About two years ago, during a time in which I used the word “Boomtown” to describe Santa Clarita on this blog, my wife and I were shopping. Shopping for a real house in our favorite section of Newhall- south of Lyons.
We were excited to find a house that fit us perfectly. It was an older house on Wheeler Road. It sat on top of a small hill and at the top of a steep driveway. The garage was separate from the house -rare for the SCV but common in older neighborhoods of Newhall- and the house had a medium sized backyard overlooking the western SCV. I recall it was three bedrooms and about 2,000 sq. ft.; its owners had upgraded the kitchen with hardwood floors, granite counter tops, and the bedrooms were similarly styled.
It was a dream house, for us at least. It was the kind of house you could instantly picture yourself living in.
There was just one catch: the price. This was in July or August of 2006, when the real estate market in the SCV was going like gangbusters and any person with a pulse could (and did) offer you a house or a mortgage.
The price on the house was $679,000, an unimaginable sum that nevertheless, according to the Realtor, was well within our DINK (Dual Income, No Kids) reach. I think the conversation went like this:
Realtor: “Well, if you sell your condo and make $100k on that, you could put much of that down on this house, reducing the price to around $590.”
Me: “Even at $590, this will be tough for us on our income,” I said visualizing the amortization tables and thinking of a 30 year fixed.
Realtor: “That’s no problem, with your FICO scores, I’m sure you could qualify for an Option ARM.”
Me & Wife, having schooled ourselves with heavy lessons from Clark Howard: “Ummm, no ARMs are what irresponsible people* use to buy houses they can’t afford. One day, ARM borrowers will have a nasty surprise in their mailbox and we don’t want that!”
So we bid farewell to the Realtor and the house of our dreams. Over the next few weeks, we got calls from the Realtor who told us the price was set to rise and that she had a mortgage guy who could fix us up “real nice” with a great rate. With a sad heart we said no to her and the house sold later that month.
Looking back now, I’m glad we didn’t buy (though I wish we had sold our condo then!), because, once the teezer interest rate ended, we would have faced a huge increase in our monthly mortgage payments during what is now officially a recession.
It turns out that’s exactly what housing experts and economists fear happening nationwide. Watch this 60 Minutes video on what could be the next wave of Mortgage Defaults (Bigger than the first!) caused by “exotic” mortgages like Option ARMs. It’s also a great video because it shows people lined up to buy houses, which was a relatively common scene in some of the new developments in Santa Clarita in years past.
* No offense to you if you took an Option ARM on your home 