This is nuts

[farmerEd]

http://www.msnbc.msn.com/id/8008924/

Maya Vestal, 25, who works for a biotech company, took the plunge this month with her boyfriend, plunking down $585,000 for a 1,200-square-foot home near San Jose in a neighborhood she describes as “not great.”

Frankly, the three-bedroom, one-bath house doesn’t sound all that great either. Built in 1940, it needs about $50,000 worth of work including new plumbing, new wiring and a new kitchen, she figures. “The only thing we’re keeping are the floors, which are beautiful, original hardwood.”

Together, Vestal and her boyfriend, a 25-year-old city worker, earn more than $100,000 a year, but the new $3,800 monthly mortgage payments will eat up nearly 70 percent of the couple’s take-home pay.

[Marshac]

I don't even understand how they qualified for this mortgage. 70% of net income My rough estimate puts that at about 45% of gross...

[BristolBane]

I think they're nuts too. This is just like 1996 - 1999 when some people kept saying the Nasdaq was in a bubble but it kept going and going and you hated to sit on the sidelines for fear of missing the next big leg up. Then it goes over the cliff... splat.

It's interesting.. last year when the Fed started hiking some people thought (me included) it would raise mortgage rates and prick the bubble. Mortgage rates have barely budged. In fact, you can still get 5.375% 30 yr fixed no points.

[cute fuzzy bunny]

Quote:

Originally Posted by Marshac I don't even understand how they qualified for this mortgage. 70% of net income My rough estimate puts that at about 45% of gross...

Current mortgage environment:

Got a pulse? Have a mortgage!

Whoops, no pulse? How about a home equity line of credit instead?

[ESRBob]

If all they're keeping is the floors, they'll spend more than 50k putting the house back in shape!

This so smacks of bubble to me.

My brother bought a townhose near DFW Airport around 1983. He says the dollar value (not inflation adjusted value) is only now getting back to where he bought in at. 22 years later.

I see some bad things coming when the interest-only gang starts having to pay the piper.

Still, a generation of indentured workers -- sounds like they won't be following us into ER any time soon. At least they'll stay put and pay their taxes. I feel for them, though.

Deep Philosophical Question: Should we feel sorry for them or glad they're willing to do it, thus keeping the economy ticking along for those of us living on earnings from our portfolios?

[Calgary_Girl]

No thanks....I sleep much better at night knowing that I don't owe a cent to anybody. They're either gutsy or just stupid.

[Nords]

Wait until they have kids, or until one of them loses their job.

Straight out of "The Two-Income Trap". Keep an eye out for this bargain at your local bankruptcy court.

[Michael Moore]

We bought our 1948 1100 sqft house in San Francisco in 09/1985. With two decent Federal salaries we just squeeked in and had to go with an ARM to qualify for the $157.5K price . If we'd waited another 4-5 months we would have been permanently priced out as things jumped a significant amount.

This new market is really scary looking for first time buyers, and I'm sure glad we're not in it (we paid off the house 2 years ago).

cheers,
Michael

[Brat]

What the couple in the article paid for the house is common in that community. *Frankly, if what they needed is a roof over their head they should not have done any remodeling. *

My daughter and her husband live in the area... their home is a 1970's split level in Bristol condition (a boating term) which they 'stole' right after 9/11 for ~$700,000. *Comprable homes are selling now for $800,000+. *

Employers will start having staffing problems again as a result of housing costs.

[cute fuzzy bunny]

Yep, bought my san jose area 900 square foot 1950 vintage house (big lot though, not a bad neighborhood but not super great) in 1993 during a dip for $162k. Two years later sold it for a little over $225k and thought I made out like a bandit. Today there are a couple of similar homes in the same neighborhood (its still iffy) selling in the high 500's and low 600's.

Thats nuts.

[deserat]

Yup - northern CA is nuts - my home in Vacaville has appreciated over 100% in the last 5 years. I just closed on a 10 year mortgage to pay it off at 5% and when the notary showed up she said I was the only 10 year loan she'd processed. She's had three 15 year loans and mainly the rest being 30 year re- finances or movers up to bigger and better this year. I laughed at what my house appraised at - I owe significantly less than half of that....but I always take that with a grain of salt as one needs to actually sell the house and see the money before they know the true appraisal.

I think it is crazy and wonder if it will at least stay at what it is. I thought I was getting gouged 5 years ago when I bought the house.....oh well. I guess it's lucky for me I'm where I am.

Bridget aka Deserat

[Mountain_Mike]

I refinanced last year with just a 5-year loan. My interest went from 6.75 to 4.5%, and I saved nearly $200 per month, which I promptly dumped into my 457 account!

I can't see the logic of volunarily signing up to be a slave for 30 years, but that's what most people seem to be doing.

[Marshac]

[uncledrz]

Quote:

Originally Posted by ESRBob If all they're keeping is the floors, they'll spend more than 50k putting the house back in shape!

You are absolutely correct on this one. Building materials are increasing dramatically. Fifty grand will not redo a house completely, including the plumbing, electric, etc, unless the owners are able to do most of the work and genral contracting themselves.

[cute fuzzy bunny]

Looks like a chart of the nasdaq minus the last 5 years...

[cute fuzzy bunny]

Quote:

Originally Posted by uncledrz You are absolutely correct on this one. Building materials are increasing dramatically. Fifty grand will not redo a house completely, including the plumbing, electric, etc, unless the owners are able to do most of the work and genral contracting themselves.

Pretty unlikely even then. We put ~ 45-50k into the wifes old house with me doing plenty of the work and buying all the materials on sale with 10% discounts and no payment/no interest offers. My brother in law and two of her cousins (all licensed contractors) and a bunch of her brothers contractor friends came by to do the hard stuff. What I paid them was probably half what they normally get working a job.

You can spend 40k remodelling a KITCHEN...

[VoyT]

Quote:

Originally Posted by Nords Wait until they have kids, or until one of them loses their job. Straight out of "The Two-Income Trap".* Keep an eye out for this bargain at your local bankruptcy court.

*
* * Heck, it's already happening out here ...* the bankruptcy court has* record filings every year now -- helped by a soft manufacturing base and lenders who will (as TH said) give $$ to anyone with a pulse.* And our house prices are nowhere near California's

Yup, this is where the 'stupid money' is going today. - If you want to know where the next crash is all you have to do is follow the cash.

No one is excited about the stock market, and that is the only thing that makes me somewhat comfortable with it. High P/E's and all.

[ESRBob]

C-T;
I love the way you think, man!

Still, if everybody starts agreeing that housing is in a bubble, who knows, it could end up letting things go even higher.

I've been calling the housing bubble (wrong) since 2003. Now its even higher.
Can you believe _average_ house prices (for home resales I believe) were up across the country some 15% year-on-year in the latest stats. If the average is up 15%, there must be some wacked out appreciation in some parts of the country. Feels bubble-like to me.

[retire@40]

Quote:

Originally Posted by ESRBob Still, if everybody starts agreeing that housing is in a bubble, who knows, it could end up letting things go even higher.

I don't think you can have EVERYONE agreeing there is a bubble, otherwise there will be no bubble.* The bubble happens when SOME people think there is nowhere to go but up and keep buying no matter what the price is.* When those people are gone, that's when the bubble pops.* I too thought there was a bubble 2 years ago, and I too have been wrong so far.* Now I think we have a bubble on the bubble, but maybe I'm wrong again.