Homebuyers ‘Pinch’ To Get ‘Worse Before Better’
Some readers are looking at interest rates. “How will the spike in l-t treasury yields impact the housing market? It just spiked up past 5% on the strong jobs report, then fell back to 5% even and it looks like it has flattened out there.”
Another wrote, “Here’s a topic: interest rates. They were on and off inverted for a few months, now they aren’t. What if we’re now experiencing a false bottom in treasury prices, and the curve will reinvert, as the Fed will keep raising rates?”
And another, “Maybe we should have a discussion about how much home prices should drop per every interest point increase in the market.”
Reuters reports on one effect of rising ARM rates. “Vicki Nious is seeing more clients struggling to pay their mortgage and hang onto their house. ‘We’ve definitely seen an increase in delinquencies and even we have a few cases we may consider for foreclosure,’ said Nious, mortgage services manager for AHC Inc. in Arlington, Virginia. ‘Many families are having trouble because their adjustable rate mortgages are expiring and they need help.’”
“Like a lot of Americans, many AHC clients got into the housing market in the last few years by taking out adjustable rate mortgages at extremely low ‘teaser’ rates, sometimes half that of a traditional 30-year fixed mortgage.”
“Last year, 43 percent of all mortgages taken out were adjustable or exotic in nature, such as those that require only the interest of the loan be paid for the first two years. But borrowing costs have been climbing for two years, in some cases to nearly double what they were in 2003 or 2004, just when the introductory low rates on adjustable mortgages are set to expire.”
“That means homebuyers who were once paying just over 3 percent interest are suddenly facing rates that are at 5 or 6 percent and still climbing. Economists are bracing for an onslaught of late payments and the inevitable worry among lenders and borrowers alike that failed loans will cause a consumer or housing collapse.”
“Anthony Chan, economist at JPMorgan, has done research to show that delinquency rates lag the increase in adjustable mortgage rates by about a year. That means delinquencies will continue to climb for as long as a year after mortgage rates have peaked. ‘Given that ARM rates are going higher, I think it’s pretty straightforward to make the forecast that over the next 12 months, those delinquencies are moving higher, not lower than where they are today. So if we think they’re bad now, they’re going to be higher,’ Chan said.”
“The traditional link between market rates like mortgages and official interest rates has been broken, so higher official rates may not feed into the mortgage market. After all, official interest rates have nearly quadrupled in the last 2 years, while mortgage rates have not quite doubled. ‘That’s going to rescue a lot of people. If that link were to reemerge, then we have a problem,’ Chan said.”
“The Center for Responsible Lending knows many homebuyers are only now beginning to realize the risk they took on when they signed up for an adjustable rate mortgage. ‘I think that many people are very misled in terms of the initial monthly payment. We certainly hear from borrowers who didn’t know until it adjusted that that’s what was going to happen,’ said Debbie Goldstein, the center’s executive vice-president.”
“At AHC, Nious is working with low- and moderate-income families to refinance costly mortgages in a desperate bid to avoid foreclosure. But with fixed rates now above 6 percent, it may be a losing battle. ‘For many, they can’t afford even a loan at 1 percent,’ Nious said.”
Let’em hang!! I can’t wait!! Greedy bast*ds!! I couldn’t believe how many open house signs I saw went I went out today here in Santa Clarita valley! There were at least 4 - 6 on every corner!! Hopefully the buyers are staying home. I got a call from Ziprealty Friday night in an attempt to assess my willingness to buy. What a joke! I told the lady my opinion of the market and how I am happy renting. She was nice and agreed with me other than to tell me that the “Asians” are paying cash and buying everything. What a despirate plea! She could not debate any of my points and basically said I was correct in predicting a downturn. They go from saying real estate will never go down to silently agreeing with you! What a turn of events! But you know “everyone wants to live here!” and the demand for housing is simply outstripping the supply!
This is Spring, the time when realtors proclaimed that buyers would come out and save the housing market.
Comment by JungleJim
2006-04-09 10:56:57
OT,I just drove thru a US Home/Lennar development called Heritage Harbour in Manatee County, Fl. Conservatively speaking at least 20% w/4 sale signs and 5% for rent signs. At least 30 open houses. AND NO TRAFFIC. Also the roads, which can’t be 3 years old are in a rapid decline w/big cracks and potholes. Can you say “special assesment “.
I drove past an open house on my block. There were no cars around. I wondered where the Realtor parked. It had three signs and six balloons. How could anyone neglect the balloons?!?
Here in the bay area of CA the unusally long rainy season is being blamed by the realtor for the lousy market. I guess getting a little wet keeps you from looking for a home. Sure doesn’t keep the crowds away from the malls. Meanwhile the tilesetter I know who managed to buy a $1M home last year at the peak is no longer able to find work in San Jose or surrounding counties like Montery or Santa Cruz. He says nobody can afford the housing prices here anymore and work dried up. He now spends the weekdays in Fresno working the last “High End” construction there and the weeknights in a cheap motel while his million dollar home sits empty with virtually no furnishings in it.
And what do the blame the exact same drop in San Diego where it has been unseasonably dry?
Check weather.com if you don’t believe me.
March 1.39 vs 2.26 avg.
April 0.51 (so far) vs 0.75 avg.
April has been a little high, but we’ll see…
Mo $….I am here with you in the bay area…I know a lot of people in the trades…They have done very well…NONE of them make less than 100K/Yr….One plumber I know made close too 300K by himself…amazing !!!…There has been so much work at such high prices for so very long that I believe they have become oblivious to the fact that it could change rapidly….
The UCLA forcast warned California that any downturn in Construction could flip us into a recession…We may be seeing that unfold right now…
My local credit union was giving away money last year - they had 4.75% 30 year fixed - as of Friday the rates on these same loans are now 6.9%. Affordability was a problem with rising prices, mix in increased rates and no superbowl/spring/mothers day/ fathers day/ 4th of July / back to school Rally!
I have read that for each interest point the rates go up prices go down 5% to 10%.So if we go to 7.5 or 8 % on the mortgage rates that in itself will bring prices down by 10 to 20% . Couple higher interest with high inventory ,low demand , and a increase in foreclosed property ,you could see 30 to 50% reductions in alot of bubble areas . In the 80’s sellers seem to just hold on to the properties for a long time ,but alot of sellers could afford to do that .This mess seems totally different today ,in part because of the speculative element driving the prices up .
Credit was not nearly as easily available in the 80s… at least not to me.
RE: 80’s Credit…Interest rate for my first mortgage on a new construction project in 1981 was 14.125%.
Thousands paid for subsequent refinancings.
Thank you Jimmi Carter.
We are on track for a repeat, however things will be much worse because of the off-shoring of millions of mfg. jobs during the last decade, and the retiring of the baby boomer work force.
It’s light’s out for high housing values.
Housing Wizard-
I think the percentage decline wil be worse than you predict. Right now, we’re looking at people going from previously low-rate adjustible mortgages to either a) same mortgage with a big rate reset, b) a fixed rate mortgage with a dramatically higher rate, or c) they can’t get a new mortgage because they’ve stripped all the equity out via HELOCs. I think this move is going to be a lot worse than people think because short-term rates drove his rally and those have already rallied substantially. I think looking at 30-year mortgage rates is missing the mark, given that short-term rates spurred this rally in housing.
Someone posted a dynamic yield curve on the old board several months ago that did quite a good job illustrating what we’re looking at now, but unfortunately I didn’t save it. Take a look at the yield curve from 3 years ago and overlay it on the present yield curve–it’s downright scary.
I hate to be the skunk at the garden party, but I just don’t see any price declines yet. It may well be that they’re coming, and certainly the rising inventory is—for those of us who believe it’s a bubble and that most Americans are getting priced out–a good sign.
But in NYC, and Brooklyn, prices are higher than ever, with few signs I’ve spotted of a decline.
Ah - but are they selling? That’s the real question. Very common to see rising pricing even as inventoy balloons because everyone is looking in the rear view mirror at what working LAST year.
FWIW, in Portland Or its the same. Crazy asking prices this spring - up double digits from the fall from what I see. BUT nothing has sold so far this spring around my house.
First inventory - then the price declines later as sellers get more motivated…
Now, why does Chan think rates will be cut by the Fed next year?
AND…from article also…
‘What’s more, the traditional link between market rates like mortgages and official interest rates has been broken, so higher official rates may not feed into the mortgage market. After all, official interest rates have nearly quadrupled in the last 2 years, while mortgage rates have not quite doubled.’
And, does someone know why the ‘traditional link’ b/w market rates and mortgages has been broken…? I am not clear on this…Thx
He is talking about the Fed raising the short term Fed Funds rate but long rates and therefore mortgage rates have not followed suit. See: Greenspan’s conundrum. Last week inflation fears sparked an uptick in long rates. The yield curve is no longer “inverted”. If this trend continues then rates on conventional 30 yr. mortgages will continue to go up.
some writers think the spike in long rates was caused by specific remarks from China that they would diversify out of US Treasuries. That sounds like a more likely explanation to me.
and the same holds true in Europe: despite two 0.25% rate increases by the ECB, mortgage and 10-year treasury rates have barely moved (in Netherlands, mortgage rates are up 0.1%).
so one can doubt if mortgage rates will really increase because of ‘central bank tightening’ (that is if you believe they are really tightening and not stealthily managing the yield curve).
The nail in the coffin will be when higher risk gets priced into the market in the form of both a premium on the rate and far tighter lending standards; I don’t see anything like that on a significant scale yet, not in the US and certainly not in Europe.
Here’s what I don’t get.
If you could “afford” using traditional metrics let’s say a house worth $250K, why would you not use these very low interest rates to get your 250K house for $400 - $500 per month less than you would have paid using higher rates instead of pushing the envelope as far as possible to shoehorn yourself into something you could barely afford at the teaser rate? I will never understand this kind of thinking.
Come’on sure you do. In some circles it’s called champagne tastes beer budget.The low interest rates made those champagne dreams and caviar wishes a reality and folks couldn’t resist the urge. If you spent week after week drooling at MTV Cribs and Pimp my Ride you’d be the same way shame on you for not watching more MTV and supporting the economy and leveraging yourself to hell for some bling bling.
You know, you may be on to something there. I haven’t watched 4 hours of television in the past 2 years. That may be it. LOL
Same here in our home, maybe an hour or two of NBC news a week. Friends ask why we don’t have a big screen TV / Entertainment Center as we could easily afford it; they’re blown away when we reveal our minimal viewing habits as well as our distaste for the stations programming.
My tv apparently is so “old” that I can’t hook up a dvd player to it without some special cord contraption… LOL… my daughter keeps asking me why I don’t go buy a new TV so she can hook up the dvd player in my room and I say because this tv works just fine, I maybe watch an hour of tv a week…. and I don’t NEED a dvd player in my room.
Haha… Mine has a 13 channel knob for VHF and the 100+ channel knob for UHF underneath - Electrohome, 1981!
I just watch children’s videos and read these blogs.
I can’t even begin to imagine what not watching t.v. must save me…!
what’s T.V.?
Think of what you save your kids from, by not watching much TV. No junior Britneys in my household. The kids actually read!
Wishful thinking. All they do is play addictive online and offline games now.
God your farts must just smell deee-licious.
Because the more house you buy the more you get on the appreciation train!
because thanks to very low interest rates the ‘traditional $250 house’ now costs $500-750K. Despite lower rates, you may have to pay $400-500 MORE each month to afford that house instead of less …
Surely this is (was) the thinking of many, many homebuyers over the last few years. They just looked at the monthly payment and couldn’t see far enough in the future (even a couple years for adjustables) to realize they were dramatically overpaying. And if they did, they rationalized it by believing that appreciation would still make the price reasonable over time. Most of these people are (were) not flippers, just ordinary people who desperately wanted a home to call their own. A friend did exactly this in the housing peak (in CA) in 1989. He overpayed, took out a reversible mortgage, then ran into big trouble when his raises didn’t cover the increase of rates (which went up to 12% — ahh the good old days).
Those that traded up though may have understood that the house they were selling, and the house they were buying, both weren’t worth the money BUT since what they were paying was partly in “housing funny money” it was a wash.
Oops, I meant adjustable not reversible mortgage.
Problem is, today’s 250k home was yesterday’s 100k dump. If you didn’t jump on the train early on, you missed out.
A friend of mine recently was able to sell his home in Sacramento. Bought at $330K 2+ years ago, listed at $510K and sold for $465K. The buyer was someone from the bay area, who plans to rent it out. Speculation seems still alive in bay area …
“The traditional link between market rates like mortgages and official interest rates has been broken, so higher official rates may not feed into the mortgage market. After all, official interest rates have nearly quadrupled in the last 2 years, while mortgage rates have not quite doubled. ‘That’s going to rescue a lot of people. If that link were to reemerge, then we have a problem,’ Chan said.”
Economists truly are a rare breed…………
Watch things get back to tradition with the .25% rise in May.
Oh well………houses for everyone
NAAAAAA This is only because there is too much lending competition out there. Once the industry consolidates(soon, very soon) mortgage (from the french word for death) will shoot up. The lonk will never be truly broken, but profit is being squeezed big time untill the M&A starts.
Dynamic yield curve. They updated it last month too they have labeled it.
http://www.stockcharts.com/charts/YieldCurve.html
JungleJim-
I have been looking in the same vicinity as you but that was one community I never made it into. The rest of the communities in the area are the same with every third house for sale.
On a side note, has anyone seen the show ‘King of Cars’ on A&E? It is a reality show about a car dealership in Vegas and after seeing an episode of it, I can see how home lending has dropped to the level of car lending. Every customer that walked in was looking at $30k+ cars/trucks and none of them had a down payment (one person had a trade-in). Every person said “I can afford $XXX.XX per month, do whatever it takes to get me that payement and I’l take the car.” Sound familiar?? One clown came in looking for a Hummer H2 and had a $700/month budget but not a dime to put down on it.
Can you even buy a hummer for 700.00 dollars per mo.?
Not yet…
$700 a month for basic transport is insane. Im paying 30 euros for my monthly buspass. Ok, its Europe. Its easier to get around here without a car. Think about that overhead difference when you ponder the US place in the world economy. If each US worker needs $700 per month to purchase the car he/she prefers to drive, and gasoline is on top of that, then we are toast.
I have read that gasoline consumption in the US has continued to rise, even though the price has recently doubled. Think about that for a moment. How much higher does the price per gallon need to go to get people to cut down? Significant supply disruptions are inevitable in the future. Time to start thinking outside the box.
One can lease a decent car like a Honda Accord for $200-250/month plus insurance. I have two cars that I alternate with the seasons that I paid cash for, which is an unheard of concept.
I don’t know what European country has bus passes for EUR 30 unless you are a pensioner or student…… It’s closer to EUR 100 in places that I am familiar with. Life sucks if you don’t have wheels whether you are in Europe or the US. I suppose if you live very urban in London or Manhattan then you can cab it all the time, but suddenly that Hummer is looking quite cheap.
Or… You could buy a nice used car and save on the comprehensive insurance required for a financed vehicle.. (My Jeep Grand Cherokee lease was like $385/mo in 2000, and the insurance went from $250/mo to $700/mo when I moved from Westchester to NYC… Returned it early 2mo after I moved…)
By my calculations unless your paying cash or putting down 50% and 84 month financing it would take close to $1,500.00 or a little more with note and insurance to drive one of those things. Compound that with the horrible gas mileage your probably just shy of $2,000.00 per mo. for ownership. I could think of a million things to do with $2,000.00 per mo then drive it back and forth to work in a depreciating asset.
and on top of that, add the increased energy use for building and maintenance of those McMansions and you see where things are heading in the US …
Yes, at least lease one. Though it is the LAST vehicle I would personally purchase, I see new H2 leases all the time for $499 a month. I sure with 0 down, if the guy was willing to pay $700 he would get one no problem. What an insane vehicle to drive, especially with current gas prices.
The problem with the 0% down and all other teaser rates is that not that many people qualify. That’s how they get you in the dealership.
BayQT~
In Japan, it is not uncommon for younger people to trade in their new car every year for a new one. Partly cultural, and partly resignation by those who feel they will never be able to buy a house to still feel good about themselves. Hmmmm……….
Well they also have those crazy registration fees that go up every year that the car gets older. There’s a whole specialized market exporting late-model used japanese cars poorer countries countries, even if the wheel IS on the wrong side of of the car. It’s a plot to keep the auto industry going. I remember reading that they’ve just done something similar with electronics: they’re going to ban the sale of used electronics more than 2 years old.
Some years back, not too long after the fall of the Soviet Union, I saw an article on hordes of barely-used Japanese vehicles being imported into Vladivostok. Wheel on the wrong side and all the instructions in Japanese–but they were still better than the Soviet vehicles.
Is India right-hand or left-hand drive?
Cuz if it’s right-hand drive like so many other ex-colonies, that’s a _HUGE_ market for used Japanese cars…
“That means homebuyers who were once paying just over 3 percent interest are suddenly facing rates that are at 5 or 6 percent and still climbing”.
The Illuminati are smiling approvingly. Now if you’d just pump some of your money into the stock market for them, they’d appreciate that also.
It’s a plan for development that will take more than 50 years from start to finish, on the largest piece of privately owned land next to a U.S. metropolis for an expected half-million residents.
http://my.freeze.com/APDigital/XML/1310_General_financial_business_news/e241d337-9212-485d-8a75-4224af0a5a52.shtml
This project sounds like Valencia California .Can you imagine that many people going to UTAH . I don’t know .
Half a million people — oof. I think the state’s whole population just broke 2 million only a couple of years ago.
Ben, you should include a link to this site on your blog. This guy is fantastic.
http://globaleconomicanalysis.blogspot.com/
Interesting. My favorite is a quote from today’s article, “Next January we will see a surge in buying with the return of the snowbirds. They will return not as snowbirds, but as vultures, looking for the bargains at the expense of the flippers.”
Great quote in his article, “Next January we will see a surge in buying with the return of the snowbirds. They will return not as snowbirds, but as vultures, looking for the bargains at the expense of the flippers.”
Excellent.
Yet here we are, foreclosures rising in a recovery, real wages falling in a recovery, and in our Alice in Wonderland scenario virtually no one sees the recession that is staring us smack in the face.
I’ll bet most of the readers of this blog are seein’ plenty…
much of this thanks to all the manipulation by the FED and the media that still paints an extremely rosy picture (and in Europe it isn’t much different).
Very well stated.
If you like Mish’s articles he also appears on the Whiskey and Gunpowder site, whiskeyandgunpowder.com, which is hosted by the same folks as do The Daily Reckoning.
56;….I am a regular reader of both….Wealth of Info….
Magnetic;….I have been reding “Mish” for a long time…He has been ahead of the curve on the debt issiue…
I am starting to start thinking the gloomier predictions we have had on this site may actually come to fruition. Can the powers that be actually stop or slow down this melt down. Are we really possibly going to see 30-50% market corrections.
It would only bring the market down to reality…but it will hurt alot of people.
Simmsays..
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
The powers-that-be are busy planning airstrikes against Iran. Nothing but pablum about the economy from official DC before it is too late.
And another, “Maybe we should have a discussion about how much home prices should drop per every interest point increase in the market.”
While it’s true that a lower mortgage rate means a lower monthly mortgage, over the past few years, massive increases in house prices has erased any positive of lower rates. For Humboldt County California, the monthly mortgage on the median priced house at the going rate for a 30-year, fixed no points loan has risen steadily since 2003. But the mortgage rates have bounced around.
http://www.humboldt.edu/%7Eindexhum/realestate/real20_rate.GIF
So while mortgage rates may rise in the near future, all the important action, as far as monthly mortgage is concerned, will come when prices fall.
Buyers should not be in any hurry to buy before rates increase. Instead, buyers should wait until prices fall, because this will have a MUCH greater impact on the monthly mortgage.
same in Europe: in the Netherlands, longterm mortgage rates declined in the last 15 years from about 12% to a little below 4%.
(after tax around 5% in 1990, and 2% now). But home prices increased by a factor of 6-10 over the same period, while wages increased just 35% or so in those 15 years.
In 1990 housing was considered ‘extremely expensive’ here (buyers were pretty much stretched to the max already). The extra increase in home prices was caused by far leverage and loose lending.
check MISH blog for real harikari news about florida….
http://globaleconomicanalysis.blogspot.com/
WOW!
Wow indeed! sad and scary…
the longer this pretense that all is well goes on the worse it’s gonna be when it all hits the fan..
BS to these exotic loan idiots and their shit-quality pseudo-McMansions.
These chucks who did the I/O ARM crap got greedy and simply bought properties which were way, way over their heads.
Of course they drank the Jim Jones financial Kool-Aid fed to them by their L/O’s, but such is the end for those who don’t do their homework.
Greed+toxic L/O = Financial Death
The traditional link between market rates like mortgages and official interest rates has been broken, so higher official rates may not feed into the mortgage market…
Yah well try this one on for size, buster: the end of FOMC rate hikes — whenever that happens — does not mean that mortgage rates will stop rising.
There’s plenty of reasons for “market” interest rates to disconnect from “official” interest rates, and to stay disconnected for many years.
Good read at that Mish’s blog… Actually a straight shootin’ Realtor..Who’da thought. Sad stories we will be hearing more,and more..
Lost there retirement “speculating” losing (bleeding) monthly carrying cost,and only way out is ” IF ” the market picks up….Gonna be a real sad story,stories to come
Comment by John Law
2006-04-09 17:15:41
It’s a plan for development that will take more than 50 years from start to finish, on the largest piece of privately owned land next to a U.S. metropolis for an expected half-million residents.
http://my.freeze.com/APDigital/XML/1310_General_financial_business_news/e241d337-9212-485d-8a75-4224af0a5a52.shtml
Reply to this comment
Comment by Housing Wizard
2006-04-09 20:06:17
This project sounds like Valencia California .Can you imagine that many people going to UTAH . I don’t know .
People don’t have to move to Utah to fill that new development up…just let the native Mormon population in the area go about their business as usual and I’m sure they will have no problem creating people to fill those houses.
You could be right , the Mormons are still having children .
There’s no particular reason for a quadrupling of the fed funds rate to quadruple the mortgage rates. Arguably mortgage rates can be look at as Fed rate + default risk premium + (for fixed rates :interest rate risk premium + prepayment risk premium*) The flat yield curve would seem to indicate that the interest rate premium has been DECREASING: for some reason the bond market seems to beleive that interest rates are near their peak. Now interest rate risk premium can be further divided into real interest rate and inflation risk. With the huge ballooning of M3 over the past few years, it is a complete mystery to me how anybody beleives we will get by without either large inflation OR a high fed funds rate to fight inflation. If the market starts EXPECTING high inflation or high fed funds rates to fight inflation, fixed mortgage rates will deamand a very high premium. Add to this a large number of defaults raising the default risk and I have NO doubt that we’ll see >10% mortgages within 3 years.
*prepayment risk is the risk that people will pay off their mortgage early. It rises when interest rates are going down, and people refinance to lower rates. When interest rates are rising it lowers, since few people refinance to a higher fixed rate. It tends to move in the opposite direction of interest rate risk and tends to moderate it, although it is probably more linked to movement of interest rates and not their absoloute level.
“Add to this a large number of defaults raising the default risk and I have NO doubt that we’ll see >10% mortgages within 3 years.”
What about the supposed Global Savings Glut?
I predict that the record breaking trade deficits will hammer the dollar and make global players less willing to invest in dollar denominated assets. So that even if domestic inflation doesn’t balloon, the Treasury will have to pay higher rates to attract foreigners to invest in U.S. gov bonds. It’s kind of a perfect storm IMHO. Problem is, in about a decade when we could expect to be finally recovering from this mega business cycle, the boomers will be retiring and SS and medicare will be paying out more than they take in.
China’s and Japan’s citizens are gradually spending more and saving less and their governments are encouraging it. As this happens, Asian central banks will have less need to prop up their export sectors by loaning us money to buy their products (buying treasuries). This will help ease the growth in the trade deficit but since more than 50% of the interest paid on the existing 9 trillion in debt is paid to foreigners, the decrease in the current account deficit won’t be as much as the decrease in the trade deficit. Also, higher rates will cause the budget deficit to increase. I think we’re screwed.
Add to this a large number of defaults raising the default risk and I have NO doubt that we’ll see >10% mortgages within 3 years.
Agreed-People think the Jimmi Carter 21% prime era was an aberration.
Economic and global conditions are much worse now.
with 100% going down in value in 06 !
In describing characteristics that vacation home buyers value about their property, 40 percent said close to an ocean, river or lake; 34 percent close to family members; 27 percent close to preferred recreational activities; 27 percent close to their primary residence; 26 percent close to mountains; 24 percent close to a preferred vacation area; and 17 percent close to a job or school
You know, I don’t want to get into a Boomer versus Xer fight ala patrick.net, but I wonder if one of the reasons that this bubble has gotten as bad as it has is that Xers have no meaningful memories of the high interest late 70s and 80s. Since in general, they’re the ones that are now the first time home buyers and the boomers are using their appreciated first homes to make downpayments on newer homes. After once people stop buying “starter homes” than others largely can’t move up the ladder. I would be curious whether different cohorts have different utilization for verious “suicide loans.”
I am on the cusp between Xer and Boomer…a shitty place to be really for a number of reasons. I agree that Xers have not had enough experience of downturns and the reality of high interest rates to be worried about “suicide loans”. They are also so far from say the mentality of the “greatest generation” or the folks who lived thru the depression and never thought twice about piling up debt debt debt. Debt doesn’t scare ‘em a bit, I’m guessing, in general. Barely scares their parents, so no way in heck will it scare them…
It’s the next step, buying a too-expensive home in your 20s or so with barely the income to cover the interest on the mortgage, after spending your parent’s money on college and advanced degrees and living with all that funny-money college debt and paying for all your food and books on credit cards while you barely make the bucks for minimum payment.
On a related note, though, how long can even people ignoring the realities of debt want to continue in that path when decent jobs are disappearing? I can’t get over how in the last year or so the real estate section has remained as fat as ever, but the jobs want-ads, which used to be like 10 pages, are now literally reduced to 3, and yesterday half of one side of a page was a announcement that the Ann Arbor News Career Fair for the spring was cancelled, next one in late August, and another *whole page* was an ad by the paper to attract more classified advertising! Sure, it could be that that the newspapers ads don’t work and people still are hiring, but even the ads in the paper are from companies/universities elsewhere…where are the jobs?
Hey, I’m in that edge too. (born in ‘63) The bright note was that it was easier to get into college when there were fewer 18year olds every year to compete against.
Yeah, I saw that episode and what a bunch of idiots! I think show/dealer is in Vegas and the dealer is a Dodge dealer. The H2 a guy was trying to buy was a used and not a new one. So for $700/mo, he’s slight off. The saddest part was seeing a couple and their children getting ripped off trying to get into a Dodge, 300M I think. They were trading their 99-01 Jetta (my guess because I had one) and was told they were upside down by $700. Here’s where the fun begins: they fell in love w/ an all tricked out 300M with a sticker of around $35,000. They were then sold down to a less expensive model. Guess what they ended up paying! One can’t tell from the length of the car note but let’s hope that they got it for 60 months purchase and not 72. The dealer extracted $10000 and their payment (if I recalled correctly) was $460/mo. This is for a Dodge. Go figure! They could have saved that $10000 and bought that car out right as a used one in 2 years.