Friday, February 03, 2006

"uh, I got a big mortgage..."

I was watching the 11 o'clock news tonight and there it was...the big 'news story' that people aren't saving any money. I know that isn't news to anybody here, but I'll say it again....the media is a lagging indicator!

Anyway, they have Mr. Reporter go out on the street and ask people is they save money.

"Excuse me sir, do you save money every month?"
-next person-
"I was wondering if you have money in savings?"
-next person-
"How much money do you have left over each month?" ...not much if any

So you get the point. The reporter asks a bunch of people if they have money in savings, or if they are saving any money. As you can imagine, most of the responses were 'no' and 'not very much'.

They they asked one guy why he has no savings and why he isn't saving any money....

"uh, I got a big mortgage..." "...I have to get a house now before it's impossible"

Then the news story transitioned into how the cost of housing here was causing people not to save any money. The story mentioned the fact that the savings rate hasn't been this low since the depression.

What I don't get is why so many people will neglect savings, health insurance, retirement savings, etc. just so they can get some crazy mortgage and 'own' a house?!?!?

Believe me, I REALLY understand wanting to own a house, but at what cost? Maybe it's just me, but the peace of mind knowing that I don't have a $4000-$5000 mortgage...or better yet, a $2000 mortgage that I know is GOING to be a $4000 mortgage, hanging over my head is worth more to me than 'owning' a place I can't afford.

How can I say most of these people can't afford it?? How long have you been reading here?? Even the latest stats from the California Association of Realtors show that only 8% of the people in San Diego can afford the median priced home. That median priced home won't even get you much 'house' in Southern California.

The story then goes to talk some financial advisor who said that people should try to save 'something' every week. They should put money away and plan for the future.

Let's get back to that famous line "...I have to get a house now before it's impossible". That is the mentality I have been talking about on this blog so many times. People want it, so they will do whatever to have it NOW! They don't do the math, they don't think about the future...other than what their property will be worth in it, they don't think about back-up plans, they don't think about retirement, they get emotionally set on something, and nothing is going to stop them...certainly not a little thing like income or savings.

Maybe it's just me, but it is just amazing that people will just 'assume' that property will go up forever. It is that logic alone that they use to justify the option ARM, the interest only, the 2/28 ARM, the 100% financing, the NINA, the stated income. After all, who cares if you are buying no money down, when the place goes up, you will make money. Most Southern Californian's think that real estate is impervious to any sort of decline now days.

The combination of negative savings, the price to income disconnect, and creative financing is the recipe for disaster. Do you wonder why all of the big lenders are headquartered in Southern California? It is the same reason tech was central to the Bay area, or why government contractors congregate around DC. That is where the action is. We saw what happened to the Bay Area when the 'action' returned to normal? What is going to happen to SoCal, when the RE/mortgage market returns to 'normal'? Like many people have said before, we don't need a huge dip to hurt lots of people. Even a flattening or small decline gets the first 'houses of cards' to start falling.

Per the news article tonight, we know that people aren't saving any money. So if they aren't saving, what are they going to fall back on when the ARMs adjust, and they can't refi? Or they can't afford the new 'adjusting' payment? What happens when people NEED to refi, but the 'flat' market means they need to pay for the costs out of pocket, instead of just 'rolling' the costs into the new loan?

Sounds like I'm beating a dead horse sometime...but I think most of you get the point.

That said, don't forget to check out the Forum page. There are lots of readers with many areas of expertise. I think it can be an informative and entertaining place....let's see what we can make out of it!

Thanks for stopping by, and I look forward to the comments on this post as well as the site changes!



Blogger David said...

For regular readers on this site you are beating a dead horse. Nevertheless, there are first time vistitors to this site who may not have not heard this stuff. Keep up the very solid work.

2/03/2006 5:22 AM  
Blogger Metroplexual said...

Even more scary. What happens to those people that bought at peak, when prices go down and the banks ask for the difference. FB's all the way.

2/03/2006 5:51 AM  
Blogger drwende said...

As a regular reader, I kind of enjoy seeing the dead horse beaten, as long as morbid equine flagellation doesn't drive out other, newer content. I need my daily reassurance that several hundred thousand home "investors" CAN be wrong.

2/03/2006 9:51 AM  
Blogger Out at the peak said...

Sometimes I wish I had TV still to actually see and hear these people interviewed on the street. Did they edit out the exceptions though? Or possibly, statistically, they didn't run into any that do save. If they started asking my questions, I would have started preaching about how bad of shape our economy state is now.

All of my friends and family members who are older than me have some incredible savings.

But all my younger friends are near broke. If they have a car problem or something of that magnitude, they are going to be hurting. Their problem is that even though they got through college, their wages are half of what us 'lucky' ones get.

2/03/2006 11:33 AM  
Blogger SoCalMtgGuy said...


Thank you for the excellent post!!!

I think it would be a good one for the 'forums' to stimulate some discussion over there.


2/03/2006 12:27 PM  
Blogger Metroplexual said...

Jim a,

I have been reading those articles too about loan forgiveness. Ben's Blog has one today. However, they pick those loans most likely to right themselves. Besides, eventually shareholders are to be answered as well as MBS holders.


These are hard times. But I think we spend alot on luxuries we don't really need. Cellphones for one. I don't have one (i don't need one)my wife does and that is for my peace of mind. Going out to eat often, going out oto the movies, new clothes all the time, Starbucks, going out to lunch etc.

I live in the New York Metro area. Where I live I would say I make above the median.
It is not as expensive as SD but it is up there. We rent for $1800 for a three Bdrm house. We have saved over $100k in the last 5 years. My priority at this juncture is to have between $150 and $200 K by the time this thing hits bottom in two years or so. And then we will buy.

I have two kids 5 and 10 and we go on vacation at least 3 times a year. Although it often involves visiting relatives (lucky for us it is in interesting places, Jersey Shore, Tucson, and Billings MT). My wife works for an airline so airfare is free.

I payed my cars off in two years with a zero interest loan (one I bought outright used).

As for activities I keep it simple, Piano lessons $18/week. Mostly free intramural sports. Art activities, bike riding with my kids, hiking etc. Summertime we go to the beach where my parents live. We splurge on a ski trip one week a year in Vermont. I do most of my travel cheaply. I use to get good inexpensive hotels on priceline and we clip coupons etc.

Much of our clothes are supplemented from Church thrift shops (you can get some nice stuff if you go to ones near wealthy areas, that is where they get their donations).

We carry no balance on credit cards. Ever! That is taboo.

I know it is rough for many people and I am not trying to sound superior but you should live within your means and whatever you do avoid borrowing on credit cards. They are evil.

2/03/2006 1:39 PM  
Blogger SoCalMtgGuy said...


Check out the forum site...your reply would be perfect over there!


Another F@CKED Borrower - Forum

2/03/2006 1:54 PM  
Anonymous Anonymous said...

Everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

2/03/2006 7:14 PM  
Anonymous Anonymous said...

The federal government, and the F@cked Borrower, are on the same plan.

The difference is, when the govt needs more money, they just stick a big gun in your back and take it. A distinct advantage over the F'd Borrower.

2/03/2006 8:45 PM  
Blogger Metroplexual said...


Thank you for the compliments. I did not realize that prop 13 cut everything in CA to the bone that is a shame. I could see how that would cost a family quite a bit.

In NJ we have home rule with local property taxes, that is how schools are funded. When most of the locals have kids the schools programs tend to be excellent. But that is another issue, local property taxes are onerous. My parents pay $14K a YR, and they are retired. An example of programs that are available for enrichment is found in the town I grew up in. It has constitutional law studies as an after school program. For the last 10 yrs they have competed in Washington DC and last year they won.

Sports programs are almost universally funded. Which is probably why NJ is overrepresented in the NFL and the college football.

As for my wife she works part time. Mostly just weekends. She has a 401k and I work in Gubment so I have a pension. I also consult on the side.

2/04/2006 8:10 AM  

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