It Used To Be Everybody Could Get A Loan For Everything
A report from the Washington Post. “Even for people who have money, coming up with a down payment to buy a house has become a lot more challenging in recent months. Take Peter McGarvey, who in September found a house big enough to accommodate his family of four. A bidding war ensued over the 2,000-square-foot home, in Takoma Park, Md. He offered $710,000 and won.”
“Then came the hard part: making enough of a down payment to get a good rate on a loan and keep the monthly mortgage payments manageable. Because he had not yet sold the house he already owned, he had to cobble together a down payment from other sources.”
“”We have lots of equity in the house, and we have money saved up. Unfortunately, most of it is in retirement funds and mutual fund investments,’ McGarvey said.”
“Even over the summer, borrowers did not have to go to such lengths. That’s because it was easy to get a mortgage that required little or no money down. In fact, four out of 10 first-time buyers used no-money-down mortgages in 2005 and 2006, according to surveys by the National Association of Realtors.”
“The median down payment for first-time buyers in those years was 2 percent of the purchase price. But now that those loans are being blamed for a spike in foreclosures, many lenders are no longer offering them or have become pickier about who gets them.”
“That’s not to say that lenders are requiring down payments of 20 percent or more, which was the norm until the mid-1980s. ‘I don’t think we’re there yet,’ said Franco Terango, consumer real estate executive for the mid-Atlantic branch of Bank of America.”
“If all else fails, there are other creative ways to come up with down payments. Pull out that vintage Gucci purse and sell it on eBay. Sell your bike. Sell your car.”
“Some advisers and lenders said that if a prospective homeowner has to go to great lengths to come up with money, maybe it’s best to wait until he or she can save enough money the old-fashioned way. Or maybe buy a fixer-upper rather than a dream home.”
“‘It doesn’t have to be a McMansion,’ said said Heather Evans, vice president and wealth management adviser at Merrill Lynch in Tysons Corner, Va. ‘Homeownership should be within your budget.’”
The New York Times on New Jersey. “Meghan Werner has learned more than any teenager should about the consequences of the subprime mortgage debacle.”
“Her father, Philip Werner, a contractor, had struggled to find work, and like millions of Americans, he took out a high-interest mortgage that he could not afford.”
“He found the house in 1986. When he and his wife divorced in 2002, Werner sold the house to an investor for $170,000. ‘I had $35,000 left on the mortgage,’ he said.”
“He and his children stayed on as tenants. In 2005, when he was making a decent living, Werner repurchased the house for about $250,000. He said his divorce had left him with bad credit, but he found a loan for about $300,000 through an acquaintance who was a mortgage broker.”
“The loan, through New Century Financial, required no cash down payment and came with an 8 percent interest rate that adjusted to 11 percent, Werner said. Werner could afford the payments, but then lost his job.”
“For this family, a recent proposal by the Federal Reserve to restrict the granting of high-interest or exotic loans to borrowers with weak credit came too late. The proposal by the Federal Reserve would require lenders to verify the income and assets of borrowers.”
“Werner said he negotiated the loan over coffee at a diner, and that he never had to provide proof of his income. ‘It was a no-document loan,’ he said.”
“Meghan visited the sheriff’s office with her father this month. A woman there told them they would have 10 days to buy back their home if it was sold to the bank. None of them believes they will be able to find the money.”
“‘I bought my first home when I was 25,’ Werner said. ‘What I’ve lost is not just the home and my dream. I’ve crushed my kids, and I’ve got (to) start over again. I’m not able to leave them anything.’”
The Boston Globe from Massachusetts. “Justin Moore had done his research when he set out to buy a condo. The 25-year-old said it even seemed easy when he got preapproved for a loan, found the perfect condo in Beacon Hill this fall, and readied for his December move.”
“But just one week before his scheduled closing, the mortgage company that for weeks had assured him he was all set told him there were problems. ‘They said they couldn’t fund a condo where all the units aren’t sold yet,’ said Moore, who was slated to put a 20 percent down payment on the first unit finished in the building. ‘Where is there a situation where all the units are sold?’”
“Those that remain in business are asking buyers to more completely document their incomes. They are charging higher interest rates to those whose credit scores were considered good just weeks ago, and demanding much bigger down payments, especially for homes in areas where property values are dropping.”
“The changes mean that buyers with credit scores below 680 could have to front 30 percent down or more to get market rates on a mortgage.”
“‘The industry has turned around and closed the door,’ said Brian Koss, managing partner at Mortgage Network Inc., headquartered in Danvers. ‘People were getting what they wanted, not what they needed.’”
“Some buyers have been able to get new loans under the old terms because mortgage companies are adopting these new lending standards at different times.”
“‘Most of our customers have been unscathed at this point,’ said Rosemary O’Neil, past president of the Massachusetts Mortgage Association. ‘But after the first of the year, that changes across the board.’”
“In January, most companies will have adopted new standards set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that serve as the largest sources of funding for US home mortgages.”
“The new rules impose surcharges of 0.75 percent to 2 percent for many conventional borrowers who have credit scores below 680, and who don’t have at least 30 percent for a down payment.”
“Those in the industry worry many will be priced out of the market. O’Neil notes that about half her customers have credit scores less than 680. ‘It will definitely affect our business,’ she said.”
“And few buyers ever pay 30 percent down payments. ‘That’s pretty insane…not a lot of buyers will be able to do that,’ said Alex Coon, the Massachusetts market manager for online residential real estate brokerage Redfin. ‘It’s certainly not going to do any favors for the real estate market.’”
“Those changes take effect March 1, but mortgage companies that sell their loans will likely be using them earlier. Multifamily units and condo conversions also face more scrutiny.”
“Just before one recent closing, Coon said, one buyer was asked to track down his tax return from 2004. Another deal fell through the day before closing because the buyer lost the loan. ‘I’ve been doing this eight years and out of the eight years, mortgages had been one of the constants,’ Coon said. ‘It used to be everybody could get a loan for everything.’”
“This all comes at what otherwise should be a great time to be buying a home. Prices throughout the region have dropped, sometimes to below what sellers paid at the height of the Boston area boom. ‘The opportunity to buy right now is enormous,’ said Coon.”
“Left without a loan days before his scheduled move, Moore scrambled to find a new lender with help from his agent.”
“In three days, Moore was able to get a loan through Countrywide Financial and now is finally moving into the new home that at first, had seemed so easy to get.”
The Rutland Herald from Vermont. “Bankruptcies in Vermont are on the rise again, surging 40 percent in 2007, reflecting in part the mortgage crisis that has swept the country with its resulting foreclosures, according to several bankruptcy lawyers in the state.”
“‘We’ve got the wonderful joy of the adjustable rate mortgages and foreclosures having gone crazy,’ said Rebecca Rice of Cohen & Rice in Rutland.”
“White River Junction lawyer Michelle Kainen said she noticed the problem earlier this year. ‘I can tell you in the early part of the year that was almost exclusively driving every bankruptcy I filed,’ Kainen said. ‘I remember in January and February thinking what is going on in the world and why are all these people coming in here and losing their houses.’”
“In Chittenden County, Todd Taylor blames the subprime mortgage fiasco. ‘There’s a tremendous amount of foreclosures all over the place,’ Taylor said.”
“He recounted the story of one client whose adjustable rate mortgage ballooned from $1,000 to $1,400 a month and then jumped another couple of hundred of dollars six months later.”
‘That’s not to say that lenders are requiring down payments of 20 percent or more, which was the norm until the mid-1980s.’
When I read this I immediately thought about how many here have suggested this housing bubble has been building much longer than most realize.
“…This all comes at what otherwise should be a great time to be buying a home. Prices throughout the region have dropped, sometimes to below what sellers paid at the height of the Boston area boom. ‘The opportunity to buy right now is enormous,’ said Coon.”
Don’t these clowns get it that the reason houses went up as they did was because of the rigged loans, and that prices will fall without them? There wouldn’t be any alleged great opportunity to buy had the mortage scam THEY CREATED AND FED not collapsed under its own weight. Houses today would cost a fraction of their current laughable prices had lenders’ and buyers’ greed and dishonesty not created a bubble in the first place.
These talking heads appear to be unattached to anything other than deflating wallets, and to be as dumb now as they were five years ago.
The bubble may have started in the late 1990s, but the mania dates only from the collapse of the tech stock bubble and Greenspan’s dropping of interest rates, luring investors from one get rich quick scheme into another. Here in Florida, prices were getting ridiculous in the late ’90s; they became absurd in the extreme in 2003-2005. Builders today are still building and asking 2005 prices, but I notice that most of their “luxury” condos and townhouses are sitting empty. Perhaps buyers actually looking for places to live aren’t that thrilled at the prospect of living in “luxury” housing plopped in the middle of lower middle-class, or lower-class neighborhoods, next to interstates and expressways, and behind gas stations and supermarkets. When one looks out of ones “luxury” (read cheap aluminum frame) windows at bums and homeless people wandering around, it must seem surreal to realize one has spent SOMEONE ELSE’s million dollars for the privledge.
I would date the start of the bubble in Minnesota back to 1997 or 1998. What about other areas to which HBBers are familiar?
Didn’t that bubble start when east and west coasters fell in love with Garrison Keiler and A Prairie Home Companion?
Yes. In Atlanta appreciation was greater than 10% per annum starting in 1997. Anything in excess of 5% is a red flag. Greater than 10%, and the fed’s should be abosulutely ashamed for not getting involved immediately to figure out and solve the glitch.
Not that early in Va. - House prices were depressed in many areas through 1996 and then began to appreciate but were relatively cheap in the East until at least 2000, and of course they were extremely cheap relative to the (bubbled-out) stock market. I wouldn’t call the last trough the beginning of the bubble - the bubble was really 2002-2005.
I agree. We bought a nice Brick ranch 3/1 in 1999 for 89K in Hampton Roads.
Current comps are still selling for close to 225 in the neighborhood, which should be around 125 in my opinion.
I have actually seen most of them move within 90 days, except for when the asking price was too high. Don’t know where they started and where they ended price wise, but i would say we have a long ways to go down in the Western Branch, Northern Suffolk, Churchland area.
Right, I was seeing and commenting on the bubble here in Big Dump as early as late 1998 and early 1999.
hi txchick. I would like to establish a retlationship woth you as my advisor for short term trades. Please reach out to me @ tsadana@gmail. com. I can give you 20% of all wins or donate it to your favourit charity. You have vast knowledge and we can put it ot work .
Geez, now that’s what I call a party foul.
WTF?
“I would date the start of the bubble in Minnesota back to 1997 or 1998. What about other areas to which HBBers are familiar?”
I’m in the SF Bay Area. I would say around 1998.
I bought in ‘96, and the market was dead as a doornail. Totally flat. People still saying “yuk! real estate!!” after the early 90’s bust.
When we moved to L.A in early 2000, prices were starting to go crazy. As we weren’t really looking to buy right then, I can’t give any hard and fast data on that. Except to say that, when looking at prices, I was horrified to see that prices were already higher than many places in my recently-left hometown of London.
Since then, from my trawlings through Zillow and the likes, it would appear that the biggest hike in prices were in early 2004 here.
There’s a characteristic Nike-like ’swoosh’ in individual house price graphs: a slow increase in line with inflation around the late 90’s/early 00’s, followed by a hike of several 100’s of thousands of dollars in jan - march of 2004 ( the ’swoosh)’, followed by a bumpy rollercoaster up and down until today - with a down in many places over the last 6 months or so.
Not exactly scientific, but the ’swoosh’ shows up on a large proportion of the individual graphs.
So, I’d say, unscientifically, that the biggest price hikes were in 1Q 2004 here in LaLaLand.
Columbus Ohio 1997/8 - HELOCs.
I date this because one family member, unsophisticated finacially, obtained a HELOC.
NW Florida, 1999, we were offered an absurd amount for our 1993 home (no, I don’t regret selling it then).
I previously stated that I had a foreboding feeling, when traveling down Hwy 20, huge billboards were screaming 1.9% HELOCs - some with:
-take a vacation!
-consolidate your bills!
-renovate!
Scared the bejesus out of me. I traveled that road daily, and would avert my eyes when passing the bank on each corner!
Leigh
“…this housing bubble has been building much longer than most realize…”
One interpretation: Volcker planted the seeds for the bubble by driving interest rates to double-digit levels in the early 1980s…
Re: Volker. It’s not a bubble when house prices reflect strong economic fundamentals and inflation fighting.
Stocks became overvalued in 1995 and a mania in 1997 because even though fundamentals were clearly deteriorating, prices went up.
Housing became overvalued in 2000 and a mania post 2002 because even though economic fundamentals were deteriorating, prices went up.
“‘We’ve got the wonderful joy of the adjustable rate mortgages and foreclosures having gone crazy,’ said Rebecca Rice of Cohen & Rice in Rutland.”
Joy to the world!!
Let them eat fried shoe laces!
Happy new year indeed…
“‘’We have lots of equity in the house…”
Are you sure?
More like “lotsa pixie money.”
“……The changes mean that buyers with credit scores below 680 could have to front 30 percent down or more to get market rates on a mortgage.”
30%??? Where did I hear that before? Oh yes, I remember now. Neil was forecasting that would happen…..about a year ago right here on this blog.
How’s that popcorn, Neil? It seems the lenders are following your prognostications!
An even more interesting statistic would be the average amount of savings for people with sub-680 credit scores.
“And few buyers ever pay 30 percent down payments. ‘That’s pretty insane…not a lot of buyers will be able to do that,’ said Alex Coon, the Massachusetts market manager for online residential real estate brokerage Redfin. ‘It’s certainly not going to do any favors for the real estate market.’”
Hey Alex, If you think that’s insane, get ready for ” F–kin Crazy” I remember a time in the 80’s when IF you could get a loan on a condo (in our town) you needed 50% down… That’s right and with a low, low interest rate of around 15%. 2008+ is going to cause a whole lot of howling.
“And few buyers ever pay 30 percent down payments. ‘That’s pretty insane…not a lot of buyers will be able to do that,’ said Alex Coon, the Massachusetts market manager for online residential real estate brokerage Redfin.
Mr. Coon, you are an ignorant ass of the highest degree. In your warped, deluded brand of reality, it is “insane” to minimize the amount of interest you pay to a bank over the life of a loan.
In your bizarro world, Mr. Coon, it is “prudent” to borrow 95% or more of a home’s price, and thus leave yourself vulnerable to becoming upside down in the loan.
2 + 2 = 5, indeed.
30% down and responsibility and accountability …Oh My
No point in a mortgage with 50% down and 15% interest, might as well buy a home with cash or rent another year(with roomates) and save up. Americans need to learn to save!
30% down payments for credit scores below 680? A good start. What about requiring it for all credit scores for a little while, at least in the areas that have had stupid appreciation. That would accelerate the price curve down a little bit.
But seriously. Now that investors rather than banks hold the loans, it isn’t necessary (very long term) to go back to traditional lending terms. Investors are allegedly dealing with their own money, as opposed to banks that are dealing with other people’s money. And some investors (not all) can handle a lot more risk than a local credit union can. BUT, they should demand a risk premium for it. Bad credit - up the rate. Small downpayment - up the rate. Irregular income history over the past few years - up the rate. People who shouldn’t be borrowing will be “protected” because the rates they are given will prevent them from effectively bidding against people with better risk profiles.
Of course, I hope the traditional lending standards come back with a vengence for at least a little while, but that will be the over correction on the return swing that we have all discussed before. Long term, there will be cheaper housing that riskier borrowers buy with higher interest rates. At least, that is what would happen if the market were allowed to function and the cultural preference for owning survives the next few years.
Agreed except on one point.
Many borrowers in the current mess put little or no money down, then defaulted almost immediately because they simply could not afford the monthly payment, even from day one (which I find astounding, but that’s the world we live in).
So the “small down payment - up the rate” solution would not work here because few if any payments were made by the borrower regardless of the interest rate. This sort of borrower must be REQUIRED to put down a (significant) down payment or else be denied the loan altogether.
Not really, Charles. With securitization, the investors own a little piece of thousands and thousands of loans. The math people do their little thing and decide that people with only a 10% down payment are 5 times as likely to default in the first few months as people with a 15% downpayment, figure out how much higher the interest rate has to be and charge it. The downpayment element will contribute a lot to the risk premium because it covers several elements - the borrower’s financial discipline to save and the cover in case there is a default and the asset value has gone down are both part of the downpayment risk. But then, you would also increase the risk premium based on the quality of the borrower’s proof of income and the payment to income ratio, so risk of default in the first few months is taken into account that way.
There would be some levels of risk that no one would want to take on, and since the demand for products including very risky loans would be extremely low not many of them would be available, but an absolute requirement of a downpayment from high risk borrowers is only needed if you refuse to allow interest rates high enough to make up for the risk. I bet there are 680 FICO borrowers who could handle a no money down loan at the right debt to income ratio and people who would lend to them given the right rate.
The real problem in my scenario is that you have to go back to collecting information about borrowers which will shatter the efficiency of the loan originators. It might shatter the potential borrowers as well. If you think there are very few people with a 20% downpayment saved up, try to find someone with really good tax and income records for the last 3-5 years at her fingertips. Yikes.
A bidding war for a $700k house, 2,000 sq.ft. in Takoma Park? In September 2007? Is it normal?
That sounded odd to me too…
Over $300 per square foot for a bungalow in the People’s Republic of Takoma Park. Un- friggin believeable!
For Takoma Park? This does NOT seem normal. That better be a very elegant 2000 sqft if that’s what they paid THIS year. Two years ago, I could see people losing their senses and paying that, but this year it takes a real Greater Fool to pay that much there. (Just my opinion.)
Just looked at what’s available in Takoma Park (I used the Coldwell Banker website - it searches entire mls). I saw some decent looking SF houses as low $375 in Takoma Park. Granted, they may not be in as nice a part of town (Takoma Park is close to some toughish areas in PG county, I think - it’s in Montgomery county, but borders PG). Actually, I was suprised to see some pretty decent looking houses in Takoma Park for less than what some pretty marginal parts of DC sell for.
Takoma Park is a bit odd… 40’s bungalows that haven’t been updated, 50’s colonials that have been totally rehabbed, new infill construction, etc… you just can’t tell what the price should have been, except to say that 700K is probably way too much for what is probably and existing house on less than .25A. TP is inside the DC beltway, has diverse housing stock with mature trees, and is largely inhabited by well-off liberals (think a very small Berkley). It has slightly higher tax and worse traffic than other parts of the county. The RE market there is or at least was largely dominated by one person who has her hands in everything.
Only two qualified borrowers in the entire city, for the absolute perfect house?
700k for a wigwam anywhere is absolutely nuts. I don’t care if it’s on rodeo drive. I used to think Ben Jones knew the secret location of the Dumbass Factory to find these stories but it’s come quite clear to me that these moronic people are everywhere. But I’ll say I don’t know any that paid 700k for a shack.
I think the Dumbass Factory is located near a healthy supply of 20 lb. trouts. Or it ought to be.
Frame house, built in 1907. Two story, 1950 sqft. Quarter acre lot.
First mortgage $417k (the Fannie Mae limit) at fixed rate.
HELOC of $221,900 on top of that! Ouch!
And it does appear that he hasn’t sold his old house, but he only owes about $158k on that one. So he’s right: They have lots of equity in the old place, and he’s set well enough to have made a down payment of more than $75k. Problem is, as he and many others are finding, that equity in the (old) house is not exactly liquid anymore.
It would be if he dropped the price enough. $158K + $75K = $233K. I bet he could start a bidding war on the old place if he listed it at $250K.
Bidding war? Indeed he could. Problem with anticipating bidding wars these days, though, is that there is so little buyer interest that you might not have enough bidders fighting against each other to get you a good price.
Still, if the bloke wanted, really wanted, to get a big chunk of equity out of that old house, he could sell it fast by dropping the price down.
His old house is for sale for $475k and apparently not selling at that price. (It’s assessed at 500k+, I think, and thus showing how assessments are getting a bit ahead of real prices now.) No surprise there, since who would pay almost $500k for a 1368 sqft house with only one full bathroom!? I’ll say this: It’s a pretty house, and nice, mature landscaping. Still, only 1/7th of an acre, roughly.
I dunno, I don’t think the guy is making too many mistakes, just the big one of trying to upgrade by outbidding someone on a house before he’s sold the old one. Everything else he’s doing seemed manageable outside of that. He’ll do OK in the end, and he won’t be one of the real disaster stories we read about in future.
This is a lower middle class neighborhood. What a tool.
The realtor probably created the illusion of a bidding war. This guy was a moron.
Illusory bidding wars — or just the threat of them — was a common ploy among Tucson REs back in ‘03 and ‘04.
If I was told “someone offered more than you” Ill laugh and say fine he can have it, ill find another house at a better price, after all, prices are only going in one direction: down!
That’s exactly what we did in 2006, Bye FL. We low-ball-offered $50,000 less than asking, and they, insulted, said that they had accepted a better offer. They ended up selling for $155,000 less than asking, six months later. It was great to watch. I hope that they are still kicking themselves to this day.
I don’t doubt that fake bidding wars are still a common ploy among NARsters, if they can find a mark dumb enough to fall for it.
Did you carefully read the article. “He offered $710,000 and won.” Hmmm if that’s winning, I would hate to loose.
The Fed’s victory in the War on Savers is bitter-sweet.
“Even for people who have money, coming up with a down payment to buy a house has become a lot more challenging in recent months.”
That is very insightful. For the last several years or so, there was no need for saving for a down payment.
Now that there is a need to save for a d.p., savers are hit with very low interest rates, high taxes affecting their ability to save, and soaring inflation decimating the purchasing value of their savings.
The triple whammy created by the Fed: The soaring and then collapsing prices of houses: the easiness and now difficulty of getting credit, and now the devaluation of the ability to save for a down payment.
The Fed is incredibly short-sighted, and simply unintelligent, even in its avowed mission to help banks, since not only does its policies not help banks in the near term as of now, it also does not help them in the longer term.
“The triple whammy created by the Fed: The soaring and then collapsing prices of houses: the easiness and now difficulty of getting credit, and now the devaluation of the ability to save for a down payment.”
It’s all good, as a collapse in housing prices could plant the seeds for the next bubble. Strong hands must be licking their chops like the lion that stared at my daughter and me through the glass window at the Wild Animal Park yesterday evening.
http://www.investopedia.com/terms/s/stronghands.asp
It’s rates, and rates alone that breathed life into this mess. Upping rates a point or two for higher risks worked great the last few years, didn’t it?
Back to 20% down. Period.
I don’t think it can be summed up so simply. Lower standards were big too. How often in history have poor people been able to borrow half a million, or more, with no documentation?
How many poor people have a downpayment to qualify for a $500,000 loan? That would be $125,000 down.
Not too many, I suspect. Thus, a 20% down payment requirement would take care of this problem.
Parents die without needing to go into a nursing home for a long time, medical bills covered by Medicare and owning a family home worth about $250K and a little cash in the bank as they were living off a nice union pension. Sell house and split proceeds with one sibling. Voila. Instant substantial downpayment. But you still can’t handle a $400K mortgage without $130K of yearly income.
“They said they couldn’t fund a condo where all the units aren’t sold yet,” said Moore, who was slated to put a 20 percent down payment on the first unit finished in the building. “Where is there a situation where all the units are sold?”
I wonder if this statement is true for most lenders. I live in a neighborhood with a number of new condos. I’ve already seen some of these builidings being turned into rentals. I would think this would at least stop some of the building of new condos.
25 year olds buying condos in Beacon Hill? Dude, where’s my condo?
Don’t taze my condo Bro.
“25 year olds buying condos in Beacon Hill? ”
Much like the boomers,I am looking forward to GenY getting their “comedownance.”
I was wondering if the bank was really afraid this kids 2-3 whole years of work experience was going to keep him his income in a major downturn. Unfortunately they didn’t mention what industry he was in. Finance perhaps?
Many GenYers have already been given their comedownance. They face higher tax liabilities in the future due to long-running deficits. They’ve been asked to either forego purchasing housing or mortgage their entire future to do so in order that the generations before them can take the windfall and retire. They have been and will be working for years just to pay off their school debts which they accumulated in oder to get a decent-paying job. The real wages from that decent-paying job are lower than when their parents first took a similar job (whereas their parents paid less for the qualifications required to attain said job).
I feel sorry for people just out of college. On the whole, their financial picture is not good, and a lot of it is not really their fault. It’s our fault (as voters) for dumping on them. People expect them to take on more debt to pay off our debt.
Where I live the bubble started in 1996 as we were exiting the last crash. We have a long way to fall.
@Neil
“The changes mean that buyers with credit scores below 680 could have to front 30 percent down or more to get market rates on a mortgage.”
Your prediction is coming true except worst. You said that there will come a time when lenders will ask for 25% down or get lost. Looks like there is a new standard i.e. 30%.
Cinch
I think they can get a loan at 20% down but with 1% higher interest than 30% down. I personally am saving cash to buy outright. May be in NW Pennsylvania and when I have more money and houses become cheap elsewhere, I could relocate again.
“If all else fails, there are other creative ways to come up with down payments. Pull out that vintage Gucci purse and sell it on eBay. Sell your bike. Sell your car.”
ok..I guess I’ll have to sell off one of the Van Gogh’s, Picasso’s, Rembrant’s, etc.
WTF - Do these a-holes really think that people are going to raise a house down payment via ebay or a yard/garage sale?
Despite writing the article, the words “Down Payment” still mean 3%
Okay I’ll try…
A trick out Hummer brought for $60K sold on eBay for $15K.
A Gucci watch for $7K fetch for $2500
$18K dirt bike (very tricked out) may go for $6K
Total of firesale is $23.5K
with 20% down one can afford a $117K house
certainly possible in some places in the country e.g. Texas. possible is the operative world here, but realistically….
Cinch
I know, when I read the suggestion about selling your vintage Gucci bag on ebay, I laughed. There’s only about 4800 “vintage” Gucci bag listings on ebay.
In the past few days, the most expensive one sold for $2500.
And that one was new, never used.
Are Gucci bags the new Beanie Babies?
but you can’t sell the bike AND the car, right?
I tried to sell some stuff on eBay back in ‘06. Went to one of those eBay stores in Tucson, and they broke the news: I wasn’t going to get anything close to what I was hoping. So, having been turned away from the eBay store, I went a few blocks away and gave my stuff (old books) to the Friends of the Library. It has book sales several times a year.
And, if that wasn’t enough, my father also took a crack at eBay earlier this year. He was just as unsuccessful as I was.
Ebay is fine if you buy wholesale from suppliers and resell for profit. Thats what people are doing to earn a little cash on the side, it’s popular for housewives to be selling lots of beauty products and make a few bucks profit each.
You won’t get much for your old junk, I have like a thousand stuffed animals ill be happy to break even on. I have a few old computer parts that amount to a few bucks, probably will just keep it.
I knew a guy who would hit garage sales every morning, trying to find “hidden treasures” he could resell on ebay. For instance, he once picked up a Stetson hat for $1 and resold it for a lot more. Game consoles were another target. I expect that these days he tries to buy PS2’s, original Xboxes and Game Cubes for $10.
Of course, these days people are a lot savvier, and will ask more for the consoles, or sell those consoles themseves on ebay. We regifted an old GameCube this year. The recipient was pleased.
I used to sell the used magazines (that my husband insists on buying every month) on eBay.
Haven’t done it for a while, but a few years back you’d be surprised the number of people who would buy them, because they had an article of interest in them, or they wanted to make up missing issues in their collection.
Never made a living out of it, but it paid enough for new magazines {sigh}… husbands…;-)
When I moved I gave nearly 10 years of Smithsonian magazine to the Merchant Marine Library Association in NYC. They lost everything in the World Trade Center. I have no idea if the poor guys stuck on containter ships wanted to read my old Smithsonians, but they took them
As someone whose father was a member of the Merchant Marines, I thank you.
Do you have a donation link? I know a lot of people with various collections of reading material that would be interested.
The organization’s website is:
http://www.uss-ammla.com/
but it doesn’t have any information about in-kind donations.
The headquarters phone number is 718-369-3818 in Brooklyn. That is new. They were still in lower Manhattan when I gave them my magazines in early 2005.
The real issue is that they were truely wiped out in 9/11. They said they used to be able to do pick ups, but couldn’t at that time. However, I think they have other locations (in other ports) so you might not have to bring the stuff to Brooklyn to donate it. I recommend you give them a call. The gentleman I dealt with was very helpful.
I originally found out about them from a tiny little article in Time Out magazine about where to donate various items. The New York libraries don’t take magazines. This is the only one they listed that did. And I liked the group. The person who picked up my donation said that the unloading/loading process is so fast now that the sailors often are not allowed off the ship even when they are in port.
Actually considering how many Americans are credit card addicted consumers, it would not surprise me that some could sell lots of their used junk and come up with tens of thousands. I am house sitting this Christmas for friends. The amout of crap they own, lots of it new and unopened is amazing. It seems like they could outfit half a shopping mall.
“If all else fails, there are other creative ways to come up with down payments. Pull out that vintage Gucci purse and sell it on eBay. Sell your bike. Sell your car.”
“WTF - Do these a-holes really think that people are going to raise a house down payment via ebay or a yard/garage sale?”
I agree, Pen. That is very insulting. Buyers are supposed to do that? Well then ask the FB sellers to do the same: sell everything and put it towards lowering the home price. After all… they bought a lot of goodies with all that HELOC money.
Yahoo finance ran an article a few weeks ago making the case that Buyers should not put 20% down even if they have the money. One of their ‘talking points’ is that the home could lose value taking their equity. It was a laughable article, did anyone else see it?
Actually, it’s not a bad idea. If you have enough for 40%, maybe you shouldn’t take the obvious option. I haven’t run the numbers, but it might make more sense to put 20% down and to invest the rest in a nice variety of mutual funds.
I’ve been thinking the same thing. With AMT I loose out on any interest deduction so I had planned on putting down a large down payment when I look at buying next year. But interest rates are going to be held down by the FED, so it might be best to take out the loan. Inflation will eventually force rates back up, and locking in a 30 year mortgage might not be a bad idea. I could be earning 10% on my money market in 10 years.
MEaston: I don’t want to encourage you to buy a house, but AMT does not disallow the house interest deduction, nor property taxes. Matter of fact, the only deductions AMT allows are mortgage interest, property taxes, and charitable contributions.
That said, please wait until 2009 soonest to buy a house. The mortgage interest deduction is not worth the loss of equity you’ll suffer if you buy this year.
Yea, right, Nobody ever lost a dime in mutual funds.
I’m with you on that! A quick check of my 401K American Funds “safe” mutual funds revealed that they were tied heavily to real-estate bonds. The value of some funds had dropped more than 10% in just over six weeks. After having lost nearly 35% of my retirement during the tech debacle with my “safe funds”, I have moved my entire balance to Gov Securities and mitigated additional loses of over 25K in just the last two weeks.
Take a look at you supposed “safe” mutual funds right now!
“‘It doesn’t have to be a McMansion,’ said said Heather Evans, vice president and wealth management adviser at Merrill Lynch in Tysons Corner, Va. ‘Homeownership should be within your budget.’”
Merrill Lynch: Bullish on reason, so late in the season…
Breaking news. Resales up, prices down, inventory down 3.6%.
Put the bottle down, and step away from the bile.
CNBC must be lying again.
The National Association of Realtors reported Monday that sales of existing single-family homes, condominiums and townhouses rose 0.4 percent in November from October, to a seasonally adjusted annual rate of 5 million units. Over the last 12 months, however, existing home sales have plunged 20 percent, underscoring the troubles in the housing sector.
So would it be safe to assume that almost all of those 5 million buyers are under water?
If it’s not the news you want to hear, it must be a lie.
That was my thought too.
With the NAR’s stellar reputation for honesty plus their unsurpassed record of accurate forecasting, it is hard to understand how anyone could question an actual used home sales figure that exactly matches the forecast to the second decimal place.
“‘I bought my first home when I was 25,’ Werner said. ‘What I’ve lost is not just the home and my dream. I’ve crushed my kids, and I’ve got (to) start over again. I’m not able to leave them anything.’”
This brings home the point that most ppl forgot during the last 5 years. Paying too much for a home is not in your family’s best interest, rather it is puts them at great peril. No one that paid two or three times what a home was worth 5-7 years ago or so could have ever reasonably expected any appreciation at those levels, and what they were doing was using their retirement and their children’s tuition and expenses to make others rich. Buying a McMansion was not pursuing the American Dream and creating happier families, rather it was their destruction. Anyone that gambled with their family’s savings by buying a house they couldn’t afford with the hope for appreciation should be ashamed of themselves. It’s just another form of abuse and neglect. Im sick of all this me, me, me garbage. If you really cared about your family you would have rented.
The idea that if I have a family I must live in a house that I brought is perverse but tragically very common.
Cinch
I just cant even imagine considering paying twice or more for a house than the market was 5 years ago. I paid $140k for a 4,000 sq ft McMansion in 1995 and couldnt sleep for two weeks. In 1999, I sold it and paid $300k for a 1300 sq foot bungalow in the city. I couldnt sleep for a month. In 2004 I sold it for $420k. I have been looking at properties, but refuse to pay more than $500k and am kind of an architectural snob (it was the girlfriend that wanted the McMansion and in those days it was the same as rent so I didnt care). I will wait for it to drop another 30% before I get serious. Who pays more than $500k for a POS and is ok with that? For that price I expect over 2500 of architectural perfection. I dont care how big it is, a synthetic stucco home with vinyl windows and hollow doors should never go for over $350k.
Your girlfriend sounds like a real winner.
That was in 1994. It was a $140k McMansion, not a $800k McMansion. She had a lot of clothes and shoes so wanted the closet space, and a huge tub in the master suite. I dont remember anyone using the tub. Plus she wanted a huge kitchen with all the modern features. I used to complain she never cooked. Then she cooked a few times. I never complained again.
“I used to complain she never cooked. Then she cooked a few times. I never complained again.”
LOL
Heh was the food not to expectations? Cooked for yourself?
$140k is reasonable for a big house, thats where prices should be in a few years…
Two things. First, I wouldnt even eat what I cook. Second, I’m not sexest, but she didn’t work or have children. She would come home from shopping and ask if I wanted to go out or carry out (using my credit card of course). I’m for equal, but there was no equal in that relationship.
Every young person thinks they should have a Perfect Relationship right off the bat now. You need to buy a few Starter Relationships first so you can recognize the high quality ones later when you see them ;). The money I dumped into my most memorable starter girlfriend 20 years ago would be worth over a million dollars now if I’d put it into Microsoft stock instead.
One of my nephews dumped his model-ish starter girlfriend recently after she punched a hole in the wall of his condo. (Actually, just a symptom.)
The idea that if I have a family I must live in a house that I brought is perverse but tragically very common.
Especially if it costs more than 3-4 times one’s annual income.
“Anyone that gambled with their family’s savings by buying a house they couldn’t afford with the hope for appreciation should be ashamed of themselves.”
You nailed it there. We all do things we are ashamed of, and to try to pretend that making risky and in-the-end disastrous investments isn’t one of them is both cowardly and disingenuous.
Sounds like he fell into the “keep the kids in their home after a divorce” trap.
Bought the house in ‘86 or so. Got divorced and got custody. To buy out the ex’s interest he had to do a sale ($175K or so)and lease back for awhile. Later he repurchased it for $250K with a $300K loan. (Why more of a loan than the price?)
Problem was that he was bound and determined to keep the kids in that specific house. The 17 year old talks about it being the only home she has ever known.
Therein lies the problem- ‘oh but the children shouldn’t have their lives disrupted.’ Since women get custody 95%+ of the time, is is usally women who end up with a house that can not afford for exactly the same reason.
Fastest route to bankruptcy is to get married, have kids and buy a house. It raises the odds of bankruptcy astronomically.
Yes. That raises an interesting question. When prices were going up everyone wanted the house. Now they are going, what happens if the mortgage goes upside down? Isn’t the house now just a liability. Should one spouse be paying to keep the other spouse in a depreciating liability. Who should be paying who? Sounds like a big mess. If splitting appreciation is a bitch, think about splitting depreciation.
He had a poor attorney. In most cases like this you can get a stipulation that the spouse with the kids gets to live in the house, pay all the upkeep and when the youngest turns 18yrs the house is sold and the profits are split. The other stipulation is that should the spouse occupying the house get remarried before that time that the house is sold or one of the two buys out the others interest.
What if the mortgage is upside down? I assume this probably wasnt considered in most agreements, but should be today.
Bingo! My mom stayed in a house that made no sense for her post divorce. Her reasoning? She thought that was what the kids wanted.
“‘’We have lots of equity in the house, and we have money saved up. Unfortunately, most of it is in retirement funds and mutual fund investments,’ McGarvey said.”
Sounds like a plan Mr. McGarvey. First you get in a bidding war on a house you can’t afford because you haven’t sold yours yet. But I understand your thinking, you’re getting a good deal on the new one (reduced price) while you think that you are going to get top dollar on your old house. And in the meantime all that equity stored up in the old house is declining. But never fear, go after those retirement fund moneys that you won’t be able to repay and will pay a penalty on, and while the drama unfolds watch the value of your new house sink further! Please, please let’s get hundreds more like him early in 2008 so we can permanently remove them from the buying process in the future.
The banks will never return to the days of 20% or 30% down payments. If they did, this would cause housing prices to fall by 90% in bubble areas more or less immediately.
The average home in CA is currently around $500k. 20% of $500,000 is $100k. 30% is 150k. Even if CA prices fall by 30% to $350k, 20% of that is $70k, 30% is 105k. And these are statewide averages, mind you — here in LA, a crappy 1,800 sq ft 1960’s tract house in a middle class neighborhood (not upper middle class, just generic middle class) is at least $650k. 20% of that is $130k, 30% is 195k.
Picture a typical first-time buyer couple — late 20’s or early 30’s, just married, with normal, unglamorous jobs. Let’s say an insurance adjuster and a secretary. Like many kids today they finished college at 22-24 and have student loans, even thought they went to a mediocre university. The job market was not so good at graduation so they had to do temp work, etc. for a while before finally getting full-time jobs at the insurance co. There have been a couple of job losses and bouts with unemployment since college, but for now things at the insurance co are looking pretty steady. The benefits are decent and the salary is OK, but we are not talking Goldman Sachs here. If the husband is promoted to a supervisory position in 3-5 years he’ll get a raise of around 20% and will be making $70k. The wife plans to have kids so she isn’t angling for a promotion. In a few years they plan to start a family, and the wife would like to stay home with the kids for a few years while they are young, so they need to be able to make the mortgage payments on just one income.
Let’s assume that our young couple is far more financially responsible than most of their peers and has zero credit card debt. They don’t lead a spendthrift lifestyle, but don’t live like monks, either. The wife drives a 3 year-old Toyota Highlander and has two years of payments left on it. Last year the husband finally traded in his ancient Ford Ranger that he’d purchased secondhand from his uncle at 19 for a brand-new Mazda 6. Our young couple are members of a mid-range health club and like to go out for dinner and drinks with their friends at PF Chang’s every so often.
These days, these kids will be lucky to come up with a $10,000 down payment, $20,000 if they are really disciplined.
If you require these kids to come up with a $185k down payment, or even $92.5k, you’re effectively keeping them out of the housing market for the next 15-20 years. And you’re assuming that they won’t want to start a family in that time, as saving up $185k will require two incomes, so at the very least they’d better set aside some extra $$$ for in vitro.
Note that the FDIC insurance ceiling is $100k. How many people here know people in their 20’s and early 30’s who have to open accounts at more than one bank in order to ensure that their savings are protected? I don’t know any.
This is simply not reasonable. And before we get lectures from a bunch of Boomers about how these kids are decadent spendthrifts with an attitude of entitlement rather than just a nice, regular middle-class couple with ordinary lifestyles and aspirations, please…just save it. Things were a lot cheaper in the 1960’s and 1970’s, and while it may have been possible to come up with a 20% down payment back then it is much, much harder today.
But more importantly, let’s say that these kids do start living a monastic lifestyle. It will still take them around 7-10 YEARS to save up a 20% down payment at current prices. And of course, by then our 29 year-old secretary will be a 39 year-old secretary, so let’s all hope that advances in fertility technology do not halt for the next 10 years.
The housing market isn’t going to just seize up for the next 7-10 years. Instead, prices will fall drastically, and a 20% down payment will be @20k instead of $185k.
If prices fall that dramatically, to the point that a $650k generic middle-class house becomes a $100k house (an 85% decline), every single mortgage lender in the US will go under. That’s because even people with affordable pre-bubble mortgages, those who bought the $650k house 10 years ago for $275k, will mail in the keys if the house next door starts selling for just $100k.
Note that if these sorts of down payments are required it won’t just wipe out the first-time buyer market; it will also crater the trade-up market because people haven’t been making significant down payments for 10 years or so. Once the bubble appreciation is gone the trade-up buyers won’t have much equity left to trade up with.
Obviously, the RE market isn’t going to grind to a halt for 7-10 years. Nor are housing prices going to fall by 85% overnight. (I do think they could fall up to 70% in much of LA but there are other reasons for this, like affordability and incomes, not just down payment requirements)
Instead, the banks are going to require 3%, 5%, or 10% down payments. This is the sort of thing that a disciplined and prudent FTB with a relatively clean credit history and minimal credit card debt can come up with in 3-5 years. 20% and 30% are never going to happen, at least not in the bubble markets.
You may be right in what you say about the banks not requiring a 20% down payment, but the fact is that if down payment requirements were higher, then housing prices would adjust to make it easier to buy eventually. Each time the government or some other entity or even social norms change to make it easier to buy a home it drives the prices up to the point where the status quo, or better said equilibrium, is maintained. This is not some conspiracy, it’s just economics. So when the banks lowered rates and stopped requiring down payments, the housing prices boomed. When women started working en mass, prices rose so that now most couples HAVE to both work to afford a home (but houses are also larger now, too, in general). When the government took away the tax consequences of owning two homes and then selling one for a profit because you lived in it for a couple of years, more people bought two homes and drove the prices up. So if you take some of these things away, such as the lax lending standards the prices will move to equilibrium, but it will cause pain on the way, so maybe it won’t happen. You may think that housing prices can’t drop below a certain point, because of the cost of building, but the cost of building also adjusts to the equilibrium. But the government always has the pressure to jump in and “fix” the problems instead of letting the equilibrium happen.
As an added note. The couple in your example would be insured to 200K at a single bank because the insurance is 100K per person.
There are plenty of us. Some of us did it while making less that $25K a year too. The concept that people cannot save is absurd.
We had plenty of good times in my 20’s. I remember being under pressure for money but never deprived. We cooked together, drank excellent wine (talk to me about the wine world’s equivalent of “off-the-run” bonds sometime!), and in general, did just fine.
Your example is complete and utter BS.
How many people here know people in their 20’s and early 30’s who have to open accounts at more than one bank in order to ensure that their savings are protected? I don’t know any.
You know one now.
I think we could get to 20 and 30% down if the lenders get too scared. I think the very existence of the whole housing bubble proves that banks/investors are capable of doing completely irrational things in large herds. We might start at 5% down but I definitely see the possibility of much larger ones.
The other thing to realize with your scenario that there’s nothing wrong with renting while starting a family. Collectively, as a generation, we need to get over baby=house. My grandparents were renting when they started their family. My Dad didn’t move into a house until he was 5 or so. Some one 1 income families I know locally rent and we do now with kids that are 7 and 5.
Actually, having owned a fixer-upper house, I’d say renting is the way to go with kids. We have alot more free time now.
“I think we could get to 20 and 30% down if the lenders get too scared.”
Heck, even 10% down would knock out a lot of buyers. In the major metro areas, that’s at least $50K saved for a downpayment. With oil pushing $100 and healthcare increases and groceries so expensive, how many buyers can swing that??
Thank you, Vermonter. We didn’t buy a house until the last California bubble popped. Our kids were both in school by then, and they have no scars whatsoever. Matter of fact, I’ve got my kids cheering for lower prices and saving so they can buy their own in a few years.
I totally agree with your post. It encapsulates the whole problem. I sold my deceased mother-in-law’s house in Denver to a realtor for about $500,000 and a similar house will rent for around $1000 to $1200 per month. The disparity between rents and sale prices is amazing but is shows what the true value of the house is:
Taxes, Insurance, Maintenance would equal about $550 per month so a landlord would net about $650 (if the rent was $1200) which equals a value for the house of around $75,000. This is for a house that just sold for $500,000. The house that I sold was not even in livable condition. The plumbing wasn’t even functioning, the wiring was vintage 1925 and the foundation wa cracking. Nominal prices will eventually return to being in line with rents and the young couple you highlight will be able to afford that 20% or whatever downpayment is required.
“The banks will never return to the days of 20% or 30% down payments.”
Never say never (he he hee…).
“If they did, this would cause housing prices to fall by 90% in bubble areas more or less immediately.”
It is in the self interest of lenders to require downpayments in a falling-price market. I frankly don’t see why a return to 20% downpayment requirements seems implausible to you, given the collateral risk.
And could someone please remind me by what percentage the NASDAQ stock exchange fell off its peak in the tech stock bust? My guess is that the percentage decline in U.S. housing prices will ultimately turn out to be larger than expected.
NASDAQ is still about 50% off the peak that it hit in early 2000.
NASDAQ went from 5050 to 1750
I see 20% downpayments happening as well as massive price drops. Already prices are down as much as 30-50% in some locations and still have a long way to go. $650k is nuts, that house is realistically $200k max! At 20% down, you only need $40k which can be saved in 2-3 years easily. Buy only the essentals(food, cloth, utilities) and save and invest your savings! Anyone with responsibility can do it!
Many people are leaving CA for places like Texas where nice houses are $150k(they will drop to $100k) I can see some people returning to CA when prices bottom out. I am leaving Florida because I can’t touch a decent house anywhere in that state for under $150k. I might return when prices as well as property taxes, insurance and costs of living return to sanity. Or I might enjoy NW Pennsylvania so much ill stay there forever. One thing for sure, I aren’t paying todays prices! $50k gets me a nice house elsewhere!
(1750/5050-1)*100 = 65 percent drop.
BTW, what were the predictions like for the price decline on the NASDAQ before it actually played out? 10 percent off, similar to the current main stream consensus predictions for the U.S. housing market?
Don’t tell me the NASDAQ was different because of more leverage. You can’t get much more leveraged that 100 percent financed (pretty much the norm during the blowout phase of the housing bubble).
Banks requiring less down payments started this vicious cycle of artificial prices ( especially in CA). I’m from the east coast and cannot believe what homes are still going for in CA. Its like an alternate universe over there. Salaries in the northeast are similar to Socal, so why the huge descrepancy in housing? and the rent/own % is off the charts. Clownifornians need to travel east and detoxify themselves into reality.
NASDAQ went to 1100. When it was trading at 5000 I warned several people including my brother that I considered fair value to be around 1500 and that it was not that rare for stock markets to go down over 20% in a year and then turn around the next year and go down 20% or more again. (Happened in ‘73-’74.)
This was considered an extreme prediction, and not worth listening to, as the most bearish were forecasting declines of 10-20%, but even it turned out to be an underestimation.
During bubbles, calculate fair values based on historical metrics, and then throw in another 20% for overshooting.
Bubble-area condos are like the NASDAQ - down 60-65% to get to fair value but will go down more, probably 75-80%. Other markets are like S&P or DJIA. Even if only overvalued by 25% will see greater declines.
“In the end luxury housing is just. . . housing.”
Because they’d be jeapordizing their portfolio of existing mortgages. A lot of people who bought in pre-bubble days, when prices were 50% lower, are ABLE to continue making the payments. They don’t have to worry about ARM adjustments or basic affordability because they have 30-year mortgages that they can easily afford.
However, a lot of these same people will mail in the keys anyway if the identical house across the street starts selling for 50% less.
Picture it. A buys his house for $275k in 2000. In 2010, thanks to the re-institution of a 20% downpayment requirement, first-time buyer B buys the identical tract house next door for $100k.
A is going to mail in his keys. Even though he is able to keep paying his $275k mortgage, and foreclosure will impair his credit, the disparity and temptation will just prove too great for most people in A’s position. Maybe if A is unusually conscientious he won’t, but if I were him even I’d be tempted to let the bank foreclose.
Also, PB, I think that in bubble areas prices are ALREADY going to fall by 65-70% based on affordability ALONE, even with downpayment requirements as low as 3-5%. But if you start making late 20’s/early 30’s first-time buyers come up with $50,000 down payments, prices will fall by 90% in the bubble zones.
This makes no sense from the banks’ perspective. A typical first-time buyer might be able to service a 200k mortgage, but if you require him to make a 20% downpayment, he’ll never be able to come up with the $40k he’ll need.
It makes far more sense to the bank to just write a $200k mortgage and require a 5% down payment than hold out for a 20% down payment and a $100k mortgage. Especially if imposing the 20% requirement puts your portfolio of existing mortgages in jeopardy.
Seem’s to me that if A has lived in the house likes it, and can afford his payment, he will stay. Unless he needs to sell immediately, CURRENT market value should not matter to him.
If A mails in the keys his monthly mortgage and property tax obligation will go from @$2000 to $850 or so. That’s all the incentive he’ll need.
“But if you start making late 20’s/early 30’s first-time buyers come up with $50,000 down payments, prices will fall by 90% in the bubble zones.”
I don’t see this posing any problem for these financially savvy under-30 folks.
The banks will never return to the days of 20% or 30% down payments. If they did, this would cause housing prices to fall by 90% in bubble areas more or less immediately.
I hate to say this, but I think that its only a matter of time before the funny money spigot reopens. The fear of losing everything will goad the international banksters to throw more good money after bad.
I’ll take a shot of piping in as a boomer - we didn’t expect to buy a house for many years starting out. We didn’t expect to drive new cars or even have multiple cars. We didn’t expect to join any health club, let alone a mid range one. We didn’t expect to go out to dinner and drinks except rare occasions. We didn’t expect to buy much besides a little bungelow as a first home, maybe 7-10 years after starting out. We didn’t use much credit (Mastercard was just starting out). We didn’t start out life with huge student loans or credit card debt. Many were hippies that were anti-materialism. You can’t really compare different generations because the world is a different place with different circumstances. It’s not really that much harder today except for the higher expectations young folks tend to have. They seem to expect to live the same lifestyle they had at home, not realizing that it took their parents 20 years at least to build up to. Maybe the better use of time is instead of judging anyone, we share with each other positive things we can do and can advise to others to do to get through the bad times and plan for the future. Best wishes to all for a happy, healthy, peaceful new years. Party on.
Thank you so much for this post, “are they.” These were my thoughts exactly.
Remember “communes?” Most of us lived in them not out of some unfulfilled spiritual yearning, but because picking someone else’s pubic hairs out of one’s toothbrush was the price one paid for an “affordable” place to live.
We, too, resented like hell that our parents’ generation had priced us out of ever being able to buy a house, and that they controlled the job market to the extent that the best a graduate degree would get you was either a job as some letch’s secretary,(provided you could type at least 40wpm,) or as cannon fodder in SEAsia. I can remember everyone talking about why we shouldn’t even THINK of getting an ARM (Hint: they readjust,) and being despised by the media for our “anti-materialism.” Hah.
Then one day I had a long talk with my Great grandma. She told me how her parent’s generation had wrecked the economy and how she had despaired of ever being able to buy a house at the hugely inflated prices of early 1900’s California real estate. (She finally did…in spades.)
Now that the class of ‘69 are in our pre-dotage, I would say that less than a third of my bona-fide ex-phreak friends own houses. It was the kids who came after the end of the draft (geezes now in their late 40’s to early 50’s) that caught the “boomer” housing wave and rode it to the glory you’re all whining about. Your day will come.
Sina invidia. Have a GRAND New Year!
Joe your thesis of what will happen if down payment requirements are raised dramatically is basically solid and certainly well explained.
I think the basic flaw with your premise lies with the fact that you are assuming that what the lenders do going forward is simply a matter of CHOICE.
With the majority of them being technically insolvent right now and the complete and utter lack of investor interest in securitized mortgage products I fear they won’t be ABLE to choose your scenario even if they want to.
I think that the investors will come back (I know, hard to believe), because they have to park that money somewhere.
There will have to be some sort of reform to make them feel confident to comeback, perhaps legislation banning 0% down and no doc loans.
“Prices throughout the region have dropped, sometimes to below what sellers paid at the height of the Boston area boom.”
Even if the price drops only $1, won’t it ALWAYS be below what the sellers paid at the height of the boom (which I read as peak price)? Or do they mean that the price rise continued even after the boom had peaked? I’m totally confused …
“Prices throughout the region have dropped, sometimes to below what sellers paid at the height of the Boston area boom.”
And where did the rest of them fall to? Higher than what sellers paid at the height of the boom?
Sob story after sob story. ALL THE BORROWERS FAULT. Ya can’t get something for nothing. ‘Predatory’ lending is such an inappropriate term. “Idiotic borrowing’ is appropriate.
“‘It doesn’t have to be a McMansion,’ said said Heather Evans, vice president and wealth management adviser at Merrill Lynch in Tysons Corner, Va. ‘Homeownership should be within your budget.’”
Damn, now she tells us! I guess Merrill just found that out after writing down how many billions (and counting). Some investment firm…the founders of this company must really be proud right now.
crush
dude ?
A bidding war ensued over the 2,000-square-foot home, in Takoma Park, Md. He offered $710,000 and won.”
wow, the hippies in Tacoma park MD don’t read much. DC area has been striaght down since 7/05
I’m assuming that this bozo got a conventional loan. If so how much does his household bring in? 200K? How many people make that kind of money?
Yes, I looked it up. See above for details. Conventional for as far as the Fannie limits, then HELOC for another $200k beyond that point. And yes, he must be making decent money. And his wife works, too, from what I know. In fact, they are probably no more than 4 times income on that house, maybe even less. And that’s ignoring the possible cash they’ll have if they sell the old one, so it might be overpriced to us, but it’s not a disaster for them as it might be for other people.
Prices should drop back to 1998 levels. The peak was 2005-2007 depending where. Checking Zillow, the median prices in 1998 are shown below.
USA median price to fall to $115k
Pittsburgh, PA median price to fall to $64k
PA median price to fall to $94k
FL median price to fall to $76k
CA median price to fall to $153k
San Jose, CA median price to fall to $246k
Gainesville, FL median price to fall to $71k
Cape Coral, FL median price to fall to $84k
Ocala, FL median price to fall to $57k
West Palm Beach, FL median price to fall to $67k*
Miami, FL median price to fall to $101k
Port Saint Lucie, FL median price to fall to $68k
Palm bay, FL median price to fall to $63k
*Probably due to all those 55+ retirement homes.
Rock on. If we have a real Jain-style recession with deflation and a worsening credit crunch, I don’t think these numbers are overstating what will happen. Even with re-flation (to come in earnest post-election), housing prices are barely going to notice - they can go to 75X monthly rent or lower.
Even if they fall that far–and I don’t think they will–you cannot compare 1998 nominal prices with 2007 nominal prices. So that $115 median price would be $148 in 2007 once adjusted for inflation.
CA median price to fall to $153k
Not where I lived (Escondido). I recall that being the bargain basement price , and that was after the crash. The median was at least 200K. And there were places in inland North SD county where houses were much more expensive (RB, Penasquitos, Carmel Mtn). The coastal communities were even more expensive, even places like Oceanside.
Well half the places in CA, by definition will be below $153k. The good places like San Jose, CA median price to fall to $246k. If you can make at least $100k/year and save at least $50k downpayment, you are in good shape. Otherwise you may want to consider a cheaper state where a nice house will cost you $100k instead of $250k.
I suppose that places like Victorville, Calexico and IE will drag down the median, but I really doubt that prices will get that low in places like SD, OC, LA or anywhere in the Bay Area. I’m not saying that serious hair cuts aren’t in store, but I expect median prices to drop to maybe mid 200’s in the above mentioned communities.
“I am leaving Florida because I can’t touch a decent house anywhere in that state for under $150k. I might return when prices as well as property taxes, insurance and costs of living return to sanity.”
Queue up, “If I only had a brain” from the Wiz of OZ.
..but Jeb was such a brilliant Guv, just like his bro in the Casa Blanca. Didn’t the majority of brilliant voters elect them?
..and now these same people log on here to express their profound wisdom after the dams done broke.
IMHO…Now that the high rolling loan makers have discovered that you can’t make bad easy money loan without great risk ,they have screwed up the market for years . The boom prices were established and based on faulty lending ,so to return to normal lending would mean a crash of the prices , and at the same time there is a excess supply of housing .
These crazy market makers put this Nation in a position of having no viable and stable sources of funds for lending other than government backed loans .The greedy market makers set up a system whereby the borrowers had to refinance out of a toxic loan in a crashing market ,where prudent lending is impossible without very high down payments or low loan to value loans . The bulk of the borrowers that drove the market during the boom have no money and any fake equity they had is eroding away daily .
Any loans made now are based on faulty crashing values ,therefore even if a person could qualify and come in with a down payment ,the loan is at risk.The only entity that would made a loan right now is one that is backed by the government, and that will be the lender of choice ,and that is what everybody in lending is waiting for .
Lenders should not make loans in a declining market (unless they get a huge down payment ),but the government backed loans will require low down payments and be at risk IMHO .
These crazy market makers put this Nation in a position of having no viable and stable sources of funds for lending other than government backed loans.
We will see. In the near term this is absolutely correct. IMO if there is a serious Black Swan, global investors will once again start pouring money into the US. Say for instance Islamists overthrew Musharraf (sp?), gained control of Pakistan’s nuclear arsenal and started rattling sabers with India.
Housing Wizard, An excellent post. You have it pegged pretty well I think.