Real Estate: Is the party over?

[Average Joe]

<span class="ev_code_BLUE">I'd say the party is over for those who have adjustable-rate, interest only, home equity loans and have over extended themselves to buy 2nd and 3rd homes in an attempt to flip.</span> http://oakhurstonline.com/icon/smoking.gif http://money.cnn.com/pf/features/lists/re_growth_forecast/?cnn=yes

[Kahlua Kid]

3% reduction in Fresno area in 2007 - will be interesting to see if their projections are correct - These are number crunchers who don't necessarily have crystal balls - can go up - can go down even more... only time will tell.

Its the interest only borrowers who qualified by the skin of their teeth that will be hurt by rising interest rates.

Today my 2nd is at 6.00% even though an adjusting rate loan - still way below % rate we paid back in 1992 for my first condo - 9.5% was the fixed rate for 30 years then... and in the 1970's - wow! Talk to your moms/dads and see what they paid! Out of this world rates then.

My firsts are at 5.375 fixed for 30 years - can't beat that -

No flipping on my horizon. Just long term (what I hope are) smart investments.

[Average Joe]

As long as you don't owe $700K on that house you bought for $245K 6 years ago, you're in good shape to withstand a major market correction...

So many people aren't though, some people I know have pulled out every penny of equity they have to buy toys...

I know people who have refinanced 4 and 5 times in the last 10 years... Start over at 30 years, owe more money than before because of pulling equity, but payments are lower now that they're starting over again with a lower interest rate... Most earn right around the same income as I do and yet have new $40K+ SUVs, $70K+ motorhomes, ATVs for everyone in the family, take exotic vacations, etc...

That money came out of the equity in their homes... Those will be the ones in trouble if things get bad...

A few of my friends have been pretty smart... They have $200K+ in equity in their homes at the present value because they live within their means... They consider their homes as nest eggs and didn't touch their equity...

[Kahlua Kid]

I agree with you - we've watched some family members refi to pay off credit cards, run them up again, refi to pay off credit cards, run them up again... refi... I keep advising them to cut those cards up, and stop refi'ing - each time it costs them more - as you said, start the ticker over again for 30 years (low principal payments in the beginning) and more closing costs and mortgage broker/lender fees to refi.

We really started living within our means about 10 years ago - got ourselves out of credit card debt and no longer roll over balances on our cards - I refuse! We use our card for all our purchases (gas, food, etc.) but, I actually get paid by our Credit Card every year (charge, get my 1% cash-back reward) and pay it off every month. This way I earn money from them! Rather than the other way around. I'm not the type of customer a credit card company wants. They want you to carry a balance forever.

If we want a toy or to go on vacation - we save up for it and pay cash. It may take longer, but I don't worry about a payment. It takes a lot of discipline to do this, and to see others get everything they want now, makes it even harder. But I know in the end, I'm paving the way to a secure financial future.

Did you know if you make one extra payment on your mortgage per year (on a 30 year fixed) you will have your house paid off in 21 years? A good tip...

We are trying to only finance items that appreciate in value. Pay cash for those that depreciate.

And I'm getting to be such a frugal spender now that I prefer my jeans from Ebay used, Cars used or 0% finance if new, driving my 13 year old Toyota and 6 year Volvo (still ticking!) and searching for buys whenever we buy something. We don't usually buy "designer" labels on anything.

I read a book years ago about how to be debt free and I'm trying to follow their advice.

We got tired trying to keep up with the Jones'.

[Yosemite Joy]

Such excellent and valuable advice KK.

[jakobscalpel]

Very good post KK. The only thing I'd add is that while paying the mortgage off early is a good idea, you'll probably make more investing that extra payment instead.

[Kahlua Kid]

Originally posted by jakobscalpel:
Very good post KK. The only thing I'd add is that while paying the mortgage off early is a good idea, you'll probably make more investing that extra payment instead.

Thanks- at current interest rates on our home, you are probably right - have never crunched that number... hmmm - let me get my calculator! http://oakhurstonline.com/icon/happy.gif

[MtnEagle]

You can go a step further from the extra payment a year as well. In addition to more than one extra payment per year, you can also pay a little above the monthly mortgage, say $20, $50, $100 whatever you can manage. This adds up over the 12 months of a year, and will also reduce your interest bomb at the end of your loan.

There's nothing more valuable in my mind than a home that is paid off or nearly paid off. Once you are there, never risk it for any colateral.

Investing money can be good, but I'd rather go by the old truth that:

"A bird in the hand is better than two in the bush"... http://oakhurstonline.com/icon/wink3.gif

We are never really debt free with taxes, utilities, and insurance, but you can get pretty close to it!

[Kahlua Kid]

Insurance when everything is paid for is an "option", but one well worth having.

Utilities - Going Solar Baby! (Well, wish I could - was quoted $40,000 for the panels we wanted... but $20,000 would probably work.. still too much to invest til I KNOW this is my last place of residence for the rest of my life - would take 10 years for it to pay for itself... then, its all free from there.)

Taxes - hmmmm... Dang! Sovereign Citizenship? Does that really work??? I've heard about it...

[MtnEagle]

Take a tour of this web site just for kicks...

BP Solar (http://www.bp.com/modularhome.do?categoryId=4320&contentId=7004540)

They had a 5kw solution for ~$20k I have been dreaming about.

With rebates and incentives plus the tax credits and rebates, it might be a good investment.

http://oakhurstonline.com/icon/happy.gif

[Dodgergirl]

Originally posted by Kahlua Kid:
Insurance when everything is paid for is an "option", but one well worth having.

Utilities - Going Solar Baby! (Well, wish I could - was quoted $40,000 for the panels we wanted... but $20,000 would probably work.. still too much to invest til I KNOW this is my last place of residence for the rest of my life - would take 10 years for it to pay for itself... then, its all free from there.)

Taxes - hmmmm... Dang! Sovereign Citizenship? Does that really work??? I've heard about it...

My boys dad is a Sovereign Citizen, I have the forms on another computer, it's an interesting concept. He went that way after we had everything taken by the IRS. And yeah, I mean everything. Oh, they left us the kids...
Now they mess with him on a regular basis.

[Summer]

Originally posted by Average Joe:
<span class="ev_code_BLUE">I'd say the party is over for those who have adjustable-rate, interest only, home equity loans and have over extended themselves to buy 2nd and 3rd homes in an attempt to flip.</span> http://oakhurstonline.com/icon/smoking.gif http://money.cnn.com/pf/features/lists/re_growth_forecast/?cnn=yes
My thoughts exactly Joe. I think there's going to be a lot of foreclosures once the interest rates start hiking up.

[Kahlua Kid]

Reading a book that tells me to do everything opposite of what I've been trying to acheive - living debt free -

It tells you to look at your home as just another investment (not a nest egg)... to pull out your equity and invest it elsewhere (not spend it)... this is along the lines of Jakobscapel's post above.

If anything ever were to happen to your home (ie., mudslide, out of water, etc...) you would have your equity in a liquid position and you could walk away - rather than lose everything (equity) you've built into your home. (or later, you'll have the money sitting in investments and can pay your home off anytime.)

Also - if you finance the maximum you can against your home, you have a greater tax write-off so the interest rate may be 6%, but in actuality, after tax write-off, it may only be 4%... hmmm... more food for thought.

Interesting thoughts... but not sure I can change my mindset after all these years working towards getting it paid off sometime early.

I suppose it all depends on your end goals.

If you intend to work another 30 years, that may be the way to go... but if you're looking to retire early then maybe not.

Where's MY crystall ball... I know its around here somewhere.

[beautiful_mess38]

that actually makes sense KK

[Kahlua Kid]

Originally posted by beautiful_mess38:
that actually makes sense KK

It does if you can guarantee you'll get better returns elsewhere larger than your home loan interest rate.

But there are no guarantee's in life! http://oakhurstonline.com/icon/happy.gif That's the part that stops me from actually doing this. I'm pondering...

[monkey]

I think I would sleep better if my house were paid off instead of using the money in equity for other investments. To me there is nothing like the security of owning a house free and clear. What a relief it will be someday!

[Kahlua Kid]

At heart, I'm a conservative... want to keep what I've worked so hard for.

But its an interesting concept.

[jakobscalpel]

Originally posted by monkey:
I think I would sleep better if my house were paid off instead of using the money in equity for other investments. To me there is nothing like the security of owning a house free and clear. What a relief it will be someday!

There is no doubt this is true Monkey. I feel the pull of it myself, quite strongly at times.

Still, it is also hard to argue against having greater total worth, whether in a house or not, versus simply having the house paid off. Have more total assets and you can pay that house off immediately, or have the flexibility to move if required with little pain, or just build a more comfortable retirment.

The very recent past offered a unique opportunity to do both things simultaneously...pay off the house quickly and invest "extra" money in another place besides the house. We refinanced to a 15 year at 4.75%. We pulled no money out of the refinance because that, IMO, is the worst financial decision a person can make. It is easy to beat 4.75% for additional investments, plus it still pays down the mortgage faster than making an additional payment on a 30 year. The main problem is monthly cash flow, which certainly takes a hit from the 15 year. Still, we are willing to take the short term pain in exchange for 150k in interest savings over the life of the loan, plus whatever we can make above and beyond 4.75% from outside investments.

With regards to the subject line of the topic....yes, the party is over. It will be interesting to see how long it takes to unwind.

[Sandman]

Originally posted by Kahlua Kid:
We are trying to only finance items that appreciate in value. Pay cash for those that depreciate.

That's the best advice I got handed down to me from my Grandfather. Pay cash for cars, toys, etc. and finance homes, property and business opportunities.

[LindaBo]

Here in Vegas rent is going up and apartements are being sold as condos, Party? what party!now the price of ANYTHING is so high, not many can touch it, with out liveing 4 familys in one home.....thats not for me, we are being squized out------ http://oakhurstonline.com/icon/confused.gif

[Newcomer]

Heard today foreclosures in Fresno County were up 10% and in Madera County 47%.

Last year this time only 700 homes on the market in Fresno, now reported at 2,600 same time.