Housing (thought) bubbles...

It's been a while since I've posted about housing, and I figured now is a good time to revisit my decision in July 2006 to buy a house... at the exact top of the housing bubble. I was debating if I should put actual numbers in this post, or just to use percents. I decided on the former - while some people see the amount they paid for their house to be a secret, the reality is that all this information is on the internet, accesible for a couple clicks, so it seems silly for me to try to obscure it when it complicates the post and is easily circumvented anyway.

I bought my house - a 2 bedroom, 2.5 bath "split foyer" townhouse in Baltimore County - for $215,000 in July of 2006, with a 10% down 40 year mortgage. I refinanced it last summer into a 30-year mortgage, and threw down another $20,000 to reduce the principle. I also got a much lower interest rate.

So how am I doing? Well, I now owe $168,000 on it. So how much is it worth? Whatever someone will pay for it. When I had the refi done, it was reappraised, and it appraised for $205,000. However, I did my refi right at the end of the $8000 new homebuyer tax credit, which i suspect helped keep prices higher. Zillow right now claims that my house is worth $200,000 - but there is a similar house for sale in my development right now for $189,000 and it's probably in better shape and has been on the market for 6 weeks plus. So the reality is that I'm probably underwater - my guess is that if I had to fire-sale the house, I'd probably get $150,000 to $175,000. Which means that the $40,000 or so I've put into the house is gone, and possibly more if I ever had to sell. Which means that - assuming I found a place for rent that's the same as my mortgage payments plus the money I've put into things like a new roof and plumbing and HVAC - I've basically done the equivalent of taking 40 grand and setting it on fire.

Which is pretty depressing. I'm the kind of person who is typically pretty careful with money - shopping the clearance rack, buying and selling stuff on the side for extra income, using coupons, keeping the house cold in the winter and hot in the summer. So the fact that I've thrown out basically a year of after-tax income is pretty depressing. But hindsight is 20/20 - while i figured that housing prices would decline slightly at some point, I was expecting more like 5% instead of 30%. And maybe I was stupid for thinking that - but based on the number of very large banks and traders who made bets with similar expectations, it wasn't an out-of-the-ordinary thought.

So clearly from a financial perspective, home buying was a loser. But ignoring the financial implications, was buying a house a good lifestyle decision? That's a lot harder question to answer than the financial. When I bought my house, I was probably driven largely by the idea that it was a good and responsible thing to do from a financial perspective. But I think on some level, I also saw it as a signaling mechanism, that if I bought a house the wife and kids would follow, because it would show potential mates that I was a responsible, "nesting" kind of guy. That hasn't worked out, and I sometimes wonder if I should have bought a house in a trendy city neighborhood full of bars and cute girls in yoga pants walking dogs. But I do like certain aspects of suburban living - not having to fight over parking, being a few minutes' drive from pretty much any store I could possibly want to go to. And the reality is I don't really go to bars, and doubt I would even if they were next door... or that I would, and become a raging alcoholic.

in some ways, I'm probably not the best person to be a homeowner. I'm messy, and having lots of space for clutter means I tend to fill it with crap. Also, if I had realized how much I was going to expand my flea market and ebay businesses, I would have looked for a house with more storage space or a garage. And I'm not terribly handy, which means that I have a lot of things that need to be fixed and that I'll eventually need to shell out for professionals to do it. It also means I have a bad habit of deferring maintenance until it gets really bad, like an infected wound that you keep picking at.

But home ownership has it's perks - it is a form of forced savings. Renting advocates like to point out that if you rented, and put away the difference between your rent and mortgage payment, you would have a buttload of money. But that's not the way people in the real world work - chances are I'd blow that money on flat-panel tv's and other crap. Home ownership means eventually I'll own the house, and not have to make a payment for a place to live, and that's good, and maybe even worth the extra cost. Owning a house let me have a cat, it lets me have space to buy stuff for resale, it means I don't need to worry about the rent going up or the landlord selling the place.

So from a financial perspective, buying a house was a giant mistake. From a personal perspective, though, it's much muddier.