Credit Contraction and a Return to Normalcy

[synthetik]

It will be nice when we return to the days when banks wanted 20% down to buy a home. When I bought my first home in 1991, I got caught in a bidding war with 3 other parties. I paid full price, $69,900 and spent two hours with the sellers, drinking coffee and just shooting the breeze. Even though I'd been outbid, thanks to my charm and strikingly good looks, they decided to sell it to me anyway.

I'd just started my business a few years earlier and didn't have the $14K for a downpayment, but I did have 3K. According to my broker, the real estate clerk and my bank it was "illegal" to borrow money for the down payment. The bank agreed to 10% down and I took out a cash loan from my grandfather @ 7% interest on the extra 4K I needed. Deal done.

Even though my income said otherwise, I chose this house because the bank would only loan me a maximum of $72,000. I was self employed, so I had to produce two years of BK statements, both person and business, and I had to provide an interim statement from a licensed CPA.

Being that it was my first real loan other than a few credit cards, I paid about a 2% premium on the interest rate, in the neighborhood of 8.75% on a conventional 30 year loan. My Grandfather, being depression era, had taught me that "paying off the house" was paramount. My business continued to thrive and I was able to pay off the loan in slightly less than 5 years. By 1996 I owned a new car and 4 bed 1800 sq foot house and had zero debt.

The housing market began to take off in 1995-6 ish, and I purchased a slightly larger home in the "well to do" area of town (Hyde Park, Tampa FL). I used the equity $ 117,000 from my first house as a 20% down payment ($50K to avoid PMI and pay closing costs on the new house) and invested the rest in some trow price funds.

In the five years I owned the 1st home, I spent nearly $30K improving it, so I only cleared about 9K in 5 years. (1991-1996) Not much appreciation, but fairly typical up until this point.

I sold the second house in 1999 for $350,000, taking nearly $120K in equity. Housing bubble anyone? (1999) That house is now "zillowing" out around $850K. In Tampa Florida! I'm not bitter, I was forced to sell due to issues with my business, but either way, thanks to that equity I was able to move Westward.

Would it be nice to return to a time when you could find a nice home without stretching yourself?

I have an idea... what if the government stopped providing tax incentives for homeowners and instead stopped taxing savers? Would we reverse our near-two year term of negatives savings rate not seen since the depression? Would people be able to save up 10 or 20% again and pay a realistic amount for a house?

I think by 2009 we'll be back to 20% down and actually having to provide income verification. I can't wait.

[synthetik]

On a side note, RENTING has proven to be much more difficult than BUYING these last few years.

In 2004 I was approved for an 80/20 no doc loan on a $500,000 condo in San Diego. Of course, thankfully I didn't do that insane deal.

Two of the three places we rented in San Diego during 2003-2006 required credit checks as well as 2 years tax returns. One landlord actually came to our existing apartment to interview us! I recall him looking around at our "stuff" and sizing up our ability to pay. What an ass! After overextended themselves buying speculative RE assets, he is now facing bankruptcy.

One condo we tried to rent in Downtown SD for $1950 wouldn't rent to me due to my Business BK13 (paid off) more than 5 years prior! His condo sat on the market for 7 months and finally leased for only $1700/mo.

Both places we've rented in Seattle required extensive credit checks.

In short, it's become much easier to BUY rather than rent! What's the difference between some schmoe with a 0 down, NINJA (No Income, No Job or Assets) loan and a renter? Aren't you effectively renting from the bank? Worse yet, you're on the hook for the depreciating loan, all the maintenance, association fees, tax, etc.

|rant off

[sniglet]