Bigger is better, right? In some instances, this may be the case but when choosing a home, there are a few factors to consider when deciding how much house you need. Having seen what happened when the housing market crashed, many people are wary to “overbuy” and are being more considerate of what they really can afford. For those with lower incomes or for single buyers, you can still buy, but do you really need a 3,000 square foot home to take care of? Even couples and families are re-evaluating how much space they need and just how much house they want to take on. After all, increased square footage does not just mean an increased mortgage. The bigger the house, the higher utility bills will be as well as increased home owners insurance. CBS Money Watch notes that the average sized home has more than doubled to 2,349 square feet from 983 square feet in the 1950s. You may have more space to spread out but if you are barely able to pay the mortgage on your large house each month you won’t be doing much relaxing in the home. Also, if you buy a large house you then have to clean and maintain that large house. If you are only using the guest bedroom once or twice a year, is it really worth paying to heat and cool that room as well as the time it takes you to clean it? All of these questions certainly depend on your lifestyle, size of family and plans for the future. You may consider that maybe you do not need quite as much space in the home if you have a great yard and spend a lot of your time outdoors. If you love to entertain or have frequent guests, maybe you need a bit more space. It may be tempting to buy a huge home to impress others but ultimately you will be the one living in the home, cleaning the home and paying the bills. You do not need to buy a tiny house that will leave you cramped and desperate for space but consider a smaller home that will save you money and be just as beautiful with its own unique charms.
Programs that are created as a knee jerk response to some sort of impetus, which have never been a part of the standard operations of any industry easily become train wrecks, or as I like to call them, yard sales (a term that describes the scene of an average Xtreme Sports crash.) Those in charge don’t know what’s going on, and the programs fail. Sometimes these programs are someone’s “bright idea” to avert public panic when in fact, the idea itself is a smoke screen for other activities.
In the age of foreclosures, where millions of people borrowed beyond their means, and banks allowed them to do it, home owners have been walking away from their homes in droves as they’ve discovered their payment, which has adjusted according to the terms of their note, is no longer affordable. Nothing new here. Strategic defaults, where the owner decides that it’s just not in their interest to fulfill their promise to repay, are also part of the mix.
Banks know that this is going on, and they also anticipate a flood of law suits in the future. Loan modifications are intrusive with no resolution for the home owner. They’re a pie in the sky “potential solution” for someone who thinks their bank cares about their well being. Big news…big banks don’t care about you, and neither does the federal government. When you go through a “loan modification” qualification process (yes, you need to qualify, according to them) you are asked for mounds of information about your life. Who you bank with outside of your lender’s institution, where your investments are held, how much you have in assets, where they are, and…well, more than they’d ask you for if you were applying for a loan.
They’re mining information.
They have no intention of helping you solve your loan problem. They may make it look like they’re helping by offering you a deferred payment plan for a short while, or a reduced interest rate for a period of time, but in the long run, the bank still wins. Your savings now are tacked on to the end of your loan later. If you go through this process, you’ll learn how frustrating it is, and most likely will become bitter at the bank as you discover how disingenuous they are.
It’s not a big surprise considering the number of homes that have been selling recently that the inventory has depleted considerably and the availability of affordable housing is drying up after this massive real estate hemorrhage.
I cannot tell the future, but I can see when there’s a break in a pattern, as you will also see indicated in the graph below. Whenever a market corrects, it usually over corrects to a comparable intensity of the original inflation. Prices were so overinflated, and people have SO overreacted, that the low prices in the valley are deflated and can be considered as artificially low as they were high.
If I base my opinion simply on the pattern in this graph which outlines average monthly sales in the Greater Metropolitan Phoenix Market, then we are on track to recover, and we will bounce back. Since Arizona is a national leader in real estate trends, we should see a healthy recovery. Again, I cannot predict the future.
It was towards the end of 2003, beginning of 2004 that things started to exponentially bloat, soaring to ridiculous heights, and absolutely crashing as quickly as a 747 filled with solid lead.
In August of 2005, my neighbor bought the same unit I purchased in 2003 for $200,000.00 more than I paid for mine. They are still there. Oops.
The market’s plateau began in approximately June of 2006, rose a bit more, and then decidedly burned in flames at about January of 2008, through March of 2009. The number of homes sold began to increase in May of 2008, but the price continued to drop.
What would have happened if we had continued to grow at a normal, typical rate of 4% per year? Perhaps the following, showing a line drawn at about a 4% increase over the same period of time. This shows that a starting value of $175,000.00 would over the time represented in this graph, grow to approximately $244,000.00.
One could argue at this point one of two possibilities. Either a) the market will quickly correct, over correct, and bounce back and forth over the next 8 years or so to find equilibrium along that blue line, or b) the blue line must be adjusted down, erasing all of the growth in this millennium.
If that’s the case, then the home you’re living in, which is now worth what it was pre-Y2K, will not be worth what it should be worth for as long, if not longer than it takes to re-write the entire first decade of this century. To reach home prices that we should be at, we’re looking at roughly 10 years of steady growth at a “normal” rate.
The problem is that nobody knows what normal is anymore BECAUSE OF THAT GIANT HUMP in the middle of the chart. Who’s to blame? Many people think it was the government forcing the banks to lend to people who couldn’t afford it which drove them to “get creative.” Dave Ramsey calls “creative financing” “Too Broke to Buy a House.” I tend to agree.
Either way, it will be interesting to see what happens, and ultimately, it appears as though we’ve experienced the beginning of the bottom of this roller coaster ride. Which means one thing…
If you haven’t bought a house yet, it’s time to buy. There’s blood in the streets and the street sweepers (the investors) have been very busy recently. Don’t miss out.