Home ownership at any cost - Is it worth it?

[disneysteve]

Maybe they save frugally and have hundreds of thousands in retirement?
Maybe they put more than 20% down to lower their monthly payments and make a decent salary.

I work in one of the poorest cities in America. I doubt that I have a single patient with hundreds of thousands in retirement and only a handful who earn 4-6K/month. The median income in this town is $27,000. 40% of residents live below the poverty line.

I think investing in a home is always a good idea in the long run.

There are millions of homeowners in Florida, Arizona, California, Nevada and other places who would strongly disagree with you.

[28andlearning]

I work in one of the poorest cities in America. I doubt that I have a single patient with hundreds of thousands in retirement and only a handful who earn 4-6K/month. The median income in this town is $27,000. 40% of residents live below the poverty line.

Could they have moved from somewhere else since they are retiring? Maybe all their money is tied up in stocks like Warren Buffet? Haha, I am seriously playing devils advocate here. Love forums, because its all about someone's view.


There are millions of homeowners in Florida, Arizona, California, Nevada and other places who would strongly disagree with you.

I bet they would. I bet they overlended themselves and cant pay their mortgage now too.

I should have clarified and said if you can afford a mortgage.

[disneysteve]

I bet they would. I bet they overlended themselves and cant pay their mortgage now too.

I should have clarified and said if you can afford a mortgage.

There are many, many people who bought homes they could afford and still got screwed. They did everything right, put down 20% and then watched as the value of the house dropped 50%. So if you paid 300K with a 240K mortgage, you ended up with a house only worth 150K but still had that 240K mortgage. If you don't need to move, you can just hang on and keep making the payments, but I'm not sure I'd call that a good investment. Plus, you may find yourself surrounded by vacant homes that people walked away from or got foreclosed on, making the neighborhood a shell of what it once was. And if you do need to move due to changing family needs or a job transfer, then you're really out of luck.

[28andlearning]

Steve:

My rebuttle would be that you are looking short term... The housing market has flopped and its been like what maybe 7years since the market took a dump? Realistically it's only been in the last 3-4 that its been bad... I don't see that as long term.

Lets see where they sit in another 15years or so if they were to hold on to the house.

[dczech09]

I look at some of the people I went to high school and college with. They are all rushing to buy house because it is "expected" of them. They feel the pressure to be a homeowner because it has become a genie in the bottle type of thing.

"If only I had a house! Then my life would be rockin'!"

I did a series of blog posts where I visited "renting versus buying." Most of my peers probably did not listen to a darn thing I was saying. However, I know of a few who have sent me messages saying they are in the same train of thought as me.

Sadly, we people who don't rush into things are the minority. The overwhelming majority of people just go along with what the rest of the crowd does with no original thought.

"Everyone else is buying, so I should too!"
"If the loan officer says I can afford it, it must be true!"
"The housing prices are going to keep going up, so I better buy now!"
"Rates have never been this low, so I better lock in!"

Then later it is...

"That guy who said take your time with buying a house was right..."
"Ugh! I am underwater!"
"If only I could sell this house, then my life would be rockin'!"

It is as Buffett has said: be fearful when others are being greedy; be greedy when others are being fearful.

[dczech09]

Steve:

My rebuttle would be that you are looking short term... The housing market has flopped and its been like what maybe 7years since the market took a dump? Realistically it's only been in the last 3-4 that its been bad... I don't see that as long term.

Lets see where they sit in another 15years or so if they were to hold on to the house.

Great point! But I have a rebuttal.

Most people do not look long term; they focus on the short. For instance, someone buys a stock and as soon as it drops 5% it is time to sell. They cannot fathom holding onto a share of stock that dropped due to normal market fluctuation.

So when their house drops precipitously in value, they want out as soon as possible. Most people do not have the guts to ride the waves of the stock market. It should not be a surprise that most are not willing to ride the waves of the housing market with what is likely their largest "investment." (Note how I used quotations! )

[disneysteve]

My rebuttle would be that you are looking short term...

Lets see where they sit in another 15years or so if they were to hold on to the house.

You are probably right but what about all of the people who can't hold on for 15-20 years? People change jobs. Couples get divorced. People die. Families grow. Neighborhoods change. There are a lot of reasons why people move and sell their homes and not all are by choice.

I've also ready plenty of stories of how neighborhoods that were once thriving became near-ghost towns when all of the foreclosures hit. Crime rates skyrocketed. Vacant homes were getting broken into to steal anything there was to steal. Lawns overgrown. For those who were left in the area and not in financial difficulty, it still became a pretty undesirable place to live compared to what it had been when they bought the place. Folks like that might not want to hang on for 15 years to see it recover.

I just don't think it is accurate to say that buying "a home is always a good idea in the long run." And actually, you didn't say buying, you said "investing." Your home is absolutely not an investment, or at least it isn't a very good one, but I don't consider it to be an investment at all. Going back to your 15 year plan, if that house you bought for 300K is now worth 150K but you hang in there and it appreciates at a great rate of 5%/year, it will take nearly 18 years to get back to what you paid. Add in 3 or 4 years during which the price initially dropped and you now have a 20+ year return of 0% before expenses. Do you still think that purchase was a good idea?

[Barclay]

Noone has ever gotten rich from savings account interest. I personally think the housing market is at the bottom (or darn close). There are fantastic short sale and foreclosure deals out there. People who take risks right now, may very well end up making a boatload of cash over the next few years. And the properties can be rented out until the market values return. Rents are at all time highs where I live.

[elessar78]

I researched extensively before we bought in the six years since we started dating.

People's arguments generally fall into "well you can do what you want with the place . . . paint walls, etc" which seems trivial to me. Or it's a good investment which to me is a lot of rationalizing.

Buying a home is about shelter. Having a place to live. People confer a lot of things on their homes like memories, security, freedom which is worth something but it's not really monetary. People who live in recession-proof metro areas like DC seem to forget that there's a whole rest of the country out there.

People talk about maintenance costs but generally forget about taxes (school and property). They forget about opportunity cost, the ability to move to a higher paying/more ideal job on a whim. They don't factor in what inflation does to the value of their home. A $300,000 home purchased in 1998 would be just under $400,000 in 2008 dollars. So the $100,000 in gains is more or less an illusion.

All real estate is local. It's dangerous to try and apply national statistics to what is going on in your neck of the woods. Or to say that what is true in your part of the country is true for mine.

It's a touchy subject. People who bought with the belief that it was an investment vehicle will be hard pressed to believe otherwise.

Like I mentioned before, there was always stigma amongst our peer group and family about why we weren't homeowners 4 years into our marriage. I think people don't look deeply enough into commonly held beliefs.

[elessar78]

Noone has ever gotten rich from savings account interest. I personally think the housing market is at the bottom (or darn close). There are fantastic short sale and foreclosure deals out there. People who take risks right now, may very well end up making a boatload of cash over the next few years. And the properties can be rented out until the market values return. Rents are at all time highs where I live.

You're just touching on a lot of hot button issues.

No one may have gotten rich off of savings account interest, but that's basically the foundation of wealth. No one here said park your money in a savings account. Just because you don't buy a house doesn't mean you just sock extra money into an SA.

There's absolutely no way of knowing where the bottom of the market is and on some level the bottom of the market is irrelevant. The Fed just released gloomy forecasts for unemployment next year, if unemployment is high the economy in general will be more cautious about buying and renovating homes.

Risk . . . it's not something you take, it's something you mitigate.

There's not an endless supply of renters plus most sign leases so there really isn't much mobility in that regard.

[Barclay]

I live in a fantastic area that really does have an endless amount of renters....and I love leases with direct deposit. I see a great deal of opportunity in this market right now.

This type of investing isnt for everyone, but i wanna be a billionaire so freakin bad

Just like the buffett quote be greedy when everyone is being fearful.

[terces]

All real estate is local. It's dangerous to try and apply national statistics to what is going on in your neck of the woods. Or to say that what is true in your part of the country is true for mine.

So true. The house we sold in CA has lost half its value since 2005. While the house we bought in Texas has maintained and even increased a tiny percentage since then.

[JoeP]

So true. The house we sold in CA has lost half its value since 2005. While the house we bought in Texas has maintained and even increased a tiny percentage since then.

Doesn't this say that the houses were overvalued to begin with? I look at houses in CA similar to mine that sell for $600k, and just shake my head in disbelief. Who are these people buying homes for these kinds of prices? What do you expect to happen when the bottom falls out?

[NuggetBrain]

All I know is the same people who were giving us piles of crap for not buying into a "hot market" in 2004, 2005 are underwater in their homes now, or defaulted, or took a big loss when they sold. One of them bought a home ten years ago for $200k. It was valued at $99k when he went to try and sell it a few months ago. They're so far underwater on their loan it's horrible. Not to mention it was just them as a couple when they bought it. Now they've got two boys, and it's the same square footage as my old apartment only split between two levels. I look at homeownership as I do at renting - I'm paying for a roof over my head. Sure, if I sell the house after 30 or 40 years I'll get some money back. But I doubt the amount back will make up the interest I paid to stay there.

[maat55]

That's true. That's why the ones who should know better - the lenders - need to do the right thing. Telling a couple that they can "afford" a mortgage with a monthly payment of 45% of their income should be illegal. Letting people buy homes with 0% down or purchase prices of 5 times annual income shouldn't be possible. The average person doesn't know better. They depend on the professionals to give educated guidance. When those professionals are operating purely out of greed with no regard to the numbers, the system falls apart, as it has in recent years.

Is your lender, in any way, tied to a GSE?