patrick.net

The question should be: are we missing the opportunity of a lifetime.

Isn't that more interesting? ;)

The only opportunity of the lifetime was to sell the house for ridiculously high tax free profit in 2004, 2005, and 2006. That's not gonna happen any time soon. Those guys who refinanced to lower their mortgate payment or cashed out the equity and invested took the small perks but still, they completely missed the opportunity to take a lot of money and run.

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.

Whoever sold this one really made the right decision:

http://www.burbed.com/2006/11/20/1mil-for-a-bad-acid-trip-in-cupertino/

antibiotics are maybe $15 here :(

there's a chance for arbitrage -- if you're prepared to try to export tons of grey market taxpayer-subsidised drugs from Oz to US in suitcases...

Joe Gargery,

That about sums it up. Look at all the elderly that would normally have been in mmkts or CD's forced into MBS (or ABS) effectively driving down yields even further, ensuring cheaper money for the HB to feed off of?

The seductively low rates have made us wealthier yet more in debt than ever before. I suppose I could beat myself up for not having hung in there longer and sold in '05 but you just had to get the sense that the few extra dollars couldn't possibly be worth the consequences of missing your window. Well said Joe.

Paul,

Spot on about Nuveen, sorry. (I was in a post Super Bowl funk and desperately needing a companion on my mantle for the '05 Sox!) It's just that my P.O box and e-mail are well stuffed each and every day w/new ETF offers. I didn't know Bruce Bond personally but PowerShares had a really nice concept w/the "enhanced indexes" and even nicer staff. I was sorry to hear they'd been bought out by AIM.

newsfreak,

Oh I know it for a fact! I know myself well enough to see I didn't have the stomach to sit there and watch what should have been a very respectable profit wither and die on the vine! (Most of us don't)

Admittedly off subject, but our chatting in this manner is something from the last decade for 'murica to be proud of.

Person,

Good questions. Most of those on "fixed income" can't wait 6 months or a year for their income. So they tend to "ladder" their holdings to get a monthly installment. Since we also attempt to diversify their maturity dates it seemed like every time these poor guys turned around a bond matured (or was re-fi'd at a new lower rate) and now they have to re-invest at lower rates of return. Call protections expire and hey, gov't agencies wanted to cash in on the cheap money "re-fi" too!

Since the critical mass to live off a 3% return is pretty huge many seniors had to abandon muni's/CD's for the higher rates the "agencies" (Fannie/Freddie) etc. were offering. The dollar flow was HUGE! As liquidity (and liquidity is a coward) made their exodus from the stock market (March 2000 to March 2003) much of it found it's way into MBS driving up price and reducing yields. This in effect kept mortgage rates at near 40 year lows.

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). My guess is that great rate was trampled when lure of tax free MEW became too great and they bought a second home or "elective surgery"?

ocrenter,

Hysterical stuff! Please do keep us informed on "The Family" will you?

Well I am hoping my wife and I did not miss the "opportunity". We purchased a 1040 sqft SFH in 2002 for $224,000. At the time I thought we might be in a bubble and could lose some money down the road. Wow was I wrong!

We started looking at bigger houses in the summer of 2005 and around that time I discovered many housing blogs. Needless to say we did not buy a home that summer. This winter we sold our small house and rented a larger one. We sold at $460,000 and are now renting a 1400 sqft home in a nicer city for $2300 a month.

I will admit it has been tough not to lock in a fixed low interest rate for 30 years. Somehow it just doesn't feel right. Everything I have read indicates it is better to pay less for the asset with a higher rate. So we are hoping that is what happens.

With everyone harping on and on about how great an investment real estate is it is tough to hold off. We could afford the payments on a bigger home since we are making between $200k and $300k per year. It just seems crazy to pay these inflated prices! So in order to save ourselves we have locked in a one year lease and have agreed to re-examine things next year or in 2009.

**Lets go Socal Real Estate crash**

Thanks for the great comments and the blog!

Ugh...for seniors, how about being prepared to living 20-50% below one's income. That's also a pretty good rule for life.

Stretch002,

Nicely done. Before we all start getting tempted by the still LOW LOW rates let's all try to remember that it's only a 5 1/4% loan IF we hold it for the FULL 360 payments! Since virtually all mortgages are "front loaded" with int. and we seem to move at least every 7 years we're not getting the bargain we're leading ourselves to believe.

Person,

That's been the general idea but I try to keep in mind that these were seniors we are talking about here. Imagine talking to "mom" about dumping many long held stocks (at considerable cap gains) then moving her into TIPS (what are TIPS again son?) and BACK into the S+P 500 after the dot.com implosion and accounting fraud?

Wait a minute! Didn't you "just" tell me to SELL all/most of my stocks? (When dealing with older folks, yes, 2 years IS like yesterday!) Many don't take to "constant" change that readily. In addition to taxes even at discounted rates there will have been some transaction expenses. Besides, they're OLD people! They just wanted to be left alone and draw a reasonable return after a lifetime of "saving".

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.

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...