How the housing mess is screwing me

posted by Jeff | Thursday, October 22, 2009, 2:21 AM | comments: 0

The worst thing about the "mortgage crisis" is that people like me, who bought a house they could afford with normal loan terms, are screwed because banks made stupid loans to morons who don't understand credit and couldn't afford to pay their mortgage. Everybody hurts because the bubble that was the real estate market has popped. That annoys me to no end.

Ultimately, it looks like my house is likely to sell at my original cost or at a slight loss, though it becomes more of a loss when you consider the down payment I made and the various closing costs. It was kind of a perfect storm of equity decline over the eight years. I had to refinance at the time of the divorce, five years after purchase, at which time I had to let go of a little bit of the equity, and that was basically half the down payment. In the three years since, the only equity I had was appreciation, which has been summarily erased in the last two years because of the shitty market. So if you were to look at it in pure money in that wasn't going toward interest, I'll lose around $20k. Add in interest and taxes paid, and, well, I don't even want to go there. I'll just pretend that was like rent!

When you're not deep into a mortgage term, you're obviously not paying much of anything toward the principal of the loan. As such, waiting for a better offer gets you nowhere, because you'll end up going months paying on a loan and not building any equity. I'd rather just take the hit sooner and have better cash flow. The sooner I unload my house, the sooner we can start banking cash to take a bath on Diana's house.

I think the thing that pains me the most is that I can't get back in to purchasing while stuff is going relatively cheap. Purely in square footage terms, my house would go for around 75% more out in the Seattle 'burbs, so whatever break you can get today would help. As disciplined as I think I could be, there's no way I'll be generating that kind of down payment cash for at least two to three years, unless I get promoted to Steve Ballmer's second in command. I'm guessing there's little chance of that. :)

But renting won't be terrible, even if it is expensive. Houses may be 75% higher to buy, but apartments and townhomes look more like they're around 40% higher. With salaries being in the neighborhood of 30% higher (in my field, at least), that's not a horrible disparity.

If this all sounds terrible, I don't know if it really is. The way I look at it is this: If we can sell my house quickly and Diana's within a year, we could be at a point where the only debt we have is her car (which is a tiny payment). Sure, we don't have a house that may or may not appreciate in value, but even with rent and a child, we should have tons of money left over to save, invest and start a college fund for Puzzoni Jr. We effectively lose a year of wealth building, but retirement accounts aside, we don't really have any wealth to speak of today.

I'm sure some people would see this as the end of the world, but really, what can you do about it? The upsides in my life suddenly become priceless. I get to work for a company I very much admire, I'll see mountains every day, I can avoid snow unless I choose otherwise, and above all, Diana and I get the fresh start we very much need. There's a lot of winning along side the losing.

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