What to do about a house?

[Jayhawk]

Re: What to do about a house?

Thanks for the advice and the personal stories...I was hoping to get a feel for how people have been reacting to this housing bubble. I know if the book, America's Bubble Economy, they didn't come right out and say to sell you primary place of residence. They were more focused on getting out of real estate investment properties, etc.

A little more background on my situation.

We bought this place late 2006. It's in an area North of Colorado Springs. The local economy is heavily influenced by military...There's another 10K plus troops coming in during the next few years. The Air Force Academy is right down the road from us. The place we bought was on the way down from the peak prices out here, but we just got in on the high side. We selected a unique, custom home in a nice quiet neighborhood with hundreds of pine trees on our 3/4 acre lot. We noticed that most of the homes in the CS area were the crammed in tract homes and this seemed to have much more appeal for resale down the road. The area has seen modest appreciation, with some decent years during the boom. (Nothing like CA,AZ,FL,NV, etc.) I believe it was bought by the previous owners in the late 90's for 287K. We paid 440.

I paid for the move out of my own pocket and it was a LOT of work. We have 6 kids and at the time of our move, my wife was preggy with that #6. :eek: Needless to say, after that experience we of course said we were "NEVER moving again!!". (I had not even heard of Itulip, America's Bubble Economy or had never even had one person describe what was potentially happening with the housing market/economy. Most of what I had been hearing was "real estate is a great investment", etc.)

We really like the house, our neighbors are great, it's beautiful out here. However, I don't want to be stuck long term like the guy in Houston. A big part of me would love to do what a few of you described...Sell, Rent, Gold/Silver...Ride this baby out. Everyone already thinks we are crazy already, so this would not faze them. (We do a lot of things that contradict the majority of the "conventional wisdom"). Other than the mortgage, we have no debt and a decent amount of savings, thank God.

I just refinanced the place in case we can't sell so I could lock in a great rate and get something before credit freezes up even more. The house appraised at 440 (they would never lie, right :rolleyes. So, if I sell now I'm looking at a 27K real estate fee. Then the physical move (you could imagine with 6 kids we have a lot of stuff) 5-10K in expenses right there.

I'm also considering finishing off a home office & could have a portion of the house as a business write off if we can't sell. I would then take an aggressive position with Gold & Silver and pray for inflation. Our ultimate goal is to find a place further out in a more rural setting and grow our own veggies...Maybe pick up a place for a rock bottom price when the SHTF in a few years.

Anyway, that's a bit more of our story.

[PHS]

Re: What to do about a house?

Jay,

I took a different approach. I'm 47 and I live in central Pa. Housng prices have stayed fairly stable, so I decided to pay off my mortgage of $27,000 on a $240,000 house. I did this last fall by taking money out of some 3rd Ave Funds. (I like their philosophy of investing.) We are completely out of debt now. I like the feeling of freedom and control this gives in these uncertain times. My wife or I could lose our jobs and we shouldn't have to move. We have very good positive cash flow that we're saving, putting in a couple of Roths and buying gold and silver as insurance....in case the worse happens. However, it might not and we can always go back into debt! One thing about banks, if you don't need money...they really want to give it to you! It sounds like you have a lot going for you in your current place- good luck! Thanks to all the other posters too. It's good to hear other views than mine.

[c1ue]

Re: What to do about a house?

PHS - how much property tax do you pay each year on your $240K home?

[metalman]

Re: What to do about a house?

Jay,

I took a different approach. I'm 47 and I live in central Pa. Housng prices have stayed fairly stable, so I decided to pay off my mortgage of $27,000 on a $240,000 house. I did this last fall by taking money out of some 3rd Ave Funds. (I like their philosophy of investing.) We are completely out of debt now. I like the feeling of freedom and control this gives in these uncertain times. My wife or I could lose our jobs and we shouldn't have to move. We have very good positive cash flow that we're saving, putting in a couple of Roths and buying gold and silver as insurance....in case the worse happens. However, it might not and we can always go back into debt! One thing about banks, if you don't need money...they really want to give it to you! It sounds like you have a lot going for you in your current place- good luck! Thanks to all the other posters too. It's good to hear other views than mine.

this is an awesome thread. thought i was the only nut who paid off his mortgage and was debt free and owned... er... metals.

like the idea of sell and rent... in theory. better than renting from the bank. but when you own the house... that is security. always a roof over my head, worst case. no one's throwing me outa my house! when you rent maybe your landlord doesn't pay the rent and gets foreclosed on.

nothing like the security of owning your home. nothing. and nothing like the security of zero debt and enough savings for a year without cutting back... which of course i will, and have.

first thing to go? restaurants. am i alone with that idea? doubt it. glad i ain't in that business!

recession? in the famous words of a world class asshat... bring it on!

[shadrack]

Re: What to do about a house?

We lived in a home purchased in 1998 and owned commercial property for the purpose of building an office. After much consideration we decided that the potential for loss was too great so we sold our home and property in late 2007. We did well on our home almost doubling the price paid in 1998, made a little on our property, but never felt better by doing so.

We rented a great home for a very reasonable price, our bank account suffers no harm from city taxes and HA dues, and we watch with some schadenfreude as the home for sale across the street is reduced on average 10k/mo. Barring a total economic collapse as suggested by LEAP/E2020 we are in great shape for the future.

Its been a long time since we owned so little, I have to say I enjoy the experience.

[BobinSFCA]

Re: What to do about a house?

After reading this thread and other data on this site, I have contacted a real estate agent and will see if I can unload my property. My thanks to the fellow who started this thread and the advice/experiences of others who have posted here.

I live in San Francisco where prices haven't yet fallen, so there might be a small window left to pull this off (I hope). I have a higher end luxury condo on the downtown waterfront which are still moving as far as I know, but will know for certain after my meeting with the Realtor. I like the idea of renting for awhile while the economy "corrects." After looking at rentals today, I think I can save almost 30% of my monthly cash outflow.

It is almost uncanny how the news unfolding each day parallels predictions on this site. If this strategy is wrong and nothing happens, I will take the proceeds from the sale and buy another property. I suspect there will be plenty to select from!

[Jayhawk]

Re: What to do about a house?

Good luck selling your place! Let us know what happens.

[PHS]

Re: What to do about a house?

PHS - how much property tax do you pay each year on your $240K home?

clue,
I pay about $3,000/yr when I include everything down to the street lights. My home is a traditional 2000 sq/ft two story,on 1/3 acer of land, in a development fairly close to Harrisburg, Pa. I bought it in late 1993 for $119k with very little down. Until things become clearer, I only see us tapping the equity for health care, and maybe college (we have two in high school). I hope that helps.

[Captain3D]

Re: What to do about a house?

http://www.housemath.us/

Is a fun place to play with the numbers. We are in the never bought, rent, buy gold silver camp.

Well we kind of bought in the bay area when we acquired a trailer in 2004. Even then the house prices did not make any sense so we just opted out. We are now in LA and rent again while watching the for sale signs increase each week.

We are also on the look out for a duplex as a our first home, but rents dont come close to covering mortgages so we just keep looking, renting and saving.

phil

[c1ue]

Re: What to do about a house?

I pay about $3,000/yr when I include everything down to the street lights. My home is a traditional 2000 sq/ft two story,on 1/3 acer of land, in a development fairly close to Harrisburg, Pa. I bought it in late 1993 for $119k with very little down.

PHS,

Thanks for the info.

It is what I had thought - PA does do regular assessments to determine tax 'worth'.

I'm guessing your taxes have probably at least doubled since you purchased in 1993 - probably tripled.

The same home in CA would have cost around $200K in 1993, but the taxes today would be around $3K/year. A comparable home bought even now would be around $500K, with $6K/year taxes.

So far the relationship between yearly assessment of taxes, actual tax rates, and property values has been solid for most of the states I've looked at: 'capped' tax rate increases = higher home cost. Absolute value of property tax paid = doesn't vary that much.

[Guest]

Re: What to do about a house?

I'm not sure where to park this post, so I will give this one a shot seeing it's the most popular.

I would love to find out what folks here have done with their houses in light of the coming hard times. I'm really looking for some insight on strategy. Are there some out there who have sold their primary residence and opted to rent a place? I bought fairly high in the bubble, but my particular area did not see the massive run up that other areas experienced. I'm in a great loan (5.624 30 Fixed) with 20% down in equity (for now:eek, but I work on my own and my business (executive recruiting) is based on companies hiring. (medical devices)

I've been thinking about seeing if I could sell & rent for a couple years to see what happens. Of course, we could be looking at much higher interest rates, etc. by that time vs. having my house payment fixed where it's at now.

I'm curious what other have done or are thinking of doing.

Thanks!:confused:

1. Your excellent mort rate is a reason to stay put if you otherwise wish to live in this location. I believe you will be unlikely to find a home loan that cheap again and probably not anything close to it once they start accurately pricing inflation expectations into loans.

2. I believe inflation will be severe for a while. If that occurs your fixed payment will get "cheaper" every year as you pay it back with devalued dollars and your salary assumedly rises during that period. I think this is one of the nice "consolation prizes" of a bad inflationary period or even hyperinflation and depression. Imagine owning your home free and clear for a week's pay, for example. Things would be terrible, but at least you'd have a home. (finding money for utilities would be a problem though)

3. It's true your home may lose value, but unless you plan on selling it it's not losing anything really. Meanwhile, rents will probably increase with inflation and possibly due to demand as more previous owners have to rent.

4. As you said, you didn't buy in a crazy market, so it may not have that far to fall relatively. You might lose more by dropping the great loan, paying moving costs, sales comissions, etc.

I think a year or two ago would have been the time to sell out, rent, and then find a home about now that is 25% cheaper than before and can still be had with a pretty nice interest rate. In a time when confidence in paper money is dropping fast, a home is a tangible asset (assuming it meets your needs) while dollars and other financial assets are falling. The risk is that your income drops and you HAVE to sell and home prices could be significantly lower when you need to sell.

Selling and renting would probably be the most DEFENSIVE move (you can always afford a 1 br apt rent) but not might be a big money move.

I would also note that a big reason home prices are falling in some areas is that rents do NOT cover the carry costs. So rents can be presumed to be much lower than they need to be. Eventually the market will correct this through a combination of rent increases and home price drops.

[Guest]

Re: What to do about a house?

this is an awesome thread. thought i was the only nut who paid off his mortgage and was debt free and owned... er... metals.

like the idea of sell and rent... in theory. better than renting from the bank. but when you own the house... that is security. always a roof over my head, worst case. no one's throwing me outa my house! when you rent maybe your landlord doesn't pay the rent and gets foreclosed on.

nothing like the security of owning your home. nothing. and nothing like the security of zero debt and enough savings for a year without cutting back... which of course i will, and have.

first thing to go? restaurants. am i alone with that idea? doubt it. glad i ain't in that business!

recession? in the famous words of a world class asshat... bring it on!

Restaurants are a high-failure business even in good times, but they will be among a bunch of things to go early. Here in suburbia you notice a lot of "bored housewife" and other useless type marginal establishments that cater to the nuveau-riche. I even serviced a "yarn store" a few years back. It had a total of TWO parking spots for customers. I see a lot of high end kiddie toy boutiques, cell phone accessory stores, hobby stores, etc that I think won't make it long into a recession.

I agree a paid-for home is a great feeling. But in this environment what about the ability to use it as your own "carry trade" at a low fixed rate? I'd have to sell a lot of my gold to pay off the house, eliminating a majority of my hedge against inflation.

[Jayhawk]

Re: What to do about a house?

1. Your excellent mort rate is a reason to stay put if you otherwise wish to live in this location. I believe you will be unlikely to find a home loan that cheap again and probably not anything close to it once they start accurately pricing inflation expectations into loans.

2. I believe inflation will be severe for a while. If that occurs your fixed payment will get "cheaper" every year as you pay it back with devalued dollars and your salary assumedly rises during that period. I think this is one of the nice "consolation prizes" of a bad inflationary period or even hyperinflation and depression. Imagine owning your home free and clear for a week's pay, for example. Things would be terrible, but at least you'd have a home. (finding money for utilities would be a problem though)

3. It's true your home may lose value, but unless you plan on selling it it's not losing anything really. Meanwhile, rents will probably increase with inflation and possibly due to demand as more previous owners have to rent.

4. As you said, you didn't buy in a crazy market, so it may not have that far to fall relatively. You might lose more by dropping the great loan, paying moving costs, sales comissions, etc.

I think a year or two ago would have been the time to sell out, rent, and then find a home about now that is 25% cheaper than before and can still be had with a pretty nice interest rate. In a time when confidence in paper money is dropping fast, a home is a tangible asset (assuming it meets your needs) while dollars and other financial assets are falling. The risk is that your income drops and you HAVE to sell and home prices could be significantly lower when you need to sell.

Selling and renting would probably be the most DEFENSIVE move (you can always afford a 1 br apt rent) but not might be a big money move.

I would also note that a big reason home prices are falling in some areas is that rents do NOT cover the carry costs. So rents can be presumed to be much lower than they need to be. Eventually the market will correct this through a combination of rent increases and home price drops.

Thanks...I'm going to stay put and batten down the hatches. Let's hope for a F2 or a near miss instead of a F5 direct hit! :eek:

[rabot10]

Re: What to do about a house?

http://www.housemath.us/

Is a fun place to play with the numbers. We are in the never bought, rent, buy gold silver camp.

Well we kind of bought in the bay area when we acquired a trailer in 2004. Even then the house prices did not make any sense so we just opted out. We are now in LA and rent again while watching the for sale signs increase each week.

We are also on the look out for a duplex as a our first home, but rents dont come close to covering mortgages so we just keep looking, renting and saving.

phil

Great storys from all - I think U should take all the money U can from your homes and RUN, as in "Forest run - run Forest run" or from the movey Lost In Space "Danger Will Robinson"
JMHO

[tree]

Re: What to do about a house?

Trailer park sounds good to me.
But then I always was a low-rent kinda gal.