Yes, there truly is a sucker born every minute. Around the world, the financially ignorant masses could care less what the home's price is - they only care if they can afford the (current) monthly payment - on the house, on the Lexus, or on that new furniture set.
Here's a website (thanks JohnFC) that perfectly illustrates this stupidity - all the houses featured show only the monthly payment - an NOT the price. But hey, who cares about the price, even if it's plummeting. It's the monthly payment that matters!
Plus they've got a really cool logo - so trustworthy and prestigious, those guys at Presidents!
June 24, 2006
Don't look at the home's price - ONLY look at what the monthly payment is
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And a really professional looking website as well. Where do I sign up?
It looks like the real estate brokers have learned something from the car dealers and furniture shops who have been selling cars etc for decades using this approach.
Yes, the car dealers were on this game for a long time. I bought a used Corvette when younger and showed up with a calculator, interest rate amortization tables, and the Edmunds and Kelly books. They didn't like me at all...
Kept harping on the payment, which I back calculated to be 21% interest. Their trick was to make it a "lease", with zero balance on the end (the residual was one montly payment at the end, adding one month to the term). This way they got around the interest rate laws in my state...
Needless to say, I went to a cash deal, and got my own bank financing with a nice fixed 3 yr loan at 11% at the time (good for those days of 13% mtg's)
The big problem for house buyers of these deals is that the payment is for an ARM with interest only. At least the slimey car deals had a fixed payment over the life of the loan, and in the end you still owned the car, even though its value is less ;-(
So "payment mentality" may be OK with a fixed rate loan that pays down the principle. At least they will tread water for a while and just be at risk of the property market, and not just interest rate markets.
Creative minds are working overtime at mortgage companies. . .
I observed a few months ago that the bubble may continue for a while longer than we thought if creative mortgages are used. . .40 year, 50 year, pay something - pay ANTHING . . .to keep this game going. The sure death rattle of the real estate industry. . .but going down kicking and screaming.
I agree "payment mentality" is a horrible problem. It's been around a long time and isn't going away. However, is the problem really the sellers (and their agents)?
I don't think so. The problem is much larger and endemic. It's closely related to the widespread sense in people of entitlement, a desire to get rich quick, and not work hard for success.
Blaming the car dealers or realtors for leveraging buyer stupidity is like blaming the symptom for the disease. It's not ethical, it's not right, but it's hardly the root of the problem.
Have you ever tried showing "life of the loan" calculations and basic budget 101 concepts to somebody who can only focus on the monthly payment?
I have. It's like talking to a brick wall.
I've also seen people cry when the monthly payment won't fit their ability to pay.
Ahh, mindless consumerism. It's not pretty.
I don't think so. The problem is much larger and endemic. It's closely related to the widespread sense in people of entitlement, a desire to get rich quick, and not work hard for success.
Blaming the car dealers or realtors for leveraging buyer stupidity is like blaming the symptom for the disease. It's not ethical, it's not right, but it's hardly the root of the problem.
Have you ever tried showing "life of the loan" calculations and basic budget 101 concepts to somebody who can only focus on the monthly payment?
I have. It's like talking to a brick wall.
Osman, you are correct. People want to blame the enablers of our excess, but the root of the problem is lack of personal responsibility.
I've dealt with people that have no concept of assets prices, only monthly payments.
Heck I'd like to own a 2007 Tahoe and I can for $500 a month. But that is with a $10000 down payment and 72 months of payments. I'll be dammed if I'm going to work 6 months just to pay for a car (not counting tax expense).
The sooner the credit industry is restrained from using payments as the primary motivator the better off we will be as a country.
Forgive me for being naive - since I bought my first car 20 years ago I have always paid cash because I realized I would pay twice as much as the sticker price to pay monthly. But you can get a car for less than $20K. Median house prices in my area are in the mid $600s. Assuming the market really does crash - I would hope to see houses come down to a more realistic median of $400K. I don't have $400K - but with 20% down and a 30 year fixed rate loan I know that I could live within my means in a decent house in an area where I'm likely to remain employed. Are you saying if you don't have the money to buy outright that you shouldn't consider what you can afford to spend on housing on a monthly basis? Or are you just saying the system is wrong and people shouldn't be forced to think that way.
welcome back osman
how's boulder looking these days? any panic there?
The payment should be a secondary consideration in purchasing.
If you can afford to purchase the "good", you will always be able to afford the payment.
Like you said, someone with 70k a year in income should have no problem affording a 200k house. But that doesn't mean that someone with 70k in income can afford a $2500 house payment. Heck I make close to that and spending more than $1000 a month on a house would put my balance sheet in big trouble. Of course I am saving as much as possible and am not willing to sacrifice that.
With cars, if you can afford a $20,000 car you can afford the $350 a month payment. But just because you can afford a $500 a month payment doesn't mean you can afford a $30,000 car (especially on a $33k a year salary, the average around here).
The thought of spending a full year working just to pay for a car makes me puke. Spending 7 years working to pay for a house is insane. Maybe 2-3 max.
Still, the stupidist thing I've seen people do is stomach a $3000/month mortgage payment (like 60-70% of their net pay) on a house on already overpriced house because they think it's gonna appreciate $100k in a year.
Anyways, how many realtors and mortgage brokers are pushing 50-year mortgages right now? I'm seeing this pop up all over in Seattle.
Joe-
Ayy carumba seattle is the WORST. They know everybody is priced out now. the papers give great tips on how to buy houses you cannot afford.
Here's one: Buy property with friends!!
Now the RE booklets show monthly payments where the home price should be- no MENTION of actual price!
Buyers already getting badly burned and having to sell at below what they paid last year.
Prices got SO overinflated in Seattle so quickly.
Seattle's going to be a mess.
That's frightening about the Executive Order.
Both the Kelo case and this order basically say that Government can take any property for any purpose they see fit.
The psychology of home ownership overrides dollars and sense.
The City of Boulder seems to be doing just fine, but other areas around the Denver metro region are seeing a market shift. At the request of a recent visitor to my blog, I dug deeper and ran a back of the envelope analysis on education levels vs foreclosure rates. As you'd expect, it lined up pretty well.
How will the situation play out in the long term in Colorado? Some of our local markets (especially currently experiencing high inventory and slowing sales) may skid sideways until excess inventory and foreclosures have worked their way through the system.
Back to the whole personal responsibility discussion...
Moman, I'm not sure restraining lenders is the solution. As long as we're willing to tolerate a society of gross inequity AND lack of personal responsiblity/accountability, problems will arise. Blocking some unethical lending practices will never stop people from being taken advantage of because other avenues to part a fool from his money will surface.
I think it has to start and end with individual accountability.
How do you chart sideways? Both up and down? I would think high inventory and slowing sales cause the price chart to go down. In my carefully calculated economic model it will end with angry mobs, a guillotine and a slave revolt.
By skid sideways, I meant a period where nominal prices don't change substantially. To most, it appears as if the value of their home and the real estate market in general is not increasing or decreasing.
The Address of the last home listed SHOULD have BEEN 957 E. Dust Bowl Drive !
I love the Stay the Course Mentality in the US .
HEY..You HP Commies ! This IS America where Stupidity SELLS for a Premium and We are STILL Number 1.
Enjoy you micky D burgers and Freedom Fries with that Happy Meal Home re-set BARGIN you ARE ABOUT to EAT !
They are showing infomercials about the 20 year old "no money down" school of RE investing. Buy the CDs and get rich the easy way. Take cash away from closing. Generate spendable CASH on the properties.
They are still trolling for fools who have not heard the news.
LMAO. I am looking sweet with my $500/mo. for 4800 sq.ft. 3 bedroom/2.5 bath/2.5 acre MANSION.
Gotta be a mansion if these jackoffs are paying $1000+ a month for a turd like 1500 sq. ft. hole.
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