Comments on: Housing calculations http://graycrane.net/daveblog/archives/2005/12/03/103/ dave frey's blog Wed, 07 Jan 2009 14:52:31 +0000 http://wordpress.org/?v=2.5 By: Dave http://graycrane.net/daveblog/archives/2005/12/03/103/#comment-313 Dave Thu, 08 Dec 2005 07:58:37 +0000 http://graycrane.net/daveblog/archives/2005/12/02/103/#comment-313 Thanks for the link, it added a lot of good concrete detail for me, and was a pretty balanced treatment. My little rent/buy decisions are loaded with opportunity cost, but this loan nonsense means real pain and suffering. So, the industry can argue that it's just another tool to manage your cashflow, and it looks great for a couple of scenarios, but what fraction of the borrowers are using this to save money on the side, it's got to be low: <blockquote> But [a CAR economist] argues that the loans are just the latest advance in the mortgage market. Little outright speculation is occurring, she said. <strong>The popularity of the loans reflects the fact that they allow people to get into homes they otherwise wouldn't be able to afford</strong>. </blockquote> And if they're not saving, how many of the >60% of these buyers are going to absorb a payment bump realistically between 20-70% in a few years? Certainly our line of work is not promising that kind of income growth. You're absolutely right, it's a good time to be watching on the sidelines, just don't forget to pack a strong stomach. Thanks for the link, it added a lot of good concrete detail for me, and was a pretty balanced treatment. My little rent/buy decisions are loaded with opportunity cost, but this loan nonsense means real pain and suffering. So, the industry can argue that it’s just another tool to manage your cashflow, and it looks great for a couple of scenarios, but what fraction of the borrowers are using this to save money on the side, it’s got to be low:

But [a CAR economist] argues that the loans are just the latest advance in the mortgage market. Little outright speculation is occurring, she said. The popularity of the loans reflects the fact that they allow people to get into homes they otherwise wouldn’t be able to afford.

And if they’re not saving, how many of the >60% of these buyers are going to absorb a payment bump realistically between 20-70% in a few years? Certainly our line of work is not promising that kind of income growth.

You’re absolutely right, it’s a good time to be watching on the sidelines, just don’t forget to pack a strong stomach.

]]> By: ns http://graycrane.net/daveblog/archives/2005/12/03/103/#comment-312 ns Thu, 08 Dec 2005 00:18:05 +0000 http://graycrane.net/daveblog/archives/2005/12/02/103/#comment-312 The many (>60% in the Bay Area, cf. <a href='http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/05/20/MNG5CCS82U1.DTL' rel="nofollow">this article in the Comical</a>) home buyers who have financed their recent purchases using interest-only loans are even more dependent on big capital gains, since there's no other way to pay the loans back (excepting those well-heeled investors who can just pay out of pocket). The large participation of these leveraged-but-not-rich buyers should make the coming bust unlike any other in recent American memory. Normally, home owners refuse to sell during real estate downturns, and the rate of transactions is greatly reduced, slowing the decline; but this time, there will be a large number of distressed sellers who have no choice but to sell immediately. Keep your $ and your plane tickets ready, Freys. The many (>60% in the Bay Area, cf. this article in the Comical) home buyers who have financed their recent purchases using interest-only loans are even more dependent on big capital gains, since there’s no other way to pay the loans back (excepting those well-heeled investors who can just pay out of pocket). The large participation of these leveraged-but-not-rich buyers should make the coming bust unlike any other in recent American memory. Normally, home owners refuse to sell during real estate downturns, and the rate of transactions is greatly reduced, slowing the decline; but this time, there will be a large number of distressed sellers who have no choice but to sell immediately. Keep your $ and your plane tickets ready, Freys.

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