We Love Authentic Lofts: Live in the Heart of the Action at 1529 N. Milwaukee in Wicker Park
Have you dreamed of living a truly urban life by living above the local restaurant in the middle of nightlife, coffee shops and stores?
This 2-bedroom brick loft at 1529 N. Milwaukee in Wicker Park is just that.
This loft has 10 foot high ceilings, a slate master bathroom, and a nice private deck off the back of the unit.
Aaron Share at Koenig & Strey has the listing. See more pictures here.
Unit #3: 2 bedrooms, 2 baths, 1525 square feet
- Sold in January 2005 for $475,580 (although CCRD says $438,000- which is apparently incorrect)
- Currently listed for $499,900 (parking included)
- Assessments of $210 a month
- Taxes of $6539
- Central Air
- Washer/Dryer in the unit
- Wine Fridge
My guess is 400k.
It’s a nice location, and the unit looks great, but $500k for a 2/2 in Wicker Park is ridiculous. If you can’t get that much for the same place in Lincoln Park, why would you here (not saying one neighborhood is “better” than the other, just that traditionally speaking, LP generally sees higher $/sqft than WP)?
I could see this selling in the high 300s, maybe 400. And is this really above a restaurant? Frankly, that doesn’t sound great, either. And LOL at the finishes inside the unit – the transformation from artsy scene to gentrified yuppie sure didn’t take long for this neighborhood!
I agree. I love this unit but $499 for 1500 sq ft ……
I would not want to live right on Milwaukee esp. at 6 corners…nice place though (except for the “trough” vanity sink)
Great Bucktown location, and bedrooms at the back of the unit so the noise shouldn’t be too bad even though it’s right on Milwaukee.
Kind of a mix of nice finishes and cut corners. The concrete counters and large deck are nice, but the cheesy chrome in the master shower frame and bottom-rung appliances are unfortunate. Taxes are a bit high for a 2/2 as well.
I think it will still sell all day at $450k+. Location, location, location.
“And is this really above a restaurant? ”
It appears to be a restaurant with mannequins in the front window then…
This:
http://www.hejfinashowroom.com/
is the store in the ground floor. How hard is it to google?–you’re already in front of a computer, on the internet. Yeah, I know, I do it for you almost every time.
If I were looking at the place, I would want to make sure that the condo dec prohiibits the owner of the commercial unit from renting to, or operating, a restaurant/bar/club for noise, smell and vermin reasons and that the dec provides reasonable recourse to the residential association members. Otherwise, no go.
Hey I’ve seen sinks like that. They have them in the bathrooms at Wrigley. Except they’re not sinks. You piss in them.
Thanks for the laugh. This is the funniest snippet I’ve read all day. “I’m somebody who knows” and I know that there are very few buyers for $400k+ 2/2s. They existed during the boom because of toxic financing, because of guys like this financial wizard of an FB who used:
$380,400 1st mortgage +
$47,500 2nd mortgages +
and an impressive $10,100 down payment (2.3%!!)
to buy a $438,000
I’d bet that today, this unit probably apprises 10% below the 2005 purchase price.
“I think it will still sell all day at $450k+. Location, location, location.”
cool unit. really like the big windows overlooking milwaukee.
just think how cozy these condo board meetings would be.
Kind of a stretch to call this an authentic loft. It has drywall ceilings with recessed light. A nice touch none the less.
“is the store in the ground floor.”
Overpriced modernist furniture. Yup this is definitely in Wicker Park.
very cool! I would just worry about sound insulation. I looked at a few lofts where I could hear my neighbors fart.
I think there are only three units in the building:
1529-2F
1529-2R
1529-3
The two below are probably 1 bedrooms at half the size of the top. Noise might not be too much of an issue b/c this is on the top floor.
“there are very few buyers for $400k+ 2/2s. They existed during the boom because of toxic financing” -HD
Yeah, I forgot, unemployment is now at 100%. Everybody just surfs the internet all day, pissing and moaning like you.
You’re right, nobody has $80k to put down and nobody can afford $1700/mo for P&I. It’s impossible – a household would have to make at least $110k to afford this – INSANITY! $110k?!?!?
Can you imagine the WEALTH of making $110k??? Ooooooooooooooooooh, you’d be SO rich if you made that much money.
…or maybe you’re just projecting.
Looking on MLS, this unit was rented in 4/2007 for $2600/mo. Seems logical that the tenant renewed in ’08 and now that the lease us up the owner is selling…
lulz bradford
“You’d be SO rich if you made that much money.”
In fact, if you got $110K cash in 3 years for just living in a place you’d be richer than 99% of the world’s population and probably richer than 80% of Americans.
Bradford,
Regardless of whether this particular unit sells near ask (it won’t), HD showed that THIS owner did not bring significant wealth to the table-they got a very low down payment loan. You cannot get loans with this high of an LTV any more. The back door is still open with financial irresponsibility with FHA loans but those are for conforming loans only. 450k would not be a conforming loan.
Not that people with wealth don’t exist, I think HD was trying to point out is that there was a lot more “poseur” money (debt based consumption). You’ll find the ratio of poseur money to real wealth far higher than you’d expect is my guess.
Now that Wicker Park Hipsters(tm) can no longer get a 400k mortgage with $10,000/2% down and it requires 10-20% down and a 40-80k downpayment, you’ll find those that can bring a 40-80k downpayment to the table largely aren’t Wicker Park hipsters(tm).
sry, meant 110K salary, not house appreciation
Living about 200 feet from this unit, I agree that it is overpriced. I would think for these finishes and location on a busy street (as opposed to Elk Grove right behind it), $300 psf is a stretch. And the 1,500 sf measurement seems aggressive. I would guess $400k might get the job done.
Also, some anecdotal evidence regarding pricing in this neighborhood. I was looking to buy in Jan 2007 and I’d say that asking prices now are probably 10% higher than at that time. But there seems to be lots and lots of price reductions on stale inventory. So that’s a good start.
Well lets think about that (and not make the same mistake that Daley does and assumes the city is LP and Bridgeport).
If you take out LP and the gold coast, the median income in most Chicago neighborhoods is $44K a year.
So lets just look at the “nicer” neighborhoods, where the median income is $60K to $70K (again demographically this is probably for those around 35 and above and represents 17% of the population (income bracket 55-75K). Now take everything you need to live out of that, maybe you have kids how easy is it to save $80K?
Now that the fake money (0%, – 5%) people are out of the picture, the pool to support this price range is significantly smaller
Well the good news about this property is that the back deck doesn’t backup along the El. That’s a plus!
Overall is a cooler looking place in a neighborhood I can identify with a little better than LP (or bridgeport!); It’s irritating to see the $499k price tag. There’s no real reason this place should have sold for $438k in 2005 other than some bozo with $10,100 who wanted to buy the biggest, flashiest, hippest and most expensive loft he could without putting too much of his own money at risk. 10 years ago if he would have asked a bank for a loan they would have kicked him out the front door. Somebody with a $50k downpayment would have bought it for $250k. Bozo the clown shows up, probably bid it up from $399k for all we know, bidding it up using other people’s money. Now we sit here and drool over the crib chatter eye candy but nobody can buy or sell with crazy prices like these.
> Now that Wicker Park Hipsters(tm) can no longer get a 400k mortgage with $10,000/2% down and it requires 10-20% down and a 40-80k downpayment, you’ll find those that can bring a 40-80k downpayment to the table largely aren’t Wicker Park hipsters(tm).
Well, I am not a ‘hipster’ but I do live in Wicker Park, and I did put down 10% when I purchased my condo last month. I am not sure what a ‘hipster’ is anyway?
“I am not sure what a ‘hipster’ is anyway?”
A “hipster” has preferences for:
Thick rimmed glasses
Way too tight jeans (for men)
tatoos
single gear bicycles
PBR over beer that tastes good
Stupid looking headgear
I’m sure I missed a few… please help HD and Bob.
Are you a Hipster?
http://www.okcupid.com/quizzy/take
Hipsters are often artsy types that specifically try not to conform with mainstream culture… it generally has a negative connotation, b/c the effort to not conform shows you care more about people’s perception than if you just didn’t give a shit.
Somehow, if 10% of buyers are FBs, 10% of WPers are hipsters, and 10% of RNers and LPers live there b/c of bragging rights, it extends to everyone in those respective groups.
~More than 10% of buyers are FBs….basically anybody whose used toxic financing since 2001 or 2002; some just don’t know it yet
~I’ll agree that maybe 10% of WPers are hipsters;
Hipsters 10 years ago when WP was cool were ‘alternative’ and it was probably closer to 50%; now WP has nearly as much north face as LP;
~Probably 80% of RNers and LPers live there to brag; the other 20% were born there.
“guys like this financial wizard of an FB who used:
$380,400 1st mortgage +
$47,500 2nd mortgages +
and an impressive $10,100 down payment (2.3%!!)
to buy a $438,000”
…interesting that the listed price listed doesn’t include the upgrades (custom concrete sinks and counters, upgraded cabinets etc etc) that made the final sale price about $480k (this was bought with ~20% down).
I did not know that’s how these prices were reported…
????
20% down? $96k down payment of a $480k price would mean about $384,000 mortgage which is plausible given the $380k first….but there is a second mortgage recorded at the same time for $47,500….The recorded deed (And the amount transfer taxes were paid upon) is $438k; My figures make sense.
I think the burden is on you to show that the recorder of deeds is wrong…unless you’re trolling. then go away.
“#jswede on April 3rd, 2009 at 1:06 pm
“guys like this financial wizard of an FB who used:
$380,400 1st mortgage +
$47,500 2nd mortgages +
and an impressive $10,100 down payment (2.3%!!)
to buy a $438,000?
…interesting that the listed price listed doesn’t include the upgrades (custom concrete sinks and counters, upgraded cabinets etc etc) that made the final sale price about $480k (this was bought with ~20% down).
I did not know that’s how these prices were reported…”
“~Probably 80% of RNers and LPers live there to brag; the other 20% were born there.”
Yeah, probably.
…or they’re there for the bars, restaurants, theater, shopping, schools, access to transit, proximity to the workplace, and lower crime rate. *blink, blink*
Lets not forget a hipster also has piercings beyond their ear and a sense of irony as if they are somehow tuned in to some collective hipster hive mind. They also don’t have a normal sense of humor (I guess laughing at funny obvious things is too mundane for their tastes) and express their humor through irony. They smoke Parliament cigarettes, showing their connection with the ‘common man’. They ‘get it’, or so claim to.
Their disdain for conformity is all the more amusing because they are so prevalent these days. They’re essentially part of a group they love to ridicule: the stale stereotype 8)
A hipster is an artist without an actual art/trade.
You’ll never hear musicians, artists, actors, etc. talking about “hipsters” – hipsters are people who glom onto successful artists’ scenes.
One step below them on the hipness food chain would be the people who aspire to be hip, but they usually have the advantage of being gainfully employed, which is why they end up in LP and Wicker Park long after the hipsters are gone.
Example:
Wicker Park was once upon a time an ethnic/blue-collar neighborhood where artists went due to cheap rents and lofts. Hipsters got attracted to that scene and popularized it – then the money showed up.
10% down, you are right
HD, why do you assume if someone doesn’t put 20% down it is toxic financing? What exactly is toxic financing in your mind?
Thank you for proving my point… If you picked a more realistic number, maybe, but it shows you just overgeneralize to the point of ridiculous. Yes, picking a place to live based on amenities is SOOOO impossible to believe.
”
“~Probably 80% of RNers and LPers live there to brag; the other 20% were born there.”
Yeah, probably.
…or they’re there for the bars, restaurants, theater, shopping, schools, access to transit, proximity to the workplace, and lower crime rate. *blink, blink*
“
hd, point is that I’ve been checking this site since only about mid-fall or so, and this is the first property that I actually know the final sale price of, and it’s about 10% higher than what’s listed ($480k final price vs $438k listed). It’s making sense why seemingly every single new property from 2004-2006 now listed for resale is so uniformly overpriced according to records.
Makes for good chatter though, I suppose.
$499k assumes an annual 3% appreciation. Given that they overpaid in 2005, and that we’re actually seeing depreciation most everywhere, they’d be better off listing at around $445-$450k
and then knocking the price down further still in $20k increments til someone shows interest.
80% of statistics on the internet are made up…
Not sure where they got the 499k price. There’s a 1500 sq ft 2/2 with 2 car parking and 2 outdoor spaces next door at 1531 that’s on the market right now for 439k. It’s more of the generic 2005 condo style, but this one isn’t really a loft either, in my opinion. Brick walls and exposed duct work do not mean it’s a loft, and they certainly don’t add 60k in value.
Next door is a 2nd floor. This is top floor w/ roof rights! Avg. sale price in the last 6 months for a top floor 2 bed/2 bath w/ roof rights in the area is $480k.
85% of statistics can be made to say anything you want… 45% of the time.
Regarding the price this sold at…this is from MLS.
MLS No: 04143874
Cur. Status: CLSD
Type: Attached Single
List Price: $439,900
Orig. LP: $439,900
Sold Price: $475,580
List Date: 06/15/2004
List Agent: 105924
List Office: 14703
LMT: 129
Edumakated asked:
HD, why do you assume if someone doesn’t put 20% down it is toxic financing? What exactly is toxic financing in your mind?
I respond:
Small down payments coupled with lax lending standards make home purchasing no longer about the closing price but instead about monthly payments which drive up the cost of shelter for everyone.
I don’t care if the buyer can afford the monthly payments. When most people start buying homes with little money down (And then defaulting on them a few years later) EVERYONE who owns feels the effects. This unit is the perfect example: He probably owes more than it’s worth. He cannot lower the price by much and no one wants to pay him phantom appreciation. So instead, it sits, leased or vacant, and the market is damn near a standstill. I think that this mania proves once and for all that you can’t have something for nothing; you need uniform borrowing standards and down payments to protect every homeowners. The low down payment was an invitation for the irresponsible crowd to come and crash the party that responsible had built and maintained for years.
Document No.
0502435080
Executed
01/11/2005
Recorded
01/24/2005
Document type
WARRANTY DEED
PIN
17-06-200-068-1006
Amount
$438,000.00
“Orig. LP: $439,900
Sold Price: $475,580”
that is correct.
Is parking deeded separately? What’s more correct, the cook county recorder of deeds, or the MLS? Maybe the upgrades were sold as a bill of goods for the amount of the down payment?
If this guy really did pay $475k he’s a complete frickin moron and he deserves to go down in flames. I hope he loses his pants. $475k for this place a 2/2, what a joke.
could definitely have something to do with how the developer booked it, I’d guess.
Bob & Skeptic,
Well done. Great take on hipsters. I thought those were great!
I wont talk numbers b/c it’s already been driven into the ground but, I’ll talk about what I love about this place. The living room’s floor to ceiling/wall to wall windows are amazing. The roof access/back deck is great since it faces East. Location is great, mostly because of the blue line and I also don’t mind the “city noise” going on below me. The second bath, however, looks like they used nice fixtures, but it still looks cheap. It’s probably the white and blue tile. Does anyone else think the kitchen cabinets just stick out but not in a good way either? I normally like dark cabinets, but not in this place.
ChicagoismynewBlog.wordpress.com
It’s been my experience that the CCRD is much more reliable and accurate than the MLS, even though humans input data into both systems.
The MLS relies on the agent to go in and put in the closing price.
Aaron, one floor and roof rights are not worth $60k, however you spin it.
I’ve heard MANY people complain about the noise and dust situations in “authentic lofts”. the advantage of this unit is the 1) top floor so no noise from upstairs neighbors and 2) drywalled ceiling which helps with dust and heat and noise insulation.
It’s not just roof rights – it’s an actual private roof deck (18′ x 18′ per listing).
$60K for a top-level unit with its own private roof deck is a perfectly reasonable premium. In fact, the comps for this unit are only other units with private roof-top decks.
1438 Wood – closed 10/08 for $535,000 1,535 SF 2 bed/2 bath w/private 300 SF roof deck.
2130 North – closed 1/09 for $515,000 (no SF given) 2 bed/2 bath w/private roof deck.
1838 Rice – closed 2/09 for $485,000 (no SF Given ) 2 bed/bath w/private deck.
There are more. The most expensive two-bed/bath units to close have roof-top decks.
Not a good location. I love the bones, but don’t care for the kitchen cabinets and hate the bathroom. I say 375k.
Hipster is supposed to be synonymous w/ hippie, or sometimes used to describe children of hippies that are less liberal than their parents. Now it is overused and means raybans and tight levis apparently
rather than read all 50+ comments this morning (saturday and I’m lazy), does anyone else think the master bath sink is completely a bad idea? I think the design of it and the idea of it, are great, but where the hell is the counter space? How many times is someone going to drop thier hair dryer in it?
Yeah i agree about the sink Jason… seems annoying to me more than any possibly stylish-ness.
And again w/ the pricing… i’d say maybe 10% of the city in VERY select areas are insulated from the drop since 2005. Wicker park is not an area that is insulated at all. The real value is at or below the 2005 price… but if people want to prove me wrong i’d love to see the data out of curiosity.
“I don’t care if the buyer can afford the monthly payments. When most people start buying homes with little money down (And then defaulting on them a few years later) EVERYONE who owns feels the effects.”
absurd. ALL that counts is someone can make the monthly payments – the down payment “standard” was/is arbitrary, set by bankers god-only-knows when.
the people who default are the people who – duh – can’t make the monthly payments.
example: Chad and Trixie bought a $490K condo with a 5 year ARM in “West Depaul” with the assistance of their parents to make the down payment. Chad and Trixie thought they’d live there while Chad brought home say a lower six figure income as a recent MBA with a good job, moving to the burbs or a bigger house when the babies started coming along.
or so he thought – salary inflation was rampant in the financial sector, so when Chad’s firm tanked due to their inseparable connection to toxic subprimes, not only was his income gone, but when the ARM reset, they were screwed. The parents who helped with the down payment have problems of their own and can’t bail them out – THAT is what has been having the ripple effect.
where you are correct is that shoddy lending standards are the larger culprit – but I’d include most ARMs in this category. For the life of me I can’t fathom how a bank rationalized loaning someone money to buy a massive asset, but only had terms to cover repayments for 1/6 of the total loan time, in the traditional 30-year sense.
yeah, I know people move, I know situations change – but that doesn’t explain why someone shouldn’t be forced to take out a mortgage which covers the life of a loan.
and speaking of shoddy standards – just where the hell did all that PMI money go, anyway?
Skeptic, it’s not absurd! It’s called having some ‘skin in the game.’ Borrowers who can make the monthly payments but don’t have any financial interest in the property are far more likely to default than those who have a down payment.
“absurd. ALL that counts is someone can make the monthly payments – the down payment “standard” was/is arbitrary, set by bankers god-only-knows when.”
“Borrowers who can make the monthly payments but don’t have any financial interest in the property are far more likely to default than those who have a down payment.”
got some stats to back that up? I’m not saying it’s not true, but that’s an interesting claim I haven’t seen yet. Most stories on defaults seem to focus on one of the principals losing their job, the ARM resetting while the owner is unable to flip the property, etc.
I agree with you that some down payment needs to be required, but I don’t see why 10% isn’t enough, given how expensive real estate is, even now. 20% is out of hand – my wife and I together make well over $100K, but a 20% down payment would have kept us out of the market.
“but a 20% down payment would have kept us out of the market.”
Had 20% been required the entire time you and your wife would not have been kept out of the market. It would have anchored real estate values much closer to rental yields. It should be 20%. I can save up 30k/year cash on a salary that is not even six figures and still have a decent lifestyle, I see no reason why a couple earning well north of six figures cannot afford to save up 20% for a property. Perhaps it is because you either feel entitled to more real estate than can realistically afford (unlikely given your high income), or the more likely scenario is you are anchored to current values which are inflated and not sustainable.
skeptic,
Default rates were so bad with “gifted” down payments that HUD actually changed the FHA rules. http://www.house.gov/financialservices/hearing110/htheist062207.pdf
I know I have read other things supporting low down payments = high default rates along the lines of this: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1330132#
You guys are leaving out one important detail about this location:
It is across the street from Reckless Records.
All of a sudden, $499K makes perfect sense.
😉
links look to require a bit more time than I have right now, but I still maintain that 20% is an arbitrary number – I don’t see why the housing market should be geared only towards those who can sock away a large down payment, as opposed to including those with good, steady jobs that don’t necessarily pay enough to save that kind of cash.
teachers, firefighters, cops, etc. – these folks have stable employment, and could likely sacrifice to make the jump from renting to owning, but not if a massive down payment is an obstacle.
I am still waiting to hear speculation on all that PMI cash, btw.
“all that PMI cash”
All **what** PMI cash?
No one getting a non-GSE loan paid PMI over the past decade. You just got an 80% first and a second for the rest (up to another 45%, in some advertised cases).
skeptic,
If someone can’t come up with the 20% downpayment after saving for five or six years, what makes you think they will be responsible enough with their finances to pay 90% over 30 years?
20% is not so much an arbitrary number. 80% is the historic high LTV that you can attain on one mortgage. 20% is the downpayment that will be needed if we allowed the PMI insurance companies to default and go away as they should.
20% was the downpayment that was required for many, many years and the housing market rarely had a problem. 20% down signals the homeowner committs a significant amount of capital to their investment and given how people are tied to sunk costs make it very unlikely they will default on their obligation if at all possible.
20% sort of is an arbitrary number–it’s enshrined b/c that’s the FNMA/FHLMC standard. And reference to anything older falls apart b/c (1) before WWI, banks made few mortgage loans and (2) b/t WWI and WWII, the typical mortgage was a 5-ish (+/-) balloon loan. So there isn’t any “that’s the way it’s always been”.
And anon(tfo) look at a chart of housing expenditure as a percent of gross income. Look at what period it really skyrockets (2000s), the period, *coincidentally* when the old downpayment guidelines went out the window and no longer applied.
There is a direct and strong correlation between bubbly pricing and people having little to no skin in the game. When you’re only out the cost of a used car or nice vacation, its a lot easier to capitulate and mail the keys in. Not so for someone who saved diligently and put down a small fortune, which used to be the case.
CC ate more of my eloquence.
Bob–I agree, in general. There are reasonable exceptions, the boundaries of which are subject to reasonable disagreement (e.g., is provable-income:purchase-price of 1:1 sufficient to use a smaller (or zero) DP? What if you have investable assets of 4x price (and willing to pledge a portion as security), can you get an Option ARM?). But for your “typical” buyer, there should be very limited exceptions. It was defintely the extension of these exceptions to the typical (and, most especially, much more risky than typical) buyers that inflated the bubble–at least in the post-2003 period.
I think if you look at prior residential bubbles, if the peak had been about the end of ’03, we’d have had a pretty “typical” bubble. It was the continuation of price growth in 04-06 that made this one epic.
how do you tease apart the correlation of no/low down payments from the ARM issue? from where I sit, it’s the bozos who got more real estate than they could afford due to 1, 2 year ARMs that are the larger burst of hot air in the bubble, as it’s the flipping that’s the problem.
“All **what** PMI cash?”
all the PMI cash people like myself had to pay who didn’t have 20% down. there’s a lot of it that went *somewhere* – this ties into Bob’s argument somehow, as either that PMI wasn’t enough, or (more likely IMO) it wasn’t being salted away to cover foreclosures but rather was just being used to prop up profit margins for shareholder reports.
“If someone can’t come up with the 20% downpayment after saving for five or six years, what makes you think they will be responsible enough with their finances to pay 90% over 30 years?”
that’s what the bank determines, right? I know dozens of Gen Xers who bought in the past 10 – 12 years, none of us have defaulted. But someone who waited from 97 to 02 to buy saw the real estate purchasing value of their dollar drop considerably, and saw many neighborhoods driven out of their price range.
“all the PMI cash people like myself had to pay who didn’t have 20% down.”
No one who used 80/10/10, 80/15/5, 80/20, 80/25, etc. first and 2d mortgages needed PMI. If you investigate, few if any Subprime borrowers (the source of the MBS-pocolypse so far) or Jumbo borrowers were paying PMI.
Also, The PMI Group, as one example of an insurer, appears to have paid out over $3B in claims in 07 and 08, while collecting ~$1.6B in premia (if I’m reading their press release right). So that’s where “all that cash” is going, to pay for losses on insured mortgages.
skeptic –
Clearly, if you put 20% down, you are less likely to default – if nothing else, you are more likely to be able to sell your place to cover your mortgage if you hit trouble. In other words, the down payment is like posting margin.
Whether it’s arbitrary, there may be one possible justification. As far as I can find, the largest decline in housing in any MSA since they started keeping the HPI data in 1975 (other than the recent meltdown) was about 20% in LA in the early 90s. Therefore, 20% was probably deemed as sufficient margin.
“I still maintain that 20% is an arbitrary number”
“If you investigate, few if any Subprime borrowers (the source of the MBS-pocolypse so far) or Jumbo borrowers were paying PMI.”
hmm… sounds like a big problem, no?
“Clearly, if you put 20% down, you are less likely to default”
I guess I am still unable to wrap my head around how the down payment relates to one’s ability to pay their bills responsibly.
Maybe I just know/know of more people than you folks do who got help from Mom & Dad for that down payment, so I assumed it was a common practice – and I don’t necessarily have a problem with that, I just saw lots of people who truly did not understand that there was a bubble, and were making some seriously delusional decisions, usually related to the idea that when the ARM needed to be reset they would simply flip the condo, make a tidy profit and either move to the burbs or “trade up.”
““Clearly, if you put 20% down, you are less likely to default”
I guess I am still unable to wrap my head around how the down payment relates to one’s ability to pay their bills responsibly.”
Humans anchor to sunk costs, its a psychological trait. If you’re anchored to the fact that you sank 60k into a 300k house that now may be worth 250k, regardless of its value today, you are less likely to walk from the mortgage than if you had only sunk 30k/10% into it, for two reasons: 1) You are still positive equity on your mortgage given this decline and don’t want to lose that 10k. 2) You are psychologically anchored to the 60k you put down, and 60 is greater than 30.
There are two (2) reasons to have higher downpayments: 1) people are less likely to fall underwater on their mortgage and thus be incentivized to walk at 20% vs a lower downpayment percentage and 2) people are psychologically anchored to their downpayment regardless of the market value of their home.
Bob… very well said.. people will almost always throw good money after bad.. silly people. and the 20% covers the first 20% of downside on the banks risk which would normally be more than sufficient (especially had prices not been driven even further by those that would have been unable to finance at 20%). 20% should be a requirement!
Let’s say it doesn’t affect one’s ability to pay their bills (although I think ppl that can save for a large downpayment probably tend to be more resposible with money and have a larger emergency fund)… If you have 2 people that lost their job and can’t pay their mortgage, the person with the larger downpayment is less likely to be under water and more likely to be able to sell the place to cover the mortgage principle.
“I guess I am still unable to wrap my head around how the down payment relates to one’s ability to pay their bills responsibly.”
You keep blaming ARMs as the cause for this… are you talking about option ARMs or basic 3-5 year hybrid ARMs? Because, rates have remained low, and not too many people with basic 3-5 ARMs have been hit with payment shock when their ARMs reset. As far as option ARMs, they are definitely toxic, but it’s not a huge market – less than half of subprime in notional $, 60% of which is for Cali.
“usually related to the idea that when the ARM needed to be reset they would simply flip the condo”
ARM rates are generally lower than 30 year fixed and they encourage buyers to purchase more house for the same monthly payment as a fixed rate loan with a higher interest rate; and ARMS are often interest only, which again, drove up the cost of housing for everyone compared to buyers who wanted to use 30 year fixed mortgages. People thought they were financially savvy for using ARMS and IOs but in reality they only contributed to the bubble and made IOs and ARMs the norm instead of the plain vanilla 30 year fixed.
Most option arms are in cali, yes, but quite a few higher end properties in LP and LV and the GC used IO, ARMS, balloons, no money down, and other exotic financing. I’ve showed this numerous times when I cite CCRD records. Yes, exotic financing has caused problems for many people. Even though Lincoln Park types are probably OK with the exotic financing, the bankers making lending decisions see neighborhoods like LP and GC as imaginary and arbitrary lines; instead they’ve chose to cut off exotic financing entirely in most markets. Sellers can no longer rely on buyers to obtain increasingly exotic financing, and not surprisingly, few buyers can afford sellers prices without it at current price levels. Low and behold, prices drop to where people housing is reasonably priced for someone using 30 year mortgage and it sells.
Right now the ‘deals’ are selling; just imagine when the entire market is full of deals – sort of like going to the outlet malls in wisconsin where everything for sale is a ‘deal’ compared to regular (aka today’s wishing) prices. Except that the deals will be regular market pricing.
Do you have numbers on this? From what I can find, the IO ARM market is smaller than the option ARM market…
“ARMS are often interest only”
Why do people keep calling ARMs exotic financing? Are we talking about option ARMs and IO ARMs – if so, it should be specified, but they are also pretty small, notionally, especially outside of the west coast and other exceptionally bubbly markets. A standard 5/1 hybrid ARM is not only completely reasonable if you plan on staying in place for 5-7 years, you would have paid less in interest and not had a painful rate shock.
“People thought they were financially savvy for using ARMS and IOs but in reality they only contributed to the bubble and made IOs and ARMs the norm instead of the plain vanilla 30 year fixed. ”
Agreed – just trying to differentiate between different loan types.
“Yes, exotic financing has caused problems for many people. “
We’re so close to agreeing…..”you would have paid less in interest (with a standard 5/1 hybrid):
Buyers didn’t save/invest the difference between the monthly payment on a 30 year fixed and a 5/1 ARM; they plowed the savings right back into the mortgage so they could buy a more expensive home; which drove up the cost of housing for everyone. I don’t have any figures for ARMS and IO ARMS (I’m sure someone has the time to research it) but they were prevalent in the Chicago market and they’re out there in every neighborhood including lincoln park; in my limited experience, a lot of jumbos are IO ARMS, so everyone knows that couple who bought the $800k home in Roscoe Village or LV with only 10% down; the chances that they have a ARM (even if it’s fixed for a few years) and IO are probably better than 50/50.
From some mortgage broker’s website:
http://www.brigantinemortgage.com/products.asp
Interest Only Loans
“Interest only” products are an easy way to save money and a very popular alternative to traditional fixed rates but they are not without risk. An “Interest Only” loan can offer consumers greater purchasing power, increased cash flow and a number of other benefits which are listed later in this article.
First let us start with a quick explanation of how the product works. With Interest only loans the borrower has the flexibility of paying only the interest due on the mortgage. Most of these products allow you to pay extra if you choose.
The positive aspects of these loans are as follows:
1) They work well for borrowers that are restricted by a tight budget, and the savings can be as much as $300-400 per month!
2) “Interest Only” loan can allow you to qualify for a bigger home. If the underwriter considers only the “Interest Only” payment, you may be able to upgrade to a nicer or larger home.
3) This type of loan works well for people who only want to stay in a home for a just a few years. During the first couple of years with a conventional 30 yr mortgage, most of your mortgage payment is being applied directly to the interest of the loan. If you want to stay in the house for only 3-5 years, an “Interest Only” loan may be the right loan for you. You can receive a lower payment and have almost the same principal balance as the borrower who chose a 30 year, conventional mortgage if you choose to sell in 3-5 years.
4) You want to buy a very expensive home. Most people who buy very expensive home have no desire to pay off their home completely, and the rate of appreciation on the house is usually very good. An “Interest Only” loan allows these borrowers to deduct their interest payments, and the money they save can be directed to other investments.
5) You want to buy a rental property. The lower payment can help improve cash flow on a rental property.
As with every loan program, with positives there are always negatives.
1) You are not paying down your principal on your mortgage. If your property doesn’t appreciate in value over those 3-5 years, you may even have to pay money if you choose to sell the home. While the likelihood of this happening is high, it is a risk that must be considered when thinking about using “Interest Only” loans.
2) Most “Interest Only” products have a specified term. For example, on most 30 year fixed “Interest Only” loans, most lenders allow interest payments for 10 years, and then you must repay the loan during the last 20 years. This loan now must be amortized over a 20 year period, and this will carry a higher payment than a 30 year fixed mortgage. These loans may be a good option for you as a borrower, but each person’s situation is unique.
3) Lastly, when in a period of incredibly low fixed rates “Interest Only” products will be very attractive. But, if you are planning on staying in your home for an extended period of time, you may want to consider a traditional fixed product.
I don’t think any kind of ARM is reasonable, it’s just crazy to me to give someone title to a property without a commitment to pay it off in *full*. Better to be safe than sorry – you can still move after 5 years if your situation changes, but why should society provide an incentive to flip?
This is what caused the bubble, the flipping, with prices getting jacked up each time even though there was not one whit of value added to the property. What greatly helped the flipping to happen? low rate ARMs.
But we can’t blame it all on banks, on greedy mortgage brokers, etc., they couldn’t have done this without a massive supply of gullible Americans taking the bait of “Buy a condo/house you can’t afford and live for free and then walk away with a huge profit to boot!”
Basic greed and stupidity are to blame here, something that surprises me little given how few Americans can either balance a checking book or understand that carrying a credit card balance is a sign of an inability to handle basic household finances. If you haven’t read Kevin Phillip’s “Bad Money” I’d suggest it, he called the entire economic meltdown well over a year ahead of schedule, he was writing about it no later than 2006, in great analytical detail.
“Because, rates have remained low, and not too many people with basic 3-5 ARMs have been hit with payment shock when their ARMs reset.”
fullhouse – the rates are now low because the economy bottomed out & the Fed intervened. left to their own devices (and capital) the lenders would not be offering the rates they are now. Rates resetting was most definitely a problem before the TARP bailout started.
This isn’t a philosophical argument.
Abuses in the housing/lending sector have devastated the entire economy – and every American is on the hook for thousands of dollars in TARP bailout money, not to mention we are risking rampant inflation.
What I am still NOT hearing is a sober assessment from the housing/lending industry of where they went wrong and what they would now do differently. Requiring a 20% down payment ain’t it. Cracking down hard on the appraisal end of things would be my suggestion – that needs to be regulated much more stringently than many of the ones I saw, where a guy did the whole thing in 20 minutes as “everything’s going up anyway.”
“the chances that they have a ARM (even if it’s fixed for a few years) and IO are probably better than 50/50.”
HD, you’re just making stuff up based on your oft repeated position. There is NO DATA that supports that IO loans were 50% of any Chicago-area submarket. Were (and are) ARMs common, prevelanr even? Yep, no doubt about it. Hell, Greenspan told everyone to get a adhustable-rate mortgage. Were IO loans 50% of any Chicago mortgage sub-market (excluding outright fraud, which I won’t opine on)? No.
Your conflation of adjustable-rate and interest-only damages the credibility of your underlying argument and makes you sound like a zealot. There’s a lot of truth in your underlying argument, but making up data based on your anecdotal observations doesn’t help convince anyone (except possibly the monumentally stupid–and you’re better than catering to the LCD).
And citing a mortgage broker’s website is like asking a crack dealer the pros & cons of smoking crack. Of course he think it’s a good idea for you to start, because w/o you, he makes less money.
“What I am still NOT hearing is a sober assessment from the housing/lending industry of where they went wrong and what they would now do differently. ”
One major thing that has changed is that most large lenders have shut down their wholesale operations. So they are no longer buying loans originated by brokers. I suspect most of them (who aren’t facing the prospect of civil or criminal actions) would say they’d have handled wholesale lending differently. But given the current enforcement environment, who would want to stick their neck out at all–and give an AG or AUSA an easy target.
Speaking of IO loans I remember working as an accountant towards the beginning of the bubble in 2002 in another midwestern city. Another accountant, presumably fed up with the weather and having a friend out in LA, quit his day job to move out to LA to rehab and flip houses.
Their enablement were low downpayment IO loans and he was doing very well when I visited him a couple years later, living in BH nonetheless. Yeah I was jealous but I thought to myself that something wasn’t quite right that he was now working in an occupation with far fewer prerequisites and basically doing manual labor and yet still was making a killing relative to the previous career of an accountant which required higher education. He even had a nice tan to boot.
Haven’t heard from him in awhile but folks this bubble was truly amazing and noone did anything to stop it because nobody wanted their piece of cheese spoiled.
There you go again putting words into my mouth. I never said that “IO loans 50% of any Chicago mortgage sub-market.” I said that there are a heck of a lot of IO ARM JUMBO loans out there; and more often then not, that flashy couple that bought an overpriced sweet pad in 2006 used a JUMBO IO ARM loan (or even worse, an option arm). In my experience from all the shit I’ve seen, and I’ve seen a lot, it’s a safe assumption to make. If if looks like exotic financing, smells like exotic financing, walks like exotic financing…Yes, there are plenty of people who bought in 2006 and used 15 year fixed with 50% down but they were few and far between.
And as far as the broker’s website, who do you think sold the loans? Who do you think pressured buyers to take on IO ARM loans? How many times in the history of the world did an FB walk into a bank and say “I want a jumbo IO arm 5/1 hybrid loan with an interest rate based on the 6-month libor”; that rarely happened. The broker put papers in front of them and they signed.
HD–There’s no point arguning this with you–you are a zealot.
The mistake you make anon(tfo) is that every post online isn’t an argument – sometimes they’re just opinions. Nobody likes to read posts that are mere recitations of facts, stats, data and figures. Those are journal articles. I’m a lawyer not an stats guy. When’s the last time a heard a closing argument on a tv show that pulled out graphs and data and charts and such?
“When’s the last time a heard a closing argument on a tv show that pulled out graphs and data and charts and such?”
When’s the last time you saw a closing argument on a tv show that reasonably resembled a genuine closing argument? When’s the last time you saw a closing argument in patent litigation on a tv show? When’s the last time they showed the damages phase of a financial-fraud class action on a tv show?
You tear into Stevo and others for their “opinions” about facts all the time. Rightly so, most of the time. Then you take 3 (or 10 or whatever) anecdotes and extrapolate them into:
“the chances that they have a ARM (even if it’s fixed for a few years) and IO are probably better than 50/50.”
When the reality is that that “better than 50/50” is limited to those who default or declare bankruptcy. In other words, the ones whose financial lives cross your desk.
Go ahead and keep making up stats and calling them “opinions”; you know my opinion on that and I’m dropping it for now. But I don’t promise to not point it out next time, too.
At least HD’s a contrarian zealot. I remember legions of RE appreciation zealots during the boom. In fact there was a whole ecosystem based around it. Few thought default rates could rise above and far beyond historical norms even when you remove things like a down payment or credit worthiness.
“At least HD’s a contrarian zealot.”
So are the Birchers, the LaRouchies and the anti-WTO nuts. Zealotry doesn’t breed good arguments.
“Zealotry doesn’t breed good arguments.”
Or opinions supported by facts.
HD was a ‘contrarian zealot’ it isn’t contrarian to think the market will go down, anymore.
btw, here’s a good read on ARMs:
http://online.wsj.com/article/SB123811225716453243.html
personally, I’d like to see Greenspan investigated to see if what he was saying on the talk shows and 60 Minutes to promote his book might actually constitute some form of fraud, given that he clearly knew about massive fissures in the housing market even while he was hyping what a great success he had been (and why you should shell out big bucks to read about it straight from him).
“what he was saying on the talk shows and 60 Minutes to promote his book might actually constitute some form of fraud”
Fraud as in “he was lying”? Maybe, but I think he believed it.
Fraud as in “basis to sue” or criminal fraud? Not a chance. He was expressing an opinion, or making an argument and, in any event, he had no cognizable duty to those who listened to him. Is Jim Cramer commiting fraud every time he opens his mouth?
Cramer’s an idiot, but Greenspan I’m 100% certain knew the writing on the wall even as he stated otherwise.
And is it criminal, technically? Probably not, but I’d think it certainly rises far above the usual free speech litmus test of shouting “Fire!” in a crowded theatre.
HD –
I agree with anon(tfo)… HD, it’s better not to throw out psuedo facts that you either make up or extrapolate from 2 data points – it actually detracts from your point. I agree, in principle, that lower rate products helped many people buy more home than they otherwise would have, running up housing prices. But I think this should be expanded to “cheap and easy credit” – including low/no down payments. Actually, I would argue, that the 20% down payment is more of a limiting factor than the monthly nut, therefore not requiring it was probably more responsible for run-up in housing prices.
Anyway, traditional 5/1 hybrid ARMs have been around since the 70s and 80s, and became more prevelant because the difference between short-term and long-term rates – given the spread and how long many people stay in their homes, they were completely reasonable and appropriate for many people.
fullhouse, please check out the WSJ link above, there are quite a few learned opinions stating otherwise on ARMs.
and not to beat the dead horse much longer, but the housing credit mess is probably small potatoes compared to the ease of credit for consumer crapola. at least a house is a necessity – HDTVs, well, not so much.
“but the housing credit mess is probably small potatoes compared to the ease of credit for consumer crapola”
There’s something like $2T in consumer credit, including car loans. The Mortgage market is (still, after all the defaults so far) over $10T. A total write-off of consumer credit (an albino black swan, if you will) is about the same degre of an issue as a somewhat plausible scenario in mortgage lending.
maybe, but you’re forgetting that people running into problems with their mortgages aren’t at the mercy of the usurious credit card companies.
here’s something to chew on:
http://www.copvcia.com/free/ww3/081106_valley_debt.shtml
skeptic–your argument is a moving target. I wasn’t thinking about the problems for the debtors, I was thinking about systemic problems.
the argument is that as a society we are living way, way, way beyond our means. that’s pretty systemic – it’s crashing down in housing & in consumer credit (I just listened to another NPR story on credit cards lowering credit limits).
I’m not sure how it’s all going to play out, but problems for debtors *are* problems for the larger society – for too long we’ve bought into the nonsense that we can buy our way out of this credit mess by simply “stimulating” the economy with a variety of smoke and mirror tricks.
skeptic,
And now our government is wasting trillions of dollars on these smoke and mirror tricks to try to keep it going. The truth is the housing bubble was the largest misallocation of resources in the history of the world and converted a whole lot of resources to housing. Housing represented a huge amount of the GDP growth during the bubbly years is my guess. Now that reality has returned we have to give that GDP back. It was borrowed from the future. More homes were made at price points than there was reasonable demand for. Now we have to give the GDP back and re-allocate all of that excess housing capacity to other sectors.
“somewhat plausible scenario in mortgage lending.”
Somewhat plausible is becoming ever more plausible every day. Given the gigantic pricing disconnect beyond the housing ponzi victims and short sales/foreclosures I think more and more people are going to rationally be drawn towards foreclosures. “Needs a little work” could yield you hundreds of thousands of dollars of near term equity.
Before recently I had not considered foreclosures or short sales but you can get a much, much better deal if you get the financing worked out. And the pricepoints between non-foreclosures and foreclosures are huge and not getting any smaller.
“The truth is the housing bubble was the largest misallocation of resources in the history of the world and converted a whole lot of resources to housing.”
Give me a break! Your hyperbole is just off the wall… I mean people forget that just a few years ago we had the internet bubble… I mean at leaset you can live in a house, what do you do with a blown up .com? I don’t know the exact amount but there was an enormous loss of wealth from the nasdaq going from 5000 to 1500 in one year as well. The thing is, is that we recovered and we will recover again. We are not screwed, just in for a year or two of hard times and then things will be back to normal. For gods sakes you guys turn off CNBC and all the other negative news networks. You’ll be a lot happier of a person.
I thought this article brought up some excellent points about the differences between the tech and housing busts.
http://www.motherjones.com/kevin-drum/2008/11/housing-bust
The biggest difference is the last one noted: “The dotcom bust was ameliorated by the rise of the housing bubble. This time, there’s no other bubble in sight. It’s just a pure crash.”
Here’s another:
http://www.harpers.org/archive/2008/01/hbc-90002258
which comments on:
http://www.harpers.org/archive/2008/02/0081908
“Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being. Spurred by the actions of the Federal Reserve, financed by exotic credit derivatives and debt securitization, an already massive real estate sales-and-marketing program expanded to include the desperate issuance of mortgages to the poor and feckless, compounding their troubles and ours.
That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle.”
Unit seems to have been taken off the market, I don’t see any sign that it sold….
LP was lowered to $475,000 and it closed 8/4/09 for $432,000.
Look out below!