how do they afford that?

[36Rock]

Re: how do they afford that?

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]

Re: how do they afford that?

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]

Re: how do they afford that?

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]

Re: how do they afford that?

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]

Re: how do they afford that?

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)

[jmjj215]

Re: how do they afford that?

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...

The reason people buy on an interest only is that they then benefit from any equity increase - which is hopefully more than their total costs of borrowing. 'Tis risky

[VJW]

Re: how do they afford that?

I saw a news segment that was similar.

The couple bought a house for $950,000 with an interest-only loan. The amazing part was that the correspondent explained that under the old rules, according to their income and financial status, they would have only qualified to purchase a $200,000 home.

My reaction was, they bought five times the house they can really afford ???

The wife said, well we always sold the previous houses for more than we paid for them.

YIKES !

#

[36Rock]

Re: how do they afford that?

That's nuts! Sooner or later it catches up with you. I've lived in many parts of the country and sooner or later the bottom will fall out of the real estate market in CA. May never go down compared to other area's but will bottom out for there. Lots of folks are going to be stuck with owing more that their home is worth.

Just my two cents.

[Snoopy2645]

Re: how do they afford that?

I agree with above poster I have seen so many people get in over thier heads & have seen the bottom fall out!! My dh makes fun of me & hates me being frugal but unlike most people we know we dont have the money problems HMM ya would think he would understand my frugality wouldnt you.

Sometimes I think wow must be nice to have such a nice car or whatever else then I remember it always catches up with them.

[Russell]

Re: how do they afford that?

A lot of people took advantage of the housing market by flipping houses and made a ton of money. I know someone who's monthly mortgage is about $18k right now because he's sitting on 3 houses.

As for the question how did these people afford these houses ? well it was easier for those who were already in the housing market, meaning who already owned a house. When your house appreciates 100%-$300% its easy to sell it and buy another one from the money you made. Then you sell that one and move on to an even more expensive, nicer, bigger house all while your mortgage is still quite reasonable because you're putting down 50%-80% cash to trade up.

Gamble ? risky ? maybe...will the market go belly up ? I don't think so. The housing market in CA has already slowed down, there's not as much demand anymore and the prices have also stabalized in the past few months. However, just like the gas prices when they do go back down, you'd be silly to think they'll ever be close to what they were before the bubble...after a while people will become de-sensitized to overpaying.

You'd think that a lot of people are going to be in trouble when the interest rates go up but by that time their houses will appreciate enough that many will still be able to make it out the other end just fine. The interest rates are going to climb slowly over the next several years.

Also, just in the last few years people here have made so much money buying/selling houses it amazes me that a lot of them went literally from rags to riches. Our old gardner sold his house for $240k that he bought for $60k 5 years ago which was almost paid off, so he profitted $160-$180k. He then bought a much nicer house in a nice area for $320k. That house is probably already worth $400k now since this was a year ago.