how do they afford that?

36Rock · #1 (**permalink**) 08-27-2005, 08:58 PM

I watch the program on Tv about flipping houses, how in the world does one offord a 900,000 home? Do the people in California make that much more money? Can anyone explain this?

mjrube94 · #2 (**permalink**) 08-27-2005, 10:08 PM

Although this obviously does not apply to everyone, my guess is that many people are mortgaged to the hilt. If you read all the stories about interest only mortgages, negative amortization, 40-year fixed terms, adjustable rates, etc., you have to believe that a good number of people are going to be in serious trouble. Prices in our area have gone through the roof and I can't see any other way the majority of these households are making it happen.

cercis · #3 (**permalink**) 08-28-2005, 12:41 AM

From what I've been told by friends who live in CA, MJ is absolutely correct.

Now, salaries do tend to be higher, but not high enough.

That was a nice house, but I wouldn't pay that much for it. I could get the same house in OKC for $150k TOPS. I know salaries aren't that much higher in CA.

Tree0164 · #4 (**permalink**) 08-28-2005, 06:11 AM

It was probably an informerical not a tv show about making money with real estate.

36Rock · #5 (**permalink**) 08-28-2005, 07:44 AM

No it's not an infomerical, it's called Flip this house on TLC. It's on every Saturday evening. It just amazes me that ordinary people are paying 500-900 thousand for a home. MJ you must be correct. Won't it all come cashing down someday? Looks to me like they will never own their home with those types of loans.

terry1156 · #6 (**permalink**) 08-28-2005, 08:11 AM

Isn't the point of flipping houses is to buy and then do a little work on it and then sell it quickly for a profit? If they are planning to sell for a profit quickly, then taking out a 100% loan isn't really that bad for them. But if the bubble bursts, they could also be stuck with a huge loss.

tamip · #7 (**permalink**) 08-28-2005, 08:53 AM

Ha! I live in California, and I'm constantly wondering the same thing! How can people afford these houses?! So, far, what seems to be normal is both husband and wife work, and they don't ever plan on paying off their homes. There are a ton of people taking out the interest only loans too.

Our mortgage is $400k, I'm a stay-at-home mom and my husband is a firefighter. Our neighbor just sold their house, similar to ours, for $670k. They bought an $800k home, and got the rest on an interest only loan. Now, the mom has to work full-time, just to afford it.

I love where I live, but I'm saddened by the thought that we can't ever afford to live in the country here- we just can't afford it. We plan to sell our house when my husband retires, and move out of state.

Tami

niki_the_tiger · #8 (**permalink**) 08-28-2005, 10:18 AM

I don't know how people can afford it either, especially with new cars, etc etc. We live in Vermont, in an area with a high rate of unemployment, so houses are relatively cheap... but we're wicked tight and can just cover our mortgage... Yes, we have debt... but so do all these other people! I guess it's all relative.

Then again, with the amount of heat we have to pay for the 8 months of winter here, we figured we could afford a whole lot more house more down south!

DivaJen · #9 (**permalink**) 08-28-2005, 02:05 PM

Interest only loans and the hope of selling before the bubble bursts - that's how people are making money off these homes.

Now, how are people who actually have to live here buying homes? I haven't the faintest idea. It was a stretch for DH and I to buy our home back when we were two teachers, no kids. Our home has since gone up in value at least 150%, if not more. And yet home after home here sells (although there are signs of it slowing down). I don't know how people are doing it. I do know that most couples have two incomes - I don't know many people making these hefty purchases on just one income.

rob62521 · #10 (**permalink**) 08-28-2005, 02:12 PM

Although I'm only thinking out loud (or online), perhaps some of these folks who are buying more home than they can afford are what my folks used to call "house poor". They have fancy house, but can't afford the furnishings and all the other stuff. They may buy it, but go deeper in debt. Where I live in the Midwest house prices have gone up a lot, but I still can't figure out how some of these folks buy $500,000 homes in our town when most people are barely making minimum wage. The only other thing is they buy it and when they can't make the payments or whatever, they move.

One couple I know used to always get a balloon note on a house they truly couldn't afford. As soon as the note would come due, they would have the house on the market and sell it to start over again. I always thought it was crazy. Do lenders still do balloon notes?

baselle · #11 (**permalink**) 08-28-2005, 03:49 PM

I think the simplest answer is that these "owners" can't afford it, but they don't know it yet. And do you really own a home if you only pay the interest (at best) and have no hope of paying off the principle? Haven't you just traded a fiscal agent for a landlord?

No one -- lender, realtor, house assessor -- told the "owner" that they can't afford it. As a matter of fact, are all of these parties are supporting this and taking cuts during the transaction. When this whole thing shakes out, a number of parties will have hell to pay.

And for selling when your payments become onerous -- if everyone else is doing the same thing...well, now the "owner" is going to be on the rough end of supply and demand. Lots of supply for an overpriced house but no demand. The exit door is pretty narrow.

marglo · #12 (**permalink**) 08-28-2005, 03:59 PM

Sounds scary to me! We live in an older (but not really old) home and we have improved it a bit through the years but not much and I don't what we could get for it. I'm sure we could get 150,000 but some of our neighbors are getting $250 and more. Sometimes we'd like to full-time in our RV for a whiel but I'm scared to sell this house and then not be able to buy another home with the money and I don't want debt. This house is almost paid for.

Gailete · #13 (**permalink**) 08-28-2005, 09:03 PM

I love watching those shows and wondering how people can afford them AND at the same time, I'm so glad I'm not in their shoes. We live in a house I bought for $60,000 4 years ago and we owe 50K on it. Eventually we hope to turn it into rental property when my husband is done building our real house. In the meantime I see these shows and when they talk about houses our size (1000 sq/ft) are going for $3-500,000 I am just amazed as it doesn't seem possible.

cercis · #14 (**permalink**) 08-28-2005, 09:24 PM

I understand how the original buyers did it (the "flippers"). They took out a business loan for the price and the renovation. But I can't believe they get the prices they ask. One of the things I do before I buy a house is look at the county records (I've always lived in counties where this is available free online) and find out how much they paid and when they bought. I won't even think of paying a lot more than they paid a short time before. Even if the house is probably "worth it". That's just not my style.

Tree0164 · #15 (**permalink**) 08-29-2005, 04:34 AM

K misunderstood.

People are buying homes interest only loans. This is going to be the downfall of the housng market.

36Rock · #16 (**permalink**) 08-29-2005, 08:21 AM

How long can they stay in a home paying only the interest? Don't you have to pay the principle at some point. Do they move at that point? What happen to living within your means?

tamip · #17 (**permalink**) 08-29-2005, 08:57 AM

From what I understand, you can only do interest-only for 3 years or something like that. At that point, some people think they'll be making more money and will refi to a fixed rate.

I find that people out here (CA) don't think anything bad will happen, and it can only get better. It's weird. Right now, I'm finding a trend with SAHMs that send their kids to daycare, and having someone else clean there homes, all the while complaining that they are either bored or broke, or both! I wonder if that is happening in other parts of the country?

Tami

akaivyleaf · #18 (**permalink**) 08-29-2005, 10:13 AM

Interest Only Loans are scary to me... why not just rent, rather than sign up for such a proposition. And I've heard that housing prices in California are out of this world...

As far as flipping property, thats a big gamble... Because the bubbly hasn't burst yet, there is more flipping going on but it stands to reason that people will start getting stuck with properties they can't sell.

36Rock · #19 (**permalink**) 08-29-2005, 10:24 AM

I grew up in CA, the home prices where not high then. Moved away before they went sky high in the bay area. The home I purchased for 23,500 in 1978 sold for 250,000 5 years later. I still visit family there, when I look in the news paper I see houses selling for 750,000 etc. But I also notice the job ads are for about the same wages as other places that don't have such inflated home prices. I just don't understand how they make it. Sooner or later it all has to stop.

tamip · #20 (**permalink**) 08-29-2005, 03:35 PM

Yeah, I'm still scratching my head, wondering how people are doing it. There are 2 guys that work with my hubby, and make less than he does, one just bought a home for $800k and the other $900k!!! Uhhh, what's the deal??? And those aren't mansions folks, that's a normal single family home! (and if you're wondering, they bought those homes in Santa Cruz, CA)