Is this a bad deal?
Yesterday my cousin bought a $515,000 new, 3 floor home, 2,600 sq. ft. home in Redmond downtown. He was excited because he got a 5% interest rate and his motivation is because he is concerned that interest rates can go higher.
He gave $120K (all his savings and money he got from other property) as a downpayment.
Do you think this is a risky deal in case house prices go down further?
He gave $120K (all his savings and money he got from other property) as a downpayment.
Do you think this is a risky deal in case house prices go down further?
Comments
The real risk he faces in that case is if his job is shifted to Vancouver or India. But if you don't buy then interest rates and rent can both go up.
People are worried about a new wave of foreclosures next year from alt-A mortgages, but according the graphic on the Fed website that someone linked to today, the alt-A and option-ARM impact is mostly in California (60%?).
Some will no doubt respond to say that your cousin should rent and spend lots of time finding the lowest possible prices buying visiting thriftshops and craigslist, but perhaps your cousin just wants to settle into a home and get better value by focusing on work and time with his family.
If he doesn't plan on selling, that doesn't matter because his mortgage payments stay the same. And he can't save by waiting, because the lower price will be offset by higher mortgage payments. If the interest rates rise because of inflation, the most likely outcome when the stimulus spending kicks into high gear at the same time as the delayed effect of the Fed's monetization hits, then he is better off because he will have locked in a low rate at a time when his salary starts increasing.
Also, just because the price of the average home sold goes down to meet buyers' budgets that does not necessarily mean that the price of individual houses goes down. If there is only a small supply of unsold houses and the population is growing then market will shift to building smaller houses to offset the higher interest costs. Seattle has a surplus of houses now, but that probably will be gone within a year.
Yes, if we make a bunch of absurd assumptions then you are absolutely correct.
I dunno -- the part in bold is bad news in any market IMO...esp today's job market. Lets hope that he
1. Has no family to suffer the possible downside of risk taken
2. Has a seriuos surplus income to reaccumulate some savings
or
3. Has some other savings you don't know about
If he is a bankruptcy atty I will take points 1 and 2 back, but I don't see who else feels their job is secure these days(well, I guess lets include elected politicians not due for reelection in the next few years)
What does a 0% down have to do with it? If he parks his savings somewhere else, they would go down also when interest rates go up.
Inventory of new houses is dropping fast.
http://www.alanpope.com/May09/PugetS_NewCon_Res.pdf
King County is not dropping as fast, because the market is most active in the lower priced areas. But once the low price inventory is gone, builders will again be able to make money by shifting to building small, inexpensive houses. That will result in jobs and still restart the local economy.
A half a million dollar purchase, in Redmond, and putting over $100K down payment on a new construction 5% loan is just wrong on all counts.
I personally, and it's just my opinion, think Redmond is over built with very little to support the values being charged there.
The area is surrounded by new construction of every type. What will be the future draw to that area? What will be the reasoning for all of those cheap housing units?
In my opinion a builder should be paying people to take the house if they agree to make some payments. I think builders should offer to make the first six months of payments to anyone agreeing to make at least six more months of payments. Hey, maybe a year from now the market will turn around and the buyer may want to keep the house.
Hey maybe in two years the market will turn around and the lender can sell the place at a foreclosure auction, then again, maybe not.
Yes, it's a risky deal. Not necessarily a bad thing to do, if he plans on staying for years, and his mortgage payments are not appreciably higher than his rent.
Bad deal, I don't know. Yes, there is new construction in Redmond that costs more, but we don't know how nicely appointed the house is, and if anything sets it apart from all the other new construction in Redmond that David just mentioned.
Bad deal? Maybe, maybe not. Risky deal? You betcha.
We should have all business people be as smart as this thus hiring cleaners to clean and pay the landlords in order to even get a chance to clean their office. In the case that the landlord likes getting his office cleaned and getting paid for it, then hey, he should give some of that money he got from the cleaner back, of course after two years maybe.
Get off the pipe.
Where's the mortgage money in your comment?
You see kid you make no sense, never have. I cut you a lot of slack because this is a blog. You never know who you are talking to.
I get it that your are a big time builder developer who has made millions of dollars. I believe you. It just shows why the threshold of the Real Estate business is so low.
Any one can make money in Real Estate, any one. You are just another example.