Mortgage Mayhem

[68-eldo]

Re: Mortgage Mayhem

kamuelakea
When your statements are examined the holes become apparent. There are so many inaccurate statements I have a hard time finding a place to start.

I’ll start here:

Famous quote

There are three kinds of lies: lies, damned lies, and statistics

Someone once told me you can put a barefoot man with one foot on a block of ice and the other on a hot stove and any decent statistician can prove he is comfortable.

Those are a couple of humors ways to make the point that statistics don’t always tell the whole truth. Most of your statements are backed up by statistics. I’ve provided my real life experience. Can you back up your statements with real life experience?

You either rent money from the bank or you rent a home from the landlord.

The problem with this statement is it totally ignores the fact that with the exception of a few loans all mortgage payments pay down a portion of the principal. Each payment lowers the amount you owe so the next payment pays less in interest and more toward the principal. As the loan nears the end most of the monthly payments go to the principal. That’s how you eventually end up owning the home.

….but home buying and home owning is a terrible investment.

OK, if you get out your microscope and look at only the value of the home there maybe some truth in this statement. However this statement ignores the value of not paying rent if you live in the home yourself. As GeckoGeek says “Housing is an unavoidable expense.” If you have to pay X dollars anyway why not put some of that money toward owning the home rather than lining the pockets of the landlord? It’s a very foolish landlord that rents out a home for less than his expenses. If you bought that home at the same time and rate as the landlord you would be paying less than what you are renting it for.

If you think that by renting you’re not going to pay for that new roof, think again. The landlord collects a little extra from you every month, puts it in an interest bearing account until the roof needs to be replaced.

If there was no profit in renting out homes there would not be any landlords or homes for rent. As GeckoGeek said his education was paid for by renters.

If you invested the 1000 in the stock market and added 1000 per month. After 30 years you would have 1,183,677 in the bank. Plenty of equity to pass on and an income of about 50,000 per year if invested in conservative bonds.

Interesting math. There are 12 months in a year, so in 30 years that would be 360 months. If you paid $1000 per month that would be 360,000. Where did the extra $823,677 come from? You said to put the money in the stock market. Well I tried that too. My portfolio is running at about 75% of what I put into it. I don’t know anybody that is doing well in the stock market since the dot com bubble burst. What is your magic advice for investing in the stock market?

I will tell you that I do not do anything that involves the real estate industry or banking industry.

So you are a stock broker?

You have made a few comments that I agree with. To put it in a nut shell; interest only and ARM mortgages are dangerous and should be used with great caution. But a savvy buyer can use them to their advantage. The key is in fully understanding the different types of mortgages. And that is what MixedPlateBroker was trying to accomplish at the beginning of this thread. But MixedPlateBroker has not been able to get a word in edgewise lately.

Howbout we let him say his piece?

[ploal5333]

Re: Mortgage Mayhem

I have advice that will help. If you follow real estate, when you're looking to buy a home, do not obtain a realtor unless it's new construction willing to offer 3% to buyer's agent. I really believe in today's market a buyer's agent is a liability.

Have you ever noticed when you visit open houses that if you look like an interested buyer the first thing the seller's agent asks is 'are you working with someone?' If you respond 'no' they put a great smile on their face and more pep in their voice. 'Call me after my open house hours!'

They're more willing to negotiate if there's more $ in their or their company's pocket.

Re: Mortgage Mayhem

Great job, kamuelakea!

You’ve never disproved anything I’ve said in my posts including my thread starter. Why? Because the information I’ve shared is factual, not an “alternative view.”

Actually I totally disagree with the suggestion of your thread starter in so far as it suggests and even encourages the continued use of 1) Subprime 2) Bad Credit and 3) No Down loans.

Those loans might make sense in a balanced, well priced market or in a down market where investors are taking a gamble. They are not appropriate IMHO at the peak of the worst housing bubble in US history when interest rates are still at historic lows.

Think about that last statement hard gangey. Prices are at historic nose bleed highs and interest rates are at historic lows. That means that the statistical odds are that prices will drop more than rise and that interest rates will rise more likely than they will drop.

EITHER of those happening will destroy the people who take out the 3 loans Mixedplatebroker is selling in the first post.

Again, if you are going to buy at the peak of the bubble and you realize that the same thing that happened in the 1990s in Hawaii could happen again, at least put 20% down and get a fixed 30 year. All the other loans are liars loans that will come back to bite you in da elemu.

No charge for my advice. I wonder if I saved anyone on hawaiithreads from financial disaster??? Only time will tell. Probably not, cuz most people don't listen to my kind of advice. They like da smood talkah who "gets" them a bigger house that they can't really afford.

[MixedPlateBroker]

Re: Mortgage Mayhem

Great job, kamuelakea, in your attempts to wheedle “lambs” to find solace in your protective shepherding. Your 10 posts in less than two days have included backpedaling on a number of your talking points, whining, cherry-picking of stats (see the entire statistical report from Honolulu Board of Realtors here to see what I mean) and name-calling when everyone has used respectful language in addressing you.

My approach is to empower my clients with useful information tailored to their individual situation so that they can make the best decision for themselves and their families. I doubt that anyone who’s ever come to me about their loan sees him or herself as a mindless lamb, with fear nipping like a dog at their heels while they unquestioningly follow my commands. I know kamuelakea loves blanket statements, so here’s one just for him: You’ve never disproved anything I’ve said in my posts including my thread starter. Why? Because the information I’ve shared is factual, not an “alternative view.”

I again invite any HTers who have any questions about mortgages to ask, as I remain happy to answer to the best of my abilities and knowledge. I’ll also be posting about relevant topics on the subject of home financing. I agree with Leo Lakio regarding the standard disclaimer about advice given on discussion boards and I encourage you to consult a reputable mortgage broker (and it doesn’t have to be me). In fact, it would be great if others in the biz—other brokers, realtors, appraisers, escrow officers—would chime in with their insights. Or, if anyone would like to share their home buying/refinancing experiences, good or bad, please don’t hesitate! No one should undertake such a large financial investment as buying a home without first educating oneself. We’ll just ignore the troll as we carry on.

[tutusue]

Re: Mortgage Mayhem

[...]And what exactly does that tell us? Median means that half the condos sold for less and half sold for more. The median could be influenced by factors like more condos selling in outlying areas, or more smaller condos or even fewer rich man's condos. But is tells us NOTHING about what a unit bought for $193,000 in 1992 sold for in 2000.[...]

I can speak for one, low-end condo building with small units in an outlying area...Makaha!!!

As many of you know, my unit is very small...400 sq. ft. I purchased it in '86 or '87 for $30K, fee simple, oceanfront. I had/have no intention of selling it so really didn't care what the market might do but I did follow the values in that building out of curiosity.

At the height of the 90s market a unit like mine was selling for $150K. We owners were flabbergasted esp. since that wasn't too long after Hurricane Iniki and we were the hardest hit building on Oahu! At the depth of the market in the late 90s, my neighbor 2 doors away bought that unit identical to mine, one that had been fixed up, for the high $20Ks...$28K, iirc.

Fast forward to 2006 and units like mine were selling for $225K! I could never have imagined those prices but mainland investors saw the oceanfront, fee simple part and they went crazy buying up units. My property taxes now reflect that.

It's now 2007 and those same units are listed in the $190K range. I don't know what they're selling for as I haven't checked. One thing's for sure...it's been a wild roller coaster ride when it comes to prices in that complex and I'm certainly happy that I didn't have to buy a ticket!

Re: Mortgage Mayhem

GeckoGeek,

Seems like you got everything feegaahd out.

To you, the median droping 35% doesn't matter and inflation is irrelevant.

Good luck on your investing career.

[GeckoGeek]

Re: Mortgage Mayhem

Wot GeckoGeek, lemme guess, you went Iolani or Punahou.

Nope.

Sheeshs, tank god my parents saved da 200 grand for private school tuition.

Same here. And they invested in [drum roll] Real Estate!

Honolulu Board of Realtors:

1992 Median Sales Price Condos: $193,000.
2000 Median Sales Price Condos: $125,000.

And what exactly does that tell us? Median means that half the condos sold for less and half sold for more. The median could be influenced by factors like more condos selling in outlying areas, or more smaller condos or even fewer rich man's condos. But is tells us NOTHING about what a unit bought for $193,000 in 1992 sold for in 2000.

35% nominal loss plus 24% inflation loss = 59% loss.

Oh, nice. Now you're factoring in inflation. Is this tied to Hawaii's inflation rate or CONSUS? That 3%/year seems rather simplistic.

Buy now everybody, you might get priced out.

Suhkaaaaazzzzzzz.

The main thing is understand what the hell a ARM is and make sure you can afford it. That's what's caused the problem. You can't always say "I can sell if I get behind" because the market may slump right then and you haven't had enough years in the home to build equity. (New car buyers have similar problems. They owe more on the loan then they can sell for.) Real Estate is not a good short term investment unless you can time the market. The buyer's costs and selling costs will eat away at most short term investments.

Re: Mortgage Mayhem

We can say the same for stocks too.
What median are you looking at? The value or sale? Sale median can move all over the place depending on who's buying and selling, but the value of any given home can stay relatively stable. Yeah, I remember a slump, but I sure as heck don't remember anyone saying their home was only worth half of what they paid. 10% loss I can believe, but not 50%.

Let me and the official stats from the Board of Realtors refresh your memory.
Wot GeckoGeek, lemme guess, you went Iolani or Punahou. Sheeshs, tank god my parents saved da 200 grand for private school tuition.

Honolulu Board of Realtors:

1992 Median Sales Price Condos: $193,000.
2000 Median Sales Price Condos: $125,000.

That is a nominal drop of 35%.
Inflation over those years was about 3% per year. 8 x 3 = 24%.

35% nominal loss plus 24% inflation loss = 59% loss.

That is the MEDIAN which means certain condos (less desirable or whatever) droped by even greater percentages.

YEP, real estate never goes down.

Hahahahhahahahahahahahahahhaahahah.

Buy now everybody, you might get priced out.

Suhkaaaaazzzzzzz.

Re: Mortgage Mayhem

Lastly, what do you do for a living Kamuelakea? You haven't disclosed your personal interests in your advice. Normal people don't argue that passionately about investment.

GeckoGeek,

If you havn't figured it out yet, I am not normal.

But sides that, what interest would I have in telling people to be careful about making the largest purchase of their life at the top of a housing bubble. How could I benefit.

I have no bone in this. See GeckoGeek, I am passionate about plenty. I went public school so I am SUPASMAT as Bulaia would say. I will tell you that I do not do anything that involves the real estate industry or banking industry.

What I am passionate about is B S uz. The mortgage broker who started this thread began with attacking someone on Bumatai's show for giving an alternative view of home financing. I just found it ironic since there has been more mortgage fraud, appraiser fraud, realtor fraud over the last few years than for decades prior and here is a mortgage broker attacking someone else and continuing to sell the ideas of the idiot loans that end up leading the lambs to slaughter.

I care about the lambs.

[GeckoGeek]

Re: Mortgage Mayhem

buying a home is not a slam dunk good investment, even in Hawaii. If you had some bad luck (divorce, bad invesment, job loss) in 1994, you might have lost it all.

We can say the same for stocks too.

home prices in Hawaii drop by nearly 50% AGAIN just like they did in the mid-1990s and just as they should if median home prices return to 3 to 5 times median income????

What median are you looking at? The value or sale? Sale median can move all over the place depending on who's buying and selling, but the value of any given home can stay relatively stable. Yeah, I remember a slump, but I sure as heck don't remember anyone saying their home was only worth half of what they paid. 10% loss I can believe, but not 50%.

And why should home prices be fixed according to median income? Isn't it the mortgage the median income can qualify for? It's the low interest rates that have caused prices to get higher relative to income. But what are "normal" interest rates? Is our current rate low or were our past rates high? Dig out the crystal ball, because the answer is going to depend on what happens to America's economy as a whole which includes things like NAFTA, China and a bunch of other trends.

And quite frankly stocks can get sucked into a bubble themselves. Right now the stock market is pumped up with retirement investments. What happens a few decades down the line when those 401Ks investments get cashed in? What is that saying "Past performance is no guarantee of future results"? That needs to be applied to the stock market as a whole too.

Also, are we talking about buying real estate as a pure investment, or are a place to live? Housing is an unavoidable expense. It's better to build equity so you have something when you move out then to pay rent and have nothing but a security deposit to show for it. You can live in a real estate investment. You can't do that with stock certificates. As for stability, yes, unstable investments always promise a higher rate of return. They have to to attract any money.

Lastly, what do you do for a living Kamuelakea? You haven't disclosed your personal interests in your advice. Normal people don't argue that passionately about investment.

Re: Mortgage Mayhem

We bought a Waipio Gentry home in 1989 and its value was killed a few years later when, among other reasons, Waikele's new homes came on the market. Median home prices were 3-5x median household income the entire time, but if I'd had to sell during the first few years then I'd've been one unhappy camper-- and even more miserable when I saw how values recovered.

Hey, we were one of those families.

When we were unexpectedly relocated to San Diego it wasn't much fun making payments on that fixed-rate mortgage, despite having decent tenants.

I may have blamed myself for making bad decisions (or for making decent decisions at bad times) but I'm the guy who signed all those papers claiming to understand that I knew what I was getting into.

And at 18 years since we bought the house we've been happy with the results.

Nords,

First, you make my point by illustrating that buying a home is not a slam dunk good investment, even in Hawaii. If you had some bad luck (divorce, bad invesment, job loss) in 1994, you might have lost it all.

Second, it is obvious from your post that you are more financially savvy than the average guy. You were able to navigate your way through the ups and downs of the market. Most people wouldn't.

Third, it took 18 years for you to say you are happy with the results. And you are saying that as we sit upon the top of the greatest national housing bubble of all times. Sounds like the Midas effect.

Fourth, I wonder how happy you will be in 5 years if home prices in Hawaii drop by nearly 50% AGAIN just like they did in the mid-1990s and just as they should if median home prices return to 3 to 5 times median income????

Re: Mortgage Mayhem

Hawaii is a unique situation. Unlike the mainland where people are free to move out further to find lower cost housing, in Hawaii there is no place to move to. There is also a rather limited amount of housing. As a result, in Hawaii, supply and demand rules.

Hawaii is not terribly unique. Economic fundmentals rule everywhere. However, you are absolutely correct, it's always supply and demand.

The only thing unique about Hawaii is that there are ethnic groups that believe only Hawaii can provide them with the ethnic environment they want to live in. There are no other Plantation Asian or Native Hawaiian communities in the United States. Therefore, these groups are willing to pay more for their homes. They do it by working 2 jobs, living with multiple families etc. We all know this.

In the US as whole, median home prices have always been around 3 times median income. In Hawaii and other "desirable" or high demand locations, a median home value has always been 3 to 5 times median income. THIS IS HE ONLY DIFFERENCE between Hawaii and anywhere else. Homes are more expensive in Hawaii and always have been and always will be.

However, current median home price is 665,000. That is closer to 10 times median income.

That is a bubble. That bubble will pop. When it does, anyone who bought in the last few years will be hurtin.

Remember supply and demand is more complicated with homes because people don't pay cash. Most people use monopoly money provided by the government. The government has been dumping money into the system like never before allowing people to overpay for homes all over the country including Hawaii.

[Nords]

Re: Mortgage Mayhem

I'm am sure you are one of the few honest mortgage borkers oh I mean brokers out their but this statement is either terribly ignorant or dishonest.

This is interesting. Usually it's the consumer whose seemingly straightforward questions make the sales guy defensive and insulting. (I'm recalling all the times I've seen this in threads started by financial advisors & annuity salesmen.) This time it's a customer who's using terms like "borkers" and the mortgage broker is actually coming off as a pretty reasonable human being.

Maybe we could keep the insulting terms out of this thread so that I can learn more about the mortgage business from someone who seems to have a balanced view of it.

Home prices have risen at the rate of inflation plus 0.4%. Yep that's whopping 0.4% per year for you having to pay for all improvements, all property taxes and insurance. Not a very good investment when compared to the stock market which has beat inflation over the long run.

Your numbers are correct but you're not addressing the leverage issue.

If I walk into a brokerage and show the stockbroker a few pay stubs & tax returns, and then propose buying $500K of Alexander & Baldwin stock for nothing down with a promise to pay for it over the next 30 years, I don't think they're going to go for it (even though they're on a commission). Yet somehow I can persuade a mortgage broker to give me a "nothing down!" loan for a depreciating pile of construction materials on land whose value rises at about the rate of inflation.

I think a good reason to own land/homes is that little investors like us can acquire ownership at a very low down payment (admittedly with high leverage) and wait for the price to rise. If we can handle the carrying costs then the sale can bring profits far in excess of the actual investment. It's difficult to achieve the same leverage with stocks, especially since their value is so much more volatile than most land/homes.

Hang out a sign saying "Cheap stocks on margin!" and everyone runs away fast. Hang out a sign saying "Cheap homes with cheap loans!" and customers will line up. Each investment has advantages & disadvantages, and having either one go bad can put its owner in bankruptcy court. I'm a homeowner, landlord, and stock investor and I wouldn't put all of my investments only into one of these assets.

Median home price in Hawaii has always been from 3 to 5 times median household income. You do the math.

One number has averaged a range of multiples of another type of average.

Yet individual home values have gone far outside those averages, and in both directions. Some homes have been tremendous investments and others have been horrible mistakes. And depending on what time periods you're looking at, they've been both.

We bought a Waipio Gentry home in 1989 and its value was killed a few years later when, among other reasons, Waikele's new homes came on the market. Its value subsequently soared when Central Oahu Regional Park was built. Median home prices were 3-5x median household income the entire time, but if I'd had to sell during the first few years then I'd've been one unhappy camper-- and even more miserable when I saw how values recovered.

The math can be a lot more complicated than it looks. Schiller does make it look easy, though.

How would your military family with the ARM you talked them into in 1993 feel in 1998 about your financial advice???

Hey, we were one of those families.

Most military families rent when their tours are so short but an ARM can make buying a lot cheaper than renting. (Admittedly at the risk of having the home value drop and wipe out your equity.) We bought because we expected to stay beyond a three-year tour and expected to build some equity (boy were we wrong-- for the first 10 years anyway). The ARM saved us a lot of money and when mortgage rates moved in our favor, we refinanced to a fixed rate.

When we were unexpectedly relocated to San Diego it wasn't much fun making payments on that fixed-rate mortgage, despite having decent tenants. But now that home values have skyrocketed to the other end of that range of median values it's a lot more fun being a homeowner.

During those periods I never cursed my mortgage broker. I may have blamed myself for making bad decisions (or for making decent decisions at bad times) but I'm the guy who signed all those papers claiming to understand that I knew what I was getting into. And at 18 years since we bought the house we've been happy with the results.

Like I said. When a realtor or a broker talk, run.

I think the information can be good or bad, as well as the credibility of the person giving it. Telling us to run away from all of them, good or bad, doesn't do much for the credibility of the person giving that advice...

Re: Mortgage Mayhem

As I approached the time when I would be out on my own my mother made a statement that I remember to this day. She said “When you rent a home all you are doing is paying someone else’s mortgage for them”.

It sure looks to me like over a 30 year span buying a house was a far better investment then renting.

Your mother got you to purchase stability. But you may not have made the best financial decision. I agree that your mom is probably giving good advice for most people since most people are incapable of saving. Any extra money at the end of the month is beer money, smoke money or vegas money.

If you were able to pay 1000 less per month for 30 years. That amount is not unreasonable in Hawaii today since renting a single family home is at least 1000 less. Remember, when you rent, no new roof, no plumbing or electric bills, no property taxes etc etc.

If you invested the 1000 in the stock market and added 1000 per month. After 30 years you would have 1,183,677 in the bank. Plenty of equity to pass on and an income of about 50,000 per year if invested in conservative bonds.

Again, I know this is hard for most people, but housing values increase by barely over the rate of inflation. If your home value rises by the rate of inflation, you have earned nothing. You are simply treading water.

But it is better than losing money and that is why home ownership is good for most people. Not because it is a good investment but because it forces weaker people (financially) to at least end up establishing shelter for themselves.

[GeckoGeek]

Re: Mortgage Mayhem

He has studied house prices in the U.S. from 1890.

His conclusion: Home prices have risen at the rate of inflation plus 0.4%. Yep that's whopping 0.4% per year for you having to pay for all improvements, all property taxes and insurance. Not a very good investment when compared to the stock market which has beat inflation over the long run.

Fact is home prices will ultimately return to prices determined by income. Median home price in Hawaii has always been from 3 to 5 times median household income. You do the math.

We can talk about the stock market as a whole, we can talk about a specific sector such as tech stocks, and we can talk about individual stocks. Depending on which one we're talking about, we can get different answers.

The same goes for "the housing market". We can talk about the market in the US as a whole, we can talk about one area (like Hawaii), or we can talk about one property.

Hawaii is a unique situation. Unlike the mainland where people are free to move out further to find lower cost housing, in Hawaii there is no place to move to. There is also a rather limited amount of housing. As a result, in Hawaii, supply and demand rules. The prices rise until the number of people who can afford the housing matches the number of units available. The only way prices are going down is some net drop in income or some mass movement away from Hawaii.