Recession?

[Road Guy]

I bet you had a high liquidty index (savings) or some other "potential" which made your story different from the other millions out there.

We have never put down more than 5% on the three houses we have bought, we changed over to a 15 year mortgage 3 years ago, and its wild to think that before my youngest (5) graduates from High School, we may be free from the mortgage man, although paying that extra money hurts sometimes.

 

[Capt Worley PE]

I put 20% down on ours, mainly because I didn't want to pay mortgage insurance.

 

[mudpuppy]

I put down 0% on my house. I only had to pay the closing costs (about $1800--approximately 2.2% of the purchase price).

I would for sure be against a government regulation banning 0%-down mortgages, because it has worked out fairly well for me. If I had waited long enough to have a good down payment, I probably would have ended up buying at the peak of the housing bubble.

Of course, I'm in a bit of a unique situation. Housing here is dirt cheap and I deliberately bought a house below my means. As evidenced by the "What is your house worth" thread, I think I have the cheapest house of anyone on EB (at least of those who voted in the poll), and the payment on my 15-year mortgage is $100/month less than I was paying in rent.

OTOH, I think the lenders who engaged in predatory practices should go to prison for a long time, and the people who purposely milked the system or didn't bother to find out the details of their mortgages should feel some pain too.

It's a difficult problem to find a satisfactory solution to, but I think banning 0% down is like punishing everyone for the misdeeds of a couple rouges.

 

[Dleg]

^I thought I had the cheapest house on EB. Plus, I pay $0 in mortgage payments. I went paycheck to paycheck for three years to get to that, though.

 

[mudpuppy]

I think we're the only two who responded < $100k and it looks like we're neck-and-neck:

It's now worth about the same as I paid for it. ~$80000.

But, I'd guess it's worth $90 to $100k at most.

OTOH, I could sell mine if I had to, but it sounds like you might have trouble selling--so I'm happy to give you the honors (especially since yours is paid off)!

I don't want to steal the thunder from RG's question, but this makes me wonder: how do others here feel about paying your house off early? I have not made any extra payments because I feel I can make better use of my money by investing it rather than paying extra on a 5% mortgage. I'm sure I would feel differently if I had a $200k mortgage or a 7% rate, but I do have enough cash to pay the payment for several months if something cataclysmic happened.

 

[Dleg]

^True. I could not sell mine now, even if I wanted to.

I've always heard that it is better to just make the payments, and leave yourself with additional money to "invest." But if you're not actually investing any additional money, I would think that paying off early would ultimately benefit you.

 

[benbo]

I always thought the main problem was people getting these radical interest only ARMs that readjusted to huge interest rates. They were counting on the value going up, up, up, and kept pulling equity out and ultimately there was nobody at the bottom to buy, especially when people started defaulting.

My friend is a schoolteacher. She bought a small house in Long Beach for 200K a few years ago and then resold it two years ago for around 500K. But she immediately put what equity she had in a house for $850 K !!! THats around a 500K loan - interest only, ARM. How can a teacher making around 70K afford a payment like that?

The house is now worth around 700K. Fortunately she was able to refinance, but what a bonehead move.

 

[Guest]

The house is now worth around 700K. Fortunately she was able to refinance, but what a bonehead move.

It goes hand-in-hand with the sentiments of the Toles' cartoon from a few days ago:

JR

 

[mudpuppy]

^^^^ grrrr.... don't even get me started on that rant.

Ok, I can't resist. . . How does a government manage to go $3.5 trillion in the hole in less than 8 years? I just can't wrap my mind around that.

 

[Dleg]

wars & hurricanes?

 

[mudpuppy]

I don't have any references to back up these claims, but the estimates I've heard for the federal aid for the hurricanes was in the tens of billions, and the highest estimate I've heard on the wars is ~$1 trillion. That still leaves $2.5 trillion unaccounted for.

Just floating a theory here, but my best guess is a part of it has to do with tax cuts without corresponding spending cuts.

 

[Dleg]

^^That would be an obvious cause, yes.

Speaking of tax cuts, what do you engineers think of McCain's & Hillary's proposal to abolish the gasoline tax? Isnt' that part of what funds the federal highway administration's projects? Weren't we just talking about the crumbling state of our infrastructure, and how much money would be needed to keep it up?

 

[benbo]

I don't have any references to back up these claims, but the estimates I've heard for the federal aid for the hurricanes was in the tens of billions, and the highest estimate I've heard on the wars is ~$1 trillion. That still leaves $2.5 trillion unaccounted for.
Just floating a theory here, but my best guess is a part of it has to do with tax cuts without corresponding spending cuts.

Take it for what it's worth, but this report says income tax revenues have been rising from 2003-2006. primarily due to corporate taxes.

http://www.cbo.gov/ftpdocs/81xx/doc8116/05...TaxRevenues.pdf

This is the Congress, not the Executive branches report.

Obviously the war is expensive, and we spend a lot on everything.

And I don't know if this debt counts social security. As far as I know, social security is by far the biggest part of our budget. And well it should be, because after paying for it, I want it if I can get it.

 

[Flyer_PE]

Just floating a theory here, but my best guess is a part of it has to do with tax cuts without corresponding spending cuts.

Taxes are nothing more than restrictions on economic activity. Tax revenues will actually trend upward with lower marginal tax rates since the restriction is lessened. As an example, revenue from capital gains taxes actually increased markedly due to increased trading when the rate was lowered. Prior to that, government revenues doubled in the eighties following the cut in the top marginal income tax rate from 70% to 28%. However, that increase didn't stand a chance against the increases in government spending that were happening at the same time.

The way the news media and a lot of politicians present the numbers is a little misleading. Say the tax rates are cut and revenue actually increases by 20% while spending increases by 80%. They don't bother to tell you that revenues are up, only that the deficit has increased by 60%.

 

[mudpuppy]

(Edited due to simultaneous posting with Jim).

Yes, I've heard the thoery. Of course there must be a point of diminishing, or even negative, return. Obviously if you cut taxes to zero, revenues will fall to zero.

But that is beside the point. I will withdraw my theory and adopt Jim's: instead of spending not falling in line with taxes, spending is growing faster than taxes.

In any case, I think JR's cartoon hits the spot.

And now I am done with this rant before I make everyone including myself depressed about our economic future.

 

[benbo]

^^^Interesting report, benbo. Makes it all the more curious how the debt is growing if revenues are increasing.

You're right, where did the money go?

And to be clear, I'm not saying any level of cuts in tax rate will increase revenue. At some point it's got to be counterproductive. Obviously, a zero tax rate is not going to be very good for tax revenue. I'm no economist, so who knows what the level is, and what other conditions effect it. Also, just because the revenues went up during these years doesn't necessarily mean that's the only reason revenues went up or if there were other reasons. THat just the theory I've heard same as IFR says above. I have no real idea if it is true. I guess that's what the geniuses in the government are supposed to figure out.

 

[Flyer_PE]

Just to add a little to mudpuppy's point, the diminishing returns works on the other end as well. If you tax at 100%, revenue goes to zero because nobody is going to pay it.

 

[mudpuppy]

^^Yes I don't disagree with that. I'm with benbo--I'm not an economist and it's way over my head. I just wish the government was more transparent and better about explaining what they're doing with our money--it is our money after all.

 

[IlPadrino]

I always thought the main problem was people getting these radical interest only ARMs that readjusted to huge interest rates. They were counting on the value going up, up, up, and kept pulling equity out and ultimately there was nobody at the bottom to buy, especially when people started defaulting.My friend is a schoolteacher. She bought a small house in Long Beach for 200K a few years ago and then resold it two years ago for around 500K. But she immediately put what equity she had in a house for $850 K !!! THats around a 500K loan - interest only, ARM. How can a teacher making around 70K afford a payment like that?

The house is now worth around 700K. Fortunately she was able to refinance, but what a bonehead move.

Right... but many of these people would have been happy to keep paying under a reasonable fixed rate but they're forced to refinance. And as market values decrease they find themselves "upside down" because they were doing interest-only all that time (though let's be honest... three years of a conventional 30-mortgage payments doesn't buy down the principle very much either).

I wonder what drives the banks to force a refinance (other than collecting all the costs again). I just don't get why it should cost me money to refinance with the same bank!

I own a house in California that I'm renting... and paying $1000/month out of pocket to cover the expenses. But I'm looking to also buy a house here in Virginia on a short sale. It's an interesting opportunity. Any here have any experience with short sale?

 

[benbo]

Right... but many of these people would have been happy to keep paying under a reasonable fixed rate but they're forced to refinance. And as market values decrease they find themselves "upside down" because they were doing interest-only all that time (though let's be honest... three years of a conventional 30-mortgage payments doesn't buy down the principle very much either).
I wonder what drives the banks to force a refinance (other than collecting all the costs again). I just don't get why it should cost me money to refinance with the same bank!

I own a house in California that I'm renting... and paying $1000/month out of pocket to cover the expenses. But I'm looking to also buy a house here in Virginia on a short sale. It's an interesting opportunity. Any here have any experience with short sale?

I have no personal experience, but every house I see for short sale is such a good deal. Whenever you read about short sales the "experts" always say don't do it because you ahve to take the place "as is." I don't really believe that, or understand it actually. Does that mean you can't have your own inspector check it out? I mean, to a certain extent you're always buying a place as is.