Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts

Friday, September 13, 2013

Housing Update

So our housing situation is figured out. We're pretty psyched about it. The situation will give us a lot more space as well as flexibiity to do all sorts of things. Enough room to do more gardening than we want as well as have chickens. I also appreciate that it has a fireplace an a garage. All in a nice quiet area. We'll be moving this weekend. Our household goods will get delivered this week which is great. The unpacking then subsequent organizing will be chaotic but in 2 weeks all will be done. Overlaying the unpacking/ organizing with stuff we need to do to the place, my work plus the kids will be crazy but that is called life.

Anyway that is what's going on. Good stuff for sure.

Wednesday, June 13, 2012

Fed: Recession kicked median household wealth to 1992 level

Here is the article. This is not suprising but still sort of depressing. What they fail to mention is that a buck is worth considerably less today than back in 1992.

I look at who benefited from this, the classic cui bono if you will. It is pretty clear to me. Big bankers and financiers made a killing. Politicians did well on campaign contributions from those folks as well as using the money flowing into their coffers to buy votes. Personally they also made a killing on insider trading their consistently and consistently lucky investment choices. Some normal folks did well, if just for awhile. Nobody was complaining when their homes went up in value 20, 30 or even 40%. Nobody was complaining when the construction industry was booming.

I realized in writing this that I have sort of looked at bankers in the wrong way. I think a bit too locally. The assistant manager of West lake Trust in Peduke, Iowa population 50,000 didn't wreck out economy. That guy gives people loans they come to the bank looking for. Now the big bosses at Citibank, B of A, WAMU, etc all on the other hand had to knew what was really going on. That is why they got rid of these loans like a kid playing hot potato. They made money hand over fist for years. When the game was up they dumped all the junk onto the public in a variety of ways both above and below board. After that we loaned them cheap money which they used to buy up the competion which was slightly worse off or couldn't get easy money friend loans.

Between politicians making laws, setting conditions (keeping interest rates artificially low for years) and supporting their friends in banking and finance a lot of the blame goes to our wonderful elected officials. Banksters knowingly gave bad loans which they repackaged to unrecognizability then sold as rock solid. They bought politicians to do them favors and provide mafia like protection. These two groups royally screwed normal everyday Americans out of tons of money.

I cannot however totaly absolve people of the choices they made or the situations those choices caused. Lots of folks used electronic/ paper gains in their homes to finance vacations, new cars or home improvements and such. Some of them are mad now because they are "underwater" and have to pay back the money they so prudently cashed out during the boom. Lots of normal folks made poor choices thinking that somehow the good times would never end and ended up in a bad spot. Others tried to get in on the game and lost too, by the time normal folks get into the game the smart money is already on it's way out. Normal folks are standing when the music stops in the proverbial game of musical chairs.

Today I may be more disenchanted, with the establishment for lack of a better word, than I have been since the height of this mess in 2008 or so. Not exactly sure what if anything I will do about it.

Wednesday, April 4, 2012

More Foreclosures Coming To Your Neighborhood

This morning started out with a ZONK and then went to a cup of coffee and the news. A nice suprise on the last day of a busy week. So now I am at home drinking some coffee and watching the news. I suppose other than to note that I am having a nice morning none of that really matters. I saw "Americans brace for next foreclosure wave" on yahoo when I went to check my email. (As a reminder my email is Needless to say I have some thoughts.

I don't believe for a second that we are done with the sub prime adjustable rate mortgages. From watching the money shows it seems like 3 and 5 years were the common periods before these mortgages adjusted.  I suspect rate adjustments are not a huge issue now as the rates are (some would say artificially) being kept quite low. While I can't say when exactly, some day not too far from now that will change. Since home values are down and folks didn't have any equity to start with they may not be able to adjust into much more desirable fixed rate loans.

The article notes that a lot more of these foreclosures are normal folks with fixed rate mortgages and that unemployment/ underemployment based on the bad economy is to blame. Probably somewhat true. This is sad and is a reminder that folks should be pretty cautious when it comes to how much home they buy. In the 15, 20 or 30 year life of a loan odds are some bad stuff will happen, even in the most boring and well planned life.

We will not have a chance to get beyond this mess until the vast majority of the bad home loans are foreclosed on and those homes are then sold at their current values to people who can actually afford them. This also includes the massive "shadow inventory" of empty homes held by banks. We are not done with this mess.

So what does this mean? For the country it means that we are waiting for the other shoe to drop. For individuals I think that if you are in a place to purchase a reasonable home with a fixed rate mortgage it is probably a pretty decent time. I don't think that timing the exact bottom is a good strategy and right now interest rates are very low. As to investments I would say that folks who can pay CASH are in a place to get some great deals. Just like in past hard times folks who have cash can pick up deals that really pay off down the road. Note that I said PAY CASH. If you haven't figured it out the whole debt based real estate rental get rich scheme is a seriously flawed.

Also I like coffee and quiet mornings. That is all.

Saturday, April 30, 2011


The word simple has gotten a bad rap in recent times. We either think of it as a psuedonym for crappy or ugly or a nice way of refering to the developmentally disabled 30 year old who lives in his mom's basement, rides a bike and does handywork/ semi skilled labor. I don't see it that way.
Some of my favorite things are simple. One of my favorite meals is a good steak served medium rare with nothing on it, a potato with some fixings and some vegitables. My favorite drink is Scotch (blended typically but occasionally a single malt if I am celebrating or feeling fancy) with a handfull of ice. In a pinch the ice isn't essential. I like simple guns like AK's, Glocks, pump shotguns and double action revolvers. It is hard to beat a plain black wool pea coat.
When it comes to saving and investing simple things make or break you. If you simply live on less than you make and put the difference (after setting some aside for a 'rainy day') into a diversified set of instruments that make money things will go quite well. The way people mess up isn't by (assuming reasonable diversified choices) going with the wrong stocks or mutual funds or whatever but by not putting money away. See it is really simple.
I don't think simple vehicles or homes are a bad thing either. A simple reliable vehicle that will run reliable and get you where you want to go is a good thing. Often with reasonable planning you can (GASP) actually pay cash for them. Personally I would rather have a simple home, that I can afford to pay off in a reasonable amount of time and have money to save for the future, fund my child (and his planned sibling yet to be born)'s education and to be comfortable instead of having some cheesy wanna be Mansion which leaves us stretching and straining every month. It doesn't have to be a shack (though a small cabin or cottage if your family situation fits in it) but the idea of a normal modest 3-4 bedroom house with a couple normal bathrooms has slipped away recently. Not that a big house is bad if you can actually afford it but most folks, me included, can't. Why people set themselves up for failure buying stuff they don't need to impress people they don't like escapes me.
Simple plans are best too. It is said that a simple plan boldly executed will consistently give good results.
My point is that simple things are good. We rarely get ourselves in trouble by doing something in too simple of a fashion. Ever heard of that highly paid doctor who got himself in huge trouble by purchasing and living in a simple little house? I don't think so. Ever heard of an average Joe who got himself in trouble purchasing and living in a McMansion he just couldn't afford? I think we all have to realize that starting with a simple foundation and then, if we are truly able maybe expanding a bit is a prudent course of action. However I think that once we get past the silliness of it all, many folks are pretty happy with simple things and even when able see no reason to move away from them.

Monday, January 17, 2011

The American Dream Revisited

Mayberry mentioned the American Dream (read my old thoughts here) in passing recently. While we don't agree on everything and do frag eachother from time to time I really enjoy his blog. Anyway I got to thinking about the American Dream today.

The real question in my mind is a) if the American Dream is still realistic b) and if so for who then c) under what conditions. Before getting into this too deeply I think it is worth noting that in the roughly decade or so before the 2008 housing bubble and the subsequent Great Recession this dream was seriously amped up. Homes got bigger, the huge increase in home prices lead to paper gains people borrowed against to buy all sorts of stuff and generally a lot of folks went into a consumer spending frenzy. A more traditional post WWII American Dream of buying a solidly decent home, having a conmfortable life, helping the kids through college and retiring comfortably is what I will base the rest of this on.

To question a) if the American Dream is still realistic, yes I would say that it is still realistic. I can say this confidently because plenty of people are still doing it. Don't buy into all of the doomer stuff. People are currently buying homes, putting kids through college and retiring which is clear proof that it can be done. Also I dare say that recent events should be a serious caution about getting too far into debt and buying a home you just can't afford.

To question b) and if so for who, the answer is a lot more complicated and a lot less optomistic. The sad fact is that for a variety of factors a lot of people are getting squeezed out of the middle class. Low skill manufacturing jobs are going away or becoming crap jobs, cost of living and (broadly speaking) housing are going up and American Dream is slipping out of these people's reach. If you look at what a lot of folks earn, a reasonable % of income that can be allocated to housing and average home prices in a lot of areas and for a lot of people the numbers don't work. America is facing some demographic shifts and the middle class as a broad group are losing. These folks are losing much more than most. Unfortunately they are coming to face the choice between figuring out how to earn more money or accepting a new normal. That new normal is going to mean a lot of things but most noticeably moving to areas with lower housing costs or some sort of alternate housing.

To question c) under what conditions I think the answer is multi part. We are going to have to make more good decisions and choices then the Greatest Generation or the Boomers did to get comparable outcomes. In particular we are going to have to put a lot more energy and effort into positioning ourselves to earn a decent living, not just at one particular job but over our working lifetimes. The good paying jobs with minimal prerequisites are largely gone and the ones that are left aren't very secure. We are also going to have to start earlier and do better with our financial planning. Homes and educational expenses (middle class/ American Dream staples) are a lot more expensive than they used to be. More significantly almost all of the responsability for retirement has shifted to the individual.

What can we do to be in the best position possible. Making the choices to get a degree or truly skilled trade that can earn a good living is so important to this. The difference in 20 or 30% income will separate a comfortable middle class type existence and something less comfortable. Buying homes a lot more like the Greatest Generation than the boomers will help us get into a good spot. In other words buy a modest (for your income and situation) home, pay it off and LIVE THERE. If you need to move don't upgrade substantially and certainly don't keep upgrading.

We can also take a lesson from the Greatest Generation when it comes to saving. Those folks did a lot of it and so should we. Surely hard learned experiences from the Great Depression were a factor in this but so was their lifestyle. Since they bought a modest home, paid it off and kept it there was plenty left over to save. As some Boomers are about to start learning if you keep trading up homes, live right up to or beyond your means and finance all sorts of stuff that doesn't leave much to save for the proverbial rainy day.

Saturday, January 1, 2011

Unconventional Family Housing

Different cultures and periods have dictated cultural norms that vary widely in terms of who lives with each other, when and for how long. For the sake of this discussion I am going to consider conventional housing being one or two adults that are married or otherwise together living with the minor (or close to minor) children of that couple. The other norm is adults that are friends or acquaintances (or just random's) living together to share expenses.

There have always been some exceptions to this relative cultural norm of contemporary post WWII America. In particular many immigrant groups and Hispanics have tended to stay together much longer and adult children living with parents. Three generation households are common if not the norm for these groups. Also among Americans young 'adult' children maybe living with their parents for awhile and older adults who need some assistance living with family have been consistent themes. The latter for economic subsidization and the former for help with everyday stuff. Toss in random fairly short term life circumstances like job losses, breakups/divorce, relocation, leaving the military, etc and you have captured most of the reasons people have traditionally chosen to reside with family. Sort of like there have always been a certain percentage of home foreclosures there have always been some unconventional family housing. Also like home foreclosures unconventional family housing is (I don't have statistics but I sure think) on the rise.

The Great Recession is proving to be particularly hard on young adults. Even the best laid plans for getting meaningful skills on the non college path takes time and generally starts with low wages. These days kids just starting out are often the first to get fired AND they are far less likely than in the past to get the kinds of jobs that allow for upward movement. You would have to be blind to not see a lot of young adults graduating from college and moving home because they can't find a professional job; or even a job that will pay rent and let them live independently.

These coupled with an increase in the overall rate of unemployment have put unconventional family housing on the rise, at least in my circle of friends and family. Some observations from successful and rocky situations are why I am writing this today.

Here are some considerations for unconventional family housing. It is important to remember that much more than a generic roommate situation there are social factors in play and it is a different dynamic. I think the biggest and most important thing is coming up with a detailed and specific written agreement prior to beginning living together or immediately after moving in. I just don't think this can be overstated as it will, if well thought out, prevent so many issues. Obviously in a case where one person is subsidizing the other (free or reduced rent, etc) the one doing the paying has a lot more say. I will refer to the two parties as supporting and benefiting for convenience. There are many different variables and factors in play and it matters less what is agreed upon than that there is an agreement. Here are some considerations.

-Do you even want to live with family? I've known family who have instead helped someone out financially. Also I know folks who have couch surfed or been the 5th guy in a 3 bedroom paying $50 a month to sleep on the floor (guy 4 had the couch). My advice is that if it is going to really be an uncomfortable situation to avoid it if at all possible.

- For approximately how long do you plan for it to last? Somebody staying for a couple weeks or a month until whatever happens is very different than a plan that could last months or years. This is important because how long it is anticipated to last really affects the amount of planning that should be done. On the short end a two minute conversation can work and on the long end some forethought and a series of detailed discussions could be wise. (More on this later.)

-Under what scenario are you willing to enter into this sort of arrangement? Are you willing to help the supporting party while they are in school or doing an apprenticeship or internship? Are you willing to support them until they earn enough to support their self? What about if they make an OK living but choose to spend their money on other things? What if they are between jobs? What if they are are in a low paying dead end job? What if they are waffling, sleeping late and partying a lot. I would strongly suggest thinking about this and talking about it with your partner BEFORE it comes up because odds are it will come up. My only advice on this is don't be afraid to lay down ground rules. If you are OK with someone living with you while they are in school, trying to find a job, saving for a down payment on a home or whatever then say so.

-Social arrangements are the next big sticking point. This is probably the most noticeable difference between living with family and a generic roomie arrangement. Broadly speaking it would benefit the supporting party to realize that everyone involved is an adult and it would be good for the benefiting party to remember they don't just have a roomie. This is particularly important if someone is single and actively dating. While a random person in a bathrobe drinking coffee in the kitchen when a family member is over makes for a great scene in a sitcom it would not be so funny in real life. Well it might be funny in someone elses life but not your life. If house guests are cool or not is a very personal discussion but you should have it early instead of late.

Also family generally want to have a lot more vision on each others whereabouts than roommates do. When I used to have roommates I worried about what it would seem like if something happened to them. They could be gone for a week or two and unless bills were due or something I wouldn't call them. I had a vision of a cop asking where they were and me being like "I think I saw him last Tuesday" and it not going well. At the various times I have been home as an adult; what we have done is that if we are going to be gone overnight we let the other person know where we will be. Just a phone call saying "I'm staying at Bob/Tom/Sally's place" was sufficient though I did try to call before 9pm. If the folks went somewhere they told me where also. Coming up with a workable plan for social arrangements isn't hard provided that you show some forethought and have an honest if slightly unpleasant conversation before things start coming up.

-Financial and household arrangements are next on the list. Just figure out who is going to pay for what. For the supporting party be advised that there will inevitably be some cost, if just utilities and a bit of food and not to get into this anything you can't afford comfortably. My observation is that in this area it isn't so much big picture stuff but little things that create problems. We aren't talking about hundreds of dollars in rent so much as who ate the last pepperidge farm chocolate chunk cookie and didn't buy more. The supporting party generally knows that the benefiting party needs help and they are willing to provide it. Also I think that if you have figured things out to the point where everyone knows who is supposed to replace the chocolate chunk cookies the big things like rent and utilities have long been covered.

I have two more thoughts on finances. First is if the supporting party has any sort of financial expectations for the supporting party they should make then clear. It might be paying off debt or saving to be independent, etc just lay it out in advance. The second thought is that (I'm not a lawyer so this is not legal advice and consider yourself disclaimed.) in a lot of places paying rent entitles a person legally to certain rights a house guest does not have. If things get bad that could turn out to be a real pain. Maybe there is a way they could help out with groceries or something and still be a house guest. If that is a concern (or you are looking at a real long term situation) then it might be worth talking to a lawyer.

In terms of household arrangements. Figure out space and if possible clear up some storage for stuff that exceeds said space. Spell out very clearly (not just 'help around the house') what you would like the benefiting party to do towards the total household workload.

- Lastly I think it is worth being clear on what circumstances and or time frame is going to bring an end to the cohabitation. This sort of ties in with the scenario under which the supporting party is willing to enter into this sort of thing. For example you might be cool with a full time student but aren't so cool with a student taking a class or two at a time with no real direction. At some point (and many articles have been written by people experiencing this) helping can definitely become enabling. Case in point I recently saw a guy I know who graduated with a BA two years ago and has been at home unemployed since. We all know a kid who graduated high school and just sort of hung out partying, sleeping a lot and playing video games until eventually the rents lay down the law. To risk being redundant it doesn't matter so much what the conditions here are but they should be well thought out, specific enough to be meaningful and understood by all parties involved.

Beyond the Great Recession I see this sort of unconventional family housing becoming more and more common. The numbers and demographics make it an easy call. Kids today on the non college option have serious problems. They used to get a low paying job then as they learn and gain some skills wages improve over time.  To be blunt this model is not working so effectively any more. It takes longer for most to move to a wage where they can live independently and some aren't moving there at all. When GM paid anybody the equivalent of $17.50 an hour and grocery stores paid living wages it was easy to get a job then an apartment and pretty quickly be middle class. Now the kinds of jobs many of these kids get make $9 with no benefits and little room for upward movement. Those who get into union, trade and tech jobs will likely fare the best.

Don't worry the college option (this reminds me of the game Life) isn't much better. When many folks take a bump down the ladder and there is high unemployment then hiring a person with a few years experience, or someone you had to let go when things were rough, over a kid just out of college is a no brainer. This plus student debt hitting record levels (somewhere over 20k on averagea terrible time to be young.

Don't worry the baby boomers some issues also. Many of the boomers are in serious trouble when it comes to retirement because they haven't saved a darn thing or in any case nowhere near enough. They saved like they have a cushy defined benefits retirement plan and social security is totally secure. As you may note they generally do not have a defined benefits retirement plan and getting social security (with decent purchasing power) is a long bet. To make matters worse instead of buying a modest home, paying it off and staying there like the Greatest Generation did they traded (while moving some distance or in the same area) their homes up several times and often tapped any equity which had been somehow accidentally created. The amount of people who are looking at retirement who do not have their primary residence paid off surprises me. On a whole lot of these retirements the math just doesn't work. In the economy we have now with older workers being expensive to employ, expensive to insure and absent from work more often they are likely to get laid off sooner instead of later. In any case it would be optimistic to assume they will be able to have full employment for as long as they want. Also along the surprising theme some boomers seem to be in la la land in terms of how long their money will last. They must be figuring on 20% annual growth in their money or something. These folks think they will be able to at least maintain their lifestyle forever when in reality they might be able to live a very basic subsistence existence.

Of course not all 20 and 30 somethings are boomeranging back home and plenty of 55-65 year olds did plan adequately for retirement. My point is that between those two groups the amount of people in a situation where unconventional family housing is necessary or desirable is going to dramatically rise. Best of all this scenario is if the economy keeps going more or less without significant changes. If the great recession gets worse and turns into the late 70's- early 80's or America's lost decade or even worse then all bets are off.

Along those same lines a TEOTWAWKI or significant security change could lead to a non economic motivation for this sort of thing. Even if you make a fine living or saved well for retirement it is pretty darn hard for a couple or a normal family with a couple teenagers to have decent 24/7 security; let alone have decent security and get anything done. Extended families and or friends would be well advised to gather at the best location they have available. I think it is worth putting some planning and forethought into this unconventional housing situation also. This however is a whole other series of posts for another day.

 Anyway I have been writing this off and on all day and it is way longer than my average post so I am not going to bother to carefully read it twice for small grammar and convention issues. Anyway I hope you enjoy it and maybe even get something out of it.

Goodnight and good luck

Wednesday, November 10, 2010

Houses and Housing

I have been thinking a lot about the nature of this beast. I think sustainability and affordability are sure interesting. Something occured to me recently. We think about housing almost all wrong. The concept of a home as an investment is kind of a misnomer. I think houses (and to a certain degree all realestate) as a physical brick, mortar and wood structure are a good investment. Of course they aren't going to go up 30% a year like they did in the run up to the housing bubble. However assuming you make reasonable choices house values will go up. Also in the meantime they can product income for you. Sort of like a stock that pays dividends you will do OK even when the market is flat. Where I think people go so wrong is that they lump housing in with the brick and mortar structures themselves. Housing is definitely a liability. Housing is a liability because you need, in some form or another, a place to live. To me the concept of purchasing some dirt and a structure isn't about investing it is about a place to lay your head and keep your stuff. Paying off that place is about reducing your liabilities.

Affordability is so important and is something we seem as a culture to have lost. The smart money folks say things like a payment not more than one third of your income. I have also heard your high total amount shouldn't be more than 3 times your total annual income. Our blog friend's advice to ignore the loan people and get what you know YOU CAN AFFORD is sound. Personally I think being pessimistic is the key. Don't think about the good months where you get some overtime or the great months where you get a big bonus but the bad months when you have a few down days and some unexpected expenses. Assuming you take the life of a loan to pay it off you are looking at between 15 and 30 years. While your income may grow and or inflation will make the true value of the monthloy cost lower a lot of bad things can and will happen in that amount of time.

Our Grandparents typically bought a home and stayed in it. Sometimes they got a really small starter home and upgraded after a kid or three to a place with more bedrooms. However the difference is that THEY STAYED THERE. Also though a house might have 4 or 5 bedrooms it wasn't typically a gazillion square feet. A house payment which might have been a little tight when the kids are young and the parents are in their early 30's (they got married younger) was comfortable 10 years later after Dad went from working on the line to being a supervisor or bring a teacher to a principle or whatever. Their payments got more comfortable because their incomes grew and there was some inflation. Conversely today people upgrade their house every time they get a raise and take out home equity loans to boot.

I think the way to look at housing and homes both as an investment and a place to live needs to be adjusted. The housing boom is over and while prices may rise they aren't going to be the idiot proof investment they have been for a decade or so. Think more about securing your families ability to well, not be homeless, than making a profit.

Write a post on your site/blog/forum elsewhere online about how you use ammo cans. Here is a shell you can use if you want.

" Lucky Gunner partnered with TSLRF to put together a contest. The goal is to come up with the most creative way to use ammo cans. I use ammo cans to _____________________. The prize is a half case of free ammo! See the full details here."

If you paste that shell into your blog or website or favorite forum then add in what you use ammo cans for and you will be good it go. You do not need to use the above shell. I just wrote the shell out to make it as easy as possible for you to enter. For a qualifying post you just need to be sure you link to ammo cans and TSLRF in your post!

b. Copy the link to your post and add it to the comments section on this post. You can also email a link to your entry to me. This enters you into the contest.

c. The contest will run until 14 November. After the contest has closed, I'll do another post w/all the qualifying entries. Our readers will get to vote on which post was the best (either entertaining or most informative) via a survey. Folks who enter can tell their readers/ friends and family about the survey and they can vote in favor of your entry - so be sure and spread the word!

d. Based on the poll results, the winner gets their choice of 500 rounds of ammo from Lucky Gunner. See full details here.

Thursday, September 2, 2010

Oh the News

I think it is amazing how the MSM just keeps trying to talk about how we are in a recovery. Yeah we are in a jobless recovery where the stock market is pretty flat, and housing is still in the dumpster. That would be sorta like saying you were sober last night even though the facts are that you drank a case of beer, got kicked out of the club, vomited on the side of the road on the way home and passed out. It doesn't matter what you call it, it matters what the actual facts are.

I don't know where things are going. I suspect that significant joblessness will be an issue for some time. With so many people unemployed it is easy to replace workers so security will be lacking for many people. I don't know where the bottom of the housing market is but until the foreclosure mess is over and banks get all the foreclosed houses off their books things won't be in an honest place. Banks will try to hold onto these homes until prices come back but there are just too many of them for that to work.

From roughly 2008 at least partly into 2009 was really circle the wagons time. Things are better now but not necessarily good. Even if almost 1 in 10 is out of work most of us are still employed and a lot of the uncertainly has gone away. You can probably let up a little bit but I wouldn't go crazy. If you can afford it then by all means go out for a nice dinner or take a weekend vacation to the beach. However I would still hold off on getting your dream boat or touring Europe for a year. For the purposes of short and mid term planning right now I would sacrifice some return in order to have liquidity. A CD that earns an extra tenth of a percentage point but locks your money in for two years is not something I would go for right now.

It might be a great opportunity to get some great deals on stocks. If you have the appetite for risk and are looking at the long term. Personally I meet those characteristics and am buying. Wheat and tube socks do not benefit from compound inflation while investments do.

My point is that the news isn't everything. Especially the propaganda headlines. Look for stories with facts from places you trust. Look at what is going on in your community and with people you know.

Wednesday, September 1, 2010

Zoning and HOA's

My principle observation about zoning is that everyone wants to be able to do whatever they want and have their neighbors follow the rules. People want to buy into an area with restrictive rules and then do what we feel like. HOA's vary from benign ones saying you can't have cars on blocks in the yard or paint your house bright pink to outright Nazi like rules and regulations. However the theme continues.

The hypocrisy of some of these individual positions baffles me. Usually somebody says "I should be able to build/ sell stuff/ whatever small business out of MY home". Fine and dandy that position makes some sense. However when I take it a step further and ask if they would mind the neighbor opening junk yard on the front lawn or their other neighbor opening a disco in their back yard that closes at 2AM they all of a sudden have a real problem. It is THEIR neighborhood and they want it to be nice and quiet. Some folks will then say that neighborhoods should have the right to agree on what they want to be there. Oh wait a second they ALREADY DID and they said you can't run that used junk shop in your living room.What is good for the goose is good for the gander.

The biggest thing I see about zoning and HOA's is to be fully informed. Take some time and dig into the books to see what is and isn't allowed in a certain place. A home is a huge purchase and it is well worth a boring afternoon of reading to make sure you are comfortable with them. Learn what the rules are and then figure if they will work for you. Error strongly on the side of caution. If you might want to some day have goats and it says no farm animals then best move on. Sorry but it is unlikely that you will find a place where you can grow and sell eggs and milk in the back yard in a decent sized city. In a lot of ways it is convenient to live in a city but they have rules.

I often hear "every place here has an HOA" and that may be true. However I would say after you research them all if you can't find one you can comfortable live under there are two options; first you can decide to just deal and second you can decide to live elsewhere. Generally if you get out of town or the suburbs HOA's go away.

 Lastly remember that either everyone is going to live by the rules they agreed to (at least implicitly when they bought there) or it is going to be a free for all. The neighbor might dislike your used junk store or micro farm just as much as you would dislike their junk yard or disco.

Saturday, August 28, 2010

Talking About Money With Family

I have had some success talking about money with family. I talk about money with family members who have had success and made choices that I desire to emulate. People who have paid off houses at accelerated rates or had success with real estate or been able to retire comfortably or whatever. Typically these folks are older though not always. Obviously they must be trusted or you wouldn't get at all specific on things. Of course there are many family members with whom I would never talk money. Maybe it would lead to awkwardness or disagreement or envy or whatever. Just not something that I would do.

I had a great conversation with my Grandmother awhile back. It was just a rambling conversation that ended up on the topic of money stuff. We end up talking about this stuff because in addition to doing well money wise we are pretty like minded in conservative financial stuff. She had some real good advice and also validated a lot of what we are doing.

Getting advice and having discussions with people you trust who have done well is just good sense.

Saturday, August 21, 2010

Death of the 'McMansion'

Read the article here.

Personally I have nothing against big houses. They have more space and can comfortable accommodate or sleep more people. However unless there are some unforeseen changes I am never going to make a lot of money so we will probably not have one. Personally I would rather have a modest home with a mortgage I could comfortably pay and ultimately pay off at an accelerated rate.

Friday, August 13, 2010

Not Good, Just Less Bad

I saw something interesting on the yahoo main page today. It is an article called The Myth of Good Debt. Certainly it is good for a coffee break or a few minutes of internet time wasting.

The whole subject of "good debt" vs bad debt has always kind of bothered me. Plain and simple debt is bad. You are promising future earnings for something now. You are almost surely paying interest for this service.

To be honest I think it is more like kind of bad debt and really bad debt. I would characterize home mortgages and education is kind of bad and consumer debt, credit cards, car loans and the like and really bad debt. The label good implies that it is smart to have this debt and it does great things for you. Sometimes that is right. In particular getting a college degree greatly increases (on average) your earning power. If you could figure a way to get through school with no debt or low debt that is ideal. However since educational costs have increased greatly beyond inflation or typical low level (working your way through school type job) wages that isn't always realistic.

Tangent begins- Also I would submit to some people that working your way through school at a low paying job and taking classes part time isn't the best route anyway. I have known a lot of people who had significant life problems as well as academic difficulties that lead to them not finishing school. They take a class here and another there and periodically have to drop out due to life reasons or even fail classes. Screwing up and not getting to a place where they can earn a comfortably livable wage and then continuing to earn 7-12 bucks an hour is pretty common. These folks then whine about how life is so hard and it isn't fair and generally have a long term pity party. What would often be a better course of action is to decrease their lifestyle if applicable, work less and borrow just enough to make up the difference. The difference between going to school and working 12-20 hours a week or 30-40 is huge. At minimum wage or close the amount of money we are talking about isn't that big. They could focus on school more and get it done at a decent pace. It probably will not be too hard to pay back said money with their increased future earnings. This is basically what I did and while I should have borrowed a bit less lived a bit cheaper it has worked out pretty well for us so far. End tangent.

With educational expenses should come degrees or certifications that significantly boost your earning power. I have got news for everybody. The days when a guy could graduate high school and  fall into a comfortably paying job doing work trained monkeys could do are over. We could talk about why this has happened but it doesn't change that it has. Especially with today's economy and jobs being scare you need to be marketable.

Mortgages are slightly worse than educational expenses IMO. I say this is because they do not have the same kind of exponential payoff as education (if properly targeted and used). Also the returns are generally less of a sure thing. House prices have a great long term track record but the short-mid term can be wild.

It would take a really long time for most people to save the cash to buy a traditional home outright. There are certainly some benefits to alternative housing but if you don't want to go that way the options are saving a lot of money for a very long time or getting a mortgage. Certainly paying the landlords mortgage for decades instead of your own and not getting the tax benefits or the appreciation in value doesn't make any sort of sense.

Getting a decent fixed mortgage you can actually afford on a home makes good sense for somebody in a stable financial place with some savings. As you noticed that sentence was kind of complicated. Maybe adjustable rate type mortgages or other exotic options make sense for some smart people in some situations. However for most people they are a horrible decision. If you can't afford a fixed rate it means you can't afford the home. Stability is very important as even short mortgages last many years and you need to be able to make that payment every month. Personally I have seen a lot of people get into trouble when they happen to get a job that pays somewhat better than they can expect elsewhere, 10 dollar an hour type guy earning 13 or a job that pays 70k instead of 55. The issue comes when they get a loan they can afford at their current higher wages and for whatever reason (laid off, fired, decide to change fields, etc) they end up changing jobs. Think about how much you could make at another job. Also having a safety net in the form of an emergency fund is essential. You've got to be able to deal with that month the car breaks or being out of work for awhile. I think Chief Instructor said once that a month of looking for every ten thousand dollars in salary is a guideline.

Part of my concern is that the concept of "good debt" leads to an attitude that having this debt is normal and even smart. Yeah it smart to increase your earning power with a degree and eventually purchase a home. However it is really smart to pay off that student loan as fast as possible and in time the home too. Having a mortgage (for the right person) beats the heck out of renting but owning a home free and clear beats the heck out of having a mortgage. I think it is also worth noting that if you buy a modest home you can actually afford paying it off at an accelerated rate is probably realistic. If you get absolutely as much home as you can make the payments on of course it isn't realistic to pay 10, 20, 50 or even 100% extra principle payments.

Cars I would classify as the best or most understandable of the "bad debt". Buying cars with cash is ideal. However "clunkers" can have some real problems. Some folks are good at fixing cars or just lucky and others have horrible luck. Often clunkers are unreliable and just $400 the heck out of you until they die. Basically if you aren't able to save a decent bit of cash and need a car for transportation you're pretty much stuck getting a loan. The real problem is how expensive of a car you get. For example awhile back my little sister found herself needing a decent reliable car. She went and got a loan to pay for a few year old basic car. Not a junker but also not new or fancy or anything like that. She paid it off faster than the loans planned life and still drives it. You need reliable transportation, not a new Mercedes. Look at it this way. If you can't afford to pay cash it means you aren't in a great spot for getting this car so be reasonable.

Consumer loans and credit card debt and such are just bad. The best case is that you use these as a sort of emergency fund because you haven't saved a couple months worth of expenses. This is bad because if you can't afford this stuff now why would you think it will be easier to afford later. I am a realist and I know things happen. I can also note that for some strange reason things seem to happen a lot more to folks who do not have emergency funds. Some unforeseen stuff comes up that has to happen right away. Replacing a key household appliance is a good example. Lets say your washer goes out. You get a new one from Sears and finance it then pay it off over a couple paychecks. Not insane. [However what if something bigger happens. Putting a months worth of living expenses from some down time at work on a credit card could take forever to dig out of. ] However using consumer loans to get all new appliances you don't really need for the whole house is insane.

My observation is that people rarely get into consumer or credit card debt trouble because of using them to ride out an emergency. People get into trouble here by using credit to live beyond their means buying this and that and the other thing which they can't afford and almost certainly don't need.

Sometimes debt makes sense. It can be understandable and even a good decision. However do not forget that at the end of the day no matter how "good" debt is it's still a promise of money you haven't even earned yet. Use it responsibly and try to get out of it as quickly as possible.

Tuesday, August 3, 2010

Foreclosures; Why Are Things Different Now

I was watching the TV news and there was a segment on foreclosures. One of those human interest pieces where they talked about a family, blah blah blah. It got me to thinking about the topic. A smart guy I know classified foreclosures into two types.

First there was the usual type that have always existed. People who face an unfortunate or unprepared for story of hard times. Job losses, medical expenses, divorce and radical unforeseen changes in income are the big culprits. Basically bad stuff happens. He then classified the rest as a new type of foreclosure. He talked a lot about strategic foreclosures and I sort of disagree with that. Not that they aren't an interesting phenomena but I don't think they represent anywhere near as large a percentage as one would think.

I think most of these "new" foreclosures are because the "owners" don't really have another choice. Now I am going to talk about some generalities about these people. First they were by and large not particularly desirable credit risks. Maybe they have a high debt to income ratio or have some ugly spots in their credit history or whatever. Due to the massive profits to be had, the lack of risk and the general insanity of the lending market lots more people qualified for loans then before. Aside from population swells or changes in earning patterns there are only so many people qualified to realistically and sanely purchase a home. I don't know what that number is or even how to quantify it but it is relatively set. When you get way more sales than normal it means either folks are selling the homes they have or there are a lot of poorly qualified buyers.

So of the much larger number of people buying homes most were not so well qualified. Another way to measure how unqualified they were is being unable to pay a meaningful down payment. What essentially amounts to no down mortgages were commonplace for this group of new unqualified home "owners". The folks who had been in their homes for awhile almost universally lack any significant equity. What does this mean? A perspective home owner who has the financial discipline to save up a meaningful down payment is far more likely to be able to have the discipline to make the payment. Also these folks have "skin in the game". They will work and sacrifice and scrape a lot more to make a payment when they have 30k of hard earned money stuck in a down payment. Also they bought homes a lot more reasonably because they were limited by a down and that also just sorta injects some reality. I am not saying that is good or bad, just human nature. You play differently when the money on the table is yours.

So lots of poorly qualified people with little skin in the game got into mortgages and homes they couldn't reliably afford. If I remember the Housing Crisis properly I would say the insanity of the housing market was a major problem long before jobs and unemployment became an issue. Even if he didn't get laid off Tom the landscaper who makes $13 an hour can't afford a mortgage on 400k.

What can be done to help these people? I wouldn't say it is our individual or collective job to help anybody but  we can all agree that folks doing well is in everybody's best interest. Some things come to mind to me. The first is getting the job market back on track. I don't think this requires explanation. Next on a macro level is privatizing risk so banks lend in a sane manner. This means getting rid of the Community Reinvestment Act and radically reshaping or closing the failed experiments that are Fanny and Freddy among other things. A responsible banker will not loan Tom the landscaper 400k because it is an insanely high risk. (Conversely he will take a quick 5 grand and pass that risk onto some vague entity).

Well I think I'm done with this one.

Thursday, July 8, 2010

Interesting News

Financial Mistakes Young Families Make.

Why Canada's Housing Market Didn't Crash is an interesting article. However it does rather simplistically focus on banks and the selling of secularized mortgage products. It does not mention that banks were legally forced to loan to people who were not desirable borrowers.

Friday, June 25, 2010

Borrowers Exit Troubled Mortgage Program

Here is a snippet "As more people leave the program, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery.
Even after their loans are modified, many borrowers are simply stuck with too much debt -- from car loans to home equity loans to credit cards.

"The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. "Even after the permanent modification, you're still looking at a very high debt burden.""

 Now for some thoughts. I see this sort of program as putting a band aid on a gun show wound. A nice idea but really not a solution. I see two groups of people who could possibly benefit from this. The first are people who could fundamentally afford their mortgage but just had a job loss or income change for awhile that left them behind. However my uninformed opinion is that these sort of people have usually been able to work something out anyway. The second group are people who can afford the principal but upcoming or recent change from the "teaser rate" to the adjustable rate will be too much for them. It seems like these days it is often in the banks best interest (versus repossessing the home and sitting on it or selling it at a steep loss) to figure out how to get these people into a fixed rate loan they can afford.

However for most of the people who are in trouble with their mortgages I just can't see a way for them to be able to make it without "adjusting the terms" significantly. In other words unless the bank is willing to say "We know you borrowed 300k but lets call it 210" they aren't going to be able to make the payments. Not surprisingly banks kind of want people to actually honor the deal they made.

Without getting into the reasons why they did it or making value judgments or playing the blame game (sort of like when you come to a party with a half gallon of great booze there is at least a shot for everybody) many people bought homes, or borrowed against their "equity" to such a point, they simply could not afford. I recall a story on NPR of a woman in NYC who bought an apartment for something like 300k. Her payment was going to be almost 2k a month and she took home $2,400 a month. There is simply no way she could possibly afford that. Even at zero percent that is almost her entire paycheck.

Also so many people have such a high debt load that what would be an affordable mortgage isn't. Maybe they did not let their housing costs get over about  1/4-1/3rd of their take home which I believe is the rule of thumb. However they also have 2 large car payments and huge visa bill and 3 store cards and a personal loan so their total amount of debt is just way too high.

I don't think we are going to return to a semi normal housing market until a lot of people are out of houses they simply can not afford. The faster we get these people out the faster we will see the actual bottom of the market. People who are sitting on money or are getting into a place where they can afford to buy a home will be able to find some deals be they on an investment rental, a vacation place or a primary residence. There will be some pain but the market will correct itself and get to an honest place.

I find there are two types of people when it comes to pulling off band aids. There are the kind who want it to hurt a little bit gradually with time to relax in between small pulls and the kind who want to just rip it off and be really uncomfortable for a second or two then have it over with. Personally I am in the get it over with and rip the band aid off camp.

Sunday, June 13, 2010

Stop Backing Yourself Into a Corner

One of the wonderful things about America is that it is a very free country. Maybe not quite as free as it was at some other point but people living in the good ole USA have more rights, protections and freedom to do what they please than in just about every other country in the world.

So often people back themselves into a corner in terms of lifestyle and the resulting debt/ expenses. They have to live in this kind of house, drive this type of vehicle (or even a vehicle at all), charge stuff they can't afford and whatever. The result is that they are in an uncomfortable situation. These folks often turn around and blame everybody but themselves for their circumstances. It is a big picture version of eating a big mac and extra jumbo fries with a large milkshake for lunch every day and blaming other people for why you are fat.

If you don't like the amount of money you can make then get a degree or some certification or skill to become more valuable to an employer or customer. It is a lot more productive than whining. If you do not want a mortgage then find some kind of alternate housing you can afford to pay cash for. Maybe get a little piece of land paid for free and clear. Hate the idea of an HOA then don't buy a house in one. If zoning restrictions in your current location prevent this kind of action and you really still want to do it then MOVE to somewhere you can do what you want. If you want to home school your kids then move to a home school friendly area. Don't like the tax laws in your state? Move to a different one. Don't like your city/ states gun laws? Vote with your feet. If you want to be able to shoot an AK-47 from the front porch naked at 3 in the morning then start in a state that is cool with the AK-47 and then find a place with no nearby neighbors. If you don't want to deal with car insurance, registration and such then don't have a car. Live within biking/ walking range or public transport routes to the places you need to go. Maybe arrange to go to Costco with a cool neighbor who has a big van every month or two. If you don't want a credit card then don't have one. Don't like debt; too easy simply do not borrow money from anybody. If you hate paying taxes then make conscious (legal of course) choices to limit your tax liability.  This is checkers, not chess. Simply make choices to not be involved in things you don't want to be involved with and to be in the situation you want to be in. 

Of course because this is simple doesn't mean it is easy. Just like dieting or household budgets knowing what you should do and easy implimentation are very different things. Every decision has second and third order effects. You might like some parts of an area (family, work, recreation, etc) and hate the restrictive laws. Not having a vehicle sucks but you don't need insurance or vehicle inspections. Living in a nice house is more spacious and comfortable than a travel trailer or a shack/ tent. Generally places where you can buy a piece of land for the price of a decent pistol and do whatever you want on it kind of suck. They are far from jobs, may not have water or are otherwise undesirable. Hence the name junk land.

The thing is that you have to make a choice as to what is more important. Often nice places to live where there are plenty of good jobs and fun things to do have expensive housing costs. So either move to a place where you can afford to live comfortably or stay where you are and gripe about the rent/ mortgage/ taxes.

The old saying about construction comes to mind; a job can be done fast, cheap and right but you only get to pick two of them. Inevitably there are difficult choices and compromises to be made on all fronts (housing, location, work, vehicles, debt, tax and gun laws, zoning, etc).

The important word in that last paragraph is CHOICES. I'm not telling you that you must do anything (though it would be nice if you clicked on one of our ads and suggested the blog to a friend;) but am telling you that you can choose. The real interesting part is that this stuff can snowball big time. If you don't need to make a big rent/ mortgage payment then maybe you can quit that horrible job. You could then try a business idea that has been in your head for awhile. If you don't need to impress people at that fancy job then maybe an older paid off vehicle (or no vehicle at all) will work just fine. With all that time you aren't at work all kinds of things could be done.

Take some responsibility and ownership over your life. Figure out what is really important to you. Think outside the box and focus on what is important to you and your family, not the Johnson's, or anybody else. Make the inevitable hard choices and create the kind of life that you really want to have.
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