Wednesday, May 20, 2009

Discussing A Risk

First things first, not to pile on California, but I would strongly suggest that, at least for a few weeks, you put in a news filter of some sort to pull stories from the Golden State that relate to budget cuts and state finances. They are the leading edge of what will become a rash of very, very significant problems with state finances in the U.S. How they handle it will set the template for us all.

I had had a "California DeathWatch" going for awhile, but it was so easy to see this coming and the responses to "fix" the "problem" so absurd that I didn't have the heart to continue it. It was like beating up the Downs kid on the playground, it's just not right to pick on obviously enfeebled individuals.

Now we get to see if the states will, achingly, return to government by adults.

An Object Lesson and Risk

Also, I've hesitated to write too personally here at FutureJacked, but I thought it was time to share a decision made recently and my thought process behind it.

I bought a house.

Yup, after all the snarky comments about "stucco-and-vinyl investment products" and other such, I got a bank to give me a big chunk of cash and dove back into home ownership. After renting since 2001, with all the negative economic news that I still expect, I still went out and took on a mortgage jumped back in.

Why on earth would I do that?

Pros

  1. Well, I now have a small kid. The apartment went from livable to very, very cramped, very quickly. I wanted a fenced-in yard and some space for friends and family to visit or crash for awhile.
  2. Since I haven't owned a house since '01, I count as a "first time home buyer" as does my wife. The federales have promised $8k to any first-timer buying in 2009. Too bad I didn't close before April 15th - I could have received the check this year. We'll see if the Treasury is in good enough shape to follow through with this tax credit this time next year, but it was an inducement.
  3. I got a rate well below 5%.
  4. My payment, with associated taxes, insurance, etc. was less than $100 more than my apartment rent.
  5. I have no, zero, expectations of capital appreciation.
  6. If we had moved out and rented a house, I would have had to worry about the landlord getting foreclosed on.
  7. I worry about access to credit in the near future. Right now a bank was willing to give me a lot of money at a very good rate. I am not sure this would be the case a year from now.
  8. A lot of my thoughts have been centered on the need to have a reasonably tight community to fall back on in hard times. I am very pleased in that respect with this neighborhood - now is it guaranteed to remain a great place? No clue, but there are a lot of paid-for houses around, and a nice mix of older neighbors and younger families.
  9. I wanted more area to try gardening. Container gardening at the apartment was nice and all, but I wanted more area to work with. Problem is I've had to focus on other things and won't get near as much done this year as I'd hoped. That said, I will get to play with cold frames and maybe a small grow dome later in the season.

Cons

  1. I dug into my cash stash, but not too deeply (I hope).
  2. While my job and my wife's job seem secure, obviously they could go once mood returns to the negative furrow it was plowing earlier this year. We have enough to live there for quite some time - assuming access to cash in the bank and the ability to move that money to the mortgage holder, but losing a job or both jobs would obviously hurt.
  3. Even if it is not much higher, it is a higher payment.
  4. Deflation could hang around longer than my ability to hold onto the house if we were to lose both jobs.
  5. I'm locked into this community. Moving away is now much, much harder, so that might affect career choices in the future.
  6. I'm locked into other costs. For instance, the reason I've not been able to provide a couple of in-depth postings I'd planned on this weekend is because we've had sewer problems already. First time in 20 years they've had a problem with this line. It's a City issue, but at the end of the day, money and time will flow from me, into this new purchase. Ugh.

Final Analysis

This was a risky move. It could very well wind up a mistake, but we took a deep breath and did it. The "cons" list is shorter, but the cons are much, much bigger.

I think there is a chunk of the population out there in a similar situation, so I thought I'd outline a few of my thoughts as I went through the process. We shall see.

2 comments:

cjb said...

We must be reaching the point where a massive new wave of foreclosures would border on absurdity. Why have millions of vacant homes? I don't see any choice but for creditors to renegotiate terms. If your income decreases, for whatever reason, and you can't afford your payment, who will occupy your home? No one will be able to get a loan. Schools will need to start teaching what happens when fractional reserve banking goes into reverse mode.

I like the choice you made. I think you should be less worried about the cons. It's better to have a garden and stake your claim to a house.

Mark Moore said...

I hope you and your family enjoy your new setting. We got our house a long time ago, when our daughter came along. I just *feel* more comfortable in a house, than in an apartment or condo.

Now that our daughter's off to college, the big advantage is room for the garden and firewood. It takes a long time to get the garden business running like you want it, but you've got the advantage of your kid's excitement about growing things to carry you along.

Expectations about price are quite powerful. I reflected to my wife that the fair value for our house is what we paid for it many years ago. We've been here so long now that if we get anything for it when we're too frail to remain, then we've come out ahead. Our payments amounted to rent and all the pleasure and memories we share with this place.