Kary – Obviously you haven’t been to Baltimore.

Not in the past 20 years.

But, I’m sure Washington has its undesirable locations too.

Just for fun, running some numbers, to compare living in DFW area vs. Seattle; with property tax included.

Sample house will be 2000 SF:
DFW $75 SF vs. Seattle $170 SF = $150,000 and $340,000 respectively.
For the sake of simplicity I will just double the property value to come up with total amount owed to the bank on a 30 year loan. So we have $300,000 vs. $680,000. With 360 payments, each month will cost you $833 DFW and $1889 Seattle. to the bank.

Now for Taxes:
DFW $150K @ 3% = $4500/yr or $375/month vs. Seattle $340K @ 1% = $3,400/ yr or $283/month.

Total:
$833+$375 = $1208 DFW and $1889+$283 = $2172 Seattle.
Difference = $964 a month.

Now over the long term, and after you have the property paid off, Seattle would probably make more financial sense because of the lower property taxes. But, Texas is clearly cheaper by far in the short term to probably 20 years out.

One more thing to consider is the avg. sales tax in Texas is 8.25% vs. 10% Washington.

I just picked the worst place I’ve been to within the past 20 years in the continental US.

The schools, academically , are among the worst in the nation. I ask him where is all the money going? He just shrugs and reminds me of the restaurants and how good they are.

http://www.remax-texas.com/remaxtx/modules/internet/search/includes/mapsearch/listingpopup.asp?mlsid=3215&mlsnumber=11184230&l=y
http://www.remax-texas.com/remaxtx/modules/internet/search/includes/mapsearch/listingpopup.asp?mlsid=3215&mlsnumber=11195219&l=y
http://www.remax-texas.com/remaxtx/modules/internet/search/includes/mapsearch/listingpopup.asp?mlsid=3215&mlsnumber=11217530&l=y
http://www.remax-texas.com/remaxtx/modules/internet/search/includes/mapsearch/listingpopup.asp?mlsid=3215&mlsnumber=11185162&l=y

I think people in Seattle have drank the Kool-aid, if they think 300-400k for a starter home is priced fairly.

Another thing is Texas in general does not have the unemployment figures that Washington has; another reason for the 300K to 400K asking prices being far to high. Those same starter houses in the DFW area can be bought for $75 a square foot all day long; with the added bonus that you have employment. It would be cheaper to own in Texas and Vacation in Washington State than it would be to live in Washington State.

Oh yea and I forgot we don’t have 9 months of rain, or the threat of a 9.0 mag. earthquake, just the occasional tornado that only causes damage to small areas.

Oh, how true!

I don’t have a problem with higher standards, and pricing according to risk. I don’t think you have to eliminate low down loans, however. Just as some people opt for a variable rate, some people might opt for a low down. The problem is more people who NEED low down and are increasing their monthly expenses. It’s rather obvious what’s wrong with that, but even to date the banks don’t seem to take that into account sufficiently.

Perhaps lenders would want to have higher standards, or require bigger down-payments, if they felt there were no social inhibitions against default. And what would be so terrible about that?

EVERYTHING!!!!!!!!!!!!!!!!!!

you better hope that walking away from a mortgage does NOT become socially acceptable or we will ALL pay a very steep price.

I don’t see why having consumers make calculated business decisions about their homes would be so terrible. Businesses (and businessmen) do that all the time, yet the economy has gotten along just fine (with the odd depression now and again) for centuries. Banks still lend to businesses even though they completely understand that there are no social pressures, per-se, preventing businesses from defaulting.

If a bank is willing to lend to a corporation, which will have no compunction of defaulting (or filing for bankruptcy) if circumstances warrant such a move then I don’t see why they wouldn’t still want to lend to consumers. Perhaps lenders would want to have higher standards, or require bigger down-payments, if they felt there were no social inhibitions against default. And what would be so terrible about that?

In the past I’ve heard of some credit cards you couldn’t get for the entire 10 years after a bankruptcy. Others you could get as soon as the discharge order was entered.

I’m not sure which side of the wall represents the worst punishment. How about just brewing up a little bit of extra poison gas and calling it a day?

Sorry so that nobody takes me seriously, that was a joke. :)

I’m not sure which side of the wall represents the worst punishment. How about just brewing up a little bit of extra poison gas and calling it a day?

:)

You agree with this Kary?

Bankruptcy? Part 1 – It May Affect Your Credit Score »
By Peter Orville, Attorney at LawcloseAuthor: Peter Orville, Attorney at Law Name: Peter Orville, Attorney at Law
Email: porville1@stny.rr.com
Site: http://www.peterorville.com

Your Credit Score can be an important asset. It determines your ability to get credit, and the cost. It could be a factor in your getting a job, renting an apartment, and purchasing a house or a car. When you file a Chapter 7 bankruptcy, your credit score will be affected. In some cases, however, it’s affect on your credit score may be minimal, and may be temporary.

If you are way behind on paying your bills, and have been for some time, your credit score is already bad. When you file bankruptcy, and receive a bankruptcy discharge, your credit score might actually go up. This happens because all of the creditors listed on your credit report indicate your current balance, your available credit, your past due balance and your payment history. When you get your bankruptcy discharge, each listing on your credit report will simply say “included in bankruptcy� or “discharged in bankruptcy�. The balance due and past due balances will be listed as zero. While the bankruptcy filing is a negative on your credit score, the omission of balances due and past due balances will have a positive effect on your score.

Even if your credit score decreases when you file your bankruptcy, it will not stay low forever. Most people who file Chapter 7 bankruptcy find that within two years of filing, their credit score improves to a good or excellent level.

The myth that you cannot get credit for 10 years after filing bankruptcy is just that…a myth. The advertisements you see or hear urging you to enter into debt settlement to “avoid filing bankruptcy� are designed to give the impression that debt settlement would not harm your credit score like bankruptcy would. The truth is often the opposite.

Yes, my vote is for 20% down.

Yes, debtor’s prison is my vote.

They still do this in western countries such as Ireland for much smaller debts than what people owe on homes here in the USA.

You are amongst a group of people who believe that your credit will be good again, once inflation kicks back in.

I understand what you are saying, but its A +EV move to walk away now.

I personally do not know what will happen.

Besides none of us knows how this is going to turn out. Borrowers are feeling the pain of defaltion but what if inflation kicks in at say 10%. Then even the house purchased at the top of the market looks good. . That person who walked away from the house and decided to rent will see their rent go way past what their payment was in a couple of years and not be able to buy or borrow money when debt is favored. Walking away is like selling at the bottom of the market.

People who lose their jobs or have medical expenses or unfortinate circumstances beyond their control need a way to get rid of the debt and start ovewr and be able to live but willfully walking away is not good for anyone in the long term. The probelm is that we have had such good examples set in Wall Street and the governmant.

So yes, people not paying a second have reason to worry. In that case, it might be worth considering a Chapter 13 and possibly wiping out the second and keeping the house only paying for the first. It would depend on the facts, but I think the law currently supports that on the right facts.

Yes, the regional and local banks stayed away from toxic lending per se, but the buyers buying their niche builder business financed their purchases with these loans. Maybe during the next cycle these bank exec’s (if they are still around) will actually research what type of loans buyers used to finance their builder inventory at such a frenzied clip. This is why I and probably others have such a hard time understanding local bank executive staff commenting that the extent of the market decline took them by surprise.

Here’s something that I’ve been pondering. I think that banks that have huge holdings in building lots may be seeing extra red in coming quarters. Keep in mind, many of these banks stayed away from sub prime and exotic loans, but did have a huge niche builder business.

Also, IF the banks are not allowing construction loans, then what happens to the current value of a building lot? We generally figure that a building lot’s value is 25-35% of the finished end product. Somebody, either a current buyer or the current lot holder may be holding these suckers for a long, long time.

Throw the walkaways in prison.
Throw the bankers in prison.
Throw everyone who can’t pay anything back in prison.

I expect this to be a very large percentage of the population.

It might be more efficient to wall off a small area of the country, call the inside of that wall “freedom” and say that everyone outside of that wall is “incarcerated”. Then we take everyone who is paying back their debt inside that walled off area. It will be much more efficient to place guards around that wall than placing them everywhere else in the country. Also, since it is all prison outside of the wall, we would only allow the people inside the wall access during “visiting hours”.

The people inside of the wall will have to work very, very hard to support the prison system (we may need to pass laws allowing forced labor), but that is the price you have to pay for a fiscally responsible society.

But I guess that’s just crazy. You could only sell mortgages to people who can save money and that would mean far fewer (bad) loans.

Is Steve Tytler suggesting we send mortgage bankers to debtors prison until they can make good to the investors?

Ooh- Steve experiences the venerable “ah hah!” moment.

Yes, it will be very bad. What’s missing from the markets is trust. You can’t trust the banks, you can’t trust the borrowers, you can’t trust the government or the media to tell you the truth. People are so divided they can’t even agree on the standards. Honesty is AWOL. Everyone, from the lenders to the politicians to the investors is openly gaming the system, twisting the law, thinking short term and ignoring consequences that may not even exist as the future unfolds. It is a cultural breakdown that will end very badly.

Most depressingly, those entities that are charged with setting and enforcing the limits are in on the game. The rules are arbitrarily applied, subject to influence, and too often flat-out ignored. Unfortunately the system was never set up to deal with this level of general immorality, as it assumed the players would at least recognize some ground rules. That doesn’t seem to be the case though. Revolution and reset, within a decade

That’s strange- when the page loaded the first time all I saw were the first three digits, no link. I assumed it had to be cost per square foot, as that was the only thing that made sense. Now I see the total price and the links. So please disregard my previous comments.

Or, I could be loosing my mind! ;-)

If 10% (or more) or borrowers started to walk away from their obligations even though they had the financial resources to make the payments, banks would have to raise mortgage interest rates dramatically to compensate for that risk. EVERYBODY would have to pay “subprime” mortgage rates of 10-12% or more.

Alternatively, maybe they would just start requiring more “skin in the game,” no exceptions. If everyone were required to put down 20%, far fewer people would even be upside down in the first place. Oh and it likely would have largely prevented the crazy out-of-control price growth that led to the current bust in the first place.

Steve, family first…ALWAYS….The Seattle Bubble group is definitely not indicative of society as a whole. What we say here on Bubble will NOT start a cavalcade of people doing anything in mass. However, the Bubbleheads I have met are definitely a giant leap above the average home buyer or seller.

Watch the Fed for guidance. If Mtg Cramdown, or a variation of it, is not initiated soon the foreclosures and short sales will continue relentlessly. I believe we will see STRONG incentives coming out for people to stay in their upside down homes.

Credit is not enough of a deterrent for people to pay 50-500k upside down. Everyone needs to focus on their own family and what needs to be done.

Until further notice, or I see a brilliant plan in action, we are trendline down for the rest of this year and next and the masses will continue to walk.

http://www.financialtrustindex.org/images/Guiso_Sapienza_Zingales_StrategicDefault.pdf (pdf)

I think there is some truth to that research. It might not be very accurate but fairly close. After a certain decline in prices the number of people walking away is a function of the house prices and not if a household can afford the mortgage or not. If it’s socially acceptable or not only time will tell but here’s a question to you folks – do you value your credit score worth $100k-$150k??

And I’m not just saying that because I own a mortgage company.

Think what would happen:

Banks could no longer depend on 95% of the borrowers to pay thier mortgage payments on time,
which is the historical average.

If 10% (or more) or borrowers started to walk away from their obligations even though they had the financial
resources to make the payments, banks would have to raise mortgage interest rates dramatically to compensate for that risk. EVERYBODY would have to pay “subprime” mortgage rates of 10-12% or more.

Raising interest rates would prompt more people to walk away …

And you have vicous cycle of economic destruction.

What makes the system work is that MOST people care about their credit rating and don’t want to trash it to cut their housing expense. They also think of thier house as a “home” and not just another financial investment.

Frankly, if everybody looked at the housing market the way most of the posters on this blog do, the entire real estate industry would collapse because nobody would ever buy .. they would always be looking and waiting for the proverbial “bottom” of the market.

I understand your feelings, and I am the same way. For example, I NEVER buy a brand new car because it’s such a waste of money. I always buy used cars. If everybody did the same thing the entire car industry would have collapsed many years ago.

My point is that you better hope that walking away from a mortgage does NOT become socially acceptable or we will ALL pay a very steep price.

Maybe it’s time to bring back Debtor’s Prisons. ;-)

If so the bankruptcy numbers will surge higher then I have even imagined. I know many people not paying on multiple Heloc’s and it appears they will eventually have to file to extinguish that debt? Am I correct?

In Washington, being non-recourse, the 1st is gone without any further concerns other then credit. Its the 2nd’s I’m concerned now for clients.

I’m sorry, but $400-500 a square foot is high-end luxury home territory, not run-of-the-mill development fare.

I must have missed something. Both the examples I posted are (currently) in the $180-$190 / sqft range. What are you referring to that’s at $400-$500 / sqft?

High-end new/recent construction on my street is closer to $200 square foot. It’s 30 minutes to the downtown Seattle core, and you don’t have to look at your neighbor’s house from all but your front windows. Anyone who bought those chocolate boxes is nuts.

We still have a long, long way to fall.

But one of the risks of buying new construction has been that you’re paying a premium, and for what? To me it’s just paying for uncertainty over what the neighborhood will look like and uncertainty over the construction quality.

I have tremendous respect for the micro-builders out there who have done a stand-up job making a living for their families and are doing everything they can to make a go of it in this environment.

On the flipside, I have zero respect for builders who are having to answer to the IRS for not paying employee taxes (essentially stealing from them in my opinion) or knowingly hired sub-contractors (small business people) that they knew they could never pay them— just to get product to market while shafting the little guys (tile setters, roofers, plumbers, electricians, painters) and putting them either out of business or in financial distress. COMPLETELY REPREHENSIBLE.