Two interesting thoughts from recent discussions

Two interesting thoughts from recent discussions

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Thoughts from recent talks with friends/coworkers:

  1. If we went to government funded healthcare, it would likely have an impact on lawsuit cases. Instead of the astronomical lawsuits for injury claims, it is likely one could no longer sue for hundreds of millions for their medial care – since that care would be ‘freely’ available. Now, they could probably still sue for loss of limbs/ability to work/anguish/etc. They might also still be able to sue for special care needed for rehab or the like – depending on where govt care ended… But the burden of payment on these injuries would shift to the government (us) where it might be much more reasonably paid for (discounted rates) and half of it wouldn’t go to the lawyers.
  2. Having the tight urban growth boundary around Portland that we do (a line around the city where nobody can build houses outside of) has arguably kept it from experiencing a lot of the recent mortgage collapse pain or falling prices. The price of housing is a local phenomenon – primarily dictacted by demand, incomes, and availability. An urban growth boundary has kept availability lower than other places (no urban sprawl), and even if demand or average area income drops, the boundary keeps availability tighter and helps cushion any downturns.
2nd worse market day of 07 and mortgage bottom 9 mo away

2nd worse market day of 07 and mortgage bottom 9 mo away

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As if it couldn’t sting more. It’s a painful article to read.

News article

The prediction now is that the bottom of the foreclosure and mortgage woes will not be till mid-2008. AIG reports that currently 10% of all sub-prime mortgages are 60 days or more delinquent; and an estimate 20% of all sub primes will default by 2011. Overseas lenders are having to freeze and inject funds to prop up their shaky markets. Unfortunately, the pain is spreading in the markets – driving folks to bonds. Could be some very rocky markets in the next 3-4 months.

Biggest problem is if this starts badly snowballing and collapsing. The slowing/dropping prices of homes causes people to default more than just gracefully selling/bow out since they can’t just sell the property and cover their mortgages. The defaults cause houses to come back on the market. If enough of this happens, a surplus develops – which drives the prices down – making it more likely you’ll default on your ARM since you can’t sell your house at enough to cover your loan, which drives house prices down, which …wash, rinse, and repeat. Fortunately, this doesn’t seem to be getting out of control, but people are going to take a pounding – investors, owners, and mortgage companies. Question is, how much of a pounding.

Fast and loose mortgage collapses and the stories on the radio

Fast and loose mortgage collapses and the stories on the radio

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Nationally, the sub-prime and fast-and-loose mortgage broker collapses continue to grow and spread. The tone darkened as a Bill Wheaton, an economist from MIT predicted that nationwide, several million folks will probably end up losing their homes.Overall, though, I have mixed feelings about this situation. Even in the boom, I wondered where the heck the government, investors, and brick-n-mortar banks were on watching these guys. It was absolutely ridiculous what people were pulling on these mortgage contracts – such as no income verification to speak of (put whatever you want down for your annual salary, etc). Too many people were getting into mortgages that even 10 years ago would have been laughed off the table. When I took a cursory look at some of the mortgage deals people were pushing through a few years back – I could tell these guys were used car salesmen at best. Now we hear lots of stories about people who got into a house or refinanced and were ‘tricked’ and ‘duped’ into these products. Yes, there is a lot of blame to be laid on these sleaze-ball lenders and front-men who are now slithering away to have the company take the fall for them – they definitely ruined lives when they themselves knew the products were bad for most people. Those front-line scum, and the managers that pushed it, should see jail time or at least lengthy loss of licensing for financial products. It’s also time for some

But wait a minute people – didn’t *we* do our homework? There is still a bit of blame to be placed on us as consumers for not picking up “Mortgages for Dummies” and doing the most basic, bare minimal amount of work you needed to do. Ten minutes looking at historical interest rates the last 20 years, understanding the bare minimum of how a sub-prime works, and doing some math with what your budget can take would have shown you what would happen. There’s definitely a shame-on-you that I’m sure many are now getting in very painful monthly doses right now each time their ARM goes up; or for that roof repair you didn’t plan for, or your car unexpected breaks down, etc. I don’t envy or place tons of blame on all consumers for what is happening. However, it’s time we grew up and learn that living paycheck to paycheck in NOT the way to run your life; and that proper budgeting involves much more than just thinking about what monthly payment you can afford next month – as this guy knows. I find it staggering that so many folks entered into the biggest investment of their lives and didn’t do any more homework than read a brochure they gave or just took their word for it. Just doing math to figure out your next monthly payment isn’t doing your financial homework or being a well-informed consumer – it’s a recipe for disaster. We can all read crazy amounts of stuff about the latest fad diet’s detailed food analysis, or which renewable resource our products are coming from and ban those we don’t like – but can’t spent 1 hour on the biggest outlays of cash in our lives? Did we all fail high-school economics? The question now is what do we do to ease these folks out of something they couldn’t afford in the first place; and have an orderly exit to keep the market from collapsing (which seems to be happening at a reasonable pace right now).

That’s right – and orderly exit for these folks. Not a bail-out. Not a subsidy for 20 years. People and families are going to lose houses – houses they should never have been in in the first place. Should they lose everything and end in bancruptcy – absolutely not. We have a duty to make sure it doesn’t become a whole-sale disaster. But it is time to be honest. If you cannot afford the home you bought, it’s time to get out and move into something you can afford. We as a nation should help ease that process with generous helping hands and creative helpful financing, but it’s time to live more sustainably – and I’m not just talking about paper or plastic.

As Americans, we are disgraceful financially. In China, the savings rate is about 40% – thats 40% of their take-home pay goes into savings/investment verses less than 1% rate in the US, while other industrial nations are at least in the 15% range (as were we until 10-20 years ago). In the US, almost 50% of all people don’t even have $1000 on hand for an emergency. While the average credit card debt spread over all American cardholders is more than $8000 (misleading – but true and climbing), the median balance on an American’s credit cards is still at $1900. It’s time we stopped feeling ‘entitled’ to living beyond our means with a bail-out always at our back. While I think it’s a bit overly-conservative, Dave Ramsey recommends that you buy no more home than you can pay off with: a 15 year fixed mortgage who’s monthly payment constitutes no more than 40% of your monthly take-home pay (after-taxes/15% saving), with a large enough down that you don’t need a second mortgage. Then, when you have that number, you go looking for houses in that range only. Yes, it’s smaller than you expected, but you can afford it. And afford to live a little, and afford emergencies and repairs that will always come up.

It brings up the question of always bailing someone out vs forcing personal responsibility down their throats. I’ve seen both methods fail, and have thought about this a lot recently. But more on that tomorrow….

What’s the real story anyway? Thoughts of a potential buyer

What’s the real story anyway? Thoughts of a potential buyer

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So, I started a little research into buying my first place. After doing a little number crunching, it looks like at least next year before it would be feasible. But I’m having difficulty trying to find an honest appraisal and state of Portland’s housing/condo market. It’s pretty clear that the meteoric rise of housing prices we saw the last 5-10 years has stopped. But things beyond that get very fuzzy. Previously very desirable neighborhoods seem to be seeing stagnation, new areas seem to be gentrifying fast, other areas are very hard to read, etc. Condos vs houses have conflicting anecdotal evidence. And that’s the problem – I can’t find any solid information other than what is gleaned from news stories and looking at the latest for-sale lists. Problem is, individual selling prices are all over the map – disproportionately high/low levels depending on the sellers motivation. It’s hard to get a read if a location is losing favor since people are all trying to sell at pre-slowdown prices. And that’s what I need to know as I make a minimal 5-10 year investment – will it be going up or down in the next 5-10 years? What’s the trending by location? What’s the trending by type: home vs condo?

It’s curious that local realtors’ websites are still quoting figures from the boom 2-3 years ago while updating their for sale lists every day. It kind of makes you think they know something you don’t. How come they could get those numbers in the heat of the boom, but they can’t seem to get them now? Why all the hush-hush? It makes me as a future buyer feel uncertain – and uncertainty is not a good thing when buying – makes me want to keep my money on the sidelines until patterns become clearer. The fed just announced no rate change, and inflation is ‘not a concern’. Sure, investors are pulling their money out of these high-risk, fast-and-loose mortgage places – so money is going to be tougher to get if you have tarnished credit. But if you’ve got good credit, there isn’t much to worry about. Prices are definitely not meteorically rising anymore and interest rates are likely to stay flat – so the pressure to buy isn’t there either. If I can save/invest my down payment and earn 8%, that’s roughly the same as investing in a housing market that’s growing by ~5% (for tax breaks, etc).

My concern is that I don’t want to pay a bunch of money and find out my property/area is in the middle of a decline that will probably last 3-5 years – and I just got in at the top of that drop. The few real estate agents I’ve talked with all seem overly up-beat about everything and don’t say squeak about any place’s declining values, etc. All three realtors I’ve chatted with were like: go ahead and buy now! It’s all good! And their not totally wrong, but they get more quiet when I ask where isn’t a good place to invest in.

If I were to guess, there is a lot of re-adjusting going on as the money leaves the market. And money is leaving the market as a whole; but there is no crash going on. Overall, things are probably cooling in some spots of Portland more than they thought. But where are those places? The hot and not spots of town are definitely moving around – just based on watching how much foot-traffic and cars wander through. If I had to guess, NW Portland is cooling – 23rd and 21st aren’t nearly as busy and hopping as they used to when I moved in a few years back. Alberta on the east side is going nuts with activates, new businesses, bars, fairs, etc. Hawthorn is flat to down. Condos? With lots of new buildings half-done, I suspect that unless they stagger their openings, there could be a glut. This condo developer seems to think so. But he did it too – oh – everything’s perfectly fine. I’m completely changing my business model – but there’s nothing going on at all. Yeah. I don’t think that’s the whole story.

I have been left with a bad taste in my mouth from the realtors. It almost feels like there’s this big inside secret – an elephant in the room – they won’t talk about. Because if someone does, then folks will start being told that their properties up in NW or the Pearl or Hawthorn, or wherever will -gasp- not be as good a buy as the area is slowing (or even declining) in value a bit more than other areas. And if somebody stands up to say the emperor’s clothes are off, and that certain areas are not such a good ‘buy’ – that might mean the prices for the whole area drop. And if the prices for one place drop, maybe the curtains will come down other places that are slower too. And then what will happen to our business as sellers? It’ll get tougher. What is going to happen to all those realtors that were coming out of the woodwork from real-estate school during the boom as there are less folks to sell to or a more competitive market? You’ll be shooting yourself in the foot needlessly. It’s simply not in their interest to be honest – it’s in there interest (and indirectly the seller) to get the sale. They’re long gone by the time you come around to sell again. So there is incentive from everyone in the industry to just shush, and let people wander around on their own.

This probably isn’t as dire as I’m painting it. The few figures I have found say the market is growing at the 5-7% year on year rate – pretty darn good really. But the lack of information that certainly MUST be out there and being done by these condo/housing developers isn’t getting out. It sure got out during the boom of how good things were, now, not so much – which tells you something in itself.

Woot for summer goals

Woot for summer goals

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Well, I hit the first big milestone of the summer. My goal this year is to get down to my pre-seminary weight. 5 years of grad school saw me put on about 35 lbs.  I started my workouts at Easter and I just hit the 20lb mark; which was a great psychological milestone for me. Interestingly enough, changing my diet alone didn’t do much. It wasn’t until I started exercising every day that I started losing weight. Here’s a few things I discovered:

  • Start eating breakfast – Just a bagel is fine. But you’ll eat less during the day if you already ate. Starving yourself makes you eat more later, so just have more infrequent bites.
  • Exercise is worth 10x dietary changes. I didn’t really start taking lbs off until I started regularly getting physical activity.
  • Exerice only what you feel like – but do it every day. If you’re tired, just walk that day, if not, run. I run about 2-4 miles each night now.
  • Start where you’re at. Don’t beat yourself up if you’re out of shape. Just enjoy what you can and start easy. I started the first 2-3 weeks by just walking around the neighborhood. Then jogging a lap/run a lap at the track, then running a mile, then running two. DON’T push hard – it just makes you more reluctant to do it next time. The goal is regularity, not intensity.
  • Get involved in new hobbies/activities.  If you’re sitting at home in front of the tube/computer – you’ll eat. Go hang out with friends or a new sport instead.
  • Eat a filling light meal at night. I sit down with a huge bowl of fruit salad at night. By the end, I’m stuffed – but it was watermellon, or cherries, or melons, or the like. It adds up to almost no calories, but it feels like I ate a solid dinner.
  • Drink lots of water/tea/Gatorade – drop the pop. But not so much for calories, but for hydration. I needed to drink a LOT more water to keep hydrated when I worked out every day. That and it makes you feel much more full and I think helps you lose weight.
  • Don’t be a calorie counter/Don’t sweat the small stuff. If you get a craving for some salty chips – have a few. If you’re craving a pop – get one. Don’t start beating yourself up over little things you would like to eat; or keeping a count to ‘work it off’ later. That said, I don’t scarf a whole bag of potato chips or stuff a quart of Hagen-das down my neck. Moderation implies that you may eat less, but that you also equally don’t just cut certain foods off entirely. Relax, enjoy life, and slowly build healthy, sustainable habits. You may not lose weight as fast, but as long as you’re pulling a few poiunds off each week or so, you’re doing fine. Sustainability is what will keep it off later anyway.
Corollary

Corollary

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I saw this quote on a forum relating to the rapid rate of scientific advancement and the corresponding demands of those advances in consumer culture.

Yesterday’s luxuries are today’s necessities.

I found that to be an interesting quote, and propose a corollary:

Yesterday’s privileges are today’s demanded rights.

I’m always intrigued by what ‘rights’ people claim to have all the time. “It’s my right to do X, it’s my right to be given Y.”  I often try to find out where/how/when these purported things were granted to them as a ‘right’ – especially when those ‘rights’ imply that I should be opening my pocket to them.

In order to spell out ‘rights’ one has to have an idea of what a person is entitled to and what things are optional. We all do not have a right to own a new Mercedes free of charge, or the right to disobey the law of gravity. But we do have rights like religious freedom, due process (well, we used to until habius corpus was basically rescinded), freedom of speech/assembly and so forth (all within certain bounds of course). But I often at amazed at how quickly we forget of what sorts of things we didn’t have even a generation ago, such as the women’s right to vote amendment in 1920. It’s also too easy to just start saying we have rights that we don’t.

Determining what is someone’s right relies on a deep understanding of the value and dignity of the human person at their core – something that faith and the Church has talked about in great depth (read Humanae Vitae from the 2nd Vatican counsel for a good spelling out of what rights/dignity the human person is recognized as having. Religious freedom and choosing the option not to believe is one of them). Anyway, just thought it was an interesting quote.