Homeowners are going underwater as loans pass home values

[brooklynite]

In the next couple of years, a combination of rising mortgage interest rates and falling or slow-growing home value could plunge thousands of homeowners underwater.

Being underwater means owing more than the house is worth. It's an especially risky situation for people with interest-only mortgages and pay-option adjustable-rate mortgages because they don't build equity unless they choose to. Some might be able to refinance or get through hard times by living frugally. Others will have to sell their houses. Still others will lose their houses to foreclosure.

...snip...

According to an analysis by Comstock Partners, a Yardley, Pa.-based asset management company, 15.2 percent of 2005 home buyers owe at least 10 percent more than their houses are worth. Those people made minimum payments on pay-option ARMs, their homes' values dropped, or both.

"The market has changed in the last three, four, five months — dramatically — and they're not getting from their houses what their neighbors were getting 12 or six months ago," says John Hayes, president and CEO of HomeVestors, the company with the "We buy ugly houses" billboards.


http://www.statesman.com/business/content/business/stories/statesmanhomes/11/12/12underwater.html

Too bad the Republicans didn't spend more time focusing on the economy; we might have picked up ten more seats.

[Tellurian]

1. An aspect gone unmentioned is..

credit score. Credit Bureaus are having a field day with people who have gone over
their credit limit or have a 30 day delinquency. These issues were never a factor
concerning your eligibility for a good mortgage interest rate. They are now.

If you are getting close to your limit on a credit card whether it be Lowes or Visa,
call them and extend it several hundred dollars. Then divide your balance into thirds,
and try to pay it off asap. From there on in, use your card with care. Never exceeding
50% of the card limit. This will raise your credit score, keeping it intact, just in
case you decide to re-mortgage or take out an Equity Line of Credit.

[Mountainman]

20. Who can pay off their cards like that?

One thing that always gets to me is that people tell you to do things you would do without being told if you had the money. But they don't do it because they can't afford it yet they are told to do something they can't.

[Tansy_Gold]

22. You're absolutely correct

While I agree that there are some people who get into debt because they lack the willpower to resist the frivolous and fun -- my SIL's ex-wife is like that -- there are also those who get into credit card debt because it's the only way to make ends meet in hard times. Yes, sad as that may sound, it's all too often true. And by "too often," I mean that if it happens ONCE to ONE FAMILY, that's "too often."

I can't think of anyone with half a brain who enjoys paying 18% or 25% interest rates and wouldn't gladly pay off those balances if they were able to.

Tansy Gold, speaking from experience

[Javaman]

64. You touch upon something very interesting...

"there are also those who get into credit card debt because it's the only way to make ends meet in hard times."

I wonder sometimes what our economy is really like? Meaning, so many people are living on less than pay check to pay check that they have to use credit cards just to make ends meet and get by.

What would our economy look like if the credit card companies didn't hand out cards like postage stamps to any warm body. Once upon a time a person had to qualify as a good credit risk to get a card. Now the credit card companies see that there is more money to make with just the interest that the principal.

Because of this Americans are at an all time high for debt. As a result, there is all this presumed "money" out there that is nothing more than numbers on a balance sheet but no real dollars.

I wonder what would happen if regulation into the credit card industry was enacted so not just anyone could have a card and average people had to leave within their means. (I'm not condemning anyone that needs to live by any means necessary, especially when having to pay medical bills) And now with the new Bankruptcy law in effect even if you are buried with debt from medical bills or anything for that matter, basically you are finished and will never be able to start over.

I see a system suddenly collapsing upon itself due to a self perpetuating situation of creating a level of consumer debt that is now beyond a regulations means to control.

Do we have a tiger by the tail?

[coalition_unwilling]

85. 50% of recent personal bankruptcies were triggered by a medical

emergency for which health insurance was either inadequate or non-existent.

[zann725]

92. Part of the Bkrptcy filing is triggered because credit card companies' "Disability" coverage

(which most consumers do NOT find out until they're sick, and it's too late)...do NOT make Disability payments to their credit cards on time, often pay below "minimum payments" (causing penalties and late fees), and IF illness/Disability goes over ONE year, most (if not all) cease coverage entirely...leaving consumers WHO PAID FOR, AND HAD DISABILITY (medical coverage) on their credit cards... abandoned by said coverage, with a bad credit rating...forced into bankruptcy...despite all the prior paid Disability premiums paid on their cards prior to illness.

[Xenotime]

72. Well, one thing that gets me is...

why is it broke people are always the ones giving out financial advise? I talked to somebody over the weekend who couldn't rub two nickels together but HE knew the best way to invest money. WTF?

[Xenotime]

71. credit scores are crap

what a bogus freaking number. Why have we let some obscure company determine our "financial prosperity" based on how much we owe others?

[ItNerd4life]

75. I disagree. Credit scores are very meaningful.

If you have a high score it means you know how to handle your finances. You are responsible with money and with credit.

Everybody uses credit. From credit cards to renting an apartment, they impact your credit score.

A credit score of 720+ allows people to get 'stated income loans' vs. regular loans. These are the loans investors use to build wealth.

I think they are an important part of building the wealth needed to support the infrastructure and social services we want the government to provide.

[Xenotime]

89. Your statements illustrate my point.

Everybody uses a credit score to determine if one can rent an apartment, get a cell phone, get a mortgage, etc. They do that so they can give loans over the In-tar-web.

I know people who have very bad credit scores. Does that mean they are financially irresponsible? No. They pay cash for everything. They have no debt. They built wealth by saving money not borrowing it.

If you have a high credit score it means you like being in debt to other people. And, unlike a bartender when somebody has had too much, these companies keep lending people more and more money. They just keep up-ing the limit or issuing more cards.

[ItNerd4life]

94. Um, I high credit score means you know how to manage money and finances

not that you like being in debt. A high credit score means you pay your debts on time. If you owned property and were to rent it to someone, how would you determine they are capable of paying the rent?
One major source is credit score.
Another source is you ask for previous landlords information. However, the previous landlord's name they give you is a close friend who just lies to you by saying they always paid rent on time.

Once you've been burned by tenants, you realize just how important a credit score is.

[greccogirl]

97. You should NEVER

pay cash for everything. You can never establish credit and it's almost impossible to live in the world without it.

[Tight_rope]

80. You are so right...Didn't owe anyone for 3 years...but they still socked it to me

when I went to buy a new car. That was in April. Since then I went out and bought a $350 freezer at Con's to bill up my bullshit credit number. I put $150 down...and pay $35 a month...But I only intend to do that for 6 months ...after that pay it off. And be debt free again except for my car. 41/2 years more to go on that sucker. I still have my 10 year old car...running quiet well.

[greccogirl]

96. People shouldn't buy more than they

can afford in the first place. For 30 years we have struggled to pay our bills on time and as a result owned three homes, lived within our means and kept a great credit rating even through illness and loss of jobs. You cannot live above your means.

[tomreedtoon]

2. Who the hell owns a home any more?

I've been saving for decades. Not even enough for a down payment. I imagine when I retire I'll have to find a way to waterproof a cardboard box.

There is no way in this economy that a single person can afford to own a home, unless he's a rich Republican sellout, or a businessman who makes money by firing employees.

I, for one, will welcome all these two-income families going bankrupt and losing their houses. After all, it was their support of Reagan and the Bush's that led to the economy going south. There they were, thinking they were the gods of the earth, and they wind up as homeless as I'm gonna be.

[Tandalayo_Scheisskopf]

4. I kinda, sorta agree.

While I don't usually revel in the misfortunes of others, I cannot deny the schadenfreude. I have been watching this storm form on the horizon for a long time, and I am hardly an economic wiz. Sad to say that the shakeout is here. An awful lot of folks are gonna rue their financial impudence and lack of insight and impulse.

[sendero]

41. I have a much harsher attitude..

...about this. A lot of innocent people who did the right thing are going to be hurt by the coming housing debacle.

I blame:

1) folks who just want to live beyond their means. Dallas is full of them. They buy twice the house they can afford to display the illusion of prosperity. They justify/rationalize it by speaking of it as an investment, as though buying a bigger house than they need is a savvy investment like buying an undervalued stock. It isn't. The following two entities were happy to help out.

2) rapacious mortgage companies were pushing ARMs and other risky mortgages like there was no tomorrow back in 2003-2005. Those same companies are now advertising that they can "help" you get out of those "risky" ARMs and into a fixed loan. they knew full well that 90% of the ARMs they sold should have gone into fixed mortgages but they make more $$$ buy letting you buy a $300K house you cannot afford on an ARM than buying a $200K house you can afford on a fixed loan.

3) fannie mae, ginny mac, basically all mortgage underwriters. Back in the old days (say 10 years ago) you had to meet certain financial qualifications to buy a home. Onerous as they might have seemed, they were there for a reason. Any time someone loses their home because they can't pay for it, it is a hit to the market price of other homes. Back then you HAD to have 5% down, you HAD to be able to prove that your new mortgage payment would not be more that 28%-%30% if your income, you HAD to have a reasonable credit rating. Now, they will sell you a house for almost nothing down or sometimes even with cash back (simply tacking a personal loan onto your mortgage) and we're all about to see the results, because these actions will multiply the number of people who are "upside down".

I have little doubt that the relaxation of lending standards was done intentionally to keep the economy afloat a few more years by the Bush adminsitration. Just another in a long list of horrendous mistakes they've made.

[Bushies gotta go]

44. From Dallas

A little over a year ago, I sold out and got the heck out of Big D, spending 4 months on the road looking for a good bargain. Finally, I found just what I was looking for in NM. Two acres with a stick-built 3BR/2Ba house, garage, few neighbors. Getting the seller to drop $25k and being able to put a sizable down of a like amount, I ended up with a note between $95 and $100k.

But getting a loan was very tough since I am in business for myself. I remember the mortgage broker trying various "schemes" on me, including trying desperately to talk me into an ARM. I remember him saying, "look, lets just get you in there and in 6 months, I can rewrite this into a fixed rate". Refinancing in "6 months" wasn't very attractive, since interest rates were skyrocketing this time last year.

I held my ground and just about walked on the deal even though it would have meant being back on the road another 4 months looking.

Like I told him, it was cheaper to live in a motel than to take something because I was "desperate". I ended up with a fixed mortgage that is low enough I am able to pay my next month's principal with each payment.


__________________________
It was a thumpin'
The Chimp
11/8/06

[bjb]

84. Times have changed

When we bought our house in 1968, the mortgage companies would not even include the wife's income into the amount of mortgage you could qualify for. If you couldn't make the payment on one salary, you didn't get the loan.

[KayLaw]

5. I follow the Housing Bubble

There's nothing wrong with renting. A lot of people - Bubble Sisters - are selling their homes to become renters while they wait for the crash.

Here's one good site about the bubble:

www.thehousingbubbleblog.com

[HockeyMom]

12. I am renting

Sold our home in 2004 for $475,000. The flipper listed it in June for $789,000 after he did "cosmetic" improvements to it. As of this week, he is down to $675,000. In all the open houses he has had (every other week), he never lists the asking price in the ads. My daughter and I went late in the day last month to one of the open houses and there were only 3 other names on the sign in sheet. The agent looked like he just wanted to get out of there. I guess he KNEW the house was way over priced and wasn't worth his time.

It is a nice 3 bedroom/2 bath house, but definitely not worth over $600,000, especially in this market. I did not buy a smaller home at the time we sold because I knew that these smaller homes would be OVER PRICED as well.

Just bidding my time.

[Phoebe Loosinhouse]

13. I want to delve into your post

Since the flipper did not put it on the market until this year, I am assuming that he lived in the house for 2 years to take advantage of the primary residence exemption. So, he bought your home at market value at the time(right?) and lived in it for 2 years, did some cosmetic improvements and then put it back on the market and hoped to gain (I don't have a calculator handy) about a 65% gain after only 2 years. It is a $314,000 profit minus the cost of the improvements.

This is sort of the problem with the housing market as a whole. Approx 25% of deals in the last few years have been attributable to "investors" - that is, people buying houses as investments, not shelter. There's no problem with this except that previously, investment real estate had been all about positive cash flow and tax deductions, not just riding a wave of appreciation.

Investment real estate just a few years ago meant that you tried to buy a property intelligently, rented it a price that paid for your expenses while you got some tax breaks and the gain in equity in a few years was due to the tenant paying down the mortage, not just an inflationary market giving you gains of 20,30,40,50,60,% after just a couple years.

More and more people invested in real estate with the idea of becoming quick turn-over artists and they have turned housing into tulip mania. Many of them will be caught with their pants down.

[Porcupine]

24. You are sooooo right!!! Read that post twice!

I've worked in property management for the last three years in one of the hottest markets in the nation. For a few years flippers were getting 15 to 18 percent appreciation per year on houses.

Lots of Yuppies flying into town to sign deals on real estate they had never even seen, handing it over to a property management company they had never met and flying out. Every third person I know seemed to have a real estate licence. Developers fronting $150K for unpaid city council election races. Now they're screwed and I couldn't be happier.

In a town where the average worker earnes about $32K a year housing prices have rocketed past what a single working dad with 2 kids like me could afford. I just can't wait till the hammer comes down.

:popcorn:

[KayLaw]

14. It's playing out in many places.

Thank goodness you got out when you did. We live in the Tampa Bay area of FL and our homes are way over valued. I just hope the Democrats aren't blamed for the crash just because they're the party in power (now).

[AndrewJacksonFaction]

65. Same Here. IRB (Indian Rocks Beach)

I am waiting for prices to come down as well. I still think the houses are overpriced in this market by 30-40%

[maseman]

19. No offense but a little selfish and pompous

"I, for one, will welcome all these two-income families going bankrupt and losing their houses."

That's the kind of anger and hate I would expect to see in Freeperville. It isn't two-income families that are the problem. It is a combination of unethical mortgage lenders with their bullshit ARMS and scams and uneducated public buying into the real estate nonsense.

If people live within their means then they can afford a home. I live in a very modest ranch house with 2 kids and a wife. It is only 1500 square feet and I finished the basement. When I went to apply for a mortgage they cleared me for a ridiculous amount like $450K or something. I ended up buying under $150K. My house payment in Ohio is lower then my rent was in Baltimore 5 years ago.

[tomreedtoon]

31. Not selfish or pompous, just realistic.

I am renting a two bedroom for $700 a month in Orlando. I don't have any inheritance from my parents (all gone to care for their last days in nursing homes, which I didn't begrudge them). I've been saving, but have nowhere near a decent downpayment after 20 years of employment. And I know I'm not alone in this situation.

If I hooked up with a working wife, MAYBE it would be possible to buy a small home. In about twenty years. If we both cut everything to the bone; no cable, no Internet, no vacations, keep the car running until the wheels fall off, wear clothes with patches, and maybe eating out of dumpsters.

It's worse in California, where places the rats wouldn't even go are selling for $500K and up. But things are bad all over. Or haven't you noticed?

So don't talk that financing bull-doody to me, especially when I'd have to get involved in drug running or contract murder to get close to a downpayment. And especially since, when the economy crashes, none of us will be making a living wage anyway. And if you're one of those infomercial real estate guys, I know some property you should purchase on the edge of a lake of fire.

[bleedingheart]

67. my single brother managed to buy a home by himself

now granted it wasn't a mansion but a sturdy 3 bedroom brick home from the 40's..and he has been fixing it up.

His mortgage with taxes is around what you pay for rent...and he has someone who rents a room in his house which makes it easier.

Now this is also in Pittburgh so perhaps where you live is more a factor than having to have two incomes.

I know a lot of singles in Pittsburgh who own homes...

[spinbaby]

82. Pittsburgh is a very affordable market

Here you can buy something you can actually live in for under $100,000. But I'm noticing that even with our very reasonable housing prices, there's a lot of housing on the market and prices are slipping. Our neighbors have a very nice craftsman that they had on the market for $149.000. They've dropped the price to $129,000 and still no takers.

[bleedingheart]

83. you know spinbaby...I think you are right...prices are slipping

and my crazy hubby wants to buy a fixer upper.. (although i doubt the deal will go through as of now)...

A lot of the big ole fancy housing that was built within the last 10 years is now on the market again, it is definitely a buyers market.

by the way...we need another DU gathering in da 'burgh

[spinbaby]

87. Those new McMansions are a glut on the market

You should see the stuff for sale over in Upper St. Clair. On weekends, they're practically dragging people off the street to come look at their sample homes.
I'm actually very happy to see this decline--it's postponed the giant housing development that was going to ruin our neighborhood. Now we can stick around in the house we love a little longer:-)

And we do need a Pittsburgh get together.

[Rockstone]

38. Kay - when do you think the crash will be?

[tomreedtoon]

52. Someplace between next week and 2009. Does it mater?

It will be whenever it occurs, it will catch us unawares, and we will all be on the streets. Isn't that good enough for you? All it will take is one overwhelming incident, like the genuine collapse of the housing market or gasoline hitting $7 a gallon, and the whole house of cards (and whole houses) will collapse.

In fact, many people here on DU are cheering the end of the automobile, where we'll all be serfs trudging along in rags on the cracked highways. They don't mention that we'll be serfs, of course, or subject to the laws of the local rich lords; they think the post-gasoline world will be just like a Rennaissanse Faire. Guess again, Harlequin. It will be dog eat dog and man eat dog (if he's lucky enough to catch one).

[jwirr]

58. A lot of people are buying because they are paying the same

rent as the mortgage. They get into trouble when up-keep, taxes and insurance are not included in that mortgage payment. We are going to have a lot of technically homeless people living with family (if they are lucky).

[TommyO]

90. In my case I went from owning to leasing

because the neighborhood that I bought in was on an upward track when I bought fourteeen years ago, peaked, and started to decline. By selling my condo I reaped some benefits, and leased a slightly larger townhouse in a much better neighborhood that meets my current needs. I figure I'll be ready to buy again in a year or two, in the meantime I'm test-driving the neighborhood.

I had a decent night's sleep yesterday (but that's because of the exhausting move more than the quiet neighborhood)

[Teaser]

7. Where the hell are you living?

Move to Philly. Easier time of it here.

[leesa]

8. My neighbors own their home outright. They bought it with their son's death

benefit from the army. Thanks George!

[tomreedtoon]

32. Sorry, I'm not married and have no kids.

And right now the joke would be "that I know about, anyway" but even that wouldn't apply. But that might be the only potential way for an adult to finance a home today anyway, grim as that sounds. Insure up the kid and make him listen to Rush Limbaugh, let him enlist and wait for the inevitable telegram.

[nodehopper]

9. what are you talking about?

my parents are first-generation immigrants on an income and a half (mom works full-time, dad works part-time). They finally paid off their duplex this last year after many years. They came to the US with nothing fifteen years ago and have worked like horses since, voting Democratic in every election since they received their citizenship. They are hardly a wild exception. Don't paint everyone with one brush. There are Corpo-republicans who own McMansions in three states, and then there is everyone else.

[Phoebe Loosinhouse]

17. Some advice

It's not income and savings - it's credit rating. You can be poor and still have a good credit rating if you are responsible and pay all your bills on time. The fact that you say you save makes me believe you fall into this category. (Sometimes people who have no income, no savings and no credit want to buy houses- I don't know of anything legitimate that can help someone in this category)

1. Talk to three reputable real estate agents in your area who specialize in starter housing
2. Talk to three reputable mortgage lenders in your area
These people want people to buy houses and their own income is dependent upon it.(I am not talking internet - I am talking local people who do business in your area - don't be turned down by some automated lending program.)

3. Talk to the housing authority in your town and see what advice they offer.
4. Check out Habitat for Humanity and make an application with them

Many if not most states have some kind of affordable/financing programs for first time home buyers. Look into every single thing that is available. Even if you are not able to buy today, perhaps you can buy next year if someone would just tell you concretely what you have to do in order to qualify.

Perhaps you could go in with another person (good friend, relative, etc.) and buy a house. This is fraught with all kinds of things that could go wrong, but it still has possiblilites if you go in with the right person and structure the whole thing correctly from the get-go. (Get it all in writing - who's responsible for what and also how one party can buy out the other if that becomes necessary)

or:

Find a house that isn't selling in an area you would like to live in and approach the owner about you purchasing the property on a lease-purchase contract. Offer a credit report and personal references.

[Sirveri]

27. It all depends on your expenses.

Basically how much are you dumping into rent, shave 200$ off your rent and that's 2400$ saved a year. Stop eating out at restaurants and cook more if you're inclined to do that, that could save 100-500$ a month depending on how much you eat out leading to another 1200-6000 per year. Pay off your car and don't get a new one, get rid of any excess cars and downgrade your insurance policy to the cheapest available. I'm paying 288 a month for about a year or two more, that's almost 3500$ for me. There's 7k-12k a year in savings right there, keep it up for 5 years and you've got a down payment for most places in the country.

The big one however is to basically not live in SF bay area where I used to live, you live in a high priced city, you're basically screwed, you can't buy a house unless you've built equity elsewhere, or you get a bundle of cash basically handed to you somehow (IPO buy in, lottery win, family estate). Since I moved out of an area where homes you would actually want to live in that cost a minimum of 350k if not 500k to my current locale with housing costing 200k, I'm feeling much more optimistic about owning a house for myself. But even in the SF bay area, my mom wanted to try and help me out and did some hunting and was able to find condo's going for around 100k. Sure, it was a 500 sq ft studio in a semi-shady neighborhood on the border of a ghetto in Oakland, but I could have actually bought into it, and she was willing to help with the down payment. Not like I had enough furniture to really need more space at the time anyways, nor was I married. If I had a steady job at the time I might have taken it, as it stood I decided to built myself up by moving closer to work into a small 10'x11' room in a run down house for 450/mo in Fremont. Then I got laid off in '02.

If owning a house is a goal for you, it is a doable goal, but it's up to you to find the way that works best to get you there. The more frugal you get, the smaller your place, the less you do socially, brown bagging lunch, they can all get you there. Provided you want it enough to give up your current lifestyle.

[MadHound]

33. Depends on where you live

I'm in the Midwest and bought my first home while I was single. Prices are still affordable out here. Granted, this isn't true on the coasts, but hey:shrug: there's tradeoffs whereever you live.

And please, knock off you gratuitous smears of all two income families, OK. Not all of us supported Reagan and Bush, and frankly many have worked hard for Democratic and liberal issues, including the housing issue.

[1932]

47. We're all better off when we're all better off.

I guarantee you that whatever joy you feel seeing people in misery is going to dissipate pretty quickly when you have to live in a world with a lot of miserable people.

[tomreedtoon]

53. But we'll all be miserable. Schadenfreude will be our only joy.

Saying "I told you so" is a time-honored bit of solace, especially revered in the Jewish tradition. And since we'll be in the economic equivalent of the railroad car to Buchemwald, those of us who saw it coming shouldn't be denied the joy of sticking it to you "Economic Holocaust Deniers." It'll be the last joy we have.

Be honest with yourself; do you think any of the Big Three Democrats have even a hint of a whiff of FDR about them? And don't play dumb and ask "which three" - the three most likely candidates for 2008, duuuh! None of them would have any more idea on how to get us out of the coming massive economic collapse than Herbert Hoover did.

As for me, I'm scouting around for a good sturdy refrigerator box that I can reinforce and waterproof. I advise you to do the same. And no, I am NOT being sarcastic.

[SKKY]

51. It's all about location...

If you want to buy a house in San Diego, sure, you've got a point. But San Antonio, Texas, Nashville, Tennessee, and Louisville, Kentucky are 3 very nice
cities that still allow you to own a home and not kill yourself making the payment. Personally, having moved every 3 years for the past 15, I'm very much
willing to move to a location that's conducive to home ownership.

[jhasp]

61. You can afford a house

Tomreedtoon,

Check out FHA loans. I purchased my first home less than a year after graduating from college. You pay a little more for mortgage insurance, but it beats renting.

[Tight_rope]

66. As sad as it makes me feel....I also agree with you.

They bought into the "American Dream". I learned in my early years that the true American Dream meant being in debt (you have to owe somebody if not everybody). I tell all my friends and family, if you work, then you are an AMERICAN SLAVE. It matters not the color of your skin.

[BlueStateGirl]

79. I do. I am single, never married and a bartender. I have a good number

of single friends who were able to purchase a home.

I was able to get a a fixed rate mortage, that only required a 3% down payment.

It's nothing fancy, a 900 sq. ft condo, but it has gone up $30 grand in value since I purchased it two years ago. And the mortgage payment, with taxes and PMI is about the same as I would pay in rent for a comparable place.

I live in the Philly area, where is still possible to get a good deal.

[slackmaster]

91. I wasn't able to buy until I was 36 years old

For most of my life it seemed like either A) prices were too high, B) rates were out of control, or C) either my then-wife or I (or both) were out of work.

Sorry to hear about your predicament tomreedtoon.

[greccogirl]

98. We're in our third home

and it's paid for. Started out with 39,9 home in 79', bought another for 95 in 90 (with 50,000 down from selling the first one) paid that off in ten years and sold it for 190,000 in 2002, and moved to this home, paid $130,000 in 2002. Used the rest for savings. Both of us are disabled and we had to give up the huge contemporary for a smaller ranch with a basement, no stairs.

[TheMadMonk]

3. Anyone who buys at the top of the market and the bottom of the interest cycle,

and does so at the outer limits of their fiscal capacity is an idiot.

Some people are forced by circumstances to live on the ragged edge of penury.

Buying a house is not such a circumstance.

[1932]

48. America has achieved a lot with little more than optimism

so It's hard to blame people who believe their government is basically benevolent, and that their employers will ultimately treat them fairly, and that things can only get better.

The cynics will ultimately see that their attitudes were justified, I'm sure. But it still doesn't feel good to me to call the optimists idiots and feel righteous for being a cynic.

[CreekDog]

99. You don't know the top of the price cycle, bottom of interest cycle...

...often until you are well past them.

Don't blame people for not knowing they were buying at that point. It is often not clear for many months, where the cycle peaked and when the interest rates bottomed out.

I can't believe you expect people to know this. I bought in 2000 and in 2004 at what seemed like the highest point in housing prices. Not so.

[AlCzervik]

6. it's gotten bad here in northern california and i'm not even in the bay area

forclosures are way up and the inventory on the market is staggering. I'm lucky i bought when i did 6 years ago, $209,000 for 2100sf and if i had to sell it would go on the market for around $425,000, also we haven't taken any equity lines out---thank god!

[Neshanic]

10. A converstation with a large national developer, I got this.

Their fellow homebuilders are still in shock, and delusional. It is much WORSE than anyone can imagine. They are looking at a 2010 turnaround. 2010.

[NMDemDist2]

11. i got out of an overpriced market and paid CASH for my mobile home

on one acre

i feel sorry for the little gal who bought my home, I fear she will be in real trouble in a couple years

[kineneb]

15. had to sell house in 2003

due to WorldCom laying off Hubby, took the cash and bought 1/4th acre in the country, added a double-wide manufactured home (~1290 sq.ft.) and some outbuildings. Our mortgage is $167.50/month. Unless something really strange happens, I think we are OK. And we have room for a garden.

I really pity the folks who bought at the high end of this bubble, they will be hurting shortly.

[Eurobabe]

30. Or better yet, what about buying a camper?

Hmmm, interesting. I need a "house" in the US, but I never considered the idea of going mobile. As in a camper or something like that.

[NMDemDist2]

43. check realtor.com for mobile homes or just RV full time

lots of folks RV full time, it's totally do-able

here's a linkie for ya

http://www.aworldtraveler.com/rvs/fulltimer.htm

[nealmhughes]

16. Housing bubble was a lot like tulipomania in 17th centrury Holland and

our own Dogfood.com craze a decade ago. It was a bubble like the Yazoo Land bubble, the South Sea bubble and many other one in history. It is a meme that recreates itself with increased grandiosity until it explodes under its own weight.

A home has only intrinsic value which is based on size, amenities and the ultimate: location, location, location. All other considerations are cultural and in the eyes of the beholders alone.

I find McMansions made in treeless lots anus-to-elbow close with charming names such as "Puddleton Downs on the Mews" to be a most distasteful thing. I called one local condo place with a name such as "Townhomes on the Cypress" "Pretension upon Bullshit" once at a party and had half the guests in outrage and the cooler ones in tears of laughter.

I'll take a nice bungalow or rowhouse in a neighborhood with a close bus/train stop anyday! Especially one where I can walk to get my coffee in a non-chain shop, clean my clothes and walk home with the hangers and walk to the movies over a half hour or more commute with people trying to pay for their mini SUVs and huge utility bills and no room for even a few tomato plants. Or else stay in my carriage house at The Compound here on top of our mountain and go into town in half an hour and into the city in an hour and have room for a full garden, fields for the dogs to play and the kids to romp.

No named McMansionville for me! You folks there are only trying to compensate for perceived "deserved upper middle class" status being lacking, and your own inferiority complex has bankrupted you.

[Lydia Leftcoast]

21. Yes, some of these wounds are self-inflicted

People who think they have to keep up with some middle-class image and own a house twice as large as the one they grew up in.

When I was a kid in the 1950s, the standard was one bedroom for the parents, one for the boys, and one for the girls. Having two bathrooms was the height of luxury. What is it with these McMansions? People have fewer children but more house.

Same thing with the SUVs and minivans. People with four kids in the 1950s got by with one sedan or maybe a station wagon if they had six kids. Now people have one or two kids and they have to have a minivan or an SUV, maybe both.

And all this crap about having to move out beyond the cornfields so that you can afford a house. What you save in mortgage payments you make up for in car payments and gas.

The American middle class has fallen for a huge con job.

People kept telling me I ought to buy a house, but the math has never added up for me. As one financial expert put it, even the widely touted tax advantages have you getting only 35 cents from the government for every $1 you give the bank.

If I had a windfall that would let me reduce the mortgage payments to less than what I'm paying for my spacious and conveniently located apartment in a delightful neighborhood, I might consider buying. Otherwise, forget it. I wish I could get rid of my car, too, because that's a serious money pit.

:wtf:

[Sirveri]

26. There are very good reasons to buy homes.

The big one being that the rent you pay in mortgage goes to YOU, not your landlord, so you're actually buying something (though depending on the amortization rate you might not be buy all that much of it). Basically you're building up a small nest egg of cash that is all locked up in your house. That's the reason I want to buy so bad, don't have the money right now, but in a year I'll be set to buy, especially if I can get my wife to pull in a second income and recover from my recent re-location to a much cheaper housing market.

[Lydia Leftcoast]

37. For me it doesn't work

Between mortgage, taxes, and maintenance and/or association fees, I'd end up paying 50% more per month than I am now.

I've seen too many friends pour thousands of dollars of maintenance and upgrades into a house and then have to sell, due to relocation or unemployment, and find that the equity they've supposedly so wisely accumulated doesn't even cover what they've spent on maintenance and upgrades.

The question is how much you're willing to distort your life to have a house. Having to own a car (which I didn't for ten years in Portland) is already cramping my style enough. Even though I got it "free" from my mother, I'm still spending $3000 a year on gas, maintenance, repairs, and insurance that I didn't have to spend before. This means less money for the things I really enjoy.

[Sirveri]

63. For some it's good, for others not.

For my mother, housing was a great investment. Bought a duplex for 300k and sold it for 800k without adding a damned thing to the place. All thanks to the dot com boom in the SF bay area, yuppies buying up property looking to flip it or rent it out. They're getting screwed now. She could afford to buy the house because she inherited one property and had been building equity on her own propertie for years. Lived with her sick mom while renting out her home, sold her house and bought the duplex, sold her moms after she passed and bought one for herself. The market started turning up at that point and so she held on for as long as a single mom working at the post office can. One of the tennants moved out of the duplex, she moved in, upgraded the kitchen cabinets on her house and sold it making a decent chunk of profit (upgrades should cause the house to actually sell for more than your purchase for). Stayed in the duplex for 2 years to turn it into owner occupied (avoid taxes), sold it within a week for 2x what she was asking. Then she retired (with an early out from the Post Office) and went north where property is cheap. She took other peoples money, added it to her equity as well as adding her own.

That's what my experience growing up was like, I just wish I could have started earlier than 26 years old. As for paying 50% more per month, the more you put down and the cheaper the property, the less it ends up costing you per month. It's all in how you play it and what you need. If you have kids or sick relatives, you find yourself getting tied down. I'm married and childless with a job I am not legally allowed to be fired from unless I do something stupid or there is an act of congress or god. It makes good sense to me, for some renting is the right thing to do, but I want a house, I want to build some equity, I want to have something to look forward to in an uncertain future.

[1932]

49. Lydia, I bet you'd love this book:

The Health of Nations: Why Inequality Is Harmful to Your Health, Revised and Updated Edition
by Ichiro Kawachi, Bruce P. Kennedy

http://www.amazon.com/s/ref=nb_ss_gw/002-7593254-8792836?url=search-alias%3Daps&field-keywords=health+of+nations&Go.x=0&Go.y=0&Go=Go

[raccoon]

70. That was my experience in the 1950s too.

"When I was a kid in the 1950s, the standard was one bedroom for the parents, one for the boys, and one for the girls. Having two bathrooms was the height of luxury. What is it with these McMansions? People have fewer children but more house."

And that's one reason--and there are many others--why most families can't make it on one income anymore.

[Odin2005]

23. "Pretension upon Bullshitt" LOL

:rofl: :spray:


Don't forget people buying stocks with credit during the 20's, one of the major causes of the Great Depression.

[Gogi]

18. Florida is leading the pack.

Nows the time to look for that vacation home or condo in Key West, according to what I've read, house prices are really collapsing there.

[Porcupine]

25. Um, make sure it has a good hull when you buy it.

because Key West is scheduled to become a reef as the ocean levels rise.

[SeattleGirl]

28. We were looking at buying a house, but I finally said forget it.

Like in many other areas, housing prices around here are much higher than they should be. I passed a house the other day, older house, looked like it had been well-taken-care of, but it wasn't all that, and they were asking $750,000 for it. 3/4 of a million dollars! Absolutely ridiculous, in my opinion. Yes, there are many good reasons to buy a home, but if I bought one now, and the housing bubble burst, I would be another person with a home on my hands not worth the money I owed on it. Thanks, but no thanks. I will wait until things get a little more reasonable.

[TexasLawyer]

29. walking away

During the 1980s this was a huge problem in Houston, when the oil boom turned to oil bust.

People walked away from their houses in droves. Just left them behind for the bank to sort out.

[AnneD]

73. Hello TexasLawyer,

those were interesting times. The want ads in the Comical were one page front and back for the fifth largest city in America. I was raking leaves in Dec to keep body and soul together. Man it was rough. But I learned how to survive.

Basic survival tips:
1) your pantry is your best friend-get to know it, fill it, love it.
2) friends and family mean everything. I can't tell you how many times friends and family gave me a hot meal and company when I was down or tired of my umpteenth pot of beans. A nice land lord let me split the rent payment. A neighbour let me groom his already spotless lawn for a $20. These are the kindness that really count.
3) cut you expenses to the bone and then cut them again. All you need is food, clothing and shelter. Everything else is a want.
4) think outside of the box. Rent a room out, barter for goods and services, or learn a skill.
5) go to church....I learned this after the fact, but it would have made my time better, would have given me another network and resource.
6) this is a time to bury your pride and learn from your experience-it will make you a better person.

Real World finances

1) Forget credit cards....that interest you pay is money out of YOUR pocket. Save at least $1000 in your savings account for emergencies. This prevents you from relying on the cards and using them for emergencies.
2)Learn to budget. It may take a few months to get it ironed out, but it works. Look at what you spend routinely (food, eating out, gas, haircuts, etc and allot cash for those expenditures). Go to the bank and draw out your expenses for the week in cash and put it in an envelope that is labeled with the intended expense. It sounds hokey but you'll think twice before parting with the cash. The hard part is learning to spend only what is in the envelope, but it gets easier with practice.
3) It took you a while to dig the hole, it will take a while to dig out. I have been credit card free for almost 3 yrs now and am paying my debts down. I have really had to watch my P's and Q's but I am averaging paying off one creditor a year (without acquiring a new debt)and the burden is gradually lifting from our shoulders. When we are finished and are debt free-we will then save for a dwelling. This will be within 3-4 years. It started slow but has begun to accelerate. I love to pay off a debt.

Too many folks are digging themselves in a hole and we will soon be having a day of reckoning. Homes will only be the start.

I recommend David Ramsey's Total Money Makeover. It is a good book to get you started. I may not agree with him politically but money isn't red or blue either.

[TexasLawyer]

78. good advice

thanks

[AnneD]

81. The advice wasn't aimed at you per se....

just a kernel gleaned from experience. Remember this nugget......




Oil bust, space tragedy and Chronicle sale


In the early 1980s, oil was selling for about $33 a barrel, and most forecasts said it would reach $60. A few even predicted $100. The industry was booming and exploration soared.

Houston was attracting much attention from job-seekers, making the Chronicle classified employment-ad section a big seller out of state. Sunday Chronicles were shipped every week to Michigan, where the unemployment rate stood at 17.2 percent in December of 1982.

<snip>

But in early '82 oil prices began falling, stagnating at about $27 in '85. Then the bottom dropped out, and prices fell precipitously, finally reaching $10 a barrel in January 1986.

With 70 percent of jobs in the Houston area depending directly or indirectly on the oil industry, the bust was in full flower. Construction all but came to a standstill, and some financial institutions failed, while others tightened credit.

Thousands were thrown out of work. In January 1983, unemployment in the six- county Houston metropolitan area rose to 9.1 percent, the highest among the state's largest metropolitan areas. Beaumont-Port Arthur was hit even harder, with a rate of 14.9 percent. The overall rate for Texas was 8.5 percent.


http://www.chron.com/disp/story.mpl/special/100years/1074418.html

And we lived to tell about them, Tex. I fear we have a perfect storm brewing and it will catch a lot of folks off guard.

[coalition_unwilling]

86. Happened in the early '90s in Southern California. A lot of

home owners here went "underwater" (negative equity) and had to take foreclosure. My former boss (a REALOTOR!) was one of them.

[superconnected]

34. I've watched houses drop 50k in my area.

one person I know who is still paying on his house bought low and will be fine with this.

Every other home owner I know still paying is in absolute denial that housing prices are dropping.

My current boss is in so much denial he is going in half on a 600k piece of property with his friend because they want to use it as a rental. He's buying this month and sure his 3bdr home is worth 700k and the fact that houses in his neighborhood have dropped 50k in the last 3 months is what he calls "normal seasonal drop you get till about march". Seriously, there are people in great denial right now.

I welcome the decline with open arms. I'm going to buy a house when they get to the price where one is 2 times my yearly income - $140k. That won't be hard in my area as they've just hit 190k for a really good home and 150k for a tiny nothing. I'll wait longer as prices are falling so fast. Last year it was $300k or up to find a home in my area - Everett, WA.

[SoCalDem]

45. Here's the thing..

We "bought" our house in '81 for $82K with 12K down.

On paper it's "worth" 400K (or more),but until we actually sell it, it's just a place we live.

When we actually sell, it we pretty much have to leave CA, because no matter what we get for it, a replacement house will be comparably priced.

We will probably have our grown kids "buy" it from us soon, since they could use the tax deductions more than we will, and it will be theirs anyway when we croak.

An "investment house" in S Calif is usually a good idea, and a cheap place for aging parents to live is always a good investment :)

[superconnected]

35. I've watched houses drop 50k in my area since august.

one person I know who is still paying on his house bought low and will be fine with this.

Every other home owner I know still paying is in absolute denial that housing prices are dropping.

My current boss is in so much denial he is going in half on a 600k piece of property with his friend because they want to use it as a rental. He's buying this month and he is sure his 3bdr home is worth 700k and the fact that houses in his neighborhood have dropped 50k in the last 3 months is what he calls "normal seasonal drop you get till about march". Seriously, there are people in great denial right now.

I welcome the decline with open arms. I'm going to buy a house when they get to the price where one is 2 times my yearly income - $140k. That won't be hard in my area as they've just hit 190k for a really good home and 150k for a tiny nothing. I'll wait longer as prices are falling so fast. Last year it was $300k or up to find a home in my area - Everett, WA.

[BlueCollar]

36. The Democratic Leadership had better

have a plan for this eventuality.

Republicans will be all over this in 08 saying the Dems are responsible and have no plan and this is all because of the Tax cuts being curtailed.

[NorthernSpy]

56. absolutely! we've really got to get the jump on this issue...

People are going to be screaming for help, and we've got to have a plan. And that plan has to include hearings on how all this happened in the first place, as well as crafting policies that will provide relief to people who are going under and may be left bankrupt and homeless (but NO aid for speculators or flippers).

[lumpy]

39. If this is going to be the trend, then we will be in a

big fat depression. Been thinking for some time now that we are on the hinges of a depression.

[Rockstone]

40. Can you decuct the interest on your rent?

Didn't think so.

[skids]

54. In MA, 50% deduction of rent on state taxes. n/t

[Lydia Leftcoast]

55. As I posted above, the interest deduction is a crock

I can still afford rent payments month to month MUCH better than I can afford to buy a house or condo that would provide a comparable standard of living.

Besides, I'm not going to pay a bank $1200 a month so I can live in a tiny 1-bedroom apartment that has been shabbily converted from an old apartment building and get 35 cents on every dollar of interest I pay. Instead, I pay $350 less in rent and live in a large 2-BR apartment (the second bedroom is my home office) that is well maintained by the resident landlord.

Besides, as a self-employed person, I get to deduct all sorts of other things, including my health insurance premiums, my office equipment and supplies, costs of business travel, costs of promotion, and the percentage of rent and utilities that pays for my home office, most of which are unavailable to ordinary working stiffs.

Next.

[krispos42]

42. Time to move to South Dakota

Yeah, you'll take an income hit, but living in Sioux Falls, Brookings, or Mitchell (130k, 16k, 14k people, respectively) will get you a much cheaper house, fairly cheap gas, and no state income tax. All three cities have colleges (SD State U is in Brookings, BTW), the schools are decent, there's no traffic, and Sioux Falls even has public transportation. The crime rate is very low, about 9 murders a year in a state of 780k.

Once the icecaps melt, your home will appreciate as millions of displaced Floridians and other southerners seek dry land. If the economy collapses, well, you're in a food-creating state awash in corn, wheat, soybeans, cows, pigs, and chickens. Not to mention plenty of hunting and fishing opportunities.

You'd also be close to Canada, should political situations make that aattractive.

Does it get cold here in the Upper Midwest? Yeah, it does. How much does that matter? Not a whole lot. My house has a thermostat. Right now it's 69º inside and 35º outside. The only time I have to deal with the wind and cold is moving from the car to work or the store.

A century ago it mattered, back when you had to try to find firewood in the middle of the prairie. Now, not so much.

It also gets hot here, but it is fairly dry, a huge boon to the sweaty South.

[lovuian]

46. This is the first gasps of the Depression coming up

Republicans Coolidge Bush and Hoover Bush just put us in one with their policies...

[humbled_opinion]

50. Why isn't this in the Main Stream Media NOW!!

Look the bottom line is as things fall apart economically in Bush's squirlly economy doomed to failure based on a war of lies.... We cannot let it appear that the Democrats taking control of the Congress has anything to do with it.

[CarlWoodward]

74. "Why isn't this in the Main Stream Media NOW!!"

"Why isn't this in the Main Stream Media NOW!!"

This issue has been all over the mainstream media for months now. I know its fun to rant about the MSM at every opportunity, but I've seen countless newspaper and wire service stories about underwater mortages all year.

[goforit]

57. This is so sad.

[splat@14]

59. If possible; get your nest egg money into Euros or Gold, get rid of debt

especially that with a variable rate.

When China, and others that have been supporting the US trade deficit, want to change the basis of their holdings (i.e.$$ to Yen, whatever), interest rates will soar.

I'm no ecomomist but I have been reading a bunch on the deficit and "a hard rain's gonna fall". Its not "if", its "when" IMHO.

[Phoebe Loosinhouse]

60. Do the words Resolution Trust Company mean anything to anyone here?

We've been down this road before and this is all highly predictable.

When the market began to hyper-inflate - Alan Greenspan should have begun a slow, steady and deliberate increase of lending rates to tamp down this sector. He did not do that because real estate was the ONLY part of the economy applying CPR to rest of it. Inflated values were necessary to allow Mr. and Mrs. Joe Shit to draw on equity lines to spend money they did not really have to buy media rooms, Hummers, granite countertops, artisan cheeses, Rolexes, Carnival Cruises, underground sprinkler systems, and any manner of other crap they believe they absolutely must have NOW and must mortgage their future to.

[Emillereid]

62. Not that I wish any harm to home buyers - but I am happy we unloaded our

over-priced house last Spring. I just felt in my bones that home prices had over-reached the fundamentals by a wide margin. When people can't afford to get into starter homes -- you know home prices have got to fall.

Not only did we cash out handsomely, but we also got my husand 25 miles closer to work, now rent in an area where I can walk or take the bus most everywhere which improves our carbon imprint significanly.

[bleedingheart]

68. this is exactly why I really don't want to buy another home

even though my husband fell in love with an old victorian...

I just think it is a bad bad time to move...

[The Count]

69. NOW it can be told - wait for all bad news they sat on to come out

All that peachy economy was held with band-aids of propaganda and counterfit measurements

[Tatiana]

76. So glad I refinanced when interest rates were low.

I don't know when, but this housing bubble is definitely going to burst. They built two new McMansion-filled subdivisions down the road from where I live a couple of years ago. Residents in one of the subdivisions are suing the developers and contractors due to a mold problem. The smallest 2-bedroom "starter" home in that area went for $365,000 two years ago. I notice the larger, 3 br. homes are now being listed at $350,000.

Everyone in my area cheered when the subdivisions were being built, thinking our property values would go up. And, indeed, we've all been reassessed and received higher property tax bills. Sometimes I wonder how some of those young people can afford those homes and how did they get the money for down payments? Do we really have that many rich people in town? I doubt it. I bet a good number of those young people signed contracts for ARM's and I wonder what will happen when the mortgage company jacks up the rate.

[ItNerd4life]

77. Time is Money, friend.

Anybody recognize where this saying is from? :)

However, it's true. The market is down and heading down, but it eventually will pick back up. You just have to make sure when you handle your finances that you plan for these ups and downs.

[Anakin Skywalker]

88. Yah Hah Hah! Thank You for voting Rethuglicans!

[earth mom]

93. 9 years ago, Dh and I moved away from So Cal because we couldn't afford a home...

(among other reasons). We knew that houses were cheaper up here in the Pacific Northwest, but we couldn't buy right away and so for the first couple of years, instead of buying, we watched the coolest houses selling for half the price we'd seen down South! A true buyers market to be sure! However, fate stepped in and we were able to buy a fixer upper in 2000. Soon after, the market soared and many self centered yuppie types driving brand new SUVs came up here mainly from California with fistfuls of cash to buy the ugly McMansions being built just for them. Ugh. The yuppie way of life has changed this quiet and laid back area NOT for the better and so yeah, I wouldn't mind seeing the high end market crash up here. If for no other reason than that those gawd awful wasteful monstrosities stop getting built and those self centered superficial people go elsewhere!

But as they say, be careful what you wish for because that attitude only serves to bite the rest of us average joes in the butt. Like those of us who live in more modest homes; some of whom took advantage of newfound equity to make home improvements. Hubby and I were cautious and decided to wait on the improvements we need to do, but right now there are 2 or 3 home improvement projects on our street alone. The very last thing I want to see is for the middle class and working class and poor be hurt any more than it already has been so I'm keeping my fingers crossed that the crash won't happen!

[nosillies]

95. It amazes me at how many seem to be gleeful over others' financial hardships

My husband and I have to move often because of his work. So no, we're not idiots because we bought when prices were high and interest rates low -- that's just the timing when his last transfer occurred.

When we enter a new market, we do compare the cost of renting to the cost of owning. So far, owning has always been cheaper for us.

We don't get stupid mortgages. We put at least 20% down, and we currently have a fixed-rate mortgage. And we refused to allow the lender to consider my income when applying for the loan.

No, we don't try to live beyond our means. Yes, we want a nice place in a safe neighborhood. Sorry, I'm not willing to sacrifice my safety or the safety of my children to save some money. And as we move often, we always have to consider resaleability. But by no means do we think we need a McMansion -- our home is lovely but modest.

Uninformed flippers and speculators, plus greedy developers, have absolutely ruined the housing market in our area. In addition, our property taxes were raised this year by $3000 (and will probably raise even more, thanks to a couple of idiotic constitutional amendments passed in FL's election), and our insurance has been increased by 150% for no reason. Therefore, our mortgage payments have gone up greatly due to unforeseen cirumstances.

So no matter we've done right, we still could be only a medical incident or car wreck or whatever away from losing our home.

We'd love to move somewhere else to escape these issues, but in this market, we're stuck. We probably can't sell without losing money. And we're just not wealthy enough to lose any of our 20% down. My husband has lost the ability to move up in his career because we can't move to a new area.

So why be happy at our misfortune? It's not like everybody out there made bad choices -- some are victims of circumstance. I'm sure there are millions of families like mine, who did everything right and are still scared shitless with few options.

I'm hoping that all of those here who are gloating over regular people losing their shelter and investments are just having knee-jerk reactions.