patrick.net

corntrollio says

it takes more than 10 years just to get to 20% equity from 0 on a 30 year fixed.

10% equity is reached in year 4 and 15% equity is reached in year 7.

In year 9, assuming a flat market, upon reaching the magic 20% safe zone the buyer will have paid 10% of the principal as PMI (~7% after-tax).

If this was sustainable, more private parties would be doing it without government support in the form of FHA.

There's more an interest rate risk than a default risk right now.

By "sustainable" I just mean non-temporary price support. Yes, low-down has increased risk of loss to the lender, that's why there's PMI.

There is substantial downside risk in the market now, but I don't think the PTB want to go there, because if we do there will be no bailout large enough to cover the $4T overhang between debt and value:

http://research.stlouisfed.org/fred2/graph/?g=xe

we are facing if this is still a down market.

E-man says

NAR is doing 1st time home buyers a favor

Helping to inflate home prices does no one any favors.

The NAR lobbying of Congress benefits their minions with higher commissions. Clearly self dealing and very corrupt. We have repeated learned higher prices dont help the local industries and job markets. In fact it allows for all reasons to move jobs away from inflated areas. Higher home prices require higher salaries which local employers will not provide when they can get it elsewhere.

"We have repeated learned higher prices dont help the local industries and job markets. In fact it allows for all reasons to move jobs away from inflated areas."

Give me one example of companies moving away from "inflated areas." Is Wall St. leaving high priced Manhattan? Are tech companies leaving high priced Silicon Valley? In case you did not know, big companies don't give a rat's butt about real estate values. In many cases, when they open up show, they get massive subsdies from the govt. so the real estate is basically free.

The interest rate will go up after all these baby boomer retirees run out of cash due to low interest rate.

At 1%, they will run out at no time.
Then they are forced to sell their big houses.

APOCALYPSEFUCK says

The NAR should be disbanded and all its members indicted under RICO and stuffed into federal penitentiaries for life to provide brides for neonazi serial killers.

You're such a softy!

"it would take 14 years for a typical person to save up a 20% down payment to buy a median-priced home."

If the price of a median priced home were allowed to fall to it's natural level, that is without the NAR or the federal government pushing it as high as possible, a 20% down payment would be a lower number and take less time to accumulate.

@Katy Perry

Welcome to Japan!

E-man says

You got it right again. Those were the roots of the problem, not 0% - 3.5% down. NAR is doing 1st time home buyers a favor.

I like your sense of humor.

I love the short sightedness of the NAR. If prices fell, volume would pick up. They'd make less per sale, but would have more sales.

RealisticOptimist says

I love the short sightedness of the NAR. If prices fell, volume would pick up. They’d make less per sale, but would have more sales.

Very true. The people within NAR aren't very bright. Diabolical, but dumb.

RealisticOptimist says

I love the short sightedness of the NAR. If prices fell, volume would pick up. They’d make less per sale, but would have more sales.

What would those lazy bastards want? The most amount of proft doing the least amount of work. So, lot of sales volume at less price will force them do more work for the same profit, and that's the part they don't like. Better take higher commission and keep the work load low.

When prices go down, more people will buy. But, will more people sell? People who have paid a high price will not be in a hurry to sell at a lower price. People who wanted to get the maximum from their house and retire have already done it during the boom. The only sellers left (read supply) would be the defaulters. However, if the price goes down, they would want to get some kind of re-adjustment deal from their lenders.

newbie says

When prices go down, more people will buy.

This is not correct. Actually your entire post is just bizarre, but this one line here struck me as the most incorrect.

klarek says

RealisticOptimist says

I love the short sightedness of the NAR. If prices fell, volume would pick up. They’d make less per sale, but would have more sales.

Very true. The people within NAR aren’t very bright. Diabolical, but dumb.

Don't matter. They will survive as long as a home is considered as a nest egg by buyers. Sad but very true. Some people are born with that Karma of money making without working for it.

newbie says

People who have paid a high price will not be in a hurry to sell at a lower price..

They are just putting their money making dream on hold for few years - if they are lucky enough, not to default.

Scum..realtors..the beginning of the "housing scam"...this is the worst group of sales people on the planet...even with home inspections...you cannot keep up with the subtle lies..told by this group...many of these individuals should be jailed....used car sales people have more integrity...they are only selling you a car...this [a home] is your life investment...and there is never a "bad one"....do nothing no nothing....and get a raise every year...1000's in commision..when houses sold in a day..or were pre-sold..."housing" WORST INVESTMENT" you can make as the article say's..."COMMISIONS"...all sales done on the internet and they still want their money...20% on something that is overprice at 30 %...then maintain it...and pay the taxes! HUH? Am I missing something here?..So when this scum shows up...he or she is as excited as a new born puppy at it's first meal...and your it sucker.

"When prices go down, more people will buy."

So then why are more peopel not buying right now? Why did more peopel buy when prices were gong up then when they are going down. When prices go down, fewer people buy. That is how it has always worked.

HousingWatcher says

“When prices go down, more people will buy.”
So then why are more peopel not buying right now? Why did more peopel buy when prices were gong up then when they are going down. When prices go down, fewer people buy. That is how it has always worked.

Because supply and demand are constantly being manipulated. All things being equal, lower prices increase consumption. This is a very fundamental economic concept.

klarek says

All things being equal, lower prices increase consumption. This is a very fundamental economic concept.

Thing is, houses aren't so much as consumed as occupied.

Land and housing is a very odd capital good.

There's no substitute for land unless you live in a zeppelin, or on the seven seas.

We all "consume" housing whether we rent or buy. The only way to "consume" less housing is to room up with people, or live like a caveman.

klarek says

HousingWatcher says

“When prices go down, more people will buy.”

So then why are more peopel not buying right now? Why did more peopel buy when prices were gong up then when they are going down. When prices go down, fewer people buy. That is how it has always worked.

Investor behavior often goes against the supply and demand rule that drives consumption and spending.

Because supply and demand are constantly being manipulated. All things being equal, lower prices increase consumption. This is a very fundamental economic concept.

There are people sitting on the fence for a while. The reason they are sitting on the fence is simple. They are not sure if the market has bottomed. Once the price stabilizes, they will start buying. The other reason is the amount they have to pay per month for mortgage (plus tax and ins) vs the rent they are paying has to be close and at equilibrium. Say I am paying $2200 as rent and my monthly mortgage would be around $2500 - $3500 if I buyg. Should I keep on sitting on the fence or buy? Of course this is assuming the prices have stabilized and the interest rate is not going down any more.

If the rent goes down, I would keep on renting. If the rent creeps up and the price goes down, they will reach equilibrium at some point. That's the time to buy.

Third factor - you are getting old sitting on the fence. No point buying a house if you have to wait till your retirement age to buy a house. (that's when you sell and go to Washington/Oregon/Nevada/Arizona/Mississippi... wherever )

On a different note, I feel the middlemen should be eliminated from the real estate business. Why do we need a realtor in the first place? The work they do is not commensurate with the commission they earn.

newbie says

Why do we need a realtor in the first place?

Buyers don't need realtors, sellers do.

Hopefully FSBO will become a first-class citizen in online listings, and any industry resistance will be eliminated by the government as anti-competitive abuse of monopoly market position.

Still, even FSBO could use a real estate agent-like service to get escrow through the title company and loan process.

The question isn't the service, it's their 6% cut, as you say.

Troy says

Still, even FSBO could use a real estate agent-like service to get escrow through the title company and loan process.

All you need is an Contracts Attorney and a legal assistant to handle such services. All this takes about 2-3 hours tops. You may be out $1-2K but that is small change compared to $30,000 ( $500,0000 * 6%) in commissions. Sadly most state laws, drawn by realtor interest groups have created like you said a monopoly.

If govt got out of lending, private lenders would not lend at 3.5% they would require a 20% downpayment. and no one in their right mind would lend without having the closing costs as downpayment.
This is how private lenders would price risk. The risk is actually the same and doesnt magically change just because the goverment is calculating it.

E-man says

By then, most of you wouldn’t have a job to buy a house.

What if buy home now and no job later to pay mortgage? I guess you are right there will always be some program like HAMP :)

we are back in business Patrick. Time to start writing to Congress. Love this thread.

CA Senators:

http://boxer.senate.gov/en/contact/
http://feinstein.senate.gov/public/index.cfm?FuseAction=ContactUs.Home

ChrisLA says

CA Senators:
http://boxer.senate.gov/en/contact/
http://feinstein.senate.gov/public/index.cfm?FuseAction=ContactUs.Home

Oh yea..like that is gonna help. I dont think so!

thomas.wong1986 says

ChrisLA says

CA Senators:

http://boxer.senate.gov/en/contact/

http://feinstein.senate.gov/public/index.cfm?FuseAction=ContactUs.Home

Oh yea..like that is gonna help. I dont think so!

you have a better option?

yeah, don't tilt at windmills.

3.5% down is not a big deal. Every year the mortgage is paid, LTV goes down 1.6% or more -- thus after only 3 years the buyer has another 5+% of "skin in the game" and has also paid 3.45% in monthly PMI, for an effective LTV of under 90% already, halfway to the magical 80% LTV of perfect safety.

As long as home prices are flat or slightly declining from here, low down payments don't present any great systemic risk to the system.

People rallying against them are either idiots or have a hidden agenda.

If home values crash from here the system is going to have much, much larger problems than the new buyers who've come into the market now.

Remember, lending stayed elevated at over $800B/yr for most of the last decade:

http://research.stlouisfed.org/fred2/graph/?g=yX

lending activity now is miniscule compared to the bubble, and thus its risk is also miniscule compared to the bubble debt that is still on the books:

http://research.stlouisfed.org/fred2/graph/?g=yY

Blue line is total homeowner debt.
Red line is total homeowner asset value.

Note the red line has fallen $6T since the peak, while the blue line has mostly still just topped out. The St Louis Fed doesn't break this down by new loan volume, but overall loan volume is still net negative, with more default losses than new loans being taken out.

newbie says

There are people sitting on the fence for a while. The reason they are sitting on the fence is simple. They are not sure if the market has bottomed. Once the price stabilizes, they will start buying. The other reason is the amount they have to pay per month for mortgage (plus tax and ins) vs the rent they are paying has to be close and at equilibrium. .

Do you think some folks are reluctant to purchase a home because they are not confident about their income (/job?).

thomas.wong1986 says

Troy says

Still, even FSBO could use a real estate agent-like service to get escrow through the title company and loan process.

All you need is an Contracts Attorney You may be out $1-2K

That is what we did when the home we picked out to buy was FSBO. It was less than $1k but that was 20 years ago.

E-man says

I know some of you meant well for wanting lower home prices, but TPTB would not let this happen because they are freaking scare of the potential deflation feeding on itself as mentioned above.

I hate to break it to you, but TPTB cannot stop housing prices from correcting. I hate to burst your bubble, but prices fell substantially from 2006 to 2009, and now are continuing their descent. There's nothing you or congress can do about it except pray to all holiness that a miracle will keep the bubble inflated. I'm not going to make any money bets on your ability to channel divine powers to perform such a feat.

klarek says

I hate to break it to you, but TPTB cannot stop housing prices from correcting

mortgage interest rates are about twice here what they are in Japan. There's still some more fuel to throw at the fire.

Troy says

klarek says

I hate to break it to you, but TPTB cannot stop housing prices from correcting

mortgage interest rates are about twice here what they are in Japan. There’s still some more fuel to throw at the fire.

and that's been working great for the japanese for 20 years now right? prices dropping every year...

japan is our future.

Lots of interesting discussion here, very relevant to my situation. I'm looking at 3.5% down on a $350,00 loan. I'm in the bay area (north bay). My interest rate is 4.3% (not locked yet - pre-approved). Household income before taxes is ~$105,000/yr.

I've submitted an offer on a foreclosed property, a bit of a lowball offer, and will see what they say.

I've been a little uneasy about the whole thing due to the uncertainty of the market and the fact that I can only put 3.5% down, and I'm still considering pulling out (and I'm pretty sure the bank won't accept my offer anyway, and will probably counter). I would love to put 20% down and side-step FHA, but for my situation, I either use FHA or continue renting. We are a family of 4. The house is amazing for the price compared to other properties I've looked at; and the neighboring house is smaller, on less land, and sold for more money.

I'm sure this will generate a myriad of opinions, but to you real estate veterans, is this something you'd stay away from, or do you think this is a good time to buy considering my situation?

Jimbob says

Lots of interesting discussion here, very relevant to my situation. I’m looking at 3.5% down on a $350,00 loan. I’m in the bay area (north bay). My interest rate is 4.3% (not locked yet - pre-approved). Household income before taxes is ~$105,000/yr.

Bay area with household income of $105,000 and without the 20% amount for downpayment.
Hedging on prices falling further(they should,bay area is soo overpriced) and saving up for downpayment would be the ideal choice.But the fear of being priced out of the market is always lurking.
With that household income and a loan of $350K,you are pushing yourself.

Jimbob says

and I’m still considering pulling out

Jimbob says

o you think this is a good time to buy considering my situation?

Jimbob says

I’ve been a little uneasy about the whole thing due to the uncertainty of the market

You just answered your own question. Stay away or jump in as your risk is only loosing 3.5% in case of walkout or default situation.

Rethug says

With that household income and a loan of $350K,you are pushing yourself.

At 8% rates this is true, the housing cost runs around ~$2500/mo.

But at 4.3%, the housing cost is ~$2000/mo.

ChrisLA says

you have a better option?

Why ? because they will throw you in the same bucket for the need for some new govt sponsered affordable housing programs including some 3% down payment assistance program. And we are back where we started.

Both wrongly believe the problem is strickly limited to bad lending and high foreclosure. Their only solution, is fix the lending and stop the foreclosure process at what ever cost.

Both didnt ever acknowledge that home prices are well above incomes and inflation, well into unsustainable bubble. Both still kling to the idea that past high home prices were somehow legitimate and will recover.

Options left ? vote the bubble enablers out of office.