Last August I did a post called Have People Completely Taken Leave of Their Senses? It was about the housing bubble (which at that point most people still hadn’t even heard about).
Now you can’t turn on the TV, radio or pick up a magazine or newspaper without hearing about it.
May I give you a few examples? (Update: Links to pictures now missing and I didn’t save screenshots.)
Perhaps you would like to consider this charming cottage in Santa Barbara, CA… This can be yours for ONLY $995,000. And it is on a very generous (?!?!?!) 0.18 acres. And don’t forget about the fresh paint!
Or this one also in Santa Barbara… At $1,395,000 your monthly payments will be ONLY $6,605/month (if you can actually come up with 20% down which almost no one does any longer). People, this house is almost the same age and size as our house. I don’t care where you put that house. There is NO WAY that house is even worth 30% of that!
Or how about this one in Santa Monica, CA which is David’s favorite… What a steal at $1,499,000 which translates into $7,580/month (again, with 20% down). YOU’VE GOT TO BE KIDDING ME!!! In a decent part of town around here that house would go for around $110,000.
WHAT ARE PEOPLE THINKING???!!!???!!!
David and I had an interesting experience a few weekends ago that illustrated how crazy and out of whack things are. And we live in the Midwest, conservative West Michigan, Flyover Country, U.S.A. Even here you can see the craziness, but on a much, much smaller scale.
We went to a few open houses one day. One house we went in more out of curiosity was a brand new house in a new, lovely development. It was more than we would spend, but we were curious. The house was very nice and I would guess was probably overpriced by only 5-10%. Then we went to look at another house in a nice older neighborhood somewhat near where we live. This house was built in the 1920’s and was a little larger than the new house we had looked at. The first thing we were told by the VERY anxious realtor when we walked in was that they had just reduced the house again that day to X which was a $20k overall reduction and that the sellers were VERY ANXIOUS and would consider ANY OFFER because they had already bought.
That meant that this older house listed at just $25k less than the new house. What a joke! There was not one inch of that older house that didn’t need work. Everything needed updating (except the new light fixture in the formal dining room which was very pretty). David and I have renovated an older house and I KNOW how much work and $$$ it takes. After we left I said, do you realize you could spend $25k more and get a BRAND NEW HOUSE and do none of the work? That older house needs at least $25k of work on it. I wouldn’t even consider that older house unless they knocked another $50k off it. (And even then I wouldn’t consider it because the thought of doing all that work is depressing!)
I also found it interesting how desperate people are getting because there are an unbelievable number of people who have already bought a house without selling their first house. Our realtor told us that the majority of the houses he shows are empty because the people have already bought another house. Can you imagine making two house payments for a year or more? A lot of these houses have been on the market quite awhile. The sellers won’t lower the price because they NEED their selling price in order to cover their new house they have overextended themselves on. And this is just West Michigan where the economy isn’t all that bad (yet). The suburbs around Detroit are much worse.
So why am I writing all this? Because I know a lot of people don’t follow financial news. A lot of people think that they aren’t planning on buying or selling a house so this doesn’t affect them. And maybe it won’t. But consider that your friends, family members, church members, etc. are buying houses with zero down on adjustable rate mortgages. When their mortgages reset, their payments will increase by hundreds if not thousands of dollars a month. How many people can afford that kind of an increase in their mortgage payments? And the mortgage may reset higher more than once! What will they do when their house is no longer worth what they owe on it and they can’t afford the higher payments? There won’t be any equity left to take out of it. What then?
I’m no financial guru, but I care about the people who read my blog. You know, I could be completely wrong in sounding the alarm and saying “something has to give and it is going to be ugly”. It will be great if I’m just overly cautious and this all plays out beautifully. But I can sleep at night knowing that the people who came to my blog heard about what was going on and had time to consider the possible ramifications in their own lives.
All in all, David and I have decided that our renovated house with our (relatively) dinky mortgage payment will suit us just fine for at least another year. God graciously gave me a solution to our nursery/office problem so we can make it work! We’ve been looking since last summer, before we even knew we would be having a child. But the more we look and read we realize that staying where we are for awhile could be the best thing. In fact, we’re guessing in another year or two or three there could really be some incredible deals out there on some nice houses…
Just my two cents for what it’s worth and for you to discuss around the dinner table and Bible study this week. 🙂