WP: Homeowners in Harm's Way

[DeepModem Mom]

Homeowners in Harm's Way
By Albert B. Crenshaw
Sunday, April 3, 2005; Page F01


There has been plenty of wailing in recent months over the soaring property tax bills that homeowners have been receiving, thanks to their similarly soaring home values. Families complain of being "taxed out" of their homes through no fault of their own.

But less attention is being paid to a group of homeowners who could be in even greater peril: those who stretched themselves thin to buy an expensive house that they could afford only by borrowing on a low-interest, adjustable-rate mortgage.

Interest rates now appear to be starting back up, and many of these borrowers will soon face higher mortgage payments, often accompanied by those higher taxes.

It's hard to tell exactly how many such homeowners there are, but if the popularity of adjustable-rate mortgages (and interest-only loans) is any indication, there are a lot....

***

To the extent that all these types of loans become a more common way of financing a house, they represent yet another instance -- like the substitution of 401(k) plans for traditional pensions -- of Americans taking on risk that in the past was borne by someone else....


http://www.washingtonpost.com/ac2/wp-dyn/A20461-2005Apr2?language=printer


ON EDIT, adding:

LA Times
They're In — but Not Home Free
Many Californians have 'interest-only' loans. They might be living on borrowed time.

By David Streitfeld, Times Staff Writer

OAKLAND — Rachael Herron's new condo will ensure her financial salvation — unless it provokes her ruin.

Herron put no money down for her tidy one-bedroom, borrowing the entire purchase price of $211,000. To keep her monthly payments as low as possible, she got an adjustable-rate mortgage that won't require her to pay any principal for three years.

Thanks to her "interest-only" loan, the 911 police dispatcher was able to afford, barely, her first home. She now has a stake in California's sizzling real estate market. As her home increases in value, she plans to use some of that equity to pay down her credit cards.

But Herron is also setting herself up for a day of reckoning: Nov. 1, 2007.

That's when she has to start paying off her loan principal. If interest rates are higher than when she bought her home last fall — something many economists consider probable if not inevitable — her monthly payment will increase by as much as a third....

http://www.latimes.com/business/la-fi-afford3apr03,0,4296610.story?coll=la-home-headlines

[Greybnk48]

1. Remember the 70's

I am not well schooled in all of this, but when my husband and I decided to refinance our home loan two years ago the agent at our bank mentioned an ARM several times at a ridiculouly low interest rate.

All I could think of was what happened to some friends of ours in the 70's. They took out an ARM, which were popular then, and when they lost thier house thier rate had rocketed to 18 1/2%!!! They were buried and had to let it go. They were forced to rent for at least ten years until they could build up a nest egg to buy another house (with both of them working).

My banker chuckled and treated us as "old-fashioned" but we locked in at 4.6%, thank goodness!!

[RPM]

3. yeah - we are locked in at 5.25

and you know what - in 5 years we are going to look absolutly brilliant for it. ARMs in the 2's and 3's have nowhere to go but up. And soon they will. Perhaps then, I will hunt for a rental property...

[solinvictus]

5. Rental Property..

You're right, the foreclosures are already going up here (Alabama). My granddad's looking at two rural properties near him that are in foreclosure proceedings.

[RPM]

9. bingo - forclosure sales

will be happy hunting grounds; just need to sock away some cash for that since i won't be buying it on an 18% mortgage...

[K8-EEE]

21. Yeah We Also Did 5.125 Fixed

I totally remember the 18% interest rates days -- I was too young to own a home then but I remember a lot of my friend's parents up shit creek, foreclosing etc.

[Wright Patman]

6. At first I misread "banker" in your post

as "barker" as in a carnival.

"Step right up, get your no-money-down ARM!"

What the banker/barker doesn't tell you is eventually it will cost you an ARM and a leg and throw in your first-born to boot.

[NVMojo]

48. ...and read Banker as Friend of Bush!!!

Which means it's all about them not us...

[MeinaShaw]

47. Same 70's friends

"All I could think of was what happened to some friends of ours in the 70's."

We must have had the same friends. I remember friends going through the same thing. Their payment jumped up to $900 a month and they had to sell. That was a giant payment back then.

[SW FL Dem]

71. I remember the 80s

We bought our first home in 1986, the teaser rate for the first year was 7.25%, the rate for fixed mortgages was over 10%. When we bought our second home in 1989, we got a 7 year fixed rate at 10.25%! We definitely took advantage of the low interest rates and refied our current home at 5.125 30 year fixed.

[slackmaster]

75. 4.75% on 15-year fixed here

My mama didn't raise no foo'.

I remember the late '70s and early '80s.

[xchrom]

2. greed is the new american way.

not conservative money management.
everyone is looking for a piece of the pie that is bigger than they can afford.

it's what we sell now -- ''wealth''.

the only thing i would say about the young lady in oakland -- our home prices have sky rocketed so much -- that risky financing has become the only solution for many people.

at some point all this goes south.

[reprobate]

20. Americans in general have never learned financial management.

Consumer credit would not be out of hand if they had.

[moondust]

84. Or space and resources management.

I wish somebody (like the census) would do a study on how much "dead" housing and office space there is in the U.S.--unused/unnecessary buildings/rooms, how many are heated and cooled despite not being used, etc. IMO lots of resources have been wasted over the centuries on overbuilding with reckless abaondon.

[solinvictus]

4. This happened to a friend of mine..

About 1995, he married and the new wife wanted to immediately purchase a home. Unfortunately, she insisted they buy more home than they could really afford on a variable rate. Of course, the mortgage loan officer sold them on low payments that, in fact, were initially comparable to their rent. Of course, when interest rates went up as bit, their mortgage became unmanagable. They divorced, lost the house, and my friend now lives with relatives as he sold the home he owned as a down payment on the new one.

[anarchy1999]

7. And so it comes home.

I'm so sorry for everyone. Thank god our parents left Southern CA, just in time. They made a bundle and are now happily retired in a golf community in NC. They got out just in time, just like we asked, begged and pleaded with them to.

[Neverarepublican]

8. we refinanced to

a 15 year 4.875% rate about a year and a half ago and some guy from
a mortgage company got our name off a list and is trying to push us to
refinance to a 3.9% pay option arm loan with a 1% introductory rate for the first 3 months.
Now someone tell me how stupid that would be to refinance and pay some points to do it.
He called my husband one day when I wasn't home. I called back and told him we were not looking to refinance and to not call anymore. Does anyone know if this guy was offering a good deal or was looking for a sucker? We are doing fine handling the mortgage payments right now.

[sendero]

11. Since you asked....

... the answer is: he was looking for a sucker. I'm glad he didn't find one in you :)

ARMs are rarely a good idea - they might be when rates are at historic highs but they NEVER are when they are at historic lows.

[d.l.Green]

60. The ARM- 1year worked out for me. Of course I bought this rental property

8 years ago(10 year mortgage) and rates dropped every year I've had it- except the second year when the unmentioned "teaser" rate expired. I'm wondering if the banks still play such tricks...

[apple_ridge]

10. I find it hard to have sympathy for people who were stupid

enough to go for an ARM.

DUM.

[Tracer]

13. It all depends.

A year and a half ago, I took out a $10,000 ARM loan at 3.75% for some necessary home repairs.

I did this knowing that I could pay it off quickly Ñ having a paid-off home.

Every month for the past 9 months or so, the rate on this loan has gone up by a quarter percent. It's now at 5%.

Luckily, I only have $2,500 to go. It will be paid off in 5 months.

[Ms_Mary]

38. It all depends on the terms. Ours is capped so that it can't go

above where it was when we started out. In the meantime, our refi'd rate has remained much lower.

[Media_Lies_Daily]

14. Well....aren't you the pleasant one this morning......

....we bask in the rays of your self-proclaimed intelligence.

[Greybnk48]

12. If things really go south, which I think they will

our area may be hit hard. We have about four huge sub-divisions that popped up several years ago during a huge housing boom in our area. The local farmers bailed and sold their land to developers (their slogan is "live poor, die rich"). My kids and I would go get ice cream at night and cruise these neighborhoods picking up real estate flyers left at the curb with the specs and the price of the homes. Nutty I know, but we somehow found it fun.

Virtually none of the houses, and we checked on quite a few, were under $240,000--which WAS very high for our area, it's not any more. One very nice house had caught my eye as it was being built. When they posted the flyer it was $310,000. The kids practically had to resusitate me.

These prices are truly absurd, or at least were absurd. My husband and I were stymied as to how all of these young couples could afford homes going for a 1/4 of a million dollars!! At the low end!! I'm talking about teachers, cops, hairsylists, banktellers, car salespersons...people we knew earned less than we do.

The crash around here may be spectacular.

[K8-EEE]

25. Oh Yeah, my working class neighborhoold in So CA has

half million dollar houses that are just...houses! A million in LA means nothing anymore....that's just a fixer in a decent neighborhood.

WTF??? WHO HAS ALL THIS MONEY? It's like everyone I know is settling for LESS salary & benefits, and the fuel & food prices are going up, so why are the houses so out of sight? Who's buying them? I think people are just digging their own grave buying in at these sucker low variable rates.

[lastliberalintexas]

30. Glad I'm not the only one wondering that!

I've been asking that for at least 5 years now, and no one can tell me how these people are affording $200K and up for a freaking house.

[Daphne08]

53. My husband and I are in the LA area

and we are wondering the same thing. Where are they getting the money for these overpriced homes?

[LibDemAlways]

73. They don't have the money. Mortgage brokers

are giving away money like penny candy. I personally know many people in So Cal who've bought recently with little or no down - taking out first and second mortgages totaling close to a million dollars, just so they can live in the new neighborhood up on the hill.

And when the downturn comes....I hate to even think about it.

[d.l.Green]

62. Over here on the East Coast, I know of one community where the

houses are selling for $1million for knockdowns(perfectly good houses that are knocked down anyway for the small lots)- in the entire community!- and this is coastal vacation(4 month season) property south of Atlantic City. I'm shaking my head. I have a great paying job and can just afford the payments on a house I bought 10 years ago- there must be a lot of speculating going on out there. Where's all this money coming from???

[K8-EEE]

65. I Guess From This Article...

it's all just smoke and mirrors -- people putting 0 down and paying interest only etc., they aren't really owning anything.

Isn't that one of the situations that fueled the depression?

[shrike]

66. That would explain it

Nothing but so-called luxury homes going up in our area -- and we're not enjoying the best of economic times here. Hubby and I have been scratching our heads, wondering who is buying these houses and where they're getting the money. Now we may have our answer.

[lastliberalintexas]

29. I think it's that way everywhere

I'm in SE Texas, and I've seen everything you've described as well. My husband and I make very good money, but we bought a smaller house costing about half that of the McMansions in the area (here between $250 and $300 usually). I don't understand how anyone making less than what we make could afford those other houses, and yet I also know that we are on the upper end of the income scale. There have to be many, many people in debt up to their eyeballs like the guy in that Lending Tree commercial! The misery index is going to be increasing dramatically when the housing bubble finally bursts.


And I'd never heard of interest only loans, but maybe that explains how some of the people could "afford" to buy the houses they're in. Because otherwise, I just don't see it.

[K8-EEE]

32. They Can't "Afford" It But They Can DO It....

those loans are just another scheme to own people, and in the process, make the housing values inflate so people will get equity loans and own us MORE...

[girl gone mad]

42. I'm in North Central Texas..

We bought below what we could afford, too, but we were also taking into consideration not wanting to pay to heat/cool and furnish rooms that never get used, and we like the cozy, family feel of a smaller house.

I've long wondered who exactly is buying all of these McMansions. They just never stop building them around here. They've been tearing down perfectly good family homes in Dallas and replacing them with million dollar mini-castles. I used to go to garage sales in the area, and there were so many very young families, often two luxury SUVs in the driveway. It's hard to figure out where the money is coming from since the job market imploded here in 2001.

I'm worried about a RE bubble, but hoping that houses in the affordable range won't be hit as hard.

[TaleWgnDg]

54. Here's a fairly straight-forward overview . . .

http://moneycentral.msn.com/content/Banking/Homefinancing/P73745.asp

[MADem]

55. And when it costs a fortune to heat and cool those McMansions

...you are gonna look VERY CLEVER to your neighbors!

[CoffeeCat]

76. Interest only loans are marketed everywhere around here...

...if you drive around in the nice neighborhoods (homes 300k-600k)--next to the "For Sale" signs there are "Get this house for only $900 per month!" signs.

I asked my husband how a $400k house could have a $900 payment (we pay that for our 120k condo). He explained all about interest-only loans and ARMS.

These loans start out with very low payments, because you're only paying off the interest--nothing on principal. Given that interest rates are so low now--the payments are low.

However, many of these people may find themselves in a world of hurt. The "interest only" payments are only for a few years, then they begin paying the principal too. Pretty soon, their $900 payment is $1050, then $1200, etc. Plus, if interest rates rise for these people on these ARMS--in a matter of a fews years, a $900 payment could suddenly turn into an $1800 payment--or worse.

[Virginian]

44. A new sign in our neighborhood advertises a new development

coming soon with townhouses starting at $600K.
Most have three levels, some have four.

[flygal]

50. Ha - we used to do the same thing

and we'd go to the open houses and just laugh - who needs this much house?! We got a kick out of visiting these new McMansions with about two feet of lawn to mow and you could touch your neighbor's house from your bedroom window!

I think areas like yours my old one are gearing up for retirees to sell off their homes in CA and other huge markets and live off their wealth. It's happening in college towns all over America and the teachers are being forced to live outside the town.

My college town is unrecognizable to me now - sprawl city!

[chicagojoe]

15. A large number of "McMansions" have gone up

in the past couple of years around here. Half-million on up. These are not millionaires buying these homes. These are people stretching it real thin. They may be bringing home a nice paycheck now, but as we all should know, anything can happen to make that paycheck disappear.

[alfredo]

16. I live on the edge of a McMansion community. I am waiting for the

the foreclosure fever to hit here.

I live in a 1,000 sq ft townhouse. It is paid for, and very energy efficient. I have the homesteader deduction on my property taxes.

[Indykatie]

19. Bankers Push ARMS

Companies often use these ARMS and other creative methods to qualify people that wouldn't otherwise be able to qualify for higher mortgage amounts. Folks are so thrilled with the opportunity to get a home they don't do their homework and end up in very bad financial situations. Indiana has the highest rate of mortgage foreclosures I believe. These type of practices contribute to that awful distinction for the state.

[alfredo]

39. predatory lenders is the term.

[LibDemAlways]

17. Modest homes in my Southern CA suburb

are fetching upwards of $700K. McMansions are going for well over a million. I personally know several people who have first and second mortgages totaling close to a million dollars - and these people are not millionaires.

When interest rates rise and prices fall, there will be a lot of people left holding the bag. Imagine owing a million dollars on a house that realitically is worth half that? It's going to get ugly one day.

[Tansy_Gold]

18. What irritates the hell out of me

is that many of these people who will find themselves losing whatever investment (even if it's only interest paid) on their homes really have no other options. They can deal with the ARMs and the negative amortization and all the other shit -- or they can rent and put all their money into someone else's nest egg.

Oh, I know there are plenty of folks out there who are buying McMansions that they don't need and can't afford, and I know the mortgage lenders are looking for every ignorant and greedy sucker they can find, and I know the tv is chock-full of ads for refis and equity loans and easy credit all around.

I live in an area that used to be vacant desert outside Phoenix. In the past three years it has mushroomed with houses, houses, and more houses, enough to require twonew grade schools and a new high school just within these developments. I don't know where the people are working, since there are no jobs in this community; they have to commute (there is no public transportation either) and that means driving with gas going up. I know that many of the homes are being bought by speculators and investors -- people buying into the relatively cheap Phoenix market hoping to either sell at a profit (meaning, drive the prices up even further) or rent to those who have been priced out of even this affordable market. (Most homes here are under $200K.)

So it really disturbs me to see that these people may be pushed over the cliff, to utilize John Edwards' very apt metaphor, and it disturbs me, too, to see how many people are willing to capitalize (pun intended) on the misfortunes of others.

[LibDemAlways]

24. The woman who used to cut my hair here in Southern

CA sold her modest home in Simi Valley last year for over $450K and bought a McMansion outside of Phoenix for quite a bit less. She's temporarily living on some of her profit from the sale of the house and commuting back to the salon in California for a week at a time - staying with relatives. Her husband is an RN who has found only part-time work.

I think many of your new neighbors are similar CA transplants.

[K8-EEE]

33. Oh Yeah, A Lot Of L.A. People Moving To AZ BUT....

the ones I know, they got so in debt up to their eyeballs after a layoff, they had no choice but to sell their house and use the money to pay the debts. They got a super inflated price ($650,000 on a dinky bungalow) but after paying the bills only had $200,000 or so left over and so buying a house at home was out of the question. The went to Phoenix because of the low prices, they are totally miserable there but effectively locked out of this market for good.

[SW FL Dem]

70. We used to own a home in the Simi / Moorpark area

We sold it in 2001, since then it has almost doubled in value. It's crazy, how many families can truly afford a million dollar home?

[LibDemAlways]

72. Southern CA real estate has gone nuts.

I'm in the Agoura area. Live in a 25-year-old 3 bdrm/2ba. tract house. Homes like mine are now selling for over $600K. Newer, bigger homes that sold new for $400K five years ago are now fetching well over a million. Thanks to low interest rates and interest-only financing, people are buying homes they can't afford hoping prices will continue to escalate. They aren't putting a lot down either. A family across the street moved here from the mid-west last year, and bought a house like mine for $600K with no down.

People like me can't even think about "moving up," though I could use the extra space, because the property taxes would kill me. I truly don't know where people get the money for the big house payment plus the big SUV payment and all the lessons for the kids, not to mention taxes, food, clothing, insurance, etc.....It's a mystery.

[SW FL Dem]

74. I know the area - I still have friends and family in the Conejo valley

I keep checking the real estate prices in disbelief. Our nice tract home was built in 1987 and originally sold for 280K, we bought it for 350K in 1995, sold it for 530K in 2001 and that model is selling for over a million. The house is nice and big, but nothing spectacular. Most lots are around 8000 sq ft. I can't believe properties are still selling, I guess it is because they're in Moorpark and properties in Agoura, TO and Westlake are even more ridiculous.

[LibDemAlways]

80. Ridiculous for sure.

A house nearby with no backyard, patio only, backing to busy street just sold for $899. Builders are buying homes from original owners, gutting them, doing some cosmetic upgrades, and putting them back on the market for outrageous prices.

8000 sq. foot lot? Where in Moorpark were you? I have good friends right near Moorpark College who bought for 350K in '90 and watched their equity disappear for a few years. Now, they're happy.

[SW FL Dem]

83. We were west of the 23 off of Tierra Rejada,

If they bought for 350 in 1990, they should be sitting pretty right now. The whole area is going crazy

[TygrBright]

35. Unfortunately, many can't even RENT...

>>They can deal with the ARMs and the negative amortization and all the other shit -- or they can rent and put all their money into someone else's nest egg.<<

There are all too many parts of America right now where there is literally no such thing as affordable RENTAL property. You have your choice between unsafe, falling apart slums at inflated rental prices, or elaborate luxury properties at wildly inflated rental prices.

There is almost nothing left of the modest, starter-level rental options for young couples or singles starting out and trying to save up to buy a place.

When I was (much) younger it was pretty much the standard pattern that you'd start out in a one-bedroom apartment in a small (8-10 units) building in a mixed (small apartments and single family homes) neighborhood, or a bigger, "downtown" apartment building. You'd be able to save some, and when/if you married you would move to a larger apartment or a small rented house for a few years at a rent that allowed you to continue saving for a downpayment on a starter home.

Now it seems like there's nothing between slums, overpriced gentrified condo/townhouses, and McMansions.

Youngsters today seem to have virtually NO affordable housing options; I have every sympathy for those who get sucked into these ruinous mortgages by the vile bloodsucking ghouls of the financial disservices industry.

regretfully,
Bright

[Tansy_Gold]

37. You're quite correct, Tygr, and it's gonna get worse BECAUSE

of those who are speculating in these markets like Phoenix. They've driven up the prices of these ticky-tacky tile-roofed houses in hopes of recouping by renting them out, but the rent they have to charge is prohibitive.

Of course, the developers are the biggest speculators of all, and for those who know how developments are financed in Arizona (through community facilities districts), it's even more obscene.

It seems that the trend begun post-WW2 to make ownership of decent housing affordable for everyone has been reversed. And that should make us all sad, because it heralds a return to the permanent renter class -- a sign of a landed aristocracy.

[seventythree]

45. You've hit the nail on the head

I have read that about 1/3rd of the RE market is speculation, and about 1/4th second homes -- if you have a crystal ball, get one of those interest only loans, and turn it before the balloon, in an area where the prices are really rising (all coastal -- Las Vegas) you have done a tidy trick and made yourself some bucks. I think I am stupid for not doing something like that. I have now been priced out of the market in Florida, but I have been watching another area. Trouble is,at my age, I don't really want to be bothered with the speculator's game -- it IS speculation -- you can lose $$ if there is a burst -- and it's a hassle, best left for the young folk. My sis bought a coastal small condo 3 yrs ago and it's tripled -- I am happy for her, as she can use that $$ when she retires in a few years.

[BlueManDude]

22. I keep telling people to avoid ARM's - do they listen?

I work in RE field and with interests rates already quite low just lock it in and forget about it.

[cliss]

23. Newton's Law of gravity: What goes up.....

...must come down. This includes housing prices. Here in Oregon, they have reached ridiculous figures.

A bulldozer project goes for $200,000 and no you don't get the bulldozer. It's ridiculous. At my office, people are feeling very proud these days. They talk about how much their house has gone up in value.

The A/P clerk considers herself an Einstein by buying at the right time. "Our house has gone up by $100,000". "It was a good investment". The receptionist figured out how much her house has increased by the day. She said, "My house is going up about $100.00 per day". It's a dump.

My boss, the Controller, has outdone them all. He said, "I was offered $630,000 for my house recently". He proudly walks around, just having realized he's only $370,000 from being a millionare. On paper, that is.

In the meantime, the AP clerk is having financial problems. Property taxes have gone up, electricity is up. Suddenly, it costs her $50.00 to fill up the tank. She told me it costs her $5.00 to get to and from work each day.

Meanwhile, we are living our low-key lifestyle which includes saving almost 1/2 of our take-home salary.

As the hamsters run ever faster in their little wheels, it never occurs to them that they're looking at a mirage. At the exact same time that their property becomes a gold mine, the risks of losing it are greater than ever before.

Their dream simply recedes further into the horizon, like the foothills outside Phoenix Arizona.

[megatherium]

36. I'm homesick for Oregon but your post makes me grateful

to be in Indiana, where I was able to buy a three bedroom brick ranch in a good neighborhood for <$120,000 -- only 5 minutes from work. I'm two years into a 15 year mortgage (at 5.4%).

[shrike]

67. Yeah, there is some affordable housing left in Indiana

New construction is ridiculous, but you can get a well-built older home for a good price. Ours is small, but on two acres in the middle of an urban area, very good condition, low maintenance.

[leesa]

26. This is going to be awful. My working class neighborhood is

mushrooming with brand new huge boats and SUVs and other high cost stuff in front of over-priced homes that the new owners ALL fully remodeled on arrival. I know, most, if not all, of these people make less than I do. All of this stuff is on credit. They will end up having nothing and paying for it the rest of their lives.

[K8-EEE]

28. People Are Using Their Home Equity Like Free Money

It's not very smart -- I did take out a line of credit to opay off credit card bills but man we paid that sucker down ASAP!! The more in debt you are, the more THEY own you and we know who THEY are...

[Barrett808]

27. Just got out from under our ARM - 30-year fixed at 5.5%

I can't tell you how relieved we are.

[4dsc]

31. After the bubble, price will DROP!!!

After this housing bubble burst's, the prices of homes will drop like a rock!! SO inasmuch as the increases do to interests rates and property taxes are inevitable, ultimately, the value of the homes will drop to make up the difference..

I fully expect housing prices to drop 25-50% in the next couple of years..

[flygal]

51. Makes you wonder if that's the plan

I mean the Fed keeping rates low so people were forced into these ARM's in big markets, knowing the taxes and higher rates would force them out and then **swoop** - rich folks come in and pick them up for next to nothing.

[BiggJawn]

34. "Lost ANOTHER Home to Ditech-Dot-Com!"

So who's the dummy now? Interest rates are going to go up, and there's a glut of pre-exisitng housing on the market already. That same housing glut will possibly make the law of Supply and Demand keep my monthly rent at the same level it's been for the last 6 years.

Sounds like Home Ownership is a more painful way to wind up living in somebody else's house with no "equity" than Renting...

Been a LONG time since I heard "But you're just throwing your money AWAY paying rent!"

Who's the dummy now?

[alarimer]

40. Stories like this make me glad I rent

Although renting has its drawbacks too. I am putting money in someone else's pocket but at least they do the maintenance for me. My sister sells real estate and tried to convince me that I could afford one of those interest-only mortgages but, having thought about it, I realize that is a sucker's bet, like playing the slots at Vegas.
They are building houses like there's no tomorrow here in Corpus Christi. I wonder who is buying those houses and where they work that they can afford these smallish houses that cost upwards of $200 grand.
I also see a lot of people with new trucks ($40K), new boats ($30K), so I think a lot of these people are in hock up to their eyeballs. When the crash comes it will be very, very bad.

[ozone_man]

59. That's a very good place to be.

Not the right time to buy a house at all, unless you have to. Wait a few years, maybe even 5 years.

[tinrobot]

41. ARMs do work great for one segement...

Those who plan to buy a run-down house, fix it up, then sell it within a few years.

If you're buying a place as a home, forget it.

[CoffeeCat]

43. This could be a disaster for the economy...

My husband and I did some house hunting today.

We are contemplating a move, and we went to several open houses today.

We drove around some really nice neighborhoods and we had a discussion about these $300k-$450k houses--who owns them and who can afford them.

My husband said he read an article that said 40 percent of all current mortgages are ARMS. I found that astounding. If 40 percent of people buying these expensive homes soon find their payments significantly increasing--that spells disaster.

Like many of you--I see people buying these homes who are policemen, teachers, accountants, etc.

I worry about what these sticky situations will do to marriages. The number one reason for divorce is money issues. Can you imagine the stress people will experience, if their house payments go up $500 per month. Furthermore, the credit card companies just increased their payment requirements a couple of percentage points. So many could see their credit card payments increase several hundred monthly.

Plus, look at what happened with the new bankruptcy laws. In a few months, people won't be able to get out of this debt by declaring bankruptcy. If all of these perfect storm factors come to fruition--many could be severely screwed.

This sounds like a recipe for disaster for the economy.

Maybe we should wait a couple of years to buy a home. We were thinking about making the move this summer because interest rates will rise. But I don't know. We might be able to get more house in a few years.

[seventythree]

46. Do I sound like an old fogey

when I say I am not surprised about the expensive cars, boats, homes with no readily identifiable flow of income to maintain it all. We boomers have been gnashing our teeth for some time about a generation that appears (over-generalizing here, for sure) to want everything right away that their parents worked decades to have. I watch my hubby's partner and his siblings -- they make a very good income, but they also have a high education debt to repay -- and these kids are, to my thinking, pretty extravagant spenders. You do not need designer sheets for the baby's bed, if you know what I mean. Before hubby went to the boss and convinced him to advance the already earned bonus to his partner, the kid didn't have the cash for the property taxes. I think he is budgeting more carefully now, but still!

[CoffeeCat]

49. I agree...you do not sound like an old fogey...

...I'm a young fogey and I feel the same way that you do.

It's crazy how people are putting themselves in financial jeopardy.

As you said, people don't have the "flow of income to maintain it all."

Plus, this crazy consumerism is totally out of control. Like you said, designer sheets for the baby's bed.

There are so many THINGS that people think they need--and many of these things are ridiculous.

Have you noticed that you don't just decorate your house with lights during Christmas? Now, there are lights for your house and bushes for Valentine's Day, Easter, St. Patrick's Day and the 4th of July.

Besides, the big houses, boats, SUVs, campers, big-screen televisions, computers, and DVD players--we're supposed to have lots of funky household items like wrought-iron wine wracks, upholstered footstools, fake flower arrangements, beaded picture frames, decorative glass, outdoor wicker furniture, ceramic hand lotion dispensers, Ralph Lauren bath towels, a bright-yellow Kitchen Aid Mixer, a platinum cappuccino maker, stone coasters, beaded pillows, velvet throws, etc.

It's nuts!

And the baby/kids stuff--is hilarious. Are we bad parents if we don't have the matching Eddie Bauer crib sheet, comforter, car-seat, wall paint, wall border, blanket, framed art, lamp and changing pad?

There's just so much focus on STUFF!

[seventythree]

68. I sometimes wonder what "hole" we are trying to fill

in our own souls. I know it's all relative -- I indulge myself with travel, but I think it's educational and at my age, if not now, when?
We used to talk about conspicuous consumption in my earlier years, compared to now, we weren't conspicuous consumers at all! I do take some heart in the many 2nd hand stores in my community -- but it's not so much a reflection of frugality where I live, as a reflection of the hard times in my community. I have friends and a sis who absolutely go bonkers when I buy a 2nd hand swimming suit -- Geesh, I wash it first in hot soapy water -- but they still go nuts. I just refuse to wear an $80 suit in chlorine because they get ruined so fast.
My fairly conspicuous consuming sister has finally gotten into the frugal mode, but it took a business bankruptcy to get her there. I assume it will take the same for many others in the late boomer/early gen "X" group.

[Algomas]

52. The bankruptcy law has an interesting parallel...

One of the first things Bu$hco did before invading Iraq was to declare the Geneva Conventions obsolete and to no longer recognize the Intl. Criminal Court. A cynical person might get the idea that war-crimes and torture were part of the grand scheme from the get-go.
Is it just a coincidence that this revision of the bankruptcy laws comes when the economy is poised for collapse. These evil bastards intend to suck every penny from the middle class and turn us into just another third world labor pool.
I intend to pull all my money out of the market tomorrow and corner the local market in Ramen noodles.

[tsuki]

57. Interesting side note. In FL, after the first

hurricane last year and before the second, WalMarts stocked up on strawberry pop-tarts. Using their huge database, they discovered that their sales of strawberry pop-tarts increased seven times after the first hurricane.

I only mention this in case you want to diversify your Ramen noodles stockpile.:)

[greymattermom]

56. sounds like

there will be some great garage sales coming up soon. i'll be able to get designer sheets for my grandbaby.

[tsuki]

58. You would be surprised at what you find at Garage Sales. I buy all

my jeans and a lot of my shirts at Garage Sales. They have never been worn, but, rather than take the clothing back that was bought to small, people put a dollar on it and sell it. Strange.

[Must_B_Free]

61. interesting thing is

I don't know if I can jump aboard this band wagon.

Is population in this country going down? No. Where are all these people going to live?

What about California? I would have said that was crazy a decade ago; where has it gone from there?

Are all of you so sure of this pronouncement of gloom and doom you are making?

[d.l.Green]

64. Maybe these sprawl mcmansions will transform into rooming houses and

cities will become fashionable and practical once again- oh, to dream...

[Logansquare]

81. An architect friend of mine calls them "slums of the future"

A lot of this new residential housing is put up fast and cheap, with a few granite countertops and jacuzzis slapped in. It isn't going to age well.

[girl gone mad]

79. That's the same argument that was made regarding..

Tokyo real estate in the late 1980s.

If the bubble can burst in a city like Tokyo, where undeveloped land is literally non-existent, it can happen anywhere.

Still, I wouldn't expect a drop here to be as significant as what Japan has gone through.

[iwillalwayswonderwhy]

63. We bought a house in N. CA in 2000

It took us 6 tries to buy a house. Bidding wars were the norm. If you didn't offer at least 10k over the asking you were just laughed at. We were finally able to purchase a modest 3/2 1600 sf house for 370k. 1st and 2nd mortgages. Exorbitant monthly payments (over 2k)! Both of us in our forties, we knew we'd never own that house. Within 3 months of moving into our new home, Silicon Valley started having massive layoffs just about everywhere. A couple of things we noticed almost instantly was that traffic lessened, all those office buildings everywhere were literally emptying before our eyes, and restaurants suddenly had NO lines. My husband survived 3 major layoffs, I survived two. My grown children could not afford to leave home. Grown children I worked with, some in their early 30's were still living at home (but driving very nice cars). We both started looking for jobs out of the state. My daughter (against my wishes) joined the AF just so she could move out. I landed a high paying job in Florida, we put our house on the market, we rented a one-bedroom apartment and holding our breath, we relocated. For 3 months, we paid rent and mortgage on the CA house and pretty much lived on credit cards. Then our house in CA sold for 460k (it was advertised as a STARTER home). We bought a modest 3/2 1600 sf house for 150k, put a huge down-payment on it and got a 15 year 5% mortgage loan. My husband got a job teaching at a local private college. Our mortgage is affordable. We have paid off our staggering credit card bills and our two cars. My oldest son moved to Florida. My middle child stayed in CA, moving in with his girlfriend who is daddy's girl (he bought her a condo).

We sleep better.

Epilogue: I moved in November. The company I worked for had another massive layoff in January and I would have lost my job. My husband commuted to N. CA until the following August, when he was layed off. But the housing prices in my old CA neighborhood still have not dropped. It just takes longer than a weekend to sell them. (I don't know why, but I still keep tabs on these things).

Moral: Look at the big picture. If you are in your late forties with a 30-year mortgage, you will never own that house. You WILL at some point, have to determine when its time to get out. You SHOULD be thinking about it.

[FourStarDemocrat]

78. We have a 6.5% 30 year fixed rate...

On the north shore of Long Island. We bought it in the summer of 2001 with a large down payment but still have 225,000 on the mortgage, which makes the monthly payments about $2,000 including the real estate taxes. The mortgage principal is down to about 215,000 now, but the good thing is that the value of the home and property has risen about $175,000. since we've owned it, so i'm not really complaining.

[paparush]

69. Its Going to Take an End to Easy Credit

to spark the revolution in this country. When anyone can go out and put their car, truck, double wide, 48" TV and all on credit, then Joe American stays insulated from reality.

When people can no longer obtain these 'basics', then we'll have rioting in the streets.

[ckramer]

77. I was thinking

what if the easy credit stays easy for another 5 - 10 years? What would that do to the housing market?

Would that be a problem for the US government and the economy? (Just keep printing the money and load it out, that's all - only need ink and paper)

It's said that 80% of the US families now own houses. So it's going to be 95% soon. Eventually everybody owns a house. Wow!

That's nice except who's going to buy these houses one day?

[dArKeR]

82. Your Money - Scary days could be ahead for adjustable-rate mortgages

Many borrowers who took out a one-year ARM at 3.5% last year will see their rate adjust to about 5.5%, says Keith Gumbinger, vice president of HSH Associates, a mortgage-consulting firm. On a $250,000 mortgage, that works out to an additional $297 a month.

Despite the risks of a big upward adjustment, ARMs are more popular than ever. More than 36% of mortgages had adjustable rates last week, according to the Mortgage Bankers Association. That's the highest since the trade group began tracking adjustable-rate mortgages in 1990.

Economists say rising rates for 30-year fixed-rate mortgages have stoked the popularity of ARMs.

http://story.news.yahoo.com/news?tmpl=story&cid=677&e=1&u=/usatoday/20050405/bs_usatoday/sandrablockyourmoneyscarydayscouldbeaheadforadjustableratemortgages