Jan232014
Should lenders attempt collection from strategic defaulters?
Whatever you believe about the morality of strategic default or the desirability of punishing them to prevent moral hazard, the practical problems of identifying and pursuing strategic defaulters makes the task too costly and difficult to be effective.
I first began writing about strategic default back in 2008 in the post Should you walk away from home debt?. Many people faced a cost of ownership greatly exceeding the cost of a comparable rental, and with declining prices, they were sinking underwater and had no realistic hope of future equity; therefore, on a purely financial basis, borrowers who strategically defaulted were wise because the shortest path to equity was to walk away from the huge debt, save money, and wait until the credit scores improved enough to repurchase again at lower prices. I gave that advice frequently from 2008 through 2011, and as it turned out, borrowers who strategically defaulted early on made the best choice.
Borrowers who strategically defaulted avoided repayment of a huge debt, and up through 2013, the government didn’t require them to pay taxes on the forgiven debt income. When people avoid their contractual obligations, particularly without resorting to a procedural cleansing like a bankruptcy, it angers many who rightly decry the unfairness of the special benefit strategic defaulters obtained. Some are calling for more stringent collection efforts from those who walked away.
Should Mortgage Giants Pursue Borrowers Who Walked Away?
Steve Yoder, The Fiscal Times, January 21, 2014
… Now, some of [strategic defaulters] could be the target of renewed efforts by government-backed mortgage companies Fannie Mae and Freddie Mac to pursue money the borrowers owed on their foreclosed homes. The focus follows two inspector general’s reports last September that chastised both firms for failing to go after people who could have paid on their mortgages but chose to walk away. Doing so could recoup more of the $187.5 billion in taxpayer bailouts that Fannie and Freddie have gotten since 2008, the reports said.
It’s worth noting that nearly all of that money — $185 billion — has already been paid back. With the rebound in the housing market, the two government-run providers of housing finance have returned to profitability. They sent $39 billion in dividends to the Treasury last month, meaning that taxpayers could soon start profiting from the investments that saved the mortgage giants from insolvency.
Since the GSEs repaid the money injected into them by the Treasury Department, intensifying collection efforts against strategic defaulters to recover taxpayer losses no longer applies. Many conservatives may be angered by the unfair enrichment strategic defaulters enjoyed, but that enrichment wasn’t paid for by taxpayers. That will remove much of the impetus toward collection.
In most states, after Fannie and Freddie foreclose on a home and then sell it, they can pursue the former owner for the difference between the sale price and what the borrower owed on the loan. But the inspector general concluded that the companies failed to do so in more than 100,000 cases that together represented at least $6 billion. The FHFA is developing plans by the end of this month to ensure that the Fannie and Freddie do a better job of pursuing those who defaulted but could have kept paying.
The inspector general noted that going after those borrowers for the deficits could help deter future strategic defaulters. Barry Habib, CEO of mortgage market intelligence company MBS Highway, says that defaulting, once considered “shameful,” is now widely acceptable. …
The threat of collection was always a bluff to deter strategic defaulters. Going after these people long after the fact with little or no fanfare does not serve their purposes, so it likely won’t happen, particularly with Mel Watt in charge. The handlers at the GSEs will bluster about improving their procedures, and claim they will do better collecting in the future, but those who already got away will face no repercussions.
An October 2012 national survey commissioned by consumer risk management firm ID Analytics found that a third of those polled said homeowners should be able to strategically default on their mortgages without facing any consequences. Thirteen percent said they’d likely strategically default on a mortgage, and 17 percent said they know someone who has.
I argued that strategic default is moral imperative to prevent future housing bubbles. People should be allowed to strategic default as a deterrent to bankers to prevent them from irresponsibly inflating future housing bubbles.
Even if the inspectors think Fannie and Freddie should go after more strategic defaulters, actually doing so may be another story. One reason is state law: 12 states bar lenders from suing foreclosed owners for the deficits, and 10 others have very short statutes of limitations for doing so — between 30 to 180 days, depending on the state.
The statute of limitations will run out on lenders who don’t file paperwork to keep their claims alive. (See: Lenders ambush newly solvent borrowers seeking old bad debts)
Another problem is figuring out who had the ability to pay and who didn’t. “If you have to install a new computer system or spend hundreds of thousands of dollars to do this, it might not be worth it,” says Robert Pozen, senior fellow in economic studies at the Brookings Institution. … Even if Fannie and Freddie can identify voluntary defaulters, the inspector’s reports admit that actually collecting can take months or years. “Trying to get a billion dollars out of a bank is one thing. Trying to get $20,000 out of 50,000 homeowners is an entirely different story,” says Pinto. “You have to go down a torturous road to do it.”
Therein lies the real problem.
I faced a similar decision a couple of years ago with a squatter in a house owned by the fund I manage. The occupants quit paying their mortgage, I bought the house in foreclosure, and they repeatedly filed bogus bankruptcy applications after the foreclosure in an attempt to keep the property. After a year of legal wrangling, I finally got them out; By law, my fund was owed rent for the year these people squatted, but what chance did I have to recover? They were broke, they had no assets, and they had no prospects of obtaining assets any time soon. It would have cost money to obtain a judgment, and I had no realistic chance of recovering anything. I left them alone. So will most lenders facing the same dilemma.
In any case, the changing market already has cut into the pool of strategic defaulters. No one keeps statistics on their number, but Habib thinks it’s quickly falling as home values rise and improve homeowners’ equity. Already the proportion of those who are upside down on their mortgages has shrunk from a third to under 15 percent, he says. A likely factor in the reduction is the FHFA’s Home Affordable Finance Program, which lets many underwater and near-underwater homeowners refinance, minimizing their motivation to default.
By far the best deterrence for strategic default is rising prices. When people know their misery could end when they get back above water, rising prices give them hope; they will struggle and persevere as long as they see the light at the end of the tunnel. (See: Rising home values will halt strategic default)
Whatever you believe about the morality of strategic default or the desirability of punishing them to prevent moral hazard, the practical problems of identifying and pursuing strategic defaulters makes the task too costly and difficult to be effective. Should lenders attempt collection from strategic defaulters? I don’t think so.
[dfads params=’groups=164&limit=1′]
[idx-listing mlsnumber=”OC14009815″]
13892 MILTON Ave Westminster, CA 92683
$874,500 …….. Asking Price
$890,000 ………. Purchase Price
10/15/2006 ………. Purchase Date
($15,500) ………. Gross Gain (Loss)
($69,960) ………… Commissions and Costs at 8%
============================================
($85,460) ………. Net Gain (Loss)
============================================
-1.7% ………. Gross Percent Change
-9.6% ………. Net Percent Change
-0.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$874,500 …….. Asking Price
$174,900 ………… 20% Down Conventional
4.42% …………. Mortgage Interest Rate
30 ……………… Number of Years
$699,600 …….. Mortgage
$172,323 ………. Income Requirement
$3,512 ………… Monthly Mortgage Payment
$758 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$182 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$4,452 ………. Monthly Cash Outlays
($900) ………. Tax Savings
($935) ………. Principal Amortization
$284 ………….. Opportunity Cost of Down Payment
$239 ………….. Maintenance and Replacement Reserves
============================================
$3,140 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$10,245 ………… Furnishing and Move-In Costs at 1% + $1,500
$10,245 ………… Closing Costs at 1% + $1,500
$6,996 ………… Interest Points at 1%
$174,900 ………… Down Payment
============================================
$202,386 ………. Total Cash Costs
$48,100 ………. Emergency Cash Reserves
============================================
$250,486 ………. Total Savings Needed
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Wall Street adviser: Actual unemployment is 37.2%, ‘misery index’ worst in 40 years
i”Don’t believe the happy talk coming out of the White House, Federal Reserve and Treasury Department when it comes to the real unemployment rate and the true “Misery Index.” Because, according to an influential Wall Street advisor, the figures are a fraud.
In a memo to clients provided to Secrets, David John Marotta calculates the actual unemployment rate of those not working at a sky-high 37.2 percent, not the 6.7 percent advertised by the Fed, and the Misery Index at over 14, not the 8 claimed by the government.
…
These tricks, along with a host of other dubious accounting schemes, underreport inflation by about 3 percent,” they wrote, adding that the official inflation rate is just 1.24 percent.”
Meanwhile we can all take options in OC real estate, or pass paper around to one another, or if we’re a TBTF bank, we can borrow from the FED window at 0% than loan it back to the gov’t at 2.80%.
LoL … GREEN SHOOTS!
It’s plenty green… if you’re a bank.
Bubble Deniers No Longer Widely Believed
First up: Is there a bubble in U.S. housing?
“There is a bubble in the use of the word bubble,” said Vishwanath Tirupattur, managing director at Morgan Stanley.
Attendees were more cynical as were some non-voting attendees.
A poll of attendees had 2 of 3 saying they think there are small regional bubbles forming. Not a national bubble, but bubbles in specific markets.
“Where we are is very reminiscent of 2006. But those rates were coming off extremely low basis,” Villacorta said. “The big gains gave been in markets where the was a low basis. I think prices are where they should be.”
“The markets that are skyrocketing like Vegas and Phoenix are coming off a very low base. But this is economic sleight of hand because the prior peak should never have been there,” Fleming said. “We looked at incomes and home prices, and what we found was that we were 10-12% overinflated at the peak of the bubble. The crash took us to 20% under, and now we are at 2% under, which is within the margin of error. If we see growth of another 10-12% in 2014, and I don’t think we will, then we can be worried about a bubble.”
“This time around we don’t have the speculative aspect fueled by easy money; it’s not there,” Cutts said. “Homebuilders are building where there is demand. Homes are different than what we saw before. All come back to a more sensible aspect.”
Goodman said she didn’t see any signs of a housing bubble.
I agree we overuse the word bubble. I think that word should be restricted to the scenario where prices go up specificallty because people overpay thinking that prices will go up even more.
By that definition housing is not in a bubble now (although it may be overvalued).
Also the word bubble is not in a bubble (although it is overused).
I agree. Bubble gets overused. Assets get overvalued all the time, and most often either prices flatten or slowly decline while some fundamental value catches up. That isn’t a true bubble. A real bubble requires prices to get grossly overvalued to where only a catastrophic decline can bring them back to reality. We had that in housing in 2006, but we don’t today.
Bond bubble. You’ll see.
So, Bitcoin epitomizes a bubble, right?
possibly.
I heard a quote that bitcoin is backed by the lack of faith in all the other currencies. I couldn’t argue with that.
My first thought when reading that article was that if you polled the same six people in 2005 they would have said the same thing. This is a conference for asset-backed securities investors after all.
Why foreclosure filings are falling in California
Foreclosure starts fell to an eight-year low in California during the fourth quarter, as the state continued benefiting from rising prices, more aggressive foreclosure prevention efforts and higher home prices, says John Walsh, president of DataQuick.
DataQuick reported 18,120 notices of default (NOD) for the fourth quarter, down 10.8% from 20,134 the previous period and a 52.6% drop from 38,212 in the fourth quarter of 2012.
“Some of this decline in foreclosure starts stems from the use of various foreclosure prevention efforts – short sales, loan modifications and the ability of some underwater homeowners to refinance,” Walsh said. “But most of the drop is because of the improving economy and the increase in home values. Fewer people are behind on their mortgage payments. And of those who do get into trouble, many, if not most, can sell and pay off what they owe.”
John Walsh is returning to his Pollyanna ways dominated by wishful thinking. His analysis is exactly backward. The decline in foreclosure starts and short sales is primarily due to can-kicking with an improving economy only a minor force.
Not to worry though, Calculated Risk is there to put a positive spin on otherwise alarming data.
Purchase Index Down 9% from Last Year
The 4-week average of the purchase index is now down about 9% from a year ago.
The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index.
http://www.calculatedriskblog.com/2014/01/mba-refinance-mortgage-applications.html
Purchase Applications down 4% from Last Week
Mortgage applications increased for the third straight week in mid-January, continuing a trend that started with the opening of the new year.
According to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey, loan application volume rose 4.7 percent (seasonally adjusted) for the week
ending January 17. On an unadjusted basis, application volume was up 7 percent from the previous week.
The overall increase came entirely from a continued recovery in refinance numbers. The survey’s Refinance Index was up 10 percent week-over-week, with refinance share accounting for 64 percent of total applications, the highest level in a month.
Meanwhile, the seasonally adjusted Purchase Index dropped 4 percent compared to the prior week. Unadjusted, the Purchase Index rose 2 percent but fell 15 percent short year-over-year.
Despite the recent upward trend, weak application numbers in the last few months have analysts anticipating a slower year for originations. MBA brought down its 2014 estimates in its latest forecast, pointing to declining applications and rising interest rates.
The applications survey for last week shows the average 30-year fixed interest rate falling to 4.57 percent—the lowest level since November—with points increasing to 0.36 for 80 percent loan-to-value ratio loans.
Report: National Home Prices 15% Overvalued
Following a year of fast-paced appreciation, Fitch Ratings expects home price gains to slow to a more moderate pace in 2014 in the United States, according to its Global Housing and Mortgage Outlook released Tuesday. The ratings agency also predicts mortgage volume will decline and delinquencies and shadow inventory will decrease, albeit slowly, while liquidation timelines continue to rise.
Home prices will continue to rise on the winds of “market momentum, the effects of inflation, the improving economy, and a return of buyers attracted by signs of stabilization,” according to Fitch.
However, rising mortgage rates and increasing inventory will temper price gains this year, the ratings agency said in its report.
At a national level, prices are about 15 percent overvalued, according to Fitch. A few markets in western states are leading this trend with home price growth outpacing income and other economic factors. For example, price-to-rent and price-to-income ratios in San Francisco have risen almost 25 percent since early 2012, Fitch explained.
Because of these trends, “Fitch remains concerned about regional overvaluation,” the ratings agency stated in its report.
While affordability remains high overall, Fitch says affordability will slip somewhat this year. One contributing factor is rising mortgage rates, which will likely reach 5 percent in 2014, according to Fitch’s predictions. The ratings agency says rising interest rates will also contribute to “a substantial decrease” in lending this year.
Prepayments will “remain at lower levels than historical averages for the next several years” as interest rates rise and refinances become less favorable, according to the ratings agency.
On the other hand, purchase loans will grow over the next few years, Fitch said, adding that the government will “continue to dominate market issuance through Fannie Mae and Freddie Mac.”
Although “a return to historic levels of arrears is not expected in the near future,” Fitch noted that recently-originated loans are performing strongly.
Long liquidation timelines, especially in judicial states, mean today’s shadow inventory will be slow to dissipate. While the industry’s shadow inventory will continue its current pace of decline for several years, Fitch says it will take about five years to work through the current volume of homes that make up the shadow inventory.
Insightful articles Larry, but none of these facts and stats apply, when housing can just cater to cash buyers, and banks dont have to lend.
“…Should lenders attempt collection from strategic defaulters?…”
This isn’t a simple question. If we’re talking about CA, then yes, absolutely. The GSEs should be required to search their loan data and identify all losses from cash-out refis and HELOCs (purchase and rate-&-term refis are non-recourse in CA). Comb that list for any discharged BKs. Then skip-trace these borrowers, send collection letters, and file complaints.
Your net recovery over the next few years will likely equal $0, but the exercise has many benefits, and fairness demands it. That couple who stole $200k from Fannie will have to spend thousands on a BK or defending themselves, and they’ll complain to their friends the whole time. This has societal benefits. It lets everyone know, that this behavior is unacceptable and has consequences.
For other states, I would follow the same process. I would not go after buyers who used option-ARMs to purchase houses they couldn’t afford. I would go after homeowners who used option-ARMs (and other products) to cash-out refi.
So you would argue that even if there is no immediate financial benefit that it may have long-term benefits, plus there is a moral component that demands it?
That sounds reasonable.
With Mel Watt in charge, I rather doubt it happens.
I have to disagree with the conclusion of today’s blog post. Pursuing strategic defaulters is exceptionally easy and can be done in a low cost way that doesn’t risk GSE capital. Therefore, the ROI makes absolute sense to pursue these deadbeats.
There’s really only a few steps involved:
1. Form a small team to determine what criteria you will use to flag a loan as strategic default. The most common method is anybody that continued to pay on consumer debt, but not their mortgage. Another would be anybody that took out another mortgage just before defaulting on the current one.
2. Contract with one of the credit bureau’s to pull all of the credit profiles matching that criteria. Again simple.
3. Contract with as many collection shops as necessary to start collecting on the files, prioritizing those whose statute of limitations runs out first.
Fannie/Freddie already have the infrastructure in place to monitor this type of operation. Monitoring loan servicers is a huge part of their activity, so utilizing their existing systems and processes with a few minor tweaks should be no problem.
Badda bing badda boom. Let’s turn these strategic deadbeats into a new source of revenue to compensate taxpayers for their generous investments in the GSE’s.
One excellent point that Larry made was that with Mel Watt running the show, will they actually do it? I would say the odds are they will make only a token effort to deflect watchdog criticism. No serious effort will be made. This is because ever since the GSE’s were taken over by the .gov they have essentially become political entities. The creation and administration of HAMP, HARP, HAFA, HAUP, and the other alphabet soup programs to “save homeowners” proves this.
“I would say the odds are they will make only a token effort to deflect watchdog criticism. ”
That’s exactly what I believe will happen too.
As I read your comment, I was struck by the possibility that I may have fallen victim to misinformation paseed through the article. Consider that the GSEs under Mel Watt don’t want to go after strategic defaulters because they will largely turn out to be minorities, in that scenario, it would be wise to put out false stories decrying how difficult it is to collect this money to get people like me to get on board with the difficultly argument. If that’s the case, I fell for it, hook, line, and sinker.
great points. I’m not sure compensate and taxpayers are words belonging in the same sentence though.
The advice to strategic default worked best for those that got foreclosed early on.
I know somebody that stopped paying in probably 2007, maybe 2008, and kept trying to qualify for mods and refinances, but was continually denied due to excessive income to qualify for these programs ($200k/year). Eventually, they hired a lawyer to drag out the foreclosure process for a couple years, and then finally completed a short sale in early 2012.
So they bought at the top and sold at the bottom. You could argue they came out ahead financially by not making regular payments for 5 years, but people like this have no financial discipline. All of the savings was spent on vacations and stupid crap. They were going around asking people for personal loans around the time of the short sale (despite having a higher income than the people they were asking for loans from.)
Now in their mid-40’s, they can’t buy a house for another couple years, and realistically have no shot at owning a free and clear house in their lifetime. Not paying the mortgage was justified as “an investment decision”, but if they had just stayed put and paid the mortgage, the house would probably be valued at close to what they paid for it by now.
These are the cases that justify Larry’s point that the banks were more culpable for the toxic loans that were made. Despite having a high income, these types of people need protecting from themselves. They are not capable of making rational decisions about money, and need gatekeepers to make the decisions for them.
“…these types of people need protecting from themselves…”
That’s the beauty of the ATR rules. Regardless of the QM standard, this couple will have to qualify for their next mortgage and the burden is on the lender to fully-underwrite the loan documenting their ability to repay the loan. There’s no downpayment requirement, but the less down, the higher the payment; and they must have the income to support the payment!
There is no getting around this. ATR does not allow you to get cute with the payment either. Even if an IO is available to you, your income must support the payment based on the fully-indexed fully-amortized payment.
e.g. You want to use a 10-year IO to lower that payment because you’re stretching to buy the “most house.” Your current income must support the payment that will apply 10 years out – that’s the payment as calculated with the applicable margin plus the current index (within last 45 days from consummation) amortized over the final 20 years:
e.g. $800k IO loan starting at 4.5%:
$3,000 payment for first 10 years.
$5,061 fully-amortized payment over final 20 years assuming fully-indexed rate doesn’t increase from 4.5%.
The lender must qualify you based on the ability of your current income/assets to repay the $5,061 payment, not the $3k payment.
If this IO included a 3% margin and the index used is currently 3%, then the fully-indexed rate would be 6% and the payment the lender must used to qualify this borrower is $5,731!
Perspective,
If you would ever like to contribute an article, I think your explanation of the positive impact of the ATR rule would be a great one. It may be the real restraint that prevents future housing bubbles.
Let me see if I can put something together that’s interesting. There’s so much mis-information out there. This morning on Bloomberg Radio a mortgage guy was blaming ATR/QM for all of the mortgage industry’s woes. Finally someone on Twitter called him out, and he had to back-track.
What intrigues me most about your comment is the tight box the ATR rule creates around lending. SGIP presented his whack-a-mole hypothesis claiming someone, somewhere will find a way around any rule, but if the box created by ATR is rigid enough, it may be able to contain the “creativity” of lenders. Understanding how that box is constructed and the limitations it places on lenders is not well understood — I don’t fully grasp it either — so I think it would be a great guest post if you’re willing to put it down. I will provide you whatever attribution you desire. It will be read by a lot of people.
I have been reading this blog since about 2006. I have also been observing the housing market with interest since that time, as my wife and I have been attempting to buy a house in Irvine for the last few years.
I watched some friends and a couple of co-workers buy properties in approximately 2006, and was aware of their misery in being underwater. I am very glad that I did not get sucked into the bubble mania at that time. However, I am pretty cautious by nature, and it was obvious even to me, as a relatively casual observer, that the bubble-era would not end well.
In retrospect, I should have bought a property a couple of years ago, but I could not shake the feeling that houses in Irvine were overpriced by about 20%. Additionally, I never found a property which my wife really liked.
We have recently expanded our search to South Orange County because I believe Irvine properties are now significantly overpriced. My son has been going to IUSD schools for a couple of years, and I have come to the conclusion that the aura surrounding Irvine schools is mostly a PR campaign.
When I read posts like the one today, I am struck by the fact that so many people were adversely affected by buying during the bubble, and have been underwater since that time. But now, it appears prices are approaching bubble-era levels again, and these individuals can “see the light at the end of the tunnel” several years after their purchase.
I have read the arguments and data put forth by IR to support the fact that we are not currently in a bubble. However, if the current prices are approaching their former levels circa 2006, and the increases are not based on fundamentals, and the economy still basically sucks, I am concerned that I may end up significantly underwater in a few years when/if circumstances change.
To be honest, I really do not understand a good portion of the economic analysis put forth by the commenters here, and I plan to stay in the house for at least several years after the purchase. However, I just cannot shake the feeling that the current market is just another rigged scenario by the banks and Wall Street to fleece middle class suckers like me.
I am interested in any comments regarding the issues above, as I value the opinions of the individuals who regularly participate here.
Thanks for your thoughtful comment.
“I just cannot shake the feeling that the current market is just another rigged scenario by the banks and Wall Street to fleece middle class suckers like me.”
It is. Make no mistake about that. The powers-that-be want to replace the toxic bubble-era loans with safe 30-year fixed-rate loans that fully amortize. The only way they could accomplish that was to dramatically lower interest rates, then reduce inventory to make people pay peak prices.
The advantage of amortizing loans is that they pay themselves off. Even if house prices start declining again due to rising interest rates, which is a very realistic possibility. The decline will be matched by amortization, so even peak buyers probably won’t get trapped underwater.
We are witnessing a great pump-and-dump, but it won’t necessarily be harmful to participate. It just means you won’t make a fortune on appreciation like many before you did.
You’re in a good position now. Prices in 2014 and beyond will be based on real income/assets of buyers and real payments. It’s not like the inflated price we paid for a townhouse in 2007 because all of our neighbors were using 0% down option-ARMs with income/assets to barely support the toxic loan. When you bid on a house now, you can be reasonably certain that your only competition will be buyers who can afford the house (just like you).
This should put serious downward pressure on pricing going forward. I think a perfect example of this new reality is the Great Park (Pavilion Park). If you’ve followed Irvine real estate for many years, then you know many of these new homes are reasonably priced (it’s all relative!), yet they’re not selling quickly. Commenters here have questioned for years, “How many households can actually afford $1m homes?!?” I think Pavilion Park sales are answering this question – not many.
You understand more than you elude to.
The economics of it is simple. Capital and profit motive are required to produce jobs (growth). ZIRP dissuades savings (capital) and taxation/regulation cuts profits. This is all a giant cheap money bubble masking very weak economic conditions.
ZIRP is the gov forcing savers out of cash, further out on the risk curve, into 3 bubbles – stocks, RE, and bonds.
I was in your same position. My wife and I decided to ignore Irvine, due to everything you said above plus the soon to be issues with population growth and traffic. We ended up buying a house in Talega/S.C. The schools by API scores are very similar to Irvine and you actually get a yard for a reasonable amount of money. I know South O.C. has traffic issue but Irvine in the near future is going to be significantly worse than anything in South O.C.
Your instincts have served you well up until this point. Keep trusting them.
Calculate what the cost of ownership is by including mortgage, taxes, insurance, and maybe 0.5% of purchase price for annual maintenance. Then compare that to what it would cost you to rent the same house. Decide if that difference is something you can live with or not. Think about it in terms of different market scenarios, prices crash, prices stay flat for years, etc. Ask yourself does this deal make sense without any appreciation?
All very good points.
I was and am in the same situation. Its somewhat refreshing to hear someone else say exactly what I wanted to say. I appreciate the comments here and look forward to reading more of what people have to say…
Forever Renter, if you are going to live in the house for more than 5 years and you can afford it, how much does it really matter if it is overpriced or underpriced? A few months ago I looked up the approximate worth of the house we bought a couple of years ago, and honestly, the supposed worth is a point of amusement, but that is all. We aren’t going to move so what difference does it make if it appreciates in dollars or depreciates? How much of owning your own home can be measured in dollars?
Oh, those MBS prices are falling again. I’m a little surprised, but not shocked.
MBS quote
And of course the 10 year note yield
Yahoo Finance quote
Mike’s back!
Thanks, a little break at work today.
Glad to see you stop by.