patrick.net

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?

SubOink says

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!

oddhack says

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?

ch_tah says

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.

thomas.wong1986 says

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 . . .

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..

"The time has come". So you become a homeowner means it is time for every body? LOL.

Troy says

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.

bubblesitter says

“The time has come”. So you become a homeowner means it is time for every body? LOL.

Yes, absolutely, I signal the bottom! You got it! Haha...

tatupu70 says

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.

Better graph with 30 year interest rates in red

Case Shiller & Interest rates

SubOink says

bubblesitter says

“The time has come”. 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.

ChrisLA says

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

When was a 30 year mortgage not the norm?

I think the idea is to be out of a Mortgage before the loan comes to end. Either by paying down or refinancing after 10 to 15 years in. Thirty years is a long time to build and destroy equity.

Tenouncetrout says

When was a 30 year mortgage not the norm?

I don't think 30 year notes have been around for more than 50-60 years or so... I believe it would be more relevant if we knew what mortgage lengths have been historically.

joshuatrio says

ch_tah says

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.

Your statement of someone needing a 30 year loan otherwise in over his head is either hyperbole or just factually wrong. Not really worth arguing.

The argument about where prices are going has been discussed plenty; we'll see.

If you are hedged in metals to the tune of several hundred thousands of dollars, then you are quite unique, and I don't think your situation applies to most. Similarly, if you are a cash buyer (even though earlier you said your minimum was 50% down), then you again are special. Realistically speaking, in the BA, telling people to wait until they have 50% down, could mean they never buy, which for some is the correct way to go. For others who can put 20% down and use a 30-yr mortgage, they will do just fine, and much better than those who wait if we have high inflation in the near future.

ch_tah says

Similarly, if you are a cash buyer (even though earlier you said your minimum was 50% down)

This was my quote you are referencing.

joshuatrio says

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.

Yes, I plan on paying cash for a house. My point was that if you NEED to take out a mortgage, put down 50%, hell, even 20% would be better than what most people are putting down today. Have a cash reserve. Don't be up to your eyeballs in debt. Have a plan on paying it off. 30 years is a long time to slave away to the bank.

ch_tah says

then you again are special.

That's annoying. My wife and I've just learned to save. Do you shop sales? Clearance racks? Drive older cars? Live on a budget - and don't cheat? Use credit card points for Christmas ? It all adds up believe it or not. Do you live below your means? I do NOT make six figures, my wife works part time and yes, I have kids.

If America could get past what they want vs. what they need.... or what they need vs. what they can afford, more people would be in a better position. You'd be amazed at how much you can save if you stick to a budget.

joshuatrio says

That’s annoying. My wife and I’ve just learned to save. Do you shop sales? Clearance racks? Drive older cars? Live on a budget - and don’t cheat? Use credit card points for Christmas ? It all adds up believe it or not. Do you live below your means? I do NOT make six figures, my wife works part time and yes, I have kids.
If America could get past what they want vs. what they need…. or what they need vs. what they can afford, more people would be in a better position. You’d be amazed at how much you can save if you stick to a budget.

You being special - That's a compliment. Not sure why it's annoying. When you can do something that 90% (or whatever the number is) of the country can't do (ie buy a house with cash), you are special. It doesn't matter how you got to that position, it's still a position different from most.

I believe you said you used to own and now are renting. Did you profit on your sale? Is that how you now have a large down payment or is it really from coupon clipping? In the BA, you're gonna need a lot of coupons to be able to buy a $1M house in cash.

joshuatrio says

30 years is a long time to slave away to the bank.

I UTTERLY disagree with this idea since it is ENTIRELY counter-factual and easily falsified by looking at how borrowers have fared in the past, anytime from 1950 to now, with just a few exceptions at particularly poor times to buy (late 80s, mid-2000s).

I think looking at the ACTUAL (albeit estimated) costs over the life of the loan gives a better basis for decision than this morality play and the 'inherent nobility of thrift' crap.

On a $450,000 loan with 3.5% down, the total after-tax interest cost will be $300,000. (This includes 10 years of PMI).

So we get an average monthly cost-of-money of $800/mo over the life of the loan. Buying doesn't look to bad when we actually look at the costs like this!

Property tax will consume $300/mo, and 'other' expenses will be $400/mo, for a rough average outgo of $1500/mo over the life of the loan.

Interest and taxes for the first 10 years of the loan average out to $2000/mo, fall to $1400/mo for the next 10, and are $900/mo average for the last 10.

The "working for the bank" element is $1100/mo starting out and falls to half that after 20 years.

That's pretty good, having the interest burden fall as the loan ages, given the past history of 3-5% inflation every year.

If I take out this loan now I know my housing expense will be $1600/mo in 2026. What will rents be then? If history is any guide they will be much more than that!
So over the LONG term, buying now doesn't seem to be any worse a deal than renting.