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follow Patrick 2018 Apr 29, 3:10pm
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While many people still think that the last housing crisis in the United States was largely due to banks offering too many subprime mortgages, it's now clear that wasn't actually the case. Instead, recent research pins the blame on house flippers and speculators, who pumped markets up, then defaulted in large numbers when they were unable to turn a profit on their investment properties. ...A stagnant construction market with limited resales pushes prices upward for whatever homes do come on the market. That's great for sellers looking to exit home ownership, but it's bad for buyers looking to enter the market. Couple that with the presence of speculators and flippers in the market, and you have a recipe for another housing crisis.At this point, in many markets across the country, the only way to buy a home is to overpay. That's not too terrible if the economy stays strong and your wages rise. If, however, the economy slows, or your personal situation gets worse, or wages stagnate, committing too much of your household income to a mortgage can lead to you defaulting.What should you do? The simple answer to this puzzle is to only buy a house you can comfortably afford. That may mean getting less than you want, or waiting until the market changes or your finances improve.For some people, that means not buying yet. It may be a bitter pill to swallow, but it makes more sense than risking your financial future by over-leveraging yourself. If you can't afford the kind of home you want, bide your time, and save your money. Being able to put down a large cash deposit puts you in a stronger position with sellers, and might help you win a bidding war.Before buying a home, make a realistic budget that considers the 28/36 rule: No more than 28% of your gross monthly income should go to housing expenses, and no more than 36% of your total should be spent on all debt.
I personally know some people who defaulted deliberately on a house in Salinas. They also live here illegally.
Ha! I know a couple of US citizens who deliberately defaulted on a condo in San Diego immediately after buying a house in a new development.
While many people still think that the last housing crisis in the United States was largely due to banks offering too many subprime mortgages, it's now clear that wasn't actually the case. Instead, recent research pins the blame on house flippers and speculators, who pumped markets up, then defaulted in large numbers when they were unable to turn a profit on their investment properties.
buy a house you can comfortably afford. That may mean getting less than you want
reset your Prop 13 taxes, etc. This, but I can't complain. I have a $380k mortgage on a home valued at around $675k. My property tax is assessed at $2,400 per year ($220k assessment). If I wanted to "step up" to a nicer home, that's putting me somewhere around $800-900k. Is it worth more than tripling my property taxes to get a house that's just a little nicer than the one I'm currently in? Hell no. That said, this is a huge part of keeping mobility low and prices high.
reset your Prop 13 taxes, etc.
I don't think buying a "starter house" is a good idea because buying and selling are so full of friction and costs. Suppose you buy a "starter home" and 5 years later decided you really want, need, and can afford something better. So you sell one house and buy the other... and pay huge commission to the real estate cartel, financing fees for a new mortgage, reset your Prop 13 taxes, etc. There's also the cost and effort of moving. Financing a house purchase while not having finished paying the first house off can be tricky too. All the effort and costs you put into customizing your first home are thrown away; and if you didn't upgrade and customize your first home then you might as well have rented it.