Mortgage Mayhem

[kamuelakea]

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????

[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.

[kamuelakea]

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.

[kamuelakea]

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.

[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.

[kamuelakea]

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.

[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!

[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.

[kamuelakea]

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.

[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.

[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?

[Nords]

Re: Mortgage Mayhem

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.

Well, I'm glad to help you, but what I'm really trying to do is to provide a little balance to your "mortgage brokers and real estate bubbles are all bad" diatribes. I agree that RE is not a slam dunk investment but it offers advantages that the stock market just won't do.

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.

Thank you. People either have to educate themselves or find someone to help them navigate the mortgage markets. We've learned a lot from the mortgage people we've worked with (some good, some bad) and most of the info on Bankrate.com & other websites is written by people in the mortgage business. They can't all be as bad as you seem to feel.

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.

Sorry to give the wrong impression. It didn't take us 18 years to be happy, but rather I meant that over the 18-year period we've owned the house we've been happy with the experience.

We bought a fixer-upper and even in your 1994 (personally I thought 1996 was worse) our sale price would have been more than the purchase price. Of course we dumped a ton of sweat equity into it, we learned all about real estate & home improvement, and we started to raise our family there. Spouse's parents lived there for nearly six years, too. We learned a lot from that place.

Ownership gave us opportunities that we wouldn't have had by renting. We would have ended up with a lot less money by renting, and we wouldn't have had anywhere near your $1000/month left over for the stock market. If we'd sold our home then we wouldn't have been able to stay in the Hawaii real estate market when we got back from the Mainland, and indeed today I doubt we could afford the market rent on our rental property or our home.

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????

Well, I'm not looking forward to being a landlord any longer than necessary, but we'll sell when it makes sense and we'll keep renting it out until then. I doubt that Waipio will revert to the mean as much as you claim, but it's a financial decision. If we can make more money elsewhere then it doesn't matter what the house's actual value is... only the opportunity cost.

I'm not going to go point-to-point on all your statements, but I disagree with your claim that mortgage brokers are bad and that real estate is bad too. I don't necessarily disagree with everything you say but the value of your debating points is weakened by your use of invective, glittering generalities, and strawman examples. I think you take a bit too much pleasure out of raising a ruckus, too, so I'm done with you.

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?

The math isn't intuitive but the extra money comes from compounding. My TI-55 calculator handbook (published 1977!) says that the future value (FV) of a series of payments (PMT) at % interest rate over n months is:
FV = PMT x {(1+%)^^n-1}/%. ("^^" is an exponent, best I can do with this keyboard.)

The interest rate being used by that example is about 9% per year (.75% per month in the formula) which is about right over most 30-year periods. Of course if the 30 years happened to include 1930-41 or 1966-82 or 2000-2003 the result is significantly less wealthy than that. But large-cap stocks since 1926 have been reasonably close to that number.

I don't know about you guys, but I had to use that $1000/month (or more) to live somewhere during that 30 years. Even at my best paychecks I couldn't afford to own or rent a house AND put $1000/month in the stock market. So while the math is correct, very few people have the resources to achieve that number.

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?

Buy value stocks.

We lost our share during the bubble burst (one heckuva tuition at the School of Experience), but by mid-2002 there were bargains everywhere (even in Hawaii). We added to our international stock mutual fund, we bought a lot of Berkshire Hathaway, and we bought a lot of a small-cap value stock index fund. Heck, by 2003 we'd even made money in the NASDAQ QQQs. Since then we've shifted some of it into dividend stock funds but there are still dollar bills out there selling for 75 cents.

Investing in a diversified value-stock portfolio is a lot easier to achieve today. Beating the market averages takes a lot more effort but the work is eventually rewarded. If you're living below your means and investing at least 10% of your gross pay then there will always be bargains somewhere-- real estate, stocks, even commodities/natural resources. The market has become global and the expenses are a lot cheaper than they were even in the 1980s. So while there may be as many bad stocks as there may be bad mortgage brokers, there are far more good ones of both.

[68-eldo]

Re: Mortgage Mayhem

The math isn't intuitive but the extra money comes from compounding. My TI-55 calculator handbook (published 1977!) says that the future value (FV) of a series of payments (PMT) at % interest rate over n months is:
FV = PMT x {(1+%)^^n-1}/%. ("^^" is an exponent, best I can do with this keyboard.)

The interest rate being used by that example is about 9% per year (.75% per month in the formula) which is about right over most 30-year periods. Of course if the 30 years happened to include 1930-41 or 1966-82 or 2000-2003 the result is significantly less wealthy than that. But large-cap stocks since 1926 have been reasonably close to that number.

Thanks for providing those numbers. I do understand the extra money would come from compound interest and gains in the stock market. But that was not made clear in the original statement.

The only reason I am engaging the troll is, like you, to provide balance to the statements made. There are likely others reading this thread that are just starting in the housing market that could be scared away from buying a home. I hope you continue to balance out this thread.

Kamuelakea dismisses the advantages of home ownership as just buying stability. But stability is very important to the average family.

I have nephews and a niece that are beginning to look to buy a home and this thread helps me find talking points to help them in this endeavor.

[kamuelakea]

Re: Mortgage Mayhem

I am glad that you are comfortable with the current mortgage environment. Good luck to all of you in your investment endeavors. You seem to know what you want and what you are doing.

You will remember me in 3 to 10 years when things get really really bad in housing.

Just make that mental note and get back to business.

[808shooter]

Re: Mortgage Mayhem

Real estate is a great investment. Far better than the stock market. Why?

1. Stocks can go to zero. Companies go out of business all the time. Even big ones like Enron or Worldcom. Houses never go to zero. If they get destroyed, that is what insurance is for.

2. Time is on your side. Yeh housing prices may go down 35% from here but so what? If you have your rental paying the mortgage - who cares what the value is today. Unless you need to sell in the near future then it's proabably not a good idea to be in real estate. It's not a short term endeavor. Real estate prices never stay down forever. Everyone needs a place to live and we live in the most beautiful place on earth.

3. You leverage your money in real estate. With $25,000 you could purchase a $250,000 rental. If your property doubles in 20 years, your original $25,000 investment has now turned into $300,000 or a return of over 1200%.

4. Investing in real estate works. I know lots of old people that are rich because of real estate. They own their own home and own lots of rentals. In contrast, I never meet folks that say, whew. I made a lot of money in the stock market. Yeah!!!