All the data keeps clearly showing the whole housing bubble (and subsequent crash) story has largely played out. We have another year or two of churning to do before really getting on super solid ground, but by that time the bears will just finally start realizing that the bust is over and they will only be 4 years too late. At first the story was "oh just wait for the shadow inventory", and now it's "yeah it's getting better I guess but it's all because of the Fed/banks/gov, etc (insert conspiracy theory here). Just you wait". Good luck trying to bid on prime properties now, let alone in another year or two when things are even stronger...
On another note, rates keep coming in. Looking at where mortgage bonds are trading, it seems the banks are slow playing the rate decline a bit in that their spreads have widened out as they aren't passing on anything close to the full post QE3 rate declines yet. So I'm not in a hurry but I'm thinking of refinancing in the not too distant future. Given that I plan on paying down the mortgage quickly, I'm thinking I will probably stick with a 5/1 ARM. I think something in the low 2's might be possible at some point. Or I guess I could extend out with a 7/1 ARM for a little higher rate. Remember, these probably aren't great products for everyone but I can bear the interest rate risk. What are you guys doing these days? Oh, and along these lines, I read a funny comment on another blog where a guy half jokingly said that rates are getting so low there won't be any tax advantages for the government to take away even if they ever go that route. Paying so little interest as is...
"Warchest said...I was pleasantly surprised to see this graph put up on one of the oh so scary bearish blogs."
ReplyDeleteWhich blog? I want to go and laugh at all the cognitive dissonance as the bears last credible ace in the hole goes down in flames.
Don't waste money on refinancing....just another ruse for the banks to get rich on fees (loan origination, appraisal, and tons of stupid other escrow fees...)
ReplyDeleteDouble down and pay off your mortgage by adding payments to the principal each month....
I pretty much agree which is why I am looking at doing as close to a "no cost" refi as possible...although I know they will still try and sneak a few fees in there. No reason to really pay anything as long as rates keep falling. And of course, given that I am planning on paying the whole thing off fairly quickly, a quarter of a percent here or there won't make nearly the same difference that it would if I were planning on keeping the mortgage for 30 years or whatever.
ReplyDelete"And of course, given that I am planning on paying the whole thing off fairly quickly..."
DeleteStrangely, after 12 years of doing that (paying an extra $300 a month to pay a 30 year note in 25 years), I am now thinking of doing the reverse. I pay 2800 a month on my original 430K in principal, and thanks to the extra payments, principal is now down to 280K.
If I were to refi that 280K and re-extend it to 30 years, my payment would drop to approx $1,200! Yes, I would be paying a mortgage til age 69 (whereas before I would have no mortgage at 52), but Jesus, 1,200 a month is nothing. Bears renting a similar house for the past 12 years would be paying $3,200 a month for a similar place today. Even if I were to stuff the monthly savings under my matress, I would be an extra 600K in 30 years time.
Its a stark contrast when you look at it that way. Me paying $1,200 a month, forever, til I am on deaths door with an extra 600K in my pocket. Or renting bears paying $3200 a month, and escalating, forever, til they are on deaths door.
What a tool. Ok you bought 12 years ago and prices, incomes, and lending practices are in a completely different scenario than today. Really you're not gloating over bears you're gloating over anyone who wasn't in a position to buy 12 years ago. That's like someone saying they paid their way through private college 12 years ago and it worked out great but has no bearing to the debt kids take on today and their job prospects.
DeleteAnd unless you have someone else paying your taxes, insurance, and maintenance you're paying more than $1200/month for the next 30 years. What a piece of crap your place will look like 30 years from now if you don't maintain it.
Really you're not gloating over bears you're gloating over anyone who wasn't in a position to buy 12 years ago.
DeleteNo, he is gloating over the bears because (far as I can tell) most of them were in a position to buy 12 years ago and didnt (Patrick, LS2009, Dr. H B) they thought year 2000 prices were a bubble so they waited, and look where that got them...
So consider this a referendum on your future, Mr. Junior Bear, as we are in a similar situation today as 2000 (came off an earlier bubble, but havent fully "deflated" in the views of some uber bears). Look and see the path in front of you. While there is absolutely no rush to buy (and likely will not be), if you continue to say "ill wait til XYZ happens", and then when XYZ produces no drop in prices, you say "well, ill wait till ABC happens", only to set new benchmarks in 2-3 year chunks, over and over again, til the next thing you know, its 12 years later and you say, my god, ive been renting this whole time and have nothing to show for it.
Yeah it is an angle that I think people may not realize until they run the numbers. If you have paid down your mortgage by any meaningful amount, your monthly payment goes down when you refi (even at the same interest rate)...although you do extend the theoretical life of the loan.
ReplyDeleteYes, things are different today than 12 years ago, but I think the point is that renting is not a good long term strategy; just as holding an excessively large amount of cash isn't a good long term strategy. For the most part, buying good assets at some point in the cycle other than the top will yield satisfactory results over time. We aren't anywhere near a top now on real estate...
I travel all over the world and have to say that on any sort of apples to apples basis the west side of los angeles is astoundingly undepriced. There is literally nothing valued as inexpensively as the west sidebof los angeles right now with the amenities we have right here. The bears need to spend some time in vancouver, sydney, melbourne, and dozens of other cities to understand the under valuation of the west side
ReplyDeleteWhat a difference two years makes! The last I checked this blog, "WarChest" was crowing about how stupid it was to own, how much sense it made to rent in the Greater L.A. area. And now the 180 degree turn.
ReplyDeleteFools like you just sway with whichever wind is blowing. What's next? "Haay, guyz, renting is like throwing your money away! They're not making more land, you know!"
For the record, I just sold a home a month ago and have a fat chunk of equity to invest. It's *never* a bad decision to rent instead of buy, but the inverse is NOT true: it indeed can be very, very stupid to buy instead of rent, and that is precisely how idiot buyers (and an entire industry filled with idiots) get themselves and everyone else into trouble.
Assuming what you say is true about your fat chunk of equity, you must've owned the house for quite a while. Why didn't you sell 3-4 years ago? It seems quite foolish to have held through the last 4 years and then sell now.
DeleteWhen information/facts/conditions change, the rational thing to do is see if it makes sense to change your mind on something. That's what I did. Interest rates are a fair amount lower and rents are higher relative to where we were two years ago. As I got more confident that those trends weren't going to change and the economy was going to keep growing, it became increasingly clear that the bear argument of waiting for some future price decline wasn't realistic.
ReplyDeleteAnyone saying that it is "never" or "always" a bad or good time to do something are probably wrong. There is too much uncertainty in life to be able to credibly claim something is always or never a good idea to do...maybe with the exception of brushing your teeth and flossing.
I refinanced two properties a few months back. I know the banks make money off the refi (about 5K in this case) but I'm saving $500 a month so it will pay for itself in less than a year. And I was not smart enough to sell in 2006 so I figured I'd be holding the properties a while longer.
ReplyDeleteI often wonder about the question "pay down mortgage faster" or "take advantage of free money (low interest rates) and take out longer term loan". I waffle on this. Yes, the small payment is great, and won't seem like anything in 15 years, but I guess I'm attracted to the freedom of no debt, even if I can make more money making the small payment and investing the leftover someplace else. I should approach it more logically but there is a positive psychological reward (for me) of being debt free.