Housing Is Good Because…
Readers suggested a topic on buying a house. “As the bubble drags out and fails to unfold in a logical financially sane manner some hostility has arisen on this board between those who have chose to buy and those who have chose to rent. As the life of the bubble continues the shift has gone from those eager to enter the housing market to those renters chiding those who entered the market while wishing to see them go underwater. What forces are at work here? Is it sour grapes? Is it frustration that they have taken action? Is it that they have now become part of the problem of keeping prices elevated? What would be helpful is the reasoning both sides can offer to those setting on either side of the fence.”
A reply, “I wonder how many potential buyers, like myself, have watched this protracted debacle, seen how, by some dark magic, asking prices have been made so sticky, and changed their target in terms of what they are looking for in a property. When I started ‘looking’ in 2001 I wanted to buy a ‘home’ to raise my then 3 year old son. I was clueless. I sought out an RE agent and really believed they had my best interests in mind. They quickly connected me with a loan person who told me I could ‘afford’ to borrow $X. The agent then showed me a handful of properties valued at $X + $100k. She explained the increase by voodoo financing.”
“There were a number of disconnects in this process that made me stop and review what the heck was going on. I felt that the $X amount was far higher than I was willing to borrow. I was simply not going to use voodoo financing. And even back then I felt that the wishing prices were inflated. So, now, after watching this thing play out, I no longer want to buy a still overpriced property. Instead I am considering buying something I can afford to actually payoff in less than 5-10 years in an area I go to for recreation often with the hope that I can create a place to move to once my son goes off to college. A place I can leave to him free and clear. And a place we can enjoy as we make it our own while not burdened with enormous debt slavery.”
“I wonder how many folks out there in the world have actually changed how they think of housing and personal debt as a result of being exposed to the Housing Bubble and it’s failure as well as the bizarre price manipulations?”
“I think the number is not that high. I think most folks just did not get it. And much of that is because of the forces allied to artificially maintain property prices. First we have the ‘Save the borrowers’ who reward foolish choices. next we have the ‘Save the bankers and hedgies’ who cry end of the world if they are not bailed out for their foolish and greedy choices. The regulators and politicians are playing a nice game of keeping their contributors and voters happy by holding hearings and making loophole filled laws. And the REIC is a consistent soundtrack cheering on the ‘value’ of going in debt to exorbitant levels for the ‘pride of ownership’, tweeking statistics, and passing out the kool-aid.”
“Tough to be a normal Joe or Jane and see behind the curtain with so much noise and fanfare distracting you.”
Another said, “You just described us. It’s easy to get giddy when you are told you can get $$$___ priced house for $$$___ a month. Mortgage brokers and realtors will always try and get you to spend more.”
“Having been outbid again on a larger house, just last night we stepped back and took another good long look at our finances, retirement plans, and overall life priorities. We could easily and happily live in an 850-1000 sq. ft. house. And we could pay it off in 15 years. Buying something at the upper limits of what we can afford means debt slavery until the day we die.”
“Today am feeling great relief that none of our offers on overpriced homes got accepted. I still want my view of Twin Peaks, though. Nothing makes me happier than sitting and watching the fog roll in. The view will be just as good from a smaller house.”
One had this, “The roles of federal institutions in fostering, abetting, and attempting to revive the housing bubble, and the grotesque behaviors associated with the bubble, have changed how I view the federal government. Responsibility doesn’t matter, the rule of law doesn’t matter, and ethics don’t matter.”
“Everything has been traded for a recovery that will not be coming, in no small part because our leaders have mis-identified who is important, and condone an economic philosophy where greed has a higher value than honesty, community and trust.”
And another, “There is so much exposure to ‘housing is good because…’ propaganda it’s small wonder the majority still covet a house at all costs. And the negativity of debt has been minimized. Now it’s called leverage, which sounds so much better, although few understand the risks of leveraging an investment. As we’ve learned throught the collapse of the bubble, few are capable of surviving leverage in a downturn. We’re encouraged to ignore the growing debt because equity is (was anyway) growing too. It will take a long time for the general public to unlearn this crap, if ever.”
Finally, “My perspective has changed dramatically regarding debt. Not that I ever thought it was a good thing, but even thinking about taking on a 15-year mortgage makes me very, very nervous. We should all be able to buy houses for cash.”
The Daily Progress. “After a lackluster 2011, Central Virginia’s housing market appears to be on the cusp of a post-recession rebound, according to figures released recently from the Charlottesville Area Association of Realtors and local agents. ‘We’re not really back. We’ve still got a lot of room to make up from where we were … but the positive thing I would probably tell people is that now we’ve hit bottom,’ said Brad Conner, president of CAAR. Although the responsibility for making a good home sale or purchase decision still rests with the individual, right now, ‘You can buy something now and feel confident,’ he added.”
“Jim Duncan, a partner in Charlottesville-based Nest Realty, agreed that although there are some inconsistencies when looking at the numbers alone, there are also modest but clear and favorable indicators that the market overall is improving. ‘[What] we’re seeing in the trenches … is that a lot of homes are going under contract swiftly with multiple offers, and you’re also seeing homes that should be selling swiftly and are not. [But] for the most part, we’re seeing increased buyer activity.’”
“And for the time being, all three unequivocally agreed that it’ll remain a buyer’s market. ‘The affordability of homes is at an all-time high,’ said CAAR VP Denise Ramey. ‘There’s definitely incentive for buyers to not rent and to buy … On the selling side, I’m still of the opinion that if you don’t have to sell, my advice to my sellers is wait until we continue to see price appreciation.’”
The Baker County Press. “Wells Fargo Bank recently foreclosed on Baxter resident Mary Bowlin’s former home in north Macclenny, one of 46 properties in Baker County that received foreclosure notices in the first quarter of this year. The 79-year-old widow fell behind on the $1500-a-month mortgage payments for her two bedroom home on Linda Street after her husband died in 2010.”
“Ms. Bowlin said the payments to Wells Fargo jumped ‘a few hundred dollars’ sometime before her husband’s death. ‘They kept calling and I told them I couldn’t make the payments and to just go ahead and put in the foreclosure, so I just moved out,’ she said. Ms. Bowlin has now moved back to the north county, where she grew up, to be closer to family.”
Renting is good because…you can comfortably house yourself for a lot less than 32% of your budget.
HBB regulars will find many familiar themes in Daniel Gross’s essay posted below, as the ground he covers is oft-trodden here.
I read The Great Gatsby as an assignment for a freshman English course in college. Once I started, I couldn’t put the book down. I had entirely forgotten about the rent-versus-own episode, but I love this phrase, “…the consoling proximity of millionaires…,” which describes a facet of our lives as renters in San Diego.
THE SATURDAY ESSAY
May 4, 2012, 6:08 p.m. ET
Renting Prosperity
In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed.
The economy needs the dynamism that renting enables as much as—if not more than—the stability that ownership engenders.
Americans are getting used to the idea of renting the good life, from cars to couture to homes. Daniel Gross explores our shift from a nation of owners to an economy permanently on the move—and how it will lead to the next boom.
By DANIEL GROSS
[RENTCOVER] Photo illustration by The Wall Street Journal
“The Great Gatsby,” the pre-eminent American novel of financial ambition, overextension and downfall, offers a revealing vignette about the great American obsession: real estate. The narrator, Nick Carraway, can’t afford to buy in the rarefied Long Island world inhabited by Gatsby, and by Tom and Daisy Buchanan. But he can afford to rent. “When a young man at the office suggested that we take a house together in a commuting town, it sounded like a great idea. He found the house, a weather-beaten cardboard bungalow at eighty a month, but at the last minute the firm ordered him to Washington, and I went out to the country alone,” he notes. “I had a view of the water, a partial view of my neighbor’s lawn, and the consoling proximity of millionaires—all for eighty dollars a month.”
In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they’re OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn’t limited to the housing market. Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.
While downgrading the place of ownership in the American psyche may sound like a traumatic task, the cold, unsentimental fact about the American dream is that Americans never really owned it in the first place. For the past three decades, especially, consumers haven’t so much bought their quality of life as they’ve borrowed it from banks and credit card companies. And since the Great Recession, Americans have been busy rebuilding their balance sheets and avoiding new financial encumbrances. When American consumers can’t—or won’t—borrow to purchase the goods and services they’ve come to consider part of their standard of living, how does the economy get back on its feet?
The answer lies in consumers following the example of corporations—that is, becoming more efficient. The reaction to extended leverage and foolish borrowing isn’t to stop consuming and buying; it is to consume and buy more intelligently. That’s what the Rentership Society is all about. And it starts at home. Literally. Housing is the biggest single component of consumption in the U.S. economy and the source of much of our present misery. According to the Bureau of Labor Statistics, the typical consumer spends about 32% of his or her budget on shelter. In the last decade, that generally meant borrowing a lot of money to take “ownership” of a home.
…
this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.
Yay! We’ll be rootless vagabonds, forever chasing the next bubble. We can have family reunions at interstate Cracker Barrels as we occasionally pass by one another in our continuing cross-country pilgrimages in search of employment.
Your post suggests disagreement with the federal government’s decision to artificially prop up housing prices after the housing bubble popped. The alternative would be to allow the free market to restore prices to fundamentally affordable levels which enable young families to move where the jobs are without putting their futures at risk of an excessive debt burden.
But the affordable housing path was the road not chosen…
“move where the jobs are without putting their futures at risk of an excessive debt burden.”
Before the bubble, was this really possible for someone moving from low cost flyover country to expensive urban areas on the coasts?
We have had family/friend vacations in Yellowstone Park and the Grand Canyon. It is a wonderful way to get together and see the sights, while visiting with family.
Rents are too high, too.
Not near the beaches of Los Angeles when you compare them to PITI and maintenance.
“For the past three decades, especially, consumers haven’t so much bought their quality of life as they’ve borrowed it from banks and credit card companies.”
And this credit bubble continues. I know someone who went BK around seven years ago. Let’s call him Jack. Jack had jacked up numerous cards to the tune of ~$120k. The BK was easy, the judge signed off on it, the attorney got paid, and Jack was miraculously debt free. Shortly thereafter, Jack received numerous new credit card offers since, apparently, the banks thought he was a good risk since he could no longer file for BK. Nevermind that Jack had no job. Fast forward to today, and Jack is going to file BK again. Why? Jack has nearly $100k in credit card debt which he has not been paying on.
You gotta wonder who the bagholder is for Jack and the credit card companies.
I think it’s you and me.
It’s everyone who pays late fees and interest on their credit cards.
Back in the 90’s, I worked on securitization transactions for credit card receivables. They were pretty new back then (so were credit default swaps). So it may be all sorts of generic bond holders (mutual funds, insurance companies, banks, pension funds, whatever).
He must have paid something on those cards in the last 7 years. It is possible he did cash withdrawls on one card to pay off another. If he didn’t work at all in the last 7 years, he would have lived on about 14K per year. In any case, he got about 14K per year tax free above what he earned.
What I’ve been shouting out on the rooftops! When I stopped being a mortgage slave and returned to renting, I discovered how extreme mobility can make a person more financially secure, even though his job or income is norpt secure. I get shot down for saying spouse and kids weigh people down. So be it. Unless you are a successful business owner, doctor, or shyster, the single mobile people who chase the $ will achieve financial independence years ahead otpf the rest. This means reduced tress, ease of being able to sleep nights and know you can buy your next meal, and so on. I enjoy driving my nine year old mundane Toyota to the office and park by the Mercedes, Lexus, Infiniti, Corvette nd BMWs that the wage slaves drive. They do not have the experience of traveling far to continuer their incomes. They would not k ow where to start. I have a good connection in Clearwter for $110 per hour, but my company stock has done so well I turned him down.
Rent everything!
I get shot down for saying spouse and kids weigh people down.–snipped—Rent everything!
You’d like the Soylent Green setting as the ladies came with building’s executive suites; a brochure listed their highlights.
“I get shot down for saying spouse and kids weigh people down. So be it.”
I doubt many parents would disagree with you that it is a burden to raise kids. I’m not complaining — I signed up for the gig — but merely restating the obvious.
I can’t recall anyone on the HBB ’shooting you down’ for saying this; did I miss the post?
No, I get shot down on other blogs for stating it They just do not want to wake up from their dreams.
I know PB, had I been treated like I deserved at that one company in Arizona 12 years ago, I would be a married father these days. I was very close to getti g the whole deal, a wonderful girlfriend and all…but the company, and deaths in the family made me stop making major decisions ecause I knew my emotions that year were very much in control and my reasoning ability to make long term commitments was compromised. I had enough brainpower to decide I did not want to make hasty decisions and have been on the road ever since. IMO, from reading reports on Internet, becoming a father past a certain age runs the risk of autism, mental issues, etc. In the offspring, and I would not want an unhealthy kid, so I consider it too late, but not too late to adopt…sad for me but I have to make the best of what I have, hence my pounding the words that it is great to have more freedom from fewer possessions, particularly in the Great Recession when mobility means better opportunities that others cannot take due to being in an upside down mortgage.
“What forces are at work here? Is it sour grapes? Is it frustration that they have taken action? Is it that they have now become part of the problem of keeping prices elevated?”
Objectively speaking, it seems quite simple: Big finance received a really ginormous bailout from the Fed and Treasury; American households got cake crumbs, long unemployment lines and foreclosures.
The efforts to prop up housing prices by withholding inventory from the market has succeeded in driving up rents and purchase costs for young families which are lucky if they even have a breadwinner, yet somehow fell short of stopping a 30% price decline. Unless you are among the fraction of the 1% who made out like bandits from the housing debacle, you probably experienced either high rents in an unstable rental market, or falling home prices and possibly job loss and foreclosure as an Ownership Society member. But at least your blood provided sustenance for Great Vampire Squids.
‘by withholding inventory from the market has succeeded in driving up rents’
I’ve posted a few articles on places like North Carolina, where it’s reported many can’t afford rents on their incomes. Unemployment is over 10%, etc. The press doesn’t want to make the connection of a public policy to withhold inventory while people are struggling to keep a roof over their head.
‘It’s easy to get giddy when you are told you can get $$$___ priced house for $$$___ a month.’
I’ve posted the story here of my friend who found out he could get a $300k loan with 3% down. It was like he was hypnotized from that point on. At first he was looking at duplexes and tri-plexes. Calculating the cash flows from rents versus what he would be paying. Then a nice, big house got in his focus and a year + later he’s underwater.
Yesterday I got a call from a broker, asking me about the dearth of listings. I explained my opinion; that the foreclosure settlement had shifted the REO activity to judicial states (REO’s are most of what sells), and said that this business has always been feast and famine. He said, ‘yeah but I’ve had 5 years of feast and it’s hard to take.’ He bought a huge foreclosed house, on credit, a couple years back after a divorce.
It is all how are perceptions have changed about “middle class”
From the 1940-1980 - “middle class houses” were small or were duplexes and tri-plexes. That is how you could afford a house.
A family of 6 living in a small 3 bed/1 bath house with a car port was common. Kitchens were tiny.
Somehow we are still trying to hold on to the notion that everyone in the middle class has a giant 5 bd/3bath, 3 gar garage, sitting room, media room, massive granite/ss appliance kitchen, etc.
It is not going to work.
Our current house is 1,350 sq. ft. , and we could easily raise our kids here. The only thing I’d add is a deck on the back — enough for a table and chairs to eat outside.
Muggy, your wife would love a big deck…
http://www.youtube.com/watch?v=nz82fjXqFQ4
I like small houses, with ample yards. I have no idea what this fascination is with massive houses sitting on postage stamp lots. You have to clean, heat, and cool them, and there’s little room outside to do anything. I’m not even sure it’s what people want. I think it was a way for developers/builders to get more money from people to justify the outrageous amounts they paid for the land. The bubble was in the land prices.
I like small houses, with ample yards.
This is why the prices on pre-1980 suburban housing have been so sticky. It’s the kind of housing that people want. (shorter commutes, too). Anything more recent is condo-townhome-McMansion, with little variation in between. Those choices are less naturally desirable, and therefore those prices will not be so sticky.
“Those choices are less naturally desirable, and therefore those prices will not be so sticky.”
Not only less desirable, but also more available in a weak housing market, as many virtually identical units in the same development may be on the market at the same time. It’s unrealistic to price your 4br/3 1/2ba, 2000 sq ft McMansion for $100K higher than the virtually-identical home for sale across the street and hope to get any offers.
Different people want different things…But those who would prefer a brand new house and are willing drive long distances to get it have many more houses to choose from those who want to live close in, because that’s what was being built during the bubble. Sure a little infill development here and there, and a bunch of “luxury condos”, but much of the bubble inventory was built in the exurbs. And it is in those new developments where EVERYBODY is upside down, because they bought at the height of the bubble as opposed to older neighborhoods were only some people are upside down, and many own their houses free and clear.
Different strokes for different folks.
I have a pretty large yard (whole lot is .25 of an acre) and i’m pretty tired of it. Mowing is no big deal, but I’m getting tired of building and spending on landscaping that doesn’t look like trash. If my lot was smaller, it would be fine with me. If I want space outside, I’d just go to the park. I spend more time inside than out, so that’s where the space should be.
I also grew up in a 1500 sq ft house with 5 brothers and sisters, and I survived just fine but it royally sucked. I had no privacy ever, and certainly no personal space. I don’t feel that is an optimal way for anyone to live.
“Somehow we are still trying to hold on to the notion that everyone in the middle class has a giant 5 bd/3bath, 3 gar garage, sitting room, media room, massive granite/ss appliance kitchen, etc.”
This was how the upper-upper middle class lived when I grew up. We were 5 in a 3 bedroom/1.5 bath house with a 1 car garage.
The freezer was so small we only had ice cream on Sundays when we would buy it and use it up the same day. That refrigerator was still in use up until a few years ago. I have never bought a maintenance plan for a rerfigerator based on its longevity.
‘On the selling side, I’m still of the opinion that if you don’t have to sell, my advice to my sellers is wait until we continue to see price appreciation.’
Watch out below when a logjam of sellers figures out that bubble-era prices are not to return for a generation to come.
Dumb realtor. Appreciation can’t “continue” until it “resumes”. It cannot “resume” until prices stop FALLING.
Housing is good for people with descendants, as is the notion of accumulating assets that appreciate. But for those with no descendants, you make things tougher for the chosen beneficiaries or trustees to liquidate the assets.
My beneficiaries more likely are going to be my chosen charities. Having assets that are more easily liquidated will help those charities more.
I’m making a case for renting forever. Rent is cheap in the coastal parts of Los Angeles. Many of my renting neighbors have luxury cars in my apartment complex. I would do the same thing but for now I have to reserve funds to pay the second half of my Roth conversion next year.
I saw a blog about the marriage strike against Marriage 2.0. Some poster wrote that most of the houses on his block have single owners with no kids. Well I’m beginning to wonder how smart that is? Big houses are hard to keep maintained and clean by one person. It’s a full time job.
Well…. single/divorced women were the target of the Realtor Crime Syndicate media campaign immediately post peak for 18 months or so as I recall.
One story I hear frequently is “he’s got a house, she’s got a house and they have to get rid of one of them”.
Basically, another demographic is going to get scalped. In this case, formerly single women who “had to by a ‘home’”.
Except for estate taxes (both Federal and State). Then it can be a nightmare.
Housing is good for people with descendants, as is the notion of accumulating assets that appreciate
“But for those with no descendants, you make things tougher for the chosen beneficiaries or trustees to liquidate the assets.”
I’m missing this, as I know from personal experience that if a home is priced to sell, it will move in a matter of days.
Well I did not mention that yes you have to sell at a discount otherwise, and lose some of the potential value you otherwise could have. I sold three houses priced to sell. One was mine and the other two were so that the beneficiaries could get their proceeds. I carried around an irrevocable trust for a period of a year or two as I cared for an elderly relative’s estate. That was almost a part time job in itself, paying bills and things.
Look…. a good engineer will always trump overthinking with efficient ingenuity and simplicity.
Housing Prices Are Falling.
Test
Sorry. Here are some quotes from the March issue of Planning Magazine.
“Budgets allocate resources, demonstrate priorities, and determine winners and losers in any society. So where does this leave those who are now choosing different options when they are provided by the market? The Gen Xers and the Millennials are making very different choices than their parents or grandparents. Their brand loyalty is up for grabs. And that frightens the dumb growth industries that now seek to tilt the playing field back in their favor.”
“The lobbyists, now with the support of the House, are moving to support their industries and to destroy government programs that support choices. That’s the reaction to the brand allegiance of new households that is shifting in a way that hasn’t been seen since the days of the great farm-to-city migration of a century ago and the great city-to-suburb migration following World War II.”
Our inventory is horrible this year. There have been very, very few properties we’re even remotely interested in. Some McMansion-y, late built homes are coming down in price but nobody is nabbing them. Perhaps the taint of the aging listing. Some of these are going into their 2nd year on the MLS. It has occurred to me that because there is little job churn, the housing turnover has moderated since 2008’s job losses.
My realtor was very happy how the season started and did advise us that later in the year the comps would be pushing up the prices. I did see one home I thought was very overpriced that I expected to sit and sit already sporting a SOLD sign. It is in a very conveniently located and friendly neighborhood but at some point buyers have to cry uncle. It was horribly dated for the over $300k price tag and postage stamp yard. Another home very close to the village had 3 different offers within days and in my opinion was overpriced to start. But as gas prices remain high perhaps these walk to the village/store locations will be a little stickier in price.
I do see a lot of FOR RENT signs right now but those vacancies could be SU students heading out. It’s really hard to tell.
One acquaintence I know that is selling/buying says there’s a chain reaction movement related to the sale of his house. Three different buyers in relation to their house sale in their town just buying another place across town. Oh yeah, this particular guy was pretty happy w/his churn. His downsized payment will be $600/mo lower. His seller is buying a larger home in a neigborhood since their family is still expanding.
“Our inventory is horrible this year”
Ditto. Our inventory is very stagnant this spring and the prices on more desirable homes are pretty sticky. The less desirable homes, on the other hand, seem more flexible on price.
I think I am going to custom print shirts that read:
ACTIVE WITH CONTRACT
You almost sound like a consultant Muggy!
Oh, well, for that I am getting a shirt that reads:
THIS CONVERSATION IS BILLABLE
Budget planning is what is missing. Why agree to 32% of income as cost of housing? Find something cheaper, smaller - not more house than you need. And do rent if you are young and your job may move or end.
Why do people think they “need” 5 bedrooms and 3 baths for three or four people in a house? Couple I know, early 50s just bought a 2400 sq ft house - with stairs. In ten years those stairs will make them miserable.
josap
Preach it, josap. We’ve had the 4+2.5 (2,000 sq ftw/stairs)and moved up to a 5+4 (4,000 sq ft w/stairs) McMansion. (reg sale) Now we’re buying an 1,800 sq ft one-story toe-tag home. (we’re a cash & close)
We started out wanting a spa/pool combo, and now want a simple yard to add a “Neptune Spa” ( round inground) and hardscape it to our taste. We’re thinking low maintenance and practical, not showy.
We don’t buy the stairs keep you in shape hogwash. That’s why we treadmill daily and it shows.You’re spot on. But then again, we think for ourselves whereas most folks in So Ca are sheeples. In 10 years the baby boomers will finally accept their aging. We’re ahead of the curve on planning. Problem is, the inventory sucks. If we wanted a two-story w/ a pool, we’d be in already. One-Story homes are fewer around here.
What gets me are the pro athlete houses where a single guy builds a 20,000 square-foot house with ten bedrooms, eight baths, a basketball court, bowling alley, disco and fifty-seat home theater. Jeter has a house here in Tampa, and the paper reported that it’s the size of a typical Barnes & Noble. How do you live in a place like that and not end up as Citizen Kane?
Former Buccaneers defensive tackle Warren Sapp owns a similar house, but he just filed for bankruptcy, listing alimony and child support obligations (six children by five woman) of $75,000 per month. His asset list is a public record and the local media had a field day: 240 pairs of Air Jordans, many still in their boxes; a lionskin rug; and a painting of a nude woman in the bedroom. Sapp claims his downfall began when he and two business partners attempted to build an affordable housing development in Fort Pierce. In 2008.
http://www.tampabay.com/sports/football/bucs/the-play-by-play-of-warren-sapps-59-page-bankruptcy-filing/1225135
snake charmer
You’re right. Why would you want a B&N size home? And 6 kids w/5 women is just dysfunctional, period. Messed up in the head. Apparently, too much money and a simpleton. And of course, blames his financial downfall on other people. Could be partly, but a bad patterns are baked in the cake.
I am not a big home person anymore, but I guess 4,000 sq ft looks poor to the rich & famous.
Yes, 6 kids with 5 women is messed up. Some of those women see a free ride and good genetics and throw themselves at the athletes. Some are simple drunken party one-night stands. They would really benefit from a reliable male contraceptive.
Most athletes are easy targets for scammers or people with big ideas and little business sense. They have no idea how to grow their wealth and not much training either in college or at home. I think it would be a good idea for colleges to require financial management courses for all of their athletes, but especially those in high payoff sports like football and basketball.
“Why agree to 32% of income as cost of housing?”
That is the best comment I have come across on this thread so far. It’s no accident that our family’s housing costs are on the order of 23% of our household income. We rent a smaller home than maybe 90% of those occupied by similar-sized families within a 5 mile radius of where we live. This represents a personal choice by me and my wife to make due with less living space in exchange for lower housing expenses. Any other American household is free to make the same choice we did.
Cheaper houses are out there. But most people are willing to pay about that much of their income for housing. So when interest rates went way down, and then crazy financing became available, people just bought more house. For many of them, especially people who got crazy stupid suicide loans of one form or another, they were ultimately unable to afford the payments that they had agreed to.
We’re at 21%
And you enjoy beach access. Sounds like a pretty good life to me!
True, it’s not bad. I should actually adjust that number to about 22% because I pay some really weird water fees (60/mo.) — special storm sewer and swale. Chalk it up to be 0-4 ft. above sea level.
I work with a woman who is my age (mid 40s) who bought a 3800 sq foot home out in Gainesville VA. (Northern VA - DC Metro area) She works from home now because the commute to work would be over an hour each way.
It is just her and 2 cats and a dog i think. House has 4 bedrooms, at least 3 bathrooms, basement (where her office is) and a decent sized yard. She ain’t having any kids so I don’t understand the space need.
She recently banged her finger badly fixing a window in her house and had to have a pin put in it. She got a great price on it as it was a foreclosure, but I cannot help thinking that like you say, in 10 years she will be hating the stairs. (going from bedroom ->Kitchen -> to office and back again) We are not getting any younger.
She keeps saying how much she loves it and I hope everything works out OK. She is very smart but when it comes to owning a “dream home” a lot of smarts seem to go out the window. I rent because I don’t currently have $60k down payment to buy anything and also I am trying to catch up on my 401K etc. (no debt though and 11 year old car with 15min commute) All of my co-workers look down on me in a nice way, but I figure if I cannot afford it, then I cannot afford it.
Another couple who I love dearly bought the home of their dreams - also a foreclosure - 3,200 sq ft with 5 acres of land. (4 bedrooms and finished basement - they never go down in the basement and it has started to get junky) They both work full time and have 4 mini horses and 2 alpacas. They love it out there and I love visiting them. Their commute, however, is 40miles each way in traffic. Add to that a toll each way (to save time) of $5 on our greenway expressway. Essentially they are living for the weekends. They recently added a nice swimming pool which my buddy confessed is only used only about 12 weekends per year, but which drives up their electric bill in the summer to over $600 some months.
They are doing well financially and are no where near underwater, but the one thing that worried me was after they bought this home, my friend showed me around the neighborhood to another house that was built, but then immediately went into foreclosure that had to be at least 5,000 sq ft with a barn and pool on around 11 acres of land. I thought - to myself - you just bought your dream home!
“As the life of the bubble continues the shift has gone from those eager to enter the housing market to those renters chiding those who entered the market while wishing to see them go underwater. What forces are at work here? Is it sour grapes? Is it frustration that they have taken action? Is it that they have now become part of the problem of keeping prices elevated? What would be helpful is the reasoning both sides can offer to those setting on either side of the fence.””
We’ve finally capitulated, should have a contract soon, and will be closing in late spring 2013. It’s a lot more than we ever intended to spend on a house ($254k with a new roof) and a lot more house (2900 sq. ft.) than we planned to buy (we’ll be a family of five by then). (The sellers originally wanted $285k.) This is in non-trendy Texas, where $100 per square foot is top dollar and $50 per square foot is typical in less nice neighborhoods. Here’s how this this happened:
1. The neighborhood we’ve chosen has fewer than 30 houses and my husband will continue to have a walking commute to work. We will not “need” more than one car, but we may eventually get one for convenience. Only one or two houses come up for sale in this neighborhood per year, so we can’t be that picky.
2. Our chosen neighborhood is about two miles from the kids’ school.
3. By the time we close on this house, our oldest child will be nearly 11.
4. We have a lot more money available for a downpayment than we did four years ago, when we first started being in the black and seriously saving for a house, and we’re saving more every month.
5. We’ve had a very good rental deal for the past 5 years. It’s $1,000 a month for a 2000 sq. ft. older home walking distance from my husband’s work. However, our house and our neighborhood will be demolished this summer, and there is no rental of comparable value nearby. We are going to be paying $1450 a month for a smaller duplex for the year while we wait for our future house to free up. That’s a painful thought, but it will spare us having to buy a second car right now.
6. My husband is going to be 40 next year and I’m following quickly behind.
7. When I was growing up, my parents built their first (and only) house in their later 30s, and it was a very exciting formative experience for me to be around. I think my kids may get something similar out of being around renovations.
8. Even though the mortgage will be more than I originally planned on, it will be very close to 2X income.
So, we’ve got our reasons, but buying is still a somewhat painful prospect. I like fun, I like silly coffee drinks, I like going on occasional road trips, and I know that there’s more to life than paying a mortgage and picking out tile colors. But maybe the time has come to spend some time and money on tile?
Despite our plans, it still gives me the willies when I hear about newylyweds or expectant couples house-hunting. I’ve put over half a decade into thinking seriously about schools and education. There’s no way that a young couple like that could know nearly enough about local school quality to make an informed decision about a home purchase. If they choose wrong and have to move (or can’t move), it’s a very expensive mistake.
Would you mind explaining a year long closing process? I’ve never heard of such a thing.
The sellers have been out of state and want an extra year to get situated. (We’ve known them for five years.)
No one’s going to find nirvana in a house. It may well be satisfying, but if one expects nirvana, one is sure to be disappointed. There is no perfect thing. If looking for nirvana in a house, one is sure to be disappointed. I’d suggest that one should hope it’s an improvement, and accept it with the inevitable shortcomings.
I had nirvanawith my first house, but that’s because it was so cheap, and I got so much.
Same here! Large home, large yard, 3X annual income.
The house won’t raise my mortgage like my LL did.
Lots of folks who got into adjustable rate mortgages experienced mortgage payment increases.
Taxes and insurance do increase in cost. Repairs add to the expenses as well.
Condo fees can also increase without bound, as we learned during our past stint as condo owners.
Amy P
You’re on solid ground younger lady. Congrats on the home purchase and the growing family. I am elated for you.
Thanks! It is more than we would have liked to spend on a house, but we will have substantial savings over the years in terms of gas not bought and cars not bought, repaired or insured.
Amy-
We’re in the same boat. We are going to overpay as well. Sounds like you found “home”.
You only get one shot at your children’s childhood memories. A home to make family holidays and backyard memories without a LL will be wonderful. I’m jazzed for you. You’ve done so many things right.
We’re in the same boat. We are going to overpay as well. Sounds like you found “home”.
I guess I’m going to over pay as well as long as this short sale is still on track, latest email says yes. Latest news is landlord gave us 60 days to quit as they want to move in my current rental.
cost me 7.5K to find another rental first last and security and most rentals around here are POS.
So I’m packing this will be my 5th move since I sold in 2006. PITA
Anyway Looks like you found a house finally that’s good!!
‘We are going to overpay as well…I guess I’m going to over pay as well’
The psychology here is interesting. Are you congratulating each other, lamenting or is it herd behavior?
I was stunned when I read that comment and was going to respond and here BJ already did.
Stunning.
“We are going to overpay as well.”
If you learn down the road that you are underwater on your mortgage, or that the value of your house has gone down, are you planning to complain to the local MSM about how unfair the situation is?
“We’re in the same boat.”
What if a lot more of these boats end up underwater? Or is the assumption that housing has already bottomed out at this point?
I came close — my lease is up this year, and my landlord wanted to sell. After agonizing over it, I made an offer that he rejected, he then told me his bottom line, which I could not possibly agree to, and we finally agreed to extend the lease for 12 more months, with a $100 per month rent increase. He is underwater because he borrowed against the house to buy his current one; his mortgage is twice what he originally paid in the 1990s.
I really like our house and neighborhood, I have a ten-minute commute, and just finding a rental situation I could trust was exhausting and infuriating and took almost 18 months. I don’t know if I can do it again.
I thought that by now we would have reverted to the mean. But our government desperately does not want us to revert to the mean. That’s why my down payment, sitting in a CD, has earned trivial interest for years and housing prices still do not match local incomes.
With our ever-growing downpayment fund, I don’t think we will ever go under water. It would be aggravating to see home prices drop, of course, but our losses would be in the tens of thousands, rather than the hundreds of thousands.
This is all relative. When we lived for six years in the DC area, I searched for the under-$400k-near-the-metro-good-schools home as if it were the Holy Grail. I gave up in 2007 (having seen many tiny $500k houses in so-so neighborhoods with marginal schools) and we moved to Texas. I recalibrated and started focusing on the $120k-$150k range, but didn’t really see anything I liked that was in a good location–I was just in love with the price. That price range was chosen because at the time $10k was about all I could imagine scraping together for a downpayment. $254k sounds like a lot to me today, but on the bright side, we saved $1800 toward our downpayment fund just last month. Oh, and we have $0 revolving debt–no student loan, no car loan, no carried credit card balances.
Every since Vietnam and Watergate, the curtain has been pulled back more and more. With the advent of this remarkable communication infrastructure called The Internet, information can spread farther and more quickly. What I think people are understanding is that politicians are no more “civil servants” than CEOs are. Politicians have their own interests first and foremost and since they are humans, this is expected and understandable. But their willingness to sell out their constituents, the level of their fecklessness and venality, is what is becoming clearer. You don’t have saints going into politics.
There was a great article in today’s dead tree edition of UTSanDiego on the subject of past, present and future federal government role in the U.S. housing market, which fortunately is also available online. Hopefully the UTSanDiego editorial staff will ditch DC real estate prostitute Kenneth Harney’s syndicated column once and for all in favor of more pertinent local real estate expertise, like that offered in the article posted below.
U.S. COULD RETURN TO MOSTLY PRIVATE MORTGAGES
By Union-Tribune San Diego
Originally published May 6, 2012 at 12:01 a.m., updated May 4, 2012 at 5:47 p.m.
There is an ongoing controversy over whether Fannie Mae and Freddie Mac should offer principal reduction to some of the more than 1 million borrowers who are delinquent on mortgages held by the two government-sponsored enterprises, or GSEs.
Advocates of principal reduction have long advocated more aggressive use of this modification alternative, reflecting the fact that many borrowers are “underwater,” meaning they owe more than their house is worth. Studies have shown that borrowers with significant negative equity are more likely to go through foreclosure and lose their house than those with positive equity.
But the Federal Housing Finance Agency (FHFA), the regulator and conservator of the GSEs, has argued that in most cases principal reduction would not be cost effective as the gains from delinquency cure would be more than offset by the loss of principal combined with a projected high rate of re-default by borrowers with written down mortgages.
This controversy highlights the ambiguous state of the GSEs.
Fannie Mae and Freddie Mac are government-chartered corporations created to maintain a secondary mortgage market enhancing and stabilizing the flow of funds to housing. Together they hold or guarantee over half of the mortgage debt outstanding and fund over 75 percent of new mortgage originations. The GSEs were placed in conservatorship by the U.S. government in September 2008 as losses from their mortgage and security portfolios wiped out their thin capital base. Since that time the Treasury Department (i.e., taxpayers) has provided more than $180 billion in capital to the GSEs — by far and away the largest taxpayer loss suffered in the financial crisis.
The goal of conservatorship is to “preserve and conserve,” which FHFA interprets as minimizing losses on behalf of taxpayers. The immediate objectives of conservatorship were to help restore confidence in the companies, enhance their capacity to fulfill their mission, and mitigate the systemic risk that contributed directly to instability in financial markets.
The conservatorship structure was designed to allow a temporary period for the institutions to stabilize and return to the market or to lead to their orderly disposition. However, we are more than three years into conservatorship and their losses continue to mount at the same time as they continue to dominate the market. What is the end game?
…
GSE advocates claim that without government support, the mortgage market would cease to function. But the mortgages written today are almost pristine in quality.
Stringent underwriting combined with lower house prices suggests that future default rates will be quite low. These are exactly the assets that the private sector can and should fund without government assistance.
Today there is no need for a guarantee on the majority of mortgage loans being originated. Fannie and Freddie could be shrunk to a nonsystemic level and returned to the private sector to carry on their secondary market mission without government backing.
Mortgage rates may be a bit higher, but taxpayers would have far less liability for future mistakes.
Michael Lea is director of the Corky McMillin Center for Real Estate at San Diego State University, and a former chief economist of Freddie Mac.
GSE advocates claim that without government support, the mortgage market would cease to function. But the mortgages written today are almost pristine in quality.
I call BS on “pristine” as long as average Joe(s) are still able to buy $500k plus homes.
‘More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth’
http://www.reuters.com/article/2012/04/26/us-usa-housing-negative-idUSBRE83P12E20120426
It is a sobering indication the U.S. housing market remains deeply troubled, with home values still falling in many parts of the country, and raises the question of whether low-down payment loans backed by the FHA are putting another generation of buyers at risk.
Eating our young…that’ll save us a bit longer. “F* ‘em” was how someone’s dad explained it, IIRC.
‘putting another generation of buyers at risk’
It’s just two years. It’s the same generation and the same bubble.
Since many current buyers will obviously not be able to muster the long-term financial staying power to pay off a $500K+ mortgage debt, I guess the presumption is that these new owners will eventually be able to sell for a higher price than they paid, even with 25% or so of existing mortgages currently underwater?
Good luck with that plan!
…to pay off a $500K+ mortgage debt…
I couldn’t begin to imagine a $500K+ debt noose.
“Every since Vietnam and Watergate, the curtain has been pulled back more and more.”
Watergate and Vietnam served to replace America’s naive faith in our political leaders with a healthy skepticism. Many similar revelations about top leaders in both political parties over the intervening decades have served to reinforce the trend. It wasn’t just about Nixon; it’s systemic.
Our housing journey began in 2004 with the sale of our Bakersfield, Ca home and our relocation to Salinas, Ca. We had lived in our Bako home for 19 years. Part of my wife’s relocation package was that the company would absorb all closing costs if we repurchased a house within a 2 year window. We went to the assigned RE who said that my wife alone qualified for a house purchase of 5 times her salary. I told the RE that she had a screw loose and she told me “this is the bay area not Bako. When I was interested in looking she told me not to bother her unless I was ready to buy and to pay more then the asking price. Needless to say, after I left I made sure her name got great negative reviews. In late 2008 we z
Started to get mailed postcards saying that she’d be happy to assist us if we were still looking. In the mean time my wife went into a pouty state because all her co-workers were telling her about their multipurchases and how wealthy they were becoming. I told her workers they would eat their words and they laughed, but most have not only lost their second and third house but heir primary residence as well. After about 3 years my wife stopped telling me she would divorce me if we didn’t buy. The only problem with that though is that women in general cannot just look. Women when they go to a store to look say for a dress soon forget what type of dress they wanted and are not going to leave empty handed. So too with my wife on house hunting, if you went looking and couldn’t find what you wanted she was ready to compromise which means another pout is on the way. Some times it’s better to look on your own and only take your spouse along when you have pre-screened the selections available.
Our housing bubble journey part 2:
We rented here for eight years and I thought that the way housing pricing was going it’d be another two before we would by. We rented in a new area (8 yrs ago). It was a two story (1300sf) three/2 with a two car garage (small size) for $1635/mo. All of these track homes were poorly built and during our time their the house owner we’re invited to join a class action suit against the builder for poor workmanship. You had about 7 ft on each side of your property to a shared fence, about 15 ft to the back fence and a shared front yard. The neighbour and I took turns mowing it until he and my LL got a gardener. The house (1800sf) across the street sold at peak for $649K and has since been turned into a rental after short selling. My old neighbour shoot sold his (1834sf) a year ago for $255K. Most houses in the area are being bought and turned into rental;they have basketball hoops in the street and two to 5 cars in the driveway and street. Lots more kids and more graffiti too. January of this year we went to look a houses not to buy but to check out locations to purchase if something came up. I really didn’t expect to find anything because every house but one that we looked at we’re craply built with crazy pricing. Even if the pricing was better I would not buy what I didn’t want, and I didn’t want to do any remodelling job at today’s pricing.
I showed my wife a listing on Redfin and of course she wanted to see it. I wasn’t hopeful as most of what was photographed and reality were two different things. Long story short, we looked and I was blown away; the photos did not do this house justice. This was the last house of three that we looked at and I told my RE to go to his office and write up a bid because I wanted this house. My wife forgave me and said that she was very, very glad that we waited.
“Everything has been traded for a recovery that will not be coming, in no small part because our leaders have mis-identified who is important, and condone an economic philosophy where greed has a higher value than honesty, community and trust.”
I think you nailed it. Your mistrust is understandable. There is no more anyone could say. I just wish that more and more voters pay their attention to who they are voting for. Are they intelligent and independent politicians or just agents of the corporate interests? How Dangerous is High Household Debt for the Economy explains the reasons why it is important to regulate the housing market.
My grandparents told how the system worked in the 60s. They had to save money and THEN buy the house. There were less opportunities to take the debt and not many people were doing it. So everyone bought a house that was affordable for him and the irresponsible ones just could´t afford bigger one.
“My grandparents told how the system worked in the 60s. They had to save money and THEN buy the house. There were less opportunities to take the debt and not many people were doing it. So everyone bought a house that was affordable for him and the irresponsible ones just couldn’t afford a bigger one.”
This wasn’t just your grandparents’ era. It was still the standard when I bought in 1996. Minimum of 10% down. Tax returns for the last 3 years, plus brokerage statements. Lenders didn’t want you with any other debt than the mortgage….I had a car payment at the time and they raised their eyebrows at that, even with no CC debt and a great FICO score. I remember plenty of friends not qualifying for loans at the time, because they had debt (CC, student, cars) and not enough savings, not enough of a solid track record.
This is what kept house prices in line with income for decades. People had to wait for years to be a financial position to qualify for a mortgage, it wasn’t something to wake up and decide to do. Take that away, and anyone can leverage up with very little planning.
I’m still looking at Ashland, OR as a retirement option….happily renting in the Bay Area since I sold my house in 2005, but I think it will be 2014-2015 before I pull the trigger. Still feels like quicksand to me.
“How Dangerous is High Household Debt for the Economy explains the reasons why it is important to regulate the housing market.”
The problem with this statement is that it suggests the need for more, not less, government distortion of what is intrinsically a market for private goods and services (home purchase and related services). I assume if you are bothering to post here that you realize to what extent grossly inflated U.S. housing prices reflect taxpayer subsidies funneled in through Fannie Mae, Freddie Mac, and the FHA?
If you are talking about establishing and enforcing a rule of law to protect households against fraud, then I agree. But please, no more funneling of tax dollars into the hands of “deserving homeowners.”
Part 3 our housing bubble journey:
We purchased on location, location, location, what fit our wish list and price. Location CA, location Salinas but some here say I live in Prunedale, location hilly farmland north of town. Wish list: single story, clean title, built before 1998, quality construction, good roof, turn key, large kitchen with family room, large garage 2+, bedrooms 3+, some land for fruit trees and garden, good neighbourhood without multicars in the street and not gated. We ended up with a one owner custom built (I’m told built by the best builder) 1991 home on 1+ fully landscaped acre of land with fruit trees and garden plot, a large 3 car garage, big, big kitchen with family room and dual fireplace between family room and living room, a dining room, indoor laundry room, 4 bedrooms, 2 1/2 bath, a koi pond with 19 koi, and two wooden storage sheds, and a gated community with $50/month fees. The view from the breakfast area is overlooking a meadow and the the rear view is grass and a sloping hilly area backed by eucalyptus groves. My wife after the first night here said that it was so quiet that her ears were ringing. We had a deer take a two hour siesta in the back yard, quail coming through, golden finch, retail hawks and wild turkey. We haven’t watched any tv since we moved and it’s not on the horizon. We don’t even head to the coast any more.
Part 5 our housing bubble journey: the purchase.
When writing up the purchase bid my broker asked what I wanted to put down. I said 1K and then changed it to 5K. I told him I wanted this home and offer full list price with a 30 day close and leave room to renegotiate after the appraisal. If my offer was accepted I would control things as things couldn’t go forward until I vacated escrow. It took 60 days to clear, the appraisal which included 8 comps came in $35K less and set the new purchase price. There were 3 more offers that came in the same day and after I moved in I met one of the bidders. He said, ” can you believe it, the RE asked if I was willing to put $5K into escrow, that’s crazy, no one does that.”
To clarify, 5K went to escrow and I paid cash 1/3 of the purchase price. The property owner after paying out 5% RE commission netted $50K over his 1991 price. The roof is a 50 year roof estimated life. The owners loved this place and we do too. It is turn key and we feel very, very lucky to have found it. Our PI is $35 more than our rent was, $50 more for insurance, $50 for gate fee, $60 more for water, $60 more for PG&E, and then of course $500:
Taxes. We are buying a life style for the next 20+ years and it suits us. What we did is a matter of record and is just one HBBers journey.
“We should all be able to buy houses for cash.”
–That will simply never happen. There are enough people with money to invest that prospective landlords would buy houses before the price fell to one where most people could afford to be owner/occupiers. We’ve seen way too much credit through the bubble years and we continue to see many attempting to bring back too much credit. And yet there can also be to little credit. A house is a long lasting durable item, and you have to consume housing in one form or anther. There is a real benefit to being able to live in a house WHILE you pay for it, instead of paying rent and saving for a future purchase. Just because idiots were conned into taking out no money down, teaser rate, neg am suicide loand, and other idiots were persuaded into buying bonds constructed from those loans does NOT mean that all mortgages are stupid.
And what did people do before the advent of mortgages?
For the most part, rented.
When were there not mortgages?
People paid in calves or lambs each spring for so many years at one time for the land they bought.
Lived in caves. Mortgages have been around about as long as written history.
Injecting another middleman into the process - in this case a creditor/lender - merely serves to suck more wealth away from the buyer/debtor.
However, if private parties wish to enter this arrangement, that’s the market and human enterprise at work. However, the rest of the population may take issue when they are forced to pay for the failed loans.
The current system we have has metastasized from the one in the prior paragraph to one in which the government buys and guarantees all sorts of bad loans, resulting in a guarantee of more bad loans. The net result is simple transfer payment from the public treasury to the FIRE sector. The current system ensures healthy donations to politicians from the FIRE sector as a result.
Check out the top donors from 1989 to 2012:
http://www.opensecrets.org/orgs/list.php?order=A