Property Envy
Posted on August 13, 2005 5 Comments
Here’s a helpful article by Ellen James Martin with United Press Syndicate about staying sane when all your friends are buying homes. From personal experience, it’s tough knowing friends are buying property and taking advantage of historically low borrowing rates. (Especially when you’re stuck living in a crappy apartment with a dishwasher that only opens halfway and showers with terrible water pressure.) But I know I’ve got a long way to save before I can consider this option, despite the temptation to buy with little to no money down. Here’s the article:
All your friends own and you rent? Get a plan, not jealous
By Ellen James Martin
Universal Press Syndicate
Published August 12, 2005
You’re a young adult with a decent job and lots of friends in the same income league. What sets you apart is that many of them own property. As you go home grudgingly each night after work to the same apartment you’ve rented since college, you find yourself envious of home-owning friends.
“Jealousy is part of human nature. So some friction is natural between homeowners and non-owners,” says George S. Masnick, a demographer associated with Harvard University’s Joint Center for Housing Studies.
After several years of steep home-price appreciation, it’s understandable that many non-owners in their 20s would feel shut out, Masnick says. The good news, he says, is that homeownership rates among young adults have ascended since the mid-1990s.
“Access to low-rate mortgages has been a major factor In increasing homeownership for all age groups,” he says.
But statistical studies offer small comfort to those struggling to break into the housing market, says Sid Davis, author of “A Survival Guide for Buying a Home” (AMACOM, $17.95).
“Every buyer feels the pinch of high prices. Yet somehow you’ve got to get on that homeowner escalator,” says Davis, a longtime real estate broker.
Davis’ 28-year-old son, an aspiring home buyer, sought his father’s advice several months ago.
“My son asked me if he should keep renting until he could afford his dream house. I told him not to wait but to buy the best home he can right now,” Davis recalls.
Davis’ son soon purchased a small ranch-style house with 1,400 square feet of living space and three tiny bedrooms.
“Because he’s newly established in his field, his salary isn’t as big as it will be in a few years. In the meantime, he’ll be building equity,” Davis says.
“From a financial standpoint, you really don’t have a choice. It’s imperative you get into that housing loop as soon as possible,” he says.
Here are several pointers for prospective first-time home purchasers:
- Let envy be your motivator. When it comes to homeownership aspirations, Davis has seen jealousy spur some young adults to action.
“After your friends start buying homes, chances are you’ll begin acting more decisively–especially if you’ve been on the fence,” Davis says.
Besides the problem of affordability, many would-be buyers in their 20s are held back by the fear of committing to a 30-year mortgage, according to Davis.
But the beauty of a fixed-rate mortgage is that the payments remain constant, even as their income likely will rise.
“As the years go by, those house payments seem to shrink–especially if your place gains value,” Davis says.
- Postpone short-term gratification to achieve your larger home-buying goal. Davis says some renters resort to the short-term gratification of making other “prestige” purchases that are easier to obtain than a home. They may buy a high-end car or an apartment full of new furniture, financing their purchases with credit.
Such purchases will weaken your chances of achieving your dream, Davis cautions, because you likely won’t be able to obtain as large a mortgage as you’ll want or need.
“It’s classic for 20-somethings to try to lift their spirits about renting with luxury goods or a fancy vacation. However, in the end this is self-defeating behavior,” he says.
The problem is that lenders look at your overall debt load when evaluating your worthiness to qualify for a mortgage.
“Any big accounts that show up on your credit reports can cripple your chances of getting the home–which in the end will be a much better investment than furniture or a car,” Davis says.
- Launch your home-buying campaign by visiting a mortgage lender. Perhaps you’re one of the many young adults whose credit reports were tarnished by a poor history of paying credit card bills while still in college. Unfortunately, youthful financial indiscretions have a way of lingering on your record long after people stop asking about your GPA.
Blaine Rickford, president of his own mortgage company, says that while there is no quick fix for a poor credit rating, your standing can be restored over a period of weeks or months through a methodical effort.
“You need to keep plugging away until you achieve your objective of a higher credit score,” he says.
Rickford says your best ally in re-establishing good credit is a mortgage lender or broker.
“Because credit is a complex subject, you’ll need guidance from a professional who can tell you the letters to write, the phone calls to make and the e-mails to send,” he says.
- Never “tie the knot” prematurely in order to buy a home. These days most couples want both their incomes counted on a mortgage application, allowing them to qualify for a larger loan than would otherwise be possible.
But Davis, a veteran real estate broker, has witnessed the disastrous consequences that can occur when young people eager to own a home move in together or get married just to hasten the buying process.
“You want your relationship to be very strong before you purchase a property together. Otherwise, the consequences can get darn messy–especially if one person bolts and the house must be sold suddenly,” he says.
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August 19th, 2005 @ 5:36 pm
Nicole – here is a bit of advice from a 40-something who lived through the real-estate boom of the late 80′s only to suffer the real estate bust in the early 90′s: 1) Make sure you can afford the house you buy on your current salary, 2) put down as much money as you can, and 3) you would be willing to live in that house longterm should the real estate market go sour in your area. When I was in my 20′s and living in the Northeast in the late 80′s, real estate prices were skyrocketing, and interest rates were around 10%. Houses were out of reach, so my ex and I bought a condo, new-construction, for $128K in 1988, and only put 5% down, stretching our salaries to the limit to afford the mortgage. The market crashed in 1990, and the condo reappraised at $102K in 1993, which put us underwater on our mortgage. We divorced and my ex refinanced, allowing me to be released from the original mortgage and I quit-claimed the property to him and walked away. He finally sold the condo in 1998 for $78K. Property values have rebounded, so the condo is now worth what we paid in 1988. Lesson learned: buy a house that you can afford, and that you can live in, because you don’t know what the market will do. If it appreciates, great; if not, then enjoy where you live and don’t let envy take you places financially that you don’t want to go.
August 19th, 2005 @ 5:58 pm
Wow. That is some serious advice. I greatly appreciate your input, and I know others will, too.
August 21st, 2005 @ 12:14 am
Hi Nicole – me again, the 40 something – reread my post and boy does it sound all gloom and doom! I really enjoy your blog and read it every chance I get – I’m happy to provide my 2 cents, just will try to make it a bit more upbeat! Keep doing what you’re doing – you’re on the right path.
August 25th, 2005 @ 7:07 pm
I believe that even in this red-hot market you should buy as soon as you can. However, you should buy something reasonable: not just all you can pay.
Buy a 2 bedroom condominium. Easy to mantain, not too much space to spend money on.
Many people talk about a real estate bubble like the early 90′s. Well, the salaries are increasing now, and unemployment is 5%. I doubt there will be something as bad as the 90′s. What I think will happen is that house prices will stabilize for a while and rental prices will increase. (good for me, as I own rental properties).
Money and Investing
October 2nd, 2005 @ 5:58 am
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