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Tuesday, July 7, 2009
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111 comments:
And we closed. SFH in FX 340K. 20k from me, about 20K from seller. 25k UNDER 2009 asessment. 2.1X annual salary. Thanks for all the help.
Sweet!!!! Congratulations!!!
Great, JOhn! Sounds like a pretty good deal!
As for me-- I'm headed back to Europe in a little over a week, so I won't be buying this summer after all.
Just after I bought my ticket the one apartment I was seriously interested in came back on the market- although it's still not showing up on Zip Realty. But hopefully the market will be at least as good or better when I come back next winter.
Congrats John!
I on the other hand went the other direction today. I bailed on my short sale contract. It was taking forever it did not really appear like it was going anywhere and I think we decided that we wanted a nicer place to some extent. The short sale was ~1.9X our income the places we really like are ~2.8X our income. So I think we decided rather than buy now we will wait until after our wedding next summer and start looking. That way we will have saved another ~50K and will be more comfortable with homes in this price range.
I guess now I am in the camp most of you are in about hoping prices fall, although we definitely are not planning on it.
housebuyer,
Wow, that is news. I don't think you'll regret it. 2.8x income is still totally reasonable, and you'll be happier in it for longer. The likelihood that house price increases in the interim wipe out the advantage of another 50k saved up seems remote. To say the least. I'm assuming house price increases won't wipe out 20k more in savings.
And in a constant churning of who's actively looking, we may put in an offer after i get back from a conference next week. We shall see.
Cara-
Well goodluck if you put in an offer.
Yeah in reality I am not worried about the price going up. The places we want are right on the orange line around Dunn Loring or McLean and they really haven't fallen much ~10-15% tops. It is possible that mortgage rates rise enough that our monthly payments do not go down, but that wouldn't be a big deal.
I think we will both be happier not needing to worry about buying a new place, doing the necessary repairs, while buying furniture and paying for a wedding. It just sounded like we would have 0 cash leftover for the next year. Thus the decision to wait.
Has anyone heard of Irwin Union Bank? Now that we decided to wait a while longer I decided I need to find a better place to keep my cash. So I was looking for CD rates and saw this add below. A 2% rate plus a free 22 inch TV.
https://www.irwinunion.com/iub/summer_promo/rates/personal.jsp?_requestid=9062
housebuyer-- I second Cara's opinion that you've made a good decision. For the bank information I always check bankrate.com. They also give you safety ratings, though those don't always keep up with the fast-moving reality. (I had a CD for several years in Corus bank, which paid some of the highest rates available. I only knew from comments on Calculated Risk that the bank was in trouble. It didn't show a really low rating until it received the FDIC warning.)
I'd rather put my money in the best run banks, so I've got a bunch sitting in a Burke and Herbert CD paying next to nothing-- but there's no need to worry as long as it's FDIC covered. A word of warning, though-- make sure it IS! PNC tried to steer me into their investment arm for a higher rate recently. I wasn't suspicious because I know their money markets are still covered by FDIC. Still, when I talked to the woman I immediately asked if this 'instrument' was covered by the FDIC. She admitted that it wasn't -- and then tried to tell me that the insurance it was covered by was safer than the FDIC! My Mom said, "You should have said, "Oh, like AIG?"
Anyway, I was pretty shocked by the resurfacing of that old Savings and Loans scandal trick of trying to get me into me to move my money into a totally exposed investment. Be careful out there!
Sarah-
Thanks for the warnings. Bankrate gives them a very bad rating. It is FDIC insured, but if they fail I am sure dealing with the FDIC can be a huge hassle. Plus I am pretty sure only your deposit is insured not the interest on the CD. I will probably just use BofA. That is where my checking account is so it will be a lot easier than moving the money to a different bank.
Housebuyer-- Yes, it's mainly the hassle factor that keeps me from moving my money around more. I'm told by people whose banks have come under FDIC control recently that it's actually pretty invisible to the customer-- no problem withdrawing money-- and they even got paid their interest.
Way to go, JOhn, I hope all house hunters here have an equally happy ending to their searches!
Congrats JOhn.
Catching up with yesterday . . . a few of you were talking about how much to penalize those who foreclose for strategic reasons. There was a lot of discussion about morality and violating contract norms etc.
I would argue that is an outdated view and has probably never been the rule of law. Maybe I am too influenced by law and economics types, but I think the current mindset is to encourage efficient breach of contracts. You have a clear remedy for these contracts (the foreclosure process) and I think most of us can agree that having someone pay a $500k mortgage on a $250k home is a waste of resources. Plus having them foreclose almost certainly speeds up the housing bottom process.
Here is a short blurb on efficient breach:
Wikipedia entry on Efficient Breach
housebuyer,
Dealing with the FDIC is not a problem. Last year one bank I had money in went under and I kept all my money and earned interest. And interest continued to be accrued. It's pretty painless.
That being said, unless you really want the HDTV or the camcorder I would guess this is not worth it because you can find 2% money market accounts right now. Actually, one place I use has a three month promo rate higher than that.
Last December around Christmas one of my banks sent me a Tiffany box with glassware. I didn't ask for it -- I think they just gave it to all account holders (maybe all above a certain amount in savings?) I guess banks are going back to gifts in the low interest rate environment.
However, I do encourage trying to find the most stable bank for the account you'll have your direct deposit put in, used for checking, ATM, etc as it could be a pain to have some uncertainty around that.
Luckily years ago I switched from Chevy Chase to another bank so I've had the same one most of this decade. I never would have guessed Chevy Chase to be unstable.
Cara said: "2.8x income is still totally reasonable"
I have never heard of this salary multiplier calculation before and I am curious to learn more. My husband and I are in the market for a new house in the next year or so, but we've been using "30% of monthly income" to calculate the payment we can afford.
What is the "reasonable" range for this salary multiplier? In other words, what is the upper limit?
Thanks for any additional info.
TBW: when I got married two years ago and we merged our accounts, I purposely stayed away from Chevy Chase due to their poor rating on BankRate.com. I've been using United Bank for my checking, direct deposits, etc.
tbw said: "I think most of us can agree that having someone pay a $500k mortgage on a $250k home is a waste of resources."
I'd agree if it weren't for the pesky fact that a bank had already paid $500k to the buyer to allow them to make the purchase. It all depends on whose vantage point you are looking from. From the vantage point of the bank who already paid out $500k in real cash it's not a waste of resources at all to have their cash returned to them.
And to be frank, when i read your comment my initial reaction was "WTF is the country coming to when so many people think repaying a debt is a waste of money." That comment is basically saying "paying for our consumption is a waste and we shouldn't have to do it."
If having to repay a debt is a waste of money, don't take on the debt in the first place.
Julie: traditionally it was 28% of monthly income, and no more than 36% total debt (mortgage, prop tax, car loan, HOA fees, etc).
Even then, I've lived with a 28% load, and unless you are young and without kids, I don't recommend it.
U.S. Home Prices to Fall Through 2011’s First Quarter, PMI Says
July 7 (Bloomberg) -- Home prices may fall in more than half of the largest U.S. cities through the first quarter of 2011 as unemployment and foreclosures rise, mortgage insurer PMI Group Inc. said.
Thirty of the 50 biggest metropolitan areas have at least a 75 percent chance of lower prices through March 31, 2011, Walnut Creek, California-based PMI said in a report today. The decline is likely to spread to “all regions of the nation” from California, Florida, Nevada and Arizona, the states most affected by the housing slump, PMI said.
. . . .
The 15 areas with the highest probability of lower prices in 2011 each have a 99 percent chance, PMI said. They include Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa and Jacksonville in Florida; Riverside, Los Angeles, Santa Ana, Sacramento and San Diego in California; Las Vegas; Phoenix; Providence, Rhode Island; and Detroit.
Edison and Newark in New Jersey have a 97 percent and 96 percent chance, respectively, and Nassau, New York, has a 92 percent chance. New York City showed an 88 percent chance of lower prices, according to PMI.
“The New York area has gone from a moderate level to an elevated level because of the big hit from the financial crisis,” Henry said.
Washington showed a 92 percent chance of lower prices
tbw,
Interesting that you were able to detect a problem with Chevy Chase back close to 2000. I'm glad I held my preferred until the buy-out. I have had accounts there since 1981.
RE: Underwater foreclosures.
I don't know if everyone here realizes that all judgments are liens on your real estate (credit card, hospital, second, third mortage, etc.). You can look at the first mortgage (or, even, second and third) and have no idea of the debt attached to this property (don't forget the IRS).
So, what appears to be equity is not always the case. Some can't sell without bringing cash to the table (which they don't have).
Reason #2 that people with actual equity get foreclosed upon - "head in the sand". Unable, unwilling to deal with the situation.
Yes, if there is money left over after the foreclosure, it goes to the former owner.
Thanks NoVAwatcher. We are a young, growing family and we're not stuck on finding a mortgage that IS 30% of our monthly income. We'd like not to exceed 30% of monthly income.
Actually, I like the houses in our "2.8x salary" range much better :)
Such is life.
For the record I did not mean to imply I saw any problems with Chevy Chase Bank. I just changed banks earlier this decade because at the time there were no CC ATMs where I was living but plenty of another bank. So I meant I just lucked out.
John Fontain,
The bank has the home as collateral for the loan! So I shed few tears for banks who did not do their due diligence in really thinking about how much the homes were worth.
If you had a friend or relative asking you to borrow $20k in 1998 and they said if they defaulted you could have their Beanie Baby collection then worth $20k wouldn't you think about the likelihood it would still be worth $20k in the future if they defaulted?
I think the banks had the resources to realize a $500k Woodbridge home was $250k a few years back and that rents and incomes had not doubled in the interim and that the $500k value was ephemeral.
John Fontain,
Also, there is a consequence to these foreclosures. A massive penalty to their credit record. That is a good deterrent.
Assume someone bought at age 30 in 2005. Now in 2009 they are 34 and foreclosing. From what I can tell a foreclosure stays on the credit report for seven years. So from age 34 to 41 (2009 to 2016) they are either paying massively higher interest rates or not being approved for a mortgage loan. In 2017 at age 42, assuming they have kept their credit otherwise intact, they can buy at a prime rate and/or even get qualified. They now have less than 30 years before likely retirement so will likely work longer than someone who bought at 30. Also, even a housing bear like me thinks homes in 2017 will cost more than in 2009.
That sounds like a good punishment to me for for foolish behavior. I don't see that as them getting off free and clear.
They *are* better off though then if they continued to pay off the $500k home assuming by 2017 it's still worth less than $500k.
Assuming 3% annual growth from 2009 to 2017, that $250k home would be about $316k in 2017 so they are better off not being saddled with the silly 2005 price.
TBW-
You are probably right that either they did no or should have known that houses had gone up to quickly.
But that leaves them with two problems to determine. First, they would need to realize that housing prices would plummet. Historically this hadn't happened. They probably thought prices would fall a little, but more likely that inflation would just slowly bring them back to reality over 15 years similar to how many previous bubbles ended.
They also would have needed to end their business model. They could possibly require 20% down, but if they forced everyone to have 50% down payments to protect against this crash they would have gotten virtually no customers.
Julie, those two measurements are somewhat interchangeable. For instance, if you're income is $120,000/yr and you buy a house that's 3X your income, then you're monthly payment is going to be some percentage of your monthly income. Assuming 10% down and 5% 30 year mortgage this will be 22%. That said, the monthly income percentage is a little more precise because it accounts for variables such as down payment and interest rate, which the more blunt 2.8X income does not.
TBW-
I agree they are definitely better of financially to walk away. They just need to decide if they are ethically ok with that and if they want to rent for the next 7ish years. In your example you have them buying for 316K in 2017. At this point their mortgage will probably be in this range since they have been paying it for 12 years, but obviously they could have been saving money if they rented instead of owned.
So as I said if they are ethically ok with it and don't mind renting that long than they should wait. If they do have issues with either of those they should just work on continuing to make their payments and keep on working hard so hopefully they can get a couple of raises and the payments become more manageable.
housebuyer,
I think 20% down payment would have been the prudent move but also perhaps avoiding bubble markets. That would harm a regional bank but a national bank could have avoided DC, Phoenix, Vegas, and Miami (and other bubble markets) and still have had a large mortgage business consisting of the remaining cities. True most metro areas were bubbly but there were plenty of non-bubble markets.
Also, just think of the immediate market correction that would have occurred if even two national banks were on record viewing DC as an unstable market and they were no longer lending there without massive down payments.
Shamrock & Julie-
You are correct that monthly income is what really matters as to whether you can make the payments. I only use an income multiplier, because it is easier to do in my head and I don't need to figure out what the current interest rates are.
housebuyer,
In your example you have them buying for 316K in 2017. At this point their mortgage will probably be in this range since they have been paying it for 12 years, but obviously they could have been saving money if they rented instead of owned.
I don't follow. Why would a $500k mortgage monthly payment after 12 years be the same as a monthly payment for a $316k mortgage monthly payment?
If they do have issues with either of those they should just work on continuing to make their payments and keep on working hard so hopefully they can get a couple of raises and the payments become more manageable.
Or they foreclose, rent (almost certainly) in a closer-in area than Woodbridge, and then with those raises in the interim buy in Burke and be Cara's neighbor instead of living in Woodbridge which they honestly never wanted to do anyway but with 2005 prices they had to settle for that because how could they afford an $800k home in Fairfax County?
TBW-
That would have been prudent financially. Although they probably would have gotten massive amounts of heat from the government, which is always risky for banks.
I think another problem is that they ended up selling most of these loans anyways so as long as they could find a buyer they figured why not make stupid loans.
I guess the most obvious thing they should have done is at least make people have some downpayment and show their stated income. Just those two obvious practices explain why companies like JPM are still doing well and now own failed companies like WaMu
John Fontain--
I take the Tanta perspective on this. Would you feel really REALLY sorry for an individual who lent $500,000 to a stranger based on a good credit score and their statement that they earned enough to pay it back-- and then lost their money when the person defaulted? No? Then why in the world would you feel sorry for a bank?
Not only are the banks the professionals who manage our money and are supposed to know better, but they went far beyond just taking people's word for it. They actively told people that they could afford more than any reasonable person would have believed and sold them on taking the loans. If my brother-in-law were less savvy he and my sister would be stuck with one of these behemoths now, instead of 'just' a house underwater by $70 or $80,000.
Yes, I know, the banks didn't actually do this-- they just turned over all their responsibility to mortgage brokers with big incentives to get people into the nuttiest loans possible and gave them a wink and nod. And then they passed on the garbage to unsuspecting communities around the world.
But bring it back to the individual level again-- would you feel any differently about the individual who didn't lend out the money himself but handed another stranger a couple hundred bucks to find someone who would take the loan? Or thought they didn't have to worry because yet another stranger had agreed (with conditions) to buy the loan from them?
I might get around to worrying about the individual defaulters in this case-- once I'm assured that there are now effective rules in place so that the banks, rating agencies, and as yet unregulated shadow financial industries can't pull this same trick all over again as soon as we've begun to climb out of the hole.
housebuyer,
Side note -- I would agree with the stigma of renting if they could not rent SFH but had to get an apartment. But there are SFH that can be rented. They might not even need to tell anyone nor might anyone ask.
I rent an apartment in DC and I can't even count the number of times people are shocked to hear that I rent and am not in a condo. My building even has a sign outside that says apartments in the name so I'm not sure why it surprises people or they thought it was a condo.
TBW-
Sorry I didn't meant to say that a 500K mortgage payment was the same as a 316K mortgage. What I meant to say was after 12 years the amount of principle they would owe the bank would be somewhere in the mid 300s, because they had paid for 12 years.
The payments would not be similar even though the debts are similar, because in one case the debt has an 18 year period and in the other it would likely be a 30 year mortgage.
I agree that financially they are better foreclosing, I was trying to say if they didn't want to do this because they were ethically against it hopefully a couple of raises could make the payments easier
Today, TBW said about John's purchase...
Congrats JOhn.
Yesterday he said,
Anyways, I presume these three well to do, educated women -- all of whom have money and can expect to continue to do well having access to a president -- are showing they are not fools who want to buy in this market.
So, lets ask him to reconcile this.
Is John a fool or not a fool?
BTW, my opinion is that John made a great decision.
TBW- I see you beat me to it with the individual example.
Tanta used to say that the main reason not to try and punish individuals for default is that we've always had bankruptcy laws instead of debtors prisons in this country. The idea being that this wouldn't be much of a land of opportunity if you couldn't get a fresh start.
Robert-- in my opinion that's very easy to reconcile. The three women are in jobs which may or may not end in 3 years. JOhn, I'm sure, intends to stay in his place at least 5. It would indeed be foolish to buy now in the expectation that you would be able to break even in 3 years.
Robert,
I think JOhn was following our advice and not yours. If he followed your advice he would not have bid $25k under 2009 assessment on a home in the below $400k market. According to you below assessment homes are not available in the sub-$400k market because it's allegedly "so hot."
As for the three women I noted, they are obviously people who would look in the closer-in and above $400k market. I thought even you admitted there is still correction to be had in those markets.
I also suspect JOhn's home (given the price) is in a portion of Fairfax County (likely western or southeastern) that is already at 2003 prices. By lopping off that additional $25k (7% below 2009 assessment) he probably got it down to around 2002 prices. As there were income and rent increases this decade I'm not expecting prices to go back down to 2000 or 1998 levels so his prices is probably near the bottom.
I've always said I think there are *some* homes out there that are at or near the bottom (primarily in the exurbs). I just don't believe that North Arlington, Oakton, McLean, nice parts of DC, etc are at or near the bottom.
Sarah, good for you for being cautious. The same thing re: non-FDIC insurance happened to my dad several months ago - an non-bank told him that FDIC would take months to pay out his insured savings if his bank went under. I ran the situation past a friend who works for FDIC and she said that was patently false and suggested that people go to FDIC.gov to check out any allegations of that type and get other info before moving investments. My dad did this and enjoyed confronting the sales agent who quickly backpedaled.
Robert,
I wondered the other day if this had anything to do with your disappearance...
WASHINGTON (Dow Jones)--The U.S. Department of Justice has joined a whistle-blower lawsuit in Mississippi alleging that Science Applications International Corp. (SAI) and others improperly colluded with government officials to obtain a technology contract worth up to $3.2 billion.
The department, in a court filing that has been unsealed in a Mississippi federal court, said SAIC and an outside partner conspired with two government officials involved in the contracting process to taint the proceedings in SAIC's favor.
The contract, awarded in 2004, was related to a computer center at the Stennis Space Center in Hancock County, Miss.
SAIC article
julie: it wasn't that long ago that lenders wouldn't even allow a DTI of > 28%. In 2002 I got a 30-yr fixed rate mortgage from Wells-Fargo (20% down, near-perfect credit), and the most they allowed me was 28% (actually, I think it came out to 29%, but close enough).
"WASHINGTON (Dow Jones)--The U.S. Department of Justice has joined a whistle-blower lawsuit in Mississippi alleging that Science Applications International Corp. (SAI) and others improperly colluded with government officials to obtain a technology contract worth up to $3.2 billion. "
Corruption among the beltway bandits? I am SHOCKED to learn of this.
Next someone will tell us that they overcharge for what provide...
"So, lets ask him to reconcile this.
Is John a fool or not a fool?"
If there was any doubt Robert is a troll...
I want to thank everyone for continuing the conversation from yesterday about walkaways. I have taken everything to heart.
Another concern I had is that just hanging on, scraping together the monthly payment (which has drained their savings and their retirement accounts already, as well as borrowing from family), just puts off the inevitable. Right now, their resets are benefitting from low interest rates. But according to their contract, they could be charged as much as 12% interest. And they are paying less than $100/month towards principal right now, because it was an interest-only loan the first three years.
So what if he doesn't earn much more money in the coming years? What about their expenses growing as their family grows? Won't they most likely find themselves unable to keep up with payments in the near future, well before they could even hope for appreciation to bring back their house's value?
Then what? Wouldn't it be better for them to be proactive now, in some way, shape, or form?
Julie-
As a quick question are you using your pretax or post tax income. The 28% DTI people are talking about it post tax.
Does anyone know why they use your gross income. They really should use your net income, seeing that people are unlikely to change 401K contributions and your taxes will not change that much ...
Tabitha-
I didn't realize that they have already drained all of their savings and borrowed from the family. If that is the case you are probably right and they should be proactive. That clearly means that they can not live their lifestyle. So either they need to leave the house or significantly cut other parts of their budget. Likely the house needs to go.
I had originally thought they were struggling, but could make the payments with their current income. If it killed their savings I think they need to leave. Borrowing from the family is not sustainable for years and years.
Most definitely using post-tax income numbers. I, too, have always been bothered by the gross income calculations.
What is REAL is what is in my bank account each month, and THAT determines what we can afford.
I found the salary multiplier an interesting angle only because my husband and I have fundamentally different opinions on what we can "afford". The "2.8X salary is reasonable" comment swings the argument in my favor.
But, as always, and as this discussion has proven, he is right.
As far as I know, 28/36 was always based on GROSS. It's nice to see the younger generation being soooo financially conservative, but let's not go overboard.
housebuyer,
Does anyone know why they use your gross income. They really should use your net income, seeing that people are unlikely to change 401K contributions and your taxes will not change that much ...
I had not really thought about the effect of federal income taxes on what you can afford. As most of us know, we used to have some really high federal income tax rates before Reagan slashed them in the 1986 Tax Reform Act. Even with the HW Bush and Clinton tax increases over 1986 levels they were much lower than pre-1986 levels (and then GW Bush made them even lower earlier this decade.)
Tax Brackets 1950, 60, 70, and 80
Obviously you would have to adjust for inflation but I think it's got to be clear that a middle of the road income in 1960 or 1970 was paying a much higher federal income tax. So that would point to more affordability.
On the other hand, I believe there always was the mortgage interest deduction, so with ridiculous federal tax rates comes more of a return from that deduction.
So maybe 28% DTI was too low after 1986. Of course, this does not explain the 2001-2006 boom because Bush only tinkered with the rates.
I don't even understand how we ever had top marginal rates in the 90s (let alone the 70s). How much was CA or NY state tax in those days? I guess people had to be paid creatively to get any modest amount of income once you hit the top brackets.
Sarah & TBW,
Very Bill Clitonesque. Really threading the needle. Yes, for 5 years, No for 3. Give me a break. I guess it depends on what the definition of "is" is? As Bill would say.
VA_Investor is correct. It is based on gross income, not after tax income. Here is a good article discussing all the old rules:
Old Mortgage Rules
I've always found the 28/36 rule weird. I have paid off my student loans, pay my credit card in full every month, and fully own my car. So I have no additional debt. Why should I have a 28% limit while someone with credit card debt, auto loans, and/or student loans also has a 28% limit? I think there should be one debt limit (36%) and the amount you can use for a mortgage should be reduced by how much other debt you have.
Mortgage debt has a lower interest rate than credit card debt and auto debt. Results probably vary on the student vs mortgage debt. Also, in the olden days I believe you could deduct all debt whereas now it's only mortgage debt. So it's more responsible to have 36% mortgage debt than 28% mortgage debt and 8% auto loans and credit card debt.
Also credit card debt is so excessive. I think 20 or 25 years ago the credit card interest rates were not as ridiculous as they are now because state usury laws still applied. So really it's just a bad idea period to have credit card debt.
TBW,
The SAIC stock price didn't budge when that news came out. Why?
SAIC, a firm based in San Diego and McLean with annual revenue of more than $10 billion, denied the allegations and said it would vigorously defend itself in court.
"We have thoroughly examined the Government's claims and found the allegations to be without merit," Laura Luke, a company vice president, wrote in an e-mail. "The Government has been reviewing this matter for three years and has failed to identify any information provided to SAIC that was not available to other bidders or that could have provided SAIC with an unfair competitive advantage in the procurement process."
Robert,
You said:
Very Bill Clitonesque. Really threading the needle. Yes, for 5 years, No for 3. Give me a break. I guess it depends on what the definition of "is" is? As Bill would say.
Actually, I didn't make that distinction. Sarah did. I gave you other reasons (like that they would look in high end, close-in markets like Georgetown). That being said I'll say that I think it's universally accepted that you should plan on spending at least five years in the home if you are buying. I don't think anyone (anymore) would disagree that three years is risky.
Robert -- the main point was that Valerie Jarrett was born rich and stayed rich. She had a quote in a profile where she said she was wondering where her personal shopper would buy clothes in the DC area. This is a rich woman. And she's renting in Georgetown. Unlike what all the realtors said she would do which is buy right away. And if someone like her (and the others) is renting, it shows you are not some poor loser if you are renting.
Robert,
Wow. Now you are flat out lying. People can google SAI and see the stock going down after it was announced.
http://www.google.com/finance?client=ob&q=NYSE:SAI (click 5d view).
This scandal was announced July 2. Look at the nose dive that happens that day. Look also at how the stock has continued to go down on July 6 and today.
I'm not making any future predictions about the stock but this news certainly had a negative effect on the stock over the past few days.
Robert, I think the distinction was more the price range. As in it would be foolish to buy a 400k+ place right now, but it is possible to get a decent value below that price point. Those in 400k+ homes have been able to avoid foreclosure more successfully than their lower income peers via greater savings to draw upon, and thus the housing correction is taking longer to show up in this price bracket. Not to mention that people generally move UP the housing ladder, so now there are no new buyers with equity from the lower bracket waiting to move up. The lower bracket is hit first, upper brackets will be hit next.
Julie-
Although some people here said 30% is pretty high they were talking about your gross income. So if you are talking about your net income I think most people hear would say that is fairly conservative.
Although I wouldn't try and push your husband to buy more than he thinks he can afford. People can get really stressed about money and peace of mind is worth a lot. If you are right and you can afford more you will be able to save money faster and should be able to a larger house in the near future.
SAIC dropped 1% the day after the story. I said "didn't budge". Okay, it budged 1%. I stand corrected.
Robert-
I think TBW is saying it dropped the day of the story. If you look at its movement from 1:15-1:45 on July second. It fell about 3% on very high volume. This is obviously a reaction to the story.
So it definitely moved because of the story. You both can decide whether the movement is significant or not, but you will be hard pressed to try and say the movement doesn't exist at all.
I think the owning for 3 yrs vs 5 yrs distinction is a real one because if you look at amortization tables, after 5 years you've paid of a decent chuck of the principal whereas after 3 you really haven't paid off any, and you have a much better chance of having saved by avoiding rent increases and having that pay for the transaction costs of buying and selling.
Okay, if it's July 2, then SAIC hit a high of 18.39, and did drop into the 17's, but closed at $18.23. That's less than 1%. Yes, there was a knee jerk reaction right after the news broke - traders - but buyers quickly stepped up realizing the news wasn't substantial.
Jeremy, I agree with most of what you said. And you're right about the move up buyers, they are starting to materialize as is evident in the $500k-$700k range. (As has been posted on this board.) If I were a seller in the $700k range, I would not cut my price. I think that is what you are seeing in the $700k+ range. Stubborn sellers. They know the wave is building underneath and they're going to hold out.
Robert,
Let's review what happened.
I made a joke that your absence from the blog was related to the potential SAIC scandal. You responded by saying the stock did not budge (not sure how that related to my joke but whatever). I pointed out that was a lie and that the stock did budge in response to that news. housebuyer confirmed it did budge. You are now trying to dispute whether the 3% drop offset by later increases to a 1% drop is a budge.
I think what happened is you shot from the hip and didn't look at whether the stock has moved the past few days.
Robert,
I think that is what you are seeing in the $700k+ range. Stubborn sellers. They know the wave is building underneath and they're going to hold out.
So the $400k home owner (who bought five years ago at $500k) is going to sell at a loss and buy a $700k home? I'm not sure I follow your logic.
TBW: state usury laws are why the credit card companies went to Delaware and North [?] Dakota.
As for 28/36% and auto vs. car loans, well, car loans are paid off sooner.
Fine. I shot from the hip. I did NOT look at the stock price ALL DAY. I did look at the close.
3%, 1%. Jeez!
Let's move on to something else.
julie,
the currnet gross icome multiplier is about 3x gross, but as people have said that's stretching it in terms of your housing allocation. Personally I'm aiming for the mortgage itself to be within 3x my income, which would make it possible but not comfortable to manage if one of us was without a job for a while.
good calculators are available at the washington post, and the NY Times. google: buy versus rent. In the WaPo calculator your husband could just input the amount he wants to go towards savings every month as one of the "debts".
Tabitha,
oh, sugar, that's different. Yeah, if they aren't making an progress on the principle then they are just postponing the inevitable. Getting out from under sooner rather than later with fewer debts to family members is best.
TBW,
Wow, did you go to GMU for law or econ? Efficient default, that is so GMU.
And I don't see why you're heckling Robert, he was gone for a week right after you said you couldn't take his comments on the blog anymore for personally reasons, and now he comes back and you're taunting him?
Besides the CRE data that CR has been posting is way more relevant for debunking his "investors buying in DC" meme.
TBW,
Wow, did you go to GMU for law or econ? Efficient default, that is so GMU.
And I don't see why you're heckling Robert, he was gone for a week right after you said you couldn't take his comments on the blog anymore for personally reasons, and now he comes back and you're taunting him?
Fair. I should not be falling back into old habits with Robert.
I didn't go to GMU. I'd imagine most law schools cover efficient breach in a basic contracts course but maybe not.
So the $400k home owner (who bought five years ago at $500k) is going to sell at a loss and buy a $700k home? I'm not sure I follow your logic.
Why don't you give me an honest answer and tell me if your brother, mother, or sister was trying to sell a home at exactly $700k anywhere in Fairfax County, what would you tell them.
Of course, you would tell them to wait, because you know that the market is starting to bubble up.
No, that $400k homeowner you refer to WILL NOT move up. He will have to wait.
I think you underestimate the universal human condition that people want to live in nicer houses in nicer neighborhoods. They're out there TBW. Go knock on the doors in any townhouse subdivision and 3 out of 4 want a SFH.
This is stupid, but I read this book about a girl/woman growing up in China in the 1950's. Do you know what the family desired? Yes, a better government job so that they could get a nicer house and go to nicer schools. Universal!!!
Julie--
When I was getting ready to buy a place (condo) I tried to find as many different ways to calculate my how-much-can-I-afford amount, including the 28/36% method, when my bank was saying 40%, but the most direct one for my budgeting purposes was:
How much am I paying each month in rent? (At the time, about $800(!!!!))
How much am I saving per month that I intend to use for a house down payment and closing costs, which after closing I won't have to continue saving for? (At the time, about $2000 (!!!!)
That's $2800 outlay per month that I can afford.
Net of down payment and closing costs, get a house and mortgage where the payment plus yearly taxes/insurance divided by 12, plus any condo fees and expected special assessments, plus any utility bill increase or commuting cost increase or cleaning cost increase, minus the tax deduction on interest and prop taxes, is less than or equal to $2800.
($2800 was just about what my monthly net cost of ownership was for five years, EXCEPT for special assessments, which I paid out of other savings, knowing it was enhancing property values in our building even more than the middle of the boom was.)
Get a fixed loan on a place that won't REQUIRE any major redo (like roof, heating/cooling) for a few years and let your future pay raises (or current/future other savings) pay for such upkeep later on.
Then you should be fine, unless you lose the income.
Get an unexpected bonus or other windfall? This could go toward OPTIONAL redo: deck, bathroom, finished basement, etc.
And if you're old fashioned, in the first year or two spend vacation time and money on minor redos, like wall finishings, furnishings, linens, etc., instead of leaving the house behind to blow the money in some far off land.
I'm going to respond and then drop the topic because Cara pointed out I made a pledge to try to ignore you.
Why don't you give me an honest answer and tell me if your brother, mother, or sister was trying to sell a home at exactly $700k anywhere in Fairfax County, what would you tell them.
Told relatives (who were considering leaving the area) to sell years ago. They would have sold for six digits more than they could get this year.
I think you underestimate the universal human condition that people want to live in nicer houses in nicer neighborhoods. They're out there TBW. Go knock on the doors in any townhouse subdivision and 3 out of 4 want a SFH.
Hmmm, I don't recall denying that people want SFH. If anything, the bubble became obvious once I saw the prices on 1 BR condos because I knew few people want to own such a small home.
I will live in a nicer neighborhood and nicer home because I sat out the housing bubble. Those who bought pre-2003 will also get to move up or are in nice neighborhoods home sizes as well. Those who bought 2004-08 are screwed (some buying now in the higher end also screwed).
TBW, I know you are going to try to stab me on the 3 out of 4 TH owners. Fine, 1 out of 2, whatever. It's a lot.
Told relatives (who were considering leaving the area) to sell years ago. They would have sold for six digits more than they could get this year.
You didn't answer the question.
Maybe I am different then most of you hear, but I think people also need to have enough money for more furniture when they move. I know some of you are renting a place similar in size to where you want to move, but I would imagine more of you aren't. If you aren't you will need more stuff.
I know personally I am in a 800 sq. ft. apartment. When I buy a place It will probably be ~2000 sq. ft. and have two more bedrooms. I know that I will probably need an additional 10K just to get another couple of couches, chairs, beds...
Am I the only one in this situation? Or should everyone be counting these when they say I have saved for down payment, closing costs, and a couple of months of living expenses.
I will live in a nicer neighborhood and nicer home because I sat out the housing bubble. Those who bought pre-2003 will also get to move up or are in nice neighborhoods home sizes as well. Those who bought 2004-08 are screwed (some buying now in the higher end also screwed).
Okay. You got it half right. You didn't buy into the bubble. However, there's two parts to the equation and that is when you decide to buy. If you get that part wrong, then your whole thesis doesn't work.
Robert,
Would still encourage them to sell now. I expect the home to drop another $50-100k. But they are no longer thinking about leaving the area.
housebuyer,
most people are in your situation. So, do you want some extra chairs? Having combined the apartments of two 27 year old adults, and then having had my mom give me all the nice new furniture that she had bought for Ohio when she moved to MA (she had already furnished the MA house), I have enough furniture to fill a 3 bedroom SFH with both kitchen table space and a real dining room a family room plus a formal living room. All of this is currently either in our 2 bedroom apartment, or stored kindly in my friend's semi-basement.
But we will need new window treatments.
housebuyer,
I think that's common. I'll be buying a place larger than my current apartment. I also think I might upgrade some of the furniture I currently have as well.
I think pre-bubble people had money set aside for new furniture. During the bubble people forget to do it.
Furniture costs should be separate from your rainy day fund.
housebuyer,
I doubt I'd be spending 10K on furniture if I were a first time buyer. Not to repeat the "walking 2 miles to school" story...but there is nothing wrong with used/no furniture for awhile.
Robert said...
"Jeremy, I agree with most of what you said."
But then you went on to say things totally not in agreement with what I said.
"And you're right about the move up buyers, they are starting to materialize"
I implied the exact opposite. There are no more move up buyers for the future because they have all lost their shirts on their under 400k homes and have no equity to move up.
"If I were a seller in the $700k range, I would not cut my price."
Then you would not be able to sell your home for many years. The 700k range will be hit hard due to the poor economy and lack of demand from non-existent move up buyers.
"Stubborn sellers."
In this alone we are in agreement. Job losses and neighbor's comps should fix this soon enough.
VA-
Your right you can get stuff pretty cheap these days from places likes craigslist.
Knowing myself I would rather wait on my purchase a couple of months and have the extra money to buy nice stuff. If you get quality furniture it can last a very long time. I know my parents have almost all the same furniture they bought when they moved into their house in 1987.
Congrats, John! That's very cool :). 340 is around where we'd like to be when we eventually buy. DO you mind sharing the general area/bedrooms/sq footage? I'm just curious.
Tabitha,
IMHO, there is no moral dimension to your friends' choice. They have a legal relationship with the bank, governed by a contract. (And your friends really didn't have any say in the terms of the contract--drafted 100% by the bank.) If they don't or can't pay, the bank accepts the house as collateral.
If they were my friends, I think Plan A would be getting the bank to agree to a short sale *without recourse* (using comps from their neighborhood to negotiate the ss price). (Because in VA, the bank can go after them for the balance between what the house sells for in foreclosure and the mortgage note---I haven't heard this is happening but better safe than sorry later.) Then do their best to make the house look amazing while on the market while spending as little $$ as possible. There might be realtors who specialize in this??? They have to stop paying their mortgage, though, before the bank will even talk to them.
If they can't sell the house, then they could try to negotiate a deed in lieu of foreclosure *without recourse*---basically signing the house over to the bank. The bank gives up the ability to pursue them later for the balance but gets the house without all the hassle and expense of foreclosure proceedings.
If this didn't work, then straight-up foreclosure would be Plan C.
If they can get out of the house, they should be able to find a rental before their credit gets dinged. I'm sure they can rent something decent in Manassas for $1500-1600??.
Meshell-
You have a good comment about getting the banks to agree to the short sale and price. pre-approved short sales are selling pretty well. On the other hand for normal short sales you see a high percentage of them including the one I went under contract going back on the market
I've been reading some of the posts on this blog for a few months now, but is my first post. I'm wondering what some of your opinions are on my situation. My wife and I own a 2BR condo in Arlington, right by the Ballston Metro. In 2 or 3 years, we'll definitely want to move out of Arlington and get a 4BR SFH or TH in Fairfax County, preferably in the Vienna/Dunn Loring/Merrifield area. Taking money out of the equation, we'd probably prefer to stay here in Arlington for another year or two. But, if we think it makes better financial sense to move now instead of in a few years, we would definitely consider it. We don't really take advantage of living in Ballston like most other people probably do, I work around Dulles, she works around Merrifield.
It looks like the drop in value from the peak for 4BR homes in the Vienna area is definitely higher than the drop from peak of our condo and others in our area. Do you think that increases or decreases in value for 4BR houses in the Vienna area over the next few years will be about the same as increases or decreases in value for condos in Ballston?
Jeremy,
I implied the exact opposite. There are no more move up buyers for the future because they have all lost their shirts on their under 400k homes and have no equity to move up.
I'm sorry, I didn't know that EVERY HOMEOWNER bought their house in '05, '06, '07, and '08. I thought some people had bought before that. Sorry.
Then you would not be able to sell your home for many years. The 700k range will be hit hard due to the poor economy and lack of demand from non-existent move up buyers.
This is already happening. It's not conjecture on my part. As home prices move up in the under $400k market, new equity is being created for them to move-up. I'm not going to argue. It's showing up in the statistics.
Would still encourage them to sell now. I expect the home to drop another $50-100k. But they are no longer thinking about leaving the area.
I don't believe you.
I noticed nobody called the increase in the LTV for Obama's foreclosure plan from 105% to 125% as market manipulation.
Look back at my posts. I've clearly said that the government will continue these exact types of measures until the is some solid recovery in California housing.
I have no idea what the next plan/program will be, but I guarantee there is more coming down the pike.
Here's a bearish article, but in keeping with the opposite of TBW's tradition, I'll cherry pick the bullish quote:
"When it’s all said and done, there is still no place I would rather be than DC when engaged in commercial real estate," Ernie Jarvis, managing director of CBRE's Washington, DC office, tells GlobeSt.com.
Link
Brent,
Good question, but you probably would need a crystal ball to answer it.
If you can get a great deal in a SFH and a good price for your condo, you are in a very good position.
If I planned to move to an SFH in FX in a year or two; I may start seriously looking for a bargain. My reasons would be interest rates and the weakness in your desired market.
I am not in the camp that believes we will see substantial further declines. I'd be more interested in locking-in 30yr $$$ and planting myself in a house I plan to stay in for a looong time.
Brent,
When you say you don't take advantage of Ballston I assume you mean you don't do a lot on the Ballston-Rosslyn corridor? Does that also mean you two don't take the Orange Line into DC much?
What makes you want a home in Vienna or Merrifield? The wife's job? Can she drive to the Merrifield job?
Assuming you don't see yourself "playing" much (to use the urban planning lingo) in Ballston-Rosslyn or DC, what pay the huge premium to live on the Orange Line?
Could your wife maybe get a job in Fair Lakes or somewhere else further out? Since you work in Dulles and I'm guessing maybe do your socialization in the more suburban areas, sounds like the only thing tying you to the Orange Line is maybe her job.
If you live in western Fairfax County then you can always drive to the Orange Line on the weekends for Nationals games or going to the Mall or whatever (and park for free at the station).
Not really the answer you probably were looking for but I think unless your socialization is very Metro area heavy or your career path requires working in Arlington or DC it's nice to avoid that Metro premium. Plus as you probably know the Metro accessible areas gouge you and then if there's a good school district on top of that they really gouge you.
Was this posted before?
NEW YORK (Dow Jones)--It's the end of an era for California's home builders: The state's tax credit of up to $10,000 for new-home buyers is just about - if not all - spoken for.
The credit has driven home sales in recent months, and its depletion will leave builders back where they started: Trying to sell new homes in an uncertain environment where foreclosures pose stiff competition and low appraisals threaten deals.
To jump-start the ailing housing market, the state set aside $100 million for qualified buyers on or after March 1. With some able to combine the Golden State's bonus with a federal credit of up to $8,000 for first-time buyers, the response has been enormous. Some $94.7 million has been claimed via 9,848 applications, according to the most recent data from the state's Franchise Tax Board.
http://online.wsj.com/article/BT-CO-20090622-710095.html
It's funny. We follow the federal gov't so much here you can forget that state gov'ts (even CA sorta) can't use made up money so there are limits to these programs. I wonder if GA is going to run out soon.
If only 10,000 people get to use the state tax credit it sounds like that is going to be a paltry portion of the market of a state with such a large population. I wonder how many contracts are being backed out now that the state is not going to be able to give the credit.
If CA expands this credit then it will be hard to take it seriously that it's trying to avoid going bankrupt.
Brent..if it was me and I knew I wanted to be somewhere else within 2 or 3 years.I'd have that sucker on the market tomorrow. I'm not of the mindset that Arlington prices can or will hold forever so I'd leave now and get a pretty penny. Lord only knows how Metro is going to pay damages for 9 deaths and 70 injuries but I kinda think its going to be fare increases or parking fees or both. New computer systems will cost, too. Thats really touchy position because some think Arlington is bubble proof. It may be but they still have to compete with Fairfax and MC for new residents and they were in on the 90's bubble bump down...and the 70, 80's, too.
CA is so broke-I can't imagine how they could pay for the program in the first place. I know a mom on another message board who does home daycare for state-aid recipients and CA pays her directly. Last week instead of direct-depositing her pay, CA mailed her an IOU. She was pissed, understandably.
Cara - lol on the furniture. I was about to tell housebuyer that we furnished our townhouse for a total of about $500 through yard sales and other second hand gifts and purchases. And it was good, solid hardwood, too. I've still got some of the best pieces in storage. The only thing I'll probably get new this time when I buy is a decent mattress.
Robert- one of the ways I knew the bubble was real back in 2004 was the number of people who laughed (or more often sneered) at traditional advice, such as don't pay more than 2.5 (later 3) times income or don't buy unless you're reasonably sure you'll stay at least 5 years. This was and is solid advice that has been given to homebuyers since long-term mortgages first came into general use in the 30's. The only way it can 'make sense' to do otherwise is if you've convinced yourself-- as people did-- that 'housing always goes up' and 'you can always sell'. That wasn't true in the past and, as we've seen, it isn't true today.
Julie -- I use that 2.5 or 3 just as a very rough rule of thumb for the upper limit of what we can afford. The first time I bought (almost 30 years ago, with my first husband) we were stretching that upper limit, and it was VERY uncomfortable. We could only afford a fixer upper-- and then didn't have the money to do the work. I went back to work, we took on a roommate and STILL ended up spending most of the spare cash on the house. Maybe it's worth it for some people-- but I wouldn't do it again.
Brent-- I agree with Arkey-- if you want to be in a house in a few years and aren't attached to the Ballston area, why wait? I think there are some indications that people are beginning to prefer areas close to metro, so the values may hold up fairly well-- on the other hand, a lot of areas farther out are probably, if not at, at least not far from the bottom. At any rate, it certainly can't hurt to start looking.
late to the party as always, but a few comments.
On the whole bank walk-away. I think there is one very key aspect that is missed in the whole aspect.
When the bank lent this family 500k, it didn't have the money to lend it 500k! The bank didn't have 500k sitting in a safety deposit box and then lent it to joe blow.
The bank literally created the money. Being a bank is one of the greatest rackets of all time, you get away with legalized creation of money! The bank had say 50k of cash (or digital currency) or approx. 10% on hand and then pyramided and lent out 500k on top of that base of 50k. In fact, if the loan was from an investment bank they prob. had closer to 5k on hand and lent out 500k.
It's called fractional reserve lending/banking. It is one way in which inflation (an increase in the money supply) is created . . . another way is through the treas. printing and the fed. res. borrowing.
People get mad at Madoff . . . well Madoff is a two-bit player compared to what banks legally get away with.
So when Tabitha's friends borrowed 500k, at least 450k of it was literally borrowed into existence, it did not exist before they borrowed it.
So I can't really say that choosing to default on the loan is really theft or immoral as the real theft/immorality was incurred upon the entire populace (by inflation) when the loan was created.
And even when the loan is defaulted on (and from what Tabitha has said . . . it will default sooner or later), the 450k borrowed into existence still exists. Someone took that 300k profit or whatever and either bought a new house or bought new toys or did xxx with it. That money isn't coming back it is still out there dispersed. Once money is loaned into existence it will disappear when it is either paid back or when the bank goes under and the non-loaned money sitting in the bank is defaulted on (pretty much when the FDIC goes belly up . . . which won't happen b/c then the real printing begins).
Finally . . .
This whole housing debacle will be over with when society has finally had a fundamental shift that you pay off your @#$$ house as soon as you can rather than suck as much money out as possible.
I'll be 30 this year, and I could prob. afford a 300-400k mortgage but there is no way in hades I'd take out that much. I don't want to be in debt for 30 years . . . sure, sure my income will increase right. Right . . . anyone who thinks incomes will increase w/ inflation a.la. 1970s needs to spend some time in a 3rd world country where you have high unemployment, high inflation and wages increase only marginally . . .try getting a long term loan in that situation . . . if you don't have cash you don't buy it. And as they say in investment past results are not an indicator of future results.
I can only take out a loan based upon today's (not tomorrow's) conditions. I'm not comfortable w/ a 30yr 300k-400k mortgage paying on until I'm 60+. I will take out at most a 200k loan and pay it off in at most 15 years.
Sorry folks, life is too short to be a debt slave the rest of your life.
tiredbubblewatcher,
Yes, you're correct, we don't take the orange line in to DC much. We go to Clarendon and Courthouse somewhat regularly on the weekends, but because of the infrequent metro service (I can't stand waiting 20 minutes at a metro station!), we always just drive there anyway. So adding 15 or so extra minutes to that drive, minus the 4 minutes that it currently takes me to get from my front door to the street (catch an elevator down to the garage, walk across the garage, then zig zag up through the garage to get out - those who have lived in a high rise understand how annoying that is!), isn't a big deal. It's nice having the option to take metro there, or walk if the weather is nice (which in this area is only a few months of the year for me), but not a real big concern for us.
The main reason that we're looking in the Vienna/Merrifield area is because of my wife's job. She's less likely to change jobs than I am so we'd rather stick close to her job. She takes the orange line and a bus now, which takes 35 minutes, so a 15-20 minute drive would be better than her current commute.
gte811i-
Banks don't create money. You are correct that they have very high leverage ratios, but this is through borrowing rather than printing money.
In your example they start with 50K. They then borrow 450K from people who put their money in banks through savings/checking... accounts. The bank then takes the 50K+450K and loans the 500K to the person who buys the house.
So you are correct that they do not own the money, but they also don't print it. If they could print money they would not have to worry about things like a run on the bank where people take their savings out of a bank. This is something banks always need to worry about because they tend to borrow from people short term and lend long term.
I'm sorry, I didn't know that EVERY HOMEOWNER bought their house in '05, '06, '07, and '08. I thought some people had bought before that. Sorry.
It doesn't take "EVERY HOMEOWNER" to cause a shortage of move-up buyers. Since prices in the low end have dropped back to '03 or '04 levels anyone buying after then has no equity especially after transaction costs of selling/moving. The stock market crash has wiped out a lot of people's net worth as well. There just isn't as much equity out there as there was during the bubble times. Fewer move-up buyers combined with more 700k McMansions than ever means a world of hurt is coming.
I'd like to see your statistics that say the 500-700k market is going to go up, because every article I've read for the last year says the best we can expect is slower declines in the future.
And lets not forget the fact that the under 400k market was hit harder with declines than the 400-700k market. If those people couldn't afford to move up initially, they certainly can't now that the move-up home is farther away in price than it has been in the recent past.
Okay, here's the thing. The place we're considering putting an offer on is a condo, in a development with two basic styles, two "townhomes" piggybacked on top of one ground floor unit. There are 186 total units in the place 2/3 are the two-story style we're looking at.
current going price for the 2-story units $230-$265k
So, I looked through the FFX county tax records. 45 units sold during what I'll define as the peak for this development. Where I'm calling this as when the 2 story units were going for over $300k, That's 24% of the units (this is just by current ownership, so misses some that have already been resold for less). High-water mark was $355k, that unit just got listed as a SS today by the way...
If only 1 in 10 foreclose or default or try for a short sale, then that's only 4 to 5 more SS, and I don't think that will move prices that much further. Lower, sure, but not disasterously so. But what if it's more like 1 in 5, and then the people who bought at $250k start to bail (there aren't that many of these, this place was late to the party and rocketed up once it joined in). What's to stop them from crashing to $150k or less?
My answer to that is, cash-flow investors. Am I crazy to feel that if landlords are jumping all over freaking Greenfield Farms and stuff out by Braddock Road once it hits anything under $200k, that I can likewise count on them to recognize a cash-flow positive asset and invest in my complex if it ever crashes to say 120x current monthly rent (after subtracting off the condo fee).
Can I confidently use in my calculations a cash-flow investor floor to calculate our maximum reasonable losses on the capital?
Because the price we'd be offering makes this place cheaper than our current rental even at a 15yr amortization including the condo fee, so, we have a lot of leeway for losses, and still come out ahead over renting.
The other option of course is to go ahead and sign up for the 6 month lease, and sit back and watch the carnage for a little while longer and buy one of the short sales as they come along. Or buy something bigger and nicer later. But I think you can define a price at which even though prices are going to go further down from here, from that built up potential energy sitting on the edge of a cliff of all the extremely underwater owners, you can define a price at which it still makes perfectly good financial sense to buy.
Sorry, Cara, you lost me with the piggybacking? Got a picture or something? I'm picturing a one story unit with a townhouse on top?
Cara-- Hard to say. Condos can be tricky. Depends a lot on how the banks behave. If they require that no more than a certain percentage be rentals in order to give a mortgage you can end up in a situation where the only people buying are the investors. That leaves a lot of the other owners with no options but to stay when they'd rather go-- or become landlords themselves.
Then, too, you're always sort of at the mercy of the condo board. If it's good, condo living can be terrific-- if it's bad, they let things get run down, don't set aside enough for repairs and you end up getting slammed with special assessments.
But it can be great if it's well-managed. My folks lived very happily in a condo right on the red line for 20 some years. They had something like a 20 minute commute to work while they were still working, maintenance to call whenever there was a problem and a desk that would hold mail and packages for them when they traveled.
"I pointed out that was a lie and that the stock did budge in response to that news. housebuyer confirmed it did budge. "
Please TBW, that's not a lie. (You're not a troll.)
Check out stock patterns. 1% is not much movement on most stock. Consider the recent history of CSCO and IBM.
I hold neither but many do.
Those who don't have the stomach for stock can stick with mutual funds, CDs, MM, RE, etc. Some diversify, balance and rebalance, others don't.
RE can be great, it depends on you and your situation.
Stock can be great but expect volatility.
Cara: Is that place off of 29 near FFX Government Center? I looked at development with piggy-backed/stacked townhouses back in '02 -- two bdrm on the bottom and 3bdrm on the top.
Meshell: the place I'm talking about above had two 1 car garages side-by-side on the first floor (one for each unit). The stairs from one garage went straight up to the 3rd floor, with the 3br unit having the 3rd and 4th floors.
For the 2br unit there was a bedroom and laundry room behind the garage, with the kitchen, living room, master bedroom, etc. on the 2nd floor.
Meshell,
That's exactly the way they look. Actually if you look at a picture it looks just like townhouses with a high basement, but then you find out, hey wait that other entrance has a number on it, it's a unit too.
Nova, Nope, it's in Burke Centre.
You know what? No one who wasn't already interested in these places is going to come in and outbid me, and if they do? More power to them, so here you go:
Frankly search for the complex
Notice the odd picture of someone trying to take a picture of the downstairs unit?
Part of what I like about them is the evidence that the current board is good. If you look through the comps you see that the roof, siding and windows have been replaced in the whole condos in the last 5 years or so, and yet the fee is still a reasonable $200. The grooming is excellent as is the paving of the streets, both of which are paid for.
It's not the kind of condo where you can just call maintanence, but that's fine, we weren't looking for that.
I moved the conversation to the new bits bucket...
Busy day today, so I won't be weighing back in on the commentary until much later tonight.
tbw said: "I shed few tears for banks who did not do their due diligence in really thinking about how much the homes were worth."
Neither do I, but the fact that the banks were dumb and/or reckless is beside the point. I take issue with your contention that consumers shouldn't have to pay for their consumption if their consumption turned out to be imprudent.
sarah said: "Would you feel really REALLY sorry for an individual who lent $500,000 to a stranger based on a good credit score and their statement that they earned enough to pay it back-- and then lost their money when the person defaulted? No? Then why in the world would you feel sorry for a bank?"
Who said I feel sorry for the banks? I don't. But again, just because they lent when they shouldn't have doesn't mean consumers shouldn't pay for their consumption. These are two seperate issues.
Following your line of thought that consumption needn't be paid for if provided to the consumer unwisely, someone who fraudulently applied for a credit card could argue that they shouldn't have to pay for the merchandise that they obtained with the credit card because "the bank should have known better than to issue it."
I don't follow this line of thought at all.
Jeremy,
I agree with you that there are FEWER move-up buyers.
but you said...
There are no more move up buyers for the future because they have all lost their shirts on their under 400k homes and have no equity to move up.
Please explain to me how then does FEWER buyers equate to a "wave ... building underneath" to support the high end home prices?
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