patrick.net

newsfreak,

Sounds good. I hope you don't mind the late March arrival date. The seeds are in my boyfriend's apartment and I won't see him until middle March.

DinOR :

I had “heard” there were some folks w/excellent fico’s and solid equity positions in their homes paying as little as 4 1/4% on a 30 yr. FRM. In the spirit of StuckintheBA’s thread I’m not ready to call that an urban myth just yet. I’m sure there were a select group that played this exactly right (and boy did I hear about it)

No it's not an urban myth. The % is very less. I do not have any stats, but anecdotally I know only ONE person who refinanced into a 30 FRM and that was in 2005. He is much younger than me, but very savvy in money matters.

Everyone else who could have done the same, either went for the ARM to reduce their monthly payments or "moved up" to a bigger house and bigger loan.

A select few were smart. But as a society, we unfortunately did the wrong thing at the right time.

A select few were smart. But as a society, we unfortunately did the wrong thing at the right time.

If everyone is smart, no one is. I much rather people do the wrong thing. The important thing is us doing the right thing.

That is good point Dinor,
We are planning to stay a minimum of 10 years when we buy the next house. So you are right about that low interest figure being somewhat deceiving. I never thought if it the way you posed it. That makes me feel like we are not missing out. Thanks!

Hopefully by the time 2009 rolls around we can decide to either pay cash or rent the money if it is cheap and let the government subsidize 30%.

Person / DinOR,

Good points. The retirees were hurt in this. But that's how it will always be with interest rates. They will go up and down. People living on fixed income must protect themselves. Shouldn't long term US Treasuries be part of your portfolio at that age ? If the yields go down, the value goes up.

The only opportunity of the lifetime was to sell the house for ridiculously high tax free profit in 2004, 2005, and 2006.

Amen to that.

Yes and no. It was definitely an opportunity for some, and we have a few smart folks on the blog who precisely did that. But some people may genuinely like where they are living, schools, neighborhood, work opportunities, and maybe emotional attachment. They had a chance to speed up the process to own their abode free and clear. But they chose more loan over own.

If everyone is smart, no one is. I much rather people do the wrong thing. The important thing is us doing the right thing.

OK :-) And referring to your first comment, what is the opportunity of a lifetime here for us ? I am thinking of shorting TOL again after more than a year.

StuckinBA,

Well that certainly is true, rates do fluctuate and we live with it. Back when I was first checking this wonderful site out much of the debate at the time was "how much LONGER can the Fed keep rates this low?"

Homes were doubling and quadrupling and STILL no action? Then of course when they finally did act it was in such penny ante BS moves RE permabulls were literally LAUGHING! It was like being beaten to death with a wet noodle for crissakes. A 1/4 point? Oh hurt me you brute!

And referring to your first comment, what is the opportunity of a lifetime here for us ? I am thinking of shorting TOL again after more than a year.

That was the question.

Perhaps every day is an opportunity of a lifetime.

Perhaps I will just try out Second Life.

Stretch002,

That is actually something of a recent revelation for me (although I'm sure not lost on banksters). We get so focused on the advertised rate and keeping our fico scores top notch we seem to lose sight of the fact that we're not getting 5 1/4% (or whatever).

Go ahead and dredge up your closing doc's from when you sold and look at how much (or little) your original loan amount went down (or didn't). Then base your calculations on that, *not the part of your loan you DIDN'T use. Without appreciation I assure you there would not have been a "windfall".

Many just couldn’t take it. Some “annuity sales guy” got a hold of Mrs. Schitzengrueber at the bank and got a TEN PERCENT comm. for selling her something with a FOUR PERCENT “guaranteed return”. Seniors like the “G” word. What happened can only be described as criminal.

Is it criminal though?

What's the line between a crime and just aggressive sales?

A select few were smart. But as a society, we unfortunately did the wrong thing at the right time.

Oh no! You're pointing out that may be the much vaunted Web 2.0 current hype of Wisdom of Crowds may not be all that great. Blasphemy!

What’s the line between a crime and just aggressive sales?

Caveat Emptor!

Oh no! You’re pointing out that may be the much vaunted Web 2.0 current hype of Wisdom of Crowds may not be all that great. Blasphemy!

I hate tech.

I miss 2001. Mountain View downtown was so much nicer in 2001. :(

Exactly right DinOr!
I actually did that after the sale closed. These numbers are rounded for easier reading off the top of my head. Here is how it looked:

Purchase Price: $224,000
Loan at 5.5% 30yr fixed
Sell Price: $460,000

55 months @ $1200 = $66,000
Remodel Backyard = $20,000
Large Maintenance Items = $10,000
Purchasing closing costs = $8,000
Selling closing costs = $27,000
Tax writeoff = -$21,780

Total Spend for four years = $109,220
Profit = $105,780

That is a ton of money. It took us years of working to save that amount as our incomes have only been at this high level the past two years. How many people do you know who have saved up six figures lately? Anyone who thinks they deserve a hundred thousand dollars profit for just living in a house is crazy! Talk about a mania...

Without the massive appreciation this purchase would have the appearance of allowing me to take some equity to the next home when in fact we would have lost money. Given the upfront interest, maintenance, and transaction costs I think owning a house only makes sense for the very long term. Anything short of seven to ten years seems to fall in favor of renting in my opinion. Once you get past ten years I think owning starts to win. Obviously that is not based on facts/figures just my thoughts after having typed all of the above.

The past four years seem crazy to me. When did your home become a lottery ticket?

The past four years seem crazy to me. When did your home become a lottery ticket?

In this piece, apparently if you put a heap of quant analysis, it becomes true:

http://www.nytimes.com/2007/02/04/realestate/04cov.html?ei=5070&em=&en=ad3e5ea719fa1eb3&ex=1170910800&pagewanted=all

Actually, I think Mr. Hyman is glowing --in fact, with an ~$800K (probably neg-am) mortgage, he's positively radioactive.

Stretch002,

Additionally, of the $66,000 you spent on keeping the payments up my guess is that an overwhelming percentage of that was just to service the interest. So after paying $8,000 in closing costs your loan amount would have been $216,000 right? And this is the part that we keep glossing over, is what was the amount LEFT on the unpaid balance? I think when you look at that, it's pretty depressing.

Holy crap that article is scary! I cannot imagine these people could rent that apartment for anywhere near the PITI. At 10% down their loan should be around $790,000. Using a basic fixed rate of 6% gives us $4740 per month excluding taces, maintenance and any HOA type dues. Nobody will rent for that! They must have some sort of interest only ARM loan. I gues they'll be fine if you read the quote from the buyer below:

“I really think that real estate will not go down,” she said. “At the very least, it will stay the same. In the meantime, I need a place to live. So the worst-case scenario still isn’t that bad.”

**How can the worst case be stagnant prices? Haven't they ever heard of a RE downturn?**

“I really think that real estate will not go down,” she said. “At the very least, it will stay the same. In the meantime, I need a place to live. So the worst-case scenario still isn’t that bad.”

This is the problem with youth fortunate enough to have been spared the worst-of-times. For them, the "worst-case scenario" is merely the absence of the good-to-best-case scenario.

This will not end well for many people. I know my opinion that many of the victims will be genuinely naive, and not really deserving of scorn and ridicule isn't very popular around here. But, we were all young once. In many ways the total lack of any real adversity coupled with parents and educators unable to or unwilling to teach them fundamental fiscal values has hobbled these kids and all but guaranteed their coming suffering. They're about to reap the "everyone's a winner" beliefs planted in them as young children. No. Not everyone's a winner. You can and will lose sometimes.

Heartwarming Appraisal Story
This is one more in my series of Heartwarming RE (TM) stories... or the way they did things in the old days (circa 2000). The appraisal came up short for our 80-15-5 loan, and guess what everyone said -- "Show me the money". So we ended up having to increase our downpayment as the 80-15 portion was based on the appraised value (we overbid by, I think, 10% and the property was a bit unconventional as I have mentioned before). Evidently, things are not done this way anymore (but I sense a change may be in the air :-) )
A new national survey found that 90 percent of appraisers reported that mortgage brokers, realty agents, lenders and even consumers have pressured them to raise property valuations to enable deals to go through. That percentage is up sharply from a parallel survey conducted in 2003, when 55 percent of appraisers reported attempts to influence their findings and 45 percent reported "never." Now the latter category is down to just 10 percent.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/04/REGS1NTAH51.DTL

This is the problem with youth fortunate enough to have been spared the worst-of-times. For them, the “worst-case scenario” is merely the absence of the good-to-best-case scenario.

The worst-case scenario is getting hit by a bus on the way to cash-in your 300M super lotto ticket.

Let me cover but a handful of those worst case scenarios that perhaps neither of the Hyman's thought of just to see how they grab you guys, ok?

1. There's something about that extasy fueled night in Rio that Daniel's been reluctant to share w/Lucianna for fear she might not understand?

2. Daniel doesn't really work at CSFB and actually makes about 45K a year cold calling insurance leads from a boiler room out on Long Island.

3. ???

Yeah, it can get worse, A LOT worse!

BTW, if you have a really radioactive, toxic loan, there’s no way your woman wants to divorce you and run with the money.

But your woman may want to run away and disappear.

GC,

That's the "MEW based relationship" astrid* spoke of concerning a certain Binky McBling. (I'll take that to mean sex up front based on "appreciation" tomorrow?)

I cannot imagine these people could rent that apartment for anywhere near the PITI. At 10% down their loan should be around $790,000. Using a basic fixed rate of 6% gives us $4740 per month excluding taces, maintenance and any HOA type dues. Nobody will rent for that!

You have to realize that this is in Manhattan. A friend of mine who was a grad student was renting a studio near NYU for $2400 a month. I had another friend who rented a larger 1 bedroom and then hired someone to build a wall to section the living room to rent out.

It's not insane, just slightly above risk.

I have a tough time feeling out whether Manhattan is bubblicious or not. At the end of 2001, prices really took a dive for obvious reasons, so the increase was bound to happen. And it's not like Modesto/Fresno where no one has any real jobs.

And it's actually got culture, unlike Cupertino. Granted, Manhattan doesn't have 99 Ranch or the Flint Center...

I have done quite well my with house and condo, but it is simply because I was born five or ten years before many people on this blog. I was fortunate in that real estate had PLUMMETED (in Prime Pacific Heights) just as I was getting out of graduate school and my husband was starting to make some money (1994). Had the prices been what they are today I would probably be renting in the city, and there is a slight chance I would buy in the country because the value of gardening and orchards and outdoor space for the kids is high to me.

If I bought a house and was house poor (as a few friends of mine in recently purchased multi-million dollar houses are right this minute) I would feel that I had missed the opportunities that don't arise that often in life. Not travelling with my kids, not having a great meal and wine with friends now and then, not being able to purchase a piece of art that I love if I see it for sale? Just because I wanted the big house and was afraid I'd miss the boat if I didn't over extend myself? No way. I'm seeing one of my friends with the stress of living beyond her means having marital difficulties and not be able to go to restaurants with friends, travel with her kids, etc. Just to have the house with the right address.

All kinds of opportunities present themselves everyday. Live your life, enjoy your friends and great food, don't get an ulcer worrying about your mortgage readjusting. I'm confident that real estate will return from the unsustainible levels it is now. It might not be today, but it won't be forever. Live well, seize the opportunities that present themselves to you, save for when the house opportunity is not something that will harm you, and don't buy into the hype that you are only a successful or realized person if you own the largest, most expensive piece of property that you can swing the financing on.

And it’s not like Modesto/Fresno where no one has any real jobs.

Are you saying that those illegals do not have real jobs?

not be able to go to restaurants with friends, travel with her kids, etc.

I wish you could talk to my SO, her family, and my family. They feel that the most important thing in life is to pay mortgage so that eventually you "own something". Anything else is just being wasteful.

:(

And it’s not like Modesto/Fresno where no one has any real jobs.

Are you saying that those illegals do not have real jobs?

Are you saying that there are only illegals in Modesto/Fresno?

Are you saying that there are only illegals in Modesto/Fresno?

Bap33, is this true?

2. Daniel doesn’t really work at CSFB and actually makes about 45K a year cold calling insurance leads from a boiler room out on Long Island.

Not likely. But even better for them, after a few years though, Mrs Hyman could be making nearly $90k through teaching public school.

Oh yes, that's hard to believe, especially amongst Californians - but a lot of public schools out in Long Island pay unbelievably well.

eburbed,

Oh you're probably right and it was mean thing for me to say but it always grinds me when someone/couple is glowing (radioactive or not) about their new ridiculously overpriced POS. Kind of like all the happy people the BMW dealership snaps a picture of when the service dept. delivers their new payment, I mean car!

This is one of those polaroid moments and not in any way indicitive of what real people (or real marriages) are like as per SFWoman's post. It's a marathon, not a sprint. :)

Granted, Manhattan doesn’t have 99 Ranch or the Flint Center…

What about Fry's ? How could you forget that :-) (Honestly, I also consider Fry's to be BA's one major positive aspect.)

Hey ... nice graphics ... do I thank HARM as usual ?

Regarding the NYT article, I found it interesting that with all the analysis being done by the quants, there was seemingly no historical analysis. Lots of talk about looking at comps, but nothing about whether comps make sense in the first place. Hedge funds and I-banks supposedly hire the best and the brightest, but also the youngest, b/c you can't make really big bucks unless you pay no attention to history and are willing to risk ruin with OPM (and sometimes theirs).

I shouldn't read too much into it though. This was really more of a lifestyle article. I am sure the author had a story in mind ahead of time and sought out people who fit that profile.

“But the stock market can lose value.” — So can a home, believe it or not.

Yeah that's the tough one - my circle lost a lot of money in stocks. A lot.

On the other hand, they can go to zillow and see that their houses have doubled/tripled in value.

No amount of Excel is working. I show numbers, they're just "funny biased math".

My dad sort of kinda "gets it" from time to time when I point out the gaping rent/mortgage chasm - it's like there's a flicker of understanding - but inevitably the filament will immediately burn out and its back to "Rent is throwing away money."

Argh.

"it's like there's a flicker of understanding - but inevitably the filament will immediately burn out and it's back to"

That's been the most frustrating part about the HB. A great many people even today only give you half an ear b/c you're their friend, son etc. The only thing that will top that level will be when people you've been warning for years run up to you breathless b/c they just discovered the HB!

Oh yeah! :)

RE: very common fallacy

Common fallacies are good. Just see through them and exploit them.

Do you really want every person to be as intelligent as you? Do you really want fair competitions?

StuckInBA Says:

Hey … nice graphics … do I thank HARM as usual ?

Yes, and you're quite welcome!