Care for me to scan my closing docs and post them here with redacted personal information to show you what I refinanced for in 2004 and the closing costs?

FICO’s that are in the low 800’s for each borrower has companies scrambling for your business. I just did a recent home purchase at 6% (June 2007, when rates had ticked up a bit unfortunately). Total out of pocket (not including my 20% down payment) $1900. They credited the $300 appraisal fee to me and gave me a 1 point discount for free as well.

I can show you the paperwork anytime you want.

Remember, up until July 2007, Wall Street was using loans like mine as the sweet cream on top of the toxic garbage to create the tranches and levels of risk.

I knew how near perfect my credit was and used it to my advantage with the company I picked to get my business.

With that said, serial refinancing is self defeating. The way mortgages work is that you pay all your interest up front and make little to no dent in your principal for 7 years. Every time you refinance you prolong the time it will take to pay off your low.

However the more important issue is this. Rates have to drop to be able to refinance… well you could refinance at a higher rate, but it’s slightly defeating. Here is some great history for you:

http://www.freddiemac.com/pmms/pmms30.htm

You will notice that in 1981 and 1982 the average interest rate on a 30-year mortgage was 16.63% and 16.04%. Take a look a the rest of the years all 37 of them. Do you see any rates lower than we have now??? Are you going to refinance into a higher rate after you buy your home?

Lastly, I am feeling great about my market calls. I have a home in Arizona 1/2 mile from ASU that is currently at 100% more than I bought it for (even after the crash) and I am renting it out at $400 more a month than it costs me. I bought my home here $70/sqft cheaper than most of the places around me in a neighborhood in transition. The Seattle market posted gains for 2-years after many markets fell.

You need to realize that there are opportunities all around you and you can proactively effect the outcome. Look for a fixer-upper, look for neighborhoods in transition, look for opportunities to trade your skills for skills you need to improve your home. I design websites and am a professional photographer. I create websites, marketing material, and take photographs for home builders, roofers, painters, tile layers, and whoever else is willing to trade. You can create opportunity in every market.

The way mortgages work for the first 7 years you will not make a dent in your balance. Refinance after 7 years and guess what, you now basically have a 37-year mortgage

These are not “fees”. You can take a shorter term mortgage. you can take a 30 year mortgage at year 5 and amortize over 25 years. Neither that argument, or the “MSN Money Basics” article support your premise that refinancing is outrageously (e.g. 2-3 points of loan) expensive. Yes you can be stupid and get reamed, but generally a person who is reasonably astute pays relatively little.

in addition – do the math – to offset a 10% decline in home prices, you’d need a 20-30% increase in interest rates.

Finally, in most years I would bet that home prices are more stable than interest rates and not make this bet- but lets look at the facts today:
– home prices are dropping in every market in the country. Many relatively conservative analysts are calling for 15% drops across the board (e.g Goldman Sachs). This fact is conveniently ignored by the “hyperinflation” camp
– Ten year T-bills are at 3.6%
– The fed is whacking rates at every opportunity – current bet is 100 BP in the next round of cuts

Against that backdrop, I’m quite comfortable with the market call I’ve made. Since you’re hanging out here, I’m pretty sure you’re not…

Remember how my earlier post mentioned I “agree with most” of what you say…

well, you happen to be very wrong in this case. Refinancing is nowhere in the realm of $10K

They do make you put funds back into escrow for 1st months mortgage, property tax, etc. but that is all considered “equity”.

Lastly, 720+ FICO is not unheard of. In fact, if you are thinking of buying multiple properties you probably should be that high unless you are a true “flipper” and the short term interest rate is nominal impact to the overall equation.

I just looked into REFI yesterday on my remaining $210K, and we were talking $1,600 with all fees and paying 1/2 pts.

You are acting like double or triple the rate is the “norm” and we are at some magical time when rates are only at 5-6%. Historically, we’ve only even breached 10% for a few years in the early 80’s, and they have been steadily going down since then. If we hit a similar spike in rates, it is FAR more likely they will again head down than continue to rise for 30 years. Again, it is much better to get a high rate and low principle than the other way around, especially since nobody knows if they will have to sell their house in the next 30 years or not. I don’t know about you, but I’d rather pay a higher interest rate than risk bankruptcy or foreclosure if I needed to get out of my house.

Now that Harley is being proven wrong on the costs of a refi, he/she is resorting to baseless insult attempts about how much house someone can afford.

Haven’t we seen this pattern many a time before?

The way mortgages work for the first 7 years you will not make a dent in your balance. Refinance after 7 years and guess what, you now basically have a 37-year mortgage (7 years of paying down nothing and another 30 to pay off the rest). Now it will take you another 7 years before you start putting another dent in the principal.

Here is a great article: http://moneycentral.msn.com/content/Banking/Homefinancing/P42715.asp

I’ve refi’d both of the properties I’ve owned – and never paid much more than appraisal and paperwork fees. I don’t get the comment that the cost is “rolled back into” the mortgage. If the rate is lower, the amount owed the same – then one has acheived the goal of the refi – to reduce the rate for little or no cost. Yes. the broker probably makes something on the back end – that’s why you do business. But if one has decent credit, I doubt there is more than a couple grand in play for all parties on a $500k loan.

There are some broker types on the board that could comment – but saying the cost is $10-15k is hyperbole

don’t care. I’ll be paying with cash.

You all repeat “what goes up must come down” we are at all time lows in interest rates.

LeftOverpricedSeattle $300 out of pocket means that you either didn’t get the best interest rate, the cost was rolled back into the mortgage, or you refinanced your trailer’s $15,000 mortgage.

Please let me ask what facts you have provided. You guys just cheer the same one-sided lines “What goes up must come down”, “House prices are going to crash”, “Interest rates will stay low too”. Does the “Bubble” in Seattle Bubble” mean you live in your own little dream world and don’t care to hear or even understand differing opinions?

I have provided dozens of facts and looked at things from multiple perspectives and many of you have the same regurgitated unidimensional misguided facts. Please tell me how much you think interest rates will be coming down from here?

If it costs you $5,000-10,000 for a refi. you are paying WAY too much for one reason or another.

“Your looking at $5,000 – $10,000 every time you do it.”

This is not true. Total costs lie somewhere in the 1-3K range, from my own personal experience of actually refinancing. Your estimate looks like the “closing costs” of buying a house and getting a 500K loan *and* with paying a point to buy down the interest rate.

Also, I’d like to add myself to the list of those not whining. I can afford most houses in the Seattle area. I’m just not going to do it! I’ve owned houses before and am sitting on a ton of cash. Life is good. :)

Also, it is far better to buy at a higher interest rate and lower price than the other way around. As others have said, you can always refinance. Also, a lower interest rate only helps you if you keep that loan for the entire term. If there are unexpected events (job move, divorce, whatever) and you have to SELL, the principal on the loan is high. Most of this board, including myself, have gone through extensive analysis of different interest rates and prices. I’ve done many spreadsheets and I’m willing to take 7% and buy in a year than 5.4% and buy now.

Stick around, Harley. Differing opinions are a good thing.

Do you think refinancing is free? You site 3% interest rate… yeah for an ARM, and then you have to refinance again when your teaser rate is over in 1 – 2 years.. Do any of you actually own homes and ever go through the refinancing process? Your looking at $5,000 – $10,000 every time you do it. Yeah , often you can roll it back into your mortgage, but now you are financing it over 30 years which will cost you between $15,000 – $30,000 per refinance… do that three times and see how good it seems.

Deflation? Maybe you should read Bernanke’s statements… he is petrified on rapid inflation. We are on the wrong side of the coin. The US dollar is at all time lows against many of the currencies. I didn’t notice anything getting cheaper. Oil is near an all time high, which makes everything from plastics, to fertilizer, to our transportation costs for the products we buy go up. Milk is more expensive than gas… the only thing that is deflating is the value of the dollar which cause us to experience inflation.

I made that post several months ago, and the more and more I watch the news and I pay attention to what realtors have to say, the more I fail to understand how some of these people can be employed. I use to think there was nothing worse than a car salesman, maybe I’ve been wrong.

I’m moving from one flopped flip to another. The one I’m moving into is 800 sqft bigger and $150 less a month than what I’m paying right now.

Rent’s going up?

Where??

I am sure you do not agree with me, but we are looking at serious deflation, not inflation. Raising rates won’t help that, and will not be happening until we are on the other side of this beast. By then they will still be low and so will house prices. I recommend you read up on what is going on in the global credit markets, things are a whole lot worse than 1% YoY declines in Seattle real estate and its all just beginning.

The one thing I worry most for about the people on the post is that they seem just so fixed on the price of the house and not the price of the interest rate.

Here’s another one of those “it’s been discussed a lot” topics, which you probably haven’t seen in the previous discussion yet.

The basic feeling here is that we’d rather take our chances with an interest rate, which can be re-financed at a later time, then a purchase price which will not change..

Do you really think we are going to have these interest rates again???

I’d point you back to your own statement about not knowing the future.. A few years ago my parent re-financed to a 5% fixed loan.. at the time, they were told the rates were down to a xx year low.. and it wouldn’t get there again in their lifetime… but today we’re pretty close…The future is a tricky thing….

I’ll take my risk with the interest rate, and I promise not to whine (too much) if I’m wrong. ;)

You are exactly right. I hope the prices drop and interest rates stay low… it would be a phenomenal buying opportunity. I did buy in a neighborhood “In Transition”. According to “Zillow” the neighborhood went up 15% last year. Is it true… well it’s a little “Zilly” to think so, but all the high-end condos going up around me aren’t going to hurt my property value.

Hey B.

Do you really think we are going to have these interest rates again??? They are at 40-year lows.. what goes down must go up! We have mortgaged our lives away to China, Japan, and Saudi Arabia to pay for the Wars, we still have the Social Security Issue to pay for, and now we want to take on free Health Care. Interest rates will go through the roof to cover all these costs. We are going to pay the piper big time for a long time and it’s only a matter of when.

With every rate cut our imports get more and more expensive and we are importing more than we are exporting. Inflation will force the Feds to raise rates sooner rather than later (12 months tops) so your betting that housing prices will fall at a faster rate than the interest rises.

After the elections are over you can bet the interest rates will rise dramatically.

I enjoy your commentary and point of view, and agree with a lot of it. Keep doing what you are doing.

Live within your means, buying fixers on the low and give that sweat equity (especially if it is enjoyable and not a “chore”).

You will become the Millionaire Next Door that way.

Don’t let these skeptics get you down. Even if you bought on the high side, you will hopefully be able to pick up more realestate on the cheap and “Dollar cost average” if prices to drop.

Good Luck

High supply, low cost.

If Chicago is a barometer for Seattle, I’m curious how much of a factor lower should Seattle be priced?

Poll:
Should a “new construction” downtown Seattle 2bed / 2bath, 1000 sf condo be: 50%, 70%, 90% of Chicago’s prices?

I think the problem you don’t seem to grasp is that your interest rate, over 30 years, is extremely likely to be able to refinanced lower. Your parents 13% could refi down to 3% after 20 years, with a spread somewhere in between basically that entire time. What you cannot do is go renegotiate a ridiculous initial price, you are stuck with that forever.

The one thing I worry most for about the people on the post is that they seem just so fixed on the price of the house and not the price of the interest rate. Like I said earlier, my parents were paying 13% for their loan back in the 80’s (Savings and Loan Scandals) and there were some paying close to 15% (No Mafia Involved).

well actually it is a 2 bath condo.

once again proving that you can only trust Zillow & Trulia so far.. :)

Whining about how unfordable living in the city is not going to get anyone closer to living in the city.

I don’t think most of the post come off that bad (do they?).. I’d like to suggest that many of the posters here (myself included) simply have made a prediction and are putting their money where their mouth is.. If we are wrong, we’ll pay for either by renting for longer, or buying a more modest house.. If we’re right, we’ll get a better deal on a house..

The truth is no one knows what is going to happen because there are too many variables.

I’d agree with that last statement, though you can always make educated guesses..Good luck with your plan for the future, I hope it works out for you..

Yes, it is a fourth floor condo with vaulted ceilings, views of Queen Anne, the sound, and Mt. Rainier. I purposely bought a condo with fixer-upper potential knowing full well that there might be a downturn in the market. I am a sweat equity kind of guy. Everywhere around me is selling for $376/sqft. I bought at $302/sqft.

I would love to live on the 30th floor of the Cosmopolitan, but guess what, I can’t afford it. However, I am not going to complain and worry about why I can’t live on the 30th floor now. I will just work hard, leverage my assets the best that I can, and most importantly live below my means.

Whining about how unfordable living in the city is not going to get anyone closer to living in the city. Will my place go down in value of the next 2-3 years maybe. Will interest rates sky rocket after the sub prime mess is over maybe. Remember “What goes up must come down” applies to interest rates too. RIGHT????

You need to find the best combination of both INTEREST RATES and PROPERTY VALUE. House flippers are the day traders of our past. If you are not in your investment for the long haul and don’t have contingency plans in case things don’t go your way then its your own fault. Buying a home was the right decision for me because of my specific situation.

I actually truly enjoy the debate and people challenging my points of view. Sincerely, I thank you all for that. I hope you in turn appreciate me challenging your points of view. You have all… well not all… made some good points. The truth is no one knows what is going to happen because there are too many variables.

by combing some data from his site with a guess, and the public sales data from Trulia and Zillow, I’d suspect that Harley bought a 2 bd / 1 ba condo with 1K sq for a little over $300K in the interbay area in June of this year…

Harley, did I get it?

Right on! Couldn’t have said it better…

(I too move back here after waiting 6 years for the right job opportunity to open up.. )

I moved BACK to Seattle because I missed it when I moved away. I love it here! The winters get me down a bit and there are other things I don’t like about the town either, but we don’t need to get into details.

What is it with this “if you’re not with me, you’re against me” attitude? Can’t we like/love Seattle *and* want house prices to come down to a level where regular people can actually buy houses and stay in the city they also like?

We really seem to get the most trouble from those that bought recently, watched house prices tick down a bit, freaked out and searched for “Seattle Real Estate Bubble” and landed here. Panic sets in, and they post the following:

-Microsoft
-Boeing
-Lakes
-Not as bad as everywhere else
-Interest rates record lows
-Jobs
-Biotech hub

Sorry about the rant, but I’m getting fed up with those that are desperate to validate their own decisions to buy, after the fact. This is a forum for those to validate their decisions to *not* buy! :)

You have to wonder why housing bulls would spend so much time on a blog full of people that tell them their “investment” is going down in value and will continue to go down. If I owned a house right now I’d stay well away from this site as it would depress the hell out of me! :)

Wrestle. Pig. Enjoys it.

’nuff said.

I know you guys hate this city, trust me, that is obvious. However for Seattle to rank 5th is astounding.

Harley, you clearly have a problem with reading comprehension. I plainly stated “I like it here too, a lot even.” That’s far from hating this city. Sorry, but if you’re going to so blatantly ignore things that are said by others in order to make the point you want to make, I can’t be bothered to waste any more time talking with you.

Maybe the chinese GOV and the middle east GOV’s have money to invest but to count on the chinese consumer to stave off a world wide recession is stupid — as has been pointed out on WS.

You may not believe this but the old saying that “When the US Sneezes the World Gets the Cold still holds”.

Here is a link that explains it in more detail: http://www.rgemonitor.com/blog/roubini/131886

Again, I ask when did you buy? Six months ago I would guess right at the peak — ouch that is going to hurt.

Do you not read any of the previous posts???

It would be wonderful if you would read the entire argument before picking out one line and make a mindless statement.

People need to be able to afford $417k, think for a moment da ya think in a recession which is usually accompanied by job loss not growth that people will be able to drop that kind of change?

Part of the sub-prime repair package is the raising of the limit of government backed loans above the current level of $417,000. Whatever the level might turn out to be will stimulate the Seattle market more than any of the other of the four top cities. Seattle simply has more upside and a much lower barrier to entry than the other top four.

Trust me, the city needs a lot of maturing to come even close to the lower end of a world class city, but that need to mature is where all the growth is.

Seattle prices are less than half of San Francisco and a fraction of other cities including Tokyo, London, New York, Chicago, and LA.

Oh my goodness, you did not just compare Seattle to those cities. Clearly you are new here, good sir. Please read the posts “On Luxury Cars and World Class Cities” and “What Cities Does Seattle Compare To?.”

To sum up: Seattle is nice, but it simply is not in the same league as San Francisco, New York, Chicago, London, and Tokyo. I like it here too, a lot even, but to say that Seattle is the same class of city as these is to be delusional.

The average rainfall in San Francisco is 30 inches as year versus Seattle’s 36 inches…

Seattle has no state income tax… a person in Seattle making $80,000 would need to make a $118,000 to maintain the same lifestyle. So, in short, your point is baseless.

Seattle prices are less than half of San Francisco and a fraction of other cities including Tokyo, London, New York, Chicago, and LA. This helps eliminate psychological barriers associated with having to pay $875,000 versus $400,000.

There was a $138 Billion invested in the US by foreign real estate investors for the first half of 2007. Now with Bernanke pulling his “Edward Scissor Hands” with interest rates foreign investors are going to reap huge monetary benefits. We rank number 5 among US cities for foreign real estate investement and will likely go higher with regard to preferred cities for foreign investment. Please Google “Rate cuts” +”Currency Exchange” + “Foreign Real Estate Investment”.

I have looked at the statistics and spread sheets listed on this blogs and I could poke holes in all of the methodologies. You site a scenario of the interest rates going up to a maximum of 10% for your “affordability analysis”… well when I was a kid my parents were paying 13%. We are at 40-year lows in interest rates don’t ever think you will see these rate again.

After the sub-prime mess is swept up you better hope for interest rates under 10%. You also better pray that the housing market crashes in half because paying 5.5% on $300,000 is not any better than paying 11% on $150,000.

Next you guys will have a blog on the “Seattle Interest Bubble” whining away about how much interest rates are.

You keep on comparing Seattle to California and then use 2 maybe 4 data point to compare the two. That’s like comparing Beavers to Walrus… they both have big teeth and swim. Brilliant!!!

Researchers at MIT have been trying years to create the perfect economic model for investing based on thousands of factors and guess what, it always gets screwed up by human psychology. If you guys at the bubble think that you have it all figured out you need to get your butts over to wall street instead where the big bucks are instead of your paralysis by analysis.

No doubt its a blatant over-simplification. I can’t help but think of people who bought in places like my home state of Oklahoma or Dallas. They haven’t had significant annual appreciation rates in years and certainly nothing on the scale of Cal/Nev/Fla or even sweet home Seattle. Thus, buyers there may have been much better off with securities over the past ten years. On the other hand, those places tend not to fall in price a whole lot so the price risk of ownership isn’t very burdensome.

Fair point.

However, I think the chart is still profoundly misleading. If a realtor pointed me to this chart, I would wonder whether he:

A. Knew it was a misrepresentation and consequently wasn’t too ethical, or

B. Didn’t know and consequently wasn’t too bright.

Either way, I would not be reassured.

http://www.realestatejournal.com/buysell/markettrends/20080116-zuckerman.html?refresh=on

a teaser from the article:

On Wall Street, the losers in the collapse of the housing market are legion. The biggest winner looks to be John Paulson, a little-known hedge fund manager who smelled trouble two years ago.

Funds he runs were up $15 billion in 2007 on a spectacularly successful bet against the housing market. Mr. Paulson has reaped an estimated $3 billion to $4 billion for himself — believed to be the largest one-year payday in Wall Street history.

Luckily I invested in ultrashort real estate ETFs. It makes the whole housing bubble twice as fun. Not only do I get to watch the real estate market tank. I get to make money while it burns. Check out ticker SRS and for fun check out SKF. That is a 70% return this year. I guess that last real estate agent that I talked to was correct. Real Estate is a sure thing!

I don’t take issue with your thinking, but I would remind you that at least you get to live in the house. With your “equivalent size loan invested in stocks” you still have to live somewhere and that cost needs to also be considered.

You are nuts man. Your INTEREST ONLY is probably more than my entire rent! And I live in downtown San Jose, CA! So you get 30-40% of that back, after $10k, good for you! I am sure I would also babble a lot of nonsense about how Seattle is the golden city and everyone in the entire world wants to live there, but I am not insane and I have actually lived in several cities across the country other than Seattle. As the California market continues its rapid decline you’d better hope all those foreign investors are happier buying condos in Westlake than in downtown SF. You should also hope and pray that those tech workers would rather get rained on in Bellevue for $80k than tan themselves in Cupertino for $110k. Good luck with your “investment”, I know I would also be pretty defensive if it looked like I was going to lose 30% of a 5-10x leveraged investment over the next 2-3 years.

You make a very persuasive point.

Its misleading because it doesn’t clearly explain that the extra ‘earnings’ come from the leverage.

The leverage has two important implications. If the home declines 10% in price, the equity gets wiped out. If the stocks decline price, they lose 10%, or $1K. Far worse, it doesn’t account for the carrying cost on the loan over the 10 years, or any of the other expenses associated with maintaining the house, or the 6% cost to sell it (imagine a mutual fund with a 6% back-end load). Its like “if you invest $10K (and ignore the $50K in interest, the $10K in maintenance, the $15K in taxes, and the $5K in insurance) you make $100K! You cannot miss.

A more accurate comparison would be taking out an equivalent size loan and investing it in stocks. Anyone familiar with historical returns knows that stocks beat housing (and commodities generally) in the long term.

What is slightly depressing about all this is that the average person isn’t going to pick up on these differences. The average person sees a much bigger green bar for ‘homeowner’ and assumes owning a home must be far better than investing in stocks. That’s why pricing of houses is so irrational. However, if you are willing to rent, then the irrational overvaluing of ownership represents an opportunity for you.

Agreed. Two good investments.

Actually, aside from his first investment, I’m not sure that Mr. Allen has all that great a track record in investments.

he cleaned up on ticketmaster. everything else has been an exercise in turning dimes into nickels.

Harley Lever said,

Perhaps you could try using some… I don’t know… facts.

Ok:

Jobs are not the sole indicator of the state of the housing market 1,2,3,4,5

Limited Land may not be as critical as people paint it 1,2
Seattle may not be better off, just slower to get hit then the rest of the US 1,2,3,4

renting is not = to being poor, destitute and stupid 1,2,3

There’s more in the archives if you care to look, but at least this should give you an idea why most people don’t feel the need to re-tread this ground.