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I think that anybody who owns real estate should be scared to death about this!

 
Anonymous Coward
03/08/2005 11:43 AM
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I think that anybody who owns real estate should be scared to death about this!
When al of this crap starts to de-leverage, it will come unwound very quickly and crash the prices of ALL real estate nationwide..

Risky real estate moves
Put nothing down and don´t worry much about monthly payments -- what´s the worst that can happen?
March 8, 2005: 11:26 AM EST
By Sarah Max, CNN/Money senior writer
How much did they put down?
The majority of first-time buyers had downpayments of less than 10 percent.

Size of downpayment First-time buyers putting this much down
0% 42%
1%- 9% 27%
10%- 19% 12%
20% - 29% 10%
30%- 39% 2%
40% - 49% 1%
More than 50% 6%

Source: National Association of Realtors

SALEM, Ore. (CNN/Money) – The American spirit of "buy now and pay later" – or never – has been a driving force behind this unprecedented housing market.

Gone are the days of saving a hefty down payment and striving to pay off your house in 30 years. Today, the typical first-time home buyer or vacation-home buyer might finance the entire cost of the house and pay only the interest owed on the loan for the first several years.

The latest option? A monthly "minimum payment" that doesn´t even cover the interest.

Such innovations have, no doubt, been a boon to buyers who might have otherwise spent years socking away a down payment or paid a premium for a 30-year fixed-rate loan on a house they planned to own less than five years. And judging by historically low default rates, homeowners have been able to handle their growing debt burdens.

Then again, buyers have been experimenting with more aggressive financing in the best of all times, when interest rates remain low and home prices continue to appreciate.

"Mortgage markets have been so flush with cash that home buyers are able to layer one risk on top of the other," said Keith Gumbinger, vice president of HSH Associates. "It´s possible to borrow more than the value of the home, put in no money of your own and pay a minimum monthly payment."

What´s the worst that can happen, you ask? Consider the danger with three increasingly popular loan structures.
´Piggyback´ loans

The 20-percent down payment, once the first hurdle to homeownership, is now the exception rather than the rule. According to a recent survey by the National Association of Realtors, in fact, 25 percent of all buyers financed 100 percent of the purchase price, and 42 percent of first-time home buyers bought with no money down.

Though small down payments are the norm, borrowers with less than 20 percent to put down must either pay private mortgage insurance or borrow their down payment using a home equity loan or line of credit.

Most choose the latter option, also known as a "piggyback" loan. That makes sense if you can afford to make your regular mortgage payment and pay more than the minimum owed on this loan.

The danger: A home equity line of credit, which is the most common such loan, carries a variable rate and has no fixed payment schedule. If you make only the minimum payment, the balance of this loan will remain the same. What´s more, the interest you pay is immediately affected when the Federal Reserve raises short-term interest rates.
Interest only loans

As the name suggests, an interest only loan requires that you pay only the interest due on the loan for the first five, 10 or 15 years of the loan. It´s a popular option in areas where high home prices have made it tough for buyers to afford monthly payments that include principal and interest.

According to R.J. Arnett, executive vice president of national wholesale lending for MortgageIT, an interest-only loan makes sense for first-time buyers whose incomes will likely go up in the next few years or investors who don´t want to commit to paying principal every month -- but could afford to pay the higher amount if needed.

"If you´re the gambling sort, you could get into an interest-only product and bet that the market will build equity for you," said Gumbinger, explaining that paying down principal is not as much of a concern for people with shorter time horizons, particularly if home prices are going up.

The danger: Homeowners who are using these loans to buy more house than they can afford could get into serious trouble if they don´t budget for higher payments down the road. There´s no a guarantee that prices will appreciate. And if you stay in the house longer than you planned, your monthly payment jumps drastically after your interest-only honeymoon period.
The ´minimum payment´ option

The mortgage du jour -- which is marketed as a cash flow ARM, option ARM or flex ARM -- gives borrowers three or four payment choices each month.

They can pay the old-fashioned principal and interest of a 30-year loan.

They can pay only the interest due.

Or, they can make a "minimum payment" and add the rest of the interest they owe to the balance of the loan.

Lenders put a limit on how much interest borrowers can pile onto their loan. Still, borrowers who consistently pay the minimum will see the balance of their loan go up rather than down over time.

"Traditional banker that I am I didn´t think there would be much interest in this product," said Anthony Hsieh, president of LendingTree.com, referring to the payment option his company rolled out in February. "But consumers have loved it."

Still, Hsieh cautions that this not the best bet for everyone. "If you have seasonal income or are self-employed with monthly income that is inconsistent, this loan may be great for you," he said. "You can pay the minimum monthly payment a few times per year, but catch up by making extra principal reduction in months when your income is higher."

If, however, you´re using such a loan to push the limits on how much you can afford, you could be setting yourself up for trouble.

"Not only do you not own any of your home, but you may be piling up additional debts that could quickly exceed the value of the home," said Gumbinger, adding that the interest rates on these loans adjust every one to three months. "There are no guarantees that rates will remain at comfortable levels and no guarantee that home prices will continue to go up."

"You could find yourself in a rather uncomfortable circumstance," he said.
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
Nobody knows the meaning of common sense anymore. In a lot of ways, I will be glad to see the shit hit the fan. The days of living beyond our means are coming to an end, and still, nobody is paying attention.
W.VA.
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
Almost heaven, west virginia
Blue ridge mountains, shenandoah river
Life is old there, older than the trees
Younger than the mountains, blowing like a breeze

Country roads, take me home
To the place, I be-long
West virginia, mountain momma
Take me home, country roads

All my mem’ries, gather ’round her
Miner’s lady, stranger to blue water
Dark and dusty, painted on the sky
Misty taste of moonshine, teardrop in my eye

Country roads, take me home
To the place, I be-long
West virginia, mountain momma
Take me home, country roads

I hear her voice, in the mornin’ hours she calls to me
The radio reminds me of my home far a-way
And drivin’ down the road I get a feeling’
That I should have been home yesterday, yesterday

Country roads, take me home
To the place, I be-long
West virginia, mountain momma
Take me home, country roads
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
man i hate posts that are like reading a whole book. come on keep it short and sweet people. please respect that most of us can´t focus for more than 1 to 5 sentences...
Anonymous Coward 27
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
lmao
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
You have nailed it on the head....can´t focus, can´t read, can´t understand, want to be led around by the ring in your nose....
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
"Nobody knows the meaning of common sense anymore."

They never did. Even Mark Twain said the problem with common sense is that it´s not very common.
GREY LENSMAN
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
TYPICAL

NO MENTION AT ALL OF THE GREATEST RISK, FALL IN HOUSE VALUE.

SAY YOU BUY AT 250,000 WITH 5% DEPOSIT. BALANCE IS 237,500 YOU MORTGAGE (INCOME SAY 78,000)

WITHIN 12 MONTHS PROPERTY DROPS 20% TO 200,000 AND YOU ARE IN NEGATIVE EQUITY. YOU GET OFFERED A NEW JOB AT 90K BUT YOU CANT AFFORD TO SELL TO MOVE.

HAPPENED IN THE UK. PEOPLE TRAPPED FOR YEARS THEN EVICTED.

GL
star gazer
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
Glad I´m a renter!
Emperor Kenton
12/08/2005 10:15 AM
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freedom is a sturdy backpack.
...-...
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
ECHO KENT;)
Deacon Blue
12/08/2005 10:15 AM
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Doesn´t affect me because:

1) I only bought what I could afford.

2) It will be paid off in 5 years.

3) I have no intention of ever moving again.
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
This is Fanny Mae brining back the 40 year mortgage in an effort to diversify some of the 12 billion + losses it´s been trying to hide on the books. Why the SEC is investigating and FM still refuses to submit the reports that were due last October.

A last ditch effort to stave off the collapse, FM goes down, all with mortgages do too.
leia too
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
freedom´s just another word for nothing left to lose ;)


glad we sold the house while the market was still strong . . .

now we´re hiding until we decide what to do next . . .


edited to say: i think one of the "scariest" propositions i´ve ever heard of in terms of real estate is the "0%" interest rate mortgage - which translates to the buyer basically "gambling" that their equity will increase before a certain amount of time passes.

it may be more common here in california where houses are higher (in price) than giraffes´ asses.
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
We had something here in N.E. Pa. a few years ago that basically caused some people just to walk away from their investment/vaction homes.
Seems that back in the mid 90´s they were building houses in the Pocono Mountains and selling them to people at inflated prices.
The shit hit the fan around 2001/2002 when the economy began to faulter and people were looking to re-fianance at a lower rate.
The people would apply for the new loan and when the appraiser would show up they were apraising the houses below the price the buyer had paid 6 to 7 years earlier. Of course the principle balance on the loan was far more than the house was worth and the borrowers were turned down for the new loan. so people bought a house in 95 for $175,000 thinking it was worth at least $200k in 2002 only to find out the real appraised 2002 value was $150,000.
The banks that held the original mortgages got wind of this and an investigation was made.
It turns out that the developers were paying off the appraisers to inflate the value of the new homes so they could make more money.
A lot of people just walked away from the properties and filed suit against the developers and appraisers.
In the end the developers went to jail, the appraisers lost their businesses, the banks got screwed and the home owners lost their houses and investment.
I went to a bank auction and bought 2 of these houses for a total of $80,000 plus back taxes. I was the only person at that auction and got the houses for the minumum bid. I only intended to buy one house because I expected biding on the one I wanted. I sold one house for $145k 3 months later and I now live in the other free and clear except for utilities and taxes.
The only thing that bothers me and makes me sad sometimes is everytime I drive up my driveway I think of how my house may have been someone´s dream house lost because of someone elses greed.
Anonymous Coward
12/08/2005 10:15 AM
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More data.. down the street from me (where I have lived for several years) a house just sold for $369k. This may not sound like a big deal in these days of inflated prices but in 1994 this same house sold for $149k.
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
Dumb quetion, can you not defer the mortgage and resell anyways? I am having a serious problem right now. My mom lives in Canada and rents, but does not work anymore because of disability. She has about 200k or less that I know of. If she doesn´t buy something soon she will be left with nothing in under 10 years. Id say it costs 25k a year to live, anything less and it´s going to hurt. So wtf to do.
Anonymous Coward
12/08/2005 10:15 AM
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I would rent for now. If you look at the total cost of home ownership where I live on an annual basis(taxes, instrance, mortgage, maint, etc..) it is fairly high. People have been willing to put up with high annual housing expenses because we have had really good appreciation. But in the last 6 months there have been no movement on house prices, so the appreciation is over. if you buy now, you are buying at the top of the market with lots of risk.

This is just my opinion( I could not afford to buy the house I own now if I had to buy it at its current market price) I think a big correction is coming.
Anonymous Coward
12/08/2005 10:15 AM
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a good time to invest in the ´huge´ storage units, business. hahahahahaha
Anonymous Coward
12/08/2005 10:15 AM
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I´m just waiting for the fire sale! Dimes on the dollar! Stay liquid and wait for it!
Anonymous Coward
12/08/2005 10:15 AM
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Damn leia-

I never thought about how high a giraffe´s ass is before today....
nerak
12/08/2005 10:15 AM
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Yep mines piad for, it´s small but in a good neighborhood. Don´t plan on moving. Couple of years ago most people that my husband works with bought or built new homes, now their in some deep shit with the pay cuts and the fact that the bussness may go to India anytime.
Anonymous Coward
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
9:49, I hear ya. That´s what I have been telling her, wait for the collapse or at least a depreciation in prices and then buy when everyone else is hurting. Problem is where we live the prices will probably never hit rock bottom like they did 15 years ago when I was a little kid screaming at mom to buy something but noone was listening and mom as usual didnt have the cash. So fucking frustrating!! Anyway I hope the market crashes soon, I really do.
Anonymous Coward
12/08/2005 10:15 AM
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"I think that anybody who owns real estate should be scared to death about this!"

does it matter to others on this board what you think?

there is no time for SCARED

bye bye
GalaxyGirl
12/08/2005 10:15 AM
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Re: I think that anybody who owns real estate should be scared to death about this!
I recently became a real estate owner myself and I feel for the people who convinced themselves they needed expensive homes. They, if anything should happen, would be screwed. Luckily, I purchased my home, outright for cash, for the tidy sum of 15,500. I own it completely, and will never have to pay a dime on it, except for taxes. It is a good home of over 1800 square feet and it is in a good city. I didn´t have to steal, scam anyone or do ungodly amounts of research to find it either, just semi-ungodly amounts :). And, I know that there are people who would have happily paid 10 times that for the same kind of house, and they would think they are getting a deal. But in the end, it is pride, and convenience and a simple lack of research that led people to these purchases. They did it to themselves really. Hell, a 40K house 6 years ago would be valued at 3 times that now. How could people not realize this was an unrealistic inflation? Yet, they still kept buying....I feel sorry for them in some ways, really, but in others, I don´t. If nothing else, maybe they will learn a lesson that money or image aren´t everything and that it can be tremedously healthy to lower your expectations.
Anonymous Coward
12/08/2005 10:15 AM
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15,500? as this a recent transaction or quite a while ago?
Anonymous Coward
12/08/2005 10:15 AM
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I bought my house 10 years ago for 174,500.

I refinanced 3 years ago from a 30 year to a 15 year mortgage.

Principal balance is now 130,700 and dropping 800 bucks a month.

House recently appraised for 400,000.

I hope to sell it for 500,000 in 4 years, downsize and pocket 250,000.

thats the plan anyway.
GalaxyGirl
12/08/2005 10:15 AM
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I bought it in November of 2004 which is not that very long ago. I bought through an auction and it was a foreclosure. The process was simple and not in the least confusing. There are MANY more homes like this one for sale at comparable rates. To the person who posted right above this one, you are lucky. Many people get lucky but it is a gamble. We had a neighborhood go in here about four years ago, selling homes for 120K and up and now many of the owners, who realize they are in over their heads are upset to find they can´t sell for more than 80-90K. That is happening all over the area here. In many places though, the real estate bubble is still in effect. A home that sold for 80K 10 years ago would sell for 250K today. To those who are involved in that, good for them. But still, it is a gamble. And still, I believe it is a matter of pride and keeping up with the Joneses that drives people to buy such ridiculously expensive homes. For some reason, people have been convinced it is their divine right and an absolute necessity to live a life of luxury. Oh well....
Anonymous Coward
12/08/2005 10:15 AM
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I bought 10 acres for $400 an acre. Woods, trees, springs. beautiful. Built my own little cabin as I could afford it. Quite nice actually. Of course, I produce my own electricity. I pump 350 gals water once a week. And phones don´t work here. Who needs one?

Such a sweet price to pay for freedom!
I love it!
Monique
12/08/2005 10:15 AM
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Does not scare, is common sense. Should not buy house on small downpayment
Anonymous Coward
12/08/2005 10:15 AM
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#65, I´d really like to know ~ are you doing sattelite wireless or what kind of connection?

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