Market Conditions: Sales of High End Homes are Frozen

The Wall Street Journal discussed the lack of sales of high end homes today and compares Schaumburg and Kenilworth (and the north shore.)

While it doesn’t mention Chicago’s high end home market, I think it’s relevant enough to quote here.

In the article, one seller in Northfield cut her price by a million dollars and then the only offer she received (and rejected) was for under her 1999 purchase price. The seller ended up renting it out instead.

Will Homedelete be right? Will we go back to 1999 prices?

Sales were  up 41% in June in Schaumburg where there was a median income in 2007 of $65,000. Bidding wars have broken out.

“I can’t even  tell you how many I’ve been in over the last two months,” says Joe Stacy,  a local real estate agent.

But in Kenilworth, with a median income of $230,000, just 13 homes have sold this year leaving 65 more on the market.

“We’re extremely oversupplied,” says Sherry Molitor, a local real estate agent. “Sellers are struggling to realize that we’re back to 2001-2002 prices.”

In another example in the article, a Kenilworth owner bought a 5-bedroom Dutch colonial 5 years ago for $1.3 million using a 25% down payment obtained from selling two prior homes. The husband lost his job in December and took a lower paying one causing the owners to miss one mortgage payment in the spring.

They are now current but local real estate agents told the sellers they would be lucky to sell the house for $960,000, the amount owed on the jumbo adjustable mortgage.

“We’re considered either rich people who don’t deserve help or deadbeats who bought too much house,” says Kelli Kaborl, a 42-year old substitute high school teacher.”I don’t see Washington prepared to deal with us.”

High End Homes Frozen Out of Budding Housing Rebound [Wall Street Journal, Nick Timiraos and James R. Hagerty, August 3, 2009] [subscription required]

153 Responses to “Market Conditions: Sales of High End Homes are Frozen”

  1. It would be interesting to see some data showing out of all high end home/condo sales during the bubble, how many buyers actually had real downpayments, real (verfiable, legal) income and some real assets in their name.

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  2. “We’re considered either rich people who don’t deserve help or deadbeats who bought too much house,” says Kelli Kaborl, a 42-year old substitute high school teacher.”

    “Five years ago, she and her husband bought their five-bedroom Dutch colonial in Kenilworth for $1.3 million with a 25% down payment using equity they’d built up from two previous homes.”

    I think she hit the nail on the head in terms of what she’s considered. She’s a substitute teacher who bought a 1.3MM house. She got the downpayment for this house not from real wages and savings but from the ponzi economics of the RE bubble. I really hope none of my tax dollars go towards people like this.

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  3. “or deadbeats who bought too much house,” says Kelli Kaborl, a 42-year old substitute high school teacher.””

    This one…

    LOL @ substitute teachers buying 1.3 million dollar homes… then again they didn’t say what her husband did, but that’s pretty amusing anyway.

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  4. Substitute teacher in a 1.3 million dollar home? That must be a typo or something but these types of shenanigans only happened on the south side, never, ever on the north shore or lincoln park. Everyone who lives there must have money as evidenced by the fact they live there.

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  5. I’m going to go out on a limb and guess that SHE is a substitute teacher just for something to do and that HE is the one that makes the money in the family.

    You people just see fraud everywhere. It is kind of scary the kind of blinders you walk around with.

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  6. LMAO at the comments from the tinfoil hat contingent.

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  7. Geez Bob, do you have the standard “there is no way they can afford a house no matter what, they bought a house with funny money, etc” on auto copy/paste? You might not realize it but being a teacher is the #1 occupation for non-breadwinners of millionaire households (read “the millionaire next door” by Dr. Thomas Stanley to get rid of your hate for millionaire households. As you may learn, the VAST majority of millionaires are normal people who save, budget, and spend well below their income. You would also learn that the most popular car (at the time) for millionaire households is a Jeep Grand Cherokee). That response is getting old, as I’ve seen it come from you on at least 100+ threads. I mean, you might have a point from time to time, but everyone who reads this board regularly already knows you believe that to be the case for everyone who has a house 400K+, so you shoud really only comment on financing when you believe they might have actually done some due-diligence.

    I, for one, give them props for putting $300K+ down for this, when they could have put 5% down and bought a Porsche with the “savings”. They also stayed in the house for 5 years, which is usually what everyone recommends as a minimum, so they certainly weren’t trying to flip this house, and I’m sure they wouldn’t be selling now if the Mr. hadn’t lost his, presumably, high paying job. I mean, not everyone should limit themselves to a $500K house while anticipating a layoff 5 years down the line otherwise no one would buy a house.

    Anyways, these sellers are SOL and out $300K so I feel for them when they were definitely more responsible than 95% of the other “get rich quick” RE “pros” that flooded the market at the time.

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  8. “HE is the one that makes the money in the family.”

    No he is the one that MADE the money in the family. Lets get familiarized with past tense. And yes it is a sad tale of falling on harder times. Yes even high earners lose their jobs, too.

    But don’t confuse these people for living modestly and falling upon hard times. They bought a palatial residence. They got their downpayment for this residence from the RE bubble (again, not real wages).

    What the RE bubble giveth during its inflation the bubble taketh during its deflation.

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  9. Nothing new here, market is frozen because of lack of financing and I think people are also starting to realize they don’t need some big ass house to be happy. Even people who can afford these homes and can get financing are having second thoughts and reshuffling their priorities in life.

    Bob, the article said her husband lost his job. My guess is the wife hardly contributed anything to total household income. Without knowing what the husband did/does for a living we have no way to know if they truly bought too much house.

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  10. In case you want to get the whole story, here is the section of the article that pertains to the substitue teacher.

    “Some residents are angry because policymakers in Washington specifically excluded jumbo mortgages in housing-rescue plans. “We’re considered either rich people who don’t deserve help or deadbeats who bought too much house,” says Kelli Kobor, a 42-year-old substitute high school teacher. “I don’t see Washington prepared to deal with us.”

    Five years ago, she and her husband bought their five-bedroom Dutch colonial in Kenilworth for $1.3 million with a 25% down payment using equity they’d built up from two previous homes. Her husband lost his job in December and took a new one that pays much less, making it harder to make mortgage payments. Ms. Kobor says she missed her first mortgage payment in the spring but is now current.

    In July, her mortgage servicer agreed to temporarily lower her interest rate for six months, and the unpaid balance will go into a balloon payment due when the loan is paid off.

    Like many young families that move to Kenilworth, Ms. Kobor and her husband were drawn by the town’s top-rated public elementary school, which is just a few steps from their home, and the tight-knit community of 800 households.

    Local real-estate agents have told her she’d be lucky to sell the house for the $960,000 that’s owed on their jumbo adjustable-rate mortgage. Her lender, Thornburg Mortgage, specialized in prime jumbo loans and filed for protection from creditors under bankruptcy law in March.”

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  11. ChiGuy,

    I can empathize with them and still be against any taxpayer monies used to help out their situation. These people are only ‘struggling’ in the comparative sense of the word in that they are worse off today than they were in the past.

    The article said they were angry with Washington. Just the typical entitlement I want a hand-out paradigm that seems all too prevalent these days. Tough crap no handout for you..next.

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  12. Hopefully the husband worked for AIG financial products… piss on all those ****faces.

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  13. and before you rhetorically ask “who made you boss of CC, don’t censor me”, I am simply trying to liven up the dialogue here b/c hearing “rich people suck, are irresponsible, and no one should feel sorry for them” is just extremely mundane, IMHO.

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  14. So there’s nothing wrong with buying a $1,300,000 home with $300,000 down and financing the other mil? Are you kidding me? In 2004 these buyers thought they were financial wizards but today they are financial losers.

    I could have told you in 2004 that was a disaster waiting to happen. And it is a disaster, they’re missing mortgage payments, they’ve lost $300k on the house, and I’m supposed to say “Oh I feel bad for you because your gamble didn’t pay off?”

    These owners were living the dream, and they gambled and lost. Instead of using the $300k and buying a house in neighboring glenview or northbrook for $600k with a $300k mortgage they gambled the $300k by leveraging it to the max and they lost. I’d like to buy a nice piece of real estate someday but when specuvestors like these controlled the market for so long you were forced to buy according to their rules, which generally included leverage to the max. I know 30 somethings on the northside who followed this very same pattern, buy brick home in good neighborhood, put down a couple hundred K and finance the other million. So now anybody who wants to buy a house in that area also has to finance a large mortgage on top of an enormous down payment because these bozos.

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  15. Bob on August 3rd, 2009 at 9:14 am
    “They bought a palatial residence.”

    Compared to your hovel, I’ve no doubt you’d think of their place as “palatial”, but at ‘only’ $1.3MM in Kenilworth, I’d bet that this is a pretty average home.

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  16. Without having seen the house, I’m going to go out on a limb and say that a $1.3 million, 5 bedroom house in Kenilworth isn’t exactly a “palatial residence.”

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  17. Bob, you come across as a really resentful loser. Have a nice day.

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  18. Nobody ever said rich people suck. you’re reading too much into things. The theme around here is that people who act and spend like they are rich on nothing more than credit totally suck. These owners financed a million dollars. Seriously, think about that. A million dollars!

    ““rich people suck, are irresponsible, and no one should feel sorry for them” “

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  19. “Substitute teacher in a 1.3 million dollar home? That must be a typo or something ”

    It appears that we need a lesson in reading comprehension here:

    “The husband lost his job in December and took a lower paying”

    They weren’t buying the house on the basis of a substitute teaching salary; they were relying on HIS job.

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  20. But it sure beats a $700 a month studio in Lakeview…

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  21. “Seriously, think about that. A million dollars!”

    I know it’s hard for people like you to understand, but there are LOTS of families in the Chicago area that make $250,000+. I don’t think that buying a home 4 times your income is over leveraged.

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  22. I don’t know what the husband made. But I am deeply suspicious that the DTI ratios were not in synch when they took out a 900k mortgage. Lets see wife as substitute teacher: 60k max.
    Husband would need income of 240k/yr to put them at 300k (house as 3x income).

    Dunno about you but unless you work in an established family business 240k/yr jobs are anything but secure.

    Go ahead and call me tinfoil hat. I can see what a default risk they were back in 2004 and I wouldn’t have given them the loan. In fact apparently few sensible banks would as Thornburg mortgage wound up giving them the loan.

    Guess who is no longer in business and was one of the top five originators of Option-ARMs? Thornburg Mortage. You didn’t think that was random chance or coincidence it wasn’t Chase bank did you? Where theres smoke theres fire..

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  23. I can’t figure out why they used Thornberg Mortgage and not one of the other thousands of banks or credit unions? It is SUCH a MYSTERY! Maybe the toaster was nicer?

    “Bob, you come across as a really resentful loser. Have a nice day.”

    I’m not resentful of their situation now. I am resentful their behavior led to the near collapse of the financial system and wrecked the economy. I am grateful there are no more Thornburg Mortgages around to perpetuate the cycle of ponzi RE economics based on financial chicanery.

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  24. Bob:

    Thornburg had one of the lowest default rates of any mortgage lender. There default rate was something like less than .1%. Thornburg went out of business due to market to market accounting, not because their loans were defaulting.

    Thornburg specialized in jumbo financing for wealthier individuals.

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  25. Why is a $240k/year job any less secure than a normal job? It’s not like he needed $2m a year, which would make him more dependent on bonuses and/or commissions. There are plenty of people who make a quarter million a year regularly, that’s not that hard for a highly educated person in Chicago.

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  26. HD-
    First, 25% down is hardly “leveraging to the max”
    I wouldn’t lump these people in the same group as people who put 5% down, which they could have done. Yes, they took a gamble, as apparently, in your mind, everyone did who bought a house from 2000-2007. I honestly don’t see anything wrong with that, and it makes financial sense, considering they could put the other downpayment moneies into CDs, kid’s college fund, the stock market, etc.

    I also find it funny how you criticize them for buying a house for 1.3M and saying they could have bought somewhere else for $600K, forgetting that you’d be making the same stupid statement now, had they bought a house for $600K in 2004 and were underwater now. You probably would’ve said “they could’ve bought a $200K house in Joliet”

    And apparenlty the peolpe who can afford multi 100K cash downpayments by their 30s are doing something right, and are probably more successful than 99% on this board.

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  27. Yeah, if they mentioned the husband partner at a big four accounting firm like his neighbors then WSJ would have never done the article. There are plenty of families who make $250k plus but apparently not this one! And apparently few others who want to pay 2004 pricing in Kenilworth. That’s what makes the story. What’s so hard about that to understand?

    “T2 on August 3rd, 2009 at 9:29 am

    “Seriously, think about that. A million dollars!”

    I know it’s hard for people like you to understand, but there are LOTS of families in the Chicago area that make $250,000+. I don’t think that buying a home 4 times your income is over leveraged.”

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  28. homedelete,

    you really need come off the schtick here.

    30% down, even if that means you borrow a million isn’t, and shouldn’t be though of as, leveraged to the hilt. Even though we are going through the worst housing contractions in a 100 years it sounds like they could still get out of it without having to have a short sale and without bringing money to the table. Sure, they might lose their down payment, but given the circumstances that is to be expected. These people were so much more responsible than people that put 0 or 5% down that your arguments are just crazy.

    Don’t stare at the big headline number, but think about the ratios and these people weren’t that bad and compared to a whole lot of others aren’t in that bad of a place.

    Oh and Bob, I’ve got a newsflash for you, nobody that buys a house over $1MM with 30% down gets the downpayment from real wages. They get it by redeploying capital from somewhere else. That could be from the stock market, or it could be from other real estate but nobody just lets extra income cash sit around in the bank until they build up $300k. That be just about the stupidest thing you could do fiscally. It is probably good financial sense to build up maybe $30k in cash as a cushion (some say 6 months of expenses), but to build up 10x that without putting it to work somewhere is stupid beyond belief.

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  29. How does losing $300K on house you paid too much for beat living in a $700 a month studio in Lakeview? No thanks, I’d take the studio I could pay cash for.

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  30. “How does losing $300K on house you paid too much for beat living in a $700 a month studio in Lakeview? ”

    Because you lived in a nice house for 5 yeares instead of paying $700 a month to live in a cramped shithole?

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  31. “that’s not that hard for a highly educated person in Chicago.”

    I’m pretty sure stats would prove you wrong. What percentile is the 250k earner? Top 1% of earners? Even for a couple with that combined income I’d guess they are in the top 3%.

    Russ I was mistaken when I said they were one of the big originators of option ARMs. They weren’t, but they were definitely dabbling in them as well as all other sorts of new financial products.

    http://goliath.ecnext.com/coms2/gi_0199-6718994/Above-the-fray-Thornburg-Mortgage.html

    The really sad/unfair part of this isn’t that these people deserve any government assistance–its that our government provided assistance to some banks to take over the failed option ARM originators.

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  32. “Because you lived in a nice house for 5 yeares instead of paying $700 a month to live in a cramped shithole?”

    300k / 60 months = 5k/month.

    Hey I can think of nicer places to live than even Kenilworth for 5k/month, but to each their own I suppose.

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  33. Uh huh. The millionaires I know including an aunt, two uncles, and a father-in-law, saved, saved saved their income and practiced CD laddering before it returned a better return than the S&P. The money was sitting in the bank so to speak in CDs not in money markets. So plenty of people let extra income cash sit around in the bank until they build up $300k.

    “hat could be from the stock market, or it could be from other real estate but nobody just lets extra income cash sit around in the bank until they build up $300k.”

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  34. well if they sell at $960k they basically paid $300k to live in this place for 5 years. or $5,000 per month. wouldn’t be surprised if that’s what it cost to rent the place out. they got out with even money.

    but one thing we do know is that they got a jumbo ARM. who does that?

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  35. Bob,
    You need to make roughly $350k to be in the top 1% of wage earners. There are 9 million people in greater Chicago. If you assume that half of them are in the labor force (probably higher in reality), then 45,000 people are in the top 1% making over $350k. Add in dual income families and you could easily have 150,000+ families in the region who make $250k or more. The fact that a few of them got screwed because the bread-winner lost his job is not a sign of irresponsibility.

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  36. jr,

    Thats just the amount of their capital loss per month. If you add in their mortgage payments, taxes and insurance, I estimate its closer to 10k/month to live here, at least.

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  37. All this does is illustrate that the people who were responsible (30% down on a 1.2mm house)got absolutely screwed, and the irresponsible morons make out like bandits.

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  38. mj –

    we don’t know how responsible these people are. if i win the lotto and put all money money toward a 50% down payment on a $10M dollar home (in a bubble), it’s not all that responsible if i only make $30k a year.

    frankly, i wouldn’t have felt comfortable buying this place until i was making $400-500k. to each their own i suppose.

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  39. “The fact that a few of them got screwed because the bread-winner lost his job is not a sign of irresponsibility.”

    Agreed. I don’t know the terms of their ARM but if it wasn’t an option..they just fell on hard times, it happens. At least they won’t be dependent on taxpayer dollars.

    I’ve commented before on the effect government programs are having on the low end and how pronounced the differences are once you get out of this realm. The bang per buck dollar really increases once you leave the low end where anybody can still get a loan.

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  40. T2

    actually there are around 600 families in chicago who make more then 250K, I would guess most of them are wage earners in areas taking a big hit lately, I-banking, lawyers

    everyone WANTS to sell to them of course so the high end of the market is flooded, and of course you removed the ability for alot of border line families / people to go into this market

    HD may rant alot, but he has some valid points aobut how the market became self poisoning for the last 9 years or so

    “I know it’s hard for people like you to understand, but there are LOTS of families in the Chicago area that make $250,000+. I don’t think that buying a home 4 times your income is over leveraged. “

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  41. Do not EVER confuse debt for wealth. $300k down on a $1,300,000 home is extreme leverage. Percentage wise it’s probably in line with DTI but a $1,000,000 mortgage is a recipe for disaster for many households. the proof is in the puddin’

    “MJ on August 3rd, 2009 at 9:58 am

    All this does is illustrate that the people who were responsible (30% down on a 1.2mm house)got absolutely screwed, and the irresponsible morons make out like bandits.”

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  42. I agree with MJ,

    “All this does is illustrate that the people who were responsible (30% down on a 1.2mm house)got absolutely screwed, and the irresponsible morons make out like bandits.”

    Cause i am one of the responsible screwed people, and my tax dollars are going to pay for idiots that maxed out everything and now will get a fresh start. while i will be stuck in my place for another 5 years or more.
    I am not asking for any hand out, but i dont want my money (taxes) going to people who dont deserve it, but it is!

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  43. “actually there are around 600 families in chicago who make more then 250K”

    Is that a typo?

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  44. “but i dont want my money (taxes) going to people who dont deserve it, but it is!”

    Don’t worry. Most of your taxpayer dollars in the form of handouts actually went to corporations that don’t deserve it, not people.

    The amount of government housing assistance for those in over their heads on their home is infinitesimal compared to the trillions the government basically threw at certain financial firms.

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  45. ” but i dont want my money (taxes) going to people who dont deserve it, but it is!”

    So stop voting for these idiotic democrats!

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  46. Marry into a rich north shore family with plenty of old money!

    “And apparenlty the peolpe who can afford multi 100K cash downpayments by their 30s are doing something right, and are probably more successful than 99% on this board.”

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  47. “Haywood on August 3rd, 2009 at 10:04 am

    actually there are around 600 families in chicago who make more then 250K”

    LOL. Source?

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  48. The responsible ones will continue to be screwed… The govt has taken a stance that anyone who is “rich” (which of course is defined as $75K)is evil and deserved this and that anyone who was an absolute moron and bought a $600K house on a $30K income got taken advantage of by Wall Street, mortgage brokers and all the other villans out there. The idiots will get bailed out by the government and the responsible ones will lose whatever equity they had in there homes and then get nothing.

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  49. ““actually there are around 600 families in chicago who make more then 250K”

    Is that a typo?”

    That has to be a typo because I know of over 600 people at my office alone that are in that group or close to it. (Yay lawyers!)

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  50. “that anyone who was an absolute moron and bought a $600K house on a $30K income got taken advantage of by Wall Street, mortgage brokers and all the other villans out there. ”

    This is the crux of Lisa Madigan’s suit against Wells Fargo. Political grandstanding at its finest and rallying populist sentiment against an evil financial firm.

    I’m not a fan of Madigan or WFC so its entertaining to see them go at it. Anything she can do to make life more difficult for them or extract money is a good, IMO.

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  51. 26.7% down. $350k dp on $1.31mm purchase price. $960k mtg.

    Funny thing about using Thornburg–his ex-job was with a bank. He was an SVP when they bought the house–I’m sure he made over $250k.

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  52. “So stop voting for these idiotic democrats!” hehehehe sonies, i will refrain from commenting on that cause that will through the above topic way off course.

    someone explain why 2 of my friends bought a house in the past two years, one with no money down (heloc, and ARM) and another with 5% down. both houses twice easily twice the size of mine. the one with 5% down bought a bigger house in the down housing market and walked away from his house other house (forclosed) pulled some scam. and the other with no money down is doing a short sale.

    now when i bought in 2002 i came in with 47% down due to the fact i got a small house in a so-so hood with the idea in 10 years i would upgrade.

    so why is it i am the one who is getting screwed?

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  53. You guys need to get out and meet some people if you think there are only 600 folks who make $250k/yr in Chicago. $250k is not a lot of money… that is just two reasonably successful people.

    However, $250k is not enough to carry a $1,000,000 mortgage. You might qualify, but it is near the edge of what is prudent imho. Most of the remaining jumbo lenders are cracking down dramatically on DTI requirements.

    We had one bank deny a loan for an i-banker making $600k-$800k every year for the past four years because they were afraid he wouldn’t get his bonus this year.

    Most of my clients who make $250k usually spend around $500-$750k at most.

    Ideally, you should buy a home that you can carry off one income or if your spouse’s income is severly reduced.

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  54. Or during the boom if your income was reduced you simply sold the house for profit profit profit!

    “Ideally, you should buy a home that you can carry off one income or if your spouse’s income is severly reduced.”

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  55. “Ideally, you should buy a home that you can carry off one income or if your spouse’s income is severly reduced.”

    Exactly. You should ideally be able to cover all expenses (house, food, car, insurance, etc) off one income. But maybe I’m too old fashioned.

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  56. “Or during the boom if your income was reduced you simply sold the house for profit profit profit!”

    Or you just HELOC the heck out of it. The Fed and Congress were all about this ‘house as ATM’ strategy: whats a 4% debt service burden when you get a tax break making it sub 3%?

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  57. If $250k a year clients are buying $500k to $750k homes then what about the rest of us? I thought that in this city $500k was nothing?

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  58. “I thought that in this city $500k was nothing?”

    No thats only in ‘up and coming’ neighborhoods where you require either two bus trips or a bus and a train to get to downtown. LMAO.

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  59. “Ideally, you should buy a home that you can carry off one income or if your spouse’s income is severly reduced.”

    thats what we did, so when the little one popped out she is able to leave her job and is now a stay at home mom of my salary. given i had to cut out most of the weekend dinning at nice places. but hey chilli’s is family friendly 🙂

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  60. Newsflash, Dr. Vaish makes over 250K a year. Just because you make money, does not mean you should spend above your means and speculate like crazy.

    Must suck to be one of the sheeple apologists on this thread. Let me guess, they’re realtors, speculators or the idiots who bought in the peak and need to sell soon.

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  61. This was an interesting article and seems to have caught the attention of a lot of acquaintances who live in the area today.

    The Kenilworth home in question is by no means a grand residence compared to others in that town and the surrounding North Shore communities. Kenilworth is also by no means a gilted community of trust fund beneficiaries and captains of industry — it also has many more modestly priced houses on the west side and in certain parts of the east side. In fact, many are on the market in the $500-$600k range for 3-4 bedrooms.

    As many on the board have already pointed out, the husband was in fact the primary breadwinner in the family (confirmed by a 2 minute desktop research exercise which suggested his income, in better years, would have supported the purchase). As we all know, high one-breadwinner salaries are not atypical in Chicago’s traditional suburbs, especially the affluent ones.

    The point I tend to agree with the cynics on is the $960,000 mortgage. At a certain point, it becomes difficult to sustain that level of leverage with the vast majority of professional salaries available, save for senior named officers and directors of large publicly traded corporations. Kenilworth taxes, like the others in the area, are also extremely high — I bet close to $25,000 per year on the house in question. Bottom line is that $1M+ houses need to be over-equitized (50% or more is not unreasonable). This should not be an issue for wealthy buyers who either have the savings to do this or could pay down their mortgages with other assets if need be.

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  62. sorry, actually have to work today,

    but I think Russ hit on something, a 2 income house hold of 250K is not the same as an indivdual hitting that income point

    http://www.illinoisproperty.com/chicago-real-estate/income.aspx

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  63. “Kenilworth taxes, like the others in the area, are also extremely high — I bet close to $25,000 per year on the house in question”

    $20,460 in 2008 (for 2007 taxes).

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  64. ok, busy at work today,

    First, glad I could provide a laugh

    second, my bad

    but a quick search finds the are roughly 105,000 houshoulds registering 200K or more in income in IL

    that is spread across the state, I couldn’t find anything reliable for the greater Chicago area though (nothing that could be broken down on my lunch time anyway since I dont have interns like HD)

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  65. SVP at a bank is easily making 250k+. Together, they were making at least 300, probably closer to 350-400 total when they bought this house.

    Taking a million dollar mortgage was risky but IMO not ridiculous on that level of income, particularly because they put down over 25% up front.

    Let’s face it, they bought at the worst time possible. If they bought this house in 95% of other 5 year time periods this discussion wouldn’t be happening. Worst case scenario hit, they probably need to sell their home for a 30%+ loss, and move to a more upper middle class town than Kenilworth.

    The takeaway is that people should always consider “worst case scenarios” when buying a home. I think most people don’t consider them and even though they only happen a small amount of the time, when they do, the effects can be damaging on more than just a financial perspective.

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  66. I have law clerks, G has summer interns.

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  67. “Bottom line is that $1M+ houses need to be over-equitized (50% or more is not unreasonable).”

    This is the only part I don’t understand here. Do you really think that you should have 50% equity in your home? That is crazy regardless of amount of debt (I don’t care if it is a $100k mortgage or a $1MM mortgage). You can be doing a lot better things with that much capital than keeping it all in your house.

    You are much better off with $300k in your house and $300k in other investments and a $900k mortgage on your $1.2MM house than to have a $600k in your house and a $600k mortgage without any other substantial investments.

    Diversification is your friend and the tax benefit of having a substantial mortgage shouldn’t be overlooked (i.e. the gov’t pays ~40% of my mortgage interest payment).

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  68. “Diversification is your friend and the tax benefit of having a substantial mortgage shouldn’t be overlooked (i.e. the gov’t pays ~40% of my mortgage interest payment).”

    This is good armchair financial advice for normal times for most people. Unfortunately we aren’t in normal times anymore (and many of us aren’t typical people).

    Whats the highest yielding money market you can get these days? 2.3%.

    In terms of 40% of your mortgage, its likely closer to 35%: you lose the standard deduction and the top marginal rate is only 35%.

    Whats the cost of a fixed mortgage after tax? Lets assume a 5% rate for simplicity. 5 x (1 – .35) = 3.25% after tax cost of debt. 3.25% is greater than 2.3%.

    And you’re assuming everyone qualifies for the mortgage interest deduction: there are phase out limits for that as well as the AMT which will hit you at some point anyway.

    Basically I’m not sure diversification makes sense in a ZIRP and potentially deflationary environment.

    But congrats on getting such a tax break. I hope you know in the aggregate it is no great deal and just means you’re paying more for your house because most take advantage of this tax break and it just feeds into pricing equilibrium. What people save in taxes they just buy more house with, essentially.

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  69. ““Bottom line is that $1M+ houses need to be over-equitized (50% or more is not unreasonable).”

    This is the only part I don’t understand here. Do you really think that you should have 50% equity in your home? That is crazy regardless of amount of debt (I don’t care if it is a $100k mortgage or a $1MM mortgage). You can be doing a lot better things with that much capital than keeping it all in your house.”

    The house itself doesn’t necessarily have to be over-equitized but the owners should be, meaning they should have other assets, cash, etc. to be able to pay for it should they run into any trouble like this couple did.

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  70. KP,
    “Do you really think that you should have 50% equity in your home?”
    i answer yes
    i would like 75% equity in my home, but that’s me. i see your point on;
    “You are much better off with $300k in your house and $300k in other investments and a $900k mortgage on your $1.2MM house than to have a $600k in your house and a $600k mortgage without any other substantial investments. Diversification is your friend and the tax benefit of having a substantial mortgage shouldn’t be overlooked (i.e. the gov’t pays ~40% of my mortgage interest payment).”

    but i came from lower middles class and worked my way up, i saw first hand tough situations.
    i would rather be prepared for when SHYT HITS THE FAN. no its not going to maximize my return. and most likely i wont break out of middle class. but like i said thats me.

    look at this kenilworth family, dropped 30% used the rest on invesments (assuming). shyt hit the fan he got laid off took a lower paying job, lost a butt load in investments (assuming). now if he dropped 60% even if he lost hes job his monthly nut would be low enough to ride out this bad bad time.
    but if shyt didnt hit the fan, he would be living the life. but thats a gamble

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  71. “$20,460 in 2008 (for 2007 taxes).”

    I didn’t bother to look, but I was pretty darn close.

    As for my equitizing comment, I am sure kp knows that you lose deductibility beyond $1 million (assuming no second home to add to that). So, actually, it doesnt make sense to borrow regardless.

    As for putting your money elsewhere, I guess it all depends on your tax effected return. I know a lot of people who didn’t clear 5% over the last 5, even 10 years…

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  72. Well said Kimo. Anyone who is mindlessly extolling the virtues of ‘diversification’ (here really a codeword for stocks) hasn’t been paying attention for the past two years.

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  73. I understand the stats being thrown around about 4x income not being over-leveraged… but man… no way would I be comfortable with that if I was the sole income earner. I’m pretty confident about not losing my job any time real soon, and I don’t make anywhere near as much money as this guy did, but there’s no way I would make this same decision to buy as much as house as he did.

    Especially with the scale being what it is: one million dollars of debt. In a “jumbo” ARM, no less. Not counting car, credit card, student loans and/or home equity debts if any.

    Way too much responsibility on my shoulders. Having a Kenilworth address is not worth it to me.

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  74. I’m not a fan of looking at the market over two years, five years, or even ten years.

    Dollar cost average a little bit in every month over 20 years and reinvest your dividends (which you should have at least some of in any good diversified portfolio) and you still can’t beat the stock market in the long haul.

    If it works for Warren Buffet it works for me.

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  75. Obviously, your “investment advice” is all on the margin. And, it all unravels when a levered asset like real estate depreciates, as we all now know it can.

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  76. kp, the system welcomes you as another true believer.

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  77. John (a different one) on August 4th, 2009 at 5:36 am

    Why should Washington need to do anything for them? The sense of entitlement out there nowadays is off the charts and it’s amusing to see it’s alive and kicking even at the gates of heaven up there in Kenilworth.

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  78. “Bottom line is that $1M+ houses need to be over-equitized (50% or more is not unreasonable).”

    But $200K houses only need to have 3% equity? Makes no sense.

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  79. A quick note to the people wondering how a substitute teacher can afford a $1.3M house: she’s not the primary earner of the family. Duh!

    Family income was well within recommended guidelines and the down payment is listed in the article as 25%.

    Some of you need to slow down and read before you come to conclusions.

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  80. HD states: The millionaires I know including an aunt, two uncles, and a father-in-law, saved, saved saved their income and practiced CD laddering before it returned a better return than the S&P. The money was sitting in the bank so to speak in CDs not in money markets. So plenty of people let extra income cash sit around in the bank until they build up $300k.

    Well, at least we know that HD’s anal-retentiveness and lack of ability to take risk is genetic. He comes from a family of “thrifty” people who prefer to look at their bankbooks than own a home or live in an exciting neighborhood. Perhaps there will be a cure someday.

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  81. “who prefer to look at their bankbooks than own a home or live in an exciting neighborhood. Perhaps there will be a cure someday.”

    I’m gonna look at my bankbook and rent a home in an exciting neighborhood! Best of both worlds..hooray for me!

    😀

    Sorry chum renting is a perfect substitute for ‘owning’ just with increased flexibility and lower total cost of ownership. You can’t get around the numbers here, Mr. Poet.

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  82. “But $200K houses only need to have 3% equity? Makes no sense.”

    No bank would underwrith with only 3.5% equity anymore. Instead it is us taxpayers that are on the hook for any losses incurred by these toxic FHA loans. And FHA raised its downpayment to 3.5% from 3% within the last two years I believe.

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  83. “And FHA raised its downpayment to 3.5% from 3% within the last two years I believe.”

    That happened January 2009

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  84. Bob, how is FHA any more toxic now than it has always been? FHA has much more stricter guidelines regarding DTIs and FICO scores than anything subprime. The only significant change to FHA has been the elimation of downpayment grants (how you did zero down with FHA) and raising the down payment to 3.5%. Both of these improve origination quality.

    Most banks won’t touch a FHA deal with less than a 620 FICO score and many are raising the minimum to 660. Not too mention the max DTI is 43% with a manual underwrite.

    There is no doubt a lot of FHA garbage out there, but I don’t think it is any worse than it was before. What we are seeing though is that many of the subprime boiler rooms tried to remake themselves into FHA lenders which wisely FHA has cracked down on. In addition, FHA is the ONLY GAME left unless you are an absolutely perfect borrower. FHA loan origination volume is through the roof because of this.

    In fact, I would say that FHA quality is improving in some areas because quite a few prime borrowers are now using FHA because depending on the scenario, FHA may be cheaper than doing a conventional loan due to increased mortgage insurance costs and loan level pricing hits from Fannie Mae.

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  85. You obviously know nothing about the parable of the ant and the grasshopper. They’re millionaires and they live off the interest of their CD (even in this low interest environment), and they pay for their children’s and grandchildren’s college education. When you’re old you will be broke and living off Medicaid in a crappy state run nursing home.

    “#John 2 on August 4th, 2009 at 9:17 am

    HD states: The millionaires I know including an aunt, two uncles, and a father-in-law, saved, saved saved their income and practiced CD laddering before it returned a better return than the S&P. The money was sitting in the bank so to speak in CDs not in money markets. So plenty of people let extra income cash sit around in the bank until they build up $300k.

    Well, at least we know that HD’s anal-retentiveness and lack of ability to take risk is genetic. He comes from a family of “thrifty” people who prefer to look at their bankbooks than own a home or live in an exciting neighborhood. Perhaps there will be a cure someday.”

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  86. HD,

    John 2 equates being a millionaire with some sort of affliction or disease. I think that says enough about him right there.

    One things for sure, John 2–nothing you say here will bring back your commissions or transaction volume.

    No commissions for you! haha

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  87. Oh this housing crisis is so far from over, it is hysterical. These people just lost $300K, poof, gone, it no longer exists. They obviously spent every single dollar they had on the DP, taxes, upkeep, etc. otherwise they would have had some money to carry them through a year of mortgage payments even if the breadwinner lost their job. What kind of position are they in now? A pretty crappy one that is obvious. They will be lucky to walk away from this thing without bringing any money to the table (does everyone forget the commission they will have to pay the RE agent?) So now they are in their 40’s (perhaps mid-forties by the time the actually sell the house) with $0 money, they can’t even buy another house.,
    What does this do the housing market? Where does the housing market go from here? I would say the majority of all people buying houses of the past 15-20 years prior to the credit fiasco or the last 6 years had to scrimp every last penny they could for a down payment. Though their wages most likely rose over time they were able to upgrade to their next house only through the appreciate of their first house in addition to whatever principal they paid in. Now we are in a scenario where people put little to no money down and the ones who did have lost their entire down payments, only one thing can happen and that is for housing prices to fall even further. That 300K starter house (Condo/Towhome) is going to have to fall to $175-200K, the $500-700K single family home is going to have to come down to $350K-400K. $1M homes that aren’t really $1M homes will have to come back down to $600K-750K. It is a reality.
    As a late twenty-something with a young family, I love this scenario, I was worried I would be priced out of a decent single family home for the rest of my life, this brings things back down to reality. Oh and I put down 20% on townhome and am fairly certain that I can kiss that money good-bye, oh well. I look at it as a sunk cost now. To everyone that put down 20% and is crying about losing your DP, look on the bright side at least you could probably sell your place today w/o owing the bank anything or ruining your credit. The irresponsible people of the world will get what they deserve; they will not be able to purchase a house/car/boat/obtain a loan for anything for a long time. They may get out of their place now but at what price

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  88. What do you think an average person would rather have? Perfect credit and losses in the tens or hundreds of thousands of dollars? Or shot credit but their money back? I know I’m in the latter camp.

    “They may get out of their place now but at what price”

    A much lower price than the prudent savers. Yeah they might have to pay more to get loans from now on, but I guarantee you the increased interest rate is far cheaper than those who legitimately saved and lost a ton. And after 7-10 years its all wiped clean anyway. The no/low downpayment crowd in real estate was/is truly a poison on society.

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  89. Your credit can be easily fixed in a few years… Only idiots would pay tens to hundreds of thousands of dollars to keep their credit score good.

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  90. One thing banks underestimated is how much the character of borrowers has changed over the decades. Even when people were broke, they worked hard and did whatever they could to pay their mortgages.

    However, as banks grew too big to fail and lending went from dealing with a local community banker who went to church with you to mortgages being securitized, banks becoming impersonal with call centers in India and borrowers being reduced to nothing but a FICO score.

    Foreclosure doesn’t seem like a scarlett letter anymore and I think many people have a screw the bank attitude. They want to make good on their debts, but the banks are now so big and impersonal, I think many people just say screw the bank. If the borrower is just treated as a number, then the borrowers are saying I am going to treat you as a faceless corporation and there is no shame in my foreclosure.

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  91. I consider myself well versed in the ins and outs of credit. There is fixable credit like those people with a late payment here or an unpaid medical bill there; and then there are those with unrepairable credit: foreclosures, 120+ day lates, charge offs, BK. There’s no way to fix those credit scores. The only real way to fix horrendous credit (like after a foreclosure) is to pay all your bills, on time, all the time. 3 years out from BK you’ll have a score in the 600’s but unlikely to reach the 700’s until the foreclosure judgment and/or BK judgment disappears. It takes years of established credit history to reach the 800’s.

    “Sonies on August 4th, 2009 at 12:53 pm

    Your credit can be easily fixed in a few years… Only idiots would pay tens to hundreds of thousands of dollars to keep their credit score good.

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  92. So you would walk away from a loan Bob just like the rest of the scum you are so adamantly against? That’s fine just figure out what side of the fence you are on.

    My point is that if you bought responsibly, losing your downpayment of 20% over a 5 year period shouldn’t really mean anything. It was an investment, you lost, but you can still move on because you did the responsible thing. People on here complaining that they do the responsible thing and are f’ed maybe didn’t really do the responsible thing. Just because you could put down 20% doesn’t really mean you could afford the house. If you you are like HD’s grammy and grampy who saved diligently for 75 years off little income and now have $1M in the bank, but only make $1000/month off the interest in your CD it doesn’t mean you go buy a $1M house in cash because you won’t be able to afford the taxes (HD’s grandma woudl tell you the same thing). Same thing applies with the downpayment, if somehow you saved 100K over a period of years but you only make 75K, it doesn’t mean you go buy a 500K house because you have the 20% to do so.

    Housing prices will continue to fall for this very reason, lots of people did do the “responsible thing” and put down 15-20%, they are out that money, they have no other money, they are going to be forced to stick it out for another 10 years if they want to re-coup their loss. It seems to me that people in this camp have limited choices; sell and lose your downpayment and find a place to rent or sit tight and hope your home returns to value in the next 10 years. Either way houses are not going to be moving like the goverment would like you to believe.

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  93. Sonies – Attitudes like that got us in this mess and will push this country further and further to the brink of disaster. I am going to have to pay 50% taxes to support people with that kind of attitude. I just puked on my desk.

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  94. “The only real way to fix horrendous credit (like after a foreclosure) is to pay all your bills, on time, all the time. 3 years out from BK you’ll have a score in the 600’s but unlikely to reach the 700’s until the foreclosure judgment and/or BK judgment disappears. It takes years of established credit history to reach the 800’s”

    If your house is the only thing bad on your credit report you can easily still be in the 660’s (good enough by a lot to get another home loan) after 2-3 years, possibly sooner as long as you pay your bills on time and don’t rack up more debt.

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  95. Shiphouse, what i’m talking about has already happened, the specuvestors and flippers have already walked away from their extra homes in florida, NV, and Cali.

    Yeah, give the bank back their money, because its “the moral thing to do” because you know, they haven’t been stealing your money already by charging you front loaded interest on that mortgage you took out… fuck the banks, especially since the government wants to bail out these idiots that make billions every quarter and nearly leveraged this country to the brink of bankruptcy.

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  96. “So you would walk away from a loan Bob just like the rest of the scum you are so adamantly against?”

    If you’ve followed my posts for any period of time you would see that I am empathic to those who can’t pay their bills, regardless of their situation. It is, and has always been, the banks and to a lesser extent the government who I fault. You can’t fault a consumer for wanting to overconsume–you fault the institution that allowed them to lever up to the hilt.

    Here in Chicago you are generally right: most people’s losses are under 20% and those with a down payment may have lost it. That would have no bearing on my decision making process to walk, whether I was underwater and to the extent of that would.

    In other states its much more dire: homes depreciating so rapidly they are down 40%. In that case it might be the optimal decision to walk.

    People that use low or no downpayments aren’t “scum”, but it IS a bad practice for broader society, as the losses are instead absorbed by the banks, which can bring the financial system to near collapse as we have seen.

    Walking or not should be a strictly business/economic decision–stop trying to introduce morality into this.

    Why is it whenever a corporation does something to maximize economic value (like maybe declaring BK early or changing terms to creditors) its acceptable and understood but when individuals do it its immoral? You can’t have both–corporations are just agglomerations of people.

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  97. Not my granny: my aunt with a phd, my uncle the engineer and the other the same; and my FIL mid-level executive. They all made decent money and diligently saved.

    You have to strike a decent balance between living paycheck to paycheck and living miserly. A trip to Hawaii every 6 years instead of every 2; eating out once in a while as opposed to twice a weekend; Basic cable vs. the comcast triple play, etc.

    Nobody in this country saves or even understands the concept of saving anymore.

    Nevertheless, I 100% agree with you shiphouse, that this mess isn’t anywhere near played out and the $500-700K single family home is going to have to come down to $350K-400K, it’s going to take years and years to reach that point. the days of cliff diving are nearing and end, and it’s going be a slow continued descent from here onward.

    “If you you are like HD’s grammy and grampy who saved diligently for 75 years off little income and now have $1M in the bank, but only make $1000/month off the interest in your CD it doesn’t mean you go buy a $1M house in cash because you won’t be able to afford the taxes (HD’s grandma woudl tell you the same thing).”

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  98. Sonies, it’s a minimum 3 years out of BK and/or foreclosure for an FHA loan, and that’s if and only if you manage debt wisely every moment of every day afterward, which in the real world, rarely happens. A foreclosure or BK is a scarlet letter for the prime world….sub-prime world will accept you with open arms…

    but if you’ve never been prime in the first place then you’ll even know what you’ve been missing.

    Hope you like your $455 a month for 72 months 2006 Chevy Malibu!

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  99. “Hope you like your $455 a month for 72 months 2006 Chevy Malibu!”
    LOL I love hearing about 72 month car financing at a high rate… frickin robbery!

    And I’m not saying that i’d ever do it (cuz i’m prime bitch!), unless it saved me a substantial amount of $$$, but it would take something crazy to happen for me and my wife to miss a payment.
    I had a close friend that declared BK because it was far smarter to do that than try to pay off all the differences in his ‘multiple’ florida homes. (he leveraged almost a million dollars of zero down crap on a $60k a year income, I told him that was a terrible idea and well now he’s paying the price, obviously)

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  100. HD if you’re more concerned about your credit score than losing tens or hundreds of thousands of dollars I might suggest that you are too dependent on credit to fund your lifestyle.

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  101. Suggest whatever you want but I’m not dependent on credit to fund my lifestyle other than student loans…

    but if it came between losing lots of money or taking a hit to my credit score, of course I would take a hit to my credit score. But it is doubtful most people ever really have that choice…either they’ve already lost the money and the credit score is next, or they don’t have any money to lose so they give up the credit score. The tendency for some humans is entropy in every aspect of their lives…

    “…I might suggest that you are too dependent on credit to fund your lifestyle.

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  102. HD I don’t get any commissions, but I’ll bet you (oh, I forgot you abhor risk) a fair amount that my pension is 150% of your lawyer salary. I have nothing against millionaires (that would be stupid)…just think that people who can’t jump off the fence and get into the mix ought to keep silent about those who do live life.

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  103. If you’re young I wouldnt’ count too on the pension….and you have no idea what i make.

    “John 2 on August 4th, 2009 at 1:54 pm

    HD I don’t get any commissions, but I’ll bet you (oh, I forgot you abhor risk) a fair amount that my pension is 150% of your lawyer salary. I have nothing against millionaires (that would be stupid)…just think that people who can’t jump off the fence and get into the mix ought to keep silent about those who do live life.

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  104. Since when does living life = spending money? Do you also think that debt = wealth?

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  105. “Since when does living life = spending money? Do you also think that debt = wealth?”

    Since he was born and raised within the paradigm that afflicts so many in our country. I can surmise from his statement on pension he is probably a boomer–makes sense. Maybe he isn’t for a personal financial reckoning but I can bet most from his generation are.

    The thing is how hard is the adjustment going to be for those who equate consumerism and spending money with “living life”? Doesn’t sound like an easy paradigm shift for many.

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  106. John 2 – What kind of pension is that? Goverment or Corporate?

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  107. “The thing is how hard is the adjustment going to be for those who equate consumerism and spending money with “living life”?”

    ’tis a funny statement from he who dumps on “hispters” “working” crappy jobs. Seems many of them made that adjustment.

    I’m making sure I’m buried in a casket full of hundreds and gold coins. I just love the feel of money–oh, so precious.

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  108. “Since when does living life = spending money?”
    it doesnt equal but there needs to be a balance there, you cant be tight azz all the time then die early with a bunch of $$$$ in the bank and never getting to see or live “life”. the converse is true also; dont rack up debt like your gonna die next week!

    “Do you also think that debt = wealth?”
    hey it takes money to make money brother! as for me i am shooting to live debt free. after having to work hard and hustle my way through life having debt over you isn’t fun.

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  109. Here is some food for thought on the demographic wave:
    http://www.businessweek.com/magazine/content/09_31/b4141026524433.htm

    Mish sums up some great bullet points on his blog that links to the BW story:
    $400 Billion: Amount that will come out of annual U.S. consumption as thrifty boomers push savings rate from 1% to nearly 5%.

    47%: Boomers share of national disposable income in 2005 before the bubble burst. Boomers contributed only 7% to national savings.

    2.4%: Forecasted GDP growth over the next three decades as boomers ratchet back. GDP has grown 3.2% a year since 1965.

    69%: Portion of boomers aged 54 to 63 who are financially unprepared for retirement.

    78%: Boomers’ share of GDP growth during the bubble years of 1995 to 2005″

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  110. “’tis a funny statement from he who dumps on “hispters” “working” crappy jobs.”

    Yes but the thing is they chose that path and the way they vote politically they WANT OUR money. In any case..watch out for the coming generation sea change..its only getting started but this nasty recession has accelerated the retirement of the first wave..

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  111. Boom goes the dynamite.

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  112. the problem is that as boomers get older they will vote, we know that seniors are a powerful block of votes. they’ll bankrupt themselves and the country and their legacy beyond the grave will be debt and lower standards of living for everyone. Bad things do happen to countries. History is full of empires and countries that existed and expired and are no longer around. Our days came and went and the boomers have blown it all.

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  113. Bob, I know i disagreed with you before, but I could not agree with your more on this. Perhaps this is what sets me off so badly, it is one thing to work hard to try and get ahead and failing (if you want to file BK after that fine, its a business decision I will give you that) but it is another thing when people ride coattails. Allot of people are riding coattails these days. Why should my wealth be re-distributed to the coat-tail riders? Why should I make investments, assume risk, and if I invest/bet wisely give up half of what I made? Who is picking me up when I lose? Nobody. Why should I pay the way for my lazy neighbor’s who are going to leave me holding the bag when they walk away from their mortgages?

    I have no problem paying taxes, I do however, have a problem giving handouts to the lazy, spineless, leaches of the world.

    “Yes but the thing is they chose that path and the way they vote politically they WANT OUR money. In any case..watch out for the coming generation sea change..its only getting started but this nasty recession has accelerated the retirement of the first wave..”

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  114. HD, with the healthcare plan that Obama is going to push through there will not be too many boomers that will survive for very long. I disagree with the plan, but it will dramatically lower the life expectancy in this country and solve the social security funding problem in one swoop.

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  115. “HD, with the healthcare plan that Obama is going to push through there will not be too many boomers that will survive for very long. I disagree with the plan, but it will dramatically lower the life expectancy in this country and solve the social security funding problem in one swoop.”

    OK, too far off topic, but I HAVE to know–what part of the HC plan is reducing medicare? Is it the written on the back of Obama’s “Kenyan birth certificate”?

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  116. government pension; and i also listened to HD’s relatives and saved a bit over the years…and, yes, HD, I do have an idea of what you make…not enough to buy a house.

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  117. God please tell me your GOVERNMENT pension does not EXCEED 100K/year. WTF, WTF.

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  118. I can’t wait until the taxpayers start cutting your lavish pensions. I’ll sign that petition in a heartbeat.

    “John 2 on August 4th, 2009 at 4:10 pm

    government pension; and i also listened to HD’s relatives and saved a bit over the years…and, yes, HD, I do have an idea of what you make…not enough to buy a house.

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  119. “God please tell me your GOVERNMENT pension does not EXCEED 100K/year. WTF, WTF.”

    Former politicians and other high-ranking government officials? Sure. If its anything like the pension calculations for private sector its probably top-3 weighted which means your final three years really determine your pension.

    Also there is a practice they are trying to put a stop to where employees get a large bump in their final three or last year to get a larger pension. Don’t get angry at him he just maximized his income. Its the voters really.

    When I think of democratic voters to hate, its not the likes of people like him that are voting with their economic interests at heart. Its the idiots who vote for other non-economic reasons. Because they truly have little grasp of how bad it is and how wide the gulf between public and private remuneration has become.

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  120. “Its the voters really. … When I think of democratic voters to hate…”

    No, it’s not. It’s the politicians and their friends and family and the unions–cops, firemen, teachers, etc. Orange County, CA (republican hotbed) is just as bad as anyplace else as to public employee pensions.

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  121. echos of market bear arguments

    http://www.boston.com/realestate/news/blogs/renow/2009/08/talk_about_good.html

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  122. Haha! Great link revassal!

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  123. That article was little more than the ‘leap of faith’ argument which for any rational person is the weakest argument of them all.

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  124. what about this:

    http://www.chicagotribune.com/classified/realestate/chi-renovations-sw-zone-29-jul29,0,4054385.story

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  125. HD, if you had been as wrong over the past years, you would also only have hope and faith today.

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  126. The home renovation article is interesting. Many, many people are underwater and won’t be able to sell for a long time. They’re realizing that they have to renovate their current homes because they’re going to have to stay for far longer than the original plan.

    Nothing wrong with this.

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  127. By the way, they’re saying 50% of homeowners will be underwater by 2011 (according to a Deutsche Bank report.)

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  128. How can you renovate if there’s no equity to borrow against? The real estate market is so screwed.

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  129. the only thing I hope is that my faith in the institutions of the United States of America were not unfounded, meaning that it would faithfully execute under the law and ….

    1. prosecute (at minimum investigate) all crimes committed by the financial industry / its government oversight / law or lawmaker

    (until then any arguments for punishing homeowners is petty, the market is doing enough)

    2. tax the financial industries transactions (sales tax)

    etc etc etc etc
    and maybe green energy policy, and other progress now not next decade.

    Housing prices will be fine, if I (or many other people I know) see another good property I’ll (or they) will promise to buy it. I bet really rich people (the people who should pay more taxes) can make investment properties out of these.

    http://www.walletpop.com/blog/2009/08/05/coolest-find-on-craigslist-mansion-living-in-seattle-just-650/

    anyways

    the market is working its selfout, establishing market values for big properties by renting them, it might be like constipation, or something. and when those alt-a things happen it might be like diarrhea the market can’t absorb it; people buy distressed.

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  130. “How can you renovate if there’s no equity to borrow against? The real estate market is so screwed.”

    Um its this amazing thing called CASH. People do have it…

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  131. LOL. HD, seriously sometimes you say the silliest things.

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  132. “Um its this amazing thing called CASH. People do have it…”
    “LOL. HD, seriously sometimes you say the silliest things.”

    Hahahahah. You are all so naive. With all the CASH paying for home renovations and rehabs out there you’d think my brother in law the carpenter would be working 40 hours a week. You think people fork out hard earned cash for that $100,000 addition. Hahahahaha. You’re so ignant and you don’t even know it. Ignorance is bliss…

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  133. If you’re going to rely on CASH and not home equity loans to resuscitate the moribund real estate market …. wow, you guys amaze me.

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  134. Been drinking early today? You sure sound like an idiot in this thread.

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  135. Welcome to the real world Sonies, Madfly.

    * * * * * *

    When Theresa and Rich Stone married a few years ago and realized their Cape Cod home didn’t have enough bedrooms for her son and his daughter, they considered selling it and buying a bigger house in their Oak Lawn neighborhood.

    But their plan was sidelined by the harsh realities of today’s housing market.

    “We started looking around at what was for sale and, with home values [stagnating], figured we wouldn’t be able to sell this place for what we needed,” Theresa Stone said. “We really like this neighborhood and didn’t want to leave it.”

    So they turned to Plan B — renovating their home in the 9000 block of South Austin Avenue. They added three upstairs bedrooms and two bathrooms and expanded their first-floor family room.

    * * * * * *

    Here’s the PIN of the property:
    24-05-107-037-0000

    Purchased 03/15/2001 for $160,000

    Refinance on April 15, 2009 for $316,130.00

    How you like that CASH…?

    And if, like Sabrina suggested, 50% of homeowners will be underwater by 2011…..do you think that will make it EASIER or HARDER to get a home renovation loan…..? Oh that’s right, these stuck underwater home debtors will use all the CASH they have saved to pay for that reno.

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  136. HD,

    Sonies couldn’t ever possibly be among those 50% underwater. He “lives the market”, remember?

    A lot of people are going to learn the hard way that old adages aren’t always correct. “Real estate always goes up” or “real estate is always a sound investment” are two such adages.

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  137. Funny revassal… I think they should tax the poor more. They aren’t pulling their own weight. Just disgusts me!

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  138. Has anyone else noticed that the “sky-is-falling” crowd on this website have become more shrill lately? The Case-Shiller is bottoming, transactions are rebounding, prices have have dropped but you still can’t afford to buy. Maybe if you guys had spent half as much time working rather than spending all day on message boards you’d be able to afford one of these places!

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  139. T2,

    How does it feel knowing that you are likely already underwater on your real estate purchase and will be moreso in a couple years time?

    You are right about you needing to work harder than the rest of us. Its going to take a lot of work indeed to make up for your capital losses in real estate.

    Deacon Deacon Blue
    Where are you?
    I’ve got some capital losses to give you!

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  140. There’s not a shred of evidence that I’m underwater. In fact, there are about a dozen transactions in my building an everyone suggests that I’ve made a modest paper profit. Making things up doesn’t make them true, Bobby.

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  141. those finance barons need to pay for their own bailout, sales tax on traded financial instruments would help pay off the debt, nothing large .01% .05%, but could generate millions a day.

    Just because you prices could be declining is no reason to doubt that there are goodbuys even now.

    —-

    still I don’t know all the specific about their house, but for a house that large (3/2 just upstairs) and in oak park I think they could be fine for their 316K mortgage.

    Ze how can you be a pothead? unless ur being sarcastic? but you must be the only high reaganite on the planet.

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  142. Oak Lawn, not Oak Park.

    “still I don’t know all the specific about their house, but for a house that large (3/2 just upstairs) and in oak park I think they could be fine for their 316K mortgage.”

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  143. oops

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  144. T2, you are wrong because for the most part because the renters on this board can afford to buy. However, unlike you, we consider it unwise to speculate with large percentages of our income on a depreciating asset just to say that we own.

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  145. Revassal.. Oddly enough half-sarcastic. I am sorry but I have checked the curves and percentages and they are actually surprisingly balanced. Truth is the rich carry the country if you look at IRS revenue stats. Rest of the argument gets into fairness definitions. I can make an argument based on fairness that would say why should any one person have to cover more than 100 others, at that point wouldn’t it be fair to cap a persons maximum tax, not by percent either, simply notional. You won’t like the argument but it is fair. Now away from that I support usage and consumption taxes. Taking money from the “haves” to give to the “have nots” just seems like stealing to me.

    By the way I honestly laughed at the Reaganite pothead comment. I really liked Reagan, he really loved America and wanted what was best for it over him, regardless of your policy opinions you have to respect that. Bush was just a self serving maniac.

    T2- Bob’s always Shrill… Everyone seems the same to me, you just as defensive as Smegel of your precious 600 as always. 🙂
    btw… hilarious. spellcheck doesn’t like the word Smegel and suggests smegma instead. I swear!

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  146. I don’t think that reciting facts is “being defensive”. Bob should change his name to Smegma.

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  147. It’s one of the funniest words in the English language. Btw.. how dare you say cribchatters are unproductive. This weekend I made an awesome bamboo bong. Could sell these things probably, if I weren’t too lazy to get off the couch.

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  148. “we consider it unwise to speculate with large percentages of our income on a depreciating asset just to say that we own.”

    Yes but next weekend is the Chicago A&W show. From his views, DB will attest to what a success he is for buying at 600NF and how awesome the views are. Also he will likely brag about the benefits of homeownership to his guests and serve Kool Aid for all in attendance.

    My views will likely be much more comprehensive of the show and be free. But in the hot weather I won’t be partaking in any Kool Aid drinking. Maybe water.

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  149. Please keep the insults off-line.

    Thanks.

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  150. “However, unlike you, we consider it unwise to speculate with large percentages of our income on a depreciating asset just to say that we own.”

    HD-
    So nobody should ever get a car loan either? Do you have a car loan? Because while I can’t say that real estate will always go up, I can guarantee that your car will always decrease in value. A home is a place to live, like a car is a thing to drive…

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  151. Sonies,

    Good analogy. However it is accepted and understood by the masses that a car is a depreciating asset. As we can see from the properties featured on this site the owners are unwilling or unable to come to terms with the reality that real estate can depreciate too.

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  152. I don’t have a car loan. The only debt I have is student loans. Remember, debt does not equal wealth.

    Car prices didn’t increase exponentially like home prices did between 2000 and 2006.

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  153. “Car prices didn’t increase exponentially like home prices did between 2000 and 2006.”

    They sort of did… Since everyone was using Heloc’s and easy credit to buy those too. Do you know how cheap you can buy a car for now compared to a few years ago?

    I see used benzo’s on cars.com for like 10k with less than 50k miles on them… great time to buy a new car too, I saw that with the cash for crappers you can buy a brand new Nissan versa for 5k! lol

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