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To answer the first, I think EscapeCalifornia said it well. Who is living anywhere for free? If you don't have a mortgage, you're probably renting. We have 9 years to go until the house is paid off.
Not exactly. According to OFHEO, about a third of all US homeowners own their houses free and clear.
Quote:
Originally Posted by Katiana
As for the gas price issue, I think it's a case of media-backed hype. Few have sat down and done the math. Yes, it's a big percentage increase from a year ago, but the increase in cash outlay is not that much for a person of moderate means. Like all such increases, it's hitting the poor the hardest. Ditto the increase in food prices. As for the national debt, I am not personally responsible for paying it off. I am too busy raising my family and living my life to worry every night about my portion of the national debt.
I agree that few have sat down and done the math. But for the debt-laden masses, these increases are pushing them further into the red. Second, consider that we're only a few months into this inflationary event. The real damage in an inflationary period is done cumulatively over time. More math there...the same people that love to tout the exponential growth curve when it comes to investing never mention that it works the other way just as powerfully when inflation rears its ugly head. And you're in for a nasty surprise if you think that the financial misbehavior of the sheeple won't or isn't already affecting you personally.
As for the national debt, you, and I are indeed personally responsible for paying it off. And every April 15th you get a chance to sit down and contemplate how that burden affects you. The politicians and industry lobby are deliriously happy that most people, like you, are simply too busy living their lives to notice or to care.
You pay every one of those costs when renting, just indirectly. Plus you pay for the landlord's profit. I agree that buying is not always better than renting. I have a nephew who about lost his shirt buying a condo he could not afford about 25 yrs ago. But when I read about the rents for 2 BR condos in Denver being $1200+, I am glad I have my house payment which is considerably less for my 4 BR, SF home. Housing prices will eventually go up again. I haven't heard of any depreciation quite as steep as you describe in the metro Denver area.
Well, no again. Lots of those turnover costs do not occur with a landlord, who doesn't sell the property evey few years. And the landlord needn't turn a profit...enough cash flow just to pay the mortgage results in an accumulation of capital that he will realize later as profit when the property is sold...plus he's taking advantage of a tax break in depreciating the house.
You will be hearing of that sort of steep depreciation in the years ahead. Look into the Pay Option ARM, or "pick a payment" loan. Millions of these financial time bombs were written in 2005-2006...they include a negative amortization payment option like a credit card minimum payment. Each month, the principal, instead of being paid down, increases at a ~5% annual rate. When the principal amount reaches 115% of the original amount, it recasts into a fixed payment mortgage over the remaining life of the loan. The difference between the minimum payment and the fully-amortized recast payment is usually over 100%...more than double. Right now, as long as the mortgagee makes his minimum payment, even though he is digging himself (and the bank) a sizeable hole, the loan is considered to be "performing" for bookkeeping purposes. When the loan recasts, the mortgagee, now faced with a loan 15% larger than when he started, on a property that has depreciated instead of appreciating, then finds himself seriously upside-down (owes more than the property is worth) and cannot refinance without bringing a large check to the bank. And that's money he doesn't have, or he wouldn't have taken that loan and made minimum payments in the first place. The vast majority of these minimum payers will default immediately when the loan recasts.
Now for the punch line...according to Credit Suisse, over 70% of the people with these loans have only made the minimum payment since day 1.
This disastrous wave will hit us in 2010-2012. And yes, it will hit Denver, too.
Last edited by Bob from down south; 07-20-2008 at 08:48 AM..
Not exactly. According to OFHEO, about a third of all US homeowners own their houses free and clear. 1/3 homeowners, 0/0 renters.
I agree that few have sat down and done the math. But for the debt-laden masses, these increases are pushing them further into the red. Second, consider that we're only a few months into this inflationary event. The real damage in an inflationary period is done cumulatively over time. More math there...the same people that love to tout the exponential growth curve when it comes to investing never mention that it works the other way just as powerfully when inflation rears its ugly head. And you're in for a nasty surprise if you think that the financial misbehavior of the sheeple won't or isn't already affecting you personally.
As for the national debt, you, and I are indeed personally responsible for paying it off. And every April 15th you get a chance to sit down and contemplate how that burden affects you. The politicians and industry lobby are deliriously happy that most people, like you, are simply too busy living their lives to notice or to care.
Most of these 1/3 who have no mortgage payment are elderly who bought their houses years ago. Per City-Data stats: about 25% of homeowners in Denver have no mortgage; about 47% of people in Denver are renters. All of the renters are making a monthly payment, and 3/4 of the owners. About 1/8 people in Denver have no house payment.
I didn't say I don't care about the national debt, and I don't appreciate your implication that I am somehow ignorant, naive or whatever. Yes, I pay income tax. I don't like it. I know some of it goes for good things, some for things I don't approve of. I don't spend my days, or even one day, agonizing over it. Don't misrepresent what I said.
Most of these 1/3 who have no mortgage payment are elderly who bought their houses years ago. Per City-Data stats: about 25% of homeowners in Denver have no mortgage; about 47% of people in Denver are renters. All of the renters are making a monthly payment, and 3/4 of the owners. About 1/8 people in Denver have no house payment.
I didn't say I don't care about the national debt, and I don't appreciate your implication that I am somehow ignorant, naive or whatever. Yes, I pay income tax. I don't like it. I know some of it goes for good things, some for things I don't approve of. I don't spend my days, or even one day, agonizing over it. Don't misrepresent what I said.
What you said is what you said. The words speak for themselves: "As for the national debt, I am not personally responsible for paying it off. I am too busy raising my family and living my life to worry every night about my portion of the national debt."
Those who own their houses outright have a monthly cost, too. More math here. It's called opportunity cost, or what the money equivalent to the market value of their house would make them if invested elsewhere. So their housing is not at all "free" to them. But it is indeed much cheaper than that of a mortgagee because they are not paying interest on that money, and there is very low risk as well.
The comparison of condo prices versus price to own an SFH is flawed, because one cannot generally compare the cost of a 2BR condo downtown with the cost of a home in the suburbs.
In many areas, the price of rent is considerably cheaper than the cost of owning. And in many cases, if the renter is putting the difference into some other investment, especially during this protracted housing deflation, he is actually gaining more return on his investment than a homeowner that doesn't understand the unhappy nature of negative leverage. I am a lifelong renter, and those investment gains are going to buy me a house for cash. So a renter can indeed end up owning a house free and clear by carefully investing the difference between a rent payment stream and the many varied costs of owning and turning over houses.
Don't take this personal...this is a general discussion. The only personal observation I have of you relates to stating that you carry a mortgage and then saying that "some of us are personally debt free." A mortgage is debt...often very big debt, and anyone carrying one is definitely not debt-free. I make no blanket conclusion that all mortgage debt is irresponsible or poorly advised, but note that much of it is. The real estate industry loves to promote carrying of as big a mortgage as possible as a can't-lose successful investment strategy, and millions are now discovering what a disastrous downside risk that poses.
Last edited by Bob from down south; 07-20-2008 at 08:53 AM..
That is not a sure thing. The price of any commodity--and for "investment" purposes, housing is a commodity--tends to fluctuate in both short and long cycles. The short-trend cycle is generally upward for a long period of time, with relatively short-lived and mild downturns. The "long-cycle" trend is more interesting--following a generally gentle upward course until, at some point, speculation begins to rapidly inflate prices--a "bubble." This is usually the sign that the end of that long-cycle upward trend is imminent. What generally follows is a precipitous collapse in prices that wipes out in a few weeks or a few months (maybe longer, especially if the government tries to intervene and stem the decline, as they are doing now in the housing market) not only the "speculative" increase, but much of the "gentle" increase that has occurred over years--or decades. Simply stated, a "crash." What follows is usually a protracted period of stagnant low prices that finally begin to increase slowly--and the whole long-term cycle begins again. Generally, the longer the long-term upward trend and the more steep the speculative increase at the end, the more precipitous and deep the following decline will be, and the longer it will take to recover. Hmmm, I think I just described the real estate market in the US, including Colorado, over the last three decades or so.
So, Kat, you are probably right. House prices will eventually go up again. I wouldn't hold your breath waiting, though. As the economist, Lord John Maynard Keynes said, "In the long run, we are all dead."
PS--We could only hope that oil would follow this course, but it is one commodity that likely will not. Why? Because the supply of it is now very likely in permanent decline, and what additional supplies that can be found are going to cost much more to produce than even the high current market price would make profitable.
OK, let's get back to what we were originally talking about, that is people borrowing money to take vacations. I don't know how you two, jazz and Bob, know how everyone on this board finances their vacations. I get a good sense from this board that not everyone is borrowing $7500 to go to Disneyworld.
No one has a crystal ball. No one knows what will happen with the economy in general, housing prices, etc. No, it's not a sure thing that housing prices will go up again, but that has been the general trend over a few centuries of observation.
I guess I am one of the few Idiots that just does not get it.
Ah, Road trip 1972 Buick Gran Sport a tank of 104+ octane low lead, a little Bob Seeger on the radio and roll the power on from that giant 455 under the hood and off to Grandma's house we go.
104+ fuel 5.75 @ gal x 18 gal = 103.50
And when I get home I will jump into my '01 Dodge v-10 ram and go to work.
You have no idea what's going-on around you.... do you?
I love a good muscle car as much as the next gear head, but that is such a waste!
No, it's not a sure thing that housing prices will go up again, but that has been the general trend over a few centuries of observation.
That isn't exactly true. If housing prices are measured in inflation-adjusted dollars, there have been long periods when housing prices have actually been stagnant or declining in real terms, even if their nominal price has been increasing.
Even more disconcerting has been the use, of late, of the "housing ATM" to finance all manner of consumptive silliness--vacations being just one. The problem with using home equity in that matter is that it is destructive in two very nasty ways: first, it is the use of debt to finance immediate consumption (any financial advisor with a brain and some ethics will tell you that is dumb, dumb, dumb); and, second, such borrowing takes "paper" or speculative price appreciation, not yet realized, and turns it into an absolute concrete liability that must be repaid--whether or not the underlying asset's appreciation ultimately is realized or not (also very dumb).
What Bob and I are trying to say through all of this is that those practices, in all of their financial imprudence, are now coming back to bite millions of Americans right on the old glutis maximus, and the financial meltdown of that is going to be widespread enough to damage even those who didn't go out on the drunken debt-binge.
Well, we all have to live somewhere, don't we? Even a cabin in the mtns has to be paid for somehow. I never did look at a house as a great investment (we have other investments), but you do need a place to live. If you're not paying a mortgage, you're paying rent. Very few people inherit a house, for example, (at least not when and where they need it.) I mainly disagree that Bob's approach is somehow "better" than what my spouse and I chose to do. It's just different. All investments gain and lose in the short term, most gain over the long term.
Well, we all have to live somewhere, don't we? Even a cabin in the mtns has to be paid for somehow. I never did look at a house as a great investment (we have other investments), but you do need a place to live. If you're not paying a mortgage, you're paying rent. Very few people inherit a house, for example, (at least not when and where they need it.) I mainly disagree that Bob's approach is somehow "better" than what my spouse and I chose to do. It's just different. All investments gain and lose in the short term, most gain over the long term.
I can't wait to invest in a home (which I think is a great investment). Renting is the pits! What a worthless black-hole of waste!
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