Thursday, June 23, 2011

The "Housing Bubble" got us a home.

This is something I've never heard talked about. But did the housing bubble actually get people into homes they wouldn't have gotten otherwise?

(But which they could actually afford if they were disciplined?)

Linda and my combined income for each of the years 2001, 2002, and 2003, was almost exactly 30,000.00. That's literally, two minimum wage jobs. (Hence, the title of this blog.)

By late 2003, it was time to buy a house, I agreed finally with Linda, but I didn't want to be house poor, or have a house that constantly needed fixing.

I expected to be turned down. Or, at best, to get a house that wasn't much better than a trailer.
But they call them "starter" houses for a reason.

But we had a couple things going for us. We had a minimum 10% down cash -- depending on the house -- and despite our troubles with credit cards, to my great surprise, we still had pretty good credit scores, and we had zero debt.

But, of course, in hindsight, I can see that probably would've been given the mortgage even without those things. Because of the bubble.

We found a house that was much better than I could've expected -- in a nice neighborhood, about 20 years old but well kept up, and a third of an acre with great bones for landscaping and ...well, I was really surprised we qualified.

Thing is, Linda and I were more than willing to pay at least 50% of our income on housing -- even more, actually. I made double payments for a couple of years, so even though the value of the house has probably dropped below what we paid (at 2003 prices) we made a pretty good dent in the debt over the years.

And it's a nice house, a house we can live in for many years.

What I'm saying is, in the old days we wouldn't have qualified, or we wouldn't have qualified for as nice a house as we got.

One thing I knew, from our problems with credit cards, was that I didn't want any fancy financial shenanigans. I wanted a fixed, 30 year mortgage, taxes included.

I'm not saying we are paragons of discipline. We could just as easily got caught up in some of the more extreme bubble thinking IF -- I hadn't already been crushed by several bubbles in my business. Sports cards, comics, pogs, beanie babies, pokemon -- all had hammered me.

The credit card problems we had for a decade came from the fact that I fell for not just one, not just two, but three different bubbles.

By the time we bought the house I had been thoroughly humbled.

Still, looking back, I think we qualified for a nicer house than we would before or after the bubble. So in our case, it worked.

I wonder how many "little people" actually benefited...


Anonymous said...

I think you are missing a very important point, without the housing bubble home prices in Bend would have stayed much lower. Traditionally home prices in Bend were 1/10th of top of the bubble prices. I remember when most homes on State and Congress street went for $60k-$90k. Homes in the near west side went for $20k-$30k and homes in the close in east side were all under $90k. This was only 20 years ago. The availability of cheap money caused all home prices to escalate much faster than area incomes would have justified. A combined income of $30k would have given you all kinds of housing choices, if we didn't see the rampant price increases brought on by cheap money and speculation.

I used the above neighborhoods because they have not historically been attractive to people moving in from out of town, and places like northwest crossing and Aubrey Butte did not even exist.

Duncan McGeary said...

I like to think we bought our house pre-bubble, but not pre-growth.

Other than having a time-machine, there was a prime moment for us to buy and it was when we bought. Not because I was smart, but it was just time -- we couldn't have bought before because we were paying back our cards through consumer credit counseling, and we didn't have the down payment.

So steady, but small income, no debt, good credit and a down payment --

I don't think buying even now would be as good, and we'd be missing 7 years of payments.

The graph just shoots upward around April, 2004 and our house was actually appraised at twice what we paid for it at the peak.

I still think the bubble probably enabled us to get a house better than we could've expected.

H. Bruce Miller said...

"Homes in the near west side went for $20k-$30k and homes in the close in east side were all under $90k. This was only 20 years ago."

20 years ago Bend hadn't pulled out of the (first) George Bush Recession yet and wouldn't really start recovering until 1992-'93. The prices you cite weren't "normal" any more than prices at the peak of the bubble were.

I would say "normal" home prices were what we saw in the late 1990s - early 2000s, just before the bubble started inflating.

H. Bruce Miller said...

Zillow graph of Bend median home prices:

The curve starts getting steep in 2004, as Dunc said.

Interesting note: The median on July 1, 2002 was $156,000. If houses here had appreciated at a steady 4% a year (the historical average nationwide) the median would now be $222,000. It's $199,500.

Anonymous said...

We bought a home in 2004. There is no way we should have qualified for based on our Bend income. Actually I was shocked we got approved. Using the old mortgage stand of being able to borrow 3X gross income (and being self employed) we would have never qualified. I guess in 2004 the lending standards were completely thrown out the window. Fortunately our income increased dramatically in the following years that we were able to pay it off within 5 years of purchasing it. Best thing we ever did was to become 100% debt free. Had our business not boomed, it would have gone the other way and we would not have been able to afford it. Compared to where we moved from even in 2004 Bend homes looked like a deal. In 2006-2007, Bend prices looked stupid.

GardenGurl said...

Bought in 2001 after renting in Bend for a year. Paid $167k. At peak, appraised at 312k. Everyone kept saying "get something bigger/better". No thanks.

Today, I sit happily ensconced in my 1959 3200sqft (1600 main, 1600 basement) home on 1/3 acre with a couple of fireplaces and a thriving garden. House value today, about 170k. Nothing ventured, 10 years of house payments gained. (as well as a re-fi to a 15 yr fixed, so we'll be done sooner rather than later). Wish there was extra to buy for the kids though :(