Seattlites: Borrow More Money!

[foraker]

Personally, I'm glad when I wake up every morning and don't find myself the proud owner of a cot in a UN refugee camp. I find it keeps my sense of entitlement to a minimum.

[Peter_Puget]

Hey do the math...

 

Bought the most expensive I could afford with the least down. Its been five years of increased value. Net result is a substantial gain. Worst part about it was J-B's constantly freaking me out with his "peak oil " posts!

[cj001f]

Hey do the math...

 

Bought the most expensive I could afford with the least down. Its been five years of increased value. Net result is a substantial gain. Worst part about it was J-B's constantly freaking me out with his "peak oil " posts!

 

net result currently = paper gain

[Peter_Puget]

A "gain" I can and have borrowed against! So in the respect it is more "real" than the money stuffed under Jayb's bed.

[cj001f]

A gain I can and have borrowed against! So in the respect it is more "real" than the money stuffed under Jayb's bed.

margin loans are lovely

 

Leveraging can be useful; it's also risky. You and I might be in agreeance that average person is a poor manager and quantifier of risk.

[JayB]

Jayb -

 

I have had interest only on my house for the last five years. Now I am looking to sell. I think I have made out pretty well.

 

I think you are in a different boat than most of the folks who are taking on this kind of mortgage debt, simply by virtue of your ability to qualify for the same loan at a fixed rate. Something tells me that your I/O mortgage didn't fall into the subprime category either.

 

Watch the I/O + ARM origination rate vs. foreclosure stats between now and the end of '07 and I expect that you'll observe an increasing correlation between the two. Some suggest that there's also a relationship between these figures and average amount that a house has appreciated, and that a negative change or reduction in this variable will also have an effect on things.

 

Recent rates of real-appreciation also seem somewhat higher than average, inasmuch as the data series from 1890 to the present constitute a reliable indicator.

 

 

 

 

 

 

[Alpinfox]

 

So Jay,

You are saying I should rent rather than buy?

[JayB]

I don't think any of this matters all that much for people who can afford the terms of their loan under all but the most dire scenarios, and who plan on living in the same home for quite a while. I think anyone who is buying a rental property with an adjustable rate loan with a monthly payment that exceeds the rent minus taxes, upkeep, etc - is insane unless they have steady nerves, super-deep pockets, and a long, long time horizon.

 

I'm pretty sure we'll be renting until the numbers work out for us in terms of a purely financial rent-vs-buy analysis, which I'd guess will be the case until '011 or '012.

[billcoe]

When the pool of available buyers shrinks, and the ugly spector of inflation - or worse - stagflation -rears its ugly head, then, and only then will you find homes affordable. It's heading our way.

 

 

A hard rains gonna fall. My pants are at least 1/2 way down right now with exposure and will be burned worse than most on this board.

 

My opinion.

[tivoli_mike]

remove mortgage interest deduction for second homes and watch what happens...

[Ratboy]

I see some others here read the Seattle Bubble Blog.

[fear_and_greed]

"The economy hiccups and people are going to be walking away from their mortgages."

 

 

Not that easy to walk away in the US anymore as a decreasing amount of mortgage debt in this country is of the non-recourse variety, and the bank can come after you for the difference between your loan value and what they can sell the property for. Even if they can't come after you for the debt, the IRS considers the amount of debt that the bank "forgives" taxable, so you're still on the hook for that.

 

What's the law like in Canada?

Up here in the early 80's my parents said they got 18 something % from the bank on the savings, so I imagine mortgage rates were about 20 %then! The preceding boom turned into a terrible bust and people simply walked away from their houses. I don't think the the future consequences meant a whole lot at that point.

[Fairweather]

Interesting post from a Seattle real estate blog. When a couple that includes an M.D., and an engineer with a graduate degree, with no children - can't buy something for what they think is a reasonable/justifiable price... Then it's clear that the YOY gains are just getting started!!!! Buy! Buy! Buy!

 

" This blog is a clearinghouse for whiny twenty-nothings to vent their insecurities while waxing about things they vaguely understand...(blah, blah, blah)

 

Am I such a whiny bastard that I feel that I should be able to afford a decent home in the city of my choice? I grew up in the Northwest. I've lived here all my life. I met the love of my life here in this city. You just don't get it. I WANT to live in Seattle. Get it? Not only that, we HAVE to. Why? Because my wife has the type of job (a Doctor!) that warrants us to live within 15 minutes of all hospitals within the Seattle metro area. She is on call almost every other day and gets paged constantly. She DOES NOT WANT to live in all the other areas you mentioned. I DON'T either. I'm an engineer who doesn't have the in-city living requirement, but damn it, if my wife is stressed out after working a 36 hour shift at Harborview, and if it means that living close can prevent endless hours of wailing and sobbing about life's miseries, then YES, I will pay that much extra to live in town. All we want is a decent section of area to lay our tired asses on after a hard day's work. But damn you if you think I'm gonna pay $749,950 for a piece of crap box that's been flipped by 2-3 investors from California who care NOTHING for this city, NOTHING for my town, NOTHING for the Northwest, and NOTHING for the beautiful gray skies and loving rain. And damn it, after earning a graduate degree in engineering and earning a very good salary from a prestigious company...after my wife working long, long, long, long hours as an undergraduate student, as a medical student and now as a medical resident...damn it, we deserve a starter home in Seattle! We've earned it! We deserve our piece of crap condo made of cheap composite materials with stainless steel appliances and granite counters. And damn it, we deserve it at an affordable price!!! And we ARE doing our best to save for a house (we're renting right now, of course), but we feel that after so much hard work, we shouldn't have to break our backs just to support our first home. We don't even have any kids yet! How can we afford to? You must be the type of person that thinks only the rich should live in the city. What a bunch of crap! I hope to God Seattle wakes up from this greed-induced real estate mania. "

 

 

Geeez, JayB! You sound like one of them in that last post. You can't reconcile your free market beliefs (which I sincerely admire) with the above. You just can't. Even though it breaks my heart to see the prices here in Pierce County going up at an even faster rate than Seattle, I will remain true to my beliefs. The real injustice is when a retired couple or widow(er) in their late 60's or early 70's has to sell their home because they can no longer afford the property taxes on that once-modest abode. My mother now shells out $10,000/yr in property taxes for the "privelege" of living in the home she worked so hard to pay off years ago. And for what? So state workers can get new fleet vehicles every 16 months? So the state can squander $10,000 per child on K-12 'education' (administration) and subsidize university-level students who are so filled with a sense of entitlement? C'mon, man. You know better.

[olyclimber]

i think he was just cynically noting the sense of entitlement that some people have....yet I can't help but think that all this energy coming from jay is because he feels his own sense of entitlement to live here. He is hoping for a big market correction so that he can afford a house, and then once he is in then let the fools continue on their borrowing and overspending and pricing eveyone else out of the market.

 

I for one hope he can afford to move back here and buy a house...I'd hate to see him lost to the evil east coast!

[foraker]

Forgetting, of course, that real estate speculation and demand are what push up property values and thus property taxes.....unless you happen to vote for bond issues that push up your property taxes or don't vote to put an actual dollar value limit on your taxes..... I feel for your mom but people down in Pierce county are more a victim of free market speculation and simple demand than anything, just like people in Seattle are.

[Fairweather]

Forgetting, of course, that real estate speculation and demand are what push up property values and thus property taxes.....unless you happen to vote for bond issues that push up your property taxes or don't vote to put an actual dollar value limit on your taxes..... I feel for your mom but people down in Pierce county are more a victim of free market speculation and simple demand than anything, just like people in Seattle are.

 

Yes, but is "market value" really how property should be taxed? I believe that increased value - CPI and bond measures notwithstanding - should not be tax-relevant until that property actually changes hands ala California's prop 13. Ask yourself sincerely; does this state really provide increasing levels of service commensurate with property values? The state budget has gone from 21bn to 27bn in just 3 years. Has population increased the same? No. If, as some here believe, the real-estate bubble bursts, will the state then lower property values at pace with the market? I seriously doubt it. The government in Washington State - lacking proper judicial separation as it does - can raise or lower taxes virtually at will. Free market forces are not particularly tied to government tax policy vis a vis property rates. The free market is what it is - taxes are what we as a people decide they ought to be. And I believe there should be much more accountability and performance standard. I don't believe this state government is entitled to a windfall not initiated by any particular policy they passed into law.

Edited July 23, 2006 by Fairweather

[Fairweather]

Personally, I'm glad when I wake up every morning and don't find myself the proud owner of a cot in a UN refugee camp. I find it keeps my sense of entitlement to a minimum.

 

Probably the most enlightened thing you've ever said.

[foraker]

I see the snark is still firmly in place.

I have no particular problem with keeping a tight reign on government spending, F. Neither do I have a problem with being taxed to make sure we have adequate infrastructure, protection of environment, and some help for those who need it. Surely, the state's tax revenues should be based solely on it's actual need for those revenues, I agree. However, barring some fundamental change in character in those who 'serve' us in city/state/national capitols, you'll find that hard to do accomplish. Furthermore, you'll have to overcome the complacency of the average 'voter'. I will disagree with you on the issue of California's prop 13, which hasn't really worked out that well for them. In your mom's example, one can imagine her living in her home so long that her property taxes no longer cover the actual expense of providing them...thus she is subsidized by everyone else. To be honest, I think there are a number of fundamental structural problems with the way government finances itself and is run and, furthermore, I have little trust in either the D's or the R's to solve them. And yet I find myself unwilling to embrace the entire libertarian line. There are too many things, beyond , say, national defense, where government, however imperfect, has a role that is preferable (mostly) to the 'private enterprise solution'. So, all I can say is mom should probably do more than just vote and complain. Nothing like a little voter apathy to make sure nothing happens. Anyway, feel free to continue to label me as a socialist if you want. It's a free country. Not necessarily a smart country, but a free one.

[Fairweather]

A socialist? Snark? WTF? You're putting words into my mouth. Don't be such a crybaby. Actually, I agree with much of what you just wrote. However, your premise that only smart people (like you, I assume?) should vote is a classic and ongoing theme in your posts. Did I misread that one?

 

An aside: Do we really "own" our homes and land in this 'free country' when failure to pay prompt tribute will result in government siezure?

Edited July 24, 2006 by Fairweather

[Dave_Schuldt]

There was an article in Harpers a few months ago about the real estate market crashing. It happened in Japan.

[JayB]

i think he was just cynically noting the sense of entitlement that some people have....yet I can't help but think that all this energy coming from jay is because he feels his own sense of entitlement to live here. He is hoping for a big market correction so that he can afford a house, and then once he is in then let the fools continue on their borrowing and overspending and pricing eveyone else out of the market.

 

I for one hope he can afford to move back here and buy a house...I'd hate to see him lost to the evil east coast!

 

The funny thing is that if anything, the East Coast is less affordable than Seattle, but the fundamentals that ultimately determine the behavior of any asset class are finally asserting themselves out here, and the party's just getting started. One of my favorite sayings is that "Things which are not sustainable will eventually come to an end." Another is " 'This time, it's different' are the four most expensive words in the English language."

 

Thankfully - and no thanks to me - I'm pretty sure we'd be able to buy a home there if we wanted to, but it's got to pencil out first. I'll definitely concede that I find that annoying that we may have to wait for a speculative mania to work itself out before purchasing a home is rational financial decision for us - but that's life. I think things will work out pretty well for us in the end - especially if people take the advice that I put in the header.

[JayB]

Interesting post from a Seattle real estate blog. When a couple that includes an M.D., and an engineer with a graduate degree, with no children - can't buy something for what they think is a reasonable/justifiable price... Then it's clear that the YOY gains are just getting started!!!! Buy! Buy! Buy!

 

" This blog is a clearinghouse for whiny twenty-nothings to vent their insecurities while waxing about things they vaguely understand...(blah, blah, blah)

 

Am I such a whiny bastard that I feel that I should be able to afford a decent home in the city of my choice? I grew up in the Northwest. I've lived here all my life. I met the love of my life here in this city. You just don't get it. I WANT to live in Seattle. Get it? Not only that, we HAVE to. Why? Because my wife has the type of job (a Doctor!) that warrants us to live within 15 minutes of all hospitals within the Seattle metro area. She is on call almost every other day and gets paged constantly. She DOES NOT WANT to live in all the other areas you mentioned. I DON'T either. I'm an engineer who doesn't have the in-city living requirement, but damn it, if my wife is stressed out after working a 36 hour shift at Harborview, and if it means that living close can prevent endless hours of wailing and sobbing about life's miseries, then YES, I will pay that much extra to live in town. All we want is a decent section of area to lay our tired asses on after a hard day's work. But damn you if you think I'm gonna pay $749,950 for a piece of crap box that's been flipped by 2-3 investors from California who care NOTHING for this city, NOTHING for my town, NOTHING for the Northwest, and NOTHING for the beautiful gray skies and loving rain. And damn it, after earning a graduate degree in engineering and earning a very good salary from a prestigious company...after my wife working long, long, long, long hours as an undergraduate student, as a medical student and now as a medical resident...damn it, we deserve a starter home in Seattle! We've earned it! We deserve our piece of crap condo made of cheap composite materials with stainless steel appliances and granite counters. And damn it, we deserve it at an affordable price!!! And we ARE doing our best to save for a house (we're renting right now, of course), but we feel that after so much hard work, we shouldn't have to break our backs just to support our first home. We don't even have any kids yet! How can we afford to? You must be the type of person that thinks only the rich should live in the city. What a bunch of crap! I hope to God Seattle wakes up from this greed-induced real estate mania. "

 

 

Geeez, JayB! You sound like one of them in that last post. You can't reconcile your free market beliefs (which I sincerely admire) with the above. You just can't. Even though it breaks my heart to see the prices here in Pierce County going up at an even faster rate than Seattle, I will remain true to my beliefs. The real injustice is when a retired couple or widow(er) in their late 60's or early 70's has to sell their home because they can no longer afford the property taxes on that once-modest abode. My mother now shells out $10,000/yr in property taxes for the "privelege" of living in the home she worked so hard to pay off years ago. And for what? So state workers can get new fleet vehicles every 16 months? So the state can squander $10,000 per child on K-12 'education' (administration) and subsidize university-level students who are so filled with a sense of entitlement? C'mon, man. You know better.

 

Point taken. I think that there are some government policies that have played a significant role in catalyzing what's become a speculative mania divorced from all economic fundamentals, though. Subsidization of mortgages through the mortgage interest deduction is one, drastic changes to the tax-treatment for capital gains derived from real estate is another, the implicit US government guarantee that enables GNMA and FNMA to borrow money at a lower rate than other institutions, etc.

[JayB]

Forgetting, of course, that real estate speculation and demand are what push up property values and thus property taxes.....unless you happen to vote for bond issues that push up your property taxes or don't vote to put an actual dollar value limit on your taxes..... I feel for your mom but people down in Pierce county are more a victim of free market speculation and simple demand than anything, just like people in Seattle are.

 

Yes, but is "market value" really how property should be taxed? I believe that increased value - CPI and bond measures notwithstanding - should not be tax-relevant until that property actually changes hands ala California's prop 13. Ask yourself sincerely; does this state really provide increasing levels of service commensurate with property values? The state budget has gone from 21bn to 27bn in just 3 years. Has population increased the same? No. If, as some here believe, the real-estate bubble bursts, will the state then lower property values at pace with the market? I seriously doubt it. The government in Washington State - lacking proper judicial separation as it does - can raise or lower taxes virtually at will. Free market forces are not particularly tied to government tax policy vis a vis property rates. The free market is what it is - taxes are what we as a people decide they ought to be. And I believe there should be much more accountability and performance standard. I don't believe this state government is entitled to a windfall not initiated by any particular policy they passed into law.

 

I'm surprised that there's not widespread agreement on this fundamental point. I don't think that you have to be an anti-tax fanatic to agree with this either.

 

I am not sure what the solution to this is, but if I had a magic wand the first thing I'd do is eliminate any tax advantage associated with real estate versus any other asset class when it comes to capital gains. The second thing I'd do is set a cap on property tax increases that's directly correlated with the core inflation rate and population growth.

 

I wouldn't be surprised if this becomes a popular issue when the YOY gains stall out.

[willstrickland]

The crash should be pretty spectacular.

[JayB]

The crash should be pretty spectacular.

 

I think Seattle's real estate inventory looks pretty tight right now, but expect this summer's buying season to represent an inventory minimum going forward.

 

I'm amazed Boston's YOY increase is that small relative to the other markets out there. Should be interesting to see what happens to the radius on the Boston market when all of the condo-supply that's under construction hits the market, and the town's population loss continues apace.