Admit it: You' buy if you had the down payment

admit nothing, keep your mouth shut, and get a lawyer.

Sure I would. But only if home prices made sense. At $1,000 psf, they don't.

Have the down payment and then some, but we are still at bubble values for decent properties and the prospect of higher taxes, maintenance, etc make buying now seem foolish in my opinion. And if it is so difficult to obtain financing, and rates are going up - why are prices remaining "too damn high"?

A 20% minimum downpayment should be THE rule regardless of the price of the property.
A rise in interest rates will put pressure on housing prices for sure as - people pick the house they want to buy based on their monthly payment-.
What's great about rising interest rates is that if rates go from 5% to 10% on 30Years fixed mortgage, housing prices will fall 40% and the 20% downpayment money you have available today becomes equivalent to a 30% downpayment.

So to answer the OP question, i have the money but i wait until rate rise. I refuse to give so much money the the banks who are responsible for the mess we're in. And paradoxically , if mortgage rates are high, banks won't get as much from me as i'll be in a position to pay off my principal faster than with the current high price/low rates .

"A 20% minimum downpayment should be THE rule regardless of the price of the property."

It always was, until the banks were forced to change the rules back in the '90s to allow "disadvantaged minorities" access to the "American Dream"

@sledgehammer:

You are assuming that house prices are solely a function of mortgage interest rates, aren't you? However, how close to reality is this assumption?

So, if I understand you right, to punish the evil banks, you are refusing to buy a mortgage for a 5% interest rate and wait until the rates have risen much higher. Then you will buy a mortgage. What is your plan? At what interest rate will you do it? At 10%? I suppose the banks will really feel punished then.

Are you expecting that interest rates for 30-year mortgages rise to 10% and in what time frame?

Any person who thinks the down-payment should be less than 20% should ask themselves if they would extend a non-recourse loan backed purely by the asset(home) for less than 20%. Truth be told, any easy street poster predicting 10% decline in home prices would ask for more. it should be higher than 20%(probably 25-30%)

30 year fixed rates floated around 10-18% from the early-70s to mid-80s and house prices tripled.

http://www.freddiemac.com/pmms/pmms30.htm

steveF, that link doesn't show house prices tripling, let alone in inflation-adjusted terms. You might as well have linked to the Dallas Cowboys Cheerleaders.

RS, what's an "easy street poster"? You don't need to brush paste on the billboard first?

@Riversider:

And why should I even care what the down payments "should" be? And why would the conclusion from a 10% predicted price decline be that the down payment should be higher than 20%? My conclusion from a predicted 10% price decline will be that I don't buy at the current price. Or, that I only buy something for a discount that takes this anticipated price decline already into consideration. Nothing follows regarding the question what my down payment should be, though.

Rootless, it would be absurd to postpone my housing investment just because of my vision of the banking system. My decision is personal, logical % financially sound. I can't tell you when i will make a move because i can't predict the future except that i can tell you that right now what i see happening is that the Feds is spreading the damage. They couldn't and can't allow rates to go up from 4.2% to 10% overnight otherwise everybody who bought during the bubble would just walk away. People who think we hit a bottom are wrong. And people who decide they better off buying now rates are low are also wrong., because they won't get any incentive to pay off their mortgage before the 30Years loan period expire while if they'd buy at a low price with a higher mortgage rate, not only they can refinance at a lower rate sometimes down the road but also since their principal would be lower, they could pay off their loan faster or lower their monthly by just making a 13th monthly payment every year for instance.

>>It always was, until the banks were forced to change the rules back in the '90s to allow "disadvantaged minorities" access to the "American Dream"<<

Which wound up spawning the American Nightmare.

@ROOTLESS,
There are many people who argue that 20% down payment "isn't fair". Many if not all of these same people would think nothing of defaulting if the home purchase went against them(i.e real estate down 30%). I continue to believe that the bubble people who bought with nothing down, were in a sense very rational. They had no downside risk. They were long both a call and a put option(they made money if the home went up and could put the home to the lender if it went down).

until the banks were forced to change the rules back in the '90s to allow "disadvantaged minorities" access to the "American Dream"

wrong!
The LTV requirement went away because banks were not retaining the risk. It's that simple. They were either able to sell the loans the GSE's, or to the private market which securitized the risk.
The exception to reasonable LTV'S was CRA lending. The program was able to mitigate some of the risks associated with high ltv/low fico loans by requiring borrowers to undergo credit counseling, which really makes a huge difference.

:) @ alanhart.
Fking steve, it went from 18% to 10% to 7% then to 4%, given sound economics and not cowboy cheerleading, prices for nyc re rose, then lower downpayment, stir in 'MTV cribs', stir in Irish carpenters, we had bubble..... So fktard explain the continued price declines given lowest interest rate in history of modern america?

Well I've got an idea, the Irish carpenters went home. More likely idiots like yourself started to question your 15 unit new condo purchases, just picture yourself with scooby doo's face 'house prices decline?'

Bring the 100% equity home purchases. Just bring it. How many Fking nycers can handle a 30% down? 40% Howz about 50%? fk yeah, I see those 50% coops flyingz offz the Fking shelves. Financial retards...... Just extrapolate. Just stretch the brain cell.

Flmaozzzzzzzzz. $500psf wo even trying.

Riversider stop bitching about cream cheese prices, just look at all that non social security cash you left behind in 2008 by not selling (when I was Fking telling everyone to get the fk out). It's too late now..... Flmaozzz

The bubble people with nothing down usually still paid much more for housing than they would've if they just rented.

I sold a place in another city in '07 that was then short-sold in '10. For the three years the buyers lived there, they paid about $3,200 per month, plus they sunk in about $25k in improvements (based on the listing photos) that couldn't be financed. So, in the end, their average monthly cost was about $3,800, whereas a comparable rental would've been about $1,500.

I guess it's true that they had no downside risk, but it came at a hefty monthly price tag.

@sledgehammer:

You say you can't predict the future. Nevertheless, you make predictions about the future, like that "we" haven't hit a bottom yet.

You apparently assume it's better for everyone to have an incentive to pay off a 30-year mortgage before the 30 years are over. Why would that be? I would say it all depends on what I want. If I want to accumulate as much equity in my real estate property as quickly as possible, for instance to inherit it to my children, then you are right. If I just want to have a good life here and now before I die then it doesn't really matter. And if I even die before I have paid off my debt I won't care anymore once I'm dead.

"I just want to have a good life here and now before I die then it doesn't really matter."
So why bother buying? Rent instead (it's almost twice cheaper right now) and call the hookers!

I'll gander a prediction.

By the time you are dead rootless, youll either be short $ or have assets, 0 prob 0$ and dead. Unless you off yourself, then it's just not fair bet.

@Riversider:

"There are many people who argue that 20% down payment "isn't fair"."

What "fair" is and what not is very subjective. How would you even start to measure what's "fair"?

"Many if not all of these same people would think nothing of defaulting if the home purchase went against them(i.e real estate down 30%)."

Why wouldn't they? For moral reasons? Even if defaulting makes financially much more sense at the end? I very much doubt that most wouldn't. People change their mind often very quickly once they are in circumstances similar to the ones of the ones about they have judged before.

@sledgehammer:

Your quote is distorting my statement somewhat, since I didn't make a statement about what my personal approach is. I just laid out different possibilities to approach it.

Anyway. Regarding your suggestion. What do you think what I'm doing? We are renting and haven't bought anything yet, even if buying something would have been within our financial reach, exactly because we base our decision on the price-rent ratio, which is still totally out of whack in NYC on average. We will buy only, if buying is at least equally affordable as renting of similar quality properties.

does Charlie Sheen rent or own?

just because it's fun to show everyone what a complete asshole (and how wrong) w67 is i've got a blast from the past below. 500 per sq ft when?

"w67thstreet
about 17 months ago
ignore this person
report abuse alrighty... petrfitz... here is my financial armageddon financial situation (not wishing for it, but taking an educated guess with my on-line persona background):

One day petrfitz you will see a shadow of a homeless man in the window and do a double take and realize it's you in the mirror and you'll just be another financial version of the walking dead in those horror flicks. And here is how we get there.

DJIA and S&P goes on a false rally for the next several months with fiscal stimulus, Obama, and no bad news out, in Q3/4 09' banks start disclosing commercial/credit card bad debt.. capital ratios fall to a level where a second wave of banks are teetering on bankruptcies, Obama emergently passes TARP 2.0... GM goes under, followed soon by F and Chrysler... unemployment hits 11%, some municipalities declare bankrutcy roiling the public debt markets. Bernanke... goes back to his research paper and does everything he can to stench this with a negative interest rate policy... The chinese and middle east finally get that for their leaded toys and oil we gave them a piece of paper worth nothing. They dump dollars denominated bonds/RE and all other US assets... wrecking havoc on our currency. The RE downturn in US continues unabated and rent goes down b/c how many homes do we need? and people do the opposite of bubble... they consolidate housing (living with parents, rooming together, going back to school (dorms)), which further decreases value of RE (that's how you get "f!!!ed petrfitz." ). The US consumers feel the devaluation as a spike in gas prices and flat screen TVs, leading for an interesting time when TVs (due to contractual obligations) built in China are turned around and re-shipped to China in a "new" black market, as well as oil and other commodities (thank goodness we produce a lot of food in this country, if it was Japan.. .there would be riots and cannibalism.. they don't produce enough food to support themselves.. .hence their need to go on war rampages every 100yrs). Remember the J-Curve takes awhile and our export won't happen for several years and maybe never cause we demolished all the factories to make "HOUSING" . LMAO

Oh where was I? Yes, (Geopolitcally) all of the above wrecks havoc on Russia's economy, especially oil.. they are pissed and need someone to blame.. .Putin puts himself back in power with the "we hate America" even more now mandate (they already want us dead).. and in order to take the minds off its populace from huge unemployment and as a fiscal policy increases its military (Cold War version 2.0). They take sides with the middle east against US and Israel and secretly start shipping arms to Hamas via North Korea (as the US cannot effectively deal with a nuclear armed crazy country).

Now Americans are scared... TARP 2.0 hasn't worked, 600K new gov't jobs only represent 5% of those unemployed, bridges to nowhere only help 1/100 of the laid off housing construction workers... inner city youths get disenchanted as they do the right thing and go to college, but work at Starbucks and those working at Starbucks with GEDs are laid off. Gang violence increases and they come out with cheaper "crack" and this puts tremendous strain on our social services which are woefully lacking in funding.

Now we have "Stagflation". Bernanke doesn't have any credibility and as a student of economics.. .I believe the first order of business is to tame inflation (the German Bundesbank has it right). If Volker is still alive, he does Volker 2.0 and raises interest rate to 15% ( yep I gotz me a car loan from the 80's with a 19% interest rate right here youngins.. .it's happened bf). This is the medicine which will finally right the ship.. .but at the expense of further drop in RE...but this is like a 5 flusher people. This is when Petrftiz declares bk and walks around asking for change...

Oh BTW how's the sticks swinging today? I'm hitting my 3 iron to the "moon Alice," but then it messes up my Nike 5900 driver... WTF? Damn too cold to hit balls today... oh well... let me go find AR and play some mind games.... :)

This is just my worst case scenario given what I see... maybe petrfitz opens a Subway franchise (he's started a company... yeah!) and can look down on us I-Bankers."

1 comment

When I re financed a few months back when Jumbo's were below 5%, it was impossible to get a 30yr fixed w/o 30% down. Even with the downpayment,it was almost impossible to find a lender and I only got one by opening a significant account in the bank. But at the time, the 5 yr ARMS w/10% down were being pushed by every broker, small bank, internet hack. Serious push -- and they all had the same sales pitch. Like someone sent out a memo. And mortgage apps went way up. So, clearly many bit on the 5% ARMS. I think since rates are obviously going to go up, we may have another big wave of defaults in just over 4.5 years or so. Especially since by then a whole new generation will be trained to rent instead of buy so as not to get burned in RE. Not to mention that after years of flat wages, the new generation will have difficulty coming up with the 30% downpayment

Rates will be way the f up when the world wide credit/debt crisis comes home to roost. A few sovereign defaults in Japan and PIGS countries, some political unrest in oil countries, a housing market that continues to drop against the back drop of high rates, the aftermath of the ZIRP policy. Forget $500psf. What about a downpayment for a classic six with just a few ounces of gold?

@w67thstreet:

And on what is your predictions based? How do you make such a prediction? By reading a crystal ball?

Rootless, read this:
http://realestatevaluation.wordpress.com/2009/09/03/a-little-bit-of-history-gross-rent-multipliers-in-new-york-city-over-time/
========================================================================
Data compiled between 1890 and 1892 for New York from the Real Estate Record and Guide indicated gross rent multipliers between 9.5 and 10.1 for tenements and apartment houses respectively.

In the Appraisal Journal, October 1942, the “typical speculative buyer” who acquires property with debt would pay about 6.4 times the gross rent.

1975, gross rent multipliers fell. The gross rent multiplier ranged between 5 and 6 times the gross rent roll.

By 1988, gross income multipliers peaked at an average of 9.32 for walk-ups and, then, declined during the 1990’s recession to a low of 3.57 in 1992.

As the market improved, gross rent multipliers began their move peaking in 2006 or 2007 at more than 15 times gross annual rental income.
=============================================================================================================
Understand that the decade of free money is OVER. Borrowing money, from now on, will be MUCH more expensive.
You're talking about buying when it becomes as expensive as renting? How about buying when it's CHEAPER than renting. Don't think because you never lived it in your life that it won't happen again!

@sledgehammer:

"You're talking about buying when it becomes as expensive as renting?"

What are you talking about? Where am I supposed to have said this? It doesn't even make sense. Why would anyone want to wait until something he/she wants to buy becomes more expensive? I said exactly the opposite. I said, "We will buy only, if buying is at least equally affordable as renting of similar quality properties." (add similar size). Could it be that you read "expensive" where I wrote "affordable" instead?

I really don't know what it is of what you want to convince me what I have not been thinking and saying here already with respect to buying vs. renting in NYC at current price-rent ratios.

You misread me and are getting carried away on gibberish nonsense...
I said "You're talking about buying when it becomes AS expensive AS renting..." because you said above : We will buy only, if buying is at least equally affordable as renting.

Whatever adjective i used "expensive" vs "affordable doesn't change the fact we're trying to agree on.
There is no point in buying a property that cost you less in renting. While a 1/1 ratio may trigger your decision to buy, i'm just reminding you using history facts, that we might as well come back to a situation where house prices drop so much than it will become cheaper to buy than to rent.

@sledgehammer:

"At least" meant something. I don't exclude at all the possibility that renting becomes even less expensive than buying. It's just not possible to predict where the price-rent ratio will find its next bottom and within what time frame. But since we apparently agree on that it doesn't make sense to buy a property, if renting of similar size and quality is more affordable, there is no point in killing each other about who has misread whom.

The article you quoted apparently talks about price-income ratios for rental apartment buildings, i.e., the ratio of income such apartment buildings fetch for an investor relative to the capital to be advanced for buying those buildings. I would be careful to take the historical normal or lows of the price-income ratio for these buildings as reference for the historical normal or lows of the price-rent ratio that includes also condos and co-ops in the equation. Latter is probably somewhat higher than former.

Correct my second sentence. It's supposed to say, "I don't exclude at all the possibility that buying becomes even less expensive than renting" at some farther point in the future.

Buy Rent
taxes per yr 4,800 3,071 2,300 buy - mtg/tax/cc
common per yr 4,800 - (388) renter downpayment earning 5%
mtg payment 2,271 (735) - owner income tax benefits
interest per yr 21,900 (450) - loan balance/principal paydown
loan @ 5.50% 400,000 - 88 tax on renter's capital gains
purchase price 500,000 1,886 2,000 Mthly Net cost Buying vs Renting
rent 2,300
downpayment 100,000
(1st, security, broker) 6,900
principal paydown per mth 450

500k Studio bought w20% down vs rented for 2,300

The $450 is principal paydown(loan balance decreasing).
The $735 is tax benefits(28% bracket).
The $388 is not used down payment money earning safe 5%.
The $88 is tax on renter-invested-downpayment gains
The net monthly cost is 1,886 for owning vs 2,000 for renting.

Footnote: the principal paydown accelerates every year and
your rent increase long term.

sorry people...rent vs buy spreadsheet got all f'd up when I sent it

Buy Rent
3,071 2,300 buy - mtg/tax/cc
- (388) renter downpayment earning 5%
(735) - owner income tax benefits
(450) - loan balance/principal paydown
- 88 tax on renter's capital gains
1,886 2,000 Mthly Net cost Buying vs Renting

damn!.lol..i'm not retyping this again. What SE is not excel compatible?

@steveF:

To clarify your assumptions: first year common charges: $4800; first year taxes: $3071. Correct?

The outcome of this kind of calculations is sensitive to the assumptions about yearly percentage price appreciation of the property and the yearly inflation rate. What are your assumptions for these parameters for your calculation?

Did you include the closing costs for buying (let's say 5% of the purchase price) in your calculation?

Are the monthly net costs for buying vs. renting you calculated the costs for the first year? Or the average over how many years? The results differ depending on the number of years one anticipates to live in a bought place before selling it again.