Real Estate Crash thread

[Danno]

Danno,

One thing you might want to consider is the extent to which the entire Boulder economy is subsidized. Whether it be from Mommy and Daddy back in wherever footing the bill for college expenses or government subsidized through student loans and research grants. What happens when/if that tapers off? How long do you think it will be before people realize that going away to college isn't as valuable as it used to be? I mean soon you will be able to get a degree from Harvard while still living at home where your mom does your laundry.

Fair point. Remarkable when someone actually addresses the local market! I suppose what you say is possible, but the elimination of universities is a long way off, I think; certainly not on Kevo's (or whoever's) 10 year horizon. And there's an awful lot of money in Boulder that isn't related to CU. And the Flatirons aren't going anywhere. The more populated and integrated the world becomes, I think that only benefits Boulder. If people can live anywhere and do their jobs, a lot more of those making a lot of money will choose to live in expensive yuppie Boulder than will choose to live in cheap Iowa. Again, that's not a rah-rah thing, as that happens I hope to be gone from here, but I don't see the market drastically tipping in favor of Iowa anytime soon.

[Benny Profane]

Danno,

One thing you might want to consider is the extent to which the entire Boulder economy is subsidized. Whether it be from Mommy and Daddy back in wherever footing the bill for college expenses or government subsidized through student loans and research grants. What happens when/if that tapers off? How long do you think it will be before people realize that going away to college isn't as valuable as it used to be? I mean soon you will be able to get a degree from Harvard while still living at home where your mom does your laundry.

This was a big "duh" moment for me recently, how big college towns have an inflated RE market due to incredibly easy student loan money. If you think FHA loans are easy, shit, a 17 year old can sign the rest of his life away in some high school advisor's office in a flash, and then go off and rent a really nice place in Boulder or Cambridge or New Haven or thousands of other college towns. The local landlords are subsidized almost directly. Good business to be in, especially if it's a 1% Ivy school down the street. Those people will always have money.

[Hugh Conway]

This is why blanket pronouncements like the ones you make are silly. Being aware of nationwide trends and history is super important, no doubt. But being aware of local market conditions, trends, and history is likewise super important. Making a decision entirely based on just one and ignoring the other is incredibly foolish.

Yeah Benny, blanket pronouncements other than "Boulder real estate will always go up" are silly, listen to the lawyer babble about how everyone wants to live in fucking Boulder. eeesh, at least the clueless cunts in California realize that shits expensive and there's a limited slate of people who both want and can afford what they have (and that's with the endless stream of foreign tourists)

[mud]

If only we were as successful as Benny and Hugh.

It's obvious their decades of experience in the industry buying and selling homes has taught them all the benefits one can reap.

We should be grateful they take the time to share their real life experiences and continue to give back to the community.

[Hugh Conway]

We should be grateful they take the time to share their real life experiences and continue to give back to the community.

hey, I can change a fucking bike tire. you can always tell the real life success stories by how butthurt they get by internet losers.


I said many times - maybe you've the same can't read anything other than fluffing ColoRADo affliction danno has? - that I don't understand Boulder or it's attraction, but that fighting mindless fluffers (like you and danno) is stupid, so see if it makes sense for you for other reasons. Like anything - people with skill make money (md9, some others), some people get lucky riding trends they know fuck all about (Danno) , other people (who mostly don't admit it in on the grand TGR circlejerk) get burnt surfing trends

[grrrr]

Dude, Hugh is an expert on EVERYTHING.

[Hugh Conway]

Dude, Hugh is an expert on EVERYTHING.

a little Hugh hating make your life bitter old man? love it man. if there's one thing this thread shows one thing it's the level of quality analysis has gone down, while the stupid hating homers of all flavors are still here. Like the board. So, once more, fucking blow me.

[Benny Profane]

Benny, don't assume. You may be older than I am, but I am not "fairly young" by almost anyone's definition of it outside of someone in assisted living.

You see some of the forest, and some of the trees, but not the whole picture. And in so doing, you missed my entire point. Why not 50% down, based on your post? My point was simply that 20% is an arbitrary number. It is not some magic number that should drive your purchase decision. Your purchase decision should be driven on factors other than an arbitrary number. And the reason that I couldn't save 20% down for my home is not necessarily because my home is overpriced. First, you have to define "overpriced", and second, you have to look at the circumstances of the market (and of my salary). Let's look at Aspen, as an example. After 2008, homes there took a tumble. Did they ever tumble to the point where some shmoe delivering pizzas could afford to buy a condo? Will they ever tumble that low? The answer is no. Why is that? Will those properties always be "overpriced"? What does that mean, if they may fluctuate but never come down to pizza delivery guy levels? How can a property be overpriced into perpetuity? At some point, don't you just have to accept that it just is the price it is, and is only overpriced when its price is high relative to its history and its market?

This is why blanket pronouncements like the ones you make are silly. Being aware of nationwide trends and history is super important, no doubt. But being aware of local market conditions, trends, and history is likewise super important. Making a decision entirely based on just one and ignoring the other is incredibly foolish.

20% is not arbitrary. It is a very concrete way of you telling the lender across the table that you have the ability to be responsible enough with your finances to actually save that amount of cash to bring to the relationship. It is a relationship of trust, you know. The lender wants to know if they can trust you enough to hand over a very substantial amount of money and get it back with interest. This is a good start, along with other criteria, like maybe a history with that lender's institution that proves one can handle one's finances.
But, that's so Jimmy Stewart of me. So hokey. Showing my age, I guess. Now it's, hey, shop on the internet, or, like buying drugs, you know, "I know a guy who knows a guy", and then that loan is packaged and sold almost immediately to some bigger fool (which today is 99% the US government, or, you, the taxpayer), so the person across the table is just concerned with today's commission, and could give a fuck what happens in six months to that loan, let alone thirty years.

I find it hard to believe that mortgages are still sold that way today, but, if we really came to our senses and sold mortgages responsibly to the public, our banking system would finally collapse, along with the developed world's. So, I guess we have to, for a while.

[El Chupacabra]

Isn't a 20% down payment still required, in order to avoid mortgage insurance (PMI)? Alternately, reach that 20% level and avoid PMI by some other combination (e.g., 80/10/10).

I figured that the 20% down was just the lender's way of adding security to its loan -- if they have to foreclose immediately, then there's at least 20% equity, in theory.

[Danno]

20% is not arbitrary. It is a very concrete way of you telling the lender across the table that you have the ability to be responsible enough with your finances to actually save that amount of cash to bring to the relationship. It is a relationship of trust, you know. The lender wants to know if they can trust you enough to hand over a very substantial amount of money and get it back with interest. This is a good start, along with other criteria, like maybe a history with that lender's institution that proves one can handle one's finances.
But, that's so Jimmy Stewart of me. So hokey. Showing my age, I guess. Now it's, hey, shop on the internet, or, like buying drugs, you know, "I know a guy who knows a guy", and then that loan is packaged and sold almost immediately to some bigger fool (which today is 99% the US government, or, you, the taxpayer), so the person across the table is just concerned with today's commission, and could give a fuck what happens in six months to that loan, let alone thirty years.

I find it hard to believe that mortgages are still sold that way today, but, if we really came to our senses and sold mortgages responsibly to the public, our banking system would finally collapse, along with the developed world's. So, I guess we have to, for a while.

Benny, apply some critical thinking. I understand what the purpose of a downpayment is, but the 20% figure is arbitrary. Why isn't it 15%? or 25%? the downpayment is the way of ensuring to the lender that there is security in the loan, but 20% isn't a magical number, it's just the magical number chosen by the banking industry. And really, if this was all based on a relationship of trust, no downpayment would be necessary. The downpayment, be it 20% or whatever arbitrary number you choose, exists precisely because there isn't trust; it's an arm's length financial transaction.

Isn't a 20% down payment still required, in order to avoid mortgage insurance (PMI)? Alternately, reach that 20% level and avoid PMI by some other combination (e.g., 80/10/10).

I figured that the 20% down was just the lender's way of adding security to its loan -- if they have to foreclose immediately, then there's at least 20% equity, in theory.

Correct on all accounts. My only point was that the mortgage banking industry could just as easily have made the benchmark 25%, or 30%, or 10%. So Benny's lament that people didn't do things the smart old fashioned way of putting 20% down is arbitrary. There is no magic formula where 20%=smart and 10%=risky. Purchasing decisions are based on a lot of complex factors, of which the downpayment is one (and the mortgage industry's treatment of 20% as a magic figure is another) out of many.

[mcsquared]

Correct on all accounts. My only point was that the mortgage banking industry could just as easily have made the benchmark 25%, or 30%, or 10%. So Benny's lament that people didn't do things the smart old fashioned way of putting 20% down is arbitrary. There is no magic formula where 20%=smart and 10%=risky. Purchasing decisions are based on a lot of complex factors, of which the downpayment is one (and the mortgage industry's treatment of 20% as a magic figure is another) out of many.

Don't be dense. You are smarted than this. Yea, it is an arbitrary number. Much like your salary or the price of a jar of Almond Butter. But somebody somewhere did some number crunching and figured out what the work you do is worth and then increased that number to cover profit and overhead and then backed that into what they can pay you. Maybe the banks decided that should a borrower stop paying they, on average, need about 20% in order to cover the cost risks associated with foreclosing. Or they just made the number up to fuck with us. Maybe Fannie Mae sets the number? How much does it matter to the price of a home in Boulder?

[mud]

Benny, apply some critical thinking. I understand what the purpose of a downpayment is, but the 20% figure is arbitrary. Why isn't it 15%? or 25%? the downpayment is the way of ensuring to the lender that there is security in the loan, but 20% isn't a magical number, it's just the magical number chosen by the banking industry. And really, if this was all based on a relationship of trust, no downpayment would be necessary. The downpayment, be it 20% or whatever arbitrary number you choose, exists precisely because there isn't trust; it's an arm's length financial transaction.



Correct on all accounts. My only point was that the mortgage banking industry could just as easily have made the benchmark 25%, or 30%, or 10%. So Benny's lament that people didn't do things the smart old fashioned way of putting 20% down is arbitrary. There is no magic formula where 20%=smart and 10%=risky. Purchasing decisions are based on a lot of complex factors, of which the downpayment is one (and the mortgage industry's treatment of 20% as a magic figure is another) out of many.

50 years ago and before then banks required borrowers to put down a minimum of 30% even as much as 60% down payment. There was no FHA program until the '60's.

The Great Depression was exaggerated because the mortgage laws back then protected the banks and not the borrower. If you were late once on your payment the bank could foreclose the next month and kick you out immediately. which happened a lot. Most of the mortgage laws over the past 40 years is geared to protect the borrower.

[Benny Profane]

The great depression was hardly "exaggerated" in any way from housing. Most people lived in farms or rented apartments, and, because of the stringent down payment requirements mentioned, RE couldn't take the banks down like trillions of dollars of no money down ninja loans backed by MBS sold all around the world and bet against by trillions of dollars more of CDOs and CDSs in this last crash. That shit didn't go away, btw. It's still hanging over our heads like a sword, and no politician has the balls to protect us from it.

[Danno]

Don't be dense. You are smarted than this. Yea, it is an arbitrary number. Much like your salary or the price of a jar of Almond Butter. But somebody somewhere did some number crunching and figured out what the work you do is worth and then increased that number to cover profit and overhead and then backed that into what they can pay you. Maybe the banks decided that should a borrower stop paying they, on average, need about 20% in order to cover the cost risks associated with foreclosing. Or they just made the number up to fuck with us. Maybe Fannie Mae sets the number? How much does it matter to the price of a home in Boulder?

Oh, I know that the banks did some number crunching to arrive at a number. For the bank, it's not necessarily arbitrary, it's based on their actuarial analysis, federal/state laws, and possibly consumer habits.

But for an individual, it still is arbitrary relative to all the other factors that weigh into a purchase decision. One person making $200k with 20K to put down, wanting to buy a $200k condo? A person making 40k with 50k to put down, looking to buy a 250k condo? A person making 80k with 60k down looking to buy a 400k house? Who is the best bet, making the smartest financial decision? The one who has 20% down, looking to borrow 200k on a 40k/yr salary, or the one looking to borrow 180k on a 200k/yr salary? Do we know remotely enough to actually decide the question (do they have kids, other loans, what are the market trends, etc)? Relying on the 20% figure as some panacea for sound individual decision making, that is arbitrary.

[wooley12]

We painlessly saved one or our meager $7k salaries for a year to put 20% down on a $25k house at 8%. We sat across the table from the banker who made and held the loan. He allowed us a 20 year term. But we weren't "investors". There were hardly any "investors" to compete with then. Just so you know how it was.

[Kevo]

Thanks for the replies everyone. If anything, I'm more conflicted now than I was before.

We were casually browsing online for some properties in Superior. Come to find out that there is serious plutonium radiation problems from Rocky Flats in that parts of Arvada, Superior and Westminster. WTH?

[liv2ski]

^^^^^Plutonium???? Fuck that. So Cal is wacky, but we don't have anything like that.

[cramer]

Basically it is lender paid mortgage insurance, which you can get with fair credit but it will cost you with a higher interest rate.

It's another option for people that do not want to pay FHA fees upfront and monthly premiums. FHA use to eliminate monthly premiums once the loan reached 78% of the appraised value but now the new rules state the monthly premium is for the life of the loan so you would need to refinance once the house has reached 80% loan to value to get rid of the monthly MI.

Here is how it looks broken down on a rate sheet. If you had a credit score of 740+ and putting 5% down on a primary home with a loan amount of $200K+ you would have an adjustment of .250% for loan to value then 2.15% for credit then .180% credit for a 30 Year fixed term, then anywhere from 1.00% to 2.00% lender compensation which would put total adjustments at 4.22%.

Take that 4.22% and subtract from the 30 Year Fixed with a 45 day lock and that get you another .155% credit to closing costs. Overall if the loan amount is small FHA is still a better deal but if you are getting a loan $350K or more lender paid MI might be better.

Excellent chart, which if my job actually required me to make sense of, id read. But i get your point. Fixed loan is the way to go if you have a 740+ credit score. I didnt have one. Id guess that most coming on the market dont have one now. They foreclosed, short sold, etc. They are in the 680 range. Thats who you are selling houses to now besides the uprage market.

[liv2ski]

It's the M'eriCAN Dream!

How long do you think it would take to save up $50k+ while paying student loans, credit card, iPhone plan, TV & Internet, Obamacare, car payment, insurance, current RENT etc?

There is that and if your concerned about values, why put 20% down??? Isn't real estate all about leverage?

[Danno]

Excellent chart, which if my job actually required me to make sense of, id read. But i get your point. Fixed loan is the way to go if you have a 740+ credit score. I didnt have one. Id guess that most coming on the market dont have one now. They foreclosed, short sold, etc. They are in the 680 range. Thats who you are selling houses to now besides the uprage market.

Kevo's credit score is like one million.

[MontuckyFried]

I figured that the 20% down was just the lender's way of adding security to its loan -- if they have to foreclose immediately, then there's at least 20% equity, in theory.

It's not just added security for the lender, but I think it's also added security for the BORROWER. Think about it. How many people are upside down on their homes the second the market goes down a bit? How many people have had difficulty selling their homes for what they owe on it?

We scraped together every last dime we could to hit that 20% mark. Sure, we were approved for 10% down and could have kept a nice chunk of change in our bank accounts, but first off, it's nice not having to waste money on PMI. And more importantly? If we end up having to sell due to hardship or whatever, we could sell our house TODAY for what we owe on it. Even with market fluctuations, there is very little chance we'd have any difficulty getting out from under our home if we had to. 20% down was OUR security blanket. I like the cushion. It's nice not having to depend so much upon local appreciation.

[Benny Profane]

If you think of it, with 5% down, and if prices are flat, you're already in the red with transaction costs if you have to sell soon. 6% alone to the realtor.

[Hugh Conway]

It's not just added security for the lender, but I think it's also added security for the BORROWER. Think about it. How many people are upside down on their homes the second the market goes down a bit? How many people have had difficulty selling their homes for what they owe on it?

damnit, mud and danno have definitively stated the market will never go down in Boulder. people want to live in $400k crackshacks because of..... who knows. But they do.

[mud]

Thanks for the replies everyone. If anything, I'm more conflicted now than I was before.

We were casually browsing online for some properties in Superior. Come to find out that there is serious plutonium radiation problems from Rocky Flats in that parts of Arvada, Superior and Westminster. WTH?

I knew Arvada and Superior glowed in the dark but never heard Westminster had any problems. There was a long article in the Camera last year about this and the new parkway.
Found it;
http://www.dailycamera.com/ci_19995436

[shirk]

damnit, mud and danno have definitively stated the market will never go down in Boulder. people want to live in $400k crackshacks because of..... who knows. But they do.

I thought Vancouver had the market cornered on way overpriced crackshacks.

http://www.crackshackormansion.com/index.html