Buy Your New House SOONER Rather Than Later

[iLander]

The 30 year fixed rate mortgage- the most affordable way to buy a house- is being phased out. Because the plan is to phase out Fannie Mae and Freddie Mac, and let the banks determine mortgage rates, a mortgage may cost you quite a bit more within 2 years.

Banks don't actually like a fixed rate for such a long term, they prefer adjustable rates, because when inflation kicks up interest rates, they make more money. They're expecting inflation and a big payday in a couple of years. They also don't like a long term, because it takes too long to get their money.

Phasing out Fannie and Freddie is considered by BOTH parties in Congress as a way to get the taxpayer off the hook for unpaid mortgage loans. The plan is to finish this within 2 years. Article: http://www.businessweek.com/ap/financialnews/D9LM4UGO1.htm http://www.nytimes.com/2011/03/04/business/04housing.html?pagewanted=2&ref=realestate

But to me, it's just a way of shifting the $$$ out of your tax bill and onto your mortgage bill.

Also, without Fannie and Freddie guaranteeing loans, the banks will be less likely to make a loan if you don't have a fabulous, A+++, credit score. The banks also won't want to make a loan unless you have a big down payment.

If you want to own a house someday, this directly affects your pocketbook.

My suggestion? Start looking and buying houses now, because this bill could add 20% to your mortgage bill later. Housing prices have stabilized in the best neighborhoods throughout the country (lower quality housing in "subprime" neighborhoods is still sliding and is dragging down the averages), and is starting to tick up in prime areas.

This might be the best time to buy a house that you'll ever have.

PS I'm not a realtor, just passing this on to all my friends, because frankly this is happening so quietly, that it scares me.

 

[Missy]

Wow, thanks for the info ilander. This worries me because even though we are in the process of buying a home (fingers crossed- closing date scheduled for March 21st) and selling our beach home I worry because down the road (7-10 years) we want to sell our NYC home and this will make it much more difficult to find a buyer. This will change the real estate market in major ways.

 

[iLander]

Wow, thanks for the info ilander. This worries me because even though we are in the process of buying a home (fingers crossed- closing date scheduled for March 21st) and selling our beach home I worry because down the road (7-10 years) we want to sell our NYC home and this will make it much more difficult to find a buyer. This will change the real estate market in major ways.

I'm not too worried about your NYC real estate, Missy. The market there is tightly tied to the stock market, bonuses, etc. But I do think there will be a major wave of inflation in the next 2-3 years which will depress stocks slightly, as funds move to higher rates in cash instruments. I don't know where it will all fall out in 7-10 years though, you will probably be fine.

 

[dani13]

Thanks for this info ilander!! This kind of scares me, because we are currently in the saving phase, so we wont be able to buy till next fall/winter. I hope we'll still be ok

 

[chemgirl]

We're already seeing this in Canada. As of March 1st, maximum amortization terms are shorter. Apparently there is also legislation in the works to have mandatory 15% downpayment.

I can sort of see both sides of it. Housing in my area is very very expensive and just keep on going up. I bought my first house in 2003 and by the time I sold last summer the price had almost doubled. Its good if you're already in the market, but if you're trying to get in, its difficult. I've been seeing a lot of people buying at the top of their approval with 5% downpayments. It is really hit or miss whether they can keep their houses. Granted they can sell so we're not seeing the foreclosure rates that some states in the US have, but its still not ideal. I think that the new legislation will make it more difficult for people to buy houses that they can't afford, so in my mind, forcing larger downpayments is a good thing.

 

[Missy]

We're already seeing this in Canada. As of March 1st, maximum amortization terms are shorter. Apparently there is also legislation in the works to have mandatory 15% downpayment.

I can sort of see both sides of it. Housing in my area is very very expensive and just keep on going up. I bought my first house in 2003 and by the time I sold last summer the price had almost doubled. Its good if you're already in the market, but if you're trying to get in, its difficult. I've been seeing a lot of people buying at the top of their approval with 5% downpayments. It is really hit or miss whether they can keep their houses. Granted they can sell so we're not seeing the foreclosure rates that some states in the US have, but its still not ideal. I think that the new legislation will make it more difficult for people to buy houses that they can't afford, so in my mind, forcing larger downpayments is a good thing.

What largely contributed to the recession was the fact that people who should not have been purchasing houses were allowed to and given huge loans by the banks that the home buyers could not afford. It should always be a requirement IMO to place at least 25% down on a home. People who cannot afford to do this cannot afford to purchase their home IMO. It constantly shocks and amazes me that some people buy homes with nothing down or as little as 5 or 10% down. I mean what kind of fiscal responsibility is that person showing? This is what caused the real estate downfall IMO and I still see it happening!

We need to get back to reality and understand that we cannot always get what we want and need to purchase what we can afford. However, I think taking away 30 year fixed mortgages is harmful because that is what allows people who do purchase homes within their means to continue to do so and this in turn drives the economy. My opinion.

 

[Missy]

Wow, thanks for the info ilander. This worries me because even though we are in the process of buying a home (fingers crossed- closing date scheduled for March 21st) and selling our beach home I worry because down the road (7-10 years) we want to sell our NYC home and this will make it much more difficult to find a buyer. This will change the real estate market in major ways.

I'm not too worried about your NYC real estate, Missy. The market there is tightly tied to the stock market, bonuses, etc. But I do think there will be a major wave of inflation in the next 2-3 years which will depress stocks slightly, as funds move to higher rates in cash instruments. I don't know where it will all fall out in 7-10 years though, you will probably be fine.

Thanks iLander. I appreciate your words of reason. I am a big worrier and always looking ahead. Not a great quality of mine!

 

[charbie]

We're already seeing this in Canada. As of March 1st, maximum amortization terms are shorter. Apparently there is also legislation in the works to have mandatory 15% downpayment.

I can sort of see both sides of it. Housing in my area is very very expensive and just keep on going up. I bought my first house in 2003 and by the time I sold last summer the price had almost doubled. Its good if you're already in the market, but if you're trying to get in, its difficult. I've been seeing a lot of people buying at the top of their approval with 5% downpayments. It is really hit or miss whether they can keep their houses. Granted they can sell so we're not seeing the foreclosure rates that some states in the US have, but its still not ideal. I think that the new legislation will make it more difficult for people to buy houses that they can't afford, so in my mind, forcing larger downpayments is a good thing.

What largely contributed to the recession was the fact that people who should not have been purchasing houses were allowed to and given huge loans by the banks that the home buyers could not afford. It should always be a requirement IMO to place at least 25% down on a home. People who cannot afford to do this cannot afford to purchase their home IMO. It constantly shocks and amazes me that some people buy homes with nothing down or as little as 5 or 10% down. I mean what kind of fiscal responsibility is that person showing? This is what caused the real estate downfall IMO and I still see it happening!

We need to get back to reality and understand that we cannot always get what we want and need to purchase what we can afford. However, I think taking away 30 year fixed mortgages is harmful because that is what allows people who do purchase homes within their means to continue to do so and this in turn drives the economy. My opinion.

I can't say that I totally agree here. The amount of time it would take most people to save 25% for a down payment while also paying off school loans, starting a family, savings for retirement, etc. (And no I don't mean buying fancy bling, nice cars, but living normal lives), would put ownership off until a person reaches their 40's, maybe! Personally, I enjoy the fact that my husband and I can buy a home, not spend our money renting (bc in my area, renting is about the same as a mortgage anyways) and do all of this in our 20's. We actually are purchasing our second home right now, and are holding on to our first property as an investment until the market in our area changes. I agree that many people purchased homes who never should have been approved (heck, my husband probably shouldn't have been able to buy his first house 5 years ago!) But he didn't lose his home, and we are both now growing in our careers and will over time be able to put more towards our mortgage and pay it off earlier than 30 yrs. By making so many more people totally uneligible to own a home will only further drive the economy into the ground.

 

[chemgirl]

We're already seeing this in Canada. As of March 1st, maximum amortization terms are shorter. Apparently there is also legislation in the works to have mandatory 15% downpayment.

I can sort of see both sides of it. Housing in my area is very very expensive and just keep on going up. I bought my first house in 2003 and by the time I sold last summer the price had almost doubled. Its good if you're already in the market, but if you're trying to get in, its difficult. I've been seeing a lot of people buying at the top of their approval with 5% downpayments. It is really hit or miss whether they can keep their houses. Granted they can sell so we're not seeing the foreclosure rates that some states in the US have, but its still not ideal. I think that the new legislation will make it more difficult for people to buy houses that they can't afford, so in my mind, forcing larger downpayments is a good thing.

What largely contributed to the recession was the fact that people who should not have been purchasing houses were allowed to and given huge loans by the banks that the home buyers could not afford. It should always be a requirement IMO to place at least 25% down on a home. People who cannot afford to do this cannot afford to purchase their home IMO. It constantly shocks and amazes me that some people buy homes with nothing down or as little as 5 or 10% down. I mean what kind of fiscal responsibility is that person showing? This is what caused the real estate downfall IMO and I still see it happening!

We need to get back to reality and understand that we cannot always get what we want and need to purchase what we can afford. However, I think taking away 30 year fixed mortgages is harmful because that is what allows people who do purchase homes within their means to continue to do so and this in turn drives the economy. My opinion.

Very true. I don't know if 30 year fixed is even still available here. I have been seeing 20 year fixed, but hard to find anything higher. Its easy to find 30 year terms with variable interest rates, but I think 35 is finished. It definitely makes it harder to buy, even with a large downpayment.

I just want to shake friends who do the 5% down thing on half million+ dollar homes. The sense of competition is insane. We're looking at renting our condo and buying a home because of relocation with work. I keep on getting asked if my house will be bigger than theirs, what square footage, how many bedrooms, how many bathrooms. The size really isn't the most important thing for us. It will be close to work and big enough for us. We're only 2 people, we don't need a 5 bedroom 4 bathroom home at 650k. We are all in a similar income bracket and I know I couldn't afford those mortgage payments. It amazes me that they think they can.

Ok rant over.

 

[ksinger]

We're already seeing this in Canada. As of March 1st, maximum amortization terms are shorter. Apparently there is also legislation in the works to have mandatory 15% downpayment.

I can sort of see both sides of it. Housing in my area is very very expensive and just keep on going up. I bought my first house in 2003 and by the time I sold last summer the price had almost doubled. Its good if you're already in the market, but if you're trying to get in, its difficult. I've been seeing a lot of people buying at the top of their approval with 5% downpayments. It is really hit or miss whether they can keep their houses. Granted they can sell so we're not seeing the foreclosure rates that some states in the US have, but its still not ideal. I think that the new legislation will make it more difficult for people to buy houses that they can't afford, so in my mind, forcing larger downpayments is a good thing.

What largely contributed to the recession was the fact that people who should not have been purchasing houses were allowed to and given huge loans by the banks that the home buyers could not afford. It should always be a requirement IMO to place at least 25% down on a home. People who cannot afford to do this cannot afford to purchase their home IMO. It constantly shocks and amazes me that some people buy homes with nothing down or as little as 5 or 10% down. I mean what kind of fiscal responsibility is that person showing? This is what caused the real estate downfall IMO and I still see it happening! We need to get back to reality and understand that we cannot always get what we want and need to purchase what we can afford. However, I think taking away 30 year fixed mortgages is harmful because that is what allows people who do purchase homes within their means to continue to do so and this in turn drives the economy. My opinion.

I can't say that I totally agree here. The amount of time it would take most people to save 25% for a down payment while also paying off school loans, starting a family, savings for retirement, etc. (And no I don't mean buying fancy bling, nice cars, but living normal lives), would put ownership off until a person reaches their 40's, maybe! Personally, I enjoy the fact that my husband and I can buy a home, not spend our money renting (bc in my area, renting is about the same as a mortgage anyways) and do all of this in our 20's. We actually are purchasing our second home right now, and are holding on to our first property as an investment until the market in our area changes. I agree that many people purchased homes who never should have been approved (heck, my husband probably shouldn't have been able to buy his first house 5 years ago!) But he didn't lose his home, and we are both now growing in our careers and will over time be able to put more towards our mortgage and pay it off earlier than 30 yrs. By making so many more people totally uneligible to own a home will only further drive the economy into the ground.

Yeah, I disagree pretty strongly with that assessment also. Being one of those people who bought a house with no money down. And let's see...yeah...13 years ago. No default yet. Yep, still fiscally responsible by most anyone's measure. The trick is not some rigid 25% down, the trick is the banks doing due diligence when making a note, simple as that. Back in the old days, when I made my loan, they had these things called guidelines - about how much debt you could be carrying, how stable your job, your actual credit rating, etc - those things that went out the window during the frenzy. They were decent guidelines really, when they actually APPLIED them. After making me reveal my entire life to them - them being a local credit union - they told me what I qualified for. Then I did MY part by not maxing that out, although in retrospect, back then even the top dollar I was approved for was not outrageous, although to my mind it was. I financed for 18,000 less than I was approved for, which now seems rather quaint. But my fiscal prudence has enabled me to weather a 10 month hiatus from working, with no issues. I do realize times are far different now, but the calculations they applied to me were pretty darn sound if you ask me. I was very very fortunate to get that chance. So let's not blanketly blame all people who got no-money down loans as the problem, OK? That would be the very typical response of throwing the baby out with the bathwater.

 

[rockzilla]

Wow, thanks for the info ilander. This worries me because even though we are in the process of buying a home (fingers crossed- closing date scheduled for March 21st) and selling our beach home I worry because down the road (7-10 years) we want to sell our NYC home and this will make it much more difficult to find a buyer. This will change the real estate market in major ways.

Here's the thing: if the 30-year goes out the window and instead you only have 15- and 20-year mortgages available, it will be harder to find buyers at current prices. Say you have a $600k mortgage -- at 5% interest on a 30-year loan, that's ~ $3,800/month. For the same loan, but 15 years, the payment is ~$5,300 a month - huge difference! So, what will happen? Well, some buyers will be forced out of the market completely, but others will have to buy less expensive homes -- to get back down to that $3,800 payment on a 15-year, we're talking about a $400k house now, rather than $600k.

What happens now to the person selling their $600k house? Well, they can either fight really hard for one of the now highly-coveted all-cash / high DP buyers out there, or [more likely] they will have to lower their price to meet the expectations of the market. Either way, reduced demand in the form of reduced buying power from consumers will cause overall home prices to go down even more (as mortgage payments simultaneously go up) and that former $600k house is worth MUCH less.

So, I am not at all seeing why this change makes me want to buy a house now -- if I expect the pool of buyers to shrink significantly in the next year or two, sending the value of my just-purchased home down the tubes with it.

Besides, I believe that folks should buy a home when they are ready for it (both personally and financially) not because they are trying to anticipate some huge market shift. I have seen several friends "trapped" -- either in a job or location they would much rather leave -- because of the allure of being a homeowner. Being a renter has allowed me to live in 4 amazing cities in the past four years, something that would not have been possible if I had bought into the real estate hype just a few years back. When we find the city we want to live long term (our "forever" home if you will) we will look into buying, but not a minute sooner!

 

[ksinger]

Wow, thanks for the info ilander. This worries me because even though we are in the process of buying a home (fingers crossed- closing date scheduled for March 21st) and selling our beach home I worry because down the road (7-10 years) we want to sell our NYC home and this will make it much more difficult to find a buyer. This will change the real estate market in major ways.

Here's the thing: if the 30-year goes out the window and instead you only have 15- and 20-year mortgages available, it will be harder to find buyers at current prices. Say you have a $600k mortgage -- at 5% interest on a 30-year loan, that's ~ $3,800/month. For the same loan, but 15 years, the payment is ~$5,300 a month - huge difference! So, what will happen? Well, some buyers will be forced out of the market completely, but others will have to buy less expensive homes -- to get back down to that $3,800 payment on a 15-year, we're talking about a $400k house now, rather than $600k.

What happens now to the person selling their $600k house? Well, they can either fight really hard for one of the now highly-coveted all-cash / high DP buyers out there, or [more likely] they will have to lower their price to meet the expectations of the market. Either way, reduced demand in the form of reduced buying power from consumers will cause overall home prices to go down even more (as mortgage payments simultaneously go up) and that former $600k house is worth MUCH less.

So, I am not at all seeing why this change makes me want to buy a house now -- if I expect the pool of buyers to shrink significantly in the next year or two, sending the value of my just-purchased home down the tubes with it.

Besides, I believe that folks should buy a home when they are ready for it (both personally and financially) not because they are trying to anticipate some huge market shift. I have seen several friends "trapped" -- either in a job or location they would much rather leave -- because of the allure of being a homeowner. Being a renter has allowed me to live in 4 amazing cities in the past four years, something that would not have been possible if I had bought into the real estate hype just a few years back. When we find the city we want to live long term (our "forever" home if you will) we will look into buying, but not a minute sooner!

Smart girl. Don't buy a house until you're ready for a home. A concept that got lost somewhere along the way, and needs to come back into vogue. I was and am in a backwater and really wasn't paying much attention at the time, but when I finally did, I could never see why people bought a house every time they moved to a new city - like every 3 years. It seemed strange. I know now it was because it was a constant run-up of price and a house-flipping frenzy. But I don't think, had I been moving every couple of years, I would have had the daring to do such a thing. I'm pretty timid when it comes to risking my money.

 

[movie zombie]

housing prices are continuing to go down in many parts of the country and will do so for some time. lots of factors regarding this but the economy is NOT seeing an upturn as reported in the paper....at least not for working folk. with the absence of government backed loans, we will return to homeownership being similar to what it was prior to the depression and WWII: only the wealthy will own. and the rest of us that do own will be leaving our homes to our children who will be thankful to receive them as it is the only way they will ever own a home. again, the way it was prior to WWII. not necessarily a bad thing in that regard. however, it does mean the american dream of homeownership that was fed and fostered after WWII will be a thing of the past. the upside is that those not burdened with a mortgage will be able to pick up and move as needed to follow employment.

i think the info provided by the OP is valuable. but i would caution anyone to make decisions regarding this kind of $ based on the world of the last 50 years because that world isn't changing, IT HAS CHANGED, and it will not be returning. the mere fact that banks will be able to do what the OP has posted is only one more piece of proof that this is true. the housing market is not going to rebound in the life time of many of us.

if you are going to buy, buy a home. don't buy with the idea that its a starter house that you will sell in a few years for a profit and move to a better house/location. do not buy where you don't want to be living in 15 years. be very realistic about your employment and that of your SO if you have one. can you make the payments on one salary? how hard will it be to find employment in your area of expertise should you lose your job? there are a lot of other questions to ask oneself before buying in this time.

personally, if we didn't already own, i wouldn't buy. i'd want my options available to me.

MoZo

 

[ksinger]

Amen to your entire post MoZo. And if I had not struck when the iron was hot and the conditions were JUUUUUST perfect, I would not be able to purchase now in this market, even where I live, which is as I said, a backwater that never saw the insane run-up of prices seen elsewhere.

 

[NovemberBride]

I have to disagree with some of what the OP posted, it seems to be a take off from an article published in Friday's New York Times, but leaving out some crucial information. Yes, it is true that there is some sentiment in Congress to phase out part of what Fannie Mae and Freddie Mac do today, which provide a full backstop to mortgages by backing them with the "full faith and credit of the United States". This guarantee leads investors to buy Fannie and Freddie mortgage securities that have relatively low interest rates because they are relatively risk-free due to the government guarantee, thus allowing lenders to lend at low interest rates.

But eliminating Fannie and Freddie's role would take years, if not decades. There is just no way that Washington is just going to shut down Fannie and Freddie tomorrow (or in the next two years). The housing market (and the economy) would collapse, which is what they have spent the last few years scrambling to avoid. I work for a huge financial institution and interface with the government agencies on a frequent basis. I do believe that their role will change over time, but I absolutely do not believe that those changes will mean that you can never get a 30 year mortgage again or that rates will rise significantly solely as a result of that change.

I would caution everyone not to buy a home based on any speculation about what might happen. Buy a home because you have a significant down payment (in my opinion, doesn't have to be 20%, but shouldn't be 0% either), are prepared to stay in one place for a while, and buy a home you like and can afford.

 

[JewelFreak]

Look at the big picture: Governments themselves have no money. They produce nothing. Governments get money by taking it from their citizens, in the form of taxes. Fanny & Freddy buy delinquent mortgages from the banks that grant them & get burned when borrowers default. With no risk from issuing mortgages to unsound buyers -- F&F will take losses off their books -- why not keep doing it? Look at the first sentence again: where do F&F get the money to pay for worthless contracts? YOUR POCKETBOOK.

A home buyer whines that he can't save 20% down payment, too many other debts. Would you personally co-sign a loan for him? No. But through F&F, that's exactly what you are doing, over & over & over. You never meet him, are not allowed to set any standards, not allowed to refuse to back this guy. But YOU WILL PAY HIS MORTGAGE anyway.

For the 1st time in U.S. history, with the Boomer generation (mine) and since, people expect to start where their parents left off, and if they can't afford to, "the system" owes it to them. Remember, the system is you, me, your kids, your neighbors & siblings -- all of our checkbooks. People used to buy true starter homes, little houses on small lots if that's all they could pay for, and they were proud of them because they. earned. them. All by themselves. Trading up (no, not in 18 months at a big profit; over years) made this country the greatest & richest in human history, as did learning by failure as well as success. The next house is bigger; if someone is lucky, hardworking & smart, the 3rd may be his dream house. Maybe not, but will his life still be enjoyable? Up to him. It's not up to you or me to make it so.

Say you have a $600k mortgage -- at 5% interest on a 30-year loan, that's ~ $3,800/month. For the same loan, but 15 years, the payment is ~$5,300 a month - huge difference! So, what will happen? Well, some buyers will be forced out of the market completely, but others will have to buy less expensive homes -- to get back down to that $3,800 payment on a 15-year, we're talking about a $400k house now, rather than $600k.

True, but you also build equity MUCH faster & in the end, interest rates being equal, pay thousands less over a loan's life. So you make up much of the price difference. Financial people have always advised taking as short-term mortgage as you can afford because of the interest savings.

--- Laurie

 

[iLander]

housing prices are continuing to go down in many parts of the country and will do so for some time. lots of factors regarding this but the economy is NOT seeing an upturn as reported in the paper....at least not for working folk. with the absence of government backed loans, we will return to homeownership being similar to what it was prior to the depression and WWII: only the wealthy will own. and the rest of us that do own will be leaving our homes to our children who will be thankful to receive them as it is the only way they will ever own a home. again, the way it was prior to WWII. not necessarily a bad thing in that regard. however, it does mean the american dream of homeownership that was fed and fostered after WWII will be a thing of the past. the upside is that those not burdened with a mortgage will be able to pick up and move as needed to follow employment.

i think the info provided by the OP is valuable. but i would caution anyone to make decisions regarding this kind of $ based on the world of the last 50 years because that world isn't changing, IT HAS CHANGED, and it will not be returning. the mere fact that banks will be able to do what the OP has posted is only one more piece of proof that this is true. the housing market is not going to rebound in the life time of many of us.

if you are going to buy, buy a home. don't buy with the idea that its a starter house that you will sell in a few years for a profit and move to a better house/location. do not buy where you don't want to be living in 15 years. be very realistic about your employment and that of your SO if you have one. can you make the payments on one salary? how hard will it be to find employment in your area of expertise should you lose your job? there are a lot of other questions to ask oneself before buying in this time.

personally, if we didn't already own, i wouldn't buy. i'd want my options available to me.

MoZo

I agree with you that housing prices will continue to go down in many parts of the country, but I think you have to parse it finer than that. Housing prices are coming back in a large number of desirable neighborhoods; my area has prices up almost 9% over last year. Meanwhile, across town, in the poorer areas housing prices are still sliding. There are areas of NYC (for example) that are up 15% over last year, and areas that are down 12%. The deciding factor seems to be that areas that were always desirable, are recovering. Marginal areas that were heavily developed with $250K houses, where only $70K houses existed before the boom, are still dropping to get back to the $70K they should have been in the first place. This is dragging a lot of the overall averages down. If you are considering buying, then check prices in your particular neighborhood very carefully. Chances are, if it's a good, solid area, you'll find out that prices are firming up and possibly rising.

I think the real estate market will recover in our lifetimes, because it is doing so right now, in desirable neighborhoods.

It won't help a friend of mine who panicked and paid $250K (at the height) for a house that would NOT have been worth more than $100K in a normal market. Her kitchen is so small that she can't fit a full size fridge (this is a tiny house, not a condo) in her kitchen. She was afraid she was going to be priced out. Her house will have to drop -- what, 100%?-- to get to a realistic cost.

I think prices will continue to drop in areas where peak prices were incredibly unrealistic.

I agree with the idea of no more "starter houses". When I first heard the phrase on a TV real estate show, I was shocked. We bought houses because we wanted space, independence from landlords, a better school district, a nicer neighborhood than we had in the apartment complex, etc. We also didn't intend to "profit", we just hoped to get the majority of our payments and taxes back, something that doesn't happen while renting. Owning a house used to be an (almost) break even proposition, not a profit machine. This is as it should be.

I think it's plain smarter to think of a house as a long term proposition, not something to "flip". I think a lot of amateur flippers got us into trouble during the boom. I read a story about a guy that bought 9 Las Vegas condos to flip. I asked my DH "How many people really want to live in Las Vegas? And it's all desert, they can built condos to the horizon and back, why will his be so valuable?" Of course the guy ended up losing his shirt.

I have a friend that bought a coop in a very upscale section of NYC, just when the market bottomed out in 2009. There are now duplicate coops in her building closing at 30% more than she paid. She has no intention of selling, because prices are going up and she can't replicate the deal she got unless she moves to a fringe area where prices are stagnant or dropping.

So my summary is; prices are firming or increasing in desirable areas. Prices are still dropping in areas you probably don't want to live in anyway.

 

[NovemberBride]

Also OP, I am not sure why you think this is being done stealthily or secretly. Congress controls Fannie and Freddie, and any action Congress takes is public. Further, this exact topic was the subject of a front page article in the New York Times on Friday and I have seen similar articles on CNN, MSN, and in other papers. It is no secret that Congress needs to fix the situation with Fannie and Freddie, they've been saying that since the housing crisis started. But as of today, there is no plan in place to phase out Fannie and Freddie. So, nothing is being done yet.

 

[iLander]

I have to disagree with some of what the OP posted, it seems to be a take off from an article published in Friday's New York Times, but leaving out some crucial information. Yes, it is true that there is some sentiment in Congress to phase out part of what Fannie Mae and Freddie Mac do today, which provide a full backstop to mortgages by backing them with the "full faith and credit of the United States". This guarantee leads investors to buy Fannie and Freddie mortgage securities that have relatively low interest rates because they are relatively risk-free due to the government guarantee, thus allowing lenders to lend at low interest rates.

But eliminating Fannie and Freddie's role would take years, if not decades. There is just no way that Washington is just going to shut down Fannie and Freddie tomorrow (or in the next two years).

Please read the first link I provided, it's a Business Week article that is quoting 2 years.

I hope you're right, I think it's a terrible idea to do it right now.

 

[iLander]

Look at the big picture: Governments themselves have no money. They produce nothing. Governments get money by taking it from their citizens, in the form of taxes. Fanny & Freddy buy delinquent mortgages from the banks that grant them & get burned when borrowers default. With no risk from issuing mortgages to unsound buyers -- F&F will take losses off their books -- why not keep doing it? Look at the first sentence again: where do F&F get the money to pay for worthless contracts? YOUR POCKETBOOK.

A home buyer whines that he can't save 20% down payment, too many other debts. Would you personally co-sign a loan for him? No. But through F&F, that's exactly what you are doing, over & over & over. You never meet him, are not allowed to set any standards, not allowed to refuse to back this guy. But YOU WILL PAY HIS MORTGAGE anyway.

For the 1st time in U.S. history, with the Boomer generation (mine) and since, people expect to start where their parents left off, and if they can't afford to, "the system" owes it to them. Remember, the system is you, me, your kids, your neighbors & siblings -- all of our checkbooks. People used to buy true starter homes, little houses on small lots if that's all they could pay for, and they were proud of them because they. earned. them. All by themselves. Trading up (no, not in 18 months at a big profit; over years) made this country the greatest & richest in human history, as did learning by failure as well as success. The next house is bigger; if someone is lucky, hardworking & smart, the 3rd may be his dream house. Maybe not, but will his life still be enjoyable? Up to him. It's not up to you or me to make it so.

Say you have a $600k mortgage -- at 5% interest on a 30-year loan, that's ~ $3,800/month. For the same loan, but 15 years, the payment is ~$5,300 a month - huge difference! So, what will happen? Well, some buyers will be forced out of the market completely, but others will have to buy less expensive homes -- to get back down to that $3,800 payment on a 15-year, we're talking about a $400k house now, rather than $600k.

True, but you also build equity MUCH faster & in the end, interest rates being equal, pay thousands less over a loan's life. So you make up much of the price difference. Financial people have always advised taking as short-term mortgage as you can afford because of the interest savings.

--- Laurie

I agree with all of this 100%.

 

[JewelFreak]

I agree with the idea of no more "starter houses". When I first heard the phrase on a TV real estate show, I was shocked. We bought houses because we wanted space, independence from landlords, a better school district, a nicer neighborhood than we had in the apartment complex, etc. We also didn't intend to "profit", we just hoped to get the majority of our payments and taxes back

I think it's plain smarter to think of a house as a long term proposition, not something to "flip".

Agree w/ you in principle, iLander, as usual. The term 'starter house" may be unfortunate -- thought up by house marketers (like "bonus room," which drives me up a wall! There have been rooms over garages since there were garages, and they are not a bonus, you pay for them!).

Before they were "starter houses," they were just your first house. Bought for exactly the good reasons you state. Lived in till you needed more room or could buy something you liked better. When I was a kid, we lived in our first house for 10 yrs., then my parents bought a bigger one because 4 teenagers took up a lot of space & by then Dad earned more. But you didn't start out w/a 4-bedroom, 2 1/2 bath place w/living room, family room, all new appliances. You got what you could pay for (on one income in case of disaster), and usually it was smaller than what you expected to be able to buy later on. That is the American dream.

--- Laurie

 

[Miss Sparkly]

I bought my first house at 20, with zero down, and lost it in a short sell after my husband and I both had serious cutbacks at work. I blame the bank for valuing our house too high when it wasn't worth that much, I blame my school and parents for not teaching me about inflation and budgeting, I blame my husband for not stepping up and allowing/forcing me to make all the decisions, I blame society for telling me that I'm nothing without a house and that it should be my ultimate goal - but mostly, I blame myself, for not listening to my heart when it told me that it was the wrong thing to do. I was nauseous the entire day after signing the closing docs.

The people who bought our short sell are TEENAGERS. Yes, a 19 year old dating couple that both work at Domino's Pizza. How fair or right is that? How long are they going to be able to keep that house before the same realities of life hit them just like they hit us? I'm all for making homeownership out of reach to those who shouldn't be buying, me included. I just hope that there are caps put on interest rates to prevent the banks from taking complete advantage of the homeowners. Also, I would love to see a series of required classes for all new homeowners that includes budgeting, inflation, the cost of repairs, what to expect, etc. I'm not sure what to expect in the future but I do hope that it's a significant improvement from the greedy past that I know.

 

[ksinger]

I agree with the idea of no more "starter houses". When I first heard the phrase on a TV real estate show, I was shocked. We bought houses because we wanted space, independence from landlords, a better school district, a nicer neighborhood than we had in the apartment complex, etc. We also didn't intend to "profit", we just hoped to get the majority of our payments and taxes back

I think it's plain smarter to think of a house as a long term proposition, not something to "flip".

Agree w/ you in principle, iLander, as usual. The term 'starter house" may be unfortunate -- thought up by house marketers (like "bonus room," which drives me up a wall! There have been rooms over garages since there were garages, and they are not a bonus, you pay for them!).

Before they were "starter houses," they were just your first house. Bought for exactly the good reasons you state. Lived in till you needed more room or could buy something you liked better. When I was a kid, we lived in our first house for 10 yrs., then my parents bought a bigger one because 4 teenagers took up a lot of space & by then Dad earned more. But you didn't start out w/a 4-bedroom, 2 1/2 bath place w/living room, family room, all new appliances. You got what you could pay for (on one income in case of disaster), and usually it was smaller than what you expected to be able to buy later on. That is the American dream.

--- Laurie

LOL! Lessee, after 12.5 years, I'm still in my "starter house", my tiny 1100 sq foot(but total oak floor and stone exterior) house, that I bought on one income and expected to live in until I wasn't living anymore, or some other situation forced me out. Guess I'm a LOSER, according to the home buying/flipping/upgrading industry.

 

[RissaLou]

What kind of Shinanigans!! Geez louise this is news to me, thanks for the article iLander, my husband and I were trying to buy our first home by Nov. of this year, hopefully things won't change too quick

 

[JewelFreak]

LOL! Lessee, after 12.5 years, I'm still in my "starter house", my tiny 1100 sq foot(but total oak floor and stone exterior) house, that I bought on one income and expected to live in until I wasn't living anymore, or some other situation forced me out. Guess I'm a LOSER, according to the home buying/flipping/upgrading industry.

You sound more like a winner to me, Karen. Smart chick. Probably cozy as heck in that neat-sounding place.

The people who bought our short sell are TEENAGERS. Yes, a 19 year old dating couple that both work at Domino's Pizza. How fair or right is that? How long are they going to be able to keep that house before the same realities of life hit them just like they hit us? I'm all for making homeownership out of reach to those who shouldn't be buying, me included. I just hope that there are caps put on interest rates to prevent the banks from taking complete advantage of the homeowners. Also, I would love to see a series of required classes for all new homeowners that includes budgeting, inflation, the cost of repairs, what to expect, etc. I'm not sure what to expect in the future but I do hope that it's a significant improvement from the greedy past that I know.

SB, I dig your pain. We did a similar thing when we were 1st married & moved to Holland, where DH grew up. Big bubble, bought a condo at its top -- took out (how's this for greenhorns?) a 110% mortgage, makes me blush: "They're giving away money. Let's get some for decorating!" Old story -- market died, 5 yrs later when we came back to the States, we couldn't GIVE that place away, much less make a profit. It took FIFTEEN YEARS of renting it to tenants w/more and less success before we were able to sell it for a tiny bit more than we paid.

I never blamed anyone but us. Info is all over -- available more places now than it was then. We got caught in the fever & paid the price. In those 15 yrs we had to rent till we could save the payment for another house. The biggest price was the lost opportunity -- appreciation over that time on the house we were not able to buy. Nobody forced us to sign. Nobody lied to us. "Society" doesn't give a crap if we own or rent -- that's an opinion we lay on ourselves. (Who cares what anybody says? Our bank accounts are our responsibility, not theirs.) If someone had advised you not to buy it, would you have listened? DH's father did & we didn't. No one is to blame when we chose not to use common sense.

The Americans (or Dutch) who work & pay their taxes were also not responsible for paying us back for our own mistake; it didn't even occur to us. Anyhow, it wasn't the freakin' end of the world! We learned a very valuable & expensive lesson, took it on the chin like grown-ups. Sounds like you did too -- so rather than wasting energy being mad, realize you've won something: wisdom, much more valuable than houses. So, you see a couple of teenagers making the same error w/the same house -- sigh in relief that it's not you again, and feel sorry for their future. Life ain't fair (I made that up all by myself ), but it's still fun.

--- Laurie

 

[Haven]

The whole "starter house" notion is laughable to me. In 2008, at ages 27 (me) and 38 (DH) we purchased a small(~1200 sq. ft) home in a really nice (and thus, expensive) neighborhood that looks very much like the home in which I was raised. It's 3 BR, 1.5 BA, 1-car garage.

We kept on hearing "This is a perfect starter home!" from friends, family, and the sellers' realtors. DH and I simply responded with smiles and nods, but in private conversation we kept saying "What the hell are they talking about?" We bought this home because we love it, and we plan to live in it for a long time. We put 20% down, and pay extra on the mortgage, and bought what we knew we could afford on one income, just in case. And I STILL felt ill after signing the papers.

I have friends who bought starter homes that they don't really love, and now they are stuck in them because they paid far more than what they are now worth. I don't understand the concept, I really don't.

We couldn't sell our home today for what we paid for it in 2008. Heck--DH can't sell his condo today for what he paid for it in 2001. We're stuck with both properties, but that is OKAY, because we bought the house with the intention of LIVING IN IT, and not of selling it in a number of years so we could move on to bigger and better.

 

[Missy]

Look at the big picture: Governments themselves have no money. They produce nothing. Governments get money by taking it from their citizens, in the form of taxes. Fanny & Freddy buy delinquent mortgages from the banks that grant them & get burned when borrowers default. With no risk from issuing mortgages to unsound buyers -- F&F will take losses off their books -- why not keep doing it? Look at the first sentence again: where do F&F get the money to pay for worthless contracts? YOUR POCKETBOOK.

A home buyer whines that he can't save 20% down payment, too many other debts. Would you personally co-sign a loan for him? No. But through F&F, that's exactly what you are doing, over & over & over. You never meet him, are not allowed to set any standards, not allowed to refuse to back this guy. But YOU WILL PAY HIS MORTGAGE anyway.

For the 1st time in U.S. history, with the Boomer generation (mine) and since, people expect to start where their parents left off, and if they can't afford to, "the system" owes it to them. Remember, the system is you, me, your kids, your neighbors & siblings -- all of our checkbooks. People used to buy true starter homes, little houses on small lots if that's all they could pay for, and they were proud of them because they. earned. them. All by themselves. Trading up (no, not in 18 months at a big profit; over years) made this country the greatest & richest in human history, as did learning by failure as well as success. The next house is bigger; if someone is lucky, hardworking & smart, the 3rd may be his dream house. Maybe not, but will his life still be enjoyable? Up to him. It's not up to you or me to make it so.

Say you have a $600k mortgage -- at 5% interest on a 30-year loan, that's ~ $3,800/month. For the same loan, but 15 years, the payment is ~$5,300 a month - huge difference! So, what will happen? Well, some buyers will be forced out of the market completely, but others will have to buy less expensive homes -- to get back down to that $3,800 payment on a 15-year, we're talking about a $400k house now, rather than $600k.

True, but you also build equity MUCH faster & in the end, interest rates being equal, pay thousands less over a loan's life. So you make up much of the price difference. Financial people have always advised taking as short-term mortgage as you can afford because of the interest savings.

--- Laurie

I agree 100% with your post Laurie. Buying a home is* not* a right, it is a privilege and no one owes you anything. You don't deserve to buy a house if you do not have the money but you earn the privilege if you can save *enough* for a sufficient down payment. So you have loans and bills *cry* *cry* *cry*. Welcome to real life and no one owes you anything. You have to work hard to earn the privilege to purchase a house. No one is going to hand one to you. And when the banks did hand them to people who couldn't make the payments look what ensued. Enough said.

And Karen as to

throwing the baby out with the bathwater.

All I am saying is let's keep that baby healthy and comfortable and out of danger. Get him/her some clean non- polluted bathwater earned by his/her parents. OK? Just because you did a no money down loan doesn't mean it is the right way to go.
And looking at past history I would say it is *not* the right way to go at all. I am glad it worked out well for you but for every one like you there are many others for whom it did not work out well for at all.

This is coming from someone who bought her first apt in her twenties and I bought it to live in forever. No thought of upgrading. It was the perfect for me apt. Perfect in every way and especially perfectly affordable for me. In fact I put 25% down and payed down the mortgage in 3 years. Then because of circumstances (became engaged) we bought our second home (and third) in our thirties and sold the first. Again putting down (a bit more than) 25% and once again it served us well. Because circumstances again changed with our job situation but we were not in trouble because we had not bitten off more than we could chew. But had we put down 5% we would have been in a whole mess of trouble. And today we are doing just fine and in fact purchasing another home and selling our beach home and guess what? We are putting down about 70% this time. There is no one right formula but there is a way to minimize risk and that is by one, only buying what you can afford at the time and taking the mortgage you feel you can comfortably pay off and two, buying the home you love and will live in. Not as an investment as that can be a risky venture.

I don't understand this mentality from some people (not here at PS just speaking in general terms now) that the world owes them something and they deserve more than they can afford. People need to accept responsibility for their actions and must accept the consequences. That is the way life works and there is no such thing as a free lunch!

You got what you could pay for (on one income in case of disaster), and usually it was smaller than what you expected to be able to buy later on. That is the American dream.

Amen to that girl!

 

[iLander]

I bought my first house at 20, with zero down, and lost it in a short sell after my husband and I both had serious cutbacks at work. I blame the bank for valuing our house too high when it wasn't worth that much, I blame my school and parents for not teaching me about inflation and budgeting, I blame my husband for not stepping up and allowing/forcing me to make all the decisions, I blame society for telling me that I'm nothing without a house and that it should be my ultimate goal - but mostly, I blame myself, for not listening to my heart when it told me that it was the wrong thing to do. I was nauseous the entire day after signing the closing docs.

The people who bought our short sell are TEENAGERS. Yes, a 19 year old dating couple that both work at Domino's Pizza. How fair or right is that? How long are they going to be able to keep that house before the same realities of life hit them just like they hit us? I'm all for making homeownership out of reach to those who shouldn't be buying, me included. I just hope that there are caps put on interest rates to prevent the banks from taking complete advantage of the homeowners. Also, I would love to see a series of required classes for all new homeowners that includes budgeting, inflation, the cost of repairs, what to expect, etc. I'm not sure what to expect in the future but I do hope that it's a significant improvement from the greedy past that I know.

I am going to say this and it's going to sound harsh but here it is: When you are over 18 you can't blame anyone else for your actions. That's why, legally, you are an adult. You are responsible for your own actions 100%. Sorry, but I felt I had to say it.

I think you learned some important things:

1. Be skeptical. Whether it's a loan or a used car, the salesman wants you to buy. Don't believe the salesman.

2. Speak up. If you didn't feel like it's the right thing, don't go along with it. Remember "If everyone else jumped off the bridge . . . "

3. Don't blame others. It's a waste of time, because they won't be left holding the bag; you will.

4. Life isn't fair. I'm sorry, but it just plain isn't. It's not fair to people stricken with painful diseases, it's not fair to hard working people whose children are still hungry. It's not fair that 40 million people work full time jobs but still need food stamps to eat. It never Will be fair, either.

I'm really not trying to be mean. Mistakes are worth it if you learn from them. You are wiser.

 

[JewelFreak]

I put 25% down and payed down the mortgage in 3 years. Then because of circumstances (became engaged) we bought our second home (and third) in our thirties and sold the first. Again putting down (a bit more than) 25% and once again it served us well. And today we are doing just fine and in fact purchasing another home and selling our beach home and guess what? We are putting down about 70% this time. There is no one right formula but there is a way to minimize risk and that is by one, only buying what you can afford at the time and taking the mortgage you feel you can comfortably pay off and two, buying the home you love and will live in. Not as an investment as that can be a risky venture.

Wow, Missy, you sound like some smart & disciplined cats. Impressive. Many have said here what you did -- buy a house you LIKE that you can afford & expect to stay there some time. If not forever. It's not flipping to buy something you can pay for now without sweating, intending to trade up sometime, when you can afford it the same way. Not expecting to make a killing in 2 yrs, but to live there as long as it fills your needs. Kids come along, & schools, neighborhoods, yards, whatever, come into the picture. You get tired of the city & want more space, or vice versa.

We put 25% down on our last house & sold it (to move South) for a good price just before the r.e. boom began to rocket. I insisted we have NO mortgage here & we paid cash for this place. Not as much land as I'd like & things still need fixing after 7 yrs, but we stuck w/what we could afford to pay for. No weaseling. It feels wonderful!

--- Laurie

 

[Missy]

Hey Laurie,
We loved each home we lived in and stayed in each place for a long time. The reason we are buying a new home at the shore and selling our other shore house is because of all the changes that have occurred during the recession. It made me start thinking about our long term future (at least more than usual) and I discussed my thoughts with my dh and he agreed.

We have a long term plan of downsizing to one home vs maintaining 2 homes which is not only expensive it is stressful as well. So we are in the process of buying a larger home on the beach and selling our smaller beach house while keeping our NYC home for now. And when we are ready to retire (not sure exactly when that will be but ballpark figure of 7-10 years) we will sell our NYC home and have 1 house to maintain. And that house is large enough for us whereas our first beach home was a perfect second house but not an only house. We will miss it and had it for over 11 years but we are looking forward to our new adventures together in our new home. And when the time comes to sell our NYC home I know that will be so difficult since I have lived in this area since 1992 and love it so much. But planning for the future and retirement made me realize that it would be much more difficult to retire with both homes and this seems like a happy solution.

The thing is, we always planned on living forever in our NYC and shore homes but even the best laid plans can change and one must adapt. I hate change but also like to be realistic about the future and we had to adapt our plans to suit us best now.

I feel lucky to have been able to live in such beautiful homes and do not for one second take it for granted. I also know that life is so unpredictable and I have a healthy fear of debt. I don't think it is so difficult to do what we have done but it's just having the mindset of living within our means. Which is the key to a good night's sleep for me LOL.

Good for you and your new home in the South. I am in total agreement about having as little a mortgage as possible and living within your means. That is real peace and an important key to happiness (at least for like minded people)!