Thanks Chuck a clear explanation & to us with a few miles up pretty
bloody obvious; now about you write something on how we can get our
daughters & sons'-inlaw to actually believe it, rather than believing
the spruiker real estate agents???

K

While I am bearish on the near and mid term potential for property values to
appreciate much, and would not be the least surprised to see some short term
"correction", I still believe that home ownership is a good investment for most
people. A lot of people lack the self discipline to save money. I see case
after case where elderly people get very sick and need to go to an expensive
facility for care, and in those cases where the people
have paid off a home over the years at least there is something to sell so the
kids don't have to go broke as quickly keeping Mommy or Poppy alive at Golden
Age Acres.

To make any real money with real estate, even in a steadily appreciating
market, it is important to own more property than just the piece you're living
in. Short of taking up residence in a pup tent at a highway rest area, we all
need a place to live. If somebody says "your place to live is worth
$50,000" or if somebody says "your place to live is worth $2mm"- it's really
all the same. If you sell it, you will need to do without an equally nice place
to live or spend all the money you get from the sale to replace it. That's one
reason that many people evaluating financial statements mentally subtract home
equity from "net worth", it's too illiquid and is performing a
vital, non-discretionary function.

You might suggest to your daughters that they buy a little *less* house than
they can afford, and put the difference into rental property. ( Caution: Don't
know if that's good advice in Aus. or not, though). In just a few decades,
they'll have built up a pretty decent net worth and be able to live in their
all-time dream home.....if they still have a mind to.

There are some good buys right now in multi plex properties in areas, like
Seattle, where rents are seriously (but hopefully temporarily) depressed. These
properties formula price based on their ability to generate gross rental
income, so prices are way off lately because they can no longer be justified
with the dot.com boom era rent rates. These properties will bounce back some
when rents go back up, but maybe not as fast as rents increase. If rents
increase at the same time interest rates increase, the rising interest rates
put a bit of a damper on the
price of a multi plex.

Like a bond, a multi unit property produces an income stream and the
capitalized value of any given stream is higher when interest rates are low.
(When you can make the same return just parking your money in a CD, the
attractiveness of an investment with "risk" declines.)

"del cecchi" wrote in message
...

I've heard our increased productivity is indeed due to longer hours
and
reduced time off.

I'd like to see your sources and what measures they're really using.

two minutes on google turned up the Federal Reserve Bank of NY
discussing productivity in terms of output per hour.

So whoever you heard the contrary from had a lying political agenda.

I understand your perspective, but, if workers are putting in extra hours
without additional pay, and output on an hourly basis didn't change because
of the extra hours, that'd also show up as "productivity" increases.

Right or wrong?

jps

On 07 Sep 2003 02:24:19 GMT, (Gould 0738) wrote:

Sorry, but it doesn't work quite that way. Loans are amortized by a fairly
complex equation, and your last statement is untrue. When the interest rate
changes for the same principal balance and term, both the interest and
principal
components of the payment will change.

Joe Parsons


Hoo boy. :-(

Where are you coming from with this?

Maybe it has something with having been in the business for a few years.

You're trying to make a very simple idea unduly complex.

It is *deceptively* simple.

If I borrow $500,000 for any number of years, 500,000 of the dollars shown on
the total of payments line of the disclosure will be used to repay the
principal portion of the loan. Not a few less if the rate is X, vs a few more
if the rate is Y- or vice versa.
It costs 500,000 plus interest to pay back
a 1/2 million dollar loan. The *only* variable that can enter into the "total
of payments" math is the interest cost of the money, (including fees, etc).

Actually, there is at least one more possible variable: the balance at the end
of the term. This is not a trivial point, since few people will hold a 30 year
loan over its term.

We would agree, I'm sure, that a loan for $500,000 from Bank X for a certain
term should have the same monthly payment as
a loan for an identical amount, at an identical rate, for an identical period
of time, from Bank Y.

Given the same balance at the end of n months, yes.

If we compare two $500,000 loans from the same bank, one at 5% and one at 6%,
the 6% loan will have a higher payment than the 5% loan and it is *not* because
the contract calls for any principal amount other than $500k to be paid back.
The difference in monthly payment is generated
exclsuively by the difference in interest rate if the term is identical.

Let me clarify, what I *hope* you have said, just to be sure we're on the same
page: If we compare the two loans in question and the only variable is the
interest rate, then that changing only the interest rate will change the
periodic payment.

Look at an amortization book. There are only four variables that combine to
determine a monthly payment: Principal balance, interest rate, periods at which
the payment is collected and term of contract.

That's one of the problems with amortization books--they don't have the right
number of variables.

When the principal balances are
the same and the term is the same, (and if the periods of scheduled collection
are the same) if there is a difference in payment between two contracts it can
only be because the interest rate is different.

True--assuming that the balance at the end of the term is the same. Please keep
in mind that not all loans amortize to 0. Many loans are amortized over a
specified term, but amortized down to a specified balance. A car lease is an
excellent example of this type of financing.

But what I was responding to was this part of your statement in the post I
followed up: On 07 Sep 2003 01:33:50 GMT, in rec.boats you wrote:

Good question, Doc. It's because your monthly payment includes principal as
well as interest, and the prinicpal portion of the payment doesn't increase,
only the interest.

If you have a loan of $100,000 at 5% amortized over 30 years, your monthly
payment will be $536.82. Increase the rate to 6% and the payment goes to
$599.55. The component parts of each payment break down like this:

At 5%:

Interest $416.67
Principal 120.15

These numbers, of course, apply only to the first payment; as the balance is
retired, the amount of each payment applied to the principal goes up and the
interest component goes down.

At 6%:

Interest $500.00
Principal 99.55

What I understand you to have said when you wrote "the prinicpal portion of the
[monthly] payment doesn't increase, only the interest" was that you believed
that the payment increase would be attributable *only* to the increase in
interest paid with each payment. That is what I was reacting to, since *both*
change with that one interest rate variable.

When I say that amortization is "deceptively" simple, it is because it is very
much a moving target: the proportion of interest to principal changes with each
monthly payment (assuming a level payment). And the relationship between the
two components changes disproportionately with changes in interest rate.

OB BOAT STUFF:

I managed to replace the busted through hull on the houseboat today--and I did
it without dropping either the new part *or* my new glasses into Taylor Slough!
There's no WAY I could go home if I'd lost a THIRD pair to the Delta (don't
ask...)

Joe Parsons

On Sun, 07 Sep 2003 03:33:09 GMT, "NOYB" wrote:

My house's appraised value is up almost 50%
since Jan. '01. That's nuts.

My county appraisal went up over 40% last year.

The effect of these sharply escalating prices is to make one a captive
of the house they currently own. If I sell my house, and buy a house
of equal value, in the same city, my taxes will go up by about 300%.
I'm fortunate that I live in a house I don't mind staying in, and that
I happen to own two houses in the same neighborhood, but the situation
is rediculous.

Is it really fair that the person who buys the house next door to me
pays 300% of the taxes I pay, and receives the same services for it?

bb

On Sun, 07 Sep 2003 03:10:18 GMT, "NOYB" wrote:

"Gould 0738" wrote in message
...
Our discussion was, I believe about how rising
interest rates could affect the affordability of housing and dampen the
current
market.

I'll agree there. We could be facing a flooded housing market (and a lot of
defaults) in 3-5 years when all of the 4 to 4 1/2% ARM's come due. Imagine
someone who bought the biggest house they could afford at a 4% 3-year ARM
with high rate caps? Will they be able to afford that house if rates hit
8%? On a $400k mortgage, that's another $1000 per month on the same house!

A couple of bits of information: first, when ARMs are underwritten, they are
typically underwritten with the "indexed rate" in mind; some ARMs (but not so
much any more) have jaw-droppingly low "teaser" rates, and those initial rates
are below the value of the index (typically the LIBOR index or 1 year Treasury,
among others) plus the margin. When the underwriter crunches the numbers on a
loan, she'll use the "actual" rate (what it would be if it were adjusting today)
as the qualifying rate, irrespective of the start rate.

Second: All ARMs have certain limitations on how they can adjust. For
intermediate term adjustables (3 or 5 year, for example), the initial "cap" is
typically 2% over the start rate for the initial adjustment, with subsequent
annual limitations of 2% (up or down) and lifetime limitations of 5% to 6% over
the start rate. I have never seen an adjustable rate mortgage hit its life
cap--even in the 70s, when rates were, well, ridiculous.

Someone who got a 5 year ARM at 6% based on the LIBOR index five years ago is
adjusting now to 4%--and they'd be going to 3.7% were it not for the 2% "floor."

Assuming the borrower in your example was a typical creditworthy borrower (as
most are), the worst case would be that the rate on their 4% 3 year ARM could go
to 6%--and that's not too far off what the underwriter would have qualified them
for in the first place. In order for their ARM to hit 8%, the index (the LIBOR,
for example) would have to move very quickly to nearly 6%--and that's territory
that hasn't been visited for a number of years.

Joe Parsons

On Sun, 07 Sep 2003 02:24:52 GMT, "NOYB" wrote:

"Joe Parsons" wrote in message
.. .
On 07 Sep 2003 01:33:50 GMT, (Gould 0738) wrote:

Just when it seems that you do indeed *have* a brain, you post something
like this. If a mortgage rate goes up from 5% to 6%, the monthly
payment on
a 30 year mortgage goes up by a little under 12%...not 20%.

Sorry, but I'm not the one who needs to see the Wizard about a brain.
When
money costs 6%, it *is* 120% as expensive as when it costs 5%.

"So, why doesn't the payment go up by 20?" inquires NOYB.

Good question, Doc. It's because your monthly payment includes principal
as
well as interest, and the prinicpal portion of the payment doesn't
increase,
only the interest.

Sorry, but it doesn't work quite that way. Loans are amortized by a
fairly
complex equation, and your last statement is untrue. When the interest
rate
changes for the same principal balance and term, both the interest and
principal
components of the payment will change.


But the interest amount in each payment changes exactly the same as the
percent change in the rate on a 30 year mortgage. If the rate jumps from 5%
to 7% (a 40% increase), the amount of interest paid in each payment also
increases by 40%...even though the total payment increases by a much smaller
amount. That means Gould was right and I was right.

Let's use your example of a $500,000 loan at 5% and at 7%.

A $500,000 principal at 5% will amortize to 0 in 30 years with a monthly payment
of $2,684.11. This payment includes $2,083.33 interest and $600.78
principal--but ONLY for the first payment.

The same principal balance at 7% will amortize to 0 in 30 years with a monthly
payment of $3,326.51. This payment includes $2,916 interest and $409.84
principal--for the first payment.

(The payment increase from 5% to 7%, by the way, is a tad under 24%...just
thought I'd mention that. )

Now, fast forward five years. The balance for the 5% loan will be $459,143.
That $2,684.11 payment will include interest of $1,913 and principal of
$771--but ONLY for the first payment of year five.

Compare that with the 7% loan: the balance will be $470,657. The monthly
payment of $3,326.51 will include $2,745 in interest and $171 in principle--but
only for the first payment of year five.

See what I mean when I say it's not quite as simple as it appears? It's a
moving target. And I've always found absolute words like "exactly" or "always"
to be dangerous.

Don't get me started on the tax aspects...

Joe Parsons

My house's appraised value is up almost 50%
since Jan. '01. That's nuts.

My county appraisal went up over 40% last year.

Many people feel that state and local taxes are rising faster than federal
taxes are falling.

Gould 0738 wrote:
Thanks Chuck a clear explanation & to us with a few miles up pretty
bloody obvious; now about you write something on how we can get our
daughters & sons'-inlaw to actually believe it, rather than believing
the spruiker real estate agents???

K


While I am bearish on the near and mid term potential for property values to
appreciate much, and would not be the least surprised to see some short term
"correction", I still believe that home ownership is a good investment for most
people. A lot of people lack the self discipline to save money. I see case
after case where elderly people get very sick and need to go to an expensive
facility for care, and in those cases where the people
have paid off a home over the years at least there is something to sell so the
kids don't have to go broke as quickly keeping Mommy or Poppy alive at Golden
Age Acres.

To make any real money with real estate, even in a steadily appreciating
market, it is important to own more property than just the piece you're living
in. Short of taking up residence in a pup tent at a highway rest area, we all
need a place to live. If somebody says "your place to live is worth
$50,000" or if somebody says "your place to live is worth $2mm"- it's really
all the same. If you sell it, you will need to do without an equally nice place
to live or spend all the money you get from the sale to replace it. That's one
reason that many people evaluating financial statements mentally subtract home
equity from "net worth", it's too illiquid and is performing a
vital, non-discretionary function.

You might suggest to your daughters that they buy a little *less* house than
they can afford, and put the difference into rental property. ( Caution: Don't
know if that's good advice in Aus. or not, though). In just a few decades,
they'll have built up a pretty decent net worth and be able to live in their
all-time dream home.....if they still have a mind to.

That's sort of the problem Chuck they are buying "rental, investment"
properties & they are buying them negatively geared, even at today's
interest rates (tax writeoffs here & I'm guessing there??) Some younger
people can't even remember back to the eighties when interest rates went
up over a very short time, not saying they will repeat that but

There are some good buys right now in multi plex properties in areas, like
Seattle, where rents are seriously (but hopefully temporarily) depressed. These
properties formula price based on their ability to generate gross rental
income, so prices are way off lately because they can no longer be justified
with the dot.com boom era rent rates. These properties will bounce back some
when rents go back up, but maybe not as fast as rents increase. If rents
increase at the same time interest rates increase, the rising interest rates
put a bit of a damper on the
price of a multi plex.

Like a bond, a multi unit property produces an income stream and the
capitalized value of any given stream is higher when interest rates are low.
(When you can make the same return just parking your money in a CD, the
attractiveness of an investment with "risk" declines.)



I guess I have a sharp appreciation for our lack of population, due to
a low birth rate & I say faulty restricted immigration policy. The
result is we build more new houses or home units PA that we generate
people to live in them, assuming not too many are living under
bridges:-) we seem to be moving people around for no other purpose than
to artificially create demand.

K

On Sat, 6 Sep 2003 20:59:52 -0700, "jps" wrote:

"del cecchi" wrote in message
...

I've heard our increased productivity is indeed due to longer hours
and
reduced time off.

I'd like to see your sources and what measures they're really using.

two minutes on google turned up the Federal Reserve Bank of NY
discussing productivity in terms of output per hour.

So whoever you heard the contrary from had a lying political agenda.

I understand your perspective, but, if workers are putting in extra hours
without additional pay, and output on an hourly basis didn't change because
of the extra hours, that'd also show up as "productivity" increases.

Right or wrong?

jps

And I used to think lead was dense. Jipsy, in your example, will the output per
hour change? No? Then the productivity did not increase. The production
increased.

John
On the 'Poco Loco' out of Deale, MD

"JohnH" wrote in message
...

And I used to think lead was dense. Jipsy, in your example, will the
output per
hour change? No? Then the productivity did not increase. The production
increased.

If you're measuring the output of one worker who is paid for 40 hours but
puts in 60, you don't reduce his hourly pay, you increase his productivity
per 40 hours of pay.

You'd think a math teacher would have a little better grasp.

No spin my ass.