‘Welcome To A New Era In Home Borrowing’
A pair of reports on age and homeownership. “Earlier this year, Clay Weiner 29, and Rachel Comey, 31, a fashion designer, bought a piece of the American dream in Greenport for $640,000. The couple, who split their time between Manhattan and Greenport, use two of the three floors of the converted industrial loft space and rent out the first floor to help cover their mortgage.”
“If that sounds like a whole lot of house for someone in his 20s, think again. The number of 20-something home buyers has been on the rise, thanks to creative little-or-no-money-down financing options, historically low mortgage rates, and the desire to not be priced out of the market. The homeownership rate for people under age 25 jumped from 19.3 percent in 1982 to 23.6 percent as of the first quarter 2006. For buyers between the ages of 25 and 29, the homeownership rate rose from 38.6 percent to 41.0 percent for the same time period.”
“Jamie Lombardo, 29, who last August bought a $382,500 home in Bellmore with fiance, David Nordstrom, 33. The couple put no money down and did 100 percent financing, she says, noting that they took the jump into homeownership when they realized there was only a $1,000 difference in monthly payments between owning a home or staying in their Oceanside basement apartment.”
“‘When it’s your own home, you do what you have to do,’ says Lombardo, an elementary school teacher. ‘Even if it means working a few extra hours.’”
“The one bright spot, say 20-something house hunters Christopher and Melissa Mancuso, is that at least home prices appear to be stabilizing. ‘We’ve been hearing the market is changing into a buyer’s market,’ says Mancuso, 26, a physical therapist who with her husband, 29, is working to find a home under $500,000 in West Islip, Wantagh, Merrick, Seaford or somewhere else on the South Shore. The couple now rents in a complex in Levittown.”
“Even so, Mancuso recognizes that switching from renting to homeownership may require a little bit of a lifestyle change. ‘Things will definitely be tighter,’ says Mancuso, who quips, ‘I told him it’s going to be a lot of tuna fish in the beginning.’”
“Among factors contributing to growth in homeownership among young buyers was the explosion of the subprime market in the 1990s, adds Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School.A federal policy push on banks to increase access to mortgages also helped, she notes.”
“It’s only recently that the climate has become less favorable with rising interest rates, she says, noting, ‘I would suspect this amazing shift to change.’”
From the LA Times. “Ask Norm Edelen how old he’ll be when his last mortgage payment is due, and he doesn’t miss a beat. The answer: 100. Not that he’s troubled by the likelihood that his housing debt will last longer than he will: ‘It doesn’t bother me at all,’ the 74-year-old San Bernardino resident said. ‘It’s not something I ever thought I would live to complete.’”
“Welcome to a new era in home borrowing, where long-term mortgages and home equity loans are taking their place alongside AARP cards and pension checks as never before. About 25% of all Americans over age 65 have yet to pay off their home loans, up from 11% in 1983.”
“For many older homeowners, the decision to carry housing debt deeper into their twilight years is by choice. They see their homes, rather than savings accounts, as piggy banks that can be tapped through home equity loans or refinancings to provide ready cash. But the trend also reflects sober realities, including lifestyle changes from an earlier, more debt-averse era.”
“A sure-bet housing market has limited the downside risk. Soaring home prices have boosted the equity people have in their homes, and low interest rates have often allowed them to tap this equity without raising their monthly payments.”
“‘As long as you can still find a job at an older age, as long as the housing market remains strong, it’s not a terrible thing,’ said Zhu Xiao Di, a senior research analyst at Harvard University. ‘But if bad things happen [economically], it could be a problem.’”
“He added: ‘Whether this is alarming, or people are just smarter than we thought, I don’t know.’”
“If home values plunge or interest rates soar, for example, many homeowners could be faced with a squeeze. They would find it difficult to unload the property and shift into something smaller and cheaper, as older homeowners often seek to do. Older workers could be forced to delay retirement, if they are able.”
“Christopher Cruise, a former mortgage broker who now trains people who write home loans, recalled the fading tradition of the ‘mortgage-burning’ party, in which newly debt-free homeowners invited their friends over and ignited the old mortgage in a joyous blaze of freedom. Younger loan agents often have never heard of the tradition, he said.”
“‘One hundred percent of the people I teach in their late 20s or 30s have no idea what a mortgage burning is,’ Cruise said. ‘This whole attitude of paying off the mortgage and owning the home free and clear is disappearing from the country .’”
Interesting that a ‘new era’ coincides with a housing boom of historic proportions. Much like the day trading phenomenon popped up during a stock bubble. Thanks to the readers who sent in these links.
Absolutely. It is quite clear that the confidence in housing “value” mirrors that of stocks in the 90’s.
“…noting that they took the jump into homeownership when they realized there was only a $1,000 difference in monthly payments…”
“Even so, Mancuso recognizes that switching from renting to homeownership may require a little bit of a lifestyle change. ‘Things will definitely be tighter…”
These people have given absolutely NO THOUGHT to the risks of their decisions. They truly believe that the possibility of declining prices DOES NOT EXIST. This feels very much like what Ben is talking about. “Well, stocks always outperform bonds in the long run.” “Stocks have delivered the best returns compared any other investment over the last 100 years.”
You’ve all heard it before. People have not learned. Only, this time, the leverage involved is going to wipe people out. It’s one thing to lose a large percentage. Going massively negative will certainly put a number of people on suicide watch.
I concur. The downside of seven straight years of bumper crops on the housing money tree farm will involve pain that far outweighs the pleasure of free money for all who bought homes.
‘I told him it’s going to be a lot of tuna fish in the beginning.’
In a couple of years, tuna fish is going to start looking pretty good. Think cat food.
Paying up to own a home at the ass-end of an historical RE bubble is not a smart move.
Aren’t “new eras” great??? We just can’t have them often enough!
Somebody better come up with the next new era, and quick. There’s no way this country can survive without an asset bubble of some sort.
peak oil!
“‘As long as you can still find a job at an older age”"
I can’t say I’m enthused about working until my death bed to pay a mortage.
Or eating a lot of tuna fish to run a $1,000/mo negative cash flow.
Not necessarily just negative cash flow, difference in “monthly payments”. This could easily just mean difference between mortgage payment and rent. After deducting Fed taxes, they will then have to add property tax, insurance, maintenance, possible HOA monthly fees.
Also have to add the risk of falling prices…
And Long Island property taxes are SKYHIGH
Ben,
You are being too gernerous…more like eating plain white rice!
NO! Top Ramen is the defacto cuisine of choice for 20-something cash-strapped FBs. Haven’t you guys been paying attention? Sheesh!
LOL I have been paying attention to Top Ramen cuisine, but plain white rice is cheaper and will last longer for the FBs.
Local charity here had a food drive and they specifically made a note to say NO RAMEN!thank you, as it is nutritionally deficient.
do you know how far greenport is from manhattan? we’re talking the very tip of long island - easily 3+ hours getting out there. have fun kids!
They’ll get home with just enough time to throw the Ramen in the microwave, scarf it down while seated at the barstool in front of the Granite counter bartop and scurry off to bed, exhausted.
with a 4.25 interest rate and putting that $1000 a month away they could save roughly(there are always other factors) $39,594.94
that doesn’t factor in property taxes, buying new furniture, new appliances/furnace and fixing up stuff. the fixing up stuff is key because many people their age would probably buy a house that needs work. they(or someone in a similar situation) could save another $30,000(?) or more with just renting.
anyone have help with the other expenses above?
more like cat food… anyone for seconds .. meow
When I was renting , poorly compensated, and had a long commute: I remember taking a tupperware container of white rice to work as my lunch in the hell month between giving the damage deposit to the new landlord and getting the damage deposit back from the old landlord.
I don’t want to work now! At 65+, I can’t even conceive of it . . .
Being a Wal*Mart greeter at age 70 doesn’t sound like much fun to me.
I have a man working for me as a field inspector. He’s 73. He’s one of those guys that spent a lifetime looking for the big score. He’s made a fortune in all kinds of hot deals, and lost a fortune in other hot deals. Now at 73 he must work for food. Sad.
TC based upon reading your more than enlightened posts I cannot imagine you ever opting for retirement. Too dynamic!
I retired at 36. From paid employment. Still “work,” but for myself.
‘I told him it’s going to be a lot of tuna fish in the beginning.’”
LOL - Once the ARM resets they will be fishing for the tuna themselves
Not unless their real strong swimmers……..no money to put gas in the boat!
I’m starting to see that a lot out here. I was taking a walk in Marina Del Rey on the pier and there were a ton of folks out with poles. I would be scared to get splashed by the water. I would never eat anything from there.
Fishing isn’t always about eating what you catch… though you do generally end up touching the water at some point.
“Only” $1,000 difference between rent and mortgage–but what about insurance, utilities, property taxes, maintenance…
But, um, if you don’t pay off your mortgage in your lifetime, then weren’t you essentially a renter your entire life?
No. Renters don’t face the risk of losing seeing their household net worth crash with the housing market.
Norm Edelen and his hundred year mortgage fall under the “You deserve what you except.” catagory.
?
Sorry, make that accept, not except. typo.
So sad, to watch all these people my age lock themselves into a prison of debt. They think they’ll just be able to refi and HELOC themselves into a better life. There is absolutely no consideration of the potential for price declines.
Watch how many of these people will be angry and bitter in a few years time when their new neighboors buy for hundreds of thousands less than them, and aren’t stuck “eating tuna fish” day in and day out facing a lifetime of debt or destroyed credit.
Angry, bitter and looking for someone to blame/sue or a government bailout. After all, didn’t Mommy and Daddy (people my age unfortunately) always bail them out of trouble?
And even after they walked right into trouble after we warned them not to?
There are some lessons that only hard experience can teach.
The older I get the smarter my Dad becomes!
I had a look at the liquidity numbers for the second half of this past week and the fed was not accomadating. Take a look at the market this week for the results. Not pretty. Lots and lots and lots of sectors look brutal right now. And that’s money that’s evaporating that will not be going into housing.
This is the troublesome side for all of us –the potential for a huge class of young buyers who, because of this bubble foolishness, will wind up never, ever being able to buy a home again. They will be permanently disinfranchised.
These are the young homeowners that coulda and shoulda contributed their taxes, and their investment in their communities, for years to come. Wonder what our neighborhoods will feel like in 15 years…
Nobody’s credit is ever so ruined they can’t buy again. You can get a loan 1 year out of foreclosure…. *IF* you make a big down payment and are willing to pay a higher rate.
Some foreclosures are because of extreme medical bills or job losses, but most are just financial mismanagement… people that barely qualified in the first place.
That is going to be an impossible “IF” for many under the new bankruptcy laws. These folks are going feel so burned, they arent’ going to rush back into a second set of mortgage manacles.
I predict we will see an historically unprecedented shortage of homebuyers.
Especially if the courts decide that a person’s real income is what they stated it was on the mortgage application, as oppsed to what they stated on their income tax returns.
The reason being is that if they stated on the mortgage application that their income was above the median for their state at the time of application, they cannot file for chapter seven- they must file for chapter 13, and be reponsible for a given amount of repayment.
If the borrower is only held accountable for the income stated on their income tax return, then they are responsible for mortgage/banking FRAUD.
Thusly, the law will cut both ways.
We’ve depleted the pool of potential buyers in the future by scaring so many younger buyers into buying homes prematurely with phrases like “priced out forever”. It’s just going to make things that much worse in coming years. Plus younger people are more likely to default.
Cheers!
Million-Dollar Homes:
Who Can Afford to Buy Them
By June Fletcher
Question: Who can afford to afford all those homes I see advertised for sale that cost well over $1 million? Nor everyone is a doctor, lawyer, dentist or dot.com entrepreneur. And these houses that I see aren’t just in Scarsdale, N.Y., or Seattle — they’re in places like Albany, N.Y., too.
http://tinyurl.com/lwxu2
“Although it may seem simplistic, this is the answer: Because they can.”
This has to be one of the lamest remarks on affordability that I have ever seen in print. Never mind the 100% financed I/O Option ARMed buyers — the US housing market is driven by a burgeoning swarm of new millionaires on the move, rolling their huge equity gains from one high-priced market to another.
The US housing market is like a bacteria culture in an auger dish. Rising house values started at few points, and the equity gains and hype grew from Los Angeles to Phoenix raising the values on the margin, but applying them to all houses in the area. New equity locusts were created from this margin price gains, who then spread to Naples or Seattle, and this cycle repeated. Whereas the auger is the food for the bacteria in the dish, the food for the equity locusts is the willingness of the banks to loan based on rising house prices.
‘But so many ordinary people now have extraordinary amounts of equity to use for down payments that I doubt that really nice homes are going to sink below the seven-figure mark anytime soon. After all, even if it devastates your savings and puts you in thrall to a lender, there’s something magical about telling your cube farm neighbor: “Hey, I just bought a million-dollar home this weekend. What did you do?”‘
Rented a house by the beach for $xxx and really enjoyed it because I don’t have to worry
about loan payments for the rest of my life.
I wonder what big hat - no cattle translates to for housing.
Soon to be…
‘But so many ordinary people now have extraordinary amounts of negative equity that can’t be used for down payments that I doubt that really nice homes are going to rise back up to the seven-figure mark anytime in the foreseeable future.‘
I know a couple in Manhattan.. She’s an Intl. Tax Attorney and he’s a Surgeon at a major NY hospital. They can’t afford the home they want in NYC.
There are not enough buyers in NYC for everything to be over a mil.
there are some rich areas around Albany. the area doesn’t have a lot of million dollar homes that I can see.
Saratoga
“… only a $1,000 difference in monthly payments between owning a home or staying in their Oceanside basement apartment.”
That is maybe 18% of the San Diego median household income — no big deal, as long as you are a trust fund baby.
‘I told him it’s going to be a lot of tuna fish in the beginning.’
ROFLMAO
HAHAHAHHAAAAAAAAAAAAAAAAAAHHAHAHHAHAHHA
These idiots will be eating raw tuna scraps and living in a van down by the river.
I see a lot of RVs for sale, probably because of the fuel prices. I’m assuming you can pick these up for a song, and they’re probably getting cheaper by the day. Look for a lot of people to buy these and park them to live in.
there ya go. and Walmart allows RV’s to park overnite— so no commute to work!!
I suspect that most FBs in trouble will try to sell the big ticket luxuries before they go into foreclosure. Of course this will lead to a secondary bubble burst in RVs Boats GoFastCars etc.. Just as people have been able to HELOC themselves into a large Winnebago in the last few years, the large number of people selling them used in the next few years will lead to great bargains. One certainly reads similar stories about the depression.
FEMA trailers - After the FB crying gets to sufficiently high levels and congressional next-term-seekers latch on to their smooth-sailing-to-their-next seat meal ticket.
From the LA Times. “Ask Norm Edelen how old he’ll be when his last mortgage payment is due, and he doesn’t miss a beat. The answer: 100.
As Harper’s Magazine noted: The New American Serfdom
It’ll be funny to here people 10 years from now act all pompous and smug when they tell you they refied when the timing was right and got out of a 50 and into a 30 year loan, you know so they’ll have it paid off sooner and save money.
When we were thinking about buying last year, we asked our agent how people were able to afford these prices - we thought they were pretty high and we have the 20% dp and a pretty good income for the area. She said people were using ARMs and I/O loans, and that the younger salespeople were more comfortable with these products.
Hubby and I kept wondering who would be able to afford to buy from us if we wanted to sell, if interest rates ever went up from their very low levels. We decided to rent and look into the “housing bubble” instead.
Smart move. When things “seem too expensive” they usually are. It seems every time “New Economy” thinking is used to justify rampant price speculation, it never ends well. If you have a 20% down payment saved up, you have direct exposure to real estate fluctuations. The 100%-ers are, for the most part, only risking their credit ratings. If they get one of those 1% negative amortizing loans, then they also get a cheap place to stay for a while. But those aren’t the people you want to have to outbid for a home - no way.
The wisdom of readily available 100% financing for all takers will come under severe scrutiny over the next five years. Until the folly of this abandonment of lending standards becomes common knowledge, nobody who has savings and a decent credit history would be wise to buy.
Like Warren Buffet says: it’s not until the tide goes out that you know who has been swimming naked.
The builders on new home tracts are advertising in the newspaper……. “Zero” to get into the house and 100% financing . With the builder paying all costs to get in ,you can imagine alot of people who have no money will jump on that deal . I guess the builders realize that most of the want-a-be buyers around don’t have any money .
The builders are moving down the food chain. They’ve tapped out the pool of stupid buyers with some money to put down. Now their moving down to people with no money for a down payment but they have a pay check. These people will be living on a knife edge. Their effectively giveing these people “payday loans” that last 30 yrs.
Probably not as much as you’d like to see. The Feds push pretty hard on lenders to make financing available to low income and minority borrowers. Since these are often the people with little-to-no down payment, they will continue to get some loans just do the banks can keep these lending rates up.
“she says, noting that they took the jump into homeownership when they realized there was only a $1,000 difference in monthly payments between owning a home or staying in their Oceanside basement apartment.””
A thousand bucks a month is nothing now? That’s twelve thousand a year or $360,000 for the life of a 30-year fixed.
“‘When it’s your own home, you do what you have to do,’ says Lombardo, an elementary school teacher. ‘Even if it means working a few extra hours.’”
A few extra hours = $1,000/month? In my area, elementary school teachers don’t make very much. My perspective is way off as my mortgage was for $101,000 and I was scared to death to take that out when we did the transaction. It took us about 12 years to pay that off on one income and paying it off was
quite a relief. And now what we would be paying in rent or mortgage goes to savings.
Even with current interest rates (I think that they are attractive in this areas), most think that savings is a four-letter-word.
Where are all of the newpaper articles talking about how great savings rates are now and that people should be putting their money there?
http://flagship5.vanguard.com/VGApp/hnw/FundsBondsOverview
heres some CD rates availble at Vangards bond desk. haven’t seen any newspaper articles though?
My friend thinks I’m a loser for buying CD’s and selling RE. haha, same guy who bought JDSU in 1999. and never sold.
‘When it’s your own home, you do what you have to do,’ says Lombardo, an elementary school teacher. ‘Even if it means working a few extra hours.’
I’m a retired building contractor — this reminds me of a client from years ago that had already run far past the contract price with ‘extras’. She insisted on custom wool carpets at the last minute. Her rational? Hubby, a psychologist, could work more hours — the poor sap was already working 80 hours/week.
A thousand bucks a month is nothing now? That’s twelve thousand a year or $360,000 for the life of a 30-year fixed.
and compounded at 5% it is— $ 836,726.38
I don’t believe it works that way for a fixed. if inflation starts running their payment could be like lunch money.
There’s no way in hell to figure how this silly reasoning “save $1000/mo” would play out with a PayOption ARM, except to say BADLY.
oh I see..I meant if they took the “only $1000. more” and saved/invested it for their old age
(fat chance I guess!)
I saw that too. ONLY $1,000. That’s a lot of money to me.
My entire mortgage w/$5000 year taxes is $1000.
“For many older homeowners, the decision to carry housing debt deeper into their twilight years is by choice. They see their homes, rather than savings accounts, as piggy banks that can be tapped through home equity loans or refinancings to provide ready cash. But the trend also reflects sober realities, including lifestyle changes from an earlier, more debt-averse era.”
————————————————————————————————
A house is not a piggy bank
Forget home equity as retirement solution — except when it’s the only solution
By Amy Hoak, MarketWatch
Last Update: 11:57 AM ET Jul 19, 2006
CHICAGO (MarketWatch) — The equity you build up in your home is not a retirement-savings account, although many Americans are tempted to think that it is. But the smartest way to think about home equity, financial planners say, is as a cushion, a spare tire in reserve just in case savings calculations are off or liquid assets run out.
Shelter is a necessity, and so many planners classify the home as a “use asset,” a consumer need in the same class as a car or sofa.
“It’s a place to live, not a brokerage account,” said Sherman L. Doll, a personal financial specialist with Capital Performance Advisors in Walnut Creek, Calif. “But try to convince a Californian of that.”
http://tinyurl.com/mcn8k
There is another angle to this: Medicare.
If one gets rid of assets, Medicare will foot the bill. Otherwise, the equity goes up in smoke paying for medical bills.
This is how the system works, unfortunately.
“‘As long as you can still find a job at an older age, as long as the housing market remains strong, it’s not a terrible thing,’ said Zhu Xiao Di, a senior research analyst at Harvard University. ‘But if bad things happen [economically], it could be a problem.’”
Macbeth: I pull in resolution, and begin
To doubt the equivocation of the fiend
That lies like truth: ‘Fear not, till Birnam wood
Do come to Dunsinane:’ and now a wood
Comes toward Dunsinane.
A most excellent Bard quote, for all bubble-watchers. Thanks for posting that.
Very good. When I was in high school, I drew an illustration of that scene. Very bizarre to think about, really.
“The couple put no money down and did 100 percent financing, she says, noting that they took the jump into homeownership when they realized there was only a $1,000 difference in monthly payments between owning a home or staying in their Oceanside basement apartment.”
That was fixed-rate financing, right Jamie? Please tell me it’s fixed…LOL!
“A sure-bet housing market has limited the downside risk.”….
When people are saying THAT….after a 5 year runup…..look out below….lol
And I thought the only “sure things” were death and taxes??
I love this logic:
Homes have boomed because:
1) There are more two-income households than there used to be, allowing more households to pay more money per month!
2) Marriage rates are down, divorce rates are up, therefore, there is a need for more homes because people aren’t “getting together”.
Wha…..?
Hey, how ’bout - Gay marriage couples want to start their families in their own home.
Oh please!
I’m one of “those” folk, and we’re not that stupid (well, some of us anyway.)
“there was only a $1,000 difference in monthly payments between owning a home or staying in their Oceanside basement apartment.”
..but here is what I never see mentioned in arguements of this sort; WHAT IF THE PRICE OF THAT HOME DECLINES?
Then it is NOT a $1000 difference; it becomes $1000 PLUS the amount the property is declining per month. If the property is $500,000 and drops to $450,000 over the next 2 years, a mere 10% decline, factor in that $50k drop/24 months…whoops..better add another $2000/month for asset DEpreciation.
Also, when you rent you can just up and move when circumstances change..a marriage, more kids, job transfer; when you own and it’s a declining market you need to move, you’ve got a huge problem.
For some reason when it comes to analyzing a real estate purchase buyers seem to only assume increasing values in the future.
Plus an approximate 12% swing in interest. Instead of earning five on what you’ve got, you’re paying seven on a whole bundle more.
Does anybody know if the national FICA score is decreasing? With all the ARM resets causing borrowers to go upside down in their payments I can only imaging that the “notice of defaults” will be ever increasing. A notice of default I would think would be a pretty big stain on an individuals credit record. It seems that very few notice of defaults ever come to a foreclosure sell, but I feel that this will change as time goes by. I think the the lowering of the national credit scores on average will create a lending nightmare where a substantial amount of individuals will not be able to refinance out of an existing ARM into a fixed rate mortgage. It is here that the first blow against housing bubble monster will be struck first. Cut of the money supply and the bubble will show its true colors not as a savior for individuals who now think they are house rich, but as an ugly recession causing nightmare. Anyways as the “notice of default” is really the only tool the lender has to collect it becomes the lenders own demise. As the lender caused the bubble by being a greedy and lending to just anybody then the notice of default will cause credit scores to slowly erode and foreclosures sells to increase. Increase foreclosure sells will cause price reductions and the downward spiral begins. By all means let the “notice of defaults fly”.
A good FICA score will prove to be a far better investment than a home purchase over the next five years.
Wanna hear something funny? I think my FICO score sucks!
I have not credit in 11 years for anything yet I still have theoretically “open” accounts. I’ll bet my score is under 600 and yet I don’t owe anyone a dime.
I don’t check because I don’t care.
The credit scoring system is imperfect for the reason you cite — you could be the best credit risk on the planet, because you always saved far more than you spent, and never bothered to open a credit account because you did not need to, but the FICO system will give you a low score because you never went into debt.
Well how does one know your the best credit risk in the world. If you have no track record. Sort of like someone one claiming to be the best brain surgeon in the hospital and they have never performed brain surgery.
Fico is based on track record. No track record bad fico.
Familiarity with the debtor.
Let’s say I have a “cash flow” problem. Highly unlikely but let’s just say for argument’s sake.
My friends would “know” that I’m an excellent prospect for credit because they know that I’m perfectly capable of paying it back.
When would such a scenario manifest itself even to someone with plenty of resources?
Think missed flights, and foreign countries, and once-in-a-lifetime crapola that can and does happen.
Based on this, theoretically speaking (because I don’t know her, and am taking her on face value), txchick is an excellent prospect for credit inspite of “no track record”.
Actually I don’t know if I am or not because I am so incredibly debt-averse, it will never happen. I know people think you can’t function w/o a credit card in this world but I am here to tell you, you can. I have a gold debit card w/a Mastercard logo on it that is attached to my checking account and it works just fine! I can even rent a car with it.
You can VERY EASILY function without a CC. My wife and I HAVE used our VISA Debit for the past 5 years. My wife works on the west coast 5 months a year, rental cars, hotels, airlines with no questions asked. The merchants know they will get paid in CASH on the spot we have also recently observed that vendors are giving CASH discounts when we use Debit Cards as opposed the Credit Cards We pay cash for EVERYTHING!!!!!!!
We constantly recieve CC solitictations constantly in the mail we simply smile as the CC application forms find a new home in the bottom to the TRASH CAN.
Yep, my friend is up to their eye balls in debt. We don’t have any. Their FICO score is higher than ours.
Not very smart. Just run stuff through a Visa card that earns reward points, and pay off the balance each month.
You’ll have an excellent FICO score, zero debt, and will also earn free gift cards with the points you earn (for example, I recently received $500 in gas station gift cards).
“He added: ‘Whether this is alarming, or people are just smarter than we thought, I don’t know.’”
Im almost sure people are not smarter than you thought…So, it should be alarming!!
YES. This is the line grabbed my attention. He doesn’t know? Taking on more debt is smarter? Harvard senior research analyst? What am I missing here?
The reason this bubble ran as long as it did was cheap $$$$ (NONE SAVED ANY OF IT BY WORKING) and ignorance. The pool of 20-somethings actually believe the NAR’s propaganda campaign slogans: “They aren’t making any more ‘?’ ” & “RE always goes up”.
Dumbshits.
Isn’t being creditworthy what got us here? Perhaps we need a few years of low scores. Oh wait, that is happening now.
This RE boom (and bust) highlights the evils of greed, and how it can cause normally sane people to screw themselves and everyone else around them. Did these people give one second of thought to what they were doing to their children? Did they care that their kids would have trouble buying a basic home later? Did they care about the increased taxes they were forcing on everyone around them? These people didn’t give a rat’s ass about anyone but themselves, and their incredible greed is going to come around and bite them in the ass.
I won’t feel any pity for them. No tears.
Booms and busts have been going on for a long time. The current credit bubble is no different (except it’s really big this time). Think of it as an educational experience for all the greater fools. All the smart people are out of the game, leaving the all the bagholders. I imagine when all is said and done, the average person is going to be much more aware of risk.
“Booms and busts have been going on for a long time. ”
I would argue that the real estate bubble was in part caused by the lack of a good bust for the last 20 years. Normally there is a significant downturn every 4 years or so. But since the last recession of note was 1981-2, people forgot things aren’t always propserous and therefore became very careless in their finacial dealings.
The governement, in it’s goal of never having another downturn, has actually made things worse over the long run, than if they would just let the normal ebb and flow of the economic cycle occur. But politics enters the picture and decisions are all made with a short term (the next election) view…damn the consequences.
It’s certainly my opinion that by trying to prevent all recessions, we’ve set ourselves up for a SERIOUS economic downturn.
Here here, Ken
No tears in BK court for all of these silly-ass FBers and other homedebtors. Throw Gary Watts in there as the court jester. And something else for Liar-rah and Leslie. They are a couple of buffoons. I hope that they will feel real guilty hearing the sob stories that they helped to create.
One hundred percent of the people I teach in their late 20s or 30s have no idea what a mortgage burning is,’ Cruise said. ‘This whole attitude of paying off the mortgage and owning the home free and clear is disappearing from the country
As opposed to my folks who paid off their mortgage early. What seems unfathomable to me is that their mortgage was a mere $500 or so/month - I’ve never paid that little in rent! They bought the house in 1978 for ~$75,000. It’s currently worth ~$400,000 or so.
Oh, and, my dad’s salary (high school teacher - before they were well-paid) was approximately 1/3 the price of their home when he bought. Now even well-paid teachers around here (~$100,000) don’t even make 1/3 the value of that home.
Conventional wisdon at the time, what was used to determine a loan applicant’s suitability and risk to the lender, was 25%-30% of gross on a 30yr w/ 20% down. The source of that 20% was the subject of considerable scrutiny as was the borrower’s income source. These factors helped determine the loan rate. I am sure your parents thought $75K was a hell of a lot of $$$$ at the time and the payment required sacrifices and they fretted over the decision. Pretty much the prevailing wisdom was to stretch a little and the fixed payment would eventually be easier to make considering income growth and inflation.
Every shred of reason vanished as the rush to cash in on RE consumed our entire society - the new economy. Now borrowers streth to make PayOption ARMs with no prospect of ever getting ahead of the payments and paying off a loan is never even a consideration.
The definition of mania.
In case anyone was wondering like I was, if I did the math right, $75000 to $400000 in 28yrs. comes to approx 5.7% appreciation. I believe that is a little better than average for RE.
5.7 would put it at ~$350K. This is more like 6.2.
Isn’t inflation rate approx. 3% on average? 3% on this house would put it at $171,500. 4% (which is what I once read is more likely for housing - 1% above inflation) would put it at $225,000.
Well averages only tell you so much. Those who bought before the inflation spike of the late 70s and 80s really made out beacause they secured a low basis and then were able to repay their banks in VERY inflated dollars. Nationaly, nominal prices didn’t go down that much. What we have now by comparison is asset price inflation WITHOUT significant wage growth. I suspect that this time we’ll see large NOMINAL price declines, which will mean homeownership won’t be as advantageous.
Jamie Lombardo, 29, who last August bought a $382,500 home in Bellmore with fiance, David Nordstrom, 33. The couple put no money down and did 100 percent financing, she says, noting that they took the jump into homeownership when they realized there was only a $1,000 difference in monthly payments between owning a home or staying in their Oceanside basement apartment.
What troubles me more than their cavalier attitude of “only $1,000 a month difference” is that these two purchased over their heads, with no money down, and they’re not even married yet! Good luck folks.
I would have to know how much this couple makes per month to know if they are over their heads or not . The problem I find with the transaction is that the couple didn’t put any money down , and I think they must of borrowed on a ARM or IO loan in this interest increasing market .So, even if they can afford the payment now ,can they in the future ? The fact that they are not married makes it more likely that one will bail if they run into financial problems .
Not sure how much difference being married now would make. Many marriages can’t survive foreclosure and/or bankrupcy.
I have several friends who are attorneys and those that handle divorces are booming as things tighten.
“‘When it’s your own home, you do what you have to do,’ says Lombardo, an elementary school teacher. ‘Even if it means working a few extra hours.’”
Ok…..as many of you know, I am HUGE on the “what ifs”. So what if you can’t work extra hours? What if one of you LOSES his/her job? HELLO? I SO wish people would wake up and stop living in fairyland. Life happens, and often it is NOT as smooth and nicely laid out as we’d like. If they don’t plan for the “what ifs”, they’d better have a little money to buy some condoms ’cause they are gonna be screwed.
Damn! It’s HOT here where I am (Dublin, CA). 103 degrees. Would you believe that it’s cooler in San Jose? Invited to a pool/ card/dominoes party today…definitely going.
Y’all have a great day!
BayQT~
too bad, these kids could impress their friends by paying cash at starbucks and the gas station.
Whenever I visit someone who has just bought a new house ,they are so stressed out that they arent even fun to visit . Anybody else notice that ?
Yes. Every “homeowner” I know who has bought in the past 4-5 years is under severe financial stress. Interesting, since they have all this “wealth” (HELOC’d/cashed-out, of course).
OK
And Jaime and her chump hubby have no kids yet either to drain their finances (daycare, diapers) and reduce their income (mat leave). Have fun with that.
“From the LA Times. “Ask Norm Edelen how old he’ll be when his last mortgage payment is due, and he doesn’t miss a beat. The answer: 100. Not that he’s troubled by the likelihood that his housing debt will last longer than he will: ‘It doesn’t bother me at all,’ the 74-year-old San Bernardino resident said. ‘It’s not something I ever thought I would live to complete.’”
That’s what cracks me up about all the baby boomer disdain I read on this site. My husband and I have only owned since ‘99. We bought our home after my husband had just gotten out of school for his 2nd career (in other words starting pay). We were 38 years old. I was home w/2 small babies giving up what was once 2/3 of our income. In just 7 years we own a home that is half paid for. We do have about $100k in total debt which if I went back to work could be paid off in 3-5 years if we wanted to live a little. So at 50 we could be living debt free. All it took was some humility about not owning the best of everything. Or having all the toys. We’ll go to restaurants when we have no mortgage. I have several acquaintances that have already paid off their homes and they are younger than us. So why have boomers ruined everything? It’s all about choices.
Certainly an argument can be made that the goal is to die with zero (or even negative) net worth, so not having a paid off house could be part of that plan. OTOH IMHO the main advantage of a paid off house as a form of savings is that you don’t have to worry about outliving it. You can live in it rent-free for as long as you’re able to live independently. You don’t run the risk of living longer than your savings as you do with some other forms of retirement savings.
It’s all about large numbers. Baby Boomers are a huge population. When a few people decide to do something all at once - no biggie. But when an enormous poplulation decides to do something all at once - it drives the prices up very high. For the population coming up behind them, it makes getting there themselves all that much harder.
So when the one hears about large groups of baby boomers buying their second homes or retirement homes, I for one just have a sadness for the upcoming twenty somethings that are also being priced out as was I by baby boomers who always seem to get there first and haven’t enough sense to say no to high prices.