More people are losing their homes

[disneysteve]

The number of homes entering into foreclosure surged in October to more than 115,000 for the month, a 42% hike over a year earlier. More than 1 million homes were in foreclosure by the end of October. That yields a national rate of one new filing for every 1,001 US households. The worst states for foreclosures are Colorado, Nevada, Georgia, Michigan, Illinois, Florida, Ohio, Tennessee, New Jersey and Utah.

- taken from article in Medical Economics magazine, 12/15/06

[kv968]

And sadly there will be more to come in the future as more of those ARM's start taking on current rates.

[froggie]

I am still learning... Can someone tell me what ARM's are?

Thanks in advance!!

[cschin4]

I think many people are told they "can afford" a home that really is much more than they can. On paper, everything can look fine. But, there are many hidden costs of owning a home that are not accounted for in these calculations. Heating costs, electric, etc all contine to rise while many incomes are stagnant. And, unexpected things happen in life like illness, disability and so forth. Throw a new child into the mix and the costs become unmanageable. Our home was a little less than 1.5X our present income. But, I expect our income may go down as we get older so we paid our home off completely 2 yrs ago. And, in retrospect, I wish we had purchased a smaller home. We have more room than we need. I may look to downsize in the near future as well.
As for ARMs, it never seemed like something I would want to take a chance on. I think a fixed rate makes it easier to budget as you won't get hit with some increase down the road.

[disneysteve]

Originally Posted by froggie

I am still learning... Can someone tell me what ARM's are?

Thanks in advance!!

ARM = adjustable rate mortgage. Unlike a fixed-rate loan that has the same interest rate for the entire term, an ARM starts with a low rate and adjusts based on prevailing rates at the time of the adjustments. During a period of falling interest rates, a buyer can save tons with an ARM. However, if rates are climbing, ARMs can be disastrous. A buyer who overextends himself to get into a home he can't really afford could find himself in a lot of trouble if the ARM interest rate rises a couple of points, resulting in higher monthly payments.

[rob62521]

As frightening as your percentages are, can we say we are really surprised? It's like cschin said, what works on paper doesn't in reality. So many people are "house poor" that is, they have a big fancy house, but can't afford to heat, cool, or maintain it. Some of the newer homes being built are almost obscene as to how big they are, especially when the median salary around here is around $35K and these homes are selling for $300-400K. Eight years ago when we were in the market for a different house, our realtor took us through a lovely home. I asked why they were selling it. He said, you will understand when you go in and see the family room and two of the three bedrooms. The family room's furniture was the white plastic lawn furniture. Two of the three bedrooms were empty. They had bought more house than they could afford and this was one was just a little over $100K. The number of foreclosures in our public notices section of the newspaper don't seem to be dwindling either.

[fairy74]

I agree with what several others have said, people get into more house than they can realistically afford. It is sad, but really their own fault. A realtor is a salesperson, you have to run your own figures too and do research into how much the real cost of ownership is.

[Ima saver]

I think it is important to start small and then trade up every few years. That is what we did and we have been mortgage free for about 30 years.

[Joan.of.the.Arch]

It must feel terrible to go from being the owner of a grand house to being --what?-- basement tenants in your in-law's home?

Do you think there are a lot of cases where people are sort of cornered into a foreclosure by not being able to sell the homes on the open market when they can't come up with their payments? I can just imagine the desperation on might feel.

[disneysteve]

Originally Posted by Ima saver

I think it is important to start small and then trade up every few years.

I think what is important is to buy a house you can afford. There is certainly nothing wrong with trading up if your means and needs change, but I think far too many people trade up just because they can or think they are supposed to.

We bought our house in 1994. We're still here and have no plans to move. We could afford more now and we could certainly use the space, but it isn't worth the hassle and expense of taking on a larger home.

My mom recently moved from the home she and my father bought in 1955. My mother-in-law is in the process of preparing to move from the home she has been in since 1973. And both of them are moving to apartments/retirement communities, so they are downsizing, not trading up.

I think the whole "trade up" mentality is relatively new. Years ago, people were much more likely to buy a house and live there forever, even passing the house on to family when they died. You just don't hear about stuff like that anymore. We have various friends who are on their 3rd or 4th or 5th house since we bought our one and only.

To contradict myself, because I realize there are two sides to this story, far too many people are going out first-house shopping and want to buy their dream home. The problem is they can't afford their dream home yet. Those are the people that should be buying something modest until their income and savings catch up with their desires, then trade up to something bigger and better.

[disneysteve]

Originally Posted by Joan.of.the.Arch

Do you think there are a lot of cases where people are sort of cornered into a foreclosure by not being able to sell the homes on the open market when they can't come up with their payments?

Sure. Let's say you bought an overpriced home in an overpriced market and used creative financing such as an ARM or interest-only loan. Now, the market has cooled, prices have dropped 10-20%, and your ARM is adjusting upward or your principal payments are starting on the interest-only loan. You can't swing the higher payments and, to make it worse, your home is worth less than you paid. So even if you sell it, you'll still be screwed because you don't have enough to pay off the loan. More and more people are finding themselves in some variation of that scenario.

[PRICEPLUS]

Originally Posted by disneysteve

You can't swing the higher payments and, to make it worse, your home is worth less than you paid. So even if you sell it, you'll still be screwed because you don't have enough to pay off the loan. More and more people are finding themselves in some variation of that scenario.

Sad to say this will be happening more and more. God help those folks if the economy takes a turn for the worse and interest rates rise. More trouble if they are laid off! People should know their financial limitations and forget keeping up with the Joneses!

[rob62521]

Originally Posted by disneysteve

.

I think the whole "trade up" mentality is relatively new. Years ago, people were much more likely to buy a house and live there forever, even passing the house on to family when they died. You just don't hear about stuff like that anymore. We have various friends who are on their 3rd or 4th or 5th house since we bought our one and only.

To contradict myself, because I realize there are two sides to this story, far too many people are going out first-house shopping and want to buy their dream home. The problem is they can't afford their dream home yet. Those are the people that should be buying something modest until their income and savings catch up with their desires, then trade up to something bigger and better.

You are right -- so few folks people buy a house and live there for years and years. We have been married over 16 years and this is our second house. We didn't trade up when we bought this one 8 years ago -- we actually got a smaller house, but needed a house on one-level since my stairs bothered my husband's knees. We bought what we could afford and as we had the money, fixed things up the way we wanted it.

So many don't buy a modest home because they want it all. Now.

Why don't you blog, disneysteve? I always enjoy reading your posts!

[disneysteve]

Originally Posted by rob62521

Why don't you blog, disneysteve? I always enjoy reading your posts!

Thank you. I keep thinking about it, but I spend so much darned time reading and posting on threads, that if I started blogging too, I think my wife would throw me out of the house.

[asmom]

Originally Posted by disneysteve

I think what is important is to buy a house you can afford. There is certainly nothing wrong with trading up if your means and needs change, but I think far too many people trade up just because they can or think they are supposed to.

We bought our house in 1994. We're still here and have no plans to move. We could afford more now and we could certainly use the space, but it isn't worth the hassle and expense of taking on a larger home.

My mom recently moved from the home she and my father bought in 1955. My mother-in-law is in the process of preparing to move from the home she has been in since 1973. And both of them are moving to apartments/retirement communities, so they are downsizing, not trading up.

I think the whole "trade up" mentality is relatively new. Years ago, people were much more likely to buy a house and live there forever, even passing the house on to family when they died. You just don't hear about stuff like that anymore. We have various friends who are on their 3rd or 4th or 5th house since we bought our one and only.

To contradict myself, because I realize there are two sides to this story, far too many people are going out first-house shopping and want to buy their dream home. The problem is they can't afford their dream home yet. Those are the people that should be buying something modest until their income and savings catch up with their desires, then trade up to something bigger and better.

Unfortunately I can attest to this. My husband and I bought our first home in 1995. It was a starter home and we were well within our means when we bought it. After only 3 years, we decided to move up. And while we could afford the monthly payments, things were a lot tighter than before. Then a couple of things happened: 1) I simultaneously lost my job and became pregnant. Due to complications, I was unable to even look for a job for the next few months. 2) Our property taxes were raised almost immediately and our escrow was badly calculated which added about $75 to our monthly payment. That doesn't seem like a lot but when bills are already squeezing you..... 3) After my son was born, I opted not to go back to work full-time, only working prn.


The net result of this was that we were unable to furnish our home properly and we really couldn't afford the upkeep the way I wanted. We also acquired a lot of credit card debt while we were trying to stay afloat. This could have happened to anyone but if we had waited to buy the home and had focused on building a larger savings we could have weathered that storm in a lot better condition. As it was, it took about 3 years for us to turn that around. 3 years to undo the damage of being out of work for a few months! Then I went to grad school.....

[Ima saver]

I bought my first house in 1966 for $13,000 , added a room and a pool for a grand total of $19,000. In 1974 we sold the house for $40,000 and built a new home for cash. when we moved in 1984, we sold that house and built a home on the river for cash. In 1995, we sold again and paid cash for the house we are in. The house is appraised at about $500,000 on the tax rolls. The point I am making is that we started small with something we could afford and after that just built with the money we had . Of course, it helps a lot if your husband is a builder. His labor was free . He built our house at night and on weekends, while building other people's houses.

[lrjohnson]

Right now it makes sense for me to pay my $400 galf share of rent and throw a ton of money in savings, then to buy houses the way some friends and coworkers did. I may not be building equity, but I can save for a huge downpayment, I don't have to worry about a mortgage I can't afford, and I don't have to worry about becoming "upside down" with prices going down. I was regretting being a renter, but I fell good about it now. (I live in CA, and that makes a big difference. I'd probably buy most other places.)

[Snoopy2645]

I am with IMA when I first bought though it was a trailer I sometimes wish I had kept it & just bought land to put it on but I was only 22 when I bought this house I didnt want to live in the country at the time now 8yrs later I sure do anywho I sold that & bought this house crossing my fingers it will be soon paid of we dont have much more to pay then I am hoping to sale it & buy something bigger & newer & that will be it we will stay thier the next house will be a keeper for awhile at least. Tell the kids are gone I dont know maybe I will have grandkids someday & will still need a big house!!


So many people I knew went from no where to live meaning they lived with parents or whatever to buying homes & they lost them very quickly because they knew nothing about taxes & ins & upkeep & I did thanks to my trailer!!!

[tgavin71]

Same is happenning here as well. I know this is going to be cruel but quite frankly I have little sympathy for people who buy whooping huge houses that they couldn't afford and when interest rates rise .25% they have to sell because the repayments are beyond their means. I understand that illness, job loss etc can be the result of some foreclosures but by and by it is simply not being able to afford it in the first place.

[MoneyHoney]

Part of the problem is the high number of sub-prime mortgages and zero-down mortgages out there. The mentality of many mortgage companies has been "let's do whatever it takes to get you into a house".