Others on Ms. [Shana] Richey’s block have made similar moves [to default, and then to rent]. Mr. [Jay] Fernandez, the firefighter, moved into 3139 in July, after stopping the $4,800 monthly payments on the home he owned around the corner on Champion Way….
With an income of about $8,300 a month and a rent of $2,200, Mr. Fernandez says he now has the wherewithal to do things he couldn’t when he was stretching to pay the mortgage. He recently went to concerts by Rob Thomas and Mat Kearney. He also kept his black BMW 6 Series coupe, which has payments of about $700 a month.
“I don’t know if I’ll buy another house again, because it’s such a huge headache,” he says.
My grandfather (1885-1977) raised three children in the ’30s depression on $1,300 per year — roughly $20K in today’s money. When I was a young man in the ’60s he repeatedly told me “Every debt is eventually repaid, either by the borrower, or the lender.”
As a 14th-generation Anglican he made it very clear to me that I had better be careful in contracting any debt because Christians are bound as witnesses to repaying their debts. Walking out on debt was not an option, and I eventually covered a six-figure debt, even though slipping away would have been easy.
That said, the question really settles in on: What is a house worth as a place to live? It is indeed defined by rent. Whatever a house would rent for, per month … add two zeroes and that is the [i]maximum[/i] it is worth as a shelter. Eighty times rent is better, and 60 is about the minimum.
So in this case, what’s [i]your[/i] house worth? Anything above the 100x figure is pure and absolute speculation. It is fluff. While having my own opinions about walking away from financial obligations, the key question is where the homeowner sits on the value spectrum.
Unless you plan to be in your house for a very long time, you should consider unloading it at any price you can get that’s reasonably above the rental multiple. House prices will most definitely return to some reasonable multiple of rental value.
It took almost a century for houses to return to the inflation-adjusted values of the last housing bubble in the early 1890s. If you bought a house in most of the US after 2003, you are [i]NOT[/i] going to wait this thing out.
“”I don’t know if I’ll buy another house again, because it’s such a huge headache,” he says.”
I don’t know that this man was one of those who was permitted to take out a mortgage through the Congrssional efforts of the likes of Congressman Barney Frank, but his comment makes a point regarding a person’s suitability as a home buyer.
While it is the right of individual Americans to purchase whatever home that is available in the market-place, it is NOT the obligation of other Americans to subsidize the home purchase of an individual who is not prepared financially and/or psychologically to purchase a home.
And the large-scale purchase of homes by the financially and psychologically unsuited, as adamently and irresponsibly encouraged by Congress, was a major contributing factor to our current real estate crisis and the larger financial mess that we are now experiencing.
Renters & proud of it. ‘Been trying to explain this to people since 2000 when we bought gold instead of real estate, thank you very much. A house is a house is a house.
“These are ‘good’ people.” Just cheaters. And poor managers of their resources. The one lady is considering defaulting on her two rentals, too!
We are studying the Commandments.: Do not steal. Honor the Lord. Do not lie or bear false witness. Do not covet.
Seems these folks have never heard of them.
“It took almost a century for houses to return to the inflation-adjusted values of the last housing bubble in the early 1890s. If you bought a house in most of the US after 2003, you are NOT going to wait this thing out. ”
The key point is “inflation adjusted values”. At a time that the dollar is being printed into oblivion, (having already lost 96% of its value since 1934) housing does remain something of a store of value, at least if it is paid off. Money in a bank may decline precipitously or even be frozen. Gold may be confiscated, as happened before. I have two homes (both paid off). I don’t plan to sell either unless I buy another to replace it as I wish to be able to give a home to each of my kids (I will probably by a small one on a farm for myself). The “paper value” of such property may be much lower in 10 years than the price I paid for it, however it will still be shelter. In other countries, once a nation is a “nation of renters”, all of a sudden owning homes becomes the province of the “rich”. Either the house value increases or wages simply sink to below ability to buy (more often the latter). Then one gets to deal with the problems of having landlords (which America does not remember because the high rate of home ownership has made landlords fairly benign in the US, at least in recent years).
$8,300.00 a month for a firefighter? No wonder California is bankrupt.
Evan, they can make even more than that in San Francisco (as can the bus drivers)…
Elves,
Could you please remove the “=” line again?
AnglicanFirst,
The autoformat for the comments section seems to use spaces between words to put in line breaks to keep comments within the section. However, when you run the “====” line, it treats this as one word, and resets the margin outside of the comment area and into or beyond the side bar (making the comments extremely difficult to read). If you [b] have [/b] to use “=”s, could you limit them to 10 or 15?
[Done – Elf]
If you know you can’t afford to buy a home, don’t buy it…….no matter how much you think you need it. Don’t buy the house you’d like to have……buy the house you can really afford. If you have a downscale income, don’t buy an upscale house. In other words, [b]use common sense[/b].
Clueless: Right idea. Wrong conclusion. Houses are a [i]terrible[/i] store of value if you buy near the peak, as in 1890 or 2005. Adjusted for inflation, anyone who bought a house in 1890 was horribly underwater until about 1946, except for a couple of years in the early ’20s when they were just badly underwater.
As a store of value, housing didn’t get back to its 1890 levels until about the mid-1980s. That is [i]not[/i] good protection against inflation. Phrased another way, housing bought in the 1890-era bubble dropped back to its intrinsic value as a place to live and more or less [i]stayed[/i] there for at least two generations.
I expect something similar in our current situation. Houses in some areas are getting down to the low-100s multiples, which means they’re getting close to cash flowing — as long as you don’t count repairs, maintenance, property tax, and vacancies. That will most likely remain the normal configuration for at least a generation.
Location still matters. 25 years ago a small older brick ranch 5 minutes from downtown Charleston SC sold for about 150 times the monthly rent. Today, AFTER a 25-30 % downward correction, that house will still sell for over 200 times the monthly rent.