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Warren Buffet: "only when the tide goes out do you discover who has been swimming naked"
When the economy tanks at some point over the next 2 years, you'll quickly be able to tell who bought too much house. The for sale signs will start to go up fast.
When the economy tanks at some point over the next 2 years, you'll quickly be able to tell who bought too much house. The for sale signs will start to go up fast.
Great buying opportunities coming down the tracks in a lot of asset classes. Those without debt and with liquid cash are going to do very well in the coming downturn. It will be a nasty one.
I have a friend who is a real estate agent in a pricey area. She says her clients just bought a $3.6m home with a $2.8m mortgage on an income of $600k. That's a train wreck in the making.
I think this answer would be very regional. California for example where the average price of a home is 440k, a high percentage of people living on the street can't afford the house they live in. That's not looking at more expensive areas like LA $570k or San Francisco 1.3 million. Alabama on the other hand, Median home prices are 150k, while it true wages in CA are higher, not as much as you would think, Median household income for CA is 71k, (San Francisco 120k) and in it's Alabama 61k. I would wager a higher percentage of people living in CA are living way above there means, then say Alabama.
People in Alabama overspend like people in California. Don’t fool yourself thinking that Alabamans are frugal and live within their means or have some financial sense over someone in Ca.
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Originally Posted by Bridge781
Well how are people getting loans or mortgages for houses they can’t afford? Isn’t it all done based on income?
Banks are pushing that DTI ratios ever higher. It’s harder to get a loan now than before. I think a lot of people are talking about the old NINJA loans. Here is the thing. A bank CAN loan to whoever they want. They just can’t sell the loan if they don’t follow the government backed guidelines and would need to keep the loan in-house
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Originally Posted by anoneemus1313
People buy houses and alot of other stuff they can't afford because social pressures groom them to think a home is a symbol of making it. Throw carefully crafted and exploited selling scripts, techiques and promotion they buy and over pay hook line and sinker.
I don’t really care what others do. Buying homes for me has worked out great financially.
I have a friend who is a real estate agent in a pricey area. She says her clients just bought a $3.6m home with a $2.8m mortgage on an income of $600k. That's a train wreck in the making.
The p&l would be roughly a third of their income after fed taxes. It’s certainly manageable if they’ve got control on the rest of their finances. It’s not in my comfort zone but ehh.
Fwiw your “friend” probably shouldn’t be disclosing the income of his/her clients to other people
The loan originators are just following the underwriting requirements, so they’ll be able to easily sell the loan. They have no idea what most of the borrowers other expenses are... children expenses, commuting expense, etc. They honestly don’t care, and they don’t care if the borrower will be able to save for retirement. The originator makes more on a bigger loan.
Yep, that is exactly it.
Yes, people overbuying homes is a big problem. The mortgage rep doesn't care what happens to you after the deal is done. Forget job loss, what is scarier is that there are many fully employed people who scramble to make their monthly payments.
The p&l would be roughly a third of their income after fed taxes. It’s certainly manageable if they’ve got control on the rest of their finances. It’s not in my comfort zone but ehh.
Fwiw your “friend” probably shouldn’t be disclosing the income of his/her clients to other people
First of all, if the friend wasn't naming names and didn't reveal the address, I don't see a problem, unless it was obvious which house it was. (An example might be the "big house on the hill" that's the most expensive place in town.)
Second-the P&I payments on a $2.8 million mortgage if it were 30 years and at 3% would be about $12,000/month. That's about $84K interest per year and you can deduct up to $750K so it's all deductible. I realize that comes with gigantic property taxes so the $10K SALT limitation applies but let's say the house is worth $3.5 million and property taxes are another $4,000/month. So, principal plus interest plus property taxes minus the tax benefit at 30% would be $13,900 per month out of gross income of $50,000 per month. Even after taxes there's plenty for groceries. The math for a $280,000 mortgage on $60,000 in income would be far scarier.
I've never played in those leagues but I did manage a $250K mortgage at 8% on about $100K gross because I DID have a decent amount left over and I didn't really have extravagant tastes. It was a HCOL area and I wanted to keep DS is that school district.
There are risks, of course- retirement is pretty much out of the question and it would take a heck of an emergency fund to keep up the mortgage in case of job loss. And while you might make a bundle if you sold into a good market, you could also end up so far underwater you'd have to give the keys to the bank and walkaway.
First of all, if the friend wasn't naming names and didn't reveal the address, I don't see a problem, unless it was obvious which house it was. (An example might be the "big house on the hill" that's the most expensive place in town.)
I’d wager if you ask the brokerage house they would have a vastly different opinion of yours and it should be rather obvious an agent shouldn’t be discussing this info even if names weren’t reveled
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Second-the P&I payments on a $2.8 million mortgage if it were 30 years and at 3% would be about $12,000/month. That's about $84K interest per year and you can deduct up to $750K so it's all deductible. I realize that comes with gigantic property taxes so the $10K SALT limitation applies but let's say the house is worth $3.5 million and property taxes are another $4,000/month. So, principal plus interest plus property taxes minus the tax benefit at 30% would be $13,900 per month out of gross income of $50,000 per month. Even after taxes there's plenty for groceries. The math for a $280,000 mortgage on $60,000 in income would be far scarier.
I understand the math just fine and applied a 35% effective rate which is an overestimate
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I've never played in those leagues but I did manage a $250K mortgage at 8% on about $100K gross because I DID have a decent amount left over and I didn't really have extravagant tastes. It was a HCOL area and I wanted to keep DS is that school district.
There are risks, of course- retirement is pretty much out of the question and it would take a heck of an emergency fund to keep up the mortgage in case of job loss. And while you might make a bundle if you sold into a good market, you could also end up so far underwater you'd have to give the keys to the bank and walkaway.
And while you might make a bundle if you sold into a good market, you could also end up so far underwater you'd have to give the keys to the bank and walkaway.
See this is way too generic. If you look at the stats on properties that ended (and stayed underwater) in the last housing crash, it was almost all lower-income and rust belt. Sure some places in coastal CA and other major metros had underwater properties for short times, but they all bounced back and are higher now than then. And the job loss is the same - the midwest and lower income areas took it to the chin - for the upper middle income (the people who buy homes) job losses were pretty minor and not much higher than average.
Also I swear that everyone who talks finances always covers risk so poorly, as though the worst that can happen is the average that happens everyday.
Just imagine for sports or entertainment was covered that way:
Yeah, Tom Brady has won some SuperBowls but he also threw 4 interceptions in a game once. He sucks at football. Look at him over there, swimming naked in the tide.
Michael Jackson may be the king of pop but when he had strep throat I sing better than him.
The conventional wisdom used to be "buy the most expensive house you can afford"- that's no longer a good idea for most people.
I don't think this was ever a good idea, except for people in the real estate industry.
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