Real Estate Market Question of the Day...

[Paul T]

I know someone who is getting a 5/1 arm right now - against my advice. Good questions - I'm just guessing, but I would think in the market as a whole, the percentage of arms is still pretty low, and the ones that are out there (especially the option arms) are highly concentrated in the markets that have been the most overheated the past several years (NY, CA, FL, etc). I can't imagine there are many negative amortizing IO's in middle America.

[legion]

Nope...even around here (away from Chicago) anything but a 30-year or 15-year fixed is unheard of. I don't have a single friend around here that has anything but some sort of fixed loan.

My friends in the Chicago area, I'd say are split 50/50 between "traditional" fixed loans and ARMS. Even with that, ARMS are the most exotic financing I've personally seen. No interest-only or negative amortizing loans. Most of the friends with fixed loans also opened a line of credit to avoid PMI.

Not as secure as just a regular 30-year fixed, but not as bad as other markets.

[GDSOB]

In conservative Cincinnati, 30 yr fixed is the norm. The new construction starter home areas have alot of Adj Rate financing, as well as builder rate buydowns. I turned down 6 listings over the past two weeks with loan balance over market value. Not good.

[Porsche-O-Phile]

Who is affording the down payments on conventional 30-year loans or are they doing 80/15/5 type financing, just on a conventional 30-year fixed?

The biggest problem with ownership right now as I see it is not so much the overall pricing, but the barrier to entry of a conventional 20% down payment. It's simply prohibitive for anyone that doesn't either own currently, have a trust fund or inheritance, or has been saving for the last 15+ years and is well into their 40s or 50s.

[legion]

Around here, starter homes range from $80k - $125k.

People in their 20's working for the big employers in town earn from $30k - $100k, with the median being around $50k.

Rent on a very nice, 2 bedroom apartment in a building with a gym and pool runs $800-$1200 a month.

It's not difficult around here to save $20k - $30k in a few years if you put your mind to it.

[Rot 911]

Originally posted by Porsche-O-Phile
Who is affording the down payments on conventional 30-year loans?

Those of us who don't live in CA or AZ.

[Rick Lee]

I am 19 months into a 5/1 ARM and am not worried at all. I put 20% down and my house is still worth plenty more than I paid for it. No chance in the world I'll stay there more than another year or two. So why would I pay the premium for a 30 yr. fixed?

[turbo6bar]

2003 Census info:
120M housing units in the US
of those 120M, only 73M are single family homes or single family condos

Existing home sales have been around 6.5M per year. According to a link I posted in the RE News thread, over half of all mortgages on the books originated in the last 3 years. If we assume that virtually all homes were purchased with financing, this puts the number of loans at 19.5M for the last three years. As a percentage of total housing units, 19.5M/73M = 26.7%

So, if this goes down as bad as expected, the 26.7% above, are in trouble.

That leaves, say 45% of loans originating over 3 years ago. Let's just say that's another 19.5M loans/homes, another 26.7% of housing stock. That would imply nearly 1/2 of homes on the market have no mortgage. I have yet to see any stats or articles that support this. The folks with no mortgage are looking good.

Dunno 'bout you, but if 1/4 of homeowners are pressure by rising interest rates and/or declining property values, it doesn't matter what the other 3/4 do/think/say. Best thing is watch your tail and let it go.

[Mike Bonkalski]

I am located in one of the western burbs of Chicago and have a 30 fixed at 5.25%. At today's prices we owe less than half of what the house could sell for. So even it there is a substantial correction, we'll still have a good amount of equity built up.

I don't think our situation is typical for the area, though.

[Paul T]

Originally posted by Kurt V
Those of us who don't live in CA or AZ.

Agree - even though markets have heated everywhere, it's much, much easier to put 20% down in most parts of the country, than it is in CA - although it's probably not even the norm, there are plenty of 80/15/5 or 80/10/10 deals out there. I was in CA 10 years ago and I couldn't figure out how anyone afforded a home, now it's just nuts! The ratio of home price to avg incomes in CA has got to be way out of line with the rest of the country I would think (and the NE where I am is not exactly cheap - but comparatively it is). Aw, hell, I'm just jealous we don't have top down weather 12 mos a year

[jyl]

Originally posted by turbo6bar
Dunno 'bout you, but if 1/4 of homeowners are pressure by rising interest rates and/or declining property values, it doesn't matter what the other 3/4 do/think/say. Best thing is watch your tail and let it go.

Agree - prices are set by the marginal buyer/seller.

[Tobra]

When I lived in Texas, and first started practicing, I saved enough to put a down payment on a $100 K home and pay cash for a $12K used car in about 15 months. Ate a lot of rice and baked potatoes for a year, drank water instead of wine.

Deferred gratification, it is a simple concept really, Americans just don't seem to like the idea.

[sammyg2]

30 year fixed at 5.6%, about 3 or 4 years from being paid off completely.

[nostatic]

Originally posted by Wayne at Pelican Parts


We all know that anyone who bought in the last 2-5 years is in a world of trouble, what about the rest of the country.

why do you say that? We bought in 2002, 80/10/10 fixed rate first mortgage, adjustable line second that was paid down quickly (although not sure where the ex is with it now), refi'd twice to drop the interest (no equity taken out). Where's the world of trouble?

[Tobra]

World of trouble for the average schlub who does things stupidly, rather than smartly. Too many people have no idea what they are doing with credit.

[Steve F]

Paid mine off 3 months ago

[JavaBrewer]

I have a 30 yr fixed at 5.25%. We plan on staying here for the long haul or at least until I win the lottery and move to RSF.

We bought in 2003 with 20% down (from the sale of our last CA home, which was purchased also with 20% down from the sale of our last CA home, and then again one more time). No trust funds, gifts, or funny loans.

[RANDY P]

5.25% I/O arm, 2 years in..60% LTV and a low, low DTI.

I hear about the rates like every 5 minutes.....

So, if you see me running, REFI to fixed.

rjp

[CarreraS2]

Originally posted by nostatic
why do you say that? We bought in 2002, 80/10/10 fixed rate first mortgage, adjustable line second that was paid down quickly (although not sure where the ex is with it now), refi'd twice to drop the interest (no equity taken out). Where's the world of trouble?

I think those that bought 5 years out are ok (assuming they didn't suck all the paper equity out of the house by refinancing), but those that bought in the last year in the bubble leading areas (like San Diego), or in the past 6 months or currently in most of So. Cal., are at serious risk.

I think the data pretty clearly shows the bubble leading areas like SD peaked 6-12 months ago. What lies beyond the precipice? IMO 50% declines in value over the next 2-4 years. (Which, of course, would put prices back to what, 2003 values?)

Even real estate agents are starting to not be able to say "soft landing" with a straight face.

[ben parrish]

Bought last home on an ARM. We knew we would not be there for more than 5 years. 4.83% with $0 down. My wife qualified for first time home buyer so we put the house in her name. Quick tip; if you have not had a house for two years in your name, YOU can qualify for 1st time home buyer programs, regardless of how many homes you have owned.
I will buy the next house, her the next, me next, so on and so forth.
Also, don't forget the current tax laws allows you to keep all the proceeds from your house if you have lived there for at least 3 of the last 5 years. Tax free money. It can be pro-rated below 3 years for special circumstances such as moving more than 100 miles for job transfer, job loss, health reasons, etc.
Ben