The Pain of Rising Rates
From the Wall Street Journal:
Homeowners Start to Feel The Pain of Rising Rates
Homeowners Start to Feel The Pain of Rising Rates
Luisa Cordova-Holmes was looking to lower her monthly payments when she refinanced her $312,000 mortgage in 2004. Instead, she wound up digging herself into a ditch.
For their new loan, Ms. Cordova-Holmes and her husband chose a so-called option adjustable-rate mortgage, which carried an introductory rate of 2.35% and gave her multiple payment choices each month. "I had a lot of financial obligations," says Ms. Cordova-Holmes, an accountant who lives near Detroit.
Two years later, however, the interest rate on her loan has jumped to 8.75%, her loan balance has climbed to $324,000 and her minimum monthly payment has risen to $2,257. She says the terms of the loan weren't clearly spelled out.
Ms. Cordova-Holmes says she would like to refinance, but can't -- in part because her loan carries a prepayment penalty that would force her to shell out thousands of dollars if she did. Instead, she's trying to sell her home. But with Detroit's economy slumping, she hasn't been able to find a buyer. When she and her husband first put the house on the market last summer, they were asking nearly $400,000. Now they're willing to accept as little as $270,000.
"We're in a very bad situation," she says. "The payments are just killing us."
In recent years, homeowners like Ms. Cordova-Holmes have embraced adjustable-rate mortgages -- and such variations as option ARMs, interest-only mortgages and "piggyback" loans, which, respectively, allow borrowers to make a minimum monthly payment, pay interest and no principal in the loan's early years, or finance 100% of the purchase price. The growing popularity of these products has helped fuel consumer spending, as well as double-digit home-price gains and rising homeownership rates.
Yet the downside of the lending boom is starting to show. Rising interest rates are taking a toll on family budgets as growth in home prices flattens -- and, in some areas, prices fall.
45 Comments:
That's why you have to be on top of every detail. You better CYA yourself, nobody else will do it for you. There is approx $2 trillion coming due, in these type of loans, in 2007. This down move has started as a trickle. Now it becomes self generating and the momentum down will be severe in the fall of 2007.
PATIENCE,PATIENCE,PATIENCE
BC Bob
I had a lot of financial obligations," says Ms. Cordova-Holmes, an accountant who lives near Detroit.
Note to myself: Do not hire Ms. Cordova-Holmes.
It’s been said, but it’s worth repeating:
Ms. Cordova-HolmeLESS is an Accountant? I would be too embarrassed to admit that. Doesn’t anyone think about the future anymore? What did you think was going to happen?
She obviously isn't a CPA. Probably a $70,000/yr staff accountant who graduated from a lower level school or maybe she just has an assocites..
People in this region can't manage money for shit. They are always shopping, buying trying to keep up.
Talk about trend whores. More interested in having the latest fashions and living in the 'right' neighborhood..
Can we please tone down the insult and language a bit.
jb
interesting thread on kannekt
http://tinyurl.com/pzf5u
Looks like reality slapping mucho FOOLS in the face.
"Oh I didn't know" YEAH!
These are the buyers that made many people who value their hard earned down payment money pull their hair out the last 3 years ('02-'05.
Hang in there the tide is turning and houses prices are going DOWN.
BOOOOOOOOYAAAAAAAAAAA
Bob
The BIG SQUEEZE is on!
Escalating porperty taxes, utility, gas , Re-adjusting ARMs and maintenance are putting the squeeze on FOOLS cashflows.
Big portuion of the blame falls directly on these loser BUYERS who need to take responsbility for their signing the dotted line.
Next time use youe noodle DUMMIES!
Babababa
BOOOOOOOOOYAAAAAAAA
Bob
I've lost MLS 2287939 and don't know where to find it.
If anyone has the ability to see if this sold or was taken off, I'll try to return the favor!
Thanks!
Pat
From USA Today:
For some, renting makes more sense
There's been a debate ever since Micki Seibel and Jan Leger told their friends they were going to sell their home in the heart of San Francisco and rent an apartment.
...
Though Seibel and Leger love their home, which they bought in 2002 for about $1 million, it's been draining them of $5,600 a month for their mortgage and taxes, when they could be renting a place just as nice in the same neighborhood for about $3,400. "We can put that savings in the bank and make it work for us and take away the risk of the unknown future of the real estate market," Seibel notes.
...
It's hard to imagine the American dream as a two-bedroom apartment with a pool, instead of a single-family home with a white picket fence. But in some of the nation's priciest real estate markets, that's what's happening. The financial reasons for renting instead of buying are the strongest they've been in 25 years.
...
The market was thrown out of kilter during the five-year real estate boom. Renters stampeded at the sight of an "open house" sign, trying to buy anything they could afford. Prices soared by 40%, and by even more along the coasts and in such places as Las Vegas and Phoenix. Landlords couldn't raise rents as fast, so many apartment owners simply gave up and converted their buildings into condos for sale.
...
Add rising interest rates, and it's easy to see why many would-be home buyers are sitting on the sidelines and why even some homeowners are cashing out.
By renting, they gain the flexibility of a lease and freedom from home repairs. They can also invest more money in stocks, bonds and other assets that could appreciate faster than real estate over the next couple of years.
"For someone debating whether to rent or buy in a market that's experienced recent and substantial house-price run-up, it may be better to delay the home purchase and see what the market looks like a year or two down the road," says Stuart Gabriel, director of the Lusk Center for Real Estate at the University of Southern California.
And this absolutely unbelievable snippet from the same piece:
"Real estate is probably the best investment any young person can make," says Yadiris Ferreira, 29, who bought a condo last month in Pembroke Pines, Fla.
Still, her mortgage, including homeowner association fees, totals $1,800 a month — more than half the money she takes home as a high school math teacher. "It's crazy," Ferreira concedes.
But, she explains, "If I didn't buy something soon, it was going to get to the point that I couldn't afford anything."
BUST!
Housing BUST!
Hear that Starving realtors. Start talking some sense into those Money grubbing a little too late Sellers you represent.
Tsunami wave 2 is going to hit mid-october. hehehe
BOOOOOOOOOYAAAAAAAAAA
Bob
Oh. So sorry. It has returned. Never Mind.
Pat
Pat,
The split level in Raritan. I still see it, still "Active".
Price is $459,000 down from $499,000, 58 DOM.
grim
"Real estate is probably the best investment any young person can make," says Yadiris Ferreira, 29, who bought a condo last month in Pembroke Pines, Fla."
This Moron should post an "F" on her forehead.
A money grubbing seller snagged another FOOL!!!
Friggen Idiot!
Babababa
Bob
My wife is a CPA and I am a stubborn electrical engineering. I will say I have a better sense of number. So don't laugh at this accountant.
BTW, I tried log-in rather than anony but it seems complicated (I told you I was stubborn) Can anybody help?
007
Prices GRINDING LOWER!
Grubbing "real" sellers ( have to sell) must be losing sleep and ready to deal.
Bleed'em dry!
BOOOOOOOOOOYAAAAAAAAA
Bob
Grim:
Thanks. I think my original favorite/link was to the listing agent's page and that's gone. I forgot to check realtor.com.
Pat
What ever happened to taking responsibility for your actions? I predict we're going to hear the following statements/excuses non-stop over the next few years as the people who overextended themselves start facing foreclosure and bankruptcy:
a) "She says the terms of the loan weren't clearly spelled out."
b) "If I had been aware both loans were interest-only, I would have probably turned the loan down..."
c) "But other borrowers are running into trouble, in some cases because they didn't understand the risks of their mortgage or wound up at the closing table with a loan that wasn't what they expected."
"I think my original favorite/link was to the listing agent's page and that's gone."
FYI, those links usually expire in about 60 days.
Wait till heating bills and christmas credit card debt comes to these folks in January.
These are the easy months to pay, winter will bankrupt some of these types of folk in this region.
this is just the beginning.
women has got to be a moron.
DL.. Thank You..I enjoy this blog but really.. Is anyone so smart that they have never made one bad financial decision? And no one here knows anyone elses predicament Before calling someone stupid or dumb try living thier life for one day
yo'
http://news.yahoo.com/s/ap/20060810/ap_on_re_us/nj_property_taxes&printer=1
I'm going to give that piece on property taxes it's own thread, so save your comments.
Unfortunately, I'm late for a meeting. I'll put it up as soon as I get back.
jb
DL,
You are smart for not succumbing to pressure. You want pressure, wait to we hear some of the stories unfolding, it's just beginning. Now that will be real pressure. You have a choice. Unfortunately,the herd does not. I agree with your point regarding following/not following the herd. Anytime the masses of the asses are in a lopsided trade, in which the fundamentals are telling you otherwise, I will always take the other side of that trade. I don't find it to be difficult. This is why I sold in 8/05 and am currently renting. There is no present scenario, that anybody could show me, to convince me that buying is the better alternative. Don't listen to anybody, do what makes economic sense to you.
BC Bob
DL:
It's not just with real estate - it's everything in life that involves a human decision.
And it's called "character."
Going with your heart is usually the tough road, but the most rewarding.
Pat
THINK FOR YOURSELF.
LAYOUT ALL THE 'FACTS' AND IT IS OBVIOUS WHAT A REASONABLE RATIONAL THINKER WOULD DO. NOT LISTEN TO LEREAH AND HIS PINOCCHIO LINES.
BABABA
BUST
Bob
Deford, happiness is the sweetest revenge and if you're not happy, fake it. Repetitively. Eventually your subconscious will pick up on the "fact" that you are happy and you will BE happy.
Be prepared to be hated for being so happy.
I guess you'll never win.
New post up over at AnotherF@ckedBorrower:
http://www.housingbubblecasualty.com/
DL.. Is anyone so smart that they have never made one bad financial decision? And no one here knows anyone elses predicament Before calling someone stupid or dumb try living thier life for one day
8/10/2006 02:55:17 PM
I bought about $30,000 in call options of various strike prices on Enron in September and Ocotber 2001.
I have had some bad runs in Atlantic City.
This is playing out just as expected. The least knowledgeable players bought at the worst time. Prices were at their highest and interest rates at their lowest. In hindsight, '04 and '05 were the worst times to buy. Now, all the buyers with ARMs are going to have to unload to get out from under their loans. They're going to have to lower prices to attract buyers. This is just a typical real estate cycle. Some winners, some losers. Just like the stock market.
What a joke. Rates are FALLING
http://www.chicagotribune.com/sns-ap-mortgage-rates,0,3089289.story
Bummer about AC, Chi.
But, is there nothing better than standing at a Craps table and hitting nothing but numbers for two hours?
I think not.
Screw ARMs, Big 6 and Big 8...now those are sucker bets.
Clare:
get off it . go watch Dr. Phil.
or better , try to get on the show.
this is the real world.
Mr. Oliver said...
But, is there nothing better than standing at a Craps table and hitting nothing but numbers for two hours?
I think not.
Screw ARMs, Big 6 and Big 8...now those are sucker bets.
8/10/2006 06:14:45 PM
Gato:
I play the Come bet. It's just when you are playing Pass with Odds, and then you have two or three Come bets each with Odds, and you haven't hit anything yet, and you are just standing there like a grim in the headlights on his bike on Bloomfield Ave.....now that is pressure :) :)
This comment has been removed by a blog administrator.
Chi,
Now you're talking.
On a cruise last year I had all points covered via come bets, with odds, and pass line with odds. All this old guy could do was throw number after number. I've never had a day like it. Stood there for almost two hours with only two people rolling.
Clare,
You read this story and feel sorry for these people? They're making what is likely the largest financial transaction of their lives and didn't do nearly the due diligence they should have.
Yeah, they were sold a bill of goods by the banking/housing/mortgage industries, but they made the choice to follow the herd.
I've made some remarkably bad financial decisions in my life, but they were my decisions. I never tried to blame it on someone else.
Let the buck passing begin.
From the linked article in the WSJ "....Roughly $137.5 billion in residential mortgages will face payment resets this year, with an additional $524 billion resetting over the next four years according to a recent analysis by UBS AG that looked at loans sold to investors who buy mortgage-backed securities"
On this blog, I have seen what should be a similar number quoted at $500million this year, and $1.5 trillion next year in resets.
BC Bob even says as much above at 8/10/2006 12:33:18 PM "....That's why you have to be on top of every detail. You better CYA yourself, nobody else will do it for you. There is approx $2 trillion coming due, in these type of loans, in 2007"
Can anyone explain this discrepancy? Whether we will see small corrections or the tsunami many on this blog are expecting critically depend on what these types of numbers actually are...
Also after posting at 02:49:04 AM, I saw an analyses on WSJ (subscription required) where a selection of WSJ economists estimated home price appreciation based on OFHEO price index for end of '06 and end of '07. Here are some highlights of the expectations
2006:
Lowest: -5%
Average: 4.9%
Highest: 9%
2007:
Lowest: -8%
Average: 1.8%
Highest: 10%
Looks like the average and pessimistic predictions think the market will get worse next year.
Obviously the highest numbers here look unlikely. I wonder if the NAR and NAHB economists are in the poll, looks like the kind of wishful thinking they would write in - also they think '07 will be "better" than '06, good luck with that!
OTOH, current data don't point to the lowest numbers either (at least for 2006). Probably for this year, we will see something between lowest and average.
Also interesting is this selection of comments of the economists by WSJ
• Home prices almost never fall
• Could see real declines by year-end 2006
• Orderly market slowdown
• Home price disinflation sways FOMC
Some of these comments we had all heard before. The one that interests/bothers me most is the last one, because I have often thought that the Fed can, to some extent, "defend" home prices, if they allow increased inflation, and there are powerful incentives for them to do just that. OTOH, what will the long term bond markets do? Will the world savings glut save the U.S. housing prices by keeping bond spreads low if the Fed refuses to fight inflation in order to protect home prices?
I didn't read the WSJ article to which you refer, but my guess is these analysts are talking about the general market which covers the entire US. I can see the average property appreciating through the next 2 years. Most of the US is properly valued and some parts undervalued. It's just the bubble areas along the coast lines and some big cities that have appreciated beyond their fair values. This is a tale of 2 markets - the coastlines vs middle America. If the average appreciation for all properties in the US is 1.8% in '07, that means the bubble areas will most likely depreciate between 10-20% more in '07. Since this is a NNJ blog, I imagine most visitors ought to be worried about '07 and beyond.
Don't be so sure that the "herd" won't have the last laugh. I don't think they deserve to be rewarded for their mentality in the least, but I fear it may happen.
We can sit back and pat ourselves on the back all we want about how smart we were not to follow the herd. Ultimately, though, the herd is what rules this country politically. So if the vast majority of Americans get in trouble with mortgages, politicians will act to bail out the herd in order to save their own political skins.
Get ready for it, it's coming: "The Homeowners' Protection Act of 2008". And so the profligate will be rewarded, and the prudent punished, all in the name of currying political favor...IMHO.
11:14 don't even mention it. I have nightmares about the HOOPLA coming down the pike (Home Owner Or Primary Lender Act).
I've been wondering if I shouldn't jump in, buy now and take the riskiest possible mortgage we can get. Just hide all the cash.
The Big Bailout of 2008 will probably only benefit mortgages signed prior to 12/31/2006, think?
Pat
Delford, I went through exactly what you're going through during the 1980's boom -- and I had the last laugh.
But the spending and borrowing has gone crazy. A year ago we had new roof/siding/windows installed and I can't tell you how many people said, "Why don't you just borrow the money and get the kitchen redone the way you want it?" "Why don't you just borrow the money and do a full add-a-level?" (We have a full back dormer.)
Sure, we could have borrowed $100,000 and gotten our dream kitchen, two new baths, a deck, a new patio, and some new landscaping for the backyard. And we'd be $100K more in debt.
So instead I'm refacing our kitchen cabinets myself, I'm going to get a new laminate countertop and pay someone to put in a laminate floor. Total cost will be about $5K -- all paid in cash.
I can sort of understand people who wanted a house so badly they blinded themselves to some of the realities. But it's hard to feel sorry for people leveraging themselves to the hilt because of social climbing and the need to have the best of everything.
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