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‘Big mistake’ cuts my costs

That’s what I was told that buying a home in 2008 was

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POSTED July 24, 2015 7:30 p.m.

Do not buy a house.

I was told that repeatedly in February 2008.

I went ahead and bought a home.

Bad move I was told by one person the day I was loading up the U-Haul and moving from a one bedroom Laurel Glenn apartment I was paying $745 a month for excluding renters insurance to the home I now live in Powers Tract in Manteca that cost $175,000 and had a monthly payment including mortgage, homeowners insurance and taxes of $1,270. That same person said home prices were still going down, it would take decades for them to rebound and that they would never reach the market peak that they did in 2006, rents wouldn’t be going up much, and I’d get a better return on my money investing in the stock market.

I wasn’t worried. My housing cost was a comfortable — and manageable — 25.4 percent of my overall gross income. I figured home prices would still drop for while but I also saw signs that rents weren’t going to stay stagnant. Historically going back 60 years housing prices were cyclical but rents never really retreated. I saw it as a way to bring stabilization to my housing costs and to get something that I would own for my $1,270 a month payment instead of paying $745 for the privilege of living 30 days in space owned by someone else. Besides, I couldn’t live in 20 shares of Apple stock no matter how high it went.

In the following years, home prices still dropped. The assessor determined my home at one point had dropped to $92,500 in market value and lowered my tax assessment.  That, along with refinancing at a lower rate, reduced my monthly housing costs.

So how do things stand today?

My monthly housing payment has bounced back due to an increase in my assessment. The assessor says my home is now worth $173,000 — $2,000 less than I paid for it. My monthly housing costs for the mortgage, homeowners insurance and property tax payments though is $1,250 —$20 less than what it was in 2008.

The apartment I rented in 2008 now costs $1,195 a month. If you add in renters insurance it would cost me $1,230 a month to still live at Laurel Glenn.

Not much of a savings at first glance. But when it comes to my overall bottom line I’m close to $250 ahead of where I was in 2008 once the impact of deductions for mortgage interest and insurance as well as property taxes are factored into the equation.

And given apartment rents jumped 12 percent in 2013 and 10 percent in 2014, the odds are strong that by 2019 the Laurel Glenn apartment will went for $1,500 a month and that is assuming a modest 5 percent annual rent hike.

Meanwhile, given sales trends and the fact the assessor traditionally comes in on the conservative side, my home value could be $206,000 in 2019 to come back to the maximum under Proposition 13 rule. At that point I will have more property taxes and school bond assessments to pay for but it will only increase my monthly housing cost to $1,310 putting me $190 ahead per month without even taking into account the income tax advantages.

In reality, though, I could end up paying $260 less than what I would if I was still in the apartment in 2019. That’s because between making an extra payment every year and rising values I will probably be in a position to ditch the mortgage insurance.

Not bad for making a big mistake.

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