Why Americans Feel so Poor

[zolotiyeruki]

These last few posts are dancing around my disdain for (modern) suburbs. I've never understood them.
Far enough away from conveniences like grocery stores and restaurants to require driving, and yet just as restrictive (or more so with some HOAs) than living in the city center.

Living in the country you can do things like harvest your own timber, raise animals, ride atvs, shoot guns etc. But you have to drive to get to places.
Living in the city gives you immediate access to things, but you're obviously limited in many ways.

Suburbs are the worst of both worlds, not convenient and not enabling of rural things.

I can answer this one.

I would argue that it's a happy medium.  Sure, I have to use a car, but all the amenities I need are within 10 minutes' drive.  Since we're a family of 8, walking to the grocery store to get a week's worth of groceries isn't an option.  We're within easy biking distance to the elementary school, the junior high, and the high school, with no busy roads to cross (except for one semi-busy road next to the JH, which gets crossing guards).  The air is clean, there's plenty of sunshine and green space, and there's little traffic.  The municipal government is small enough that it doesn't get in the way and is less susceptible to waste and corruption and more responsive to the citizenry.  It's dense enough that emergency services can respond quickly.  It's dense enough that you're never far from a park, but not so dense that parks get overcrowded.  It's inexpensive enough that people can afford all the space they need, but expensive enough that people also take pride in ownership.  It's dense enough that the local arts scene is pretty good, without becoming the concrete jungle that is so common in denser areas.  We can afford a house (and yard) large enough that we can host a weekly homeschool co-op with 50+ people, and easily accommodate 18 high school students in our basement for classes.  I can grow fruit trees and a garden in our back yard and still have room for a deck, a playset, and still have lots of grass for playing games, hosting people for July 4th fireworks, or building a fire.  We can sit in our kitchen, looking over the pond, watching the Canada geese pair up in the spring.  We can watch both sunrises and sunsets from our deck.

Are there things I would change about our suburb? Sure!  I'd certainly reduce the required minimum parking for all the big box stores, for example.  And absolutely, it'd be great to have a grocery store in easy walking distance.  But it's a good compromise between the benefits and problems of both a denser city and a sparse rural area.

[BDWW]

It sounds like you're in a more reasonable version of suburb than the more recent incarnations I see. I've attached a couple screen shots of subdivisions(of dozens and dozens) near where I live.   The only way in or out of these subdivisions is via high speed road.  Hundreds of dollars in HOA fees a month, there are no schools, stores or anything other than houses is in it. Definitely no routes to school for the kids. Biking in or out is impossible on the narrow roads in fact you can't even use something like vespa if you were inclined because the roads have a nominal speed limit of 50mph(i.e. the normal speed is closer to 60mph). 

[zolotiyeruki]

It sounds like you're in a more reasonable version of suburb than the more recent incarnations I see. I've attached a couple screen shots of subdivisions(of dozens and dozens) near where I live.   The only way in or out of these subdivisions is via high speed road.  Hundreds of dollars in HOA fees a month, there are no schools, stores or anything other than houses is in it. Definitely no routes to school for the kids. Biking in or out is impossible on the narrow roads in fact you can't even use something like vespa if you were inclined because the roads have a nominal speed limit of 50mph(i.e. the normal speed is closer to 60mph).

Our neighborhood is not too different from the ones you posted--one entrance is on to a 45mph road (with no sidewalk, bike path, or even a shoulder, but that's changing soon!), the other on to a 35mph road.  The elementary school is inside the neighborhood, and the JH is just across the 35mph road from the neighborhood.  Nearest stores are 1.8 mi from our house, including about 1/2 mi on the 45mph road.  In terms of walkability/bikeability, our suburb has sidewalks almost everywhere except for that 45mph road from our neighborhood to the commercial corridor.  Yes, it's car-centric because of the distances, but we are fully aware of and comfortable with the tradeoffs.

[dang1]

it did take some pandemic for some people to realize that maybe being in close proximity to others may not be always such a good idea

..
https://publichealth.jhu.edu/2020/urban-density-not-linked-to-higher-coronavirus-infection-rates-and-is-linked-to-lower-covid-19-death-rates
“a lower proportion of college-educated people, and a higher proportion of African Americans were all associated with a greater infection rate and mortality rate”

I suppose, the more privileged, the better chance surviving covid
“persons in the lowest income decile still had a probability of dying from COVID-19 five times greater than those at the top decile”
https://www.thelancet.com/journals/lanam/article/PIIS2667-193X(21)00111-3/fulltext

Covid is part of the worries; seem like more people around, more chance of bad stuff happening
“rates of murder, rape, robbery and aggravated assault are generally higher in areas with high-density“
https://newsinfo.iu.edu/news/page/normal/13030.html

“Four and a half million Americans live in areas of these cities with the highest numbers of gun homicide, which are marked by intense poverty, low levels of education, and racial segregation.
https://www.theguardian.com/us-news/ng-interactive/2017/jan/09/special-report-fixing-gun-violence-in-america


unshackled from the office, “… droves of people sought more space”
“People aren't moving to big city centers like they used to, even as employers ramp up calls to return to the office"
https://www.axios.com/2023/01/31/cities-pandemic-moving-trends

[jinga nation]

Things are going to get worse in America.

Repo rates are rising: https://www.bloomberg.com/news/articles/2023-04-19/inflation-high-car-prices-hurt-us-consumers-and-boost-repo-demand?leadSource=uverify%20wall

With more Americans struggling to pay their bills, the $1.7 billion industry for repossessing such assets as cars, trucks and boats is gearing up for a boom. The effects are expected to reverberate through countless ordinary lives and onto Wall Street, where car loans are packaged into bonds and sold to investors.

*And homebuyers with good credit... your wallet getting a bit lighter, because a good deed is never left unpunished:
https://www.msn.com/en-us/money/other/homebuyers-with-good-credit-to-pay-higher-mortgage-rates/ar-AA1a42vL

A new federal rule enforced by the Biden administration will make it so that people looking to buy a home with a credit score of 680 or higher will have to pay about $40 per month more than people with worse credit when taking out a home loan of $400,000, the report said.

*I am not very sure about this MSN article since it refers to Washington Times and NY Post, known for being sketchy.

[neo von retorch]

*And homebuyers with good credit... your wallet getting a bit lighter, because a good deed is never left unpunished:
https://www.msn.com/en-us/money/other/homebuyers-with-good-credit-to-pay-higher-mortgage-rates/ar-AA1a42vL

A new federal rule enforced by the Biden administration will make it so that people looking to buy a home with a credit score of 680 or higher will have to pay about $40 per month more than people with worse credit when taking out a home loan of $400,000, the report said.

*I am not very sure about this MSN article since it refers to Washington Times and NY Post, known for being sketchy.

Go to the source: https://singlefamily.fanniemae.com/media/9391/display

It's confusing to me. Kind of as per the article, you see an LLPA of 0.375% for someone with excellent credit and a 20% down payment.

But the LLPA is a lot worse/higher for worse credit scores. I might be confused - maybe those in that elite credit category never before had to pay LLPAs, but it's not clear that it's "subsidizing" those with worse credit. If anything, it's just increasing the cost of mortgages for everyone, and the lenders benefit.

[zolotiyeruki]

*And homebuyers with good credit... your wallet getting a bit lighter, because a good deed is never left unpunished:
https://www.msn.com/en-us/money/other/homebuyers-with-good-credit-to-pay-higher-mortgage-rates/ar-AA1a42vL

It's real, but the article blows it out of proportion.  For those who, like me, don't know all the inside baseball, here's a simplified version: Fannie Mae has a loan-level price adjustments (LLPA) matrix that tells lenders how to adjust the interest rate according to credit score and LTV.  Here is the new old matrix, and here is the old new one.  The chart you probably want to compare is the first chart on page 2.  Note that the columns and rows in the new matrix are a bit different from the old.

I've transcribed the two documents into a table below for an example loan with 20% down.  (I apologize in advance if there are errors!)

Credit Score	New LLPA	Old LLPA	Change
>780	.375	.5	-.125
>760	.625	.5	+.125
>740	.825	.5	+.325
>720	1.25	.75	+.500
>700	1.375	1.25	+.125
>680	1.75	1.75	0
>660	1.875	2.75	-.825
>640	2.25	3.00	-.75
>620	2.75	3.00	-.25
<620	2.75	3.00	-.25

If your credit score is >780, your interest rate will be .125 percent higher lower than it would have under the old rules.  From 700-780, you'll pay lower higher rates, and if you're under 680, you'll pay moreless  interest again. At least, that's how I'm understanding the chart.

Prompted by some of the quotes in the WT article, I looked at the interest rates for other down payment amounts, and it appears that under the new chart, having a very high LTV (like over 90%) results in a lower LLPA, which makes no sense to me.  A higher LTV means higher risk, so the LLPA should be higher, right?  The old matrix is consistent--higher LTV -> higher LLPA, and higher credit score -> lower LLPA.

EDIT: Thanks to @neo von retorch for catching the fact that I had the charts mixed up.

[neo von retorch]

Here is the new matrix, and here is the old one. 

This seems switched. The one you linked as new, 33201 states "This Matrix is effective for all whole loans purchased before May 1, 2023" while the one you linked as old, 9391 states "This Matrix is effective for all whole loans purchased on or after May 1, 2023"

[Alternatepriorities]

Here is the new matrix, and here is the old one. 

This seems switched. The one you linked as new, 33201 states "This Matrix is effective for all whole loans purchased before May 1, 2023" while the one you linked as old, 9391 states "This Matrix is effective for all whole loans purchased on or after May 1, 2023"

Agreed the links appear to be switched for old and new which reverses the notion that they were making the matrix consistent. I can't think of any other way to interpret that matrix than (as a person with great credit) the LLPA has been increased if I make a down payment of more than 10% and less than 25% but it's been decreased outside those ranges... Since that is clearly not how risk works, they've rigged the system to achieve some kind of goal. I don't know what their goal is, but as this community is great at exploiting such systems I have no doubt that someone will have a new optimum house buying plan for us with a few days :)

Anecdotal experiences for what it's worth: Under the current system when my friend who crunches numbers for a living bought a house last month he determined he could reduce his total borrowing cost by not putting down 20% so he didn't. Last time did a home loan I had seven different options going projected over the total cost for the life of the loan depending on how long I stayed in the house. We ended up going with a 7 year ARM because it came out as lower cost through the first ten years and that's longer than I've ever lived in a house.

[zolotiyeruki]

Here is the new matrix, and here is the old one. 

This seems switched. The one you linked as new, 33201 states "This Matrix is effective for all whole loans purchased before May 1, 2023" while the one you linked as old, 9391 states "This Matrix is effective for all whole loans purchased on or after May 1, 2023"

Oh my goodness, you are right!  I'll go fix that.

Agreed the links appear to be switched for old and new which reverses the notion that they were making the matrix consistent. I can't think of any other way to interpret that matrix than (as a person with great credit) the LLPA has been increased if I make a down payment of more than 10% and less than 25% but it's been decreased outside those ranges... Since that is clearly not how risk works, they've rigged the system to achieve some kind of goal. I don't know what their goal is, but as this community is great at exploiting such systems I have no doubt that someone will have a new optimum house buying plan for us with a few days :)

Anecdotal experiences for what it's worth: Under the current system when my friend who crunches numbers for a living bought a house last month he determined he could reduce his total borrowing cost by not putting down 20% so he didn't. Last time did a home loan I had seven different options going projected over the total cost for the life of the loan depending on how long I stayed in the house. We ended up going with a 7 year ARM because it came out as lower cost through the first ten years and that's longer than I've ever lived in a house.

I don't think it's any surprise that the current administration is playing politics with the interest rates.  Who pays more under the new matrix?  People who have been responsible twice, as shown by a high credit score and accumulating a down payment.  Who benefits most under the new matrix?  People with low credit scores, who have not come up with a 20% down payment.

My earlier comment about the article blowing it out of proportion?  I take that back.  People are absolutely right to be really upset by this.  This is absolutely reeking of moral hazard.  Someone with a credit score of 600 and a 3% down payment, buying a $300,000 home, is getting a 2% interest rate reduction compared to the old matrix(and will pay 1% less than someone with bad credit, who comes up with a 20% down payment!).  That amounts to a nearly $6,000/year subsidy.

[Endo1030]

Agreed the links appear to be switched for old and new which reverses the notion that they were making the matrix consistent. I can't think of any other way to interpret that matrix than (as a person with great credit) the LLPA has been increased if I make a down payment of more than 10% and less than 25% but it's been decreased outside those ranges... Since that is clearly not how risk works, they've rigged the system to achieve some kind of goal. I don't know what their goal is, but as this community is great at exploiting such systems I have no doubt that someone will have a new optimum house buying plan for us with a few days :)

Or it's possible that those making down payments between 10% and 25% were not paying enough to cover their risk under the old chart, and the new chart is just bringing LLPA into line.  Looking at the new chart, what I don't really understand is why LLPA has a spike increase in the 75%-80% LTV column, but otherwise LLPA increases as LTV increases and decreases as credit score increases. which makes sense to me.

[Alternatepriorities]

Or it's possible that those making down payments between 10% and 25% were not paying enough to cover their risk under the old chart, and the new chart is just bringing LLPA into line.  Looking at the new chart, what I don't really understand is why LLPA has a spike increase in the 75%-80% LTV column, but otherwise LLPA increases as LTV increases and decreases as credit score increases. which makes sense to me.

It seemed pretty clear in the press release they did that intentionally to raise money to offset lowering the borrowing costs for people who couldn’t afford as large of down payment. What isn’t clear to me is is why anyone would accept that deal if they really can get a lower cost of financing by borrowing more up front land paying PMI for a short while before paying it down to 80% LTV and getting rid of the PMI as my friend told me he was doing. Half a percent on a 400k house is 2k a year which even a non mustachian might notice… all in all it looks like government trying to solve a problem government created. If the government wasn’t backing the loans they would be more expensive, so presumably people would have to borrow less and therefore houses would be smaller and so they could be less expensive… which would force people to buy less junk to fill said house… hmm that gives me an idea. Could it be possible to sue Freddie and Fannie for failing to consider the environmental impact of subsidizing mortgage rates?

[TheGrimSqueaker]

Or it's possible that those making down payments between 10% and 25% were not paying enough to cover their risk under the old chart, and the new chart is just bringing LLPA into line.  Looking at the new chart, what I don't really understand is why LLPA has a spike increase in the 75%-80% LTV column, but otherwise LLPA increases as LTV increases and decreases as credit score increases. which makes sense to me.

It seemed pretty clear in the press release they did that intentionally to raise money to offset lowering the borrowing costs for people who couldn’t afford as large of down payment. What isn’t clear to me is is why anyone would accept that deal if they really can get a lower cost of financing by borrowing more up front land paying PMI for a short while before paying it down to 80% LTV and getting rid of the PMI as my friend told me he was doing. Half a percent on a 400k house is 2k a year which even a non mustachian might notice… all in all it looks like government trying to solve a problem government created. If the government wasn’t backing the loans they would be more expensive, so presumably people would have to borrow less and therefore houses would be smaller and so they could be less expensive… which would force people to buy less junk to fill said house… hmm that gives me an idea. Could it be possible to sue Freddie and Fannie for failing to consider the environmental impact of subsidizing mortgage rates?

Freddie and Fannie are debt purveyors. Were it not for them, there'd be a lot less debt slavery.

[Endo1030]

Or it's possible that those making down payments between 10% and 25% were not paying enough to cover their risk under the old chart, and the new chart is just bringing LLPA into line.  Looking at the new chart, what I don't really understand is why LLPA has a spike increase in the 75%-80% LTV column, but otherwise LLPA increases as LTV increases and decreases as credit score increases. which makes sense to me.

It seemed pretty clear in the press release they did that intentionally to raise money to offset lowering the borrowing costs for people who couldn’t afford as large of down payment. What isn’t clear to me is is why anyone would accept that deal if they really can get a lower cost of financing by borrowing more up front land paying PMI for a short while before paying it down to 80% LTV and getting rid of the PMI as my friend told me he was doing. Half a percent on a 400k house is 2k a year which even a non mustachian might notice… all in all it looks like government trying to solve a problem government created. If the government wasn’t backing the loans they would be more expensive, so presumably people would have to borrow less and therefore houses would be smaller and so they could be less expensive… which would force people to buy less junk to fill said house… hmm that gives me an idea. Could it be possible to sue Freddie and Fannie for failing to consider the environmental impact of subsidizing mortgage rates?

I reverted the unreversed charts somehow, so yeah, it makes no logical sense to me either.  Can you just get rid of PMI early by making extra payments?  I thought you had to refinance or wait until the original date when 80% LTV would have been reached.

[zolotiyeruki]

Or it's possible that those making down payments between 10% and 25% were not paying enough to cover their risk under the old chart, and the new chart is just bringing LLPA into line.  Looking at the new chart, what I don't really understand is why LLPA has a spike increase in the 75%-80% LTV column, but otherwise LLPA increases as LTV increases and decreases as credit score increases. which makes sense to me.

It seemed pretty clear in the press release they did that intentionally to raise money to offset lowering the borrowing costs for people who couldn’t afford as large of down payment. What isn’t clear to me is is why anyone would accept that deal if they really can get a lower cost of financing by borrowing more up front land paying PMI for a short while before paying it down to 80% LTV and getting rid of the PMI as my friend told me he was doing. Half a percent on a 400k house is 2k a year which even a non mustachian might notice… all in all it looks like government trying to solve a problem government created. If the government wasn’t backing the loans they would be more expensive, so presumably people would have to borrow less and therefore houses would be smaller and so they could be less expensive… which would force people to buy less junk to fill said house… hmm that gives me an idea. Could it be possible to sue Freddie and Fannie for failing to consider the environmental impact of subsidizing mortgage rates?

I reverted the unreversed charts somehow, so yeah, it makes no logical sense to me either.  Can you just get rid of PMI early by making extra payments?  I thought you had to refinance or wait until the original date when 80% LTV would have been reached.

Yeah, it seems that if someone has a bad credit score but has a 20% down payment, they'd be better served by getting a 97% LTV mortgage with the lower interest rate, then immediately use the down payment money to drop the balance low enough to get rid of PMI.

[Fomerly known as something]

Our kids did all this on bikes. Smallish town. As long as a person avoids the main roads, there is still a route through town that is bike friendly. Still lots of hills so pedal bikes gave way to a gas powered bike (benefits of a low reg red state I guess), and then ebikes. Lots of kids sequestered at home for all the reasons already detailed. Now that they are all drivers, the kids are in circulation more than they used to be. Our kids were definitely the "free range" type. That's how I was raised and we wanted them to have that same freedom and they did without concern.

We currently live on a big patch of ground that I wish we could have owned when the kids were very young. 8 miles each way to town but still possible on a bicycle, especially an ebike.   

My current internal debate is if we should look to buy a large piece of property 80 acres farther away from town or stick to something much smaller so we can be closer to the friends we have in town. I do spend the vast majority of my time at home, and I'd make good use of having that kind of space to roam and presumably so would DS... On the other hand I'm not quite introverted enough to just hole up on a homestead all the time...

Do you feel the need to own space that you would enjoy exploring??

Are there not places you could live where you would have easy access to acres to explore??

I own 3 properties, one in a major city, one in a small city, and one rural, and all of them within spitting distance of many acres of stunning land to explore, which I don't need to own and am not responsible for maintaining.

I grew up on an acreage, and sure it was neat to explore, but the experience was in no way superior to the far more vast and more maintained parks that I have access to now.

I don't find the 5-10 minute drive to get to the woods to lessen my use of them. In fact, it's been a joke for years that although my parents still live on the acreage and we live in a.highrise condo on a major intersection, we actually get out I'm nature much more than they do. For them, it's always there so there's no pressure to go explore it. They take walks up the small mountain every few years.

When I had working legs, DH and I took walks/bikes up various small mountains almost every week in the summer.

When they whined endlessly about not wanting to sell their home to access the equity because they would miss the "nature" DH and I joked constantly about how ridiculous they are because they look at nature and we actually go out in nature.

I'm not saying you would be like my parents and after 30 years stop walking your land and just take it for granted. My point is that if you are torn, there may be ways to have both without sacrificing either.

Perhaps think of nature in terms of access, not ownership.

But I don't know if that's possible where you live. I've selected my locations specifically for easy access to nature. So I understand that's not necessarily a feature of many locations, especially in US cities where there aren't often protected greenbelts in cities. Or so this thread has taught me.

What you have described is exactly what I fell in love with when I moved to the San Francisco Area last year.  I’m in an inner ring suburb, so the city is a tad harder.  But I can be on a trail up a hill in less than “2 songs from my playlist”.  And I don’t have to maintain any of it.

[dang1]

..   

...

..

What you have described is exactly what I fell in love with when I moved to the San Francisco Area last year.  I’m in an inner ring suburb, so the city is a tad harder.  But I can be on a trail up a hill in less than “2 songs from my playlist”.  And I don’t have to maintain any of it.

inner ring suburbs are the best. SF Bay Area here too- neighborhood mostly single-family homes.  5 minute drive / 20 minute walk, to Wildcat Canyon Regional park trailhead in one direction, and Richmond BART station the other direction