The American Dream Makeover: The Demise of the “Home” in Home Ownership

This is New England, and people here are well known for living conservatively. We have had hundreds of clients over the years tell us, “The bank approved us for $$$, but we are not going to spend that much.”  Now, with Connecticut braced for the recession, we are asked: “When will it be the right time (meaning prices will be the lowest) to buy a home?” Or, ”What if I buy now and  the market goes down further?”

If you are flipping a house, this is a very important question. However, if you are still trying to buy a house to flip…well, I just don’t even know what to say – those days are pretty much over for the moment. Buying for rental income for a few years is a great option; buy and flip, not so much.

When you spend money on rent, you should figure out how much money it is costing you by NOT owning a home and factor that in.  The “fear factor” has taken hold of many buyers as they worry about making a bad  decision.  Think about this:

If it costs you $18,000 a year to rent, waiting for a $400,000 home to go down another 10% in value, will really only be a savings of about 5%.

And while you are waiting, you are not taking advantage of the tax credits for home ownership, this is  worth thousands of dollars a year to homeowners!  Quite honestly, you could wait for the market to go down further and end up spending more in the long run, especially if mortgage rates go up by the time you decide to buy.  Not that this looks to be an immediate concern, but something to factor in for sure.

Maybe This Will Help – Here is Our Own Connecticut Homeowner Story:

We bought our home the late 1980′s. We were such bright bulbs that we bought right at the peak of that market……..just kidding. We also sold a home right at the peak  – VERY happy with that!  We bought because the house, the location and the community were a great fit for us and our family.  As we watched home prices go down shortly after buying, we were still happy with our decision.  Our home is a wonderful New England antique, and if we had not bought it when we did, the opportunity probably would not have presented  itself again.

We assumed values would continue to go up because “everything was going up,”  but this was never a deciding factor for us. We wanted to move,  and this is where we wanted to move to…. As we watched the real estate market decline in the early 1990′s we realized that just as the market had cycled down,  it would cycle back upwards over time.  Now, even with the current downturn cycle in prices, our home  is worth far more than it was when we purchased it in the ”height” of the late 1980′s market.  Yes, it would now sell for less than it would have 3 years ago, yet still for significantly more than when we bought it.  Notice I said sell.

Do Home Prices Go Down FOREVER?

We now hear, ”Everything is going down, so it will continue to go down.”  Do they mean forever? It’s not as if you live for free if you do not own a home  (if anyone has heard of a free,  good quality lifestyle, please let me know and I will pass the info along)  I never heard my parents planning their retirement based on the increase in value of their home. They bought a home to house themselves and their family. I mean – you have to live somewhere right?  And if home values go down” forever,” do we all get to live in them for free when they are worth less than nothing?  Will the government (meaning us, in case you forgot how the government gets its money) fund that too?

Why isn’t MY Home Worth What I Want it To Be?

We know that our home is worth less than it was 2 or 3 years ago, does this make me happy? No. But am I realistic?  Yes. Now you can pretend your home is worth more than it really is in the current market - I do not want to take that dream away from you - just don’t ask us to be your fairy godmother and make your dream come true.  Real estate values are set by the MARKET - your home is worth what someone will pay for it. If you decide what it is “worth” and  no one will give you that amount of cash or go to the bank and get a mortgage for that amount of money…it is simply  not worth that much in the current market.   There really is no way to get around it.

A Few Questions to Ponder

• Why would anyone live someplace they do not want to be, if  they have the desire, stability and ability to live in a house and location they really love?
• When did home ownership become only an “investment” instead of your “home?”
• When did Connecticut home buyers go from “this is where I want to live” to “I only want to buy something that I know I will make a lot of money on when I sell it?”

Buying and Selling in the Same Market

Buying and selling in the same market is a wash. Yes, your home will sell for less, but the home you buy is going to be  less expensive. Does anyone really NOT know this?  Here is how it works: Waiting for your home to go up in value will also mean the next home you buy will be more expensive.  If you are moving “up” it makes absolutely no sense to wait for both your home and the more expensive home to go up in value.  This is when the lightbulb typically goes on – ” Let’s see, my home is worth $200,000…so, I’ll wait until it goes up another 10% when I will get an extra $20,000!!  Yeah for me! Sounds good! Uh oh…the $350,000 house I really want to buy will also have gone up in value and cost an extra $35,000 – hmm……that may not work out the way I thought…..”

Just a few thoughts – again, we all have to live somewhere.