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I bought a condo 2 years ago in November. It's affordable housing, so I had to meet income qualifications. The good thing is that they cut the prices which is why I got interested in the place. I ended up paying just shy of $100k for it, which everyone told me was a great price. I'm still convinced that I made out alright because my monthly mortgage payment is less than what most people around here pay for rent.
The thing is, this was the first time I bought a place of my own. I didn't really know what the different types of loans were, and although my dad was there for a little bit of the process to help me, he wasn't there the entire time. So when the banker told me that I was going to have an interest rate that was 1% below prime I thought "Wow, how awesome of them!" Then they told me "Well, in 5 years the interest rate will change and become adjustable, but you probably won't be living there in 5 years so it's moot."
Well...maybe. The good thing is I know about all of this now and know that I will be able to refinance or sell it if I need to. But it would be quite possible that I would be one of those people suffering this meltdown if I had bought it a couple years earlier before the fallout happened.
Now now, 'Americans are stupid' rhetoric isn't really helpful here. Japan had a much bigger real estate bubble a few decades back, and I'm not sure if they have completely recovered from it yet.
The reason why interest only loans made since was that if your house's value was going to appreciate a lot in between, then you could just refinance at the end or sell it and make back a lot of the difference from the price when you bought and sold it. And if it didn't then it's the banks problem to deal with the house once the mortgage goes sour.
Now stupid or naive people may have gotten into the middle of this without realizing that there was a very real risk to have the music stop and to be without a chair. But people with some sense were also involved, since they stood to make off like bandits if they weren't the "last guy" with limited downside if they are, or perhaps they were stuck without many other options.
This is going to effect everyone though, since a bunch of debt going bad causes a flight to safety and possibly a liquidity crisis, so stable government bonds become much more attractive. And stable government bonds, such as US treasuries, are pretty well woven to the international financial systems.
Careful, this is dangerously close to Jewish conspiracy waters.
Florida too. Not as bad, but still.
It'll be even worse once the latest diesel regulation starts hitting.
Makes me glad I'm aiming for Washington soon.
You're not going to be too screwed on a price-regulated $100k property unless you're really in dire financial straits, though your interest rate is going to smart. With luck, either the market will rebound or some government edict will protect you in three years.
Drought in socal as well. We built LA in a desert. Tick tock.
― Marcus Aurelius
Path of Exile: themightypuck
Yeah. They've been fighting LA's water grabbing here for as long as I can remember. And now they want to give the city an artificial river for a Donald Trump gold course. :P
Sometimes I wonder if there's actually a group of people trying to screw California up so it won't be so damned powerful.
Actually, I wouldn't have made the purchase. Because I'm not a fucking idiot.
You can only float money so long, corrections come sooner or later!
All the top growth charts keep pointing to those areas.
But I'm not sure why. Though I wonder if it has to do with the current administration paying off favors... but that's pure bias on my part.
I host a podcast about movies.
Right but that rent is less than your morgage payment, and what you save can be invested to make you more money.
-Terry Pratchett
Or is that a pending development?
It's going to be awesome when everyone finally realizes this, and then the dumb fuckers RUSH it, thus reversing the trend like a fricking see-saw. :P
can you lay an investment program out for me that will beat the equity in even a poorly structured home purchase?
It's better to spend 1000 a month to recieve 600-700 equity then to spend 500 on rent and invest 500 at maybe 12% every month, isn't it?
I mean, the home has to lose more value then you'd be paying in rent for you to REALLY lose money on real estate, right?
I host a podcast about movies.
At that level yeah maybe, but that's not what's happening. The analogy in SoCal for example would be paying $1000 dollar in mortgage or paying $150-200 dollars in rent. Rent can be up to 1/6 cheaper than the equivalent mortgaged payment if you were to buy the rental property. Also building equity assumes you have a normal loan. The problem is to many interest only/negative amortization loans which build no equity. Also here in So Cal many people take out loans that use up all their equity. Here in So Cal the time is not right to buy.
-Terry Pratchett
We bought two years ago in Boston. We probably overpaid some on our condo, but we got a good, nonadjustable interest rate, and Cambridge is a pretty stable market. I mean, while we're not going to make a ton of many flipping this place, we're not in terrible shape.
Although, 'cism aside, the notion of taking out one of these in order to pay of credit card debt is fucking asinine.
It make sense. Observe;
1) You have 100 Loans that are non-performing sub-prime
2) 100 Loans = $10 Million + interest (really small number I know but use it for sake of argument)
Ok from here this is where the quants for the collection agencies come in. Currently these loans are non-performing (ie they are not paying i + p) however, this does not mean that value is lost on these loans, it simply means that more pressure will need to be applied or other options considered (ie selling the house out from under them, even in a shitty market).
The quants look at these variables, crunch the probabilities whilst referencing some established numbers for average redemption rates, and come up with a probable figure that the collection agency is likely to recover (probable figure is usually >80% normally) if it buys these loans. Say that number is $5 Million.
3) Collection agencies buys the legal interests (ie the mortgages) of these 100 non-performing loans for $2 Million.
If the quants have done their numbers right, the agency stands to reap $3 million in profit.
PS: This type of stuff is extremely standard... the reason why it has not worked so well is due to the fact that the US has a retarded banking system with stupidly lax laws that have allowed any fool to set up shop as a sub-prime lender and basically bet the farm... this worked because the markets were so bullish these past few years (which tends to paper over the cracks). Unfortunately these people got so greedy that they started an avalanche by writing one to many bad loans with default rates so bad not even collection agencies wanted to touch them.
I don't know what your personal experience has been, but it isn't shared by a large enough demographic group.
Yeah, a lot of the more progressive states have had sporadic efforts to deal with this kind of under the table redlining, but the focus hasn't been there to really make headway.
NO NO NO NO
He isn't. I work at a major bank, and nobody who knows what theyre doing listens to him.
However, his rant on CNBC the other day about the fed was one of the funniest things I have ever seen.
Edit: go to youtube and search "jim kramer fed", it should be the first video, like a minute or two in. Amazing, the chick with him is like "jim . . . jim"
I'd link it but youtube is blocked here.
Ooh! Ooh!, I know this from history class. 4 things caused the crash. And people did see it coming.
1. Asshole brokers were suggesting people take out loans and use the money on investments rather than buying a home or car for themselves, artificially increasing the value of many stocks, which were spiraling out of control.
2. The idiotic president was advised that a crash would happen, but he pushed advisers to be quiet, after all, everybody likes a president when the economy appears to be good. (Harding, the true worst president the U.S. has ever had.)
3. America's wealthiest citizens were taking their money out of banks, and essentially out of the economy, instead putting it in safes, valuts, under their bed, etc.
4. When the stocks crash, EVEYRYBODY starts taking their money out of the banks, making it worse. (Pretty much everybody did not understand back then how banks work.) The ones jumping out of buildings are the brokers, who knew it was their fault.
The interest rates dropped because the Fed lowered them by selling bonds to increase the money supply, not because China decided to suddenly start buying. Let's get the causation correct here.
The answer is that they aren't high, and in fact are so low that the dollar has been getting the shit beat out of it because of the Fed's loose money policy that stretches back to when the Fed cut the rate to 1.0% after 9/11 (Greenspan even said that dropping it so low would eventually have unintended consequences but that something had to be done).
Basically, our nation is starting to feel the pains of having an incredibly loose monetary policy combined with staggeringly profligate federal spending (hard to tell which one caused the other). As Shinto said the Fed can impact the market in a more subtle way by purchasing or selling securities in the market. Less obvious than fucking with reserve requirements or cutting the discount rate but still has a meaningful impact.
Our country is hooked on easy money which is why stupid lending decisions that start with housing but go all the way up to "high" finance (there is currently $200 billion in underwritten financings from major investment and commercial banks for M&A transactions, etc. that they basically cannot syndicate). The real risk is that the institutions unilaterally stop funding and good loans (along with stupid ones) don't get made, impacting economic growth and ultimately leading to a recession. Usually the Fed's response in this situation is to open the spigot and increase money supply by dropping the discount rate (what Kramer was ranting about) or other measures I have mentioned. The problem is that our currency is currently so devalued because of past money practices and govt spending that a cut to the interest rate could start a cascade where huge holders of dollars (like China) start selling their reserves, further reducing dollar value, potentially leading to massive inflation, etc. It's a parade of horribles basically.
The good news is that since we are such a massive importer and so critical to the global economy, a melt down here basically fucks everyone else (especially Asia) so they will probably be reluctant to make our situation worse. Anyways, I think the Fed realizes that cutting rates could be disasterous so they are going to wait until they have no choice (lending really does dry up and we are heading to recession) before dropping the discount rate. Until then, we will get more moral suasion (jawboning) from Bernake like we saw on Monday and Tuesday.
End rant
I'll take your word for it. Like I said, when I saw the story about China buying heavily, it wasn't one of those "OMG! Kim Jong Il is going to take over the country!" kind of pieces. (I'm trying to find the link, but it could have very well been a bullshit lead, so kudos for correcting me, and thanks) I do hate that companies can just buy you debt and milk you for it. I had some credit cards from college (stupid, I know, but I was on my own for most of school and needed the help) and they got sold to these sleezy collection agencies where the guy that owns them happens to be an attorney, so my folks started getting calls from places saying "This is the legal office of (X) and we're looking for your children!". Really pissed me off. It's my fault, but it still pissed me off.
There are rules protecting consumers, but by it's nature this tends to be an area ripe for abuse. Even given the fact it can be unpleasant for some people, the system serves a purpose. Debt collectors, by specializing in recouping debt that would otherwise be lost, mean that ultimately more people are able to get loans by making it less risky for the lenders.
If debt collectors weren't available, banks and other lenders would be significantly more cautious about lending money in more marginal cases and the hardships from that would be much worse than what we get now with collections.
What is absolutely hilarious is that the actual meaning of what is translated as "usury" in the bible is charging any interest at all. Basicially, the fundamental basis of capitalism is a sin. Of course in english translations (especially KJV) they gloss this over (like so very much else).
Owning a house is far more expensive than you are indicating here. Its not just mortage vs rent. Its mortage + insurance (not cheap) + taxes (incredibly not cheap) + upkeep and repairs + home own assocation fees (usually) vs rent.
Edit: Furthermore all of the costs which you forgot to mention do nothing to build equity. And even after you pay off the house will continue to be an obligation (and probably an increasing one).
For a lot of the houses in my area I pay less in rent than they do in taxes + insurance + upkeep alone.
― Marcus Aurelius
Path of Exile: themightypuck
Meh, "forced savings" are only useful for those stupid enough to reqire being forced.
Edit: And its a really dumb form of savings as you can't get much less liquid than equity in a house you live in. In theory it is an asset but you can't actually use it unless you sell you home (which nescessitates finding a new one) or borrow against it.
Also, the much tauted "tax deduction" for owning a home only applies in certain circumstances. Usually when you already have a large tax burden and are paying a lot of interest.
The same "no interest" rule holds for Muslims as well. There is an entire field of Islamic Finance to weasel around these rules. The Jewish faith on the other hand doesn't have these restrictions. An argument can be made that antisemitism partially resulted from this difference in rules.
p.s.: The basis of capitalism is private property and free exchange.
Ok, one more post on this derail: Look back a hundred years or so and the truth becomes a lot more obvious. The basis of capitilism is the ability to invest capital for a return.
Yeah I kinda misphrased myself. I agree that owning a house isn't necessarily the best investment (I'm sure someone could do the research and figure out the opportunity cost of owning a house and the alternative investment possiblities but I'm not going to. I'm just saying that the reason a lot of people think owning a house is a good investment is that it forces them to save money in an illiquid asset. It's like a 401k. If that shit was in a bank and easy to get at a lot of people would spend it during a rough patch rather than reduce their lifestyle. This is just human nature. People who are paying mortgages aren't going out every night and spending a 100 bucks on dinner. There are tons of people who are disciplined and budget and whatnot but the reality is most people are not like this.
― Marcus Aurelius
Path of Exile: themightypuck
Capital == Machinery and other productive goods.
Capital =/= Money.
It's not really surprising is it? The Bible isn't exactly pro-capitalist. It's more "love your fellow man and help him out any way you can".
And yes, one of the main reasons for antisemitism was that alot of Jews were money lenders. And no one likes the guy you owe money to. Of course, alot of them were money-lenders in the first place BECAUSE of antisemitism, but that's getting off on a crazy tangent.
― Dr. Seuss, Oh, the Places You'll Go!
?? Are you saying capital cannot mean "money" (in whatever form it takes)? Please tell me I am just missing your point here.