The Old Standby: the 30-year fixed mortgage

[LorenS]

Re: The Old Standby: the 30-year fixed mortgage

But, I'm wrong several times a day and would love for some one to convince me I'm wrong.

A lot of this depends on where you live and your family situation. Where I live rentals are nearly all geared towards college students. Finding a rental in the "regular" part of town is quite difficult. Finding a rental that takes pets is equally difficult. When we do find a rental that passes our criteria it is far higher rent than our "payments".

You also have to consider the "hobby" aspect. My wife considers being able to paint a plus, while I consider it a major minus. Even the exterior maintenance gives her some kind of positive vibe, probably because she gets to pick the colors. Hence, the house is not only a dwelling, but a place of creative expression. If you try to put a $$ cost benefit analysis to everything you'll likely end up divorced. Some things you just have to let go.

In the end, the old standby 30 year fixed mortgage is just a tool. At least it's predictable and stable.

You can poke your eye out with a screwdriver too. At some point the citizen needs to take responsibility for their decisions.

[don]

Re: The Old Standby: the 30-year fixed mortgage

U.S. Moves Toward Home ‘Rentership Society,’ Morgan Stanley Says

The U.S. homeownership rate has fallen below 60 percent when delinquent borrowers are excluded, a sign of the country’s move toward a “rentership society,” Morgan Stanley said in a report today.

The national rate, which stood at 66.4 percent at March 31, would be 59.7 percent without an estimated 7.5 million delinquent homeowners who may be forced into renting, according to Morgan Stanley analysts led by Oliver Chang. The lowest U.S. homeownership rate on record was 62.9 percent in 1965, the first year the Census Bureau began reporting the data.

The homeownership rate reached an all-time high of 69.2 percent in 2004 as relaxed lending standards fueled home sales and President George W. Bush promoted an “ownership society.” Mortgage delinquencies, foreclosures and tighter credit for housing loans are reducing property buying, Chang said.

“Taken together they are forcibly moving the country away from being an ownership society,” Chang, based in San Francisco, said in an e-mail. “This change is only beginning, and is moving the country towards becoming a rentership society.”

http://www.bloomberg.com/news/2011-0...ories_tags_top


Can Renting Foreclosed Homes Cure the Housing Market?


The housing market has been struck by a troubling phenomenon. As distressed borrowers lose their homes, they must rent. But all those Americans hitting the rental market are causing rent prices to rise. In the meantime, as the population of homeowners shrinks, more houses are hitting the market and prices are declining. The solution here seems obvious: convert all of those foreclosed homes into rental properties. That way, rent and home prices should both stabilize. The government is reportedly considering alternatives to encourage this outcome.

Government Solutions

One possibility would be for the government to act as landlord for all of the foreclosed properties that it owns through its agencies like Fannie Mae and Freddie Mac. This option has a slew of potential problems, however. First, it could be very expensive, as the government would have to create an infrastructure to manage rental properties. Second, the idea of the government as a landlord might not thrill everybody. But finally, it's not immediately obvious that the government would need to step in when private investors may be willing to do so.

And that brings us to another idea, explained by Nick Timiraos at the Wall Street Journal:

One proposal winning support among some federal officials would sell thousands of foreclosed federal properties to private investors who agree to rent them.
Investors would rehab homes, run the leasing process, and contract with national property management firms to handle day-to-day tenant demands.
The government could keep a stake in the venture, modeled on loss-share transactions by the Federal Deposit Insurance Corp. Officials have received interest from around a half-dozen private investors, according to people familiar with the matter.

Something like this could theoretically work. The biggest problem would be that it appears to require the blessing of the Federal Housing Finance Authority, which controls Fannie and Freddie. The Treasury cannot tell it what to do, so if it doesn't see such a program in the agencies' best interest, then it won't sign on.

An easier option might just be for the government to provide a simpler incentive to buy distressed properties outright. One thing you could do is to exempt rental income from taxes until the end of 2017 on properties was purchased after, say, August 1, 2011. That would make investing in a rental property even more lucrative and allow the market some time to heal before the investors might want to get out of the landlord business and sell the houses they own.

The Home Buyer Credit Debacle All Over Again?

But the bigger question is: why involve the government? Shouldn't the market be taking care of this problem itself?

Think about what we know: home prices are falling, but rental prices are rising. It doesn't take a degree in finance to figure out that this could be a very lucrative situation for investors. As this trend continues, buying properties to rent out will become a better and better investment. The government really shouldn't have to do much to encourage investors to buy properties to rent out, because the market will provide this result itself.

The other strong reason for allowing the market take care of this problem is our past experience with the government attempting to conjure up demand for houses: the home buyer credit. You have to stretch to consider that program as anything other than a massive failure. Although it appeared to be working while it was in effect, for about a year-and-a-half, as soon as it ended home sales plummeted and home prices began to decline again.

If the government attempts to prop up the housing market by giving an incentive to lenders, then a similar situation could result. If there is a natural bottom that home prices must find, then trying to prevent it from getting there will only provide temporary benefits. Why not instead just allow prices to decline until investors find them low enough that renting out homes is too lucrative an opportunity to pass up?

http://www.theatlantic.com/business/...rSharingIframe

[don]

Re: The Old Standby: the 30-year fixed mortgage

Warning: this is straight out of the mouths of the NAR . . .

Best cities to invest in rental homes

In Las Vegas, home prices are down 45% since their peak in 2006, according to the news release from the companies. Even better for investors: Many people who work in the casino industry are renters.

That means investors can buy homes at low prices and have a sizable pool of renters from which to choose.

“What we’re looking for is how do you rank, based on the return that you get on the rentals, counterbalanced with the risk and what the price is,” said David Hicks, the co-president of HomeVestors, the company whose slogan has long been, “We buy ugly houses.”

The return could be short-term (the cash flow attained by renting out the property), long-term (the appreciation of the property over time) or both, he said. The risks include future potential home-price drops in the market.

The report looked particularly at single-family home rentals; about 14% of single-family homes in the country are maintained as rental properties, according to the news release. Renting a single-family home can be especially attractive to families who have lost their homes to foreclosure, Hicks said. Once parents have had a backyard for their children to play in, they often don’t want to live in an apartment home, he said.

Traditionally, HomeVestors franchisees buy only about 12% of houses with the intention of fixing them for rental. A greater percentage of homes are bought to renovate and sell right away, Hicks said.

But that’s changing, and more are looking for income properties, he said.
“We see a lot of investors stung by the stock market over the past few years,” and now they’re turning to real estate, Hicks said. “Even counting the past few years, if you take long-term investing in properties and land, the return on that is some of the best investments people have ever had.”

The calculations in the report assumed markets’ three-year home-price forecasts and gross rents to assign them a risk-return premium. Las Vegas had a 4.7% risk-return premium, relative to the national average; San Francisco, which ranks 100 on the list, had a -2.4% risk-return premium, according to the report.
HomeVestors/Local Market Monitor’s top 10 markets for people to invest in rental property are, in order:

1. Las Vegas
2. Detroit
3. Warren, Mich.
4. Orlando, Fla.
5. Bakersfield, Calif.
6. Tampa-St. Petersburg, Fla.
7. Phoenix
8. Ft. Lauderdale, Fla.
9. Rochester, N.Y.
10. Stockton, Calif.

Characteristics of best rental markets

Many of the markets with the highest ratings are those where prices have plummeted, Ingo Winzer, president of Local Market Monitor, said in the release. These homes can be bought at below-average prices and easily turned into competitive rentals.

Take Tampa, where home prices fell 10% in the past year, mainly because of an over-supply of investment properties during the housing boom. Or Phoenix, where home prices have dropped 40% since 2006.

In these metropolitan areas, job markets also may be beginning to improve, according to the release. That’s promising for long-term returns.
But Detroit, which holds the No. 2 spot on the list, is a little different. Detroit’s unemployment rate is 11% and its population has fallen 4% since 2006, according to the news release.

“You get more return on the properties [up front, in rental cash flow], but less hope for values to grow in the future,” Hicks said.

It’s not clear if jobs will return to the struggling city in the future. It’s high on the list, however, because homes can be bought so cheaply, he said.

http://www.marketwatch.com/story/bes...ce=patrick.net

[c1ue]

Re: The Old Standby: the 30-year fixed mortgage

A very true statement Starving Steve. I live in the SF Bay area, and to rent a decent 2-bedroom apartment in or close in to the City, you need to spend anywhere from $3,500 to $4,500 per month, not including parking. Rents are going through the roof here thanks to another mini-dot com boom.

After selling my condo in 2008, I rented a "cheap" place near the airport. After three years I became very frustrated living with my third-world neighbors and a rat infested apartment that was falling apart. I just bought a brand new home on the outskirts in Wine Country (I work at home), and my new mortgage is about $2k/month cheaper than the rent I was paying to live in the 900-square foot dump. I got an FHA loan, so I put down next to nothing and most of my cash remains in the bank as it did when I rented.

When it comes to real estate, everything is local. A purchase made absolute financial sense for me, but it may not work in all metro areas the same way for someone else.

I guess we must have vastly different views on 'decent'.

My rent is well under your range, and I live in a 2 level loft with 3 bedrooms/2 bathrooms. And I'm in the heart of the City.

[mesyn191]

Re: The Old Standby: the 30-year fixed mortgage

You can poke your eye out with a screwdriver too. At some point the citizen needs to take responsibility for their decisions.

Americans are by and large extremely responsible to the say least. Despite being abused by their banks and government there aren't many strategic defaulters at all (still less than 20% of all defaults since 2007 IIRC) and most people will ride out their homes until the bitter end even now, even if default is inevitable no matter what.

All of this mess isn't some sort of crisis of "personal responsibility" of the individual, its a systematic failure by the government and banks who've preyed upon the people to enrich themselves by making others poorer. You reform those 2 institutions and "magically" most if not all of these problems we're having in our economy will start to clear up. The real problem is how the hell do you reform our government when its still effectively ran by a 2 party system, both of whom are very similar despite what they say and what you see on the news, that is voted in via FPTP system? If you don't reform the gov. first you sure as hell can't begin to reform the banks short of drastic mass grass roots bank run efforts which will have all sorts of short term consequences even if in the long run it forces change for the better.

[jk]

Re: The Old Standby: the 30-year fixed mortgage

if you're going to be in one place long enough, fixed rate debt is a great inflation hedge. about 3 or 4 years ago i did a cash-out refi for the maximum total i could get, for 30 years at 4.375%. i put most of the extra cash into a geothermal system that has been saving me on my energy costs so as to produce an implicit 10% return on the cost of the system. meanwhile, i'm waiting patiently for an inflationary burst. if i could pull more money out on the same terms, i would.

in the 1970's the nominal price of houses went way up, although they actually lost a bit in real terms. the nominal value of the mortgages, however, was fixed, and shrunk to insignificance in real terms.

[LorenS]

Re: The Old Standby: the 30-year fixed mortgage

Americans are by and large extremely responsible to the say least. Despite being abused by their banks and government there aren't many strategic defaulters at all (still less than 20% of all defaults since 2007 IIRC) and most people will ride out their homes until the bitter end even now, even if default is inevitable no matter what.

The discussion was surrounding the stalwart 30 year mortgage. Coupled with a good down payment I see no problem with the "standard" 30 year mortgage. Some folks were pointing out some of it's drawbacks. My point was that you can hurt yourself with about anything.

Disclaimer: I "owe"n a home with a 30 year mortgage.

I'm ok with folks renting. I'm ok with folks buying. I despise crooks and cheaters.

[lektrode]

Re: The Old Standby: the 30-year fixed mortgage

if you're going to be in one place long enough, fixed rate debt is a great inflation hedge. about 3 or 4 years ago i did a cash-out refi for the maximum total i could get, for 30 years at 4.375%. i put most of the extra cash into a geothermal system that has been saving me on my energy costs so as to produce an implicit 10% return on the cost of the system. meanwhile, i'm waiting patiently for an inflationary burst. if i could pull more money out on the same terms, i would.

in the 1970's the nominal price of houses went way up, although they actually lost a bit in real terms. the nominal value of the mortgages, however, was fixed, and shrunk to insignificance in real terms.

this is one of the best endorsements for INVESTMENT in alt energy (future cost avoidance) by the individual consumer (citizen) that i've seen in a while jk

dunno why this topic seems to generate such heat (vs light) round these parts, but would think that with the degree of financial sophistication on display here, coupled with negative real-return on so many fronts (sides AU anyway) over the past decade, it beats the crap outa me why more arent thinking like this

but i guess if the future is simply 'take the money and run' and how some are determined to be renters for the rest of the lives, (filling up someone elses 401k) then this tack wouldnt make much sen$e?

[mesyn191]

Re: The Old Standby: the 30-year fixed mortgage

Coupled with a good down payment I see no problem with the "standard" 30 year mortgage. Some folks were pointing out some of it's drawbacks. My point was that you can hurt yourself with about anything.

OK then I read too much into your post. The whole "personal responsibility" thing is a talking point used by lots of pro banker/rich types to lay the blame on the poor/middle class and that is what I thought you were hinting at. FWIW I like the 30 yr/20% down loan too and I don't think crap like ARM's and IO loans should be available at all to the general public. They're too risky.

[jiimbergin]

Re: The Old Standby: the 30-year fixed mortgage

OK then I read too much into your post. The whole "personal responsibility" thing is a talking point used by lots of pro banker/rich types to lay the blame on the poor/middle class and that is what I thought you were hinting at. FWIW I like the 30 yr/20% down loan too and I don't think crap like ARM's and IO loans should be available at all to the general public. They're too risky.

+1

[cjppjc]

Re: The Old Standby: the 30-year fixed mortgage

U.S. Moves Toward Home ‘Rentership Society,’ Morgan Stanley Says

The U.S. homeownership rate has fallen below 60 percent when delinquent borrowers are excluded, a sign of the country’s move toward a “rentership society,” Morgan Stanley said in a report today.

The national rate, which stood at 66.4 percent at March 31, would be 59.7 percent without an estimated 7.5 million delinquent homeowners who may be forced into renting, according to Morgan Stanley analysts led by Oliver Chang. The lowest U.S. homeownership rate on record was 62.9 percent in 1965, the first year the Census Bureau began reporting the data.

The homeownership rate reached an all-time high of 69.2 percent in 2004 as relaxed lending standards fueled home sales and President George W. Bush promoted an “ownership society.” Mortgage delinquencies, foreclosures and tighter credit for housing loans are reducing property buying, Chang said.


http://www.theatlantic.com/business/...rSharingIframe

As the average american is usually wrong in matters like this, would this statistic as it continues to go higher be a good contrary indicator.

[don]

Re: The Old Standby: the 30-year fixed mortgage

if you're going to be in one place long enough, fixed rate debt is a great inflation hedge. about 3 or 4 years ago i did a cash-out refi for the maximum total i could get, for 30 years at 4.375%. i put most of the extra cash into a geothermal system that has been saving me on my energy costs so as to produce an implicit 10% return on the cost of the system. meanwhile, i'm waiting patiently for an inflationary burst. if i could pull more money out on the same terms, i would.

in the 1970's the nominal price of houses went way up, although they actually lost a bit in real terms. the nominal value of the mortgages, however, was fixed, and shrunk to insignificance in real terms.

Further congrats on the energy investment. On the mortgage as an inflation hedge, the historical appreciation rate trails inflation by an insignificant amount. That addresses the market price. That's not the same as the amount of interest one is paying on the note. Refinancing a note, to pull out cash, restarts the loan at the maximum interest amortization rate. Things that one should be aware of in home buying planning. And then there's the market distortions, like the one brought on by the housing bubble, which could nosedive the 'expected' appreciation for a lifetime.

[jk]

Re: The Old Standby: the 30-year fixed mortgage

Further congrats on the energy investment. On the mortgage as an inflation hedge, the historical appreciation rate trails inflation by an insignificant amount. That addresses the market price. That's not the same as the amount of interest one is paying on the note. Refinancing a note, to pull out cash, restarts the loan at the maximum interest amortization rate. Things that one should be aware of in home buying planning. And then there's the market distortions, like the one brought on by the housing bubble, which could nosedive the 'expected' appreciation for a lifetime.

i'm not really concerned about the value of my home since i plan to live in it until i am incapable of climbing stairs. i just expect the mortgage to become de minimus.

[don]

Re: The Old Standby: the 30-year fixed mortgage

i'm not really concerned about the value of my home since i plan to live in it until i am incapable of climbing stairs. i just expect the mortgage to become de minimus.

As a fellow 'tuliper put it so well,

The value of owning a home for most will be found in paying it off and having a place to retire to with almost no cost of living

[Starving Steve]

Re: The Old Standby: the 30-year fixed mortgage

I hate to rain on the parade here, but imagine what might happen on August 2nd when/if the U.S. defaults on its debts. Imagine the shock to world markets, not so much here with the deadbeats in America but with the rest of the world that has been lending to America. Imagine interest rates rising 1/2% or maybe 1%. Then imagine the whole house of cards of confidence in debt paper and promises to come crashing down. Then imagine the hit to the stock market. Then imagine the hit to bonds. --- the hit to the dollar. --- the hit to house values. --- the rent one might have to pay to live. --- the hit to the job market. --- the hit to the confidence in U.S. state debt. --- the hit to muni-bond market, even to muni-bonds backed by the state govn'ts as "guaranteed obligations of the state".

Things actually could get so bad in a few weeks that it would not be a question of whether to buy or to rent, but it might be a question of moving to some other country.

Think of what could happen if the defaults spread to other countries. Even the possibility of down-grades and defaults could destroy whatever of the world's financial system that remains.... Who knows what could happen? And sharply higher interest rates could bring-on more defaults, more bubbles bursting, more questioning, more money flight, etc.

Thirty-year obligations? In what? Over-priced real estate? Which bubble? Where? Backed by whom? Lent to which deadbeat? Why? At 4.25%? On what terms? To inject liquidity into which mountain of paper? ---- The whole rotten game of the central banks could come crashing down. Especially in America, the whole confidence game of the Federal Reserve Bank could be damaged, maybe in 168 hours, or less.

There may well be a last-minute deal in America, but what happens if the deal is just more kick-the-can with deficits under the cloak of an inflated and overly optimistic growth-scenario in tax revenues under the plan, or under the cloak of an unlikely and overly optimistic scenario for a decrease in federal expenditures for bail-outs? How would the world's markets react to that charade, maybe a few days later, when all of the fine-print and rosie assumptions of the last-minute budget deal are critically reviewed?