The naysayers were insistent.
Only a fool would buy a home in 2008.
Their argument was simple. Homes as an investment was a bad long-range strategy, Prices were still falling. People were losing their homes. House values would never ever be the same.
I ignored those assumptions. The reasons I’ll explain in a second.
But first let’s see what I was paying for housing in January of 2008 when I finally decided the time had come to stop renting.
I was paying $845 a month for a two bedroom, one bathroom apartment at Laurel Glenn with 801 square feet. Add in my rental insurance and I was paying $860 a month for housing. My rent was about to go up to $865 a month. It was clear unless I stabilized my monthly housing costs that it would continue to rise going up faster than any potential wage increases.
I ran numerous scenarios and concluded that by January 2013 I’d be even in housing costs if I bought.
I opted for a 990-square-foot home with two bedrooms and one bathroom along with a carport, garage and a 5,000-square-foot lot for $184,900. My monthly housing payment including mortgage insurance of $76 a month that will go away when I exceed 20 percent equity plus my homeowners insurance and taxes comes to $1,191.
The same Laurel Glenn apartment that I rented six years ago is now $1,185 a month. So for $6 more a month I’m get 190 more square feet, plus a garage, and the ability to do what I want with my living space.
But in reality I am saving at least $200 a month. That’s because mortgage deductions from buying reduces my actual taxes by a little over $200 a month.
Yes, I do have city utilities that come in under an average of $90 a month. But even so, I am $100 plus a month better off today than I was seven years ago.
But that’s just the beginning. Let’s go back to what the naysayers were saying.
1.Homes as an investment was a bad long-range strategy.
A home that you yourself live in is a house first and foremost. I read all the Wall Street strategies who pooh-poohed buying a home as it tied up too much capital saying the stock market was a much better place to put your money. But have you ever tried to live in stock?
The late Norman Gould, a Manteca accountant and investment counselor, had it right when it came to buying a home and most Americans. Home ownership is the foundation of your investment strategies.
That rings true even in most cases if it is your only investment. It stabilizes your monthly housing expense as you aren’t subjected to annual rent increases. If you doubt that, go talk to someone who has 10 years left on their 30 year mortgage. A neighbor pays $450 a month for a house bigger than mine and has about eight years left to pay. When she took out the mortgage it was a large chunk of her income. But new even in retirement with less money coming in from her small pension and Social Security, her housing costs are actually a lower proportion of her monthly income than they were when she bought 22 years ago.
A typical one bedroom, one bathroom apartment in Manteca would cost her $925 a month or more than double her current monthly housing costs.
2. Prices were still falling.
They had that one correct — at least for a while. I bought at $184,900. The buyer before me had paid $325,000 in 2004.
Based on the assessed valuation, my home dropped as far as $92,000 a few years back. This year the county assessor says it is worth $122,000. Based on recent market comparables for two bedrooms and one bathroom homes, the market value is somewhere between $145,000 and $160,000. And while I’m still under what I paid for it, the market is trending for the value to be regained in the next two to three years if not sooner. And if the market heats up again, smaller homes that tend to be more affordable for more people for obvious reasons will do what they have every time a housing boom is underway when demand exceeds supply — their prices will escalate faster than larger homes.
3. People were losing their homes.
This is going to sound a tad rough, but aside from a job loss, serious wage reduction or some other financial catastrophe losing their home was a situation most people made possible.
The foreclosure pile was full of people who secured liar loans knowing full well that they didn’t have the stated income on loan documents they signed. Of course, they were confident they could either flip the house and pocket the equity in a matter of years of not months or else they would use growing equity to secure a line of credit to propel them forward.
All of what happened should be called gambling as it was no different.
There is a standard rule that your monthly housing costs whether you own or rent shouldn’t exceed 30 percent of your net income. There are numerous cases of people with liar loans who actually had monthly housing payments well past 40 percent of their net income. You have to have money for other things, it is as simple of that. Of course there may be exceptions as someone who walks to work and doesn’t ever use a car but they are far and few between.
4. House values will never be the same.
I hope not. The same the naysayers were referring to was the $425,000 median for Manteca when the median household income in Manteca was at $62,500 in 2006. That put the price of the median home at 6.8 times the median income. Economists have long used median house prices at 2.5 times the median income as the benchmark for a region’s affordability when it comes to being able to buy a home comfortably.
More stable and gentle annual value increases may not turn your home into a slot machine for you to take money out of but it provides a sound financial footing for the long haul. And that also bodes well to a degree for renters.
Today is not 2008. The market is different and so is the economy.
But time changes things.
That’s why if you have any desire to buy a home or are being squeezed financially by raising rents you owe it to yourself to start thinking seriously about your options.
Internet websites are fine, but to get a real good snapshot of where you are at you still need to sit down with a mortgage lender to go over your financial situation, options, and what you can do to position yourself to be able to buy a home. You have to be willing to have a candid conversation about your financial situation as well as your spending habits. There is no cost but the information you will gain is priceless.