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Wednesday, July 26, 2006

Blog Format Notes

A few notes about some style changes I'm making to Seattle Bubble. The most noticable change is that there is now a more obvious differentiation between posts written by myself and those written by Seattle Bubble team member S Crow. As you can see, posts submitted by S Crow will have a dark blue dashed border around them. Also, the "posted by..." bit at the bottom of each post now contains a link to the profile of the person that submitted it, making their name pop out a bit more. Lastly, the title of each post is now a link to that post's individual page.

There have been a few comments recently requesting additional features on Seattle Bubble, such as something similar to "Flippers in Trouble" or "Lowball!" seen on other blogs. While I would love to add such content to Seattle Bubble, my time is limited (it's not like I'm getting paid for this). However, my invitation still stands for anyone who would like to join up as a contributor to Seattle Bubble. So far S Crow is the only person to take me up on the offer. Just shoot me an email if you'd like to become a team member of Seattle Bubble.

Of course, I will be maintaining a certain standard for posts on this blog, so I reserve the right to revoke posting privileges of anyone if I don't feel that they're meeting those standards.

Please read the rules before posting a comment.


meshugy said...

More flipping in Ballard.

3258 NW 56th St

This house is about the same year and design as mine...and is going for $699K!!!

The flipper bought it last year for $375K

See: 3258 NW 56th St

...installed granite counter tops and doubled the price. I don't think anyone will buy this at this price...

richard said...

on $699K, you'd be looking at a payment of ~ $4400/month with a 30 year fixed, and $3400/month with the more popular 5/1 IO ARM.

Personally, I'd go with the 5/1 and spend the extra $1K/month to lease the new BMW M5.

Anonymous said...

Yes, enjoy the really luxurious life :)

Anonymous said...

Not quite sure what you are getting for your money there. Nothing remotely attractive about that house. Nothing unique and nothing special. Not even off street parking for the leased cars!

Maybe I do not understand the mindset but for that kind of money wouldnt want a yard, low crime, low traffic through the neighborhood, a garage, and some sort of community? Check listing below.

MLS #: 26119330

Anonymous said...

We need a Thursday open thread!

What do ya'll think of this:

meshugy said...

Not quite sure what you are getting for your money there.

Location....but still over priced. It is in Sunset hill which is the priciest area of Ballard.

MLS #: 26119330

70s McMansion in Lynnwood...yuck, I'll take the overpriced bungalow in Ballard.

Anonymous said...

I currently live in Ballard and grew up in Mill Creek. Trust me, its quite a stretch to lump that neighborhood in with Lynnwood. Basically my argument boils down to simply one thing. What are you getting for your money. I believe, for that house in Ballard, you aren't getting anything.

Sunset Hill is a long walk from Market Street.

Christina said...


It doesn't really matter what I think, because I'm not a big name syndicated financial planner or commentary specialist or even a chartered financial planner, but as you did ask, I'll supply:

I think Edelman's advice is at best, applicable to only a few people and at worst, horsehooey.

For many, many people the best advice is to diversify investments (yeah I know, a home's not an investment, but it's a dedicated and costly expense!).

I am no Nostradamus, but I've been reading library books written by people who think they are, and I agree that what we'll be paying more for are: utility and energy costs, home insurance, healthcare, childcare, tuition and food.

What we can't guarantee is that our wages will keep up with these core expenses. At least childcare's not forever!

I am not cool with spending over 30% of my net income for 360 monthly payments. Many people are, though, because they can claim a mortgage interest deduction, and have more disposable income to direct to Roth IRAs and Coverdell Spending Accounts and other investments they'll need to live off of in retirement.

That'd be great to believe, except for a household debt ratio chart and an Owner Equity % Household Value chart. So people are cashing out and taking out big mortgages. Are they investing the money? If this chart includes Roth IRA and 401(k) contributions, I'm guessing NO.
Because if one were in financial trouble, and needed to make mortgage payments, one could borrow or liquidate (at one's detriment perhaps) from those assets. And yet foreclosures and bankruptcies happen, so clearly not all homeowners are saving adequately, nor diversifying their investments as they should.

Before the early 1990s, people used to be able to claim credit card interest as a tax deduction(!). Tax rules can change at any time, the mortgage interest deduction can go away and eventually it will, at least for people's personal tax situations. Ric Edelman writes that Congress changed the rules about mortgages. Well, they changed the rules about other tax matters too. They do that a lot. When they want more money, they'll either raise taxes or do away with tax credits.

On the other hand, the interest rates were recently at a nadir, so there was very little incentive to put money in places where it could be calculated as part of the nation's savings rate. here's a chart showing the saving rate and 3-month T-Bill Rate. Note that as of 2005, the saving rate and the 3month t-bill rate are going in separate directions. The last time the saving rate was above the 3month t-bill rate was in the recession of the early 1990s.

Ideally, one would be putting the disposable income into retirement accounts, or into taxable investments with yields higher than the interest rate on her mortgage. Then one can tra-la-la extend the mortgage for as long as possible.

But when the interest rate is so low, and one is debtfree and making sufficient contributions to one's retirement accounts, the best investment it seems is to make extra payments toward the highest debt: the mortgage.

BTW, I'd love for someone to correct me/shoot down my hypothesis with substantiated, fact-rich charts proving the net worths of Americans are growing at a rate higher than the consumer debt is. It would make my day to be proven that I'm overly pessimistic or am underestimating the financial savviness of American households.

ProudPropertyOwner said...

Christina -- I've never heard of 30% of net income, the figure I've always used was 28% of gross income. Either way, it doesn't surprise me that people aren't saving or aren't investing.

I know quite a bit of MS people who are contributing 3% to their 401k and are living paycheck to paycheck. You've heard it all before "oh, I have plenty of time to contribute". Maybe these people were sick when they talked about the time value of money. We refused to "keep up with the Jones’"; I never knew how powerful that was until I saw some of the logic around here.

We bought a very modest property and drive modest cars (albeit new ones, or they were at the time). It shocks me how many kids get jobs at MS straight of college and saving/retirement is the last thing on their mind. We got “stupid debt” free before buying a house and we said that our mortgage payments couldn't affect our investment/retirement contributions, but so many people think a house is an investment and they think living paycheck-to-paycheck is okay since they can just sell their house and magically have tons of money.

Capitalistchristian said...

Whoever put up the Edelman article, I say to you "Well Played"

I've read Edelman's book "The Truth about Money" at least three times cover to cover - its that good. And he has it right on the money when it comes to a mortgage. You see while all his ideas are correct in theory the problem becomes that they must be practiced by people to actually work.
Our problem in America is this. Lets say I make $4,000 per month and decide I want to put $1700 towards my home payment and investing for the future. Well what most do is take out a big mortgage for the $1700 per month (not even counting for taxes and insurance) and not only do they have nothing left to invest, but now more of the income is going towards housing than they had planned and at the end of the month there is "nothing left for investing". If only people chose investing as the first priority and then said, okay now what can I afford for a mortgage/rent payment, then they would be doing great. Edelman is 100% correct on this issue, the flaw is that almost noone practices what he preaches. He also is making the argument using a 30yr fixed mortgage (and he assumes you can actually afford it) for his examples. And if you can make his plan work with these guidelines - than you will be successful.

proudpropterowner - I totally agree with you.

S-Crow said...

I don't know if Richard's comment a few doors up the post was sarcasm or not. But if not, this is the reasoning why I expect a boomerang problem in the market, sooner than later.

Take savings and lease a car or buy a new car? Sheesh.

richard said...

hehe, yeah that was sarcasm. But for the M5, I'd be tempted. ;)

As are many others apparently. Looking at recent sales in the KC records, I haven't found many examples of people using fixed rate loans.

Peckhammer said...

So people are cashing out and taking out big mortgages. Are they investing the money? If this chart includes Roth IRA and 401(k) contributions, I'm guessing NO.

I ponder this issue all the time. And as you said in another thread, "what do these people know that I don't know."

Of course, I grew up during the last oil crisis, with gas lines and recessions being part of life. There haven't really been hard times since then.

It appears to be the norm these days to expect real estate to rise indefinitely higher, to use your home as a retirement plan, and to live a life of luxury that is financed by credit.

I often ask the question as to whether this seemingly irresponsible behavior is sustainable. But the answer, for me is, "I sure hope so." Why? Because my future depends on the economy not imploding.

I have long considered the conundrum of depending on mutual funds or stock for my retirement plan. There are companies that I despise -- for their business practices, for their accounting practices, for what they represent -- but I need them to continue their unethical ways, to cook the books and to represent moral vapidness because if it makes them successful, it makes me successful. IOW, I depend on them for my future, and calling them out only endangers my ability to eat something other than catfood when I am 65. So in a way, my 401K plan depends on the next greater fool.

I remain amazed at what I see in terms of saving, spending, and entitlement issues. I have lived a different life. When I moved to Seattle, I bought a condo that i could afford even if I had a minimum wage job. I then worked to pay off the mortgage in 6 years. I've paid cash for every depreciating asset purchased in the past 15 years. This allows me to save/invest 50% of my gross income.

There are two ways to become a millionaire. One is by earning a lot of money (or inheriting it), and the other is by not spending a lot of money. Anyone who wishes to retire one day needs to become a multi-millionaire. So they'd better figure out a way to earn it or save it, and spending 30% of your income on housing is not going to get you there.

Lake Hills Renter said...

I thought owning a home free and clear (i.e. mortgage paid off) was a part of a retirement strategy. You no longer have to worry about paying for housing, short of taxes, so there's either less money you need to have saved to live, or what you have saved can be used on other things, like enjoying your retirement. Am I way off on this?

Anonymous said...


???? Ballard a "location"?

Peckhammer said...

I thought owning a home free and clear (i.e. mortgage paid off) was a part of a retirement strategy

I suppose it is [one] part of a retirement strategy, but you'd better have a couple of $M in addition to your home if you want to eat, pay for your healthcare, etc.

It appears to me that people WAY under-estimate their retirement needs.

That said, having your home paid off in full a good 25 years before you retire means that you can sock all that would-be-monthly-payments away in mutual funds and other types of investments.

Anonymous said...

Idea for a new tv show: Flip that Ballard Bungalow.

I love living in Ballard, but I agree that it is hardly a "location" in this sense of the word. And to pay 700k for a boring, non-descript box in Ballard is absolutely insane and defies all reason.

jcricket said...

You see while all [Ric Edelman's] ideas are correct in theory the problem becomes that they must be practiced by people to actually work

I read through that article, and I totally agree with the general principles: mortgages are not inherently bad and paying off your mortgage fast is often a less than optimal use of your extra cash than investing it in the stock/bond market. I have to disagree with the "get a $100,000 bigger mortgage, invest the proceeds and then pay the increased mortgage payment with the investment gains" strategy.

To me that really relies on steady appreciation in your gains, and as we all know from the last 5 years, the stock market doesn't always move in a steady direction. If the market stays flat or goes down for 5-7 years (longest bear markets) you might need to take money out while you're at a loss, to cover the extra mortgage payments.

I was more comfortable putting 20% down, getting a fixed rate and a payment we can afford (without relying on any investment gains). We still have emergency savings (something Ric doesn't account for in his example), so I can see how the situation would be different if you didn't (after putting a lot down). We could have put 5% down and invested the rest, but then the mortgage payments would have been enough of a stretch that we would be constantly worried that our investments needed to go up enough to reliably cover the extra payments (assuming we wanted to also save for retirement, etc). Too risky for me.