Could Cars Have Caused the Mortgage Meltdown?

I can see that. Having additional requirements reduces your financial flexibility. I feel very stable at the moment, because only about 20% of our income is firmly committed. Once we buy the house, it will go up to about 50%. After my new car, it may hit 70%. That will indeed make me nervous.

When I first moved out on my own, my rent was 80% of my income. Once food and other necessities were factored in, 99% of my money was committed. I was on the street within 6 months.
 
Very interesting read, especially the comments. The big problem with living in a place where you depend upon a car to get around is price volatility. If gas suddenly spikes from $1.50 to $6 per gallon you really have no choice but to pay it. When you depend upon walking, biking, or public transit your costs are pretty much fixed, or slowly increase with inflation. When you depend upon auto, besides price fluctuations, you pay WAY more to get around. The most I would ever pay for transportation here is $89 per month with an unlimited ride Metrocard. I could pay as little as $0 per month if I don't need to take the subway. With a car, I'm forced to make insurance payments of at least $3000 a year even if the car sits in my driveway ( and that's just basic liability insurance on a clunker-figure 2 or 3 times that much on a decent new car ). And then I still have registration and inspection fees. This is all before I drive a single mile. Cars are a hideously expensive way to get around. Even though some of the comments mentioned that the auto industry keeps lots of people employed, I take another view. If they didn't spend that money on cars, they would end up spending it on other things which would create jobs. And these other things wouldn't have as steep societal costs as auto use does.

And then there are other factors such as time. Time spend on long auto commutes is non-productive time. Time which could be spent doing things you like more, or perhaps even earning more money. True that housing prices in the city are often higher than the surrounding suburbs. However, that's not the whole story. People as a rule are very bad at figuring total cost of ownership. All they see is the initial purchase price of the home. They don't see the often much higher real estate taxes in the suburbs. For example, our real estate taxes are under $4000 a year. A similar house in one of the suburbs, either Long Island or New Jersey, might have real estate taxes three or four times as high. What you save on real estate taxes can finance an extra $100,000 or more of mortgage. Not needing to own one or two cars, plus their operating costs, might be able to finance another $100,000 in mortgage. And salaries in the city are generally higher. In the end a house in the city is probably more affordable than one in the suburbs once all these factors are considered. Plus you have a lot less volatility. Your transportation costs are most or less fixed. It's really the price volatility of auto transportation causing the most problems. This is especially true if your budget was already stretched thin to start with.
 
Not sure where you got that auto insurance number, JTR. We insure a pair of cars, and my wife's record has some points on it. One of those cars is covered with every bell and whistle available. I just got the insurance bill yesterday: $462 for 6 months.

Two people, two cars, $924/year.
 
ddrueding said:
Not sure where you got that auto insurance number, JTR. We insure a pair of cars, and my wife's record has some points on it. One of those cars is covered with every bell and whistle available. I just got the insurance bill yesterday: $462 for 6 months.

Two people, two cars, $924/year.
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My mom's paying over $2000 a year for her 2006 300C. She gets the good driver discount and hardly uses it. If she drove more than about 10K miles a year she would pay more. My brother is paying about $1000 a year just for basic liability on his 1993 Mark VIII. If I got my license, as a new driver, I would pay through the nose for at least the first couple of years for basic liability. I heard the $3K new driver liability figure quoted in a couple of news articles on the high cost of insurance here. I personally know people with newer vehicles paying in excess of $6K a year for liability, theft, and collision. The reason it's so high is no fault liability insurance in case you're in an accident with an uninsured driver. As you might know, NYC is the capital of people driving cars with no insurance ( and in a lot of cases no license ), and also the capital of auto theft. One job I worked at the boss regularly used people with no licenses to drive for the company ( he couldn't find enough licensed drivers at the what the company was willing to pay ). I know a lot people are shocked at what insurance runs around here, but that's the way it is on account of uninsured, unlicensed drivers, auto theft, and also automotive anarchy ( i.e. flagrant disregard of traffic laws ). I'm amazed so many people own cars in NYC given what insurance costs ( and the fact that cars aren't a particularly fast or comfortable way to get around in these parts relative to the alternatives ).
 
We were able to find companies that cost that much, but it's amazing what some shopping around will do.

I also find it funny that your first post listed a bunch of good things about living in a giant city, and your second listed a bunch of bad things ;)
 
ddrueding said:
I also find it funny that your first post listed a bunch of good things about living in a giant city, and your second listed a bunch of bad things ;)
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It's like anything else in life-if the good outweighs the bad, then it's worth it overall. I'd say the biggest issues with living here are the high housing costs ( only an issue if you're in the market, my mom's house is long paid for ), and the air quality. Oh, and the poor drivers. They affect everyone, including pedestrians and cyclists. It seems like a red light is a request to stop, not a requirement, and yellow means "speed up to make the light", not "proceed with caution". ;) And speed limits, as in that they're totally ignored ( 60+ mph on 30 mph residential streets isn't all that uncommon ).
 
jtr1962 said:
It's like anything else in life-if the good outweighs the bad, then it's worth it overall.
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And it almost all depends on your financial reserves...or perspective. I'd hate living in NYC, even if I was filthy rich and could afford the best of everything. However, if I had to work there, and was being paid enough i could save to move to the West coast or someplace better (preferably a choice of residences like the wealthy have), and retire comfortably, I'd live in NYC just long enough to attain that...no other reason :D

Anything in NYC that's better than anywhere else, I could just visit/vacation and get that there when desired :p

Drifting OT, r we not?
 
ddrueding said:
We were able to find companies that cost that much, but it's amazing what some shopping around will do.

I also find it funny that your first post listed a bunch of good things about living in a giant city, and your second listed a bunch of bad things ;)
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It's also amazing how poor the service is with some of those cut-rate auto insurers. What's ur deductible ? In Calif. U can get minimal insurance, but if you don't have other insurance, like med expenses...who's going to pay for the risk of a huge hospital bill, should either of you be hit head on by some other driver? We already know dd likes to live with high risk, so it won't be a surprise to find out how low his rates are :p.

In dd's & wife age group, in LA area, they'd be paying @least $2k/yr for decent coverage (prob. $1k deduc...which means mostly major claims, fender benders which can run $2k easy, you're stuck w/50% or more of those costs, +points on your insurance record, get more than a few claims per year, *regardless* of $$$ amount, they drop you w/30days notice)
 
jtr1962 said:
The reason it's so high is no fault liability insurance in case you're in an accident with an uninsured driver. As you might know, NYC is the capital of people driving cars with no insurance ( and in a lot of cases no license ), and also the capital of auto theft.
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I'm amazed so many people own cars in NYC given what insurance costs ( and the fact that cars aren't a particularly fast or comfortable way to get around in these parts relative to the alternatives ).
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Canon vs Nikon argument jtr, you'll never win :D.

'these parts' only include your neighborhood I suppose, the rest of Long Island doesnt' count :p. So, you take the subway to the Hamptons?

In LA, and I'll bet my life, most of NY area, cars are much better transportation, comfort-wise compared to anything jtr likes...just my preference, and *most* other people's. *much* faster too, for most trips, other than rush hour work days.

It would take jtr *all* day to get dim sum from the 4 places I'll be going to next weekend. It takes me 3+hrs, 3 of the places are within 1.5mi of each other (2 just across the street from each other), in order to get any of the good items before they sell out. dim sum service is limited to lunch hrs most places, and they run of of the good stuff usually just past noon. Good thing we don't have any snow here, but we do get the occassional rain. Can't imagine jtr taking a bus or subway, train, whatever in Queens, trying to pick orders for take out dim sum from even 2 places, unless they were within a block of each other.

And trying to carry that load by hand without it all getting 'dismembered' from tossing around---difficult enough in a car. I damage fruit & tomatoes, etc, when I take the bus from the farmers mkts, re-using a paper Whole Foods grocery bags. I sure as hell would not want to do that in driving rain or snow, sleet, freezing cold weather. Hot weather I could suffer through, but lettuce or other sensitive veggies could not make the longer than car travel time home without wilting.

Canon vs Nikon :D
 
My deductible is as high as they would let me (~$10k?), it would be foolish to do otherwise. Paying an extra $3k every year to have them pay for a $2k fender bender, should it ever happen, is nuts. Insurance is for catastrophic, unaffordable, highly unlikely scenarios. To use it otherwise is poor financial planning.
 
I had full collision on two cars about $1300 a year. I've subsequently dropped it from one of the cars. You guys must be considered high risk or something.
 
Stereodude said:
I had full collision on two cars about $1300 a year. I've subsequently dropped it from one of the cars. You guys must be considered high risk or something.
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Auto Insurance can vary widely by geography. This is a comparison by state, however I think the difference would be even more drastic if you could see it by city or zip code or some smaller geographic region.

My insurance is around $1000 / year on a 2003 Nissan Sentra Spec-V. I'm single, under 30, and I live in Chicago. This is full coverage with a $750 deductible. I paid the deductible last year when half of my car was stolen (~$7500 worth of damage).
 
Michigan is #13 on the list, so it's not exactly like we're a cheap state... Our deductible is $500. Every time I've priced insurance cranking up the deductible barely reduces the rates.
 
Maybe if one crashed a car into their house and damaged both?
 
By the way, the "Mortgage Meltdown" was cause by lending money to people who shouldn't have gotten the loans in the first place because they were unqualified. Canada didn't / doesn't do this, and unsurprisingly they haven't had any of the same problems the US and other places have.
 
Stereodude said:
By the way, the "Mortgage Meltdown" was cause by lending money to people who shouldn't have gotten the loans in the first place because they were unqualified. Canada didn't / doesn't do this, and unsurprisingly they haven't had any of the same problems the US and other places have.
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No, the problem was that those subprime loans (which have always been available) were repackaged and sold as prime rated investments. When the subprimes went tits up, the truth was revealed. By then, the damage was done. Also, the subprime problem is moving into prime areas:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aV1OhnG3_bhI

“We’ve seen a significant drop in the problem with subprime loans and we’ve moved now to a problem with prime fixed-rate loans,” Jay Brinkmann, the Washington-based trade group’s chief economist, said in an interview. “Job losses are driving it, and we expect that to continue into next year.”

Homeowners fall behind on their mortgage payments when they lose their jobs, and declining prices mean they can’t sell to pay off loans, Brinkmann said. Companies have shed 5.7 million jobs since January 2008, the biggest employment loss since the Great Depression. The median U.S. home price fell 16 percent in the second quarter from a year earlier, the steepest drop on record, according to the National Association of Realtors."

It doesn't matter if you have a 600 credit rating or a 750, if you lose your job, chances are you will lose your home if you are the sole income source.
 
Right, and subprime loans are loans given to people who shouldn't have gotten a mortgage. The banks knew they were bad loans and figured out a way to unload them reducing their own risk. Crazy things happen when the gov't tampers with the credit markets and pressures banks into loaning to unqualified people.
 
The subprime loans have subprime rates to match. The banks make more money on a given subprime loan, provided the loan doesn't go into default. They weren't forced into anything.
 
Pradeep said:
The subprime loans have subprime rates to match. The banks make more money on a given subprime loan, provided the loan doesn't go into default.
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The rates don't match the risks. That's the fault of the FHA. The federal gov't effectively caps the interest rates that private lenders can charge by contaminated the market with artificially low interest rates for high credit risk clients though the FHA.
They weren't forced into anything.
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Ever heard of the Community Reinvestment Act?
 
Well that's the thing. A "high risk" loan insured by the FHA means that the bank, if the loan gets defaulted upon, gets it's money anyway. It's zero risk.

CRA seems to be more to do with Freddie Mac and Fannie Mae being government-sponsored enterprises?
 
So, government guaranteed loans couldn't cause the "mortgage crisis." Great.

Maybe it had to do with the fact that those making many of these bad loans had no skin in the game. They had no incentive to make a good loan. And once you package up those loans, slice and dice them, then you can't do anything but foreclose when there's a problem.
 
Wow, so you agree with me. Fannie and Freddie buying up a lot of the loans (especially the bad ones) only encouraged the banks to make bad loans. That's basically what I said. The gov't interferes in the market and then blames the banks.
 
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