It's amazing to me that so many millions have rushed to buy over inflated housing because interest rates made their monthly payment lower. Doesn't ANYONE understand when you buy an asset you should, uh, look at the price of the asset, not your payment?
The world truly is filled with greater fools.
Also, I was in Ireland this summer - you wouldn't believe what $1 Million would get you - makes San Jose look cheap. They're gonna have a world of hurt on the way down - at least a decade of declines - kinda like Japan went through - to get back to the mean...
Low mortgage rates, more flexible credit fuel synchronized price upswing
The developed world is experiencing its broadest, longest housing price upswing since 1970 - and possibly ever, new research shows.
America is among 17 regions moving in concert through a 10-year housing boom unprecedented by its size, duration, synchrony and independence from historic business cycles, the Organization for Economic Cooperation and Development reported last week
"Real value" gains, adjusted for inflation, range from 24% in Finland to 53% in the United States and 137% in the United Kingdom to 243% in Ireland. Among what spokesman Mike Kennedy called "the heavy hitters" in the industrialized world, only Japan and Germany, struggling through massive economic upheaval, were left out of the sweeping housing advance
December 04, 2005
Breadth of world housing boom stuns analysts
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I think the comment about people looking at only the payment and not the asset price is one of the biggest reasons that the bubble has grown so big. I can't believe how little sense some people have. (I am an extreme case though, I don't believe in debt, and I like to pay cash as much as possible.) I personally tell my family it would be so much better to buy when asset prices are low and interest rates are high even if the payment is the same. First, if you have a down payment of any significance, the lower the asset price, the greater the positive impact that the down payment will make on your financial position. Second, if you buy when interest rates are high and asset prices are low, you can refinance to lower your payments when interest rates drop. On the flip side, if you buy when interest rates are low and asset prices are high, it is unlikely that you can ever significantly lower your payments by refinancing because interest rates will most likely go up not down.
couldn't agree more.
let's say there's a $300,000 condo (today) at 5% interest rates - so about $3000 a month for cost of owning
That same condo (ok, I'm using mine as an example) cost $150k two years ago, at 6.5% interest rates then, for a $1400 a month total cost (taxes, condo association, etc)
So, now someone owns that condo for $300,000 and their payment is twice what mine was
But, let's say you get a $30,000 bonus one year and apply it to the asset. He'd owe $270k, where I would have owed $120k
Bottom line, it's hopeless to pay off an overpriced asset faster than 30 years, especially if you have an ARM. And you'll also lose bad every month if you try to rent out an overpriced asset
Yet that's what fools are doing today. For one reason - they EXPECT future appreciation.
Big mistake.
My wife and I owned a furniture store [we sold out in 2002]. We sold 85% on credit. Our sales approach ALWAYS focused on finding out how much the prospect could afford in payments. That's all they were concerned about.
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