Before you go buy a house, check out these top 10 scenarios that could make you think twice.
After all housing is a long term deal, and if you don’t have cash to buy the property outright, you are subjecting yourself to a mortgage and a loss of freedom.
I have already warned about limiting family size or even not having a family in times of economic distress. But if you are reading this and wanting to buy a house you may have a little one on the way!
I didn’t include the scary scenario of being foreclosed on when you are current on your payments, not because it is not crazy scary, but because it is rare, and my other honorable mention may be rare too, I think, but I am working on it.
That one is making your payments but the servicing company is not applying your payment correctly to your mortgage note.
Pretty scary, huh? We can thank Foreclosuregate for finding out about that one! Hopefully the way too big to fail banks will keep those spooky scenarios to being very rare occurrences! So anyway, you have to think twice about mortgaging your future if any of these things could happen to you:
1. You buy in a neighbourhood that is somewhat upscale, but half the people are living there without paying their mortgages. That is one frightening thought. In beautiful Arrowcreek in Reno, it was reported some time ago that 65 per cent of the homes were in pre foreclosure. But some people may have been living in this upscale community for many years without paying their mortgages because I haven’t seen many foreclosures as I researched for housing bubble articles there! And a little birdie has been chirping in my ear about this very scenario! There are just a few for sale in the community, and people must come in from California thinking it is a stable community and pay pretty hefty prices still. But what will happen down the road? Maybe it is a stable community and maybe it isn’t!
Maybe you could buy into Arrowcreek and stop paying, and the banks will get to you last. Just kidding, because I wouldn’t count on it, since the banks are now holding their own mortgages at least until the Ponzi no-money-down-interest-only party can start again. And no one knows if that can even happen again. One more point about Arrowcreek, I wonder how many homeowners there know that they are willing to sell some of the vacant lots and allowing manufactured homes to be placed on the property? Scandalous! Disclaimer: I have nothing against manufactured homes, but the multimillion dollar homeowners of Arrowcreek might!
2. You know interest rates can only go up, so you buy but you have to sell in 5 years. Interest rates have gone up but ponzi lending has not yet taken off, so you are stuck. You have to sell at a price that covers your mortgage. So you can’t sell. You may be able to rent the property, but not likely for the price of the payment. How long can you keep that up? Higher interest rates lower the amount people can qualify for unless the ponzi mortgages are reintroduced. I know the politicians would like that. Are Americans that stupid to fall for it again? Maybe, but it will be a short lived bubble. Bubbles keep getting shorter as more people understand the game. Buying at low interest rates could be a bargain, and people think they are buying for life, but you have less freedom to manoeuvre if you have to sell your house unexpectedly. Some say we are Japan and that interest rates will be low for a long time. While that may be true, it also may not be an accurate assessment of future rates. So, why subject yourself to needless risk with a big mortgage, when you can rent and save the rest?
3. You buy where you can afford to buy, and it is miles from your work. But then gasoline goes to 5 dollars per gallon. I have tried to warn people that petroleum, like other markets, is manipulated. I even believe that oil prices are being bolstered by a collusion between OPEC and investment banks and others storing oil offshore. This hoarding is killing the economy of America and will continue to do so if gas prices keep going up. I read somewhere that Jamie Dimon bought a tanker for oil storage. How anti-main street is that! And don’t be too confident that this behaviour has stopped if JP Morgan sold the tanker. It is the thought that this behaviour is going on that should make every American pull back and reconsider how strong the greed is regarding your tank of gas! It is a legitimate question: How much can the economy take when continually subjected to ever higher oil prices? How much gouging can take place before the economy feels the effect and your job becomes expendable?
4. You buy, knowing you have an empty house to the right of you, and then your neighbour to the left of you moves out. Nothing hurts the value of a house like being the only one left on your street. There is this place in Reno/Sparks called Wingfield Springs. It is a lovely place, with pretty low homeowner fees. I even saw a guy move in with a New York licence plate. He probably is set for life if he cashed out of the NYC bubble! Only problem with the place is that you have empty houses. And they are really nice empty houses. They could fill up but then again, they may not. That is a scary scenario. We need about 500 of you guys to sell your houses in New York, and move to Wingfield Springs. You will be set for life. But you all need to come out together because we don’t know if the whole place will be abandoned one day.
5. The city turns out your street lights. This may be ok in some neighborhoods, but if you wanted street lights and then they got turned off that would be pretty damn annoying. And how about trash pickup? I realise it is not likely to be taken away from most cities. But cities are running out of money. Do you want a mortgage tied around your neck or do you want to be nimble? People already can’t move because they aren’t as nimble as they once were. I wonder if the banksters thought of this before they cooked up the ponzi housing bubble?
6. There are no more greater fools. It is likely that house prices will decline below the mean. That has big implications. If you live in a place like Manhattan Beach, California, and your house median price is around 750k, you may not find the greater fool if you buy and have to sell. Think about it. The average household income for Manhattan Beach is 100k per year. How many greater fools want to buy a house 7.5 times yearly earnings? I am sure there are some because it is a lovely place. But defence contracting is a major business there. Will the defence Secretary keep the party going? I realise that there will always be some premium over the recommended 3 times yearly income when pricing houses on the California coast. But 7.5 times even after the crash? That is scary.
7. You live in a place like Hanford, California, where Lemoore Naval Air Station keeps your housing going. You crashed, to the bottom, but not like to the bottom if they ever took away the Naval Air Station. Think about it. You want a 30 year mortgage in that scenario? What if you lost a local job if the Air Station closes and had to drive to Fresno in the fog to work and gas was 5 dollars per gallon? You would be screwed. And that is if you could find a job in Fresno anyway! The relocation of industry and the economic upheavals of the post industrial society in America makes buying with a 30 year mortgage somewhat unsettling. Why not pay cash and buy a manufactured home, or rent a nice house and as I said before, save the rest?
8. You buy and then the guy next to you gets a great deal, moves in and parks his car on the lawn. You can’t move, as you are stuck with your neighbours. They party out in the street on the weekends, blasting their boom boxes and there are 50 cars in the cul de sac. What a pain. Is it worth buying and paying a premium price or renting in a nice neat place. Remember you could have this neighbour, or worse, for 30 years! And you may not be able to sell and leave and cover your mortgage for some of the reasons above. In 30 years, a lot can change in your neighbourhood. Ask Cleveland, or Detroit, or Buffalo. And what if China slows exports and becomes a self sustaining economy with no more cheap exports headed to the west coast or Texas? Will that affect the port of Los Angeles and your house price in Redondo Beach? 30 years is a really long time.
9. You are one of the only three people left in your homeowners association. The three of you have to pay for what 40 families used to pay for. They come to you for a special assessment. You don’t have the money. You could have taken a lot of special assessment hits when you were liquid. But that was when you were renting. Sorry. Condo and homeowner associations have been known to lose your money as well. That is a pretty scary scenario, the need for assessments because they took off with your condo fees. Sheesh! And I realise I am exaggerating, at least regarding most cases, but I have read about some real horror stories regarding homeowners associations. Perhaps readers would comment on their experiences with the associations and how they have been affected negatively.
10. The banks can’t get bailouts because the Tea Party says no. This will not likely happen because the Tea Party is a lot of hot air, I think. Besides, the real Republicans are bought by the banks and paid for like most Democrats are. But let’s just say that happens, no bailouts. It will be harder to get a loan than it would for Will Ferrel to be funny on a consistent basis. I mean, think about the implications of Will Ferrel being consistently funny. And the problem is, even if the banks are bailed out again, they still may not be able to play the interest-only-greater-fool game again. Although there are a lot of greater fools out there. Some people never learn.
I should explain that most people were not fools, but were fooled by the bankster/real estate community. So, I put the majority of the blame on the bankers for their ponzi lending. However, from now on, post crash, if you buy you could be the greater fool and you should have no excuse.