- Because house prices in expensive areas still dangerously high compared
to incomes and rents. Banks say a safe mortgage is a maximum of 3 times
the buyer's annual income with a 20% downpayment. Landlords say a safe price is
set by the rental market; annual rent should be at least 9% of the purchase
price, or else the price is just too high. Yet in affluent areas, both
those safety rules are still being violated. Buyers are still borrowing 6 times
their income with tiny downpayments, and gross rents are still only 3% of
purchase price. Renting is a cash business
that proves what people can really pay based on their salary, not how much they
can borrow. Salaries and rents prove that affluent neighborhoods are still in a
huge housing bubble, and that bubble seems to be getting more dangerous by the day. - Because it's usually still much cheaper to rent than to own the same size
and quality house, in the same school district. In rich neighborhoods, annual rents are
typically only 3% of purchase price while mortgage rates are 4% with fees, so it costs more
to borrow the money as it does to borrow the house. Renters win and
owners lose! Worse, total owner costs including taxes, maintenance, and
insurance come to about 8% of purchase price, which is more than twice the cost of
renting and wipes out any income tax benefit.The only true sign of a bottom is a price low enough so that you could rent out
the house and make a profit. Then you'll know it's pretty safe to buy for
yourself because then rent could cover the mortgage and ownership expenses if
necessary, eliminating most of your risk. The basic buying safety rule is to
divide annual rent by the purchase price for the house:annual rent / purchase price = 3% means do not buy, prices are too high
annual rent / purchase price = 6% means borderline
annual rent / purchase price = 9% means ok to buy, prices are reasonableSo for example, it's borderline to pay $200,000 for a house that would cost you
$1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a
6% mortgage, that's $12,000 per year in interest instead, so it works out about
the same. Owners can pay interest with pre-tax money, but that benefit gets
wiped out by the eternal debts of repairs and property tax, equalizing things.
It is foolish to pay $400,000 for that same house, because renting it would
cost only half as much per year, and renters are completely safe from falling
housing prices. Subtract HOA from rent before doing the calculation for condos.Although there is no way to be sure that rents won't fall, comparing the local
employment rate (demand) to the current local supply of available homes for
rent or sale (supply) should help you figure out whether a big fall in rents
could happen. Checking these factors minimizizes your risk. - Because it's a terrible time to buy when interest rates are low, like now.
House prices rose as interest rates fell, and house prices will fall if interest rates rise
without a strong increase in jobs, because a fixed monthly payment covers a
smaller mortgage at a higher interest rate. Since interest rates have nowhere to
go but up, prices have nowhere to go but down. When housing falls, you lose your
equity, but not your debt.The way to win the game is to
have cash on hand to buy outright at a low price when others cannot
borrow very much because of high interest rates. Then you get a low price, and
you get capital appreciation caused by future interest rate declines. To buy an
expensive house at a time of low interest rates and high prices like now is a mistake.It is far better to pay a low price with a high interest rate than a
high price with a low interest rate, even if the mortgage payment is the same
either way.- A low price lets you pay it all off instead of being a debt-slave for the rest of your life.
- As interest rates fall, real estate prices generally rise.
- Your property taxes will be lower with a low purchase price.
- Paying a high price now may trap you "under water", meaning you'll have a
mortgage debt larger than the value of the house. Then you will not be able to
refinance because then you'll have no equity, and will not be able to sell without
a loss. Even if you get a long-term fixed rate mortgage, when rates
inevitably go up the value of your property will go down. Paying a low
price minimizes your damage. - You can refinance when you buy at a higher interest rate and rates
fall, but current buyers will never be able to refinance for a lower interest rate
in the future. Rates are already as low as they can go.
- Because buyers already borrowed too much money and cannot pay it back. They
spent it on houses that are now worth less than the loans. This means most banks
are still actually bankrupt. But since the banks have friends in Washington, they get
special treatment that you do not. The Federal Reserve prints up bales of new
money to buy worthless mortgages from irresponsible banks, slowing
down the buyer-friendly deflation in housing prices and socializing bank losses.The Fed exists to protect big banks from the free market, at your expense.
Banks get to keep any profits they make, but bank losses just get passed on to
you as extra cost added on to the price of a house, when the Fed prints up money
and buys their bad mortgages. If the Fed did not prevent the free market from
working, you would be able to buy a house much more cheaply.As if that were not enough corruption, Congress authorized vast amounts of TARP
bailout cash taken from taxpayers to be loaned directly to the worst-run
banks, those that already gambled on mortgages and lost. The Fed and Congress
are letting the banks "extend and pretend" that their mortgage loans will get
paid back.And of course the banks can simply sell millions of bad loans
to Fannie and Freddie at full price, putting taxpayers on the hook for
the banks' gambling losses. Heads they win, tails you lose.It is necessary that YOU be forced deeply into debt, and therefore forced into
slavery, for the banks to make a profit. If you pay a low price for a house and
manage to avoid debt, the banks lose control over you. Unacceptable to them.
It's all a filthy battle for control over your labor.
This is why you will
never hear the president or anyone else in power say that we need lower house
prices. They always talk about "affordability" but what they always mean is
debt-slavery. - Because buyers used too much leverage. Leverage means using debt to amplify
gain. Most people forget that debt amplifies losses as well. If a buyer puts 10%
down and the house goes down 10%, he has lost 100% of his money on paper. If he
has to sell due to job loss or a mortgage rate adjustment, he lost 100% in the
real world.The simple fact is that the renter - if willing and able to save his money -
can buy a house outright in half the time that a conventional buyer can
pay off a mortgage. Interest generally accounts for more than half of the cost
of a house. The saver/renter not only pays no interest, he also gets interest
on his savings, even if just a little. Leveraged housing appreciation, usually
presented as the "secret" to wealth, cannot be counted on, and can just as
easily work against the buyer. In fact, that leverage is the danger that got
current buyers into trouble.The higher-end housing market is now set up for a huge crash in prices, since there
is no more fake paper equity from the sale of a previously overvalued property
and because the market for securitized jumbo loans is dead. Without that fake
equity, most people don't have the money needed for a down payment on an
expensive house. It takes a very long time indeed to save up for a 20%
downpayment when you're still making mortgage payments on an underwater house.It's worse than that. House prices do not even have to fall to cause
big losses. The cost of selling a house is kept unfairly high because of the Realtor® lobby's
corruption of US legislators.
On a $300,000 house, 6% is $18,000 lost even if housing
prices just stay flat. So a 4% decline in housing prices bankrupts all those
with 10% equity or less. - Because the housing bubble was not driven by supply and demand. There
is huge supply because of overbuilding, and there is less demand now that the
baby boomers are retiring and selling. Prices in the housing market, even now, are
entirely a function of how much the banks are willing and able to lend. Most
people will borrow as much as they possibly can, amounts that are completely
disconnected from their salaries or from the rental value of the property. Banks
have been willing to accomodate crazy borrowers because banker
control of the US government means that banks do not yet have to acknowledge
their losses, or can push losses onto taxpayers through government housing
agencies like the FHA. - Because there is still a massive backlog of latent foreclosures.
Millions of owners stopped paying their mortgages, and the banks
are still not forclosing on all of them, letting the owner live in the house for free. If a
bank forecloses and takes possession of a house, that means the bank is
responsible for property taxes and maintenance. Banks don't like those costs. If
a bank then sells the foreclosure at current prices, the bank has to admit a
loss on the loan. Banks like that cost even less. So there is a tsunami of
foreclosures on the way that the banks are ignoring, for now. To prevent a
justified foreclosure is also to prevent a deserving family from buying that
house at a low price. Right now, those foreclosures will wash over the landscape,
decimating prices, and benefitting millions of families which will be able to
buy a house without a suicidal level of debt, and maybe without any debt at
all! - Because first-time buyers have all been ruthlessly exploited and the
supply of new victims is very low.
From The Herald:
"We were all corrupted by the housing boom, to some extent.
People talked endlessly about how their houses were earning more than they did,
never asking where all this free money was coming from. Well the truth is that
it was being stolen from the next generation. Houses price increases don't
produce wealth, they merely transfer it from the young to the old - from
the coming generation of families who have to burden themselves with colossal
debts if they want to own, to the baby boomers who are about to retire
and live on the cash they make when they downsize."House price inflation has been very unfair to new families, especially those with
children. It is foolish for them to buy at current high prices, yet government
leaders never talk about how lower house prices are good for American
families, instead preferring to sacrifice the young and poor to benefit the old
and rich, and to make sure bankers have plenty of debt to earn interest on.
Your debt is their wealth. Every "affordability" program drives prices
higher by pushing buyers deeper into debt. Increased debt is not affordability,
it's just pushing the reckoning into the future. To really help Americans,
Fannie Mae and Freddie Mac and the FHA should be completely eliminated. Even
more important is eliminating the mortgage-interest deduction, which costs the
government $400 billion per year in tax revenue. The mortgage interest
deduction directly harms all buyers by keeping prices higher than they
would otherwise be, costing buyers more in extra purchase cost than they save
on taxes. The $8,000 buyer tax credit cost each buyer in Massachusetts an extra
$39,000 in purchase price. Subsidies just make the subsidized item more
expensive. Buyers should be
rioting in the streets, demanding an end to all mortgage subsidies. Canada and Australia
have no mortgage-interest deduction for owner-occupied housing. It can be done.The government pretends to be interested in affordable housing, but now that
housing is becoming truly affordable via falling prices, they want to stop it?
Their actions speak louder than their words. - Because boomers are retiring. There are 70 million Americans born between
1945-1960. One-third have zero retirement savings. The oldest are 66. The
only money they have is equity in a house, so they must sell. This will add yet
another flood of houses to the market, driving prices down even more. - Because there is a huge glut of empty new houses. Builders are being forced
to drop prices even faster than owners, because builders must sell to keep
their business going. They need the money now. Builders have huge excess
inventory that they cannot sell at current prices, and more houses are
completed each day, making the housing slump worse.
On the other hand, in some poor neighborhoods, prices are now so low that gross
rents may exceed 10% of price. Housing is a bargain for buyers there. Prices there
could still fall yet more if unemployment rises or interest rates go up, but
those neighborhoods have no bubble anymore.
Next Page: Eight groups who lie about the housing market »
The Housing Trap
You're being set up to spend your life paying off a debt you don't need to take
on, for a house that costs far more than it should. The conspirators are all
around you, smiling to lure you in, carefully choosing their words and watching
your reactions as they push your buttons, anxiously waiting for the moment when
you sign the papers that will trap you and guarantee their payoff. Don't be
just another victim of the housing market. Use this book to defend your freedom
and defeat their schemes. You can win the game, but first you have to learn how
to play it.
Watch
Hello,
Should investors of HOA foreclosures be liable for tax on the "cancelled debt" COD of the mortgage since the super-priority lien foreclosure extinguishes the first deed of trust? Recently in the news - a Nevada $800,000 home was sold at auction to investors for $6,000 - this sounds like highway robbery.
Thank you.