Deconstructing ‘The New York Times’
by Jeffrey JenaOn Sunday I was returning from a show outside Albuquerque. Do I need to tell you it’s in New Mexico? I think we all know where it is. When I say “just outside,” I mean 120 miles which, in terms of distances in the southwest is, “just outside.
I get to the airport and have to get a newspaper. I’m a dinosaur in that respect, I like the ink on my fingers and doing the crossword puzzle on the plane. When I travel I usually read The New York Times and before you get your shorts up in a bunch, my conservative friends, it is really the only option for a national newspaper with a decent crossword puzzle on the weekend. I have to admit I like reading the Times, too. One of my favorite things to do is to read between lines in the stories to uncover the liberal biases of the writers or to see the obvious that they have overlooked.
On the way to Minneapolis I am reading the “Week in Review” section. Right next to the musings of Maureen Dowd and under an article about a guy who was thinking about buying a pillow was a story that caught my eye. The title was “Romancing The Home.” If you want to read the whole story here’s a link, but if you trust me I’ll give you the Reader’s Digest version.
The author, Sheelah Kolhatkar, who’s an editor at Conde Nast Portfolio, laments that her friend Tony Fungrai may be losing his house in Bedford-Stuyvesant. Her take is; here is a good guy who due to some misfortunes and this economy may lose his American dream. According to Ms. Kolhatkar, unlike all of those greedy speculators and reckless folks who piled into homes they couldn’t afford, for her friend “home ownership was a romantic obsession, something he fantasized about and worked toward for years. The tremendous effort he put into getting his brownstone and staying there is emblematic of how powerful the idea of owning a home is.”
Here is the problem, this guy bought a house for $785, 000 and is now saddled with a $4700 a month mortgage. He has to work 75 hour weeks to make ends meet. I guess I’m supposed to feel sorry for him but this guy is a moron! In order to afford that kind of nut ever month this guy should be making somewhere around $240,000 a year. He has a good job but apparently no one ever told him about the 25% rule. No more than 25% of your gross income for your house and that should include, taxes, insurance and utilities. He works hard but he better be careful if he gets a few more hours of overtime Mr. Obama will classify him as rich and raise his taxes.
Here’s the kicker; he counted on the rent from the three apartments on the upper floors to help him make his payments. Unfortunately for Tony, two of his tenants haven’t paid rent in a year and they are still living there. That must make for some tense conversation in the hallway! He can’t evict them because of the liberal laws the City of New York passed to protect “renters rights.”
To quote that great mid-level philosopher, Yaakov Smirnov, “What a Country!”
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124 Comments
Oh now I get it. It's the good intentions of the buyer that matter, not the ability to pay.
It's a story repeated over and over: this is why I did not buy a house. Not because I don't want one. Not because I hate apartment living. But because I knew I couldn't afford it. That's responsibility, folks. Stop whining to me that you bought something you couldn't afford.
"Why should taxpayers who live in apartments, perhaps because they did not feel that they could afford to buy a house, be forced to subsidize other people who could not afford to buy a house but who went ahead and bought one anyway?" ~ Thomas Sowell
Grrrrrrr !!!! I feel like a real chump for not realizing that I didn't have to be able to actually afford to buy. If I'd known, I'd have that Park Ave. penthouse with no down payment, 90% of my take home and a gov'ment bailout to boot! Dagnabit!
Re:Des
You sum up exactly the whiny bitchy "me" mentality that is so prevalent on the left. Last time I checked a good portion of the reason we are in this mess is people who do not make enough money buying homes they can ill afford. But lordy knows we do not want to relegate people to living in something they can actually afford.
Well, look how well your way turned out. 9 Million homeowners with fear of foreclosure who couldn't afford what they bought to begin with. If you can't afford it, you shouldn't get it, period! Here's another thought – you can be the "poor and middle class perpetually in debt to the rich, or you can get an education, better yourself, and then BE the rich that the poor and middle class are beholden to. That is the American way!
Des-
I think that is exactly what he means. If you cannot afford it, you should not buy it. That is what got us in to this mess in the first place. The old 33% rule is what I followed (33% of gross income has to cover all house expenses) and I am in no danger of losing my home. The first home should be a starter "fix up" and you apply "sweat equity". Use that equity to buy the next home up the chain. Eventually you end up with a nice house with a good amount of equity. This is a process that takes years — unfortunately it definitely does not work well in our "immediate gratification — gotta have the best now" society. The real problem is all of the people who bought more than they could afford using "liar loans" who now cannot afford their morgages. It turns out that a truly conservative approach in all fiscal matters usually works out best in the long run.
The liberal Mantra sgt… it doesn't matter what you do, it only matters what you want to do; results don't matter.
Dunno Des… that's something I remember learning back in my economics class back in high school (although for some reason I was thinking I was told 33 1/3%?)
Des
Ever heard of something called the council estates ? That's a nice name for government housing. We have other names for it in America, Cabrini Green ( failed-destroyed), Wayne MInor ( failed- destroyed),Pruitt-Igoe( destroyed).
We tried to give people housing and that didn't work. Now they are working on cramdowns for the contracts they signed.
If personal responsibility isn't there from the start, it won't be created.
The 25% rule is like a litmus for personal responsibility. But then you're probably a negative amort guy.
There was a time when loan approval required PITI (principal-interest-tax-insurance) to be no more than 28% of gross income and that combined with other payments maxed at 38%. We can argue what the right ratio should be, but must acknowledge that there is a connection between debt service and ability to pay.
How do we as a society rationalize that people are entitled to whatever house they want, whether they can afford it or not?
Here in Chicagoland your scenario, Des, is indeed playing out. As incomes decrease and taxes increase, the percentage-of-income creeps upwards every year. When I bought my house my percentage was 20%, well within the 25% rule. Now due to the decline of the economy, and inexorable increasing of property taxes, my percentage is 34%, and will probably continue to increase. My 16,000 dollar a year property tax bill is why I'll be moving away from this state as soon as I can sell. The treadmill is too steep here.
Those "American dream" heartbreaker stories are not just found in The New York Times. They're in Phoenix, too, just yesterday, in fact. Unfortunately most of the reporters are more clueless than some of the people who bought properties they couldn't afford.
http://the100mostannoyingthings.blogspot.com/
In St Louis they converted two story public housing into condos and gave the residents cash down payments so they could own… as their pride in ownership increased, the crime literally disappeared. Oh, that was under W's watch…
I had to laugh when you started by talking about "just outside Albuquerque." Being from Colorado, we routinely see everything in Colorado described as "just outside Denver" in the national news. Sometimes, the reporter is as much as 300 miles "just outside Denver". In East Coast terms, that's like describing Richmond, Virginia as being "just outside New York City."
Plus, once you get out of the big cities, home prices drop considerably. When I bought in DC years ago, you could buy in the primo neighborhoods for $700k, a condo for $150k, or out beyond the beltway for $200k.
You've got to buy what you can afford.
I used to hear the 33% number as well, but as I said, it depends on outside factors as well. If the person has the habit of spending a lot on a daily basis, that 33% number looks a lot different than someone who saves and plans for the future.
I wonder how much people have been influenced by Hollywood/TV sets? I mean, houses built today are TWICE as large as they were in 1970. My relatives, who grew up in a trailer (4 kids, 2 parents, no divorce), live in houses in which it is taken for granted that each child should have his own room; and at least 2 bathrooms. Of course these homes are extremely expensive. Plus, of course, the mountains of 'safety' and neighborhood regulations, each of which adds costs upon costs. We are in a pickle of our own making, are we not?
I heard 33% as well, but that was years ago. When I bought my first place, the mortgage broker told me that even if I couldn't make the payment, I could grow into it. Talk about horrible advise. Fortunately, I didn't listen and I bought a smaller place — which turned out to be a lot more expensive than I thought when I had to start paying for utilities, tax, parking permits, garbage, etc.
I heard 33% as well, but that was years ago. When I bought my first place, the mortgage broker told me that even if I couldn't make the payment, I could grow into it. Talk about horrible advise. Fortunately, I didn't listen and I bought a smaller place — which turned out to be a lot more expensive than I thought when I had to start paying for utilities, tax, parking permits, garbage, etc.
It's always about intentions with liberals, because when they put their intentions into policy, it always blows up in their faces. So all they have to hang their hats on are their intentions.
Exactly. I am all for personal responsibility, but we also have to be realistic. People can't control the market or the government's taxation. A duplex or small home (because according to Jeffrey, only the upper-middle class could afford a condo or townhouse with property taxes + association fees) is going to run $130,00 or higher (even in this depressed market). With $3000 – $4000 in real estate taxes, that's going to require at least $50,000 down just to be "allowed" to buy a home which costs the EXACT SAME AMOUNT as your rent would (without any of the tax benefits or ability to earn equity). This doesn't even consider the individual's ability to conserve money or willingness to work extra hours to make ends meet.
People are swarming around 25% like it's the Gospel. There is no information that correlates the 25% number to the housing crisis. On the contrary, people were buying houses with little or no money down and 50% or more of their income. So by all means, let's over-react and go the other way. I'm sure no one being allowed to buy one of the millions of homes out there collecting dust will do wonders for the economy.
Des. I do not think the 25% rule is silly in the least. If you make less than 50K – - now hold on to your seat here – -you SAVE for a larger down payment which will lower your payments. You also take that time to get your credit rating perfect so you can get the lowest rate possible. You pay off all your credit cards and keep NO balance, have NO car loan and live like a pauper until you can AFFORD to realize your dream of owning a house. People want everything easily and refuse to sacrifice. It is THOSE people and the greedy liars who have gotten us into this fix.
People need to get real!
Des, he's not saying we should bar anyone from buying a home. He's saying that the NY Times is wrongly playing the "whoa-is-me" game with people who did stupid things — they over extended themselves. Conservativism is about individual responsibility, but the Times reporter is acting as if this guy's mistake is somehow society's fault.
That's okay Andrew… when I first prepped to move up to Missouri, the rule was I was looking for a sub-$100K house… I was the only working person in my family at the time .. I found my home, the bank said "why so small, you qualify for a $200+K loan"… my jaw just kinda fell to the floor at the thought of being in 'hock' til I was 95 or so…
God it brightens my outlook to read this post. The same holds true for kids straight out of college, never having worked, but with a degree in their hand and think they should immediately be the boss. Sweat equity, hard work – long hours – diligence – showing your worth, starting at the bottom, fiscal responsibility… all either unknown concepts or dirty words these days.
Thank you ED.
Actually, according to Jeffrey (and others here), paying off your bills is irrelevant. All that matters is that magic 25% number. All thought and planning is irrelevant because if your house is 25% or less, you're fine. That's the lack of logic that annoys me.
Wow! It's amazing that banks do that, isn't it? I think that's probably the real problem with securitizing mortgages — the banks who make the loan don't really care if you pay it back, because they sell the mortgage on.
Dr. Sowell's piece today was one of his best, and that's saying a lot! Here's another quote from Thomas Sowell:
"in an era of much-ballyhooed "change," the government cannot eliminate sadness. What it can do is transfer that sadness from those who made risky and unwise decisions to the taxpayers who had nothing to do with their decisions."
"I'm sure no one being allowed to buy one of the millions of homes out there collecting dust will do wonders for the economy. "
Are you implying, that the key to helping our economy is to put people in homes they can't afford? Isn't that one of the principle reasons our economy is cratering in the first place? All of these "toxic mortgages" that banks are stuck with?
I'm sorry, my memory seems to be going as I get older. Where in the Constitution does it say everyone has the right to own a home, regardless of whether or not they can afford it? Owning a home is a luxury, not a right. If you can't afford one, guess what? You pay rent to those who can. That's life in the U.S. Deal with it.
Hawaii expensive? No way. Magnum PI lived there for free!
Well, he did actually work for it. Some of that "sweat equity" ya know. What, you didn't notice the sweat on his very nice chest as he chased after the bad guys?
"sweat equity" — that's funny! They should use that example in economics and finance text books!
I always heard the 30% rule of thumb. At the height of the housing madness here in North California you couldn't get into a tiny starter home unless you earned $100k a year. And I'm not talking the San Francisco area. My husband and I didn't buy until after we had been married for 10 years we were so priced out. But I'm glad we didn't get into one of those crazy Alt-ARM loans or a Neg-Am. We'd have lost our home like everyone else if we had been crazy enough to buy something at 50% of our income (like many people I know did). We also made sure our credit cards were paid off and that we had savings in the bank, so we're surviving the old fashioned way– by planning ahead.
But it only works if your chest is as good as his.
I don't understand the attitudes here, except that the person in question has been called a liberal, so he must be stupid or evil. As JJ describes the situation, the man bought a house that contained several rental properties. He calculated (I assume) that his salary PLUS THE INCOME FROM THE RENTAL UNITS would make the mortgage. But the renters of two of the three units haven't paid rent in a year, and for some reason — that one presumes is not his fault — he has been unable to evict them.
So how is he stupid? It was a perfectly reasonable business transaction, and he got screwed by a couple of crooks.
Hence the new name for the overlarge suburban home– the McMansion. I live in the Sacramento area and it's McMansion heaven here. Homes that are 4500 sq feet are not unusual and it's kind of galling. Who needs that much house for a four person family? But the housing boom convinced everyone that they could buy more house than they could afford. Get your option ARM loan at 1%, pick a payment and voíla, you got yourself in your dream home! Too bad you can't make the payment once the loan resets, but hey, you got to live in a huge house until you defaulted and contributed to driving the home values down. But it was fun while it lasted…
I know how you feel. I was talking with some friends the other night… my wife and I bought less than a year ago, did everything we could to erase all our other debt, found a home we loved and could afford – so we're the ones who are chumps in Obama's hopenchange world.
Which led us to an interesting ethical discussion… if things do continue to worsen, and we wind up (through no fault of our own) with a house worth LESS than the remaining mortgage (because of course we've barely paid any principal in the first year) – and one or the other of us lost our jobs – do we take one of these cockamamie bailouts?
I am truly sorry that a lot of people may lose thier houses, but that does not mean they will be homeless. Banks are offering sweetheart deals to renters to live in upscale houses until they can be sold. There is more and more rental property becoming available as real estate becomes available.
I was commenting on this… “home ownership was a romantic obsession, something he fantasized about and worked toward for years.”
This caught my attention for a couple of reasons. First, the "romantic obsession" part. There is nothing wrong with wanting a home, but a "romantic" desire doesn't equal a realistic ability.
Also, the fact is, even with renters, he shouldn't have bought the place if he couldn't afford it outright. Shocking idea I know. It would be irresponsible of me to have bought my home if I had to rent out a couple of rooms to afford it and the same principle applies here. If you buy a set of apartments, you have to be able to keep the payments up whether or not the units are occupied. There will always be times the units are vacant for some period of time and the owner should plan on that happening. It doesn't excuse the renters who aren't paying and they're going to end up screwed when the place goes into foreclosure– which is the least of what they deserve.
His problem is that he bought way more that what he could afford, simple as that. Add taxes, insurance, repairs and keeping the lights and heat on, to support a 800K house you need two things, one, money and a lot of it, for a good down payment, and two you need a very good income, That means if you live in NYC, 800 K a year would be about right by the time you take out the taxes and all the other ways city, state and federal get into your pocket. You need to have some left over for un foreseen things. And don't use your house for an ATM machine. In other words your house should be your home, just big enough for your needs rather than wants. I look at housing as you need a roof over your head, there fore, I look at what can I rent or buy on 25 % of what I take home. In other words how much money do I really have on a month to month basis. Towns make up what houses are worth to collect more taxes, Then things get inflated and are not worth what you really buy. A house is only worth what somebody is willing to pay you for it.
Not just the ARMs, but when they realized that some people would actually be stupid enought to fall for interest only loans, they started selling those. My understanding is that a large portion of the toxic loans in California were interest only.
Rental income is notoriously unstable income.
Exactly. Now, I have to go read Mr. Sowell's piece in its entirety. Classic common sense.
Exactly. This is why we ultimately decided to buy a house about an hour north of the Twin Cities metro area. The property was more attractive and much more affordable than anything we could find in the metro area, and it has the added advantage of being at least an hour's drive from the in-laws.
Oops. Here I go again, wandering away from the point of this thread. Due to recent job changes, the percentage of our income swallowed by housing costs has gone up, however, which has got us thinking about whether we'll be able to continue affording this house. I'm okay with renting if it'll help us live within our (recently adjusted) means. This has been a great house, but we're not looking for someone to bail us out and pay our mortgage for us. Living within our means would be much more satisfying than drowning in debt while clinging to our house with a lake in the back.
I can't speak for New York, but I know a little about California. When I was practicing law in Ventura County, most cities simply used the State Fair Housing law to regulate landlord/tenant relationships. When a renter who couldn't or wouldn't pay his rent came to me to ask how long it would take for the landlord to get him out, I'd reply "have you started packing yet? If not, start now." When I moved my practice to L.A. and later San Francisco, the answer was completely different. "If you're less than six months behind, come and see me next month." Given the nature of city government in San Francisco, it is ironic but true that a private landowner had far more difficulty getting rid of a non-paying property-destroying tenant than did the managers of public housing. If you saw the movie "Pacific Heights," I'm telling you they took that storyline straight from real life.
Counting on renters to cover your mortgage/trust deed payments is a very dicey thing, and overextending yourself in the first place is dangerous. In one of our big cities, it's damn near suicidal. I still believe in the 25% rule, but if you're buying to rent in a major city, my best advice is "don't." At least not for the foreseeable future.
Oops, I forgot. DFTT.
To WRI
Crooks who are squatting thanks to the liberal government of NYC! If you are getting into the rental business your due dilligence suggests you should check up on your tennents before you buy, Especially in a city like LA or NYC where "renters rights" are protected over the more basic and underlying constitutional property rights. And extra super duper especially if you are depending on their rent to pay your bills.
Jeff
These days, what income isn't?
Apparently you have never encountered NYC rent regs, which always favor the renter. Appartently, neither did this new landlord, who should have spoken to other small landlords who would have told him how they never fail to get screwed in NYC housing court. New York City gov't is more socialist than any socialist country, for there it is assumed that the "rich" landlord can always afford to carry freeloading tenants for how ever long the tenants feel like it. If you don't check the terrain, you shouldn't be surprised by the bumpy road.
Interest only loans have been a HUGE problem here. That and the home equity line of credit loans (HELOC). I know a couple that bought a $700k house they could afford, then they took out some bubble "equity" to buy a brand new Suburban and a boat. This was toward the tail end of '05– about 6 months before the air started leaking from our housing bubble. Needless to say they lost everything. You could always spot the people who were high on their bubble equity. They all drove new Hummers and Escalades.
Do you know that he didn't do his due diligence? I'm really not trying to pick a fight here, and will shut up after this, but I honestly don't understand the glee at this man's misery. Yes, as it turned out, he made some poor decisions. We can't tell from this piece how bad the decisions were at the time of their making, because we don't know what his assumptions were. Either way, he's losing his house, he's clearly having terrible times, and you're essentially laughing at him.
No one's asking you to pay his mortgage, or even buy him a beer. So why the contempt, the loathing, for someone who's hurting? Is this the conservative way? Do you, like a good Randian, despise everyone who isn't rich and successful? Or is it just because he lives in New York, and therefore must have different political views than you?
Interest only loans have been a HUGE problem here. That and the home equity line of credit loans (HELOC). I know a couple that bought a $700k house they couldn't afford, then they took out some bubble "equity" to buy a brand new Suburban and a boat. This was toward the tail end of '05– about 6 months before the air started leaking from our housing bubble. Needless to say they lost everything. You could always spot the people who were high on their bubble equity. They all drove new Hummers and Escalades.
I don't think anyone is saying that the ability to practice fiscal responsibility (sticking to a budget) isn't necessary as long as your housing costs don't exceed 25% of your total income. Even if that magic number is met, anyone can still get into a hole by being stupid with their money (and other people's). When my husband and I bought our house, our housing costs ate up around 33% of his income. He lost that job and has since found work that pays a little more than half what he was making before, so now our housing costs eat up more than 50% of his income. So, now we're looking at scaling back and focusing on living within our means rather than clinging to what we can no longer afford. It's not an easy decision, but we want to set the right example for our kids.
Thought and planning certainly do matter. I don't think anyone here would argue that.
Des
First thanks for liking my stuff and yes that is exactly right the 25% rule isn't something I made up. If you are breaking this rule you are going to have money troubles. Here is another one my Dad taught me that has served me well " if you can't pay the car off in three years you can't afford the car." And yes there are tons of fols still in houses that can't fford nand driving cars that are destined to be repo-ed
The fact that we are in a mortgage induced economic coma is testament to the rule. Out of curosity what percentage of you income do you thing should be set aside for housing???
I have a brother in the t v and furniture ental business which is a total rip off. People come in and rent to own and end up paying three or four time what the stuff is worth or, miss one payment and get the stuff repo-ed. I know this is going to sound crazy but maybe folks should delay gratification and save up! I save money for fifteen years before I bought my first place with thirty % down. Yeah, I know, that's nuts!
I'm also wondering if those renters (who haven't paid rent in a year) will get to stay in the house even if the owner loses ownership?
I don't think anyone is gleeful about this guy's problems, I think people don't like the fact that the NYTimes is presenting to him as someone we're supposed to feel sorry for.
I don't think anyone is gleeful about this guy's problems — I think you're misreading the posts. People here don't like the fact that the NYTimes is presenting to him as someone we're supposed to feel sorry for.
Absolutely correct. (Sorry to hear about the lost job, by the way.) You did it the right way. You bought a house that left you with room for error. To many people today get greedy and try to get as much house as they possibly can afford (or more), and then when things don't go perfectly, it all blows up.
I knew people in DC who bought homes on the assumption that their income would go up 25% a year. That was crazy, but they weren't going to listen to anyone.
I don't know….are you implying that someone can't afford to pay 26% of their income to mortgage/taxes/utilities, even if they carry no additional debt and have a solid job that is not likely to go away? I think I'm being pretty clear that my objection is to the knee-jerk reaction that some of you seem to think you can know what someone can afford without knowing anything about their financial situation.
Have you actually been paying attention to the economic crisis? The housing meltdown, as a result of people who bought more house than they can afford is directly responsible for the mess we're in right now. The mortgage backed securities that the banks bought were on the backs of loans just like this. You need to look into MBS's and Collateralized Debt Obligations (CDO's) to understand how this works– I don't have space here to explain it. People that bought too much home and defaulted on their homes have more to do with this economic meltdown than virtually anything else. The toxic assets you keep hearing about (TARP was supposed to be designed to buy these assets) are these bundled home loans–mostly sub-prime. It's the everyone should be able to buy a home mentality that got us into this recession to begin with. So, while I don't have any "glee" at this man's situation, I'm not going to feel sympathy for a lack of planning.
That's exactly why, they don't care, primarily because Freddy and Fannie were buying every loan they could get their hands on. They kept assuring lenders that they would buy up whatever they were willing to sell so of course they didn't care, which is why the sub-prime market grew so fast.
I disagree that 25% is the watershed mark for determining your ability to pay the loan (although it would certainly be helpful). What I find puzzling is why it's OK to rent for $1000/month, but not OK to own for $1000/month (even if you do everything right in terms of saving and spending).
There can't be one number that will be an answer to everyone's situation, but I would say that for a responsible person, 33% – 36% seems fair. If you waste money hand over fist, even 25% won't work. It's like claiming there's one age that works for drinking or other adult behavior….the number is arbitrary and is to low for some, to high for others. I'm also going to disagree with your car analogy. I bought a new car on a 5 year loan because I got a great job that required travel. I had to have something dependable, that I could put tons of mileage on. I could have gone used, but if the car broke down, I would be putting my job in jeopardy (and with the vast amounts of miles I was driving, breakdowns would certainly happen sooner, rather than later).
I don't like arbitrary guidelines for complicated problems. Sometimes they're unavoidable, but they often end up screwing over people who've done nothing wrong.
I'm not sure I would agree that banks wanted people to go into foreclosure so much as they didn't care. The banks made their money on the loan fees. The bigger the loan, the greater the fee. Whether you could afford it or not didn't matter to the bank because the loan was immediately sold to a consolidator. At that point, the banks no longer cared if you paid another penny. So it really was in their interest to get everyone into as expensive a home as possible, whether they could afford it or not.
I can't speak to the foreclosure market as I haven't been involved in it, but it wouldn't surprise me that it is rife with idiocy.
Which is what we did, when I couldn't drive a truck anymore due to the nerve damage in my arm. If you have the lowest percentage possible cost / income ratio you can, you can deal with financial problems, out of control lib taxes, maintenance, etc. better. If 33% is high, and 25% is better, maybe 0% may be the best, and the closer you get to that number, the better off you are, which is why PBHO the Most Holy wants unintentional 0% non-payers in those houses; so the government gets it eventually for non-payment of taxes.
Jeff, that's a favorite trick of car dealers too. They sell a $2000 car to someone who can't afford it. They get a down payment, maybe the first or second payment (say $400 total) then repo the car. I've spoken with car dealers who admitted selling the same cars over and over — sometimes as much as 10 times a year.
You know what's even worse, right before the downturn, banks were starting to issue credit cards that tapped into people's 401ks (thanks to democratic legislation — Joe Biden, property of MBNA).
I think what we're trying to say is, if everyone in America had been applying this rule in the first place, nobody would be paying 785K for a house in Bed/Stuy.
It's an inflationary spiral.
We were up in Roseville to see my wife's family . We couldn't believe how many houses were being built in what used to be cow pastures.
We kept asking ourselves who the heck would live in these houses and why?
Holy cow! I'd heard that people were borrowing against their 401ks but I hadn't heard of this.
We're looking at houses now. We're going to stay way under what we can afford.
Why? Because you never know what's around the corner.
People who buy without preparing for the worst have no business owning a home.
We just moved from Roseville to Rocklin last year. Did you happen to drive by Morgan Creek? That's the golf course community basically built on a cow pasture. Totally bizarre. They have all these big homes sandwiched onto really small lots and sell them at a premium because they're on a golf course in the middle of nowhere. They kept trying to sell it as the next Granite Bay (the chichi golf club in our part of town) but once the bubble burst Morgan Creek fell hard. I've seen homes there listed for less than half of what they sold for just a few years ago. Yikes! Everyone who wanted to "be" someone bought into communities like that. Also, have you noticed that everyone has granite, pergo and stainless steel everywhere? I have never seen so many granite counter tops in my life.
I think you mean "woe is me." If you are saying "whoa is me," I suspect you are a remarkably self-aware horse. I just don't know how you type with the hooves.
Oh nay…. LOL! I plead poor proofreading.
I work in the industry…banks DO NOT want people to go into foreclosure. When people pay their loans, even if they are frequently late, there is still a steady stream of income from the interest they collect from mortgage payments. When someone goes into foreclosure, that stream of income stops, and is replaced by expenses. It's estimated that it costs $30K to forclose on a home. Plus, banks have to hire vendors to maintain properties and if they don't they get hit with city code violations. They also become the party responsible for paying the taxes on those properties. Then they pay agents to try and sell the properties, usually at very low prices, especially if the evicted people trash the place, which they often do.
Gary – unless you have extremely unsteady income there is no reason to buy well under what you can afford. While you are looking squirrel away an emergency fund (after you have fully funded your IRA and taken advantage of any corp. matching money for stock purchases etc). That way if you lose your job or things get slow you have a cushion to look for a good job and not a panic job. You make your money when you buy, so don't show your hand to the realtor and play hardball on price, upgrades (if new) and things found on inspection (be there for the inspection and pick his brain). Walk away if you are the least piqued, and never get too in love with a house. Ignore whatever the realtor tells you and always dig for secrets about the house and its sellers.
I know… ick, but…
I never understood the interest only loan…you might as well rent. At least when the lease is up you aren't stuck owing a huge principal balance.
That is true in Florida too. I know a few who fed at the interest only trough. One refinanced with an interest only. he went out and boat a Hydra Sport fishing boat. Now he is among the unemployed and unable to get out of that dingbat loan. I cannot help but think those loans play to the greedy. People who want to live beyond their means.
I read your post about the credit cards being tied to IRA's… I just about fell over in disbelief. That CANNOT be.
The Granite, pergo, stainless steel thing drives me nuts. I actually tried my hand @ real estate a few years ago ( I sucked at it. I'm a lousy salesman) and was really amazed that that was always a BIG thing with buyers.
I just noticed the article's picture… the two vultures sitting on the roof. ~laughs!
We live in California and we're going to be here until our daughter's out of school, at least.
Our next move will be out of state.
We want to save enough to get the hell out.
There's more to it, but I'm not going to post it here.
Sowell is a genius. 'Black Rednecks and White Liberals' is pure inspiration. Especially for a Southerner.
Housing prices are totally out of control and beyond the reach of a lot of people. The market's systemic need to deflate home prices is part of the reason for this crisis. Current homeowner's equity will be hurt, but in the end, this has to happen. Prices in the U.S. have gotten blown way out of logical proportions, especially in your area and other "hot" local markets. Think about it that way.
Two tenants live in Mr. Fungrai's rentals for a year and do not pay rent? I think that I can now afford to live in New York City!
Do they get to sue him if he provides a bad credit reference?
Neigh?…nah!LOL…
Sadly, it is. The program is called ReservePlus and it lets you use a credit card to borrow from your company 401k (at 3% interest). Apparently, the program has been around since 2003. My understanding is that Congress tried to ban the practice last year, but apparently failed. Beyond that, I don't know much about it, as I think the idea is insane and I have never looked into it.
He has a good job but apparently no one ever told him about the 25% rule. No more than 25% of your gross income for your house and that should include, taxes, insurance and utilities.
Normally I like your columns, but this is just stupid. Using your rule, the cheapest homes (condos, townhouses, duplexes) in the Chicagoland area (away from the expensive neighborhoods) would only be able to be purchased by people who made $50,000 or more. Everyone else would be relegated to living in rental situations for their entire life (which interestingly enough cost just as much as a home, but without any of the benefits). So the poor and much of the middle class would perpetually be in debt to the rich, never to develop equity through the most common means currently available to everyone.
Is that really what you're trying to say?
I think what he meant, at least the way I took it, is that you save enough to have a down payment that will keep your mortgage payment (plus T & I and utilities) at 25%…the way it used to be. But yes, you're right, that may be hard to do when home prices were inflated as much as they were.
Do the democrats (because they love affordable housing) ever consider that the rise of foreclosures is actually making homes affordable for people that have been responsibly renting for so long? Oh, that's right, that would be a market based solution to affordable housing and not one put forth by government, so they wouldn't like that idea.
Again I am shown the fact that New York City is nice to visit but a hole to live in. We have rental property…..when we move I intend to see any idiot who doesn't feel like paying their rent kicked out on their butts. Period. We need the cash to help pay the mortgage since we have to go to a different job. GRRRRRRRRRRRR…talk about poor business commonsense. Dang.
Shannan as a new home owner you speak wisdom. You have to be so careful. We just refinanced and have a way better interest rate. Lowered our mortgage payments to a better level. Its all playing number so you don't end up like Mr. New York New York..whooowhooo….
Private property rights will soon be merely a fond memory…. As will the sanctity of contract, personal responsibility or for that matter, personal choice to be responsible for…these will all be subject to government interference in name of the greater good.
Most of the troubled mortgages out there comprise two areas: 1) Yuppie 'flippers' who went from ARM to ARM and are now paying the piper- how sad are you for them? and 2) subprime Community Reinvestment Act loans brought to you by the twins of doom, Freddie and Fannie. The rest of us are doing ok. Even at 33%, which is actually better long term math than the 25% figure. It's just loss of equity that makes this stink so much.
Hey, have courage. The elfin Timmy Geitner is on it. Feel better?
That's fine, but in Chicago, even with 20% down, you're paying a minimum of $1100/month for a home (even something in a mediocre neighborhood that needs work). Property tax & utilities alone are about half that amount. You would have to put $40,000 or more on a very cheap house just to get your payments to 25% of a $48,000 salary. As I said, the really dumb part is that it's fine for someone's rent to be $1000 (which is also low around here), but Jeffrey is saying they shouldn't be getting a house which costs the same (regardless of savings, job security, etc…). 25% is an arbitrary number that sounds more like someone moralizing than someone actually thinking about the issue. Is 25% the same if someone is carrying thousands in monthly debt? What if the person has no debt, but his income puts the house at 28%?
Every case is different. I thought that's what Conservatism was all about…..individual thought and responsibility?
Bring me your dumb, the laim and your inept.
what a country I will build.
Exactly. I am all for personal responsibility, but we also have to be realistic. People can't control the market or the government's taxation. A duplex or small home (because according to Jeffrey, only the upper-middle class could afford a condo or townhouse with property taxes + association fees) is going to run $130,00 or higher (even in this depressed market). With $3000 – $4000 in real estate taxes, that's going to require at least $50,000 down just to be "allowed" to buy a home which costs the EXACT SAME AMOUNT as your rent would (without any of the tax benefits or ability to earn equity). This doesn't even consider the individual's ability to conserve money or willingness to work extra hours to make ends meet.
People are swarming around 25% like it's the Gospel. There is no information that correlates the 25% number to the housing crisis. On the contrary, people were buying houses with little or no money down and the mortgage being 50% or more of their income (plus many were able to use non-documented income). So by all means, let's over-react and go the other way. I'm sure no one being allowed to buy one of the millions of homes out there collecting dust will do wonders for the economy.
OK, so where in any of my posts did I claim Americans had a Constitutional guarantee of a house? Why is it that trolls can't just defend their position without setting up ridiculous strawman arguments?
I understand what you're trying to say, but there is also another option: Move. To a city where home prices are what you can afford. I have always lived in the South, by choice, and I know there are certain careers where that's not possible, but for the most part, people can move to a cheaper locale. I am fortunate to live in a house that is more expensive than the one in the story, but I cannot imagine living in it, and not having enough money to pay everything, in full every month, without depending on others. Too unpredictable for me. I am sorry that anyone is losing their house, I even feel badly for those I am not sure deserve to be felt sorry for. The bottom line is, people need to think long and hard before committing to purchasing anything, especially big items like houses, and make sure they understand fully what they are getting in to.
Sometimes it stinks to be rational, doesn't it?
I have to confess to being someone who lives in one of those McMansions, but not in Sac. I live outside of Atlanta. And by outside here, I mean 35 miles. We actually got a good deal on the house, we live in a really nice place, but you're right. No one "needs" a house with 8,000 sq ft. I can honestly say, since my daughter got married, and my son who is 19,( and never here), what used to be a fun house, isn't anymore. We used to be the ones where all the kids came and hung out, but now, it's just me and my hubby and rooms I haven't even been inside in over a year. I don't think I have been in the downstairs part of my house in 6 months. Dang, maybe I should be the one getting renters? I would sell this puppy in a minute, if anyone was buying right now. Oh, the whole ARM thing, is just crazy! Those things are just disastrous for some people, I think they should do away with it, altogether.
Another thing to think about, I know I have a huge house, my electric bills would turn hair gray, but if Obama gets all the cap and trade and other policies passed, then power and other bills will be going WAY up. So maybe everyone should factor in a good bit more than they pay now, or expect to pay, just to be on the safe side?
I think this is the real story of the housing collapse. Banks made incredibly risky investments because they really WANTED people to go into foreclosure. If you've got $50,000 of equity in a $200,000 house and get foreclosed on, the bank figured it could resell the house for at least $200,000, plus keep your $50,000. It seemed like a no lose.
I was trying to buy when the housing market collapsed, and saw deals on houses for around 2/3 their previous value. When I tried to buy one, the bank screwed me around for over a month, until I went for a different house. My Realtor told me that was his normal experience with banks, which is why he advised people looking to avoid foreclosures if possible. They could have had 2/3 the value of the house, but now can't get 1/2 (because anyone who can afford it, can't get a loan). It's like the people don't care because it's not their money (until a higher-up gets on them, then suddenly they're willing to give the house away at a huge loss).
There is just no common sense from anyone in this mess.
I agree. Moving is not only a good option, it might be the cure to the problem. When enough people flee an area, the government will have no choice but to change their tax & spend ways. Also, it will improve the unemployment numbers. In cases like mine, unfortunately it's not an option. I have an 8 year-old daughter who lives with her mother. I don't think abandoning her is the right course of action, even if it would make sense economically (and I'm assuming a lot of people are in this kind of situation).
I'm with you on the sympathy thing, though. There are a lot of people who are getting squeezed by higher and higher taxes (especially here), and if they lose a job or get a catastrophic illness, no income ratio is going to save them (at least not for long). I'm not sure any answer is going to help, just like with the people who lost their life savings in the collapse last year. Hopefully the down market will give them the opportunity to rebuild while costs are still down, so they can recoup some of their losses. Hopefully, the spending spree the Democrats are on won't cause the recession to be that much longer, because a lot of people are just treading water until things get better.
Jeffrey, when were you here in NM? Wish I could've gone to see you. And here, 37 mi. is around the corner, like Los Lunas to Albuquerque. ABQ to Santa Fe, down a ways, and over 120 mi., just outside.
8,000 square feet? Holy crap! All I can think is how much I wouldn't want to have to clean that much house. Though I suppose if you can afford it you can afford help. We don't actually see many homes that size around here. We do, but they're segregated to the pricier areas and they're often owned by basketball players (Kings). (Though Eddie Murphy used to live here. I used to see his [then] wife at the grocery store all the time). In fact, you rarely saw homes that big until the housing boom and then everything got bigger and bigger (cars too). Other than that our McMansions run in the 4-5000sqft range.
It's really a shame about the New York Times. In terms of the quality of writing, it is one of the few newspapers worth reading. On the other hand, it has blatantly disregarded all of the tenets of good journalism by allowing opinion to spoil what otherwise might be decent reporting.
I canceled my free online membership a while ago, noting in the cancellation email that I didn't even want it for free and probably would not change my mind until Pinch Sulberger was no longer there. Well, it looks as though he will no longer be there, but he's unfortunately taking the paper along for the big swirly with him.
Pinch's dad must be spinning like mad in his grave.
Farewell, NYTimes; good riddance biased journalism!
Well, they have a funny way of showing it. During the last couple of years, they could have sought out ways to work with homeowners who were struggling, which would have reduced some of the collapse, but seemed to avoid it like the plague. Similarly, when offered money for their properties, they drag their feet like they want to keep owning the house. In one case, I bid the amount they were asking for a $115,000 fixer-upper, only to be told several weeks later that there was a tie, so they were looking for whoever would increase their bid the most. I went up a few thousand, and two weeks later was told I won. Then they demanded closing within 2 weeks or they'd void the contract (and I couldn't even get loan approval that fast because of the repairs necessary to the house before it could get approved). If I'd agreed to their proposal and wasn't able to secure the money in time, the bank would have been able to keep my earnest money, so I had to withdraw my bid.
The last time I checked, that property was still sitting, months later.
$4,700 a month?! He could have lived like a king in some other states.
People Can't control the governments taxation????? That gives me more insight into your ecomomic theories than anything else you have written
You know…
Ferrari ownership is my romantic obsession, something I fantasized about and worked toward for years. The tremendous effort I put into getting my Ferrari and keeping it is emblematic of how powerful the idea of owning a Ferrari is.
So, I bought my Ferrari and planned to make the monthly payments by selling rides to my friends. Unfortunately, when I drive them to lunch, they refuse to pay.
This situation is totally not my fault. If only Bush and evil CEOs hadn't ruined the economy, my friends could afford to pay me and I could afford to pay for my Ferrari.
Don't worry though. I have heard that Obama is going to introduce a plan soon that will help Ferrari owners like me who find themselves unable to make the monthly payments and with a car loan that is more than the car is worth.
Des, You're Brilliant!!! Americans have a guaranteed right to pursue happiness – there is nada in the Constitution that guarantees people will own a house. Life sucks – get over it.
If the $50,000 figure is a little high for some people, these people will feel better if they process the fact that people making houses have to pay for materials, labor, etc. etc. , and these builders aren't doing it for the altruistic thrill of giving their "Business Investment" away.
In short, "the poor and much of the middle class" may never own a house, in the same way people in the top half of the middle class will never have their own personal corporate jet: the price tag is over their budget.
The best part of this home loan meltdown is the end to the commercials with that smarmy guy in the brown jacket saying, "No one can do what Countrywide can!" Good riddance.
Someone noted somewhere that the secret to economic success anywhere on earth is whether contracts are honored or not. Think Venezuela. Or anywhere in Africa. Would any company in the free world invest in a place where the local cleptocrat will nationalize (steal) your company if you are successful?
The idea of these "cramdown" laws that violate contract is very scary. Once contracts go, capital will really freeze. Who will risk losing his investment? Better to hold onto the cash or convert it into gold.
The NYC rent control laws that allow deadbeats to ignore their contracts to pay rent but continue living in the upper apartments of this guy's brownstone are destroying incentive to own a rental property. That hurts everyone, even the renters.
Or by a lliberal government which allows tenants to screw landlords you nit wit.
When is the last time "the people" controlled what the government did? They vote to redistrict, which helps insure their re-election. They earmark bills to bribe the voters. They grant favors to lobbyists to raise money and gain the support of the groups the lobbyists represent. The press is the willing accomplices of one side or the other (although mostly in favor of the Dems). Barack Obama is said to have won with a substantial majority, yet only 67 million out of a country of 300 million voted for him.
My statement had nothing to do with my economic theories, and everything to do with reality….whether I like it or not..
It should be whoa government. As in rein in BO
Yea, 120 miles south from where I am in Kansas would be Oklahoma.
Who wants to clean more than 3,000 square feet ?
It takes about 3 bad renters to find a good one.
That was the dimension of a LP (record for all you youngsters, it played music).
I visited Manhattan a couple of years ago and a friend showed me around the town. He lived in a ~$600 Apt that had rent control. The landlord was doing everything he could (including vandalizing his car) to get him out.
Still buying a house you can't afford and counting on tenants upstairs to help you make the mortgage doesn't seem like a smart 30 year strategy, unless the owner was counting on flipping the house in a couple of years.
I was just remarking to a friend that until the later 1950s, most homes had 1 car garages. Now we have 3 car garages that are so ugly the garage doors take up 2/3's of the front of the house.
Have a neighbor who was/is making good money but decided about 2 years ago to move out of her small house here and buy a behemoth 10 miles away.
Now she is sorry she did so….
That is the traditional and smart approach.
I was just reading that in Costa Rica – long heralded by Norte Americanos has a paradise, has a draconian law that states if a property is owned by an outsider and someone comes to squat on it, it is virtually impossible to evict them – ever
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