patrick.net

1) nobody can predict rates in the near to intermediate term.
nobody.

2) long term, odds are rates will increase.

3) any purchase strategy that requires rates to decrease or stay flat over the long term is dumb.

mell says

Fine with me as long as they don't get bailed out again ;)

You know they WILL get bailed out, right?

Homeboy says

mell says

Fine with me as long as they don't get bailed out again ;)

You know they WILL get bailed out, right?

Yeah, unfortunately. Although I think interest rates will keep rising and the fed will run out of steam and will have to wind down which makes future bailouts much more difficult. 16 trillion and counting.. ;)

Homeboy says

mell says

Fine with me as long as they don't get bailed out again ;)

You know they WILL get bailed out, right?

agree... and WE pay for it.

SFace says

contrary to popular belief, taxpayer don't really lose in a capital infusion, it is the shareholder and bondholder.

you mean those who have savings/investments/pensions... who are the shareholders/bondholder other than US

WE or US its the same..

SFace says

contrary to popular belief, taxpayer don't really lose in a capital infusion, it is the shareholder and bondholder. That's why they only infuse companies that will survive. The US government/taxpayer gets paid every red penny with interest eventually.

Ooh, I love fairy tales. Tell us another.

Homeboy says

A) I doubt the resale value of my home is going to "crater".

So you link a chart and say that rates are going to go up, but you doubt the resale value of your home will crater if rates go to the historic norm. Did you fail math?

Homeboy says

B) I have no plans to sell it anyway.

My payment will never change.

If rates rise you wont be able to sell it for the price you paid because you wouldnt be able to afford it at the price you paid at a higher interest rate. The very essence of a bubble, when you cant afford to buy the very home that you own because the payment would be too high.

SFace says

* you'll have to realize the delta of the two loans. A 30 years fixed rate and 5 year arm has about a 1 % APR delta.

Speak English.

SFace says

* So in 5 years, the ARM holder will save a lot of interest up-front vs the fixed. It will have to flip by 2% to even have the argument that 30 year fixed are better.

That's nonsense. You do not "save a lot of interest" with an interest-only ARM. Exactly the opposite. First, let's stick to 3 year interest only ARMs, since that's what we're discussing. If you only make the minimum payment, after 3 years, you STILL OWE THE ENTIRE BALANCE OF THE LOAN. So you have made mortgage payments for 3 years and have not paid down the principal even ONE CENT. It's amazing that people can't figure out what "interest only" means, but many don't seem to be able. The bank even warns you, but you do have to click open a pop-up window to see it:

"With an interest only mortgage payment, you will not pay down the loan's principal balance during the interest-only period. Once the interest-only period ends your payments will increase to pay back the principal and interest. Contact your mortgage consultant to determine what your payments might be once the interest-only period ends."

Hint: they ain't gonna be lower.

SFace says

* There's always a cap (annual and lifetime) perhaps 5%. So the worst it can go is 7.875%

Union Bank says it's 6%. I would rather pay 3.875% for 30 years (fixed rate) than pay as much as 9.25%.

SFace says

* you mitigate that risk if you have the ability to pay off the funds anytime. Most ARM borrowers have the means to pay off chunks. The point of interest only ARM is to build assets. 7% of 100K is only 7K or 7% of 0 is 0.

I agree that's the point. So why is Pocky advising people to use an interest-only ARM to buy a house they couldn't otherwise afford?

The only reason you might want a 3-1 interest-only ARM is if you have some super great place to put your money where you'll earn more than the amount you lose by not paying down the principal on your house. There is no such place at this particular time. So I see no reason for ANYONE to take out such a loan, and ESPECIALLY someone who is stretching his resources to try to buy a house outside of his affordability.

SFace says

* Over the course of the next 10 years, there will be other outs. When interest rates rise, assets ride along with it.

All the more reason to have a fixed rate loan. If interest rates rise and I have an ARM, my home payment will be higher, so I would be LOSING assets.

SFace says

* There's no best answer but there are compelling reason to use IO arms. To me 30 year fixed rate is expensive insurance which may benefit some people and useless for others.

The way it is being proposed here in this thread would fall under the "useless" category.

yup1 says

If rates rise you wont be able to sell it for the price you paid because you wouldnt be able to afford it at the price you paid at a higher interest rate. The very essence of a bubble, when you cant afford to buy the very home that you own because the payment would be too high.

What's your point?

PockyClipsNow says

You people who think a rate spike will come so you get a 30 year fixed why dont you simply wait for the rate spike THEN BUY a home for half off?

First of all, I don't think home prices will fall 50% when interest rates go up. That's pretty ridiculous. Second, if I wait for interest rates to go up, then I'm stuck with a higher interest rate. I got a low interest rate by buying in 2012. So why would I want to wait for them to go up?

Homeboy says

PockyClipsNow says

You people who think a rate spike will come so you get a 30 year fixed why dont you simply wait for the rate spike THEN BUY a home for half off?

Because I don't think home prices will fall 50% when interest rates go up. That's pretty ridiculous.

I will give you an example nice and slow so you get it.

I buy a house for 500k 20% down 400k financed at 3.5%
Principal and interest $1,796

Interest rates rise to 6.5% and I want to sell my house to the next sucker. He has 20% down.

400k financed at 6.5%
Principle and interest $2,528

To get to the same payment I enjoy the next guy either has to come up with 215k down or pay me a lot less than 500k for my shit shack.

My point is if interest rates rise substancially over the next few years home prices will tank. You will become a zombie homeowner if they don't. You will not be able to move because you will not be able to afford the higher payment. Again the very definition of a bubble.

yup1 says

My point is if interest rates rise substancially over the next few years home prices will tank. You will become a zombie homeowner if they don't. You will not be able to move because you will not be able to afford the higher payment. Again the very definition of a bubble.

Or, all the people that locked in low rates just won't list their house for sale since they don't think that they will get a price they like for it. That will further decimate inventories, which will inevitably just push prices higher on whatever is for sale.

yup1 says

I will give you an example nice and slow so you get it.

Fuck you, asshole. Take your childish sarcasm and shove it up your ass. Fucking troll.

yup1 says

So you link a chart and say that rates are going to go up, but you doubt the resale value of your home will crater if rates go to the historic norm. Did you fail math?

Yeah, I missed math class 'cuz I was fucking your mom. She said she was sorry she had you.

bmwman91 says

Or, all the people that locked in low rates just won't list their house for
sale since they don't think that they will get a price they like for it. That
will further decimate inventories, which will inevitably just push prices higher
on whatever is for sale.

I agree that people won't list. They wont list because they wont be able to afford the higher payment at the next place. I dont agree that prices will be pushed higher. Most people can only afford a certain payment amount, a little more or a little less.

Homeboy says

Fuck you, asshole. Take your childish sarcasm and shove it up your ass.
Fucking troll.

I see why you called yourself HomeBOY!

Homeboy says

Yeah, I missed math class 'cuz I was fucking your mom. She said she was sorry
she had you.

My mom is 72, I hope you enjoyed that old piece of ass!

Gee, George - that loan has a lower payment. It must be better.

yup1 says

My mom is 72, I hope you enjoyed that old piece of ass!

She was in her prime back when I boned her. Sucked dick like a champ!

Homeboy says

Fuck you, asshole. Take your childish sarcasm and shove it up your ass.
Fucking troll.

I see is doesn't take much to spin you up. Now if you would like to grow up a little you can always try and explain why you do not understand how rising interest rates are going to impact your investment.

yup1 says

if interest rates rise substancially over the next few years home prices will tank.

Yeah, everyone knows rising interest rates cause home prices to "tank".

Oh, wait - no they don't.

yup1 says

You will become a zombie homeowner if they don't. You will not be able to move because you will not be able to afford the higher payment. Again the very definition of a bubble.

tanking home prices back a rational normal levels is good..what good are higher home prices if it puts your income in jeopardy... kiss your job/career goodbye.

yup1 says

I see is doesn't take much to spin you up. Now if you would like to grow up a little you can always try and explain why you do not understand how rising interest rates are going to impact your investment.

No, it takes a lot. It takes an asshole troll like you, who doesn't know what the fuck he's talking about, and is saying a bunch of shit that has nothing to do with anything, just to try to get a rise out of people.

My house is not an "investment". It is a place for me to live. If the value of my house declines in the future, I am much better off having a fixed-rate loan. If I had a NINJA loan that's going to blow up in my face, I might be forced to sell. If I'm not able to, I would lose the house. It happened to millions of people. Do you ever look at a newspaper, by chance?

Do you have an intelligent explanation for why a 3/1 interest only ARM is a better choice than a 30-year fixed rate right now? Or do you want to keep acting like a little jackass?

Now inflation adjust that chart and you will see real prices flat to lower. You can also see that most of the gains are after the short term rate spike. In fact all of the rate spikes lead to lower home prices and all of the drops lead to higher prices. Thanks for backing me up.

Homeboy says

Yeah, I missed math class 'cuz I was fucking your mom. She said she was sorry
she had you.

You say this and call me a troll? What are you 16? Grow up you little bitch.

yup1 says

Now inflation adjust that chart and you will see real prices flat to lower. You can also see that most of the gains are after the short term rate spike. In fact all of the rate spikes lead to lower home prices and all of the drops lead to higher prices. Thanks for backing me up.

You must be looking at a different chart. Now I know why your mom kept saying you were "special".

yup1 says

You say this and call me a troll? What are you 16? Grow up you little bitch.

I see it doesn't take much to spin you up. LOL.

Homeboy says

Yeah, I missed math class 'cuz I was fucking your mom. She said she was sorry
she had you.

I am sorry your dad was sodimizing you daily.

Homeboy says

Do you have an intelligent explanation for why a 3/1 interest only ARM is a
better choice than a 30-year fixed rate right now?

As soon as you give an intelligent explanation for your belief that rising rates will make your homes value increase, and don't just link somebody elses chart.....

Homeboy says

You must be looking at a different chart. Now I know why your mom kept saying
you were "special".

I see your fathers sodomy went straight to your head. LOL.

yup1 says

I see your fathers sodomy went straight to your head.

Thanks for the chuckle.

robertoaribas says

well, in fairness, the spike of interest rates in the 80's, together with a recession in the defense contractor industry did toss a pretty big housing price drop at southern California.

It probably was the recession that did it. Home prices didn't fall until 1990, years after interest rates had already come down.

SFace says

To me 30 year fixed rate is expensive insurance which may benefit some people and useless for others.

Explain how a 30 year fixed is "expensive insurance"? If you have an ARM with an introductory interest-only teaser rate, when the payment resets, you have to start paying down the ENTIRE principal of the loan. That's MUCH more expensive than a fixed rate loan.

Maybe, I have to question a Wellsfargo banker that recently pre-approved a non-conforming loan for 3.72% 30-year fixed ...

SFace says

Everyone who borrows above 625K are on floating rate (5 year fixed perhaps). I repeat, no one uses a fixed rate mortgage so need to talk about a 30 year mortgage in silicon Valley. It doesn't exist.

The type of loan Porky described is the norm. (80%)

My wife and I just got pre-approved for a $625k 30yr fixed 3.75% loan (w/ $1600 origination fee) by WF (so, purchase price of up to $800k based on how much of our cash we are willing to use). No documentation submitted whatsoever, although the fact that we have hundreds of thousands of dollars in cash at WF probably registered in their system somewhere. We didn't provide any account # or statements, but I assume that they could use our SSN to see that. Anyway, all we gave was SSNs for a credit check (and we are both flawless there) and stated income. We could have been approved for up to an $800k loan at 3.875%, but we wanted to avoid the jumbo complications, and we don't want to spend that much anyway.

I spent a fair amount of time talking to the WF rep about the state of things and asked about what he sees going on in the SFBA. He said that 80-90% of WF mortgage activity in the SFBA is refi's by existing homeowners trying to lock in low rates, and HELOCs by existing owners to try to buy investment properties and boats/cars/shit. The remaining 10-20% is first time buyers, many of which are trying to buy sub-$600k properties. My wife and I are apparently exceedingly rare animals around here in that we make good money and live conservatively (per Mr. WF). His take on the economy is that the entire thing is a giant hollow shell with little more than speculative asset bubbles keeping things afloat, and that the SFBA is a fairly lousy place for anyone trying to live a peaceful middle class life: it's a neurotic mix of workaholics and desperate foreign money laundering that is, and will probably continue, driving the cost of living into the stratosphere. His candid advice to me was, IF we buy a house here soon, to be prepared to unload it before the end of 2015 and either sit tight or leave thereafter. That was, of course, "NOT" investing advice lol. And of course, it is all taken with a grain of salt. Nobody really knows the future, but his commentary seemed to be in reasonable alignment with current reality.

I am seriously thinking of moving out and this time for good. My last stint in the midwest I shared a two bedroom with a room mate and my share including all utilities/cable/internet never went over $ 480 a month . Here-dear lord. My colleague in Houston was paying $705 a month for a 2 br apt with pool and gated and they raised the rent by 5 bucks a month and he was complaining.

The midwest is too extreme in weather, but Texas is looking extremely attractive. A 200-300k house in a very nice neigbourhood or low rents and it gives you a lot of cushion in assets and money and you can take a nice vacation to other places.

Check out Seattle. I spent the entire month of March up there for work, and have been up there ~40 times in the last 14 months for work. It is better than the SFBA in more ways than it is worse. The people there are so much better, cost of living is less, it has VASTLY more beautiful scenery (when the weather is good, which is actually fairly often outside of Nov-Feb) and there are plenty of good jobs. Yeah, winter time sort of sucks and people up there drive slow as hell, but the quality of life for a middle class family is genuinely higher there, period.

My wife and I are going to make some offers on the few properties here that seem to be worthwhile, and if/when we are outbid we are packing up and leaving for Seattle. My employer will let me keep my CA salary (14% higher than WA employees due to cost of living) and I bet I can work something in about them finding a position for my wife. We'll rent there for a couple of years and see how things play out. If we do settle up there, it'll be because we love it. If we want to come back, we'll be sitting on an enormous pile of cash since we were making "CA money" and renting for a hell of a lot less than we currently do here.

EDIT: I keep hitting the damn "Dislike" link instead of "Edit" lol. Patrick, can you move the Dislike link away from the Edit link?

Florida looks good to me as well. Plus I love to scuba dive and the Caribbean is close by for weekend trips. California is ok but still far away from Hawaii and nice beaches far south in Mexico.

SFace says

If your goal is to minimize interest expense, you pay off the principal a lot faster @2.75% than 3.75%.

It's more like 3.25%. And it's a teaser rate. It doesn't stay there for the life of the loan. The only "trade off" is that you only have to pay the interest for the introductory period, whereas with a fixed-rate loan you DO have to pay the principal right away, but get a better deal overall.