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Re: Interest only morts all the rage
Old 06-17-2005, 01:03 PM   #41
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Re: Interest only morts all the rage

Thats why we sold my wifes house. $240k for sale and I could maybe have gotten 1000-1100 a month for rent.

So some scumbag could wreck the house I just remodelled.

I parked the money into muni's, a little high yield, a little gnma and a tax free MM fund and its throwing off $800 a month, largely tax free, completely hassle free.

Makes one wonder about how things will change when all these folks who are holding rental properties in these high appreciation areas realize that they can make a lot more by selling the property and buyers needing to be a homeowner rather than someone looking to rent the property. Because you simply cant ask for $3000 in rent in my wifes old neighborhood, and if you did, nobody that would live there could afford to pay it.

The area will convert to a bunch of homeowners from renters, which will be good for the neighborhood quality, but where will the renters go? Everything within several hours drive is way overpriced.
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Re: Interest only morts all the rage
Old 06-17-2005, 03:10 PM   #42
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Re: Interest only morts all the rage

Notth - Good points. But of course a one-bedroom on the Upper West Side is about 4-600k, not 3 mill. Metro-NY real estate should go up and down in synch. Sometimes the burbs go up a bit more, then the city catches up and pulls ahead, then the burbs do better. You can have a Victorian mansion in Montclair or a 2-bed on the UWS for about the same money. Some people want the one, some people want the other. You have good points about prices versus rents - they are at extremely high levels historically speaking. And Trump just sold his west side development. I am sure he doesn't do that because he thinks prices are going up. But unless financial wages go down, or the city becomes unsafe, supply and demand do not indicate a "bubble". I expect stagnation for several years, while interest rates rise a bit. If prices drop in Manhattan, then people just won't put their properties on the market.

Our choice is that we can bank the 1.4 on our Manhattan property and basically retire now to Jackson Heights, or Montclair, NJ or Astoria, (in an apartment, not a full house, or course) or work a while longer and retire where we are. I am 38, my wife is 34 and we both have corporate jobs. We both tried a artsy jobs first, but they didn't work out well enough to continue. We are likely to keep working for a while, but unlocking the home equity is tempting. Let's just say I hope you are wrong about the real estate bubble.
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Re: Interest only morts all the rage
Old 06-17-2005, 03:18 PM   #43
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Re: Interest only morts all the rage

Yeah, I was throwing out some inflated figures there to illustrate a point, not reality. I'm good at that Cant get that old marketing career out of my blood...

Man would I take the cash and run. Leave the area completely and buy someplace warm. Maybe resume your artsy jobs once you dont need the money? Some nice places in AZ, NM and TX that are pretty cheap and still nice places to live...

My thoughts on the RE bubble? Wont affect manhattan much, or places like that which are limited in available land and are well supported by culture/arts and other social infrastructure. Places that are below that in 'lifestyle' are probably going to go sideways for 10 years or more. Places with huge swaths of open land and just mediocre 'lifestyle' amenities are going to take a pasting.
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Re: Interest only morts all the rage
Old 06-17-2005, 03:38 PM   #44
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Re: Interest only morts all the rage

These interest only loans are a problem. Developers of new condo's tell me that most of their buyers go the interest only route. The buyers believe that they are only going to be there for a couple of years and sell at a profit. Mostly young people who have not experienced any downturns. Definitely an accident waiting to happen when rates rise. Real estate does not always go up and if you cannot qualify at these low fixed rates.......
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Re: Interest only morts all the rage
Old 06-17-2005, 03:39 PM   #45
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Re: Interest only morts all the rage

Makes you think about people who had never invested before grabbing up internet stocks in the late 90's and crowing about their gains over a golf game, doesnt it?
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Re: Interest only morts all the rage
Old 06-17-2005, 04:18 PM   #46
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Re: Interest only morts all the rage

I've also lost money on real estate. The first house I bought was in a new townhome development in the midwest. Maybe 95k or so. The trouble was that there was endless farmland around it, and a new developer could just buy another farm and put up more mushroom houses. When we had to sell because we were moving, we were competing with a new development right down the street, and had to cut our price about 10k to find a buyer who wanted our 3 year old place, and not the new one down the street. NYC real estate goes up because it is tied to the international market, and you can only build so much on an island.


We've looked into selling the place and retiring to a nice college town. When we met we were both penniless grad students in debt, living in a nice college town. But we make very good money here in NY (between the two of us, maybe 7-800k, depending on bonuses and options). We only spend about 20-25 percent of our after-tax income, even with one small child. That's why we could take out one of those interest only adjustable mortgages, and then pay it off before the rates really rose. Maybe we could have done better investing elsewhere, but the bank didn't get much of our money. In about 5-6 years, we could retire right here at our current spending and savings rates. We like the culture of NYC, we hate driving cars, and there is stuff worth spending money on, in our opinion. I don't buy into lots of consumer stuff - but I like jazz clubs, I like travel to unusual places, and to expensive places (like London or Italy). I don't really buy stuff, but I will buy experiences.

If it wasn't working out, I would consider moving from Manhattan to Queens to bank equity in the apt., but I think the 5-6 years is worth it. My wife is basically agreed, but worried about health insurance and isn't quite ready to pull the plug just yet. I'm a city and culture guy, not sure that Texas or NM would really be right for me. Shame though, I could retire to Albequerque, or Missoula, or Boise right now.

I've lurked on these boards for about a month before posting. It's all given me a lot to think about.

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Re: Interest only morts all the rage
Old 06-17-2005, 04:32 PM   #47
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Re: Interest only morts all the rage

We get a few more earthquakes here in CA and you might find yourself with a new place on the Gulf Of Arizona...

If you move to missoula, say hi to "unclemick" for us.
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Re: Interest only morts all the rage
Old 06-18-2005, 09:53 AM   #48
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Re: Interest only morts all the rage

Notth - Of course, here is the latest editorial in the JUne 18th edition of the Economist: "We have been warning for some time that the price of houseing was rising at an alarming rate all around the globe, including in America. Mow that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years. This boom is unprecedented in terms of both the number of countries involved and the record size of the house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history. The bigger the boom, the bigger the eventual bust. ... The whole world economy is at risk ... The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion."

Well, Mr. Economist editorial page writer, tell us what you really think!!
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Re: Interest only morts all the rage
Old 06-18-2005, 12:49 PM   #49
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Re: Interest only morts all the rage

Oh its no illusion. The reality of those 3-4 refi's and/or the heloc to 'unlock the increased value of the home' and then blown on toys that are probably already cast aside or wearing down is going to be very, very real to a lot of people...
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Old 06-19-2005, 01:40 PM   #50
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http://moneycentral.msn.com/content/...6.asp?GT1=6584

Forget saving, just move to the right zip code and you will become rich beyond dreams.

Ha
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Re: Interest only morts all the rage
Old 06-19-2005, 01:43 PM   #51
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Re: Interest only morts all the rage

Yep, comparing my home appreciation earnings with my investment earnings (if you take out the stock option grants), its no contest. I've almost made enough off of 3 home sales and the appreciation on my current one for a spartan ER.
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Re: Interest only morts all the rage
Old 06-19-2005, 01:46 PM   #52
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Re: Interest only morts all the rage

In order to fund my ER, I will be selling my gold mine of a home and living off the proceeds.

If I need to, that is.
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Re: Interest only morts all the rage
Old 06-19-2005, 02:37 PM   #53
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Re: Interest only morts all the rage

Here's another article from our Sunday paper.

"Many Hawaii homeowners have gambled their homes that interest rates won't soon rise too high for comfort."

I think we can all see where this is going...
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Re: Interest only morts all the rage
Old 06-20-2005, 11:11 AM   #54
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Re: Interest only morts all the rage

Quote:
Originally Posted by NYC Guy
Notth - Of course, here is the latest editorial in the JUne 18th edition of the Economist: "We have been warning for some time that the price of houseing was rising at an alarming rate all around the globe, including in America. Mow that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years. This boom is unprecedented in terms of both the number of countries involved and the record size of the house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history. The bigger the boom, the bigger the eventual bust. ... The whole world economy is at risk ... The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion."

Well, Mr. Economist editorial page writer, tell us what you really think!!
I read that article as well and it amazes me that people go to school to learn to write hundreds of words that really don't say anything.
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Re: Interest only morts all the rage
Old 06-20-2005, 11:28 AM   #55
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Re: Interest only morts all the rage

I live in NYC as well and I'm one of the people that think that there is no bubble here even though prices are very expensive. To buy a home in california and most other places you don't need any money and good credit is not a requirement in a lot of cases. Financing is easy to come by and all you need to close is to line up the financing and have all the documents prepared.

For us NYC people that own co-ops we know that getting a mortgage is the easy part. We have to be approved by the local equivelant of a HOA. They do a full background check and you have to show them all your finances. By this I mean you give them several years of tax returns, several months of bank statements all your investments and other information. In my case it meant I had a private investigator call me and give me 2 hours notice that he is showing up at the address I provided in my application to collect more information. And they also look at your mortgage application. And they interview you and your family and pets. They can deny you for any reason and you can't sue unless it's something like racial discrimination. And even then the coop boards win 99% of the time.

Most co-op boards require 15% or more down payment and many require 6 months of liquid assets in the bank after you pay your downpayment and closing costs in case you lose your job after you buy. To discourage investors many boards also require that you live in the apartment 2 years or more before they let you rent it out.

From what I remember the reason for the drop here in the late 1980's and early 1990's was because the co-op boom happened in the 1980's. The big developers sold the buildings to their rental tenants and renters became owners. Part of the offering plan was a clause to allow the new owners to sell to anyone they wanted without board approval. I bought my place in Queens from it's original owner and didn't have to go through board approval. People decided to flip and this caused a glut of inventory and some apartments dropped by 80% in value. These days the vast majority of apartments are occupied by owners who plan to live there and the currrent prices are too expensive for many investors.
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Re: Interest only morts all the rage
Old 06-20-2005, 11:41 AM   #56
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Re: Interest only morts all the rage

One of our local newspapers had an interesting graph on Sunday. Apparently it wasn't worth preserving online so I'll have to describe it.

It plotted 10-year trends of home prices between 1966-75, 1976-85, 1986-95, and 1996-2005. Keep in mind that by 1996 the Japanese bubble had been over for five years and home prices had dropped by nearly 35%. If ever there was a time for starting a bubble from the basement, this was it.

The first three 10-year periods showed home prices up more than 100% over each decade. All three decades hit 100% no later than year eight (one as early as year five) and in some cases they went up as much as 125%.

For the last decade, prices actually dropped another 10% during the first five years and didn't start rising steadily until after 2001. The decade's total price rise has only been 70% (so far) and that's all been during the last four years. Despite a low, late, slow start (or because of it?) the % rise has still been less than the three earlier decades.

If this decade is the same as the earlier three, prices could run up another 30% before it peaks. Unbelievable.

Ironically we bought our "dream house" within a couple months of the housing market's 10-year low. (We made the offer five years ago today.) I don't think we'll ever time ANY market that well ever again. Not bad for a hobby of looking at open houses, and it explains one of the reasons why the house is up so high from our purchase price.

BTW, Hawaii has the nation's lowest unemployment at around 2.7%. Only ~1000 people filed unemployment claims last week. Mortgage rates just hit a 40-year low again, and this time they really mean it...
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Re: Interest only morts all the rage
Old 06-20-2005, 11:04 PM   #57
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Re: Interest only morts all the rage

So here is a slightly contrarian view:

Agreed that the interest-only loans, adjustable rates, and sloppy lendig practices are a worry to me. The costs people are paying for new houses isn't such a worry, though, because I think people basically bid things up based on how much they can afford to pay, and low interest rates mean they can afford a lot.

When the going gets tough, (if interest rates rise) it will affect people at the margin but most people will just grit it out and stay put.

Landlords won't necessarily get tanked (rents won't necessarily go down) because they are already so (relatively) low and don't seem to be connected to house prices. Landlord's dreams of capital gains, or anybody's dreams of capital gains bailing them out (the only reasonable logic behind the interest-only ARMs imho) are made of pretty fragile stuff.

Like Al Bundy indicated, there is a lot of capital sloshing around, so even if some homeonners are overextended, it isn't clear that they are a significant proportion or likely to become a significant problem. Lots of the buying is being done by deep pocketed people who are speculating,and even for those who aren't, bankruptcy is harder to do these days, so all but the most dire cases are just going to have to wear responsibility for these deals, even if it means evaporating a whole lot of their equity in the process or being stuck in a home for several years that you can't afford to sell.
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