"Don Foreman" wrote in message
...
On Sun, 23 Mar 2008 15:34:53 -0400, "Ed Huntress"
wrote:



If a person buys a house with a mortgage they can afford, they can
still afford it even if the house value declines to negative equity
for a while -- unless they then leverage equity increase with
increasing market value to maintain absolutely all the debt they can
afford to keep up with and perhaps a bit more. This can only work in
a monotonically increasing market, and no market does that forever.

Not so. A downturn doesn't change your mortgage payments. If you can make
the payments, you can ride out a downturn even if you have no money down
on
the house.

I thought that's what I said. If it isn't, it is what I meant to say.
They only get in trouble if they borrow against increased equity, get
extended to the max and then have a glitch in cash flow.

Hmm. I think that *is* what you said. I got tangled up like a credit default
swap. d8-)



But there's no necessity for them to do so. The only advantage in having
more money down is that you're more likely to come out of it without
paying
money out of your pocket, or without going broke, if you have, say, 20%
down
on the house. But that means you've lost most of your 20%, too. So as a
borrower, you want the least money down consistent with your ability to
pay
and the terms you can get. If you have the 20%, put it in the bank and
take
the low-down-payment loan.

That's what I did -- twice.

Aha. So you *did* play that game.


Lately the lenders have been offering *very* nice terms -- as long as you
get out of it before the balloon in rates.


Speculating in real estate is no different than speculating in any
other market. Speculating with an asset that is one's shelter is
"smart" only if it works, really dumb if it doesn't.

True enough. But it has pretty consistently worked until very recently.

More so long-term than short-term, though.

True enough -- unless you made out as a house-flipper. Jeez, some of them
made a bundle. And most of them made out, except for those who did it for
too long.


"The inflation-adjusted average price of an existing home peaked in
1979, didn't bottom out until 1984 and didn't return to the 1979 level
until 1995."

Source: Barron's Insight by Gene Epstein, WSJ "Sunday", 3/23/08.
(Today).

For what we're discussing, the inflation-adjusted price doesn't matter.
We're talking about prices relative to mortgage obligations. The absolute
dollar price is what matters, because the mortgage obligation doesn't
inflate.


One who really knows the market can do well by buying and selling the
right properties in the right neighborhoods in the right region(s) at
the right times. Some do indeed make a lot of money at it.

--
Ed Huntress