Was Anyone Else As Stupid As Us (and probably 1/2 of my neighbors)

[tvguy]

As you can see in the FRED link I posted above the average 30 year fixed was 4.7-5.1 in April 2022. I don’t know what your DD’s specific situation was (other business with the bank, buying down the rate, etc) but OP’s experience was pretty normal for the time.

Could be. Her original mortgage was a special program for low income first time home buyers. Not sure if there were any other special programs when she refinanced.
I know she was given a hard time by her boss when she bought the house because an effort to Unionize was underway due to low wages. Her boss wanted to know how she could afford a house while complaining about how little she was being paid. That ended a few days later when the boss had to fill out a form verifying she qualified for a special income mortgage program. Only then did the boss realize that low income in our County is $9,000 a year more than my daughter was making. AWKWARD.

 

[nono]

Ah but what were the home pricing in relative to everything else?

A house across the street being built from us is $750K for the price listed. But when our house was built in 2014 we paid almost $400K less than that or you know the price of a house and that included adjustments we paid for to the house.

Way too many people bring up past rates but don't add in the other side of the story which is housing pricing.

Indeed! It's quite the whammy.

My point was simpler than that. Because in my lifetime, I saw rates peak at 18%, there's always the knowing in the back of my mind that it can happen. Depending on one's age, they've likely never seen rates like that. It's out of their experience range. So, why waste time berating oneself up for having lack of knowledge? Better to spend the time focusing on moves to make now...

 

[Mackenzie Click-Mickelson]

Indeed! It's quite the whammy.

My point was simpler than that. Because in my lifetime, I saw rates peak at 18%, there's always the knowing in the back of my mind that it can happen. Depending on one's age, they've likely never seen rates like that. It's out of their experience range. So, why waste time berating oneself up for having lack of knowledge? Better to spend the time focusing on moves to make now...

Ah I see and I agree no sense in beating yourself up

But I do think the point of discussing rates in an experience way/memory way isn't as important to the OP's overall dilemma. Because a lower rate now mean a higher mortgage payment than a higher rate potentially decades ago due to home pricing and the pricing of everything else. So the financial burden to someone and their ability to afford the home more vulnerable.

If I just use the examples I have without considering any down payment (so not a true representation but work with me lol) the price of the house across the street being built with an 8% rate that the OP is anticipated in 2027 it would be $1,200 more per month than a 13.5% rate of what we purchased our house for (brand new as well) in 2014. Now if you want to plug in your 18% rate you've seen the mortgage payment of what our house was purchased for would be a difference of $188 more per month than an 8% loan off of the new home being built across the street. All completely due to how much more expensive that house across the street is in comparison to what our house was built for.

People can talk about the interest rates of the past being high but to assuage someone's feelings it works best if the house was also a very affordable lower cost home and that is not how many home markets are.

 

[Counting Stars]

Totally agree with nono. You are not stupid. Experience comes with time, and, unfortunately sometimes some harsh learning. You don't know what you haven't experienced. And the folks who could have given you a heads up (read older ) are likely not the people you spend a lot of time with. Many people have bought homes at rates much higher than yours, and managed to keep those homes by refinancing any time rates dropped. On a shorter timeline you might need to make a different decision, but I would be looking at all of the available options right now and determining the timeline you are comfortable with in terms of making a decision to sell. Most of us have had a lack of experience bite us at some point or other in our lives. Think in terms of what can you do now to lessen any future losses. I wish you the best-

 

[barkley]

Ah but what were the home pricing in relative to everything else?

A house across the street being built from us is $750K for the price listed. But when our house was built in 2014 we paid almost $400K less than that or you know the price of a house and that included adjustments we paid for to the house.

Way too many people bring up past rates but don't add in the other side of the story which is housing pricing.

well when we bought in '91 at a bit over 11% the median home price in california was the second highest in the u.s. at the time. dh and i were both making what was then considered a decent moderate level civil servants income but it was still mind boggling to us to purchase a home (over 30 years old-all we could barely afford) that cost us 5 1/2 times our yearly salary.

i know home prices have changed but so have incomes and from what i read it's still advised that 5x one's annual household income is the top range to be safe. we didn't know anyone among our peers back then that managed to stay at or below that mark so when rates dropped down below the double digits a couple years down the line we were ecstatic!

 

[LYSE]

With the lender buy downs I believe you still have to qualify at the full payment amount after the short term buy down, so those people should be able to stretch..however uncomfortable to make it happen.

In your case with an ARM I would try and refi into a fixed ASAP in an attempt to lock in a payment you can deal with longer term. (Although we might be past that point already, hopefully you can watch rates or bring money to the table)

 

[Mackenzie Click-Mickelson]

well when we bought in '91 at a bit over 11% the median home price in california was the second highest in the u.s. at the time. dh and i were both making what was then considered a decent moderate level civil servants income but it was still mind boggling to us to purchase a home (over 30 years old-all we could barely afford) that cost us 5 1/2 times our yearly salary.

i know home prices have changed but so have incomes and from what i read it's still advised that 5x one's annual household income is the top range to be safe. we didn't know anyone among our peers back then that managed to stay at or below that mark so when rates dropped down below the double digits a couple years down the line we were ecstatic!

Incomes have in no way shape or form kept up with basic housing costs.

No one can afford rent anymore than a home and y'all want to talk about higher interest rates. That's why the conversations never go anywhere. For the OP they got a really bad deal and they were mentioning the interest rates to drive home that point, that at the higher rate they won't be able to afford the home. That basic point is the same no matter what the actual percentage was for the OP.

What I was conveying is that the home pricing has long since exceeded the point where even a lower interest rate makes it palatable.

And almost everyone who speaks about these higher interest rate dates are talking about 30-50 years ago as if things haven't changed since then. Even talking about 20 years ago is hard. Even talking about when we got our house in 2014 in a buyer's market is hard to talk about.

 

[nono]

y'all want to talk about higher interest rates.

Only because it's part of the equation. Anything that a market has already done it can certainly do again. So I throw those rates out there for you youngsters to calculate a worst-case scenario. Combined with the current state of affairs, you'll be screwed way more. It's something to consider as it is in the realm of possibility.

 

[focusondisney]

Ah but what were the home pricing in relative to everything else?

A house across the street being built from us is $750K for the price listed. But when our house was built in 2014 we paid almost $400K less than that or you know the price of a house and that included adjustments we paid for to the house.

Way too many people bring up past rates but don't add in the other side of the story which is housing pricing.

This isn’t a competition. Early 80s mortgage rates were 16- 18%. Home prices were proportional at the time. The houses being built now are way more extravagant than houses that were built in the 70s & 80s. Homes were about 1800 -2200 sq feet. A lot of rising home costs have to do with the size & amenities buyers started demanding. And buyers being willing to over pay. Coz I bet there are homes in your area that don’t cost 750K. But a lot of people now are conditioned to building with all the newest trends & don’t want to buy smaller less extravagant homes. When rates were 18%, it wasn’t that people didn’t want to buy, people couldn’t buy. Any house, let alone a new build. Think it’s hard to get a mortgage today, try getting one when it’s 18%.

 

[barkley]

This isn’t a competition. Early 80s mortgage rates were 16- 18%. Home prices were proportional at the time. The houses being built now are way more extravagant than houses that were built in the 70s & 80s. Homes were about 1800 -2200 sq feet. A lot of rising home costs have to do with the size & amenities buyers started demanding. And buyers being willing to over pay. Coz I bet there are homes in your area that don’t cost 750K. But a lot of people now are conditioned to building with all the newest trends & don’t want to buy smaller less extra homes. When rates were 18%, it wasn’t that people didn’t want to buy, people couldn’t buy. Any house, let alone a new build. Think it’s hard to get a mortgage today, try getting one when it’s 18%.

this discussion is similar to those on inflation. yes it's bad now but those of us who recall experiencing it as adults in the 80's when it hit a fevered pitch of 14% feel it could be/get much worse (and similarly in the 80's some of our grandparents who were adults during the 1920's recalled it at it's highest ever before or since at 23.7% and felt similarly to what we feel today).

 

[Mackenzie Click-Mickelson]

This isn’t a competition. Early 80s mortgage rates were 16- 18%. Home prices were proportional at the time. The houses being built now are way more extravagant than houses that were built in the 70s & 80s. Homes were about 1800 -2200 sq feet. A lot of rising home costs have to do with the size & amenities buyers started demanding. And buyers being willing to over pay. Coz I bet there are homes in your area that don’t cost 750K. But a lot of people now are conditioned to building with all the newest trends & don’t want to buy smaller less extra homes. When rates were 18%, it wasn’t that people didn’t want to buy, people couldn’t buy. Any house, let alone a new build. Think it’s hard to get a mortgage today, try getting one when it’s 18%.

I agree it's not a competition, that's why IMO people should stay away from comparing what their high interest was of the past. I gave the example of what an 18% rate would be for the new house across the street in a later comment as well as 13.5% as well as 8% (a flawed example due to not calculating any numbers down but a more straightforward one with figures). The pricing of homes have far exceeded what was occurring in the 1980s and the income hasn't kept up over the years.

As far as smaller homes I agree but at the same time new construction can't make profits with smaller homes (and it's not just amenities it's labor costs, it's materials costs, it's shipping costs, etc) and any smaller homes you get aren't starter homes (as in they are high end features or maintenance free areas). The builders can't make any profit there and thus can't realistically build them. There aren't any new home construction in my metro that is going to be a starter home. I would say our rental house that was a 1,500 sq foot house built by Pulte homes in 2006 was a starter home. Pulte left the metro during the Recession as did some other builders.

Our neighborhood that in 2014 when we moved in was listed as $400-$600K+. It is now $600K (which you'd be hard pressed to get even that) to $1 million+ and a home sold a few months ago for $1.345 million and in 2021 $1.4 million. I don't know how anyone is picking up these homes but it would be insane at 8%. We thought the base price of our house at $299K in 2014 was already high enough (add in the price of the lot and the changes we made to the house). My mom and I have talked about her house she's owned since the mid-90s (ETA: finishing the thought--she completely thinks it's crazy what the housing pricing is now, what her house would be now is a lot higher than she bought it for and in today's amount wouldn't be able to afford it but was able to make it work back then in the '90s.)

New homes are taking double to build (14 months as opposed to 6-7 months in 2014) in my metro which is straining the availability.

My biggest criticism in my area has to be the apartment complexes because none are really built for affordability. A developer or builder can only do so much (though I have sharp criticism there) but apartment complexes can do a lot more to bring down the pricing of rent which helps people get into the housing market if they want to. You can't save for any house no matter the price if your take home pay is eaten up by rent among other things.

 

[focusondisney]

this discussion is similar to those on inflation. yes it's bad now but those of us who recall experiencing it as adults in the 80's when it hit a fevered pitch of 14% feel it could be/get much worse (and similarly in the 80's some of our grandparents who were adults during the 1920's recalled it at it's highest ever before or since at 23.7% and felt similarly to what we feel today).

Absolutely! My parents were born in 1930 & 32. I never understood my mother’s hoarding tendencies until groceries went missing in March 2020. We don’t fully understand til we live it.

 

[Mackenzie Click-Mickelson]

this discussion is similar to those on inflation. yes it's bad now but those of us who recall experiencing it as adults in the 80's when it hit a fevered pitch of 14% feel it could be/get much worse (and similarly in the 80's some of our grandparents who were adults during the 1920's recalled it at it's highest ever before or since at 23.7% and felt similarly to what we feel today).

According to stats I could find the average price of a house has increased 326.1% (as of 2020 numbers so you know it's even higher in 2023) since 1950s

 

[barkley]

Absolutely! My parents were born in 1930 & 32. I never understood my mother’s hoarding tendencies until groceries went missing in March 2020. We don’t fully understand til we live it.

i was a late in life baby for my parents-my dad was born in 1911 so i grew up learning his habits which embraced a mantra of 'provide for today while preparing for tomorrow'. anything beyond that achievement was something to take exceptional pride in.

 

[Tygerlilly]

Isn't there a cap on the amount that your fixed rate loan would increase each year?

I agree with this also.


I bought this year, right as the rates dropped then started to go up. Unfortunately, it wasn't a done deal when the rates were at their lowest, so I didn't lock in the rate. I never figured they'd keep raising so consistently week after week... so, I held out too long. 3 or 4 weeks later, I locked in at 6.25% (after buying points). I probably spent more to do that than I would have to lock in at 6% or lower 2-3 weeks prior. Thankfully, I did the fixed rate because of the potential for the ARM to go above my means. Still an expensive life lesson.

We just closed on ours at 5.75%. I considered that a mild win with how crazy it's been. We're also on a fha loan and can refinance the second rates finally drop (however long that will take to happen).

 

[MimitoAlex]

I'm in my 40's and we purchased our first home in 2014. For my entire adult life, I have never seen rates above maybe 5%, until recently. Call me Naive. I totally feel as though I deserve judgment, but, I will say, I did try to do some research at the time online -- and it seemed like these rates would be more temporary, than what they are saying now.

With that said - this realization a few days ago, has been a good fire under us. Me and DH are now trying to think of ways to increase our income, or... possibly sell the home. We really do not want to sell and want nothing to do with buying another home down the line after this whole experience.

What we need to do is find a way to increase our yearly income by about $25,000 - $30,000 a year. That would allow us to substantially increase our savings (we already have a good emergency fund) and afford these higher payments.


We are also in FL, and that's why I really do not want to sell. Let me just say, trying to buy back in was an absolutely traumatic experience. And I really do not feel like I am exaggerating that.

We watched ourselves go from a windfall of selling our home, to temporarily moving into a rental, and then watching rental prices skyrocket, and home prices climb. Almost all our equity gains were offset by the increase in prices, honestly. Not to mention, just trying to buy a home and constantly getting outbid.

We just wanted to get our family into a house. This part is probably why, I was just desperate honestly to move forward. Doesn't excuse anything, but, I am thinking out loud.

This is what our friends did they sold their family home and made a huge sum off of it. The house was paid for.

They rented a luxury townhouse while they looked for the perfect retirement home. With all the money lying around, they bought a brand new truck they custom ordered it for retirement, they needed it to pull the brand new 5th that the bought along with all the bells and whistles and paid cash for both of them.

Then both of the companies they worked for said working from home is no longer an option, due to lack of actual work being done. When they both told us they were going to become contractors for their companies, I did ask are you sure, he was like its alot more money.

Then she asked me to go see the new house, which is a super cute 3/2 bungalow style about 1,400 square feet, right where they wanted to be at, then the bidding war started. I will say the amount they paid for a house that small made me gasp when she told me that they won... It was like she was more about winning the bidding war than the actual house. As well they outfitted the new house with brand new everything.

Next, both the companies said that they were fazing out benefit packages for contractors... Up until this point, both of them still had benefit packages with them. So in January that all stopped, they had to find health, dental, eye, and prescription benefits. No more vacation, sick or holiday pay.

He told my DH that this would most likely ruin them, He also told my DH that they blew all the money that they made on the house, and now they can't even begin to sell the 5th, as the market is flooded with other people trying to unload them. That they will have to take a loss on it, and most likely the house, as it appraised lower than what they paid for it.

She told me that they might let the house go back, and just live in the RV. This whole thing with them is shocking they have been super financially smart. She said that it like they were spending just to spend and not thinking or even checking on what was happening. She compared it to like riding huge wave, and how fun it was, now the wave has hit the rocks...hard. She started crying. I just hugged her it was really all I could do for her.

 

[hsmamato2]

Saw the thread about Expensive Financial Mistakes and wanted to post about my own (but not under my personal account, for semi-obvious reasons).

We decided to purchase our new home in the summer of 2022 after we sold our house in 2020 and tried to "wait out" the madness for over a year. We bought new construction in a wonderful development and are actually happy with our house. Here's the problem, though...

I've basically had to admit to ourselves that we probably bought at the top of the market, and even worse, our builder talked us into a 5-Year ARM, so we would have affordable payments. When our 5 years are up at 4.25% (in 2027), this loan will adjust to 8%, based on today's rates, which we actually can't afford. We could afford up to about 6% before we would be unable to afford the payments, based on my calculations. That also assumes that nothing (like our insurance) goes way up.

Ironically, one of my close neighbors, who is actually a CPA , brought up to me that she bought her house on a temporary buydown from the builder. Her mortgage is temporary at a 3% rate, which will step up to 4%, 5%, and then 6% fixed rate after 3 years. She told me she had been confidently told that rates would come down before the 3 years were up, and she could refinance.

This conversation brought up a string of conversations at a recent pool party when I realized that more than a handful of my neighbors are in the exact same boat. Some of them took out 3-Year Loans that will Adjust. Some took the buydown with the intention of refinancing, and some are just planning to sell their house before the 3 or 5 years are up. Apparently, a lot of us took the special financing deal from our builder, not realizing how most of us are screwed if ideal scenarios do not work out.

I am now thinking to myself, with a lot of confidence, that impending doom is upon me. I also personally believe that the housing boom is mostly over. And lastly, I cannot get over the fact that so many people (including me) could have been so foolish in our decision-making. It doesn't seem like any of us thought too far ahead into the future.

So... that's me. I am in a brand new subdivision of almost 130 homes, and I am seriously convinced we will eventually lose most of our down payment now. Definitely an example of a financial mistake.

The real question is, though - how many more people like me and our neighborhood are out there? Are there hundreds or thousands of us? Tens of thousands? I wonder now.

The simple questions are,OP- are you currently able to afford your payments,along with all the other stuff in life you have to pay for,and still be able to save for retirement etc?
Then 2nd, if you took the 'worst case' amount out of your income now,and set it aside in an attempt to hang onto your home, could you manage that,and still pay your bills/save?
Is it feasible to make another $25k per year.nd I mean really going to happen?
If not, then personally speaking,I'd try to sell ASAP and get out from under the landslide. I look at life fairly simply- yes, you made a mistake getting into this house and the payments, but that's past,what are you going to do NOW going forward? You can fix this before it gets any more difficult,even if it's a 'toughlove' kind of fixing to move forward.... hope you find a good solution.

 

[gottalovepluto]

The simple questions are,OP- are you currently able to afford your payments,along with all the other stuff in life you have to pay for,and still be able to save for retirement etc?
Then 2nd, if you took the 'worst case' amount out of your income now,and set it aside in an attempt to hang onto your home, could you manage that,and still pay your bills/save?
Is it feasible to make another $25k per year.nd I mean really going to happen?
If not, then personally speaking,I'd try to sell ASAP and get out from under the landslide. I look at life fairly simply- yes, you made a mistake getting into this house and the payments, but that's past,what are you going to do NOW going forward? You can fix this before it gets any more difficult,even if it's a 'toughlove' kind of fixing to move forward.... hope you find a good solution.

There’s an echo here from the original thread OP was inspired by. (That person was so overwhelmed by everything happening in life they didn’t even remember doing the thing the camera took a photo of them doing that caused their traffic ticket.) If making or saving this much money will lead to a constant overwhelming, it is not a good option.

 

[CuteAsMinnie]

Remember 2008 folks??? Similar will be happening again I’m afraid.

 

[wide awake]

I've never understood buying big ticket boats, trailers, etc... You can always rent these things and then you're not tied to a monthly payment, registration, and parking. From what I've seen most people use these expensive toys rarely and I doubt they really think through the per day cost when they are using it. For the gas and space rent I could take a cruise or stay in a hotel near or in a national park and have someone else make my bed and cook for me.
The contractor thing is horrible! Anyway they can find other jobs? The SE tax will be a killer and their retirement will be tanked. Even a lesser paying job with benefits would be an improvement.