The townhouse is a 2 bedrooms 3 baths with direct 2 car garages attached in a relative good neighbourhood in Los Angeles, but I can’t get a loan to buy it even I have $80K for downpayment…. I don’t understand the logic… If I were the bank, I would loan $195K to someone like me to buy this townhome…. My broker couldn’t believe it…

Well, banks are run by fools who have no idea what good investment vs bads are. This is why Wall Street are screwed up… What’s the risk to the bank for $195K? Nada!! If I can’t make mortgage payment, which will be cheaper than paying my $1400 a month rent I am paying right now, then what will the bank lose by foreclosing a townhome that can be sold easily for $275K ?

See, doesn’t this tell you how stupid banks are, no wonder they are losing money and not making… they have no sense about what is risky and what is not! Screw the banks!!!

How irrational, idotic and presumptuous of YOU to not read my post clearly. I didn’t say Eric leased a Beemer. I said he would

“have to put off leasing that shiny new Beemer,”

as stated above this was a bit of a joke, but also serious in that you will have to make a few personal sacrifices to set aside some cash for a down-payment. This is not a wild assertion…I asserted nothing. I am not an attorney, and this is not a courtroom. And if it was you would be sanctions (whatever that is) for clearly mis-reading and mis-representing what I clearly wrote above, and well as for making a slimy personal attack on someone who wasn’t even addressing you. Furthermore, as anyone who regularly reads this blog can clearly see, it is YOUR false statements that are clearly unsupported by any FACTS. And as you will see all of the REAL-ATARD cheerleading in the world won’t keep housing prices from falling no matter how many suckers you lure in with your weak theories…so please crawl back under your rock and keep your lame personal attacks to yourself in the future.

1.) How rude of YOU to say his $5000 raise in “LOUSY.” And you are assuming that he living paycheck to paycheck before the raise and saving nothing. Not to mention, that even if he is, what is wrong with saving for 5 years for a down-payment on something? I think the instant gratification era is OVER.

2.) Relax Ann…my BMW comment was a joke making fun of the “instant gratification/no down-payment/spread out your payments for 40 years and if you can’t pay just walk-away” attitude that has gotten many homeowners and banks into the mess that is the real estate market at this point which I find rude and vulgar. I also find your cheer-leading rude and vulgar and destructive to other people’s financial health. This isn’t a court of law, it is a blog, so I really don’t know why you are talking about judges and sanctions. But since you are, you should really take you own advice.

3.) Nothing wrong with waiting 7 years to buy something…or 30 years if it doesn’t make financial sense to do so. Not to mention that if everyone needed 15% or 20% down it would diminish the pool of buyers and put further downward pressure on prices and further lower what he needed for a down-payment which would further decrease the size of the realtor and mortgage brokers COMMISH…which is probably why you are so mad.

4.)FHA, Student Loans, $8000 tax breaks etc. all artificially drive prices up which from what I learned in Economics 101 is not good for anyone…except of course for the people making the loans and Realtors.

5.) From everything I have read, including this blogs post on 1/25, negative equity (which results from no/low down-payment) is directly related to default…isn’t this obvious? Drop in income? If you had equity in a house and had a drop in income, you would just sell the house. You wouldn’t default. And if everyone has a drop in income then house prices should fall, and not be propped up by low interest rates and programs like FHA.

6.) Home prices are out of line with income because of low interest rates, liar loans, tax breaks and low/no down payment loans such as those offered by FHA. That is why the housing market is in shambles..

“The days of households being able to save 20% down within 2-3 years is so much history. Can’t be done for 80% of the population (those with incomes of less than $85K) in the face of the costs of heathcare, utilities, vehicles, transportation etc.”

You are right. It is history…and it is the FUTURE. The reason why they can’t now is because of no/low downpayments which eventually will lead to default in most cases. The American taxpayer will only allow this to go on for so long.
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“In this case Eric can easily afford the monthly payments on his income – estimated around $975 for principal, taxes, insurance and interest – and even afford the upkeep. The only risk for him is whether he might lose his job in the future – and that is always a risk for anyone who is dependent upon earned income to pay their bills.”

I agree…he can afford the payment, but he is getting ripped-off with 30 years of interest payments on an over-priced shack that will eventually go down in value when the rest of the air is let out of the bubble. Downplaying the risk of him losing his job in a state where un-employment is 12.5% and rising with a 20 bil budget deficit (hope he doesn’t work for the state) is foolish. And the financial risk he bears in over-paying for a rapidly depreciating commodity outweighs the job-loss scenario.

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“BTW, $140,000 for a 720 sq ft house would be a little high here (bubble pricing) but would make sense in an area with higher household incomes which describes CA. (Median here around $44,000 vs national of $53K+/- and CA of $60K+/-.) 720 ft will actually accomodate 2-3 small bedrooms, 1 bath, eat-in kitchen and a small living room. Perfectly adequate for 2-3 people. Hardly a “shack”. Most apartments affordable to the bottom 60% are about that or not all that much larger.”
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720 sqare feet is a small one bedroom apartment…hope he plans to stay single! 2-3 people? I guess if they get some bunk beds. I’m not trying to be snooty here, I live in small one bedroom myself because I didn’t rush out and blow a bunch of cash on an over-priced bigger place, but it is not very comfortable. I mean…I could live in a tent if I had to, but come on! I don’t know Eric’s market at all, but I would guess that it is going to go down if it is in California.

“In Eric’s situation, his purchase makes financial sense and logistical sense. He likes where he lives; he won’t have to move because the landlord loses it in foreclosure; and he can afford the house and will spend the same or less”

I don’t really know Eric’s financial situation, but it seems to me that he could have saved A TON of money by renting another place if they made him move, and waiting for the air to continue to deflate from the housing bubble. Now if he just wanted to buy the place because he liked it or because he wanted to impress his friends or something, that’s cool. But please don’t try to make it out like this make perfect financial sense.

We all make choices in our lives – where we spend our money, which careers we choose, where we decide to live. Certain life choices will make home ownership hard if not impossible. Contrary to popular belief, you can’t have it all.

With dual income earners competing with single income households, it’s a losing game to own in nicer areas, unless you’re in a field that pays really well (medicine) or you’re well connected (family kicks in for down payment).