100% Consumption....Zero Savings....

[hayman]

I don't have demographics for you, because they really aren't publicly kept around here. However, I know of 2 concrete examples that were virtually the same:

- Dual income family, grossing between $ 120K - $ 140K

- 5 % or less down on $ 600 K properties.

- Mortgage and taxes combined close to $ 4,000 / month.

- Assuming midpoint of salary, and 30 % fed and state tax rate
after deductions, that's about $ 90K disposable income
annually.

- Close to $ 50K of that going to mortgage/taxes (i.e., 39 %
of taxable income; 55 % of disposable income).

These are 2 concrete examples of homes that I've sold. And believe it or not, I did try and educate both families into buying something more affordable, but in both instances, they looked at me as if I had 2 heads. They had to have their dream house, whatever the cost.

I don't get it, but these people are in big trouble, when the market turns. Negative equity, here they come.....

 

[hayman]

dgabriel,

With your assets and salary, you could easily buy a $ 4 - $ 5 million dollar property, without breaking a sweat, at today's interest rates.

Whether you would want to do that or not, is another question......

 

[hajimow]

The rule to buy a house is:
1-You SHOULD put 20% down minimum.
2- you should buy a house that will take 50% of your income after tax and you should not have debt more than 10% of your monthly income after tax.

Example:
If you have 100K salary and after tax you get 65K. Your monthly income is $5200. Your mortgage plus tax should not be more than $2600 a month.
Usually you are qualified for 3 times your yearly salary.You will get 300K and you can buy a house up to 360K

 

[telozo]

Good luck finding a resonable 350k house in New York, or tri-state area. Maybe in Montana.

 

[lilboy716]

hey..

someone has to hold the bag.

banks are the best indiscriminate sellers when the floor is taken out underneith everyone.

5%? isn't that a bit high... anyway...

1929 bubble was built on 10% margin. (effected 2-3mill people out of 100mill population)

2000 bubble was built on 50% regT margin. (effected almost everyone. ppl w/mutual funds, 401k....)

200x bubble was built on 0-20% down payment (everyone that has properties & money in the bank)

and the bankrupcy law had just changed.

the eventual bag holders will have to pay off their debt even though the properties are no longer theirs (sold by the banks). if it does happen... there are going to be tons of poor people in deep deep holes.

how high can the fed go? nobody knows.

the difference between 5yr - 10yr bond is only about .17% it was .25% a few months back... it'll take 6-10 quarter point increases for it to invert. we'll see what happens then

Quote from hayman:

I don't have demographics for you, because they really aren't publicly kept around here. However, I know of 2 concrete examples that were virtually the same:

- Dual income family, grossing between $ 120K - $ 140K

- 5 % or less down on $ 600 K properties.

- Mortgage and taxes combined close to $ 4,000 / month.

- Assuming midpoint of salary, and 30 % fed and state tax rate
after deductions, that's about $ 90K disposable income
annually.

- Close to $ 50K of that going to mortgage/taxes (i.e., 39 %
of taxable income; 55 % of disposable income).

These are 2 concrete examples of homes that I've sold. And believe it or not, I did try and educate both families into buying something more affordable, but in both instances, they looked at me as if I had 2 heads. They had to have their dream house, whatever the cost.

I don't get it, but these people are in big trouble, when the market turns. Negative equity, here they come.....

 

[telozo]

I don't seem to get it. If they can afford to pay the monthly PITI, why whould it matter if their house will go down in value? After all they buy it to live in it, not as an investment.

Quote from hayman:

I don't have demographics for you, because they really aren't publicly kept around here. However, I know of 2 concrete examples that were virtually the same:

- Dual income family, grossing between $ 120K - $ 140K

- 5 % or less down on $ 600 K properties.

- Mortgage and taxes combined close to $ 4,000 / month.

- Assuming midpoint of salary, and 30 % fed and state tax rate
after deductions, that's about $ 90K disposable income
annually.

- Close to $ 50K of that going to mortgage/taxes (i.e., 39 %
of taxable income; 55 % of disposable income).

These are 2 concrete examples of homes that I've sold. And believe it or not, I did try and educate both families into buying something more affordable, but in both instances, they looked at me as if I had 2 heads. They had to have their dream house, whatever the cost.

I don't get it, but these people are in big trouble, when the market turns. Negative equity, here they come.....

 

[lilboy716]

even if you can afford the payments, the banks wont want to hold on to the loans. banks will want more collateral.

600k loan 5%down... house is worth 500k now... 400? 300?

the domino effect kicks in, this is when the psychology of the public changes.

buyers can always step away, sellers cant.

i can't predict when it is going to happen... but when the public thinks housing prices can go up forever, something is got to give.

signs:
-my raver buddies went to get a real estate license.
-my high school math teacher went to get a real estate license.
-20% downpayment is no longer necessary
-real estate agents hint at interest only mortgages.
-LA prices are not raising as fast as the suburbs in riverside, san bernardino counties.
-100k-150k homes in apple valley(middle of the f ing desert), victorville (2years ago) are going for 250-300k
-google: real estate == Results 1 - 10 of about 109,000,000 for real estate
-google: "real estate" == Results 1 - 10 of about 94,200,000 for "real estate"
-google: sex == Results 1 - 10 of about 80,300,000 for sex



signs to look for
-prices stop climbing on high volume of transactions (simliar to stocks)


i like this analogy, paraphrased, from somewhere

100 residents sell houses to each other every year, they can push up their homes prices 20% a year. the problem happens when one of the residents went on vacation, and ....

Quote from telozo:

I don't seem to get it. If they can afford to pay the monthly PITI, why whould it matter if their house will go down in value? After all they buy it to live in it, not as an investment.

 

[NKNY]

Quote from hayman:



I don't get it, but these people are in big trouble, when the market turns. Negative equity, here they come.....

Why...This is their home not some investment to them. They wanted a dream home, no...? I'm sure they will be upset if they lost some equity but it would only be temporary. This is their home and they will be in it for years to come. Of course this applys only if they are in a fixed loan product and not an arm or an mta. They will only incur a temporary paper loss if values drop and they find themselves insideout... their payment will stay the same. As long as they can pay the nut...they will be ok.... Especially in NY.


Now the folks that are using arms and negative ams....oh boy...!

Nick

 

[Ivanovich]

Quote from hayman:

Zero Savings Rate is a function of the highly leveraged housing market, since housing costs are the major cost in everyone's budget. Being in Real Estate here in NY (Long Island), I can honestly say to "watch out below". Things are way overpriced, people are mortgaged to the hilt, and rates are eventually going up. This can lead to only one thing: Housing Bust, foreclosures, and a continuation of record low Savings rates.

Hold onto your hat !

Excellent! I'll be in the market to buy - with the cash I have saved up - sometime in a year to two. Perfect!

 

[telozo]

Quote from lilboy716:

even if you can afford the payments, the banks wont want to hold on to the loans. banks will want more collateral.

600k loan 5%down... house is worth 500k now... 400? 300?

the domino effect kicks in, this is when the psychology of the public changes.

buyers can always step away, sellers cant.

i can't predict when it is going to happen... but when the public thinks housing prices can go up forever, something is got to give.

signs:
-my raver buddies went to get a real estate license.
-my high school math teacher went to get a real estate license.
-20% downpayment is no longer necessary
-real estate agents hint at interest only mortgages.
-LA prices are not raising as fast as the suburbs in riverside, san bernardino counties.
-100k-150k homes in apple valley(middle of the f ing desert), victorville (2years ago) are going for 250-300k
-google: real estate == Results 1 - 10 of about 109,000,000 for real estate
-google: "real estate" == Results 1 - 10 of about 94,200,000 for "real estate"
-google: sex == Results 1 - 10 of about 80,300,000 for sex



signs to look for
-prices stop climbing on high volume of transactions (simliar to stocks)


i like this analogy, paraphrased, from somewhere

100 residents sell houses to each other every year, they can push up their homes prices 20% a year. the problem happens when one of the residents went on vacation, and ....

That I can understand beeing a risk, that the bank will want more collateral. But I doubt the bank will hold onto the loan. It will probably resell it to the likes of Fannie Mae.
Again, the only major risk I see is the owners not beeing able to afford the monthly payments, especially if they have an ARM.