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February 13, 2009

Quote of the Day

We have to stop fetishing home ownership. If you can't afford your home/your mortgage -- a liability - you need to sell. I don't care why. Job loss, medical, dumb moves. It doesn't matter. If you can't afford it today, you won't be able to afford it next year either. This economy isn't going to turn around that quickly. Sell. Pay off your credit cards. Move on. The question, "How can we help them keep their home?" is not the right question. How can we get them back on their feet? That's the real question and the answer is to sell their home. Sellers need buyers and that's why we need a mortgage plan for credit-worthy people. The best possible solution would be to get back to the olden days when people might own a home and own one rental property as a nest egg. And other people rent until they can afford a home. Really afford a home.

— by Ringo in Housing Rescue Plan: For Some or For All?

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Comments

This was indeed a quality quote.

I say again, though: the concern here is that you can only enact the downsizing-and-saving plan if someone will actually buy your house. Otherwise you sit there trying to sell it until you get foreclosed on, which is what happened to an awful lot of people.

What's the impetus to buy, say, a 2 BR condo in Miami from someone who's trying to sell it, when you can buy the unit next-door from the bank for less money because it was foreclosed on?

Posted by: cwbuecheler at February 13, 2009 3:34 PM

That's cute, but you can't sell if the current price is less than you owe the bank.

Posted by: mopar at February 13, 2009 3:37 PM

Mopar let the federal government take care of that gap. Than let those homes come on the market. Give 4 percent to credit worthy buyers and watch as the market stabalizes.. A

Posted by: HOBOKENROCKS at February 13, 2009 3:52 PM

I think it's more like "watch as the market crashes." The key issue facing the country is that there is a large latent supply of housing -- potential foreclosure properties -- poised to come on the market at a time when there is already excess inventory of a couple of million units. The additional downward pressure on prices will have a snowball effect leading to increased defaults and more and more homeowners under water. Thinking that there is some simple market fix for this problem is naive.

Posted by: Back40 at February 13, 2009 4:06 PM

Well... I have to say that I agree with "the real question", here, and pretty much nothing else -- I don't want to nitpick, but "one-size-fits-all solutions" are a little bit scary. How does it not matter what the situation is before we apply THE answer, both from an economic and a moral standpoint? Montrose Morris made that point before, but there should be a difference between blatant over-consumption and predatory lending, and there should be a difference between people who have paid 15 years of interest and people who have paid nothing...
I'm also curious what the "olden days" are. Attribute that to my lack of American culture (this is an earnest question), but are we talking about the post-war expansion, with its demographic and economic specificities? Or some even older golden days? I'm not seeing what Ringo was talking about there...

Posted by: MrsCWB at February 13, 2009 4:15 PM

i have to disagree with this quote. many people were caught in ARMs which ballooned. if they are given the opportunity to modify to a low fixed rate they would be able to afford to keep their homes. just because you lost your job or made a 'dumb move' doesn't mean you deserve to loose your home. i say help people keep their homes at reasonable rates. if you can't afford the lower fixed rate payment, then maybe you should try to sell or just let it go.

Posted by: bkny at February 13, 2009 4:16 PM

bkny - sounds like you're saying that people who were wrong, or worse - irresponsible, in buying a home they could afford only because of the trick mortgage, should now be given a low fixed rate for no reason other than they might lose their home. that sounds absurd to me. that rewards bad and irresponsible decision making. it's not the govt's job to help people after they screw up and have to change their lifestyle. what about those of us who acted responsibly, didn't buy because we couldn't afford to? shouldn't we now be able to buy when these people are forced to sell what they couldn't afford?

tell us how your solution does anything other than provide the impetus for people to continue to make poor decisions regarding home purchase.

Posted by: brooklyn guy at February 13, 2009 4:41 PM

I am in favor of regulation that allows people to skip the redtape that is required to change a mortgage from an ARM or other exotic products to a 30 year fixed rate at current market rates.

The costs of making this change are actually quite small as most of the "costs" are actually just a reduction in the total value of the loan. A lot of that cost should be absorbed by the banks that issued the loans and the current holders of the debt.

This would help a lot of people, but the Chinese would be pissed.

Posted by: slick at February 13, 2009 4:54 PM

I am in favor of regulation that allows people to skip the redtape that is required to change a mortgage from an ARM or other exotic products to a 30 year fixed rate at current market rates.

This would help a lot of people, but the Chinese would be pissed.

Posted by: slick at February 13, 2009 4:56 PM

BUT I want to buy a 2 bedroom apartment for $1.2 million! I don't care if it's both a bad investment or that I only earn $80k. Renting is "throwing away money."

That's what everyone on here says!

Posted by: tybur6 at February 13, 2009 4:57 PM

"Montrose Morris made that point before, but there should be a difference between blatant over-consumption and predatory lending, and there should be a difference between people who have paid 15 years of interest and people who have paid nothing..."

Maybe there should be, but how can there be? And how much of your money do you want to spend figuring it out who it should go to? 20 cents out of every dollar? 30? I personally dont want any money spent on making these often-subjective decisions.

" just because you lost your job or made a 'dumb move' doesn't mean you deserve to loose your home. "

But it might mean that. It might mean you can't spend money eating out, getting cable tv, or having a higher mortgage than you can swing. It might! Deserve had nothing to do with it. This entitlement society has got to come to an end.

Posted by: Ringo at February 13, 2009 5:14 PM

Lending standards are going back to requiring good credit, and as a rule of thumb you won't be able to buy a house that costs any more than 3X your income. Those were the rules for all the decades since the last depression up until this last one. (the requirements of the 28%-36% DTI provide this rough 3X rule of thumb) How many Brooklyn houses/buyers would currently fit that price range? Given the cheapest piece of trash house in the worst neighborhoods in Brooklyn right now are about 500K, that means someone looking to buy even the worst houses in Brooklyn would need total household income to be $167K. Is that going to be sustainable? Doubtful. What is the average household income in this borough? 45k? 60K? Lower? Are there any houses people can buy for 135-180K? Nope. Soon there will be after everyone who paid more than 3X their income go into bankruptcy, and at that time society will recover from this mess, but not until then. If you bought your house in Brooklyn prior to around 2001-2002 you would have most likely fit this rule as there were houses all over the borough (and all over America) people were buying and selling at those 3X income prices and life was good.

Posted by: williamsburgguy at February 13, 2009 6:19 PM

We have to stop fetishing [current] home [prices].

***Bid half off peak comps***

Posted by: Brownstones Half Off at February 13, 2009 9:39 PM

Great words and how about some clawback rules on bankers who profited from all that money during the bubble years? and some pub;ic hangings or real estate brokers who inflated prices at will?

Posted by: hannible at February 14, 2009 7:32 AM

brooklynguy, many people who bought houses with ARMs did not know about the ARMs. For example, this happened to a friend of my mother's in California, where lawyers are not required. They could pay the regular monthly mortgage just fine and did, responsibly, for two or three years until the ARM reset. Then they were in fact homeless and staying with relatives for a few months. Now the family is renting from a relative. I don't know if they lost a down payment or closing costs, but I would bet they did.

williamsburgguy, you are right, but please keep in mind the $500,000 houses are usually two-families, which means the monthly costs are more like what they would be on a $300,000 or $250,000 house when you factor in the rent. If you buy a three-family for about $600,000 your monthly costs are even lower, about $600.

Posted by: mopar at February 14, 2009 10:02 AM

Am I just daft or do I have a hard time finding many 3 family houses in Brooklyn for 600K?

Posted by: xander at February 14, 2009 11:18 AM

"if they are given the opportunity to modify to a low fixed rate they would be able to afford to keep their homes."

you must be kidding right. There is no incentive for someone to keep paying a mortgage 600K mortgage on a house that can be bought for $300K after the market returns to fair valuations. Even if the rate adjusts. The lower the market goes the more people will default. You ain't seen nothing yet.

Posted by: MaplewoodGuy at February 14, 2009 12:07 PM

"Am I just daft or do I have a hard time finding many 3 family houses in Brooklyn for 600K? "

Just wait dear. You will find many for that price really soon. Problem is

-you won't have the money to buy it
-it will be cheaper to rent
-you will be afraid to buy it
-you will thing that the prices will get lower

The above is what called market crash

Posted by: MaplewoodGuy at February 14, 2009 12:09 PM

"If you bought your house in Brooklyn prior to around 2001-2002 you would have most likely fit this rule as there were houses all over the borough (and all over America) people were buying and selling at those 3X income prices and life was good."

What 2002-2002? Valuations were not 3 times income in NYC. In 2002 there were already 5 times. If one has bought in 2001-02 needs to sell immediately (if he/she cans) and rent.

Also haven't you heard? NYC income is way down (layoffs+unemployment). To have a correction we need to return to mid 90s prices. But before that happens we will visit lower prices.

Posted by: MaplewoodGuy at February 14, 2009 12:26 PM

"williamsburgguy, you are right, but please keep in mind the $500,000 houses are usually two-families, which means the monthly costs are more like what they would be on a $300,000 or $250,000 house when you factor in the rent."

Assuming they can find a rental. Rents are 20% per cent down and there is a glut of condos available for rent.

Posted by: MaplewoodGuy at February 14, 2009 12:29 PM

***Bid half off peak comps***

You are an optimist. Bid half off doesn't cut it and you should change your signature. You are implying that "half off" is a sound investment but it is not. BAD ADVICE.

Posted by: MaplewoodGuy at February 14, 2009 12:38 PM

"What 2002-2002? Valuations were not 3 times income in NYC. In 2002 there were already 5 times. If one has bought in 2001-02 needs to sell immediately (if he/she cans) and rent."

I know, but I was trying to be positive. This is Brownstoner you know - land of the "affordable" 1-2 million dollar homes :-) Actually in 2001 or so in areas like Bushwick and places out in Queens you could find stuff for 3-4X the average income - if you were looking at total gut jobs or areas that were really crime ridden and trashy or just lucked out and found a fsbo who really wasn't being greedy. But for the next 5-6 years after that even those areas inflated to the 10x-20x or more levels. I mean $700K in some of those areas is more than 20x what the average household income levels of the people in those areas bring in. I know several one earner families making 35K or less. Bodegas, Mcdonalds, Target, the corner butcher, etc all pay their employees less than that amount. And during those years and still now, rents are so dang high that those families who make 35K a year are all living 2 adults plus x number of kids in a 1 bedroom or studio apartment at $1300 or more a month. For anyone but the upper middle class or wealthy, we truly have moved back to the slumlord tenement days with respect to how people are being forced to live if they want to still live here in the city. I for one am ready to see that change.

Posted by: williamsburgguy at February 14, 2009 2:24 PM

We are going to go back to boarded up rat infested homes. This is only the beginning. Renters will have their vegence.

Posted by: hannible at February 14, 2009 8:39 PM

"This is Brownstoner you know - land of the "affordable" 1-2 million dollar homes :-)"

Funny you say that because now brownstoner is all about the flea and the community. How sweet. Yikes.

Posted by: MaplewoodGuy at February 14, 2009 11:47 PM

Xander, plenty of 3 families for sale in the $600,000 range where I live. One week ago I saw a circa-1900 three-family in excellent condition list price $650,000 in Ridgewood, Queens, one block from the Brooklyn border and on the L train. After the rent roll, you'd be paying about $600 a month to live there. The layout doesn't work for us because the basement won't accommodate our business, but it was one of the nicest houses we've seen. The neighborhood is good too.

Posted by: mopar at February 15, 2009 11:45 AM

"This entitlement society has got to come to an end." - Ringo at February 13, 2009 5:14 PM

Excellent bullet.

" ***Bid half off peak comps***

You are an optimist. Bid half off doesn't cut it and you should change your signature. You are implying that 'half off' is a sound investment but it is not. BAD ADVICE. "

Yo. I like this MaplewoodGuy. {I just hope he's not overpaidinbedstuy or Bidding War Champion or 1121[Chapter]7 facetiously trying to head-fake Team Bear into thinking we have a new member (even though "he" considers me optimistic). Damn, I'm paranoid.}

***Bid half off peak comps until NY Case-Shiller YOY passes through zero***

Posted by: Brownstones Half Off at February 15, 2009 12:12 PM

Sell to whom?

Posted by: bpi of clinton hill at February 15, 2009 11:57 PM

the perfect renovation, the $1,000 sink, the restored idaho barn wood plank floors, etc. etc. and the subsequent house tour already seems incredibly bourgeois. A costco membership card is required ID for the 2008-2010 recession.

Posted by: iddelz at February 16, 2009 8:13 AM

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February 13, 2009

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