magically work itself out of the system in a few short months?
Nope.
Of course if we go Zimbabwe style, I'm heavily hedged in metals - which have performed well. I don't look at mortgage rates - I look at the bottom line price. I'm a cash buyer - which is why the bottom line price is the most important number in my book - not a monthly payment. I'd rather pay rent and watch prices fall, and pay outright for what I feel is a fair number for a property.
Â¥
2011 Feb 9, 6:26am
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.
Still have to deal with escrow people and stuff. Gonna be more than 2-3 billable hours . . .
tatupu70
2011 Feb 9, 6:29am
Josh--
It sounds like you believe prices will continue to fall and want to wait until you think we are at the bottom. That is a perferctly reasonable position. Again--time will tell..
bubblesitter
2011 Feb 9, 6:40am
"The time has come". So you become a homeowner means it is time for every body? LOL.
bubblesitter
2011 Feb 9, 6:43am
And if the market goes down further - so what? If I don’t buy, I still have to pay the rent,
LOL. My rent is under $20,000/yr. Prices are still falling $20,000/yr. Free rent, sucka!
Troy, you made my day! Only problem? I have a hard time to explain this to people(including my wife) who pushes me to buy.
“The time has comeâ€. So you become a homeowner means it is time for every body? LOL.
Yes, absolutely, I signal the bottom! You got it! Haha...
Â¥
2011 Feb 9, 6:54am
It sounds like you believe prices will continue to fall and want to wait until you think we are at the bottom
Josh is kinda rare, being in such a strong cash position. Given that further declines may in fact come from stricter lending regimes like the re-institution of 20% down for non-VA buyers (or even 30%), and/or conforming limits being lowered $100,000 later this year, I don't think he needs to be in any hurry to buy.
Someone with more reliance on credit may find it advantageous to buy now, but I dunno. It's always perilous to try to time bottoms, but ceteris paribus this chart:
http://research.stlouisfed.org/fred2/series/SPCS20RSA
is not exactly screaming BUY now.
bubblesitter
2011 Feb 9, 6:58am
“The time has comeâ€. So you become a homeowner means it is time for every body? LOL.
Yes, absolutely, I signal the bottom! You got it! Haha…
Wait 12 more months and you will be underwater. You should have got another rental.
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Every broken clock is right every 12 hours...
If you keep being a doom and gloomer...you will be right at some point, if you are bullish you will also we right.
I have been a bear on real estate ever since 2003, when we first looked into buying and got terribly frustrated here in LA, not to sound like a broken record but of course all realtors were laughing at me, CA would NEVER crash...maybe level out...yeah right, I don't call a 35% drop leveling out - I was stubbron back then and I am very happy to have waited it out...the fact is though...I have lived in a crappy rental for 6 years, landlord is a pain in the ass, I work from home and would love to setup a nice office alla new floors, cabinets, possible break down a wall and extend - all the things I cannot do in a rental. I am in escrow now on a much much nicer house (w/pool), even better neighborhood and my mortgage is going to be only slightly higher than my rent is. (20%down 30yr loan) -
I don't care what anybody says...I don't see how that is not a no brainer. And if the market goes down further - so what? If I don't buy, I still have to pay the rent, in essence I am still paying a mortgage, somebody else's mortgage because I have to live somewhere. I'd rather pay my own. Been on the sidelines way too long. We rented a really nice house for a while in 2003...then the landlord had to sell - BAM, we had to move. Totally sucks living with that uncertainty! And moving sucks anyways...
Funny Thing is...I have kept all 45 listings that we looked at in 2003 and just looked them up on zillow and guess what...that's exactly where we are now here in LA. 2003 prices. Amazing!! Of course, back then I didn't have the downpayment like now so it still helped to have rented all these years.
Don't be a bear forever! I have a few older friends that have been bearish on real estate for 30 years...I almost became one of them :)
Buy a house for the right reason - because you need a place to live. If you are waiting for the market to be at the very bottom then you are speculating just like you would with a stock. That mindset is what has caused the bubble in the first place. Don't expect to make big money with your home. Buy it so you have a place for your kids to grow up. And once its free and clear in 30 years, the kids can have it and rent it out and get a head start like some of you in this forum who were lucky enough to inherit a rental prop.
…Deals are out there!
The only person I feel bad for is the next tenant in this crappy rental house with a landlord that hates to fix anything...but there is always a sucka out there. I was that sucka for a long time...
Now, go and buy a house! The time has come.
#housing