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melonrightcoast · Joined: 22 Feb 2009 Posts: 236 Location: metrowest

john p: i think you are right that most/many people only look at the monthly payment to determine whether they can afford a home or not. And honestly, isn't that a large portion of what caused this housing bubble? With the prevalence of NINJA loans, adjustable rate mortgages and pick-a-payment options, people were not looking at the sale price ... they were only looking at the monthly payment, and hence sale prices increased like crazy.

Even in a situation where a buyer is considering staying in the house for 10+ years, I think too many buyers are not looking at the fundamentals, such as: how much the house cost compared to their annual income; if necessary, could they live in the property for 30+ years; whether they had a decent down payment; whether they had a fixed-rate mortgage that wouldn't adjust; how much were insurance, taxes and maintenance costs going to be; would they be able to afford the property tax increases; how long could they afford to pay the mortgage if they lost one or both incomes; if planning on having kids, have they researched and thought through all those additional costs; would all the extra housing-related deductions throw them into the AMT and would they be able to afford that (happened to some friends)?

If everyone thought buying a house through like this, I truly think that only a very small fraction of current buyers would be paying the current selling prices right now. Instead, they only look at the monthly mortgage and maybe taxes and don't consider their lives ten years down the road, and think they can afford it. At least the prevalence of all those crazy loan options have greatly decreased, if not disappeared.

If all buyers had the same requirements imposed on them, such as: 20% down, 30 year fixed-rate, 25% PITI cap vs. income, then it would help stabilize the market sooner than later. But that isn't what is going on. In the bottom end of the market, there are FHA loans that require very little down, and banks are not requiring 20% down on the higher end of the market, and second mortgages and HELOCs are still common. I believe this is going to cause the market to go down slowly for several years.

Now, regarding the realtor industry, the current commission based system encourages increasing prices because the seller's AND buyer's agents have a vested interest in getting the highest sale price, because that is how they are paid. Now let's think for a minute ........ how about if the realtors stopped working on commission and charged a flat rate to sellers, REGARDLESS if the property sold or not, and then a flat rate bonus if the property sold. Buyers agents would be paid a monthly flat rate by the buyers, and a flat rate bonus once they purchased a property. I think this would help the market find it's true level more quickly because only buyers and sellers that are truly interested would be in the market. And it would help weed out the bad real estate agents because sellers would have more of a financial incentive to hire agents that perform.

But one could argue that the government does not want the "true level" of the market found out soon, as they realize how dependent our economy AND society has become on credit and indebtedness.

So, we wait. We are happy my husband has more career opportunities because he doesn't have to take the highest paying job to cover the too-high mortgage, we are happy we don't have the stress of having to juggle two careers with children, and we are happy to watch our savings grow. We'll see if our choice pays off with a house that suits our needs for the next 20 years, and that we can *truly* afford.
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admin · Posted: Wed Aug 12, 2009 3:48 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

john p · Joined: 10 Mar 2006 Posts: 1820

Oh, what I meant was if a couple together made $100k and the median house was somewhere around 3 to 3.5 times their income, how much more would the prices plummet?

admin · Posted: Wed Aug 12, 2009 5:44 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

http://www.realtor.com/realestateandhomes-detail/38-Old-Nahant-Road_Wakefield_MA_01880_1111417753

This is a nice place for $379k. From the peak, this place zillowed for $424k and it bottomed this Spring for $342k. That's like almost 25%.

http://www.zillow.com/homedetails/38-Old-Nahant-Rd-Wakefield-MA-01880/56356199_zpid/

If you could get this place for $325k and say you put down $25k, you're payment would be what, $1450 a month and you'd get a shelter on your interest, so it would almost be like a what, $1100 a month rent? How much further is that going to drop? This house to me, represents a Honda Civic. It's in the strike zone of a lot of families and it is pretty practical.

You can get right into downtown Boston on the commuter rail in Wakefield so it isn't the sticks.

Oh, what is funny is that I know the realtor. I haven't seen him in like 25 years. He used to terrorize the younger kids at this country club my family belonged to. He was into professional wrestling and he used to almost drown kids when he would act out his favorite wrestlers favorite moves in the pool....

melonrightcoast · Joined: 22 Feb 2009 Posts: 236 Location: metrowest

we lived in reading for a while and my husband used to take the train to Boston. he has said it was a relatively great commute. i thought wakefield was very cute and i like the path around the lake. the house john p posted a link to is way too old for me (right now with young kids). schools are iffy, too.

don't forget the impact that kids have on family finances and choices. we know people that refuse to leave cambridge, while at the same time they acknowledge they won't be able to afford private schooling if they get a "bad" pick in the lottery, and they'll probably move to a suburb. similarly, a similar situation where elementary school went well in Arlington, but then the middle school was horrible and our friends ended up paying for private school for middle and now high school.

anyways, if I didn't have kids, I would not be living where I am right now!
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melonrightcoast · Joined: 22 Feb 2009 Posts: 236 Location: metrowest

john p: i forgot to add that your $1100 calculation is a perfect example how people are still paying too much money for houses because you also need to add in taxes (~$300/mo), insurance (~$60/mo) and maintenance (which would likely be a lot considering the age and condition of the home ~$300/mo). That's more like $1760/mo, which may or may not be a "good deal" right now, but once you add in the taxes, insurance and maintenance, it is quite a bit more than just the mortgage.

Also, those costs don't take into consideration upgrades and improvements that many new owners would want to do. Would they have the time and/or money to do the improvements? I think this is especially relevant to the Boston area because the housing stock is so old and run down AND home improvement costs are relatively high.
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WestCoastXPlant · Guest

Mel, one thing that I've really liked Redfin for is their listings and email alerts. I am not using them to buy but they do a great job in terms of getting up listings promptly -- I believe there is very little manual work(my assumption is that NE moves somehow relies on humans, can't explain a 5 day data lag otherwise...or they do a local data load and aren't very prompt). Anyway, the huge plus is that they really don't pester you like most realtors tend to do

I just wanted to point out, to admin's point that he'd never walk away on moral grounds, that SeattleBubble had a whole post around this not long ago. I think many people acknowledged that morality might be a function of price in some sense -- many would not walk away being 30% underwater, but once you get to seeing equivalent properties being 50 or 60% cheaper I think ppl start to think twice.

WestCoastXPlant · Guest

Sorry, one more thing came to mind. Wanted to mention something called "Listing Alert" -- it wasn't until we "missed" a house that I realized its importance. When a seller accepts an offer the house can go "Under agreement" (in which case you get to hope the deal falls though) or they can just put a "Listing Alert" on it -- meaning that they've accepted an offer but P&S is not yet signed and the seller is inviting backup offers. This used to be very popular this past winter -- basically the seller queues up backup offers and if the deal falls through on inspection or financing, they call the second bidder...Just thought I'd mention it in case you are still interested in the house. The house that "taught me" about listing alerts actually did go to a backup bidder - we were too cynical to put a bid (i.e. didn't believe the deal will fall through)

admin · Posted: Wed Aug 12, 2009 9:05 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

Here would be my breakdown:

Assumptions:

House Price - $325,000
Down Payment - $25,000
Primary Loan - $260k @5.5%
Piggyback Loan - $40k @7.5%
Home Insurance $60 per month
Real Estate Taxes - $12 per thousand

Monthly Cost Breakdown:

loan pricipal for primary loan - $1,476
loan principal for piggy back - $280
real estate taxes - $325k
Home owner's insurance - $60
tax shelter on interest and RE taxes ($595)

Total Monthly Mortgage Payment $1,547

Now to compare, here's a 2 bed, 2 bath condo for rent for $1450 per month.

http://boston.craigslist.org/nos/abo/1313625385.html

Sorry, my earlier post was off by like $450 per month, but this shows that you can get a house for about $100 more per month than a monthly 2 bedroom apartment...

melonrightcoast · Joined: 22 Feb 2009 Posts: 236 Location: metrowest

john p.:

that's a good breakdown, but something that you are still leaving out is the maintenance costs, and for an old home, it is HUGE (trust me, i know all too well). heck, just keeping an old home painted will run you $5000 or more every three or so years.

now if you are very, very lucky to find an old house that has been impeccably maintained, then the maintenance costs would not be as high, but I rarely see them.

also, something we ran into with our old house was that there were still remnants of knob and tube wiring in the house. Insurance companies really did not like that and we had a few flat out refuse to even give us a quote unless we got it all ripped out.
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melonrightcoast · Joined: 22 Feb 2009 Posts: 236 Location: metrowest

WestcoastXplant:

Thanks for the tips about Redfin's site ... I had meant to test it out now that I've abandoned nemoves, but hadn't got to it yet. Maybe you are right with the human error (or just bad technology) part about why it took 5 days for a listing to appear. Probably more plausible then my collusion against buyers without buyers agents idea Smile

.

And I don't blame you for not putting a back up bid. I'd only do it if I REALLY wanted that house.
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