Thursday, August 10, 2006

The Pain of Rising Rates

From the Wall Street Journal:

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.


Blogger quints said...

She's an accountant? LOL

8/10/2006 11:17:00 AM  
Blogger thatbigwindow said...

$2200 a month mortgage payment?

Sounds like standard issue for New Jersey

8/10/2006 11:25:00 AM  
Anonymous Anonymous said...

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.


BC Bob

8/10/2006 11:33:00 AM  
Anonymous Anonymous said...

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.

8/10/2006 11:34:00 AM  
Anonymous Anonymous said...

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?

8/10/2006 11:43:00 AM  
Anonymous Anonymous said...

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..

8/10/2006 11:46:00 AM  
Blogger grim said...

Can we please tone down the insult and language a bit.


8/10/2006 11:53:00 AM  
Blogger chicagofinance said...

interesting thread on kannekt

8/10/2006 11:59:00 AM  
Anonymous Anonymous said...

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.



8/10/2006 12:43:00 PM  
Anonymous Anonymous said...

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!



8/10/2006 12:46:00 PM  
Anonymous Anonymous said...

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!


8/10/2006 12:47:00 PM  
Blogger grim said...

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.

8/10/2006 12:49:00 PM  
Blogger grim said...

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."

8/10/2006 12:50:00 PM  
Anonymous Anonymous said...


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



8/10/2006 12:50:00 PM  
Anonymous Anonymous said...

Oh. So sorry. It has returned. Never Mind.


8/10/2006 12:51:00 PM  
Blogger grim said...


The split level in Raritan. I still see it, still "Active".

Price is $459,000 down from $499,000, 58 DOM.


8/10/2006 12:51:00 PM  
Anonymous Anonymous said...

"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!



8/10/2006 12:52:00 PM  
Anonymous Anonymous said...

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?


8/10/2006 12:53:00 PM  
Anonymous Anonymous said...


Grubbing "real" sellers ( have to sell) must be losing sleep and ready to deal.
Bleed'em dry!



8/10/2006 12:54:00 PM  
Anonymous Anonymous said...

Thanks. I think my original favorite/link was to the listing agent's page and that's gone. I forgot to check

8/10/2006 01:06:00 PM  
Anonymous politely said...

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."

8/10/2006 01:07:00 PM  
Blogger delford said...

I knew it was jst a matter of time before it started, I do not know, nobody told me, its not my fault. Its the realtor, mtg broker's fault.

My dog forced me to buy. Its unbeliveable

8/10/2006 01:15:00 PM  
Anonymous UnRealtor said...

"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.

8/10/2006 01:18:00 PM  
Blogger Metroplexual said...

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.

8/10/2006 01:39:00 PM  
Anonymous Anonymous said...

this is just the beginning.

women has got to be a moron.

8/10/2006 01:40:00 PM  
Blogger DL said...

One thing that this blog leaves to be desired, as well as many others of its ilk, is the tone of the comments. Why is it necessary for so many commenters to refer to people as "Morons", "Dumbasses" etc.

I think we underestimate the enormous of amount of social pressure that is placed on people in manias like this. I saw the same thing in the Dot-Com craze and had many very intelligent people tell me that, "You know stocks never go down in the long run" or "There is no way WorldCom/Enron/Tyco etc. could go any lower". This mentality has transferred over to real estate. The herd mentality is as old as the human race. Resisting it is extraordinarily difficult, that is why there so few really good investors in this world. Going against the herd is a talent that most do not have.

I recently had a conversation with a friend who is very intelligent who told me "That there is no way investing in real estate in California could ever be a bad idea". Despite the fact that the real estate market is turning, these attitudes have become so ingrained that it will take years if not decades to eliminate them from the majority of the public.

The people who hold these beliefs are not stupid; they are simply succumbing to broad societal and economic forces that have created this mania. I have experienced this pressure myself with every member of family attempting to browbeat me into purchasing real estate, luckily I haven't succumbed. Most people when faced with a situation where everyone else is doing something will give in and follow the crowd. A few years from now after this market has bottomed out something else will come along that will start another mania and we will see the same behaviors repeated again.

8/10/2006 01:41:00 PM  
Blogger thatbigwindow said...

interesting thread on kannekt

What I learned from that thread:

All but 2 people on the internet make over 10k a month

what a joke.

8/10/2006 01:45:00 PM  
Anonymous Anonymous said...

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

8/10/2006 01:55:00 PM  
Blogger chicagofinance said...


8/10/2006 01:58:00 PM  
Blogger grim said...

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.


8/10/2006 02:02:00 PM  
Anonymous Anonymous said...


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

8/10/2006 02:02:00 PM  
Anonymous Anonymous said...


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.


8/10/2006 02:11:00 PM  
Anonymous Anonymous said...






8/10/2006 02:11:00 PM  
Blogger njresident286 said...

Question for homeowners or someone who has owned a home.

Is heat or AC more expensive on a month per month basis? LIke would you August AC bill be higher or lower than say your Feb. Heating bill? I have heat and hot water included in my rent, and we have wall AC's so our electric bill never gets over about 145 dollars in the summer and is only about 50 dollars in the winter due to 4 computers running 24/7!

8/10/2006 02:21:00 PM  
Blogger delford said...

DL: There is somew truth to what you say, but look at it the other way.

I have bben told I am crazy, cheap, do not make enough money, called a loser, an idiot and all the rest, because I would not purchase a home in the now ending real estate mania. Attacked and or interrrogated in the coffee shop, super market or train station. Yeah it has not been fun, listening to a family member who so young, so clueless, regaling other family members on her savvy, and then informing me as to how it is different form last time the market dropped, (she was 15) Oh yes we have had to put up with so much. Oh and now she no longere wants tot alk about real estate, since the house across the street from her is for sale, and the asking price is 90k less than what she thought hers was worth,and it is a much better house.It was fine to lecture me, but alas I am not entitled to the same consideration

Now many of us are being blamed by people, becasue all of aour talk of a bubble is driving prices down. Wow what power we have, to single handly drive th real estate market down.

You know it is really hard not to stoop to the level of some of these people who havebrageed and boasted about theri real estate purchases over the years, and how smart they are, and how savvy.

But I try I really do, but some of them just have it coming, and there are a couple of them that I know, and I will have no problem saying I told you so.

8/10/2006 02:24:00 PM  
Anonymous Anonymous said...

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.

8/10/2006 02:31:00 PM  
Blogger BergenBuyer said...


It depends on:
-oil prices
-electric prices
-size of apt
-how hot/cold you like it

From personal experience, my wife likes the heat pumping in the winter and hates it very cold in the summer, so our heating bill would probably always trump our electric bill.

4 computers 24/7! I don't think Grim has got that many and he's running the best RE Blog in the nation.

8/10/2006 02:36:00 PM  
Blogger DL said...


I understand your frustation. The thing that drives me crazy is when people say, "Well you know in the long run it's going to go up". As far as statements that illuminate someone's ignorance that one is about as good as they get.

Joe Kennedy said it best about the stock market when asked why he sold before the market crash in 1929. (I'm paraphrasing) "When my shoeshine boy started giving me stock tips I knew it was time to sell". I would also say that when a 15 year old gives you advice on the RE market the same would apply.

8/10/2006 02:37:00 PM  
Anonymous UnRealtor said...

New post up over at AnotherF@ckedBorrower:

8/10/2006 02:41:00 PM  
Blogger patient homebuyer said...

I am sorry, it is hard for me to feel for these people who bought more home than they could afford and did it with a suicide loan, oh cry for me, when they were making 15-20% gains (LOL) yoy nobody was crying for me the qualifed buyer with a 20% down payment steady job, no debt and over 700 fico

screw them

8/10/2006 02:43:00 PM  
Blogger quints said...

Concerning AC versus heating - I think the usual answer is heating bills are more substantial. Also, in a pinch, you can shut your AC off now and then. You shut off your heat in the Winter and you'll have frozen pipes {and a very angry spouse}.

8/10/2006 02:53:00 PM  
Blogger Math, like gravity, is law. said...

Anon 1:53pm said:"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."

Could not agree more. One of the biggest mistakes, newbie "investor" wannabes make is investment advice from accountants or worse lawyers.

8/10/2006 03:05:00 PM  
Blogger Math, like gravity, is law. said...



8/10/2006 03:10:00 PM  
Blogger chicagofinance said...

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.

8/10/2006 03:19:00 PM  
Anonymous Anonymous said...

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.

8/10/2006 03:30:00 PM  
Anonymous Anonymous said...

What a joke. Rates are FALLING,0,3089289.story

8/10/2006 04:04:00 PM  
Blogger Clare said...

I have to admit when this bubble first started to deflate I felt exactly what Delford has described. I felt little sympathy for the soon to be under water buyers who gloated about real estate being the best investment ever. However, as more time passes and more articles emerge about real people who are suffering because they didn't have the wherewithal or intellect to go against the herd. I have to admit I feel very sorry for them and the resentment I have felt during the last two years (when I like many on this blog was considering buying) has turned to sympathy and thankfulness that I did not buy at the peak of the market. I sincerely hope eventually the hostility you feel will be replaced with sympathy because these are real people with real children under a tremendous amount of stress, granted it is mostly their fault (I feel some have been hoodwinked by fast talking mortgage brokers and the lending industries predatory lending practices) but enjoying someone else's misery is simply mean.

8/10/2006 04:45:00 PM  
Blogger Mr. Oliver said...

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 those are sucker bets.

8/10/2006 05:14:00 PM  
Anonymous Anonymous said...


get off it . go watch Dr. Phil.

or better , try to get on the show.

this is the real world.

8/10/2006 05:46:00 PM  
Blogger chicagofinance said...

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 those are sucker bets.
8/10/2006 06:14:45 PM


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 that is pressure :) :)

8/10/2006 08:33:00 PM  
Blogger chicagofinance said...

This comment has been removed by a blog administrator.

8/10/2006 08:40:00 PM  
Blogger Mr. Oliver said...


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.

8/10/2006 10:06:00 PM  
Blogger Mr. Oliver said...


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.

8/10/2006 10:11:00 PM  
Anonymous Anonymous said...

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...

8/11/2006 01:49:00 AM  
Anonymous Anonymous said...

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

Lowest: -5%
Average: 4.9%
Highest: 9%

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?

8/11/2006 02:31:00 AM  
Anonymous Anonymous said...

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.

8/11/2006 06:59:00 AM  
Anonymous Anonymous said...

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.

8/11/2006 10:14:00 AM  
Anonymous Anonymous said...

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?


8/11/2006 12:28:00 PM  
Anonymous Pragmatist said...

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.

8/11/2006 03:30:00 PM  

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