I've brought this up a few times, but I continue to be fascinated with the idea that folks don't care what the cost of the asset is, they only care about what their payment is. Whether that's their leased Lexus, or their new $800,000 two-bedroom condo.
OK, I'll buy that people are that stupid. It's tough for me to buy, because, damn, that's really really really stupid. I just don't get it. But I'll buy it.
So, if that's true, well, with mortgage interest rates soaring, thus payments rising, doesn't that mean that the asset prices must fall to keep that payment level the same for John Q. Homebuyer Idiot?
The relationship should remain constant on the way up as it is on the way down. It's the payment, not the price, to the financially ignorant masses.
Right?
June 12, 2006
Help me out here
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13 comments:
Yes, we are addicted to shortterm thinking in this country. Trust me, I know, I worked in finance.
aj
stupid is as stupid does
if we go from 4% to 8%, $800,000 goes to $400,000, but gosh darn, that payment stay the same!
I think the collapse of the housing bubble and american economy will cause more of a push to teach financial literacy in our schools. People spend 16 years in school and don't learn squat about real life.
Too many people think that it is a forgone conclusion that price will drop rapidly. I think we will see even more "creative" loans first. 50 60 year mortgages to keep payments low.
I also think that some crash victims who are not yet being considered are the ones who KEEP their property. I mean what happens if 3/4 of the units in your condo assoc stand empty? What happens to your investment then?
In the end prices will fall, but if appreciation is not forseen and if the tax benefit is removed, and if rental rates remain low due to recession or economic depression will RE be seen as a good investment? Will housing inventories be treated like excess FEMA trailers?
I've never understood why people just look at the monthly payment either. While it does need to be considered, ignoring the total price of the asset is ludicrous.
And while those 50-year mortgages may become more popular, I have heard that the monthly payment for a 50-year is virtually the same as a 40-year due to a higher interest rate. Again, more smoke and mirrors to fool the not-so-educated masses.
I never realized that people purchase things this way. A few years back I went to buy a car. I did my homework on the price I should pay. The salesmen kept insisting on what kind of monthly payments I wanted and I kept saying we didn't even come to a final price for the car. He said it was a strange way of doing business and that his customers just tell him the monthly payments that they can afford. I said that they were idiots and showed him the print outs from my research. Are people this dumb????
Every time I buy a car, I get the same disbelief from sales people. And it's worse, because I'm a woman! I refuse to talk payments, and will only talk absolute dollars, and total interest ect. It's like they've never heard it before in their lives. I know they are lying, but it is very stressful. They usually don't even address me even, and only speak to my husband. I am planning on using cash from now on, if possible. I have been trying to get some friends to get a 15 year mortgage, instead of a 30. They don't understand why. BUT the payment's a little higher. Why don't they see, it's totally worth it? They need to teach this stuff in school. My 6 year old is expected to manage his lunch money, and when it's gone, it's gone.
Pay cash? Hell in ten years cash transactions will probably be illegal. All in the interest of "Homeland Security" of course. President Rodham (her name after the annulment) will help us through the dollar "reset" of 2010 when all coins and paper script are banned in favor of electronic payment/ID cards.
Sleep well comrades, sleep well.
No shit re paying cash. I can't believe the STUPID ways people use their credit/debit cards. I was at the $0.99 store about a year ago and the womand in front of me was trying to charge $3. When it declined the dumb cashier says "lets try it for $2." Its just amazing how many people walk around with zero cash in their pocket!
I live in Los Angeles and apparently people will do anything to drive the car they want. Example: I was offered a 50 monthe lease (I didn't know they even had a 50mo lease) for $850/mo on a luxury car that had a stickerof $60,000. When I told the salesman and the manager and then his manager that they were all crazy they simply said their customers don't care as long as they can afford the payment and the car makes them happy:) IDIOTS!!
You remember our old friend: instant gratification. Thats what closes the sale for the average five year old.......excuse me, I meant to say the intelligent average consumer!
I also do my homework when car shopping, and have had to walk out when the sales zombie couldn't get 'monthly payments' off of his 3 functioning brain cells.
I always have my own financing pre-approved at my bank,
and keep the damn rebate and all offered incentives because you want to lower that bottom line as low as it can go.
The less the amount you have to borrow, the less you have to pay back in 36 months(or less.)
I wonder what the glut of repo's are going to do to the already suffering auto industry, matching the foreclosures in the housing industry.
Damn, in a couple of years it's going to be a great time to buy almost anything for those that are ready!
I can do one better. About 10 years ago I was using part of an inheritance to buy a Civic, and the dealer actually made me call my parents to try and talk me out of paying cash for it. He kept telling me I was making a hige mistake because the financing would be the best thing ever for my credit. Of course, my parents backed me up, but I guess that tactic must work on some of his customers.
http://www.edmunds.com/advice/specialreports/articles/115584/article.html
SUV owners who are faced with rising gas prices have found a new way to get out from under their high car payments — arson.
...
At the root of the problem: People pay too much for a vehicle they really can't afford.
"Because of the way the economy has gone, the gas prices skyrocketing the way they have, we started to see a peak" (in arsons), Rowe said. "People that had the gas-guzzlers that got eight miles per gallon, they started to get hit hard. They didn't want those cars anymore."
Faced with rising gas prices, people who are trapped in a high-payment lease have no easy way to escape without a stiff penalty.
"People will lease a car for 84 months with zero down and they have some outrageous payment," said Rowe. "They start to realize they are living beyond their means."
I think house fires are going to go up too ..
if people can do it to their up-side-down cars, they can do it to their even larger up-side-down homes ..
fire .. fire ..
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