His Hers Money

This weekend I was flipping through an old Money Magazine from November of 2007. We usually use the library for books and reading material, to include magazines. Typically you can get recent copies as soon as they become a month old but occasionally I will pick up some older ones as well. The content really doesn’t become outdated to the point of uselessness.

This one particular article was about the number of jumbo mortgages in default, specifically a 65% increase in the number of prime jumbo mortgages in default between June 2006 and June 2007. I can only believe that the trend has continued right into 2008. We live in the Washington DC area so in order to buy a house we would fall into the jumbo mortgage category since a typical 3 bedroom house is priced in excess of $600k.

We currently rent and live in a brand new, very nice apartment building that we are perfectly satisfied with. I don’t expect us to be calling up a real estate agent any time soon in this area. But, yesterday we were taking a little drive to go see the new Extreme Makeover, Home Edition house that they are building this week in MD. We drove down a long, windy road through what turned out to be a very high end, beautiful area.

The houses on both sides of the street were HUGE, not just big, but HUGE! I’m talking jaw dropping, have to look kind of houses. We thoroughly enjoyed the drive and getting a chance to see these homes. What surprised me was the number of For Sale signs out in front of these places. So, I decided to do a little online research into what these homes actually cost and how many were on the market.

I plugged in a started search criteria of greater than $1 million and the results I got back exceeded the max allowable number of 250 so I bumped it up to greater than $2 million and was able to it down to about 200 results. I was in shock that one little town could have that many homes in that price range on the market. This really was a small area that wasn’t too densely populated as each home sat on a significant lot.

In general, about $3 to $5 million got you seven bedrooms, seven bathrooms and if you went up to the $8 million dollar range you got around ten bedrooms. Yes, they were beautiful homes, but everyone would agree that this is a bit excessive! I have to believe that people got themselves into mortgages that they just couldn’t handle and in this case multiple mortgages.

If you can’t afford a traditional mortgage on a piece of property than you really can’t afford it in my opinion, clear and simple.

So, in recent posts I have eluded to the fact that we just moved into a new apartment. Our lease was up on our old apartment and it just really didn’t seem to have enough redeeming qualities to keep us there, let alone the fact that they wanted to jack our rent up. We were paying $1875 a month and they wanted to raise it up to around $2300. Add to that the monthly fees of $100 for utilities, $175 for parking two vehicles, $70 for storage and $35 for the pet fee.

Now the only thing this place had going for it was location. Yes, I know how the saying goes: location, location, location but that only carries so far. It was right on the metro route and had a number of places you could walk to to get either a bite to eat, a few drinks or do any retail or grocery shopping. Sounds great right. it was but we realized we just didn’t use a lot of those things. Yes, we would walk over and have a couple of drinks now and then but other than that we usually drove elsewhere to retail places that had lower prices.

So, off we went in search of a new residence. We looked at a number of places including a number of places which would have even lowered our monthly rent bill but none of them were really jumping out and saying “come live in me” to us. Then we decided to go look at a brand new tower that just went up. Originally the building was supposed to be condos but when the market fell they decided to make it apartments but prices were way out of our league. Luckily the market continued to decline causing them to have to lower their prices.

So, here we are. Our new rent is $2300/month with a pet fee of $50 and parking of $75 and then an electric bill of whatever the electric companies charges us that month. Our rent will be higher but our new apartment is about 300 sq. ft bigger and about a billion times nicer so for now we are willing to pony up the additional cash.

As, I previously posted, now I can walk to work so we have tossed around the idea of going down to one car between the two of us but for right now we are going to settle in and think about that later. I have to believe my chi is worth something!

Below is a paragraph from a poker-playing friend of mine from California who has so simply summed up the majority of my feelings concerning the entire subprime housing ‘crisis’ that I had to share it with everyone. Head over to Blinders’ site to read the entire article and to share your comments.

Blinders: Subprime Mess - Who Are The Real Victims?: “Now if interest rates were rising it would be a different story. If the fully indexed rate is 6% and you can afford to make those payments when you take out the loan, but interest rates rise to 8% by the time the payment adjusts up you can have unplanned issues. The problem is that interest rates are not rising. If somebody took out a subprime loan exactly 2 years ago the federal funds rate was 4.75%. Today the rate is 2.25%. Two year old sub-prime loans adjusting today are adjusting to a rate that is 2.5% below what was planned. The fully indexed non-teaser payment is much less today than what would have been planned for when the loan was taken out. How this can lead to massive foreclosures is beyond me. Adjustable Rate mortgages get more affordable every time the fed lowers rates, and rates are dropping fast.”