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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Paul Kern who wrote (46455)	1/1/2006 10:19:45 AM
From: redfish	Read Replies (2) \| Respond to of 306849

"Granted, your mortgage balance is going to go up under this scenario, but as long as my property is appreciating, I personally don't care too much what my mortgage balance is." --------------- Classic

To: Paul Kern who wrote (46455)	1/1/2006 2:13:04 PM
From: Cactus Jack	Respond to of 306849

"Besides the two ARMs, we also took out a home equity line on the Seventh Street house to put down a deposit on the Fifth Street house. There was no cash that we had in our pockets to put down on the Fifth Street house. All we had was our shining credit record. And the faith that the banks have in this real estate market that allows you to borrow 100 percent." Chilling.

To: Paul Kern who wrote (46455)	1/1/2006 3:47:20 PM
From: Schnullie	Read Replies (1) \| Respond to of 306849

The below was taken from the linked article: Even before the reset gets under way, households were devoting a record 13.75 percent of their after-tax income to servicing debt, including mortgage debt. 'There will be an end to it. Perhaps my view is skewed from living in the Bay Area, where after-tax debt servicing probably surpasses 50%. Can somebody help me with the math for the 13.75% cited above. Using rough numbers, I think national income averages less than $45,000 or so. Using 25% tax withholding yields after-tax income of $34,000. If 13.75% goes to debt servicing, and conservatively assuming that ALL of it goes to mortgage debt servicing, an annual mortgage payment of only $4,640, or $387 a month is calculated. This is less than I used to pay for a month of parking in a SF garage (really). Of course you have to throw in a bit for insurance (say $50 since cheap property is implied), principal (say $100), prop tax (say $100), but even this total seems like a throwback to the 1960s, and certainly not indicative of a bubble. Where is my error here? To confirm the absurdity of the 13.75% figure, let's assume that the amount represented a 5.5% loan on a nothing-down ARM. The $4,640 annual interest payment would represent an initial mortage amount (i.e., purchase price) of about $83,000. One possibility is that the numbers are skewed low because they include people who have (1) paid off their mortgages and have a 0% debt-servicing obligation, and (2) people who have been in their houses for 10+ years and probably re-fi'ed on modest loan amounts. Of course, it could be argued that statistics for these folks shouldn't be lumped with sub-prime and speculative stats, as they represent no particular threat to loan integrity and are unlikely to be significantly impacted by rising interest rates, etc as will be the sub-prime borrowers. While they do need to be considered for other purposes (national average figures), the percentage of after-tax debt servicing is probably much much higher for a large group of at-risk borrowers (such as those who have bought recently.... excluding Hank of course).