patrick.net

Obviously terms and rates are important factors in any discussion involving consumer debt; but I can think of many obvious reasons why debt is something evil that most middle class Americans should try to avoid. Chief among them is that consumer debt can hamper a person's freedom and mobility -- priceless assets in and of themselves. You're also paying more -- often times, grossly disproportionately so -- to enjoy the luxury of borrowing from future earnings to satisfy a desire in the present. In fact, it seems impossible to deny that certain goods and services have that debt priced in. For example, the ease by which almost anyone can obtain a sizable student loan seems to guarantee onerous tuition costs. Meanwhile, there's a robust market for the SLABS created from this non-dischargeable debt, which also seems fucked.

tatupu70 says

David Losh says

Financial viability of a retiree who can take a 15 year loan to amortize, but

even at that it more likely the debt will need to be retired by the heirs.

David Losh says

Mortgage debt goes into your liability column to be off set by equity, no

equity, no ability to sell, means complete liability. You might as well

rent.

So, you think housing prices will go down. That's the crux of your argument? Geez--just say that then. That's at least a logical premise as oppposed to all your statements about the evils of debt. Debt is neither good nor evil, it is a financial tool.

Good point. I'm not often right about these things, but it appears to me that historically low interest rates are likely to rise, VERY high levels of debt (student debt) among the generation we are expecting to enter the housing market, stressed public finances and crumbling infrastructure, an imbalanced tax structure (prop 13 style) in many important markets, and structural changes in the global economy (brics, etc.) all point towards the u.s. not returning to the conditions of the past 50 years. Nor to they seem to suggest a rebound of house prices -- seems to me the pressure will be downward. Just a hunch. But hey, I've not often been right about much of anything, so there is no reason to think it's any different now...

robertoaribas says

beentheredonethat says

Ok house, nothing special. Adequately (only) built.

not sure what the hell kind of home you live in, but that thing is 2700 square feet in a very pretty area. that is a lot of home, and priced close to build cost + lot and development.

I'd want something smaller and cheaper, but that home hardly disproves my point. If 2700 square foot homes with a bunch of upgrades inside are selling under 400k, then I can surely find something around 1900 square feet, NOT in an exclusive area affordably priced.

We don't have high expectations regarding size, but we are pretty picky when it comes to the look and feel, and the quality of light and view. This is entirely personal and is our 'problem' so to speak, so I don't expect anyone else to value these things in the same way we do. We got around it by building our own place up in the mountains, with exactly the kind of light, view, layout etc. that we wanted. Great little place 1100 sf. BUT entirely suited to us, and most others wouldn't go for it.
This link I sent has nice light and an ok view, but is WAY too big for us (this is actually a deal killer). From what I see of houses built these days, builders try to enclose an ever larger amount of sf while trying to keep the price within certain points, and the end result is the quality of construction suffers, as well as the finishes. Unavoidable, really. The houses around here I like are the older, smaller ones, but those tend to be very dark. We got around this by designing and building our own, but circumstances changed and we had to move down into town. Again, this is nobody's problem but our own.

robertoaribas says

piss off, my family was on food stamps when I went to college!

Fortunately, being marginalized by poverty didn't blight you like it does so many otherwise bright youths. I was pretty well skint when I sent my first one off, too. The second one was a hellraiser. He sobered up and enlisted, so that saved me!

Don't get me wrong: Depending on the situation, rate, terms, etc., I think leverage can be beneficial. (Time is an asset, too--and not one you can "pay down.") But the inducements to over-rely on it, and the temptation to abuse it are very powerful for a lot of Americans, especially in the economic climate that comes packaged alongside aggressive de-industrialization.

Taking out a loan to go to school is a noble thing on the face of it -- certainly more so than a jet ski or a Harley; I just think that the rising cost of tuition has that EZ access to debt baked into it. I also dislike the terms of student loans. I think they amount to quasi-usury.

Speaking of which -- since there is a more than tacit understanding that without at least a four year degree, your chances in the job market are proportionally diminished, (obviously a generalization), I hold that public school should be K - 16, with maybe specialized certifications and graduate degrees being the sole responsibility of the student.

beentheredonethat says

his is entirely personal and is our 'problem' so to speak, so I don't expect anyone else to value these things in the same way we do.

You are not alone. I have a son who is a big time nut for 1920's bungalows. He won't live in anything else, even though his girlfriend doesn't really like them and wants NEW NEW NEW. It's pretty funny.

I would have bought a 1900's-1920's Craftsman house, if that architecture had been popular in South Florida during that time. But instead our old houses are Spanish missionary or art deco and key west wood frame and shake were the dominant themes. The first two had flat roofs, you don't want a house with a hundred year old flat roof.

CaptainShuddup says

But instead our old houses are Spanish missionary or art deco and key west wood frame and shake were the dominant themes. The first two had flat roofs, you don't want a house with a hundred year old flat roof.

Yeah, you really don't want a flat roof on your place, period. I've had a few, and I never didn't have a problem with leaks.

I've got a soft spot for the Spanish and Mediterranean styles you guys have in abundance in Florida.

You've got some really beautiful digs down there thanks to the 20's bubble. which took place during one of strongest architectural movements there ever was, IMO. That stuff was also built disgustingly well.

BTW - is Lester's still a going concern?

robertoaribas says

The fact that you couldn't rent it for twice the current mortgage doesn't matter at all...

Good point, rental income is meaningless to home owners, only the debt is significant.

tatupu70 says

So, you think housing prices will go down. That's the crux of your argument? Geez--just say that then.

OK, I will.

In the 1980s we had real inflation. The Fed raised interest rates to calm that. My income rose 100% between 1984, and 1994, as did the price of housing. That's what started the whole mess.

In the 1990s we continued to have wage inflation until about 1998. From 1998 to 2001 we had a freeze. From 2001 to 2008 we had bouts of double digit property price appreciation based on the idea we had a growing global economy. That turned out to be completely false, as a matter of fact we are now in a period of global economic contraction.

Our economy today is based on speculation in commodity prices, which includes gold, and Real Estate.

There is no substance to our economy. There is no wage inflation.

All of this has to do with the debt markets, and how much cash the debt markets can wring out of the consumer. It's hard to fight a system like that.

What is a fact is we over built, globally the housing market, and we can build more housing in a matter of a year. Housing has gotten to be the least of our worries.

Debt is a real problem because it robs the ability to pay, or at least it should.

beentheredonethat says

Again, this is nobody's problem but our own.

It's funny, though, in getting to know the people that are looking at the same houses we have looked at, I've learned that this sickness is actually fairly shared and we are not so special afterall. We won't buy a house unless it's a '20s Tudor or Spanish Colonial (Spanish Mission is a distant third)--for some reason, the old dinky pre-war styles have everything we love: not too big; curb appeal; high ceilings; small yards; odd details like sculptured arches to the public rooms, butler pantries, coved ceilings, and telephone niches; substantial fireplaces; *real* hardwood floors, not that cultivated plastic stuff from Home Depot.

They also come with 100 year old plumbing, electrical, and municipal hook ups that may or may not be in some state of original disrepair.

But these kinds of houses are typically in the more central parts of town, too, so location is generally a strong point.

JodyChunder says

beentheredonethat says

his is entirely personal and is our 'problem' so to speak, so I don't expect anyone else to value these things in the same way we do.

You are not alone. I have a son who is a big time nut for 1920's bungalows. He won't live in anything else, even though his girlfriend doesn't really like them and wants NEW NEW NEW. It's pretty funny.

1920's, are you talking about Art Deco style?

robertoaribas says

The owner in fact does get rental income, by NOT having to pay rent on a
similar home.

This is very true in most markets. Our market, however, we are renting for approximately 35% less than the cost of owning on a per-month basis, so we break even by saving the difference. The only way we lose is if we continue renting for 10 years and house prices inflate faster than the rate of our rent does (which hasn't risen in 6 years).

robertoaribas says

by NOT having to pay rent on a similar home.

I've addressed that a number of times. Paying rent is much different than taking on a mortgage. The mortgage is a debt that needs to be repaid, Renters walk away from the use of the property, mortgage holders are stuck with it.

You're being diliberately provacative, because I'm right. There is no reason for some one to take on hundreds of thousands of dollars in debt for a place to rent. Rent from the bank, or from you, there is no difference, there is no upside without positive rental income, like what you get.

Take a good look around at the over all economy rather than cherry pick your examples of a school teacher, and firefighter.

People are out of work. People travel across country to get better jobs. The poverty rate is rising with no sign of abatement. The buyer pool of housing is shrinking rather than getting broader.

People will continue to deleverage, it's just a fact of the economy. They aren't going to leverage themselves out of debt. There is no pot of gold any more in Real Estate.

What's so hard to get about that? You're track record of the last five years? We're in a bubble. We're in a credit bubble.

robertoaribas says

If the home mortgage is half of rent

robertoaribas says

Maybe they enjoy paying more in rent than the mortgage while that happens?

robertoaribas says

your advice is terrible, and the rationalizations therein sophomoric.

The mortgage is half the rent? In Chico California? There is something fundementally wrong with that, but it makes no difference, you are still advocating that people take on hundreds of thousands of dollars in debt to save a few bucks on rent.

Like I said, you're being deliberately provocative because my reasoning is sound.

You should stick to your investing.

robertoaribas says

We've been adding jobs for what nearly 4 years now?

What jobs, what do they pay, which sector has been hiring, and can that continue.

The hint is we have trillions of dollars in government stimulus for bridges to nowhere.

Philistine says

We won't buy a house unless it's a '20s Tudor or Spanish Colonial (Spanish Mission is a distant third)--for some reason, the old dinky pre-war styles have everything we love: not too big; curb appeal; high ceilings; small yards; odd details like sculptured arches to the public rooms, butler pantries, coved ceilings, and telephone niches; substantial fireplaces; *real* hardwood floors, not that cultivated plastic stuff from Home Depot

I've always wished my parents, born in 1898 and 1902, married in 1923, would have bought one of those houses when they were nearly new and plentiful. Another feature I like is so many of them have a chimney with a couple of pots on top--they're always pictured on 20's sheet music sitting in a lovely glen with a plume of smoke coming from the chimney under a title like "Our Bungalow of Dreams". My mother's mother died in 1929 and she received as her part of the estate disbursement the home in downtown Big Spring, TX she'd bought in 1915. I wish I had thought to ask her why they didn't buy a house then, especially when prices would have been at rock bottom with the onset of the Depression. Instead they rented until 1937 when they bought a brand new house on five acres so my father could have room for the horses he loved so much. I know financing was different in the 20's, I think you had to have a large down payment and could only finance for maybe five years with a balloon at the end. Our town still has many of those beautiful homes in a particular area, still nicely maintained and just as beautiful as they were 85-90 years ago. They have a classic look that just doesn't grow old.

JodyChunder says

NEW NEW NEW.

NEW NEW NEW. Seriously, the comparison of an old bungalow to anything new is like a beautiful Swiss chalet built like a tank to a mud hut in africa. Our country is failing, its easy to see in how cheap and rickety, unsafe, toxic and plastic everything is.

robertoaribas says

In fact the median rent for a 3/2 apartment in chico is $1100,

This is the major problem. $1100 to live in Chico. That's a major drain on our economy, and we all pay for that.

So you are saying that everyone should double up and that is only $366 per student per month, but what about a family? They need at least $40K per year to make this affordable housing, Right?

How about a working mom with two kids?

Yeah in your world we should all make sacrifices to pay rent.

Best of luck with that.

robertoaribas says

gambling on home prices coming down further.

What gamble?

You never put up any data to show why home prices are as high as they are. You never indicate what economic reasoning we have for these ridiculously high home prices, but here you are selling smoke, and mirrors.

You paid fair market value for some homes in 2009, but even you today know to stop buying.

Now that is sound advice, the window of opportunity is closed.

robertoaribas says

Maybe if you don't make $40K a year, you shouldn't have a bunch of kids AND expect to live in a nice middle class home...

You didn't really just say that did you?robertoaribas says

Some us actually want to be right, and make a profit, not wax prosaic about socialist nirvana.

That socialist nirvana is called reality.

You're living in a distant Shaun Hannity past of economic prosperity. Of course, you're rich so everybody else better be rich or suffer the consequences.

You have absolutely no reasoning here, that is based in any economic reality.

You should have stuck with Phoenix, and what you got out of there, because you are just spouting nonsense now.

Taking on a $200K mortgage to save $300 on rent, according to you, is nutsy.

Philistine says

They also come with 100 year old plumbing, electrical, and municipal hook ups that may or may not be in some state of original disrepair.

Yes... We haven't yet swallowed the fact that if we really want a house like that, we'll have a big project on our hands. I think we'll end up dead before we actually buy another house :)

David Losh says

You have absolutely no reasoning here, that is based in any economic reality.

The reasoning is pretty simple. Spending more money is worse than spending less money.

Surely you can grasp that, right?

FortWayne says

1920's, are you talking about Art Deco style?

I like Deco -- but no, his yen is for Spanish Colonial and Spanish Revival style bungalows. Those are some real houses, man.

P N Dr Lo R says

Our town still has many of those beautiful homes in a particular area, still nicely maintained and just as beautiful as they were 85-90 years ago. They have a classic look that just doesn't grow old.

That's just it -- they age and wear down in a way that is so much more attractive than most of the contemporary designs and materials you see being chucked around building sites today.

Whereabouts in Texas are you?

JodyChunder says

Whereabouts in Texas are you?

Waco--on I-35 between Dallas and Austin.

P N Dr Lo R says

Waco--on I-35 between Dallas and Austin.

I know it well -- I've driven that stretch many times back 'n' forth from Dallas to San Antonio.

tatupu70 says

Surely you can grasp that, right?

Taking on Hundreds of Thousands of Dollars in debt to save $300 on rent is hard to grasp, especially in a place like Chico California.

If you look at historical trends of property prices you can see that $200K for Chico, at the low end? is pretty high.

Just because we have a deep pocket Real Estate market today, doesn't translate into price appreciation of property. I can see property prices falling to 1998 levels.

SFace says

the house price doubles?

Those days are done. It's over, stick a fork in it, whatever you think about past performance has changed forever.

BTW you pay twice the price for the property by having a mortgage so it's a wash.

SFace says

Doubling over 30 years is the approximate rate of inflation

So those inflated dollars is still a wash. You pay twice the price by having a mortgage, and get the price of the property in inflated dollars.

This is the way it always has been. There is no economic reason to take on this debt. It's a personal choice.

David Losh says

SFace says

Doubling over 30 years is the approximate rate of inflation

So those inflated dollars is still a wash. You pay twice the price by having a mortgage, and get the price of the property in inflated dollars.

This is the way it always has been. There is no economic reason to take on this debt. It's a personal choice.

I don't think "economic" means what you think. You really haven't given one coherent reason why buying is a bad decision.

JodyChunder says

BTW - is Lester's still a going concern?

Lesters is the shit. In a hipster good way.

JFP says

You really haven't given one coherent reason why buying is a bad decision.

OK, I will, again. Let me Google economic for you: http://en.wikipedia.org/wiki/Economics

In 2008 we had the beginning of a housing market correction where prices fell. OMG!!!!

Then the government spent Trillions of Dollars propping up the banking industry, and the Fed advocated for much lower interest rates.

The price of property began to stabalize then creep up to 2004 levels. 2004 was a time of unsustainable economy, globally. That was proved in 2008.

So here we are debating the price of property?

If we take the period between 1998, and 2008 we can see massive appreciation. It wasn't inflation. It was a credit bubble, that burst, and is now reinflating.

We have an economy driven by speculation in commodities. Real Estate is just another one of those places to put money for short term gains.

You'll see banks especially dumping properties at these new prices. As a matter of fact if any of you has thought of selling, now would be the time.

I've been doing this for forty years. This Real Estate market, right now is ridiculous. I've never seen anything like it.

I will add a caveat that if you have property in a hot pocket of desirablity, like San Francisco, in a nicer part, then hold onto it.

Nice proerties still have value, but once we went out to Chico, using the same principles of value, you lost me.

JodyChunder says

I've got a soft spot for the Spanish and Mediterranean styles you guys have in abundance in Florida.

There was a beautiful one I looked at when I was house shopping.
The only problem is, it was the only house built on the street when it was built. But since then that street has been zoned as commerce, and their are a row warehouses across the street, down the whole block and low income quadplexes on the remainder of lots on the same side of the street.

It was about a 3,000 sqft digs, the MIL quarters was bigger than my house, but was badly burned and the new owner would have been required to demo and remove the burned MIL structure in the back before the City would even deem the residence as a safe structure. It needed a lot of work but it had loads of potential. But at the end of the day the street just killed every ounce of Mojo that the house had.

The place was going for about $225K at the time I saw it.
Someone did buy it, for 105K and fixed it up nice. I ride by it often and just tell my self to bad it wasn't on another street.

Old Street view pic

David Losh says

Nice proerties still have value, but once we went out to Chico, using the same principles of value, you lost me.

The same economic choice apply in Chico as they do anywhere else. If you want to live somewhere and it's cheaper to rent: rent. If it is cheaper to buy: buy.

David Losh says

Taking on Hundreds of Thousands of Dollars in debt to save $300 on rent is
hard to grasp, especially in a place like Chico California.

You understand that you will have to pay for shelter for the rest of your life, right? You're not taking on debt to save $300/month. You are choosing to minimize your future shelter obligations.

SFace says

The market is not David Losh and never will be.

Well my market is definately David Losh, and I'm not buying, because it makes no sense to buy right now. 2008, 2009 maybe was a good time to buy, we'll see,

David Losh says

So those inflated dollars is still a wash. You pay twice the price by having
a mortgage, and get the price of the property in inflated dollars.

SFAce is right--that logic is completely mistaken.

SFace says

David Losh says

So those inflated dollars is still a wash. You pay twice the price by having
a mortgage, and get the price of the property in inflated dollars.

This is the way it always has been. There is no economic reason to take on
this debt. It's a personal choice.

Then your choice is wrong because your reasoning is flawed. The market is not David Losh and never will be.

If in the next 5-10 years, major deflation collapses set in (housing price, rent halve), then David Losh is right. I think there is a real possibility there. If the prices hover on the same height or strong inflation comes in, not a bad idea to rent the money at 3% rate. Depends on your crystal balls.

Mobi says

f in the next 5-10 years, major deflation collapses set in (housing price, rent halve), then David Losh is right. I think there is a real possibility there. If the prices hover on the same height or strong inflation comes in, not a bad idea to rent the money at 3% rate. Depends on your crystal balls.

That's the nub of the argument, but over time inflation tends to be a better bet than deflation

robertoaribas says

Yes, make your life decisions based on paranoid delusional fantasies... good
thinking!

Not really. It is just the 2nd wave (1st in 2008.) If we go over the government debt capacity (if there is such one, see Japan), we are dead. BTW, I am buying a house for my primary residence anyway.

Mobi says

major deflation collapses

It's not a major collapse. It's a simple correction. People will forget about Real Estate. It will return to the very basic housing needs purchase people will bite the bullet to make.

Prices will just recede.