Posted on 01/24/2015 9:26:07 AM PST by Kaslin
Where I live they are building houses again. The neighborhood beside me should have been built 5 years ago and finally the bulldozers are in motion again. But don’t call it a recovery. There is no vibrance in the market. Just a subset of people escaping places like California with solid state jobs at the University.
But even here there is concern. 2 years ago the builders began again, thinking the market had finally turned. But after a brief uptick things settled down again. The all cash buyers disappeared and all that was left were regular people who actually needed mortgages.
And getting a mortgage is still pretty tough as the attached article outlines.
But I believe a small part (but a growing part) of the ongoing housing chill is that many people have finally seen through the rather idiotic obsession with always living in the largest house one can afford – or in many cases – one can not afford.
In the run up to 2008 millions and millions of families were house poor. They had nice big, brand new homes, but they lived on credit and clung to the idea that they could always refinance all the debt they were racking up because the “value” of their homes continued northward.
Then the crash came. Then reality came. Then the foreclosures came. Then the insecurity came. Then the woe came.
In the wake many people learned that having the biggest house possible is actually pretty stupid. Many people looked around and thought to themselves, “You know the place I live in is pretty nice. I should camp out here for a while.” And that’s what they’ve done. I know a good number of people who have embraced this perspective.
Many folks have learned the value of being “house rich.” That the additional 200 square feet in closet space can translate into the cost of a week long vacation at the beach or on the slopes many years. That an extra bedroom means the difference between generally making it from month to month and consistently putting significant money away in savings.
This, in addition to a generally tenuous economy – even though the president on Tuesday said the “shadow of crisis had passed” – is I think a key part of why housing hasn’t taken off like the realtors and the developers had hoped. At least some people have gotten wise.
This, despite the fact that it retards the sales of new houses is actually a deeply positive development. If more people embraced a “house rich” perspective – and my sense is more and more people are – we might be able get our act together as a country.
Rampant credit driven consumption is not the cure for what ails us. A reality based economy, one in which credit is a tool but not a drug, is however.
Escaping? Or metastasizing?
I’ve owned 3 houses over the years. Never refinanced or took out a second mortgage. I looked at a house as a place to live not an investment. I don’t understand the mentality to tell the truth.
I did finance all three though. From what I understand I would probably have a hard time coming up with the down payment and jumping thorough all the hoops to qualify. Thanks Washington!
Do you think all those “cash buyers” were investors? Friends of mine still in the business in Houston have been telling me over the past few years that cash buyers are the norm. If they’re not investors, where are they getting the money?
My neighborhood is finally almost built out. The builder was rocking and rolling for a year but the last ten homes or so have taken them a while to sell.
Sub-prime mortgages are back through a new FHA program. Good credit not required.
Many people made a lot of money on smaller houses they bought to live in. Then they figured that if they could make $100k (after a number of years) on a $150k home, why not scrimp to buy a $300k home and make $200k? They thought that what had happened would continue to happen.....
I don’t mind if people think they have to have an 8,000 square foot house with a Bentley and a Ferrari as long as they’re working for it. I don’t even mind if they inherit the money. if you steal from a business or government to get that stuff, then you need to go to prison. There’s way too much stealing going on in this country.
It will happen again. But you have to be able to “time the market.” Most folks don’t because they buy high and sell low, instead of the other way ‘round.
In our area very little construction. Mostly we are seeing one or two houses being put up on the last two lots in the SD or a SD that has sat idle for year will put up a few spec homes.
The Tiny Home movement is an outgrowth and a reaction to the bigger is better trend.
For singles, young couples and older empty nesters, the truth isn’t how much square footage you need but how well the square footage is maximized.
And you don’t want to be house rich and cash poor. For some people, being a home outright eliminates a mortgage and you can use the cash for other purposes.
Makes sense which is why big homes are going unsold. The glut of inventory exists because few people want to take on big mortgage payments.
“They thought that what had happened would continue to happen.....”
Well, in some places it has. We bought our first home here in Northern California in1968 for $30k. Lived in it for 12 years and sold it for $190k. Bought an acre and a half and built a new place (with 18% money, thank you Jimmah Cahtah) for about $325k. The house across the street just sold for $2.1 million. And thanks to Prop 13, our property taxes have remained low so in retirement we can still afford to live here. California real estate has always been good, just better sometimes than others.
And there's the problem right there. You screw it up, you stay in it.
I offed my McMansion and completely downsized.
Now I live in a small home, on a couple acres down a dirt road. And the best is - NO Mortgage.!!!
Don’t want to worry about payments especially as I get older.
One of my friends once said:
“You don’t own a big house, a big house owns you.”
I refinanced my previous house 2 times. But in each case, it was to get more favorable terms -- that was a period that interest rates were dropping gradually. I didn't take any money out and spend it on something else.
I eventually paid off the mortgage altogether. Since there was so much money locked up in it, I opened an equity line of credit, but only used it once to finance a the last 25% of a car -- the interest terms were much better. I didn't want to liquidate any more investments, as it would have cost too much in taxes.
I recently bought a new house and have a mortgage, even though it wasn't really needed. With finance rates below 3% at the time, it's practically free money. And with a 15-year term, it won't take very long to pay it off.
Qualifying for a mortgage wasn't hard at all. If you have a record of paying your bills on time, aren't already servicing a lot of credit (I pay off credit cards every month, and have no car loan), and buy something you can afford, the mortgage companies will fall all over you -- they want quality customers.
As the author says, buying a bigger house (or in a more desirable location) means you have to make sacrifices elsewhere. But, if you are realistic about your budget, and don't live paycheck-to-paycheck, it's much better than renting.
They are probably downsizing or making a lateral move, using the funds from a house that is already paid off.
As I posted above, I did exactly that and could have paid cash. But, I chose to finance at historically low rates. So far, I've gotten a much better return on the money from the sale of the last house.
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