Housing prices & mortgages are far more tyrannical than taxes

[chillspike]

So where is the outrage at that???

I had a brief discussion at dinner last night with the two tea party nut jobs in my family, my Dad and older brother.

Their big enemy (to them), and granted rightly so, here in New Jersey is taxes. Taxes here ARE out of control but I told my brother if he really wanted something to complain about, his 30 year mortgage was $24,000 a year whereas his taxes were $8,000 a year. But he and my Dad complain a lot more about taxes. I pointed out that the largest sum of my brother's pay check was going to the bank to pay off his mortgage and that if he didn't have to pay a mortgage, his yearly taxes, while I agreed still high, would be much more manageable.

Of course, he replied with talk about a mortgage being "an investment not lost money" and he mentioned the tax break he gets for having a mortgage. But it is lost money. That money goes to the bank. You only get to keep any extra left over.

But I pressed and said that still didn't change the fact that the largest chunk of his monthly income is going to pay off his house and the bank. Something he doesn't seem to complain about nearly as much (if at all) than he does taxes. It seems to me the taxes wouldn't be as scary if the mortgage weren't there.

if anything is out of control and deserves anger with torches and pitchforks it's housing prices and mortgages. I mean, look at it: Houses are so expensive that you have to take out a loan that will take 30 years of your life to pay. That means, for the most of us, we are locked into servitude for the rest of our living days. And who ever pays off a 30 year loan? My brother has so far owned 3 different houses and he has yet to stay in any of them long enough to pay off his loan for them entirely. When he sold, each time the largest portion of the buyer's payment went to the bank.

I have to go but I will elaborate more on this later.

The point is, I think the largest portion of the tea baggers outrage should be directed at where the largest portion of their pay check is disappearing.

[dkf]

1. You know what caused that problem? People paying crazy amounts that they couldn't afford.

They inflated it out of control for everyone.

And now bringing it back down to reasonable levels will collapse them and the banks so we prop up prices and keep things unaffordable.

[bettyellen]

4. and people didn;t complain about the skyrocketing cost because they wanted to be "investors" your

brother maybe isn't complaining because he got on the flipper fever too and made some dough, three house already at what age? you never heard of that thirty years ago,

[Oregone]

15. People always want more than they can afford. Stupid banks started lending it

Except the banks weren't entirely stupid. They leveraged against the risk.

That aside, the amortized loan interest scheme seems sick and wrong IMO.

[xchrom]

2. It's hard to make back all you pay out in interest.

Talk about labor free profit.

Mind you I have nothing against reasonable
interest rates but most of us haven't seen 'reasonabl'
in a long time.

Taxes I really don't mind paying -- I get schools, court houses, roads, etc.

[Tansy_Gold]

23. It's even harder to make back what you pay out in rent n/t

[Statistical]

3. A mortgage (or at least size of mortgage) is a choice.

One can choose a smaller home, one can choose to pay of mortgage earlier, one can choose to simply rent longer and then bargin hunt for a "fixer upper".

Don't really have any choice when it comes to taxes. Thus your comparison kinda fails.

Also I doubt anyone with a $2000 / month morgage ($300K house?) pays only $8,000 a year in taxes. Maybe $8,000 in federal income taxes but that is a small portion of total taxation. A good chunk of that much maligned "mortgage payment" is likely real estate taxes.


The teabaggers are idiots (taxes are at 30 year low) but your comparison is flawed.

[mmonk]

5. Neither is (mortgages or taxes).

Tyranny is abuse of power.

[burnsei sensei]

6. The problem is that an oppressive expenditure,

if it is viewed as merely private, is not thought to cause any problems.
People are fatalistic and resigned-- they submit to the "free market".
They fight like pit bulls against taxes-- they bully the government.
We have a peculiar relationship between the powerful and the citizens in this country.

[lunatica]

7. I would pay much more for rent than I pay on my mortgage

It's actually far worse if you rent. That's money you will absolutely never see recouped. At least your brother has recouped his money every time he sold his house. It may be the same as taking two steps forward and two backward but by renting you're always walking backwards.

Rents go up at the whim of the landlord. We were evicted twice because our landlords were realtors who used the house as a quick interest making investment and sold the house out from under us to other realtors who were doing the same thing and who were within their legal right to evict us so they could raise the rent on new renters. After the second time of being forced to look for a new house against our will we bought a house.

Today I pay far less for my condo than I would pay in rent as as long as I can keep paying my mortgage I won't be foreclosed on. As much as I struggle to pay it I would never be able to pay rent.

[SunnySong]

Mortgage is a choice and for many people it has been a boon.

Let's face it many people now retiring rode the inflation superhighway to millionaire status in the seventies and eighties.


As for taxes... well local mill rates are just that local... don't like it run for office.

[SunnySong]

8. Mortgage is a choice and for many people it has been a boon.

Let's face it many people now retiring rode the inflation superhighway to millionaire status in the seventies and eighties.


As for taxes... well local mill rates are just that local... don't like it run for office.

[sinkingfeeling]

9. Disagree entirely. Mortgages do get paid in full. I've never had one that wasn't for 15 years. At

the end of 15 years, you own the property. When do you stop paying taxes? I would guess that your brother is complaining about $8000 a year in property taxes. That's extremely high when you get to pay the state the value of the house every 25 to 30 years in taxes.

[LiberalEsto]

10. The problem with NJ property taxes

I grew up in NJ, graduated from Rutgers, and worked as a newspaper reporter for several NJ newspapers, including the Star-Ledger. I covered town council and school board meetings all over central NJ, so I'm familiar with the way local governments work there.

Twenty years ago we moved to Montgomery County, Maryland, largely because there was no way we could afford a nice house in a good school district in New Jersey. Here in Montgomery County, we have a fairly decent small house in a nice neighborhood in one of the finest school systems in the U.S., and our property taxes are still only about $2600. In NJ I think our taxes for a comparable school district would be $7500 or more.

The property tax problem in NJ exists because of "home rule," a form of government which leaves almost all public services, including education, to the control of local governments. Hence, NJ had about 560 school districts the last time I checked, while Maryland has 22, consisting of 21 counties and the city of Baltimore. In NJ, tiny school districts each have their own bus systems, cafeteria systems, school administrators, etc. In Maryland, these services are run by the county school districts, which eliminates a lot of unnecessary duplication and waste. We also have county-run health and human services, trash and recycling services, county library systems, and county police, although some cities like Rockville have local police as well. The buying power of a large county school system is much greater than that of a small local school district.

The only flaw I see with the Maryland system is that the county school hierarchy is rather large, and not as easily approachable as the administration in the local district where my older daughter attended elementary school in NJ. But I am willing to give that up in favor of a county where kids have opportunities to attend magnet schools that specialize in foreign languages, the arts, computer science, environmental studies, or math and science. We have French and Chinese immersion programs in a couple of elementary schools, and International Baccalaureate programs in several high schools, just to name a few special areas. Cities like Rockville and Gaithersburg aren't affected much by "white flight", because their schools are generally as good as schools elsewhere in Montgomery County. The other flaw is that Baltimore has its own system separate from surrounding Baltimore County, one reason Baltimore schools are such a mess.

NJ clings to home rule, in my opinion, because of racism and classism. (Why is also why Baltimore City and County schools are separate.) People who can afford to buy houses in a good school district with high property taxes don't want their kids attending school with kids from poor urban communities, where there are far fewer resources for the schools. This is why there are failing city schools in places like Paterson, Elizabeth, Newark and Camden, while just a few miles away there are good suburban schools. The middle class won't buy homes in those cities.

I believe if NJ were to overhaul its systems of county and local government, and consolidate school systems, it would result in lower property taxes and provide a more equal education for all its children.But it will never happen.

[ProgressiveProfessor]

14. The county based Maryland system is far from perfect

but there are clearly benefits from upscaling.

[reformist2]

11. Huge mortgages are why the economy isn't recovering.

Probably the most effective way to get this economy going would be for Washington to do something to reduce mortgage debt across the board. Something like a $25,000 mortgage reduction credit for every adult. Not to be spent, but to be applied towards one's mortgage.

[pipoman]

17. Yea. Where is that going to come from?

What if an adult doesn't have a mortgage?

[reformist2]

18. Print it.

Not to be glib, but this debt overhang is a big problem, and Obama needs to address it head on. I sure don't want to wait 10 years for a recovery.

For those without mortgages, they can apply their credit to pay down other debt. If someone has no debt at all, then maybe they could be given cash.

[Statistical]

21. So just print money huh?

Here is an idea. Why doesn't the govt simply print $40 trillion. That is the estimated amount of debt for everything (mortgages, federal debt, state debt, local debt, consumer debt).

Just print $40 trillion and pay everything off and everyone (including the governments) lives happy and debt free forever.

When you figure out how/why printing $40 trillion in extra money to pay off debts is bad and why it never works (check zimbabwae) then you will see your "solution" is the exact same thing just on a smaller scale.

[pipoman]

12. You have to live someplace

The difference between taxes and a mortgage is that the mortgage is money you spend, taxes are money sent to someone else for them to spend. As I understand the teabagger movemnet, they object to taxes i n general. I personally object to our level of taxation and we still have no health care, under funded schools, pot holes on the roads, poor people laying in the streets, and rich, arrogant politicians.

Most people's mortgage payment which includes taxes, insurance, principal and interest is less than the amount it would cost to rent the same home. The value of a piece of real estate is a combination of the price of the land (usually small portion), the price of lumber and other building materials including plumbing and wiring, heating and roofing etc., the price of labor to build the house, and the value and desirability of the location. The prices of existing homes is largely influenced by the cost of new construction. Now, which area of new construction, in your opinion, is over valued? Lumber? Labor to build? Land?

Also people have been duped by bankers into spending more than they can afford and spreading it out over 30 years as the norm. Banks usually finance for 30 years (some even longer) without ever explaining other terms to people. For instance, a 100k mortgage at 7% for 30 years is $665 per/mo, for 15 years it is $898, a difference of only $233 per/mo to cut the mortgage term in half. The result would be $143,000 less paid out for that $100k property in return for paying only $42,000 more over the coarse of 15 years. People are encouraged to spend an amount on a mortgage which puts their payment where they need to be based on a 30 year mortgage.

Another problem is that people, especially first time home buyers, often feel they are entitled to a 'turn key' home, their 'dream home'. The era of starter homes is in the past it seems. As early as the 1980's when I was selling real estate, mortgage companies required a home buyer to put 20% down on a home. This 20% could not be borrowed or gifted. It had to be earned income in the possession of the buyer for at least 1 year, or the buyer had to show how the money was earned (through the sale of investments, or another home, etc). Additionally, the principal, interest, taxes, and insurance on the home combined with all other debt couldn't exceed 35% of the family's gross income. The result of these restrictions on say a $100k home is that the buyer had to have $20k in cash. At that time people would buy starter homes because they didn't have the down payment. They would live in the home and fix it up, then sell it and use the equity to move up to a more expensive home. This process took 15 or 20 years in most cases before the people were in their 'dream home'. The process was good for the economy, it was good for neighborhoods, and it kept existing home values in check with new construction.

What changed? The repubs pushed bank deregulation which relaxed the standards and dems pushed for lowering mortgage restrictions. If you saw that show on HGTV about first time home buyers which was popular during the housing boom, prior to the real estate bust, the problem was obvious. First time home buyers were looking at $300k+ homes while driving their newer Lexus while employed in entry level jobs. They would talk about how they need this location or that, this feature or that, and were unwilling to compromise. Then they would go to the closing, sign a first mortgage for 90% of sales price, and a 2nd mortgage for 25% of the sales cost. Both mortgages would be interest only payments for the first 5 years (no down payment). They would dance out of the closing with a check for 15% the purchase price which they would promptly take to the furniture store and buy a house full of new furniture. This idiocy was happening every day, all across the country. The result? Well, we all know what the result is...now we are all paying for the result, and those kid's new furniture too.

This is the scenario which has led us to where we find ourselves now.

[reformist2]

13. But we can bail ourselves out.

What we just went through was a classic bubble. A tulip-bulb mania. Now everyone is saddled with these huge mortgages that are killing the economy. Why not just reduce them across the board? It seems stupid to punish ourselves when we don't have to. And if we do nothing, the only ones who will benefit will be the banks.

[pipoman]

16. Everyone is saddled with huge mortgages?

Uh, no. Some people are. "Just reduce them across the board"? Where is that money going to come from?

[reformist2]

19. You're right. I was generalizing.

My point was to highlight the main reason why this economy is not recovering. Should millions of people overextended themselves like this during the housing bubble? Of course not. But if something isn't done to help these people out, I'm afraid there won't be an economic recovery anytime soon.

[Yo_Mama]

24. A lot has been done

For one thing, the interest rates for mortgages are the lowest they've ever been since the GD.

Those who can qualify can refinance those mortgages and get a lower payment, and it is really subsidized by both the government and the average person. Treasury moved its GSE guarantees up from 400 billion to "unlimited" this year.

Those who can't just need to default and get on with their lives. But don't think this is free money. It comes basically out of the pockets of the savers, who are really getting an implicit tax to cover the bad debt. And the reality is that home prices will still keep dropping, because we've engineered a situation in which the next generation of first-time buyers are going to be severely impaired.

But there's way more to this than just mortgages. I would say that about 1/4 of car buyers ended up substantially underwater from rolling their car loans. And then there was the huge rise in credit card debt.

Basically, we went on a national credit-financed spending spree. Earlier commenters have made good points, but the bottom line is that we will have to work this debt off through writeoffs or by paying it down, or some combo. And there is no magic recipe for that. When Japan did this it incurred the Lost Decade, and really Japan's domestic economy has never recovered.

Everyone has to realize that we are not going to improve a debt-loaded economy by handing all the people who don't have much right now an implicit extra 30K of debt they have to pay off. The current generation entering college are being hit with higher taxes, higher student debt, much poorer employment opportunities and lower future wages, and the last thing they need right now is to be handed a portion of someone else's mortgage.

The time for unhappy realism has arrived.

[Statistical]

20. You can't replace debt with debt. It is silly.

Taxpayers seem to forget they "own" a percentage of the national debt too.

So one's true indebtedness is personal debt + share of (local debt + state debt + federal debt).

So say govt pays down $50,000 of everyone's mortgage.

Let's ignore for a second the fact that:
a) it is silly
b) it is unfair to those with smaller/no mortgage
c) it is unfair to those living in higher property value area/

still for sake of argument the govt does that.

Blam. $50,000K * roughly 150 million residential mortgages = $75 billion. Just like that. All that debt gone.

Er wait the govt would need to borrow $75 billion to do this. Thus the taxpayer is still in debt.
You simply moved money from their personal balance sheet on to the govt balance sheet but you haven't eliminated any debt.

The way to pay down debt is a very simple cost.

Expenditures < Revenue and put the extra against the principle.

The consumer got WAY to leveraged in the 1980s - 2000s. There is no easy or fast way to unwind that. It needs to be paid off/down and that will take a decade.

[ItNerd4life]

22. Sorry, I disagree. Over 30 years most people pay more in taxes than they do for interest

or their mortgage payment. Most people don't even know how much they are taxed, they only talk about their net pay, not their gross pay.

People don't factor in real estate tax, sales tax, state income taxes, taxes for gas, vehicle stickers, etc.

[ClaireF]

25. Property taxes are too high here

in NY. My monthly mortgage principal & interest payment: $328.39.
My monthly property taxes : $359.62