Five years ago Mr. Liberaltruthsayer and I purchased our first home in St. Louis. It was a 112 year old rehabbed 2 family flat, nearly 3000 square feet, shotgun style. We had rooms for our girls, a nice big bedroom for everyone, and a third floor suite for my mother, with a great view of the arch. We had a downdraft stove, a tankless hot water heater, and my favorite feature, in one of the two and a half bathrooms, a giant 20 inch deep whirlpool tub that I sat in every morning and let the jets coax me into the day. It was a great house in an up and coming neighborhood (read ghetto) and we paid $112,000 for it.
In the two and a half years we lived in this beautiful home we had three full on, all out riots on our street. Our dog would cower under mom's bed on the third floor as hundreds of armed and violent youths (mainly youths) filled the street in front of our house, crushing our flowers and beating the hell out of each other and our cars, while we made vain attempts to get the police to come and break it up. There were jerks selling drugs on the kids' busstop at 6 am. Actual boxing matches where young men and women would stand on the street in gloves and beat each other up with a referee and a crowd. My little kids learned quickly that if they heard pops they needed to lie on the floor. Needless to say we jumped at the opportunity to relocate back to New Mexico two and a half years later.
We sold our house relatively quickly, putting it on the market in September of 2005 and after one failed contract closing the sale on it in January 2006. We got $139,000 in the end, enough to pay off the mortgage and realtors and buy a new refridgerator and some pots and pans. That was pretty much it. We were ok with that, we were glad to not have to sweat the mortgage anymore or whether the neighbors had succeeded in dragging it down in value or vandalizing it into ruin. We also noticed that Albuquerque's housing market was way overinflated, and decided that for the forseeable future we would rent. In our charming little neighborhood, just to the south and east of UNM, houses that had been going for $60,000 to $80,000 ten years ago are on the market for $300,000 or more.
The factors that have created this problem are multiple, but it all boils down to greed. First of all, and I experienced this first hand as a homebuyer in St. Louis, the predatory second mortgage company is completely insidious, and approached homeowners, even those like us who had just purchased our homes, and offered home equity loans to consolidate debt and provide cash, at a rate of 125% of the appraised home value. Now I am no economist, but I know that isn't equity. These bandits would come in with thier own appraisers and adjust the value of he house upwards by tens of thousands or more! We were told after buying our home that it could appraise in the neighborhood of $239,000 and we could recieve nearly $300,000 in a second mortgage to do with what we wanted. A lot of people jumped at that opportunity, we know a lot of them who are now unable to sell their houses, worse still we know even more who have lost their homes to these scamsters.
Worse still, these overinflated values have driven the cost of housing up to unnatural highs. People see their homes as golden egg-laying geese and though they only paid $90,000 a few years ago for their 60 year old two bedroom, 1200 square foot bungalow, they think that $325,000 is a perfectly reasonable expectation. Well, the houses aren't selling. Prices are moving down here, gradually, but we are in a part of the country where the crisis is slow to hit. Albuquerque's economy is growing, wages are rising, and jobs are well paid and abundant. But changes are coming, slowly, and you can already see it in the stagnant sales.
Unfortunately, prices are going to have to fall substantially to get the housing market back on track. Most families cannot affor $300,000 for a house, ours can't, and I say that as someone whose income is substantially higher than the median income for families in Albuquerque. Sure there are all sorts of funky loan products out there that will give you the false impression that such a house is affordable, but those will get you in the end. Until prices are down a great deal, and predatory lenders are kept in check, I will keep renting. It isn't really such a bad deal, either, I am not permanently beholden to anyone, and if the neighborhood goes to hell I can quickly find a new one.
Tell me what is going on in your neck of the woods...
UPDATE... John Amato of Crooks and Liars published this blog on the subject that bears more attention...enjoy!