Hi, I’m one of those underwater homeowners you keep hearing about. No I’m not here to ask for a handout, a bailout or any other way out. I don’t have any grand wisdom on how to fix the situation for me or any of the millions of homeowners just like me. Like a lot of my peers I can afford the payments, but the four walls and a roof are an anchor around my neck, dragging me under. It’s a cautionary tale of bubbles and busts, an American dream gone wrong.
The story starts back in 2004 when Mr. M moved into my studio apartment in West Hollywood. It was a great area to be in as a young single, but the party life and cramped quarters didn’t fit with our current lifestyle. We needed more space and Mr. M wanted a place he could do artwork or messy projects. Rents in Los Angeles aren’t cheap, it’s not quite New York City or San Francisco, but still significantly higher than the US average. For comparison, a 2 bedroom apartment at that time was around $1600 a month. Houses or duplexes with a yard for Mr. M’s projects started at $2000 and up. Even in bubblicious LA buying a modest house would mean a similar payment. It was at that moment I made the mother of all mistakes, I asked my mother for advice.
“You should buy a house, it’s the best investment you’ll ever make. We’ve made money on every house we’ve owned.” Yeah she sounded like a Realtard™ commercial. The hunt was on, I set a price ceiling of $350k, a stretch for us at the time. Finding a house at that price in the city would be tough, but I had no desire to commute 60 miles each way to the suburbs. The housing market was red hot at the time, places in our price range would get multiple offers sending the price above what we could afford. After two months of searching my agent sent me an email, she had come across a new listing that fit the bill, a cute cottage listed at $340k. Even better it was listed in the wrong MLS so it wouldn’t get much attention, we toured it the next day and made an offer that afternoon. It was the first place we’d seen that wasn’t a falling down dump, my offer of $345k was accepted the following afternoon. I won’t go into the headaches to follow, the delayed closing, the unscrupulous mortgage broker or the 2 year legal battle over shoddy construction done during escrow. By May of 2005 I was a homeowner.
In 2005 the experts were already talking about the end of the bubble, that appreciation would slow and prices would start to fall. This was what I expected, instead prices continued to climb for another two years. The highest price paid for a 2 bedroom house in my neighborhood - $490,000. As the saying goes, the higher you climb, the harder you fall. According to the latest reports, housing prices in Los Angeles are back down to mid-2003 levels. The house across the street is a similar size and has been on the market for over 8 months, the initial asking price of $370k has been reduced to $205k! I figure I am anywhere from $25,000 to $100,000 underwater, houses in my neighborhood are all unique so an exact comparison is difficult.
I comfort myself by recognizing that I am in better shape than a lot of my neighbors, like the guy who paid $490k. There is not much I can do at this point, I believe in paying my obligations so jingle mail is not an option. I am not late or behind or in over my head, so the rescues and bailouts from Washington won’t come to my aid. So for now I hold on, watch and wait for the bottom.
The story starts back in 2004 when Mr. M moved into my studio apartment in West Hollywood. It was a great area to be in as a young single, but the party life and cramped quarters didn’t fit with our current lifestyle. We needed more space and Mr. M wanted a place he could do artwork or messy projects. Rents in Los Angeles aren’t cheap, it’s not quite New York City or San Francisco, but still significantly higher than the US average. For comparison, a 2 bedroom apartment at that time was around $1600 a month. Houses or duplexes with a yard for Mr. M’s projects started at $2000 and up. Even in bubblicious LA buying a modest house would mean a similar payment. It was at that moment I made the mother of all mistakes, I asked my mother for advice.
“You should buy a house, it’s the best investment you’ll ever make. We’ve made money on every house we’ve owned.” Yeah she sounded like a Realtard™ commercial. The hunt was on, I set a price ceiling of $350k, a stretch for us at the time. Finding a house at that price in the city would be tough, but I had no desire to commute 60 miles each way to the suburbs. The housing market was red hot at the time, places in our price range would get multiple offers sending the price above what we could afford. After two months of searching my agent sent me an email, she had come across a new listing that fit the bill, a cute cottage listed at $340k. Even better it was listed in the wrong MLS so it wouldn’t get much attention, we toured it the next day and made an offer that afternoon. It was the first place we’d seen that wasn’t a falling down dump, my offer of $345k was accepted the following afternoon. I won’t go into the headaches to follow, the delayed closing, the unscrupulous mortgage broker or the 2 year legal battle over shoddy construction done during escrow. By May of 2005 I was a homeowner.
In 2005 the experts were already talking about the end of the bubble, that appreciation would slow and prices would start to fall. This was what I expected, instead prices continued to climb for another two years. The highest price paid for a 2 bedroom house in my neighborhood - $490,000. As the saying goes, the higher you climb, the harder you fall. According to the latest reports, housing prices in Los Angeles are back down to mid-2003 levels. The house across the street is a similar size and has been on the market for over 8 months, the initial asking price of $370k has been reduced to $205k! I figure I am anywhere from $25,000 to $100,000 underwater, houses in my neighborhood are all unique so an exact comparison is difficult.
I comfort myself by recognizing that I am in better shape than a lot of my neighbors, like the guy who paid $490k. There is not much I can do at this point, I believe in paying my obligations so jingle mail is not an option. I am not late or behind or in over my head, so the rescues and bailouts from Washington won’t come to my aid. So for now I hold on, watch and wait for the bottom.
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14 comments:
I live in a part of the country where housing prices were pretty stable. I think it is so sad what has happened to all the people who bought and then the market declined. I must say that I respect your attitude. Hopefully, you will be staying in your house for the market to come back so you won't lose money.
I'll probably hold on to this place for a long time, there is a lot to love about this house. It's only 5 miles from my job, central to much of LA and has a million dollar view. I have a view of the mountains and the downtown skyline (like the picture on the top of the page but from a different angle). What's funny is everyone had been complementing us on such a great buy (location, price etc), it's not feeling like that now!
Don't despair! Here in Las Vegas my parents house has dropped $100,000 dollars in value, but they're riding it out as well. We all sat down and finally decided we made the best decisions we could at the time; since then we stopped beating ourselves up, and stopped watching the news. Happy days.
I definitely made the best decision at the time, I bought a modest house that I got for about $20k less than the comparable homes. The sellers agent was a moron. But now, it's not looking like such a deal. Oh well. I'm sorry your parents are stuck in this boat with me.
You did make the best decision at the time, and, after all, the so-called 'loss' is only on paper unless you have to sell. This is your home! I purchased my home in late 2006 for what I thought was a great deal at the time. I am in the same situation as you are, but I would not trade my home for anything. The alternative would have been: paying rent these past two year, having lost 40% of the money that I used for my down payment which was invested in the S&P 500, and probably not even being able to get the same loan I was able to get back in 2006. Real estate IS a good investment in all markets -- But the trick is that it has to be a LONG TERM investment (no buying with the expectation of flipping). It is also important to always get a loan with no negative amortization. Don't worry! You have not lost anything unless you sell!! Just enjoy your home and the great tax benefits it offers.
Hi Anonymous, thanks for stopping by. I agree that long term I should come out OK, as long as nothing comes up in the short term! I started a new blog devoted to being an underwater homeowner and addressed the issue of paper losses. Here is the new blog
Where is my Ocean View?
and the post
It's Just Paper Losses
I'd love it if you'd stop by and add your story. Thanks.
We purchased at the height of the real estate boom in Florida now we are underwater for $200,000.00.
We also can afford to make the payments but it is hard to swallow when the government is willing to help out people who can't make a payment.
@Anonymous - you bring up a very good point, one I plan on addressing on Where is my Ocean View. Homeowners who can afford their payments would not be eligible for loan modifications or reductions in principal. It's patently unfair to people like you and me and it's something that needs to be discussed.
I just bought my first (new construction) home in August 2008 in Derby, Kansas. A 2900 sq ft home, 3 care garage for $198,000. That's about 88k higher than the average price in the Wichita, Ks area. My house hasn't lost any value. I agree that its only a loss if you sell right now. Make your payments, and invest in your property, since in 30 years (if you got a fixed), you'll never have to pay rent again (just up keep, and taxes). I bought my house to live in possibly the rest of my life, not as a flip.
I'm a doctor making 150k/yr, and even I wouldn't have bought into the 500k range for the homes. I guess that's why i love kansas. On 11/17/08 price of gas $1.79/gal. You lose some of the views, but you can travel so freely due to low cost of living.
I will be praying for you. But I think greed plunged too many Americans into this hole. I still live like a student, and save a dollar whenever I can. Good luck to you. Remember Kansas is a great state for anyone else reading!!
Thank you for this line of posts. Folks like us (we're underwater but can still pay our mortgage) seem forgotten in the bailout mentality currently bouncing around Washington.
I feel better just knowing that we're not alone. Thank you so much. I have to believe we'll make it through this.
Another M in the ocean,
I am free of debt except for my home. Like you I purchased what I could afford not what I dreamed of.
I can afford my mortgage but am sick of all the people wanting handouts because they refused to be responsible...I heard a guy yesterday tell me that he is filing bankruptcy so he can avoid his equity loan of $40,000. and that everyone is to blame except him. when I purchased my house I had 60,000 of equity. I didn't touch it and now I thank God for common sense.
I am trying to purchase a second home and bECAUSE of all those whiny ppl who ran out purchased a home dumped their first one I am fighting an uphill battle...because I will keep mine..like you M I know what goes down will eventually go up...I might be gray and walking with a cane by then but hey..lol...they will both be mine....
M in Vegas
I may be among the walking wounded now, having bought a home that was within my price range in South Florida in March 2007. The market was on the way down then so I thought I got a decent deal, but as we all know that was the tip of the iceberg and now I am somewhere around $40,000 to $70,000 underwater.
It would not be a big deal if my job was a stable prospect, but layoffs are imminent at my land development-related job and there are no other opportunities on the horizon that will allow me to continue to afford the home. I don't want to be bailed out, and I would like to honor my obligation, but at this point the options are slim. If (or when) I am laid off, I will no longer be able to afford the house and there is no reason to go into my savings to keep a sinking ship afloat. We will short sale and get the hell out of Florida to a place with more hopeful job prospects.
I've tried calling banks to ask if we qualify for the making home affordable refinancing but we're way over the 105%-125% max that they allow. I would've wanted to move to a bigger place a few years after we bought our 2 bedroom condo in 2005 but I don't think I want to short sell and risk hurting my credit.
At least I know that there are others who are in the same situation we are. We'll be staying put for awhile.
Purchase: Aug 2007, $890k
Market value: Sep 2009, $650k
Loss: $240k
We bought in August 2007, one month before the sub-prime market fell apart. We bought a house in a new development and were the first family to purchase a home.
The house is 4500 sq ft, 1 acre lot. We customized to the hilt. Paid a whopping $890k for the house (ouch). The market fell apart and we didn't have a new neighbor for nearly 12 months. We started to feel like suckers. The only family in this new development...surrounded by construction equipment.
In the past year, 3 new families have moved in (finally). They paid $650k, about 30% less than what we paid (ouch again). A difference of about $240k. That really sucks. I guess we will hold on to the house for the long term. Maybe when we sell the house in 30 years, the value would have crept back to what we originally paid.
A good example of what not to do...
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