Lymond wrote:
- quote -

Lymond,
I'm glad you came to that conclusion, I think too many people in the Bay
Area are stretching themselves way too thin to buy - and banking on
things like "future income" and low rates and continued 15% growth in
prices to make it work out. It's 89 all over again (from what I read, I
didn't live here then). Interest-only mortgages, second mortgages in
place of true down payments, and of course ARMs. The Chron ran a graphic
that really shows how the ARMs have gone nuts - as of the '04 date of
the chart they represented over 70% of the mortgages taken out in the
Bay Area, up from 30% in 2002 (search sfgate.com for the term
"dataquick", it was a 7/1/04 article). Now, you go for an ARM if you're
moving out soon, or if you expect higher income, or if you think
interest rates will stay low, or if you just can't afford the payment at
the fixed rate. This to me isn't a healthy sign because each of those
reasons has risk associated with it, when you're talking about a debt of
$400k plus - in many cases almost double that.

This might last another month, or another 5 years, who knows? But I have
no doubt that it is a bubble. Things like lower & lower downs &
teaser-rate ARMs just bring more buyers to market and drive prices up
further. But the A is for adjustable and I wonder how many of these
folks will be able to handle 2%, 3% rate increases - or more.

Of course I've thought this for over two years now so maybe I'm one of
the dopey ones that is missing the boat. I missed the dot-com boat too
though...

-Tad

Thank you for the replies. We've decided that whether we made it our
home or a temporary investment, the cost is too much. That being
said, a mortgage broker called today and spoke of an ARM that seemed a
little unreal.

He said it started at 1.15%, then climbed up to .3% a year until year
6, where you were locked into the current mortgage rate. It maxes out
at 9.9% regardless of current rate.

For a $450,000 home (after down), no one wants to pay 10% on it. But
is it possible to pay the current mortgage, $1400-$2000, and put extra
money towards the principal, in the hopes that, in year 6, you'll be
paid enough to afford the current principal?

That seems to make sense. Doesn't want to make me buy the house any
more than before, but it's certainly a way to encourage homeowner's
who's salary is likely to increase.

Thanks for your time again.

Chris

Lymond wrote:

- quote -

My own take is that you are less "over your head" than a lot of
people are in this real estate market <grin> , but obviously the
issue is going to be what your financial future brings you, as well
as what the alternatives are to provide for housing.

If your income stays steady or grows, the biggest risk you face is
being "locked in" to the current location should prices fall (and
given the rapid runup in prices, I think you have to consider the
very real possibility that prices could drop). That risk may be a
major one if there is a substantial risk you could be forced to
relocate in the future by your job (since relocate will most likely
mean you'll be forced to sell). As well, even if that's not a
problem, you may find yourself forced to stay with this house even
if you "really" see this house as an initial step to the house you
"really" want down th line.

That problem can be offset quite a bit by a significant down
payment--that at least helps make sure you don't have to put cash
into a sales transaction to unload the property. You would still be
out the amount of the loss, though arguably the "good news" is that
any replacement property will also likely be similarly negatively
impacted in price (so you'll pay less to replace it).

As well, if it is very unlikely you'll be forced to relocate and you
are really comfortable with staying put in this location for the
long term, then again a real estate price decline isn't as big an
issue for you.

I should also mention you didn't indicate the type of financing you
are entering into. The question of whether you are "over your head"
might be viewed differently if you are putting very little down and
have an interest only ARM. If it takes *that* to get you to 30%,
then you may need to think again, since you wouldn't be so much
buying the house as betting that it will increase in value and/or
that your income will rise so you can "really" start paying for it
down the line.

As I've said before, a residence is a unique beast financially, but
at its base level it simply a required expenditure to provide for
shelter and, to a large extent, how much you are spending is
primarily driven by "lifestyle" choices that are more of a
consumption issue than an "investment" issue. If you look at it
that way, I think you'll make a better choice and, perhaps more
important, be happier down the line. If this is what you want and
you find you can afford it, viewing it as solely a consumption
expense, then it's likely fine.

--
Ed Zollars, CPA
Phoenix, Arizona

In article <68cde3d2.0408020148.1738612d[at]posting.google.com> , Lymond
<lymond01[at]netscape.net> wrote:

- quote -

That is not a "smallish" home. It is a starter castle. With millions
of homes out there built in past years in the range of 1100 to 1300
square feet, 2100 sq feet is far above average. I have seen families
of 4 being quite comfortable in a 750 sq foot 2-bedroom condo. This
really only works if the 2 kids are of the same sex.

- quote -

I don't have too much of a problem with this. I'd like to see you
having more money left over. For example, you should be saving 10%
for retirement, 10% for a rainy day, and 10% tithe to the church (if
you are into god stuff).

- quote -

You are going to be tight. The key will be future growth of income
and your ability to control expenses. If you really want the house,
you can make it work.

I do like to look at what happens in the worst case scenario, and
see what the consequences are. You should ponder if you really are
saving enough. You should also ponder what would happen if one of
your jobs were to evaporate. Are you putting enough down so you can
sell without taking a loss? What happens if, as some have predicted,
California real estate takes a 30% drop in value just as you get
layed off from work?

-john-

--
================================================== ==================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ==================

I'd like your opinion...

Living in Vacaville, CA, housing prices continue to boom. I'm looking
at a smallish (2100 sq ft) new home in a new development where it's
the smallest design. Our ratio of mortgage+property tax+insurance to
gross household income is about 30%. We have two cars to pay off as
well and that is about 6% of our gross. No other debt. We ran a
budget of our expenses, and total liquid funds, which we tabulated as
"Entertainment", "Vacation", and "Unbudgeted" is about 10% of our
current gross income.

My question is...should we or shouldn't we? That 10% is about $1000 a
month extra in a 4 person family. What is the normal amount to have
"left over" each month? Are we about to be poor? :-) Or do most
people suffer a bit? We're getting ready for the lifestyle change,
and I expect to get a raise/new job to bump me up at least 10%.

Are we in over our heads? The pre-eval says "No problem!"
but...well...what do they know?

Thanks for your consideration from a nervous homebuyer.