Thursday, October 02, 2008


Bob Krumm:
To test Nancy Pelosi’s hypothesis that after eight years of President Bush the economy is in far worse shape than it was under President Clinton at a time of “budget surpluses,” I went to Lending Tree to see what kind of mortgage terms I could get to buy my first home today.

It was the spring of 1996 and I was newly stationed at Fort Hood, Texas along with my very pregnant wife who was one month away from delivering our first child. We found the home we wanted to buy in Harker Heights, just a few miles east of post. The purchase price was $110,000, and because we were only going to be there a few years, a 30-year loan made little sense. So we bought the home on a 15-year fixed-rate VA mortgage of 8.0%, zero points and zero down. If I remember correctly, the monthly payment ended up being $1,211.

So what kind of offer did I get today in the midst of this horrible financial crisis? I got four offers, the lowest of which was a 15-year fixed-rate VA mortgage of 6.0%, zero points and zero down, yielding a monthly payment of $948.20. Yes, that’s right, as bad as everyone says the economy is today, I can get the same mortgage as I had twelve years ago for about $250 a month less than I was paying 12 years ago in the midst of a “great” economy.

But what about the rise in prices of real estate, you might argue? Good question. So I checked to see what my old house might cost today. While that particular home isn’t currently on the market, another home with the same floorplan and in the same subdivision is listed at $139,000. Plugging that amount into the 6.485% effective annual percentage rate of the mortgage I was offered today and I could buy my old home again today for $1,209.69 a month–about a dollar less than what I was paying for the same home in 1996.
(via Instapundit)


bobn said...

So in other words, this horror in the credit markets, that requires taxpayers to give $700 Billion to the pigmen and swindlers - it's not very horrible?

So Paulson and Bernanke lied? Say it ain't so!

I do numbers said...

All sounds like he makes his point... until you think about the value of money. His $110,000 if you account for inflation should be worth $148,334. So the value of the house he is talking about is worth $9600 less than it was on an adjusted basis than it was 12 years ago. I'm not sure about your house, but mine is worth considerably more than it was 12 years ago... even with the crash in real estate prices. I would guess it to be worth 300% more than it was back then.

Something doesn't jive... the house he talks about is worth $9600 less than it would be adjusted for inflation, at a time when most houses have appreciated substantially in value. Think of your house, what was it worth then and what is it worth now.

Another point that comes to mind is his relative credit worthiness. Let's see what could have changed in twelve years. Is his credit score better? Does he have more assets? All of these will affect the cost of his loan. He states at the start that he was newly stationed at Fort Hood expecting his first child, from this I would gather he is just starting out and may not have a long credit history. If he did get 4 offers I can guarantee you a few things; 1) he has sterling credit with a score above 710, 2) he has assets enough to pay at least 6 months mortgage payments, 3) he is probably paying mortgage insurance on top of his mortgage payment... and they no longer will offer mortgage insurance on a zero down loan.

Additionally when I ran the numbers on what his mortgage payment would be at 8% interest his payment comes in at $1051 and not the $1211 stated.

So the numbers... Paid in 1996: $1051; paid in 2008 on a similar house (his numbers $139,000) $1210... $159 cheaper in 1996.


1) The house adjusted for inflation is worth $9600 less in 2008 than it was in 1996.
2) His claimed payment is off by $159 per month.
3) He claims to be able to get a product that is not available in the current market.
4) He doesn't state his credit worthiness then verses now... over that period of time most peoples income and savings would have improved drastically.

Suffice it to say my BS alarm is going off...