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Welcome Patrick.net readers!
“I suggest using accelerated amortization, and shortening your time to payoff.”
Sometimes good investment may pay off mortgage much faster than accelerated amortization.
There are many people who believe they can obtain a higher compound rate-of-return than what they pay on their mortgage, but very few actually manage to do it. It is not difficult to find short periods where certain investment strategies outperform, but sustained growth of wealth without frequent drawdowns in excess of the rate people pay for mortgage debt is very difficult.
Scenario:
Homeowner invested money into education. University diploma increased his annual earnings from $20K (fast food cook) to $80K (software engineer) for next 30 years.
Do You think homeowner should accelerate amortization of mortgage instead of this investment?
Subsequnet to exotic financing, a $20k fast food cook is not a homeowner. And even in today’s real estate market, a $80k software engineer isn’t a homeower either without help.
“a $80k software engineer isn’t a homeower either without help.”
Maybe not in Irvine. But there are places where real estate isn’t $300+ a square foot, believe it or don’t.
“Maybe not in Irvine. But there are places where real estate isn’t $300+ a square foot, believe it or don’t.”
Very few software engineers live in those areas. Very, very few people making $80K/yr live in those areas.
-Darth
There’s more than you think thanks to the internet.
“Very few software engineers live in those areas. Very, very few people making $80K/yr live in those areas”
Darth, I know lots of engineers and programers. If they live out here they can afford to have a den. That was a deciding factor for at least two that I know of.
Someone from Newport Beach told me that it was only the workers that live out the IE. Well, I see a lot of nice cars on my drive in everyday. Do you think that all our doctors, pharmacist, bank presidents and such commute in?
brea: “Darth, I know lots of engineers and programers. If they live out here they can afford to have a den. That was a deciding factor for at least two that I know of.
Someone from Newport Beach told me that it was only the workers that live out the IE.”
Ahh, the IE. Yes, I have to take the toll road and the 91 out there on business every so often. I’m reminded of the saying, “I’d rather reign in hell than serve in heaven.”
Well, I’d rather rent in ‘heaven’ than own in ‘hell’, especially since prices in ‘heaven’ are still falling. Even when prices stop falling, they won’t be rising significantly for a very long time. I’ll be saving faster than houses appreciate for the next decade at least.
I don’t NEED to own a home. I’ll own a home when it makes financial sense to do so.
-Darth
“Do You think homeowner should accelerate amortization of mortgage instead of this investment?”
No, investments in human capital, particularly for ones own family, are not easily measured in dollars and cents. I am willing to invest heavily in myself, but when comparing investment opportunities for idle money, I will make paying down debt a high priority. I want to purchase cashflow for the lowest possible price. I am not interested in speculating on appreciation.
I completely second everything IR wrote above.
When I got out of school, I bought a business and used most of the revenues to pay off the business loan early. I could have bought a home in Turtle Rock instead. These were difficult times due to the common pressure of buying a home (and quite my wife). Now, I have no business debt ... I have no debt at all. I would love to buy that Turtle Rock home now, but not until it’s prudent.
I am fortunate, not because I got lucky, but because I made difficult decisions when most others were making easy (emotional) decisions.
Agree.
However, it is risky to spend all money to retire debt, because it may be impossible to get credit tomorrow. “Putting all eggs in one basket” is not good strategy. “6 month emergency cash fund” is a start in right direction. Real fail-safe requires much more.
“They own a loan; they’re loan owners.”
They don’t own the loan.
They own the option to pay off the loan and the option to sell for profit.
They also own the option to stop paying, the option to live in the house as long as the lender who owns the loan will let them, the option to ask the lender for a modification, the option to ask the government for help, and the option to do almost whatever that want to the house which seems to include trashing it.
you forgot, the option to sell for loss, or near the break-even point.
With negative down payment in a non-recourse state and first, they can just pocket the money and walk away. But many blew the money on cars, bad investments, pretend to be rich and LV.
Jefferson was partially right. He underestimated the number of ruined families using the latest financial inovation. Same song and dance to sell the bailouts to the public. Currently the fox is guarding the chicken coop and is making the rules/laws.
Property tax can also be viewed as rent. Don’t pay and the county will auction off the property.
What rights do leaseowners have?
They have tenant rights.
If they are lucky they also have the option to buy or rent and the option to blog about the moment in time when they are contemplating that heart wrenching life decision surrounded by risks.
They also the option to not live in such an area that requires gut wrenching mental debate.
“What rights do leaseowners have?”
Leaseholders have the right to occupy and use real estate as an owner would. A better question may be, “what rights do owners have that leaseholders do not?” There are not many.
The leaseholder has a duty to return the property in a similarly usable condition at the end of the lease, so leaseholders rarely make many improvements unless the term is long. For instance, commercial leaseholders improve their own spaces, but they also sign 10 year leases. Most residential leases are only a year, so most renters won’t make improvements; however, many long term renters paint rooms and do other improvements knowing they will have to pay to restore the property to its original condition at move out if the landlord does not accept the changes.
As I stated in the post, the main difference is equity participation, and of course, emotional attachment.
Oh, and we get to giggle at tortured knife catchers…
I know how angry it must make you to chronicle two years of stable prices.
No more angry than you will be when the price stability ends and the mid to high end falls.
Hey let’s not single out winners and losers here.
I have some bad news, ultimately you both will be angry.
The barrage of government intervention to support the banks will impact housing prices and the economy in such a way that neither of you will be happy.
Man, are you crazy? Ask any homeowner; the past 2 years have been HELL. If house prices have been stable this whole time, people wouldn’t be losing their homes. You must be drinking some good Hatorade.
“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.” ~ Andrew Jackson, 7th President of the United States
Andrew Jackson was right.
Back in the day, most members of congress were land speculating on the frontier and using bank loans to inflate the value of land and pay themselves off. It was the first big Ponzi Scheme in real estate in America. Many Congressmen were wiped out in the utter collapse of land values that followed.
Jackson was rightfully revered as the Savior of America, and politicians in subsequent elections sought to make themselves over in the Jacksonian mode. Jackson was responsible for some horrible things including the Cherokee Trail of Tears, but on this issue, he was dead on.
Thinking back to the bubble years, I have to laugh when I remember some of the comments from family and friends who questioned our strategy to pay our house off early.
1) Why bother making extra payments - mortgage debt is GOOD debt.
2) Why don’t you pull some equity out of the house? You can use it to pay cash for a car.
3) Don’t you want to use the equity from your your house and move up to a BIGGER house?
The answer to all the above is “because we want to have peace-of-mind, pay the house off and retire early.”
Thank goodness we stuck by our strategy. I guess I had the last laugh.
greed got the better part of them.
Sometimes I wonder if you could make money as a pioneer like this:
1. Learn geology & figure out with global warming where the ice free shipping path past northern Canada is likely to be.
2. Identify deep water ports along that path.
3. Homestead or buy the port land for little to nothing.
4. Wait 20 years, then build the port or flip it.
By far one of my favorite posts. Slavery was abolished in this country, but INDENTURED SERVITUDE wasn’t!
Every generation needs a new revolution.
-Thomas Jefferson
IR..I don’t see any comments from you on today’s property. Is it good, bad, or ugly?
Well, this property has plenty of negatives; (1) it is small, (2) near the freeway subject to noise and air pollution, (3) the red paint needs to be painted over, (4) the 2005 buyer was delusional, and (5) the HOA dues are too high. I can’t really recommend this one unless you get a better price.
Compare today’s featured property to this one, 65 Smokestone: http://www.redfin.com/CA/Irvine/65-Smokestone-92614/unit-20/home/5573479
Why anyone would pay an extra $75K for Fairside over the Smokestone property? And Smokestone is still AT LEAST $25,000 above rental parity even if the buyer comes in with a 20% down payment at today’s gov’t-manipulated rates.
Fairside should be priced at no more than $240K and probably more like $200K. This should never be anything more than a cashflow rental. Comps on Fairside are $1500 or less, so this should sell for $230K to a family who uses their homeowner financing and tax credit and then turns around and rents it out, or $200K to an investor.
-Darth
I was just over hearing some guy advising his client about the shadow inventory. He was confident there is nothing to worry about because Cramer (who has close ties to our real masters (Goldman Sachs) said:
“Federal regulators aren’t demanding that the banks holding this shadow inventory dump it on the open market. As long as that’s the case, then there’s no reason to worry about it. This in turn allows the banks to keep the properties on their balance sheets and negotiate new loan terms with struggling homeowners, which slows inventory growth and helps to put a floor under housing’s decline. We’ve already seen stabilization in some of the hardest-hit areas, such as Florida and California”
What are your thoughts on this? Do you think the money masters can really manipulate the market this much?
That’s impossible the free market will force all of the banks to admit their insolvency and Obama will punish the infadel debtors in public shaming ceremonies. These events will be designed specifically to appease the insatiable desire of renters. Nobody can predict anything else, if they do, don’t believe them. Any prediction involving pro-longed government intervention for the banks comes straight out of conspiracy theories.
Is that sarcasm? I didn’t see any cap’s in your response.
“Do you think the money masters can really manipulate the market this much?”
They might like to think they can manipulate the market this way, but it is not very likely they can pull it off. It is a cartel, and by its nature it is an unstable relationship. Each individual bank has incentive to sell while prices are high even though the collective benefits from withholding inventory. This will cause inventory to be sold faster than the banks might like.
Irvine Renter, you are speaking with the desires deep within your heart and not with your mind.
Do you think this is some disorganized banana or drug cartel? Do you think a bank is going to say:
“Let’s liquidate all of our underwater properties, get off the too big to fail government gravy train, and send our bank right into insolvency!!!”
If what you are saying was in fact true, it would have already happened. Sometimes you need to take your reasoning to the next step, it would make you a better forecaster.
Sadly lost in the bubble and frenzy of mortgage equity withdrawal was the basic concept of paying off home loans as part of life and retirement planning.
Our long term financial plans always included paying off our home early so we would cut our monthly nut to the minimum amount.
I found it sad watching folks in their fifties and sixties committing to another thirty years of mortgage payments, and tragic now that they’re losing them.
Regarding the Thomas Jefferson Quote: “Educate and inform the whole mass of the people… They are the only sure reliance for the preservation of our liberty.”
Unfortunately, today public schools indoctrinate; education comes from educators who encourage critical thinking; unfortunately most teachers today are simply indoctrinators—quite well paid too—making 4,000 to 6,000 a month.
Haven’t been on here in awhile, but it looks like nothing really has changed… Still using the “It’s not a normal market” reasoning and “just wait” routine. I wish someone would make a time-line of all the statements that were made over the past 5 years because the reasoning of people who didn’t believe in the bubble is the same reasoning that perma-bears are using today. IR, How long is it going to be until you actually admit you were wrong about the stabilization of the housing market? You were right about the bubble, off a couple years and probably 30%, but right. However, you have been wrong about the stabilization. And, just like NAR in the beginning of the collapse, you refuse to admit it. I will say, you and all the other pessimists have relaxed your negative outlook, but in the end, you hit a .500 with your predictions. Hmmmmm, so did NAR.
Just to compare past expectations and to keep for record, you think the low-end has bottomed and the mid & high end still have a ways to come down now?
“IR, How long is it going to be until you actually admit you were wrong about the stabilization of the housing market?”
Do you realize how foolish you look coming here to call me out? Does it make you feel manly?
My writing is there for the world to see and make of it what they will. I have nothing to answer to you or any other permabull. If you think you can make a more persuasive case than I do, by all means, go start your own blog, perhaps you can get some leads for your business; sheeple want to believe we are at the bottom. Permabulls are right most of the time, just not when it matters most—right before the fall.
Keep doing what you are doing; I need people like you to serve as contrast.
I was never a permabull, by any definition. I recognized the build up in home prices, and I’ve admitted to being wrong about the size of the correction.
Isn’t it ironic that you’re complaining about me calling you out when there has probably been about 100 posts by you pointing out people who purchased a home during the past 5 years and lost it. Posts that stopped just short of flat out calling people morons.
I just simply want recognition that for over the past year you have been wrong. It’s sad that the forum was taken away, and the few bears with credibility with it, and we are left with this.
I made dozens upon dozens of posts discrediting your theories and the concept of the immense shadow inventory (which is correctly died down). It’s gratifying to see you at least recognize the bottom in the low-end… just 9 months late. A persuasive case is the actual facts and statistics of the last year, which have gone against every post you have made. In another 6 months you’ll say the mid range has bottomed and 6 months after that the high end…
Hey pal…why don’t you just worry about those extra townhomes you & Debi are trying dump, mmmmkay?
Sorry that you couldn’t sell your (personal) house.
Still not making sense…
“I made dozens upon dozens of posts discrediting your theories and the concept of the immense shadow inventory”
I think you fail to recognize that I and everyone else have been ignoring you comments because you are wrong. I allow people to express their opinions. If I don’t bother to engage you isn’t because you are right or you made a valid point, it is most often because your point-of-view is so faulty that I can’t even begin to correct it, and since you have already made up your mind that you are correct, why should I bother?
You and I are never going to agree, and our mutual opinions of each other are probably not going to improve. You are going to continue to embrace your faulty world view, you will continue to preach your faulty world view to customers of yours whom you will convince to overpay for real estate, and you will not feel guilty about leading people to their own destruction. I don’t like what you do, and you don’t like what I do; you are not going to change, and I am not going to change.
If you feel that you are serving people, you keep doing what you are doing, and allow me to do the same. I need neither your permission or endorsement to serve my readers. If I fail to provide a service or useful information, people will stop coming here.
I see that you have started a blog. You now have the same opportunity I have to write and make your point of view known. If people find value in it, then you can have a following. If you can make a compelling bullish case, I may even link to you. If you simply want to talk shit, which is what you do here, well, good luck with getting people to read that.
Well isn’t that the pot calling the kettle black. My faulty beliefs… buuuut not yours? What ignorance. We will never agree, that’s true, but I sure am glad we have the future to tell us who’s wrong. So far, present indicators tell us you have been wrong for quite some time.
The ones in Dana Point, Aliso Viejo etc. etc.
Oh, wait. You can’t.
Did you Heloc your Newport Beach place to pay for your later purchases?
So… What mid-to-high-end home did you buy this past spring? Cracks me up to see people change their tune about the problems in the housing market as soon as they get suckered into becoming a knife-catching homedebtor.
-Darth
Dude, you can thank govt intervention for all the things that have gone wrong with the perma-bears.
Can you tell me when govt will start rolling back its stimuli, mark-to-fantasy accounting gimmick, ZIRP, etc?
Under **normal** market condition and with no govt intervention, the price should come down. However, we’re not in **normal** market as everything has been rigged by the govt.
If you think the market is back to normal, then tell me: why is it that Benny Boy and his cohorts are still resorting to ZIRP? Shouldn’t we be at, at least, say 3% in short term interest rate?
If you can’t answer all of my questions above, you’re basically no better than the bears here on this blog.
Don’t let the door hit your rear end on your way out.
Didn’t you guys hire that Kiff dude? Hahaha…Ricky is gonna have a fun time with this joker just like what he did with the Vols.
Go Bruins!
TARP is being repaid. The short term interest rate will follow unemployment. Unemployment and interest rates with have a negative correlation. Unemployment was one of the strongest arguments for the bears when prices were declining, so let’s not forget it will have just as great of an effect when decreasing.
I’m guessing from your comments that a normal market means without government intervention. Sadly, government intervention was used to get us into this mess and government intervention is used to get us out. There will always be some form of gov’t intervention, especially with the current party.
“TARP is being repaid.”
Sure, with what? I rest my case.
“Unemployment was one of the strongest arguments for the bears when prices were declining, so let’s not forget it will have just as great of an effect when decreasing.”
You just slapped yourself with this argument. Explain to me then why is it that unemployment continues to increase since March ‘09 while housing price stabilized and even increased a bit at the same time in Irvine?
Unemployment is only one argument but certainly not the strongest. Mark-to-fantasy allows shadow inventory to build up and thus allow a distorted supply of housing out there.
And enough with using U3 from BLS. Try U6 which is close to 20%.
“Sadly, government intervention was used to get us into this mess and government intervention is used to get us out.”
Bull. Glass-Steagall was deregulation, not intervention (get your definition straight). That and Greenspan’s laissez-faire attitude wrt interest rates are two of the biggest culprits toward a housing bubble.
.....shoot why the hell am I arguing with a *realtard*? I’m such a fool.
Foreclosureradar.com is probably the best anecdotal source of looking at the foreclosure rate in California (Irvine as well). Dec 2009 had a drop off in number of preforeclosure filings but I’m beginning to see a pickup this month.
Look into 92618 and 92606 for a general consensus of where Irvine in general is heading. So far, the housing price is holding up pretty well in these 2 areas. *Hopefully* the option ARMs recast will increase the foreclosure rate
Foreclosureradar is not a good source. I’ve broken down a list from FR on Aliso Viejo and found that about 2/3 of the listings over 6-months old were recently purchased or listed.
Then how come the listing for your own place is no longer active (yet not sold)?
Perhaps Irvine Renter should be checking your HELOC history.
Haha… Whaaaat?! You feeling okay?
Residential MBS’ are back! Uh-oh, here we go again…
Private mortgage bond buzz portends deal revival
Rumblings have increased in recent weeks of the first new residential mortgage-backed securities (RMBS) packaged by private investment banks with traditional bond ratings since the mortgage crisis deepened in mid-2008, according to analysts, investors and a firm that assesses loan quality.
New issues would likely be first backed by conservative, “jumbo” mortgages above $417,000, sources said, a corner of the market that has seen limited access to funding. Restarting the RMBS market would give banks a chance to sell loans they originate instead of holding them on their balance sheets—expanding the ability to boost lending crucial to the U.S. housing recovery.
“We will have a (mortgage) securitization within the next two months,” predicted Sue Allon, chief executive of Denver-based Allonhill, which is talking with dealers to provide independent reviews on loans, in addition to the designations of traditional bond rating companies.
“Everyone has a goal of trying to see if they can get one out this quarter,” she said, adding that the issues will initially be “small and very clean.”
http://www.reuters.com/article/idUSTRE60C5TD20100113
-Darth
See, RoLar put USC in his screen name so we’ll know that he’s really smart.
Or, just proud.
I thiiiiink that’s a USC compliment too, right?
“RoLar_USC: government intervention was used to get us into this mess and government intervention is used to get us out”
I think You overestimate role of government. Printing or borrowing money does not change fundamentals, such as productivity of US workers.
TARP and other government programs are not medicine, but powerful narcotic pain killer. Long-term effects include dependence, addiction psychosis, paranoia, hallucinations and money loss.
By no means am I in support of government intervention, like I said, it’s what started the problem to begin with. Nor do I think that government intervention is a long term solution. I do, however, think that gov’t intervention can provide short term support in a situation that is experiencing an abnormal level of unemployment, which was also created by government intervention. To sum it up, when unemployment returns to normal levels then gov’t needs to back out and let things take their natural course. Intervention is not a long term solution but it is useful to curve the unnecessary short term volatility.
Some are looking for this.. Thank you…....