Unfortunately, 2008 is predicted to be a lousy year for buying a home, at least in Southern California. No matter what the National Association of Realtors’ spin on the housing market might be (e.g., the glut of unsold inventory equals “the best market in years in terms of choice,”), the fact is that the majority of Southern California residents cannot afford a median-priced house.
My wish for 2008 is for people to become smarter about their money. Most, if not all, foreclosures occur because people spent too much on their homes and locked themselves into mortgages they couldn’t afford. And overspending is epidemic in this country. It’s a one-way ticket to financial ruin.
Lest you think I’m lecturing from on high, let it be known that I have owned four homes (with spouses) in Southern California in the last 20 years. I have been burned by this market not once but twice, although I was luckier than many. I lived through the ’90s downturn; I owned a home from ’93 to ’99 and got a $6,000 check at closing (and was happy to get that). The last house was in San Marcos, in northern San Diego County. We sold it in June of this year for $40,000 less than we paid for it in March 2005.
How we stayed out of trouble: We never bought the most expensive home we could qualify for. We looked for what we thought were good values. We never tapped into our home equity.
So now we’re renting, and happy doing it. But I’ve been a homeowner for most of my adult life. Homeownership is great — under the right circumstances.
So if you are a potential homebuyer, I hope that you:
- Recognize that homeownership is not for everyone. In certain markets, for certain people, it’s just better to rent.
- Stop thinking renting is for losers. Renting is a perfectly viable choice, particularly when the alternative is an avalanche of debt and stress.
- Understand that the path to wealth is not homeownership, but living within your means and contributing faithfully to a savings and/or retirement account.
- Have learned that homes don’t always rise in value and cannot be counted on for steady cash returns.
- Realize that buying makes sense if you can afford it, not if someone will loan you money. In Southern California, monthly mortgage payments can be twice, three times or four times the cost of renting a comparable place. As long as that is the case, homeowning does not make sense.
- Avoid overspending on new, luxury vehicles and carrying huge credit-card balances. The less consumer debt you carry, the more home you can afford.
- Realize that there are many hidden costs to owning a home, such as leaky roofs and busted sewer pipes, that easily can cost thousands of dollars to fix.
- Understand that unless you are prepared to stay in one place for about 10 years and ride out bumps in the market, you could find yourself stuck with a house you cannot sell.
- Think carefully before moving to a far-flung suburb to find a home you can afford. Long, miserable commutes cause terrible stress and ruin relationships.
- Make smart, informed decisions about homeownership, dictated by analysis, not emotion.
Anything you’d like to add?