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Fill me in on how buying a home you could afford 15 years ago, in order to live in it for 25-30 years, and watching its valuation drop by 50% in one year and then getting laid off from your job of 20 years could have been planned for more competently?
One hundred and eighty monthly installments into a 30-year fixed at 1993 prices, you would have had enough equity to sell or refinance even with a supposed 50% drop from peak book value. And of course, the actual drop in median home prices from peak to 2008 was about 10%.
Quote:
Originally Posted by Gatornation
This is where you reference it being bought 15 years ago. If one bought on a 15 year it would be paid off. The 220k to 170k is very relevant. It is the the sacrifice you have to make to pay a home off in 15 years.
The "sacrifice" is measured by the range of things you could have accomplished with all that money instead. Between 1993 and 2008, you would have been better served in quite a number of them.
One hundred and eighty monthly installments into a 30-year fixed at 1993 prices, you would have had enough equity to sell or refinance even with a supposed 50% drop from peak book value. And of course, the actual drop in median home prices from peak to 2008 was about 10%.
The "sacrifice" is measured by the range of things you could have accomplished with all that money instead. Between 1993 and 2008, you would have been better served in quite a number of them.
The reality though is the average American is staying very leverage in housing and not doing much with the money saved from having a lower mortgage payment.
The reality though is the average American is staying very leverage in housing and not doing much with the money saved from having a lower mortgage payment.
"Not doing much" you say? What's your basis for that and isn't it just a little squishy?
Yep many of those got their mortgage refinanced at lower a rates we may never see again. Others during the bubble gained enough to pay cash for homes bought later if they so desired. One has to always remember there were winners and losers just like in any market that eventually burst. Those who never shouldn't have bought in the first place when refied when into foreclosure with a year in many cases so it wasn't the type of loan. The real victims where people who lose their homes only because they loss their jobs in aftermath.
You can plan. The problem here is you are arguing from the perspective of the typical American which it is my opinion is quite foolish. I simply think the majority of Americans are are horrible financial planners who don't live within their means...
Actually that would be your inference. I am not making that argument at all.
Consider this:
It is 2007. A young couple, husband working as a tradesman for five years and his wife a real estate agent decide to wade into the housing market close to jobs and family in a regionally expensive market. They put down 25% on a home well within their means. They take out a 15 year mortgage with a very affordable monthly payment.
Flash forward two years. The housing market collapses and being a junior tradesman he is left unemployed (or he is injured and cannot work - take your pick) with the collapse of the construction industry and his wife can no longer find work in her field as the housing market freezes up. Their property value plummets leaving them under water. Is that 15 year mortgage a salvation or a curse? How does it help them? Will they still not lose more money than if they had put down 10% and been paying a 30 year note when their house is repossessed?
No one disputes that having a paid off home would be a good thing if you lost your income. But that was not the issue from which our debate evolved.
Remember this entire conversation between us started because someone posted that better planning would have solved everything, I said you cannot plan for some eventualities, and to that, you responded a 15 year mortgages would have helped.
I simply believe you misunderstood my original post (perhaps I could have been more clear) and have since pursued a line of debate that is non-linear. I have no issue at all with either paying down principal at an accelerated pace or putting that money aside for a rainy day. Both have their advantages.
Last edited by shaker281; 07-18-2013 at 11:42 PM..
Actually that would be your inference. I am not making that argument at all.
Consider this:
It is 2007. A young couple, husband working as a tradesman for five years and his wife a real estate agent decide to wade into the housing market close to jobs and family in a regionally expensive market. They put down 25% on a home well within their means. They take out a 15 year mortgage with a very affordable monthly payment.
Flash forward two years. The housing market collapses and being a junior tradesman he is left unemployed (or he is injured and cannot work - take your pick) with the collapse of the construction industry and his wife can no longer find work in her field as the housing market freezes up. Their property value plummets leaving them under water. Is that 15 year mortgage a salvation or a curse? How does it help them? Will they still not lose more money than if they had put down 10% and been paying a 30 year note when their house is repossessed?
No one disputes that having a paid off home would be a good thing if you lost your income. But that was not the issue from which our debate evolved.
Remember this entire conversation between us started because someone posted that better planning would have solved everything, I said you cannot plan for some eventualities, and to that, you responded a 15 year mortgages would have helped.
I simply believe you misunderstood my original post (perhaps I could have been more clear) and have since pursued a line of debate that is non-linear. I have no issue at all with either paying down principal at an accelerated pace or putting that money aside for a rainy day. Both have their advantages.
I do agree we are way off our initial points. Over the short term housing can be very volatile. Your personal example really fits my position. You took out a 30 and paid it down in 12 years. If one takes out a 30 year mortgage in this economy I think your plan has to be to pay it off sooner. If 5 years in you've had various job losses and still don't have much equity it is time to think about renting if you are not making any progress.
I'll go back to the PBS doc. The white family wasted a lot of money trying to stay in that house that they didn't have a stable enough income to afford. When they bought he had a stable job but after some years it was obvious he wasn't going to have a stable career. You can't predict bubbles and crashes but one can see after a certain amount of years if you are not gaining equity it might be time to reconsider home ownership.
Well we would have to agree where that savings was going. Investment numbers are met very impressive balance wise for your average American.
Squishy to squishier. You assume that people will have the cash to invest like clockwork in your 15-year monthly payment premium, but then assume they won't have the cash ever to invest in anything else. Pretty convenient set of assumptions. Are they justified by anything other than homilies and platitudes?
And just to note that the difference in P&I betwen a 30-year and a 15-year on a $300K loan at 5% is $765. But wait -- interest rates are typically lower on 15-year loan by as much as three-quarters of a point. Now, your extra monthly payment on the 15-year is only $645.
Last edited by oaktonite; 07-19-2013 at 08:10 AM..
Others during the bubble gained enough to pay cash for homes bought later if they so desired. One has to always remember there were winners and losers just like in any market that eventually burst.
Try to grasp the fact that there never was a bubble. Housing markets reacted exactly as they should have as mortage rates dropped by 3.35% or so between 2000 and 2003. They also reacted as they should have as the Fed cranked interest rates back up again between 2004 and 2006. All of the problems arose from unconstrained greed along the webs of Wall Street. At first, they were making huge profits and bonuses from pushing high-cost ARMs onto people who probably could afford them if interest rates were to reset. As the supply of those ran out, they pushed them onto people who probably could not afford them if interest rates reset, and then in turn, to people who definitely could not afford them if interest rates reset. They knew full well they were creating time bombs and selling them into the secondary markets. They didn't care. They were not willing to give up the profits and bonuses. How did they justify it? Well, "I won't be here, you won't be here. It will all be somebody else's problem." tells you a lot.
Quote:
Originally Posted by texdav
The real victims where people who lose their homes only because they loss their jobs in aftermath.
Quite so. There were two waves of note failures, the first caused by the egregiously selfish actions of Wall Street as described above, and the second after the credit crisis thus created led to asset market collapses that pulled the rug out from under the employment, income, credit, and spending of tens of thousands of ordinary, upstanding, hard-working Americans. As they lost their jobs, a self-reinforcing downward spiral was created that drove us into the worst economic collapse since the Great Depression.
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