Why did I buy a house in 2006? Am I a complete and total idiot?

I purchased a house in 2006 and it is now worth abouth 4% more than what I paid. Location, location, location. Real estate markets are still very local.

That aside, if you are taking an interest-only loan or putting down less than 10% (20 is better) to lower your payments, you are purchasing more house than you can really afford!

Western Pa...you probably bought your house for 100k...western pa is ten years behind in housing prices--lucky you.

No it is not about location, location, location... Prices in some of the most desirable places to live San Francisco have fallen since 2006... and I guarantee you given the choice between pac heights in sf and anywhere in western pa., most sane people will tell you the pac heights location is a bit betterit is about supply and demand, valuation, expectation...there will be some price, i don't care where it is, where a piece of land will be a good investment, and simiarly there will be some price where a piece of land or house is overvalued

westrn PA wrote:

I purchased a house in 2006 and it is now worth abouth 4% more than what I paid. Location, location, location. Real estate markets are still very local.

That aside, if you are taking an interest-only loan or putting down less than 10% (20 is better) to lower your payments, you are purchasing more house than you can really afford!

You are helping to make my point that the value may never come back enough to make up for the cash going out.

This could be a lifetime commitment of losing $800/month just to not jeopardize the credit score.

Houses need to be valued where you can make an affordable payment on a normal mortgage. That usually means the value should be no more than 3 times the household income.

If the medium household income is $50K (which it is) then the medium home sale should be $150K (which it isn't).

Either home values have to go down or income has to come up. I don't think income is on the rise now.

Lowering mortgage rates and/or extending home buyer credits artificilaly inflates home values and it cannot be sustained.

The government will likely have to make some kind of rescue, though as many people are due to be evicted. There will not likely be help for those not living in the homes they own like the OP.

Home ownership will go down. Banks and those with negative equity but still paying the banks will continue to suffer all the losses. But the banks are being rescued.

toro, I agree with you that home values to income ratios have to come down... of course, this is very similar to p/e ratios in the stock market. In 1999 everyone should have know that p/e ratios of 23 and up could not possibly be sustained. P had to come down. Same situation in housing, except the home value to income ratio is likely to be even more 'disciplined'to this point,"You are helping to make my point that the value may never come back enough to make up for the cash going out.This could be a lifetime commitment of losing $800/month just to not jeopardize the credit score."possibly true, maybe he would be better off defaulting... unless he plans to move though he shouldn't even worry about his home price, which brings me back to my first pointlive in your home, make money at work

He has already moved with his new wife and rented out the house.

The mortgage is $780 more than the rent he is receiving.

That is correct supply and demand and and expectations varry depending on the location.

You are right, I'd rather live in San Francisco....if I were queer.

[quote]anEconomist wrote:

No it is not about location, location, location...

Prices in some of the most desirable places to live San Francisco have fallen since 2006... and I guarantee you given the choice between pac heights in sf and anywhere in western pa., most sane people will tell you the pac heights location is a bit better

it is about supply and demand, valuation, expectation...

there will be some price, i don't care where it is, where a piece of land will be a good investment, and simiarly there will be some price where a piece of land or house is overvalued

[quote]

didn't read that part, my bad

toro wrote:

He has already moved with his new wife and rented out the house.

The mortgage is $780 more than the rent he is receiving.

that is your best come back?

westrn PA wrote:

That is correct supply and demand and and expectations varry depending on the location.

You are right, I'd rather live in San Francisco....if I were queer.

[quote]anEconomist wrote:

No it is not about location, location, location...

Prices in some of the most desirable places to live San Francisco have fallen since 2006... and I guarantee you given the choice between pac heights in sf and anywhere in western pa., most sane people will tell you the pac heights location is a bit better

it is about supply and demand, valuation, expectation...

there will be some price, i don't care where it is, where a piece of land will be a good investment, and simiarly there will be some price where a piece of land or house is overvalued

[quote]

Yeah, that's it.

anEconomist wrote:

that is your best come back?

[quote

Florida - you may be in the worst spot in the country. The value of your condo's not going to recover until most of the foreclosures have sold. However, the fact that similar condos aren't selling even at $150,000 gives you a strong argument for reassessment. Sorry to say this, but it sucks to be you. If I were you i'd try to rent it out if you can afford to pay the taxes, fees, etc. If not, try to work out a short sale with the bank.

Why do people keep saying this? The value of his condo may not (and in fact is likely not to) recover. At least not for a very long time.

Blowing Rock Master wrote:

The value of your condo's not going to recover until most of the foreclosures have sold.

anEconomist wrote:

Live in your home, make your money at work.

Don't worry about your home's value.

This is the correct way of thinking. Home value, schmome value. The value of a home might help you out when you're 90 and need to move into a nursing home -- then you sell your house and use that money to help fund your expenses (hopefully you have other investment money then too). BUT, most people actually DON'T end up in a nursing home. Assuming you don't need that kind of care, it is best to just pay the house off and LIVE in it. With it paid off, your monthly expenses go down considerably.

This home owner and others really got themselves into trouble when they took out an interest-only loan. Interest-only, ARMs, subprime...all bad. A conventional loan with a FIXED rate is the ONLY way to buy a house. So, the OP is not an idiot for buying a house in 2006...he is a candidate for one though for taking an interest-only loan out, and should be carefully considered for being one for letting a Realtor talk him into anything. Realtors ALWAYS think it's the perfect time to buy. That's how they make their money.

If I woke up in this guy's shoes, I would do the following:

Try to get a short sale. It will ding his credit, but really, who gives a crap. If he wants to live with the new wife, then just sell the house at a loss (or a short sale) and get on with life. Dave Ramsey calls that the "stupid tax". Well, he has to pay the stupid tax.

In the future, he should ONLY buy a house with a conventional fixed rate mortgage that is no more than 25% of their take home pay. To be rid of mortgage woes, it is best to pay that damn house off with any extra money you have (above the 15% that should be going to retirement accounts). A falling house value doesn't have to cause hardship for people. My house has risen and fallen in value since I bought it in 1999. I couldn't care less. My fixed rate mortgage is the same, and my payoff figure gets less each month. When my house rises in value, so do all the other houses in the neighborhood. When it falls, so do all the others. It matters not.

I love seeing idiots like you crash and burn...i hope you suffer.

Flagpole you live in a box - insinuating there is only one way to do things.

You were lucky you bought in 1999 - not smart.

You could not have done the same thing if you were looking to buy in 2006 unless you were selling a home and then buying.

Spare us the ONLY's.

Most people don't buy one house and live in it until they are in their 90's.

In many cases it is better to invest any extra cash and take the tax deduction on mort interest - NOT pay down the mortgage which you should be paying a relatively low interest rate on.

Life is dynamic. Different people have different situations. That's why there are CHOICES.

I agree with the short sale but don't tell me you would have found a better way to buy a house in 2006 given the same circumstances of being a first time home buyer. If you offered a fair price they would just go to another buyer. You would have had to rent - which as I mentioned earlier, would have been the best thing looking back.

There was nothing "lucky" about not buying in 2006. In my area, the average home price more than tripled from 1999 to 2005. Did wages also triple during that time period? No, of course they didn't. The metric I use is "2.5 to 3 times net salary = home price." That's pretty standard. So in 2006 I could have afforded a $120,000 home. There weren't any of those around, so I didn't buy. Why were my coworkers buying $500,000 homes? It sure wasn't because they had the money. Now home values are dropping and they're in foreclosure and this is supposed to be a big surprise?

Too many people bought into the "real estate never goes down" hype. There was no fundamental reason why prices should have been so high. Anyone with half a brain (which I guess most people don't have) saw this. It's why I'm still renting. Why would I buy a house today for $300,000 when I can buy it a few months down the road for $250,000, or even cheaper?

1) Deciding to get a FIXED RATE loan was NOT luck on my part brother; research and a sound financial decision. That is the ONLY way a person should buy a house...that was true in 1999 and true in 2006. Some things deserve an ONLY brother, and this is one of those things.

2) Look at all the people who took out interest-only loans or some other crap loan with the hopes of selling their house in 5 years for a big gain or investing the money instead of paying down the mortgage. Sorry brother, but interest-only loans are stupid to the nth degree. A home purchase is the biggest purchase most people make, and to play around with potentially being in a tough spot when the price drops -- well, that's just foolish. Price drops for my house, then it doesn't affect me one way or another.

3) I didn't rip the guy for renting his place. If he has to do that for a while then he has to. I just said it was not smart to get an interest-only loan...and it wasn't.

4) I don't require that people stay in their house until they are 90. I won't. I'll probably sell it in 17 more years when I retire and move south. People really should NOT buy a house unless they PLAN to stay in it for 15 years. Plans can change, but deciding to buy a house and stay in it for 5 years or less is crazy...unless you throw a ton of money at it so that even if the price drops you still have equity and aren't left with a big bill when you sell.

5) Yes there are choices -- good choices and bad ones. Getting a loan that is anything other than a fixed rate loan is a bad choice. What if you plan to be in a house for just 5 years so you get a 5 year ARM? Well, what happens if in 5 years the market is horrible and you can't sell it? Then the rate adjusts up and you're stuck with a way bigger payment.

I'm not against investing, but there is a proper order.

1) Emergency fund of 3-6 months.

2) Invest 15% into retirement accounts (401k and Roth IRA); do the 401k first up to the match then to the Roth IRA and then if anything is left, back to the 401k.

3) Buy a house with a fixed rate mortgage that costs 25% of your take home pay or less per month.

4) Got all the things above in place then either throw more money at the house (this is wise at this point -- get that mortgage gone...opens up a TON of possibilities in your later working years if you have no mortgage payment), OR start a non-retirement mutual fund. Either way will allow for some extra money the last 5 years before you retire so that you can either retire early or go part-time or take a dream job even if it pays less, or just have more fun or pad the retirement accounts even more.

The "lucky" part had to do with buying in 1999 as opposed to not buying in 2006.

And I stressed he could not buy in 2006 with a normal mortgage as you did not.

There are many benefits to owning a home if you were "lucky" enough to be able to buy when the prices were reasonable.

anEconomist wrote:

Why do people keep saying this? The value of his condo may not (and in fact is likely not to) recover. At least not for a very long time.

I don't know about everyone else, but I have two reasons.

1. The real estate market, like everything else in the economy, moves in cycles. The top seems to have been in 2006. If the OP's condo is any indication the market in Florida has fallen 44%. If it's not at the bottom now it must be close. I'm not saying it'll be worth $250,000 again next year, it could be 10 years or longer, but barring the government really screwing things up prices should start going back up in 2 or 3 years.

2. It sounds trite, but they're not making more land. The population keeps growing, especially in Florida. More people mean more demand for homes. Right now supply has outstripped demand, but this won't be a permanent condition. Sooner or later the condition will reverse and then prices will rise.

Sorry if it appears I'm trying to give you an Econ 101 lesson (obviously you don't need it), but that's the reasoning behind my assertion.