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We purchased our home in northwestern NJ in June of 2008-obviously the economy was not in great shape at that point, but my wife and I, both having graduated from college two years before, had been working, living at home, and saving. Renting vs. buying in NJ is always a tough call because renting will often cost only slightly less than buying in many cases, so we decided to take the plunge. No crazy ARM or interest only mortgage-we found a bank that would do a 30 year fixed at 6.125% with 8% down (total financing of $246K), which was basically everything we had at the time. Fast forward to today and its been a crazy couple of years. I think at one point during the depths of the economic crisis (at least according to Zillow and the others) our house dropped to about $205K. It has slowly creeped back up to nearly $220K over the past couple of months, but we're still underwater by about $15K as our current balance is about $235K.
Underwater by $15K is a far cry from properties in places like Florida, California, and Nevada where folks are walking away from homes with $300K mortgages that are only worth $150K, but it's still unnerving to think that after nearly four years we are $15K in the hole. We're young, are thankfully employed, and have one child, so our small two bedroom one bath ranch is just fine for us-for now. My FIL is in construction so the original plan when buying our home was to wait a few years once we had some equity, take out a HELOC, and add two bedrooms and a bathroom upstairs. We have intention or desire to ever move-the schools here are good, property taxes tolerable, etc...but now we're worried that by the time we have enough equity to do something like that, our child bearing/rearing years will be over. So in short, we're not in a situation where we're literally throwing money away on a home that will never be worth anything, but our break even point seems far in the future-let alone a point where our home will be a valuable asset, which is, in effect, trapping us. Anyone else in this situation? What is your plan?
You are likely too young to remember the last real estate bust. The 80's-ly - mid 90's was a tough time for many homeowners throughout the U.S. Regional busts were common. Millions of homeowners in the NY tri-state area were unable to sell or refinance because they were upside down and remained so for almost a decade.
Imagine have a mortgage with a 12+ % interest rate and not being able to refinance when rates dropped to the 7% range? Most did not bail or expect the government to help them out.
By the late 90's demand for housing became greater than supply and the next real estate balloon began to inflate. Nothing like double-digit annual appreciation to cause amnesia.
You will drive yourself crazy by focusing on automated valuation models, like Zillow, that would have us beleive substantial equity is being lost or gained on a day to day basis, like the stock market.
Also consider being mindful that you cannot live inside an investment portfolio. Had you not bought, you would be paying rent somewhere. And none of it would ever be recoverable.
Been there, done that. My wife and I moved to MA in the mid-80's. Our mortgage was about 13% but were were getting 10% on our CD's. We refinanced a few years later.
deer
While your house has dropped in value, most that really got in trouble were those that could not make payments versus a drop in value.
Also seems to me your plan as in you can afford the payments and will wait to expand later is as solid a plan as when you started. The market will come back. Stick to the plan.
No home drops in value unless you actually sell it at a loss. If you're not selling, its just on paper. If you really plan on living there the life of the mortgage, 30 years, who cares what zillow says? And I'm in FL, and bought my house in 2005 because I needed a place to live, not as an investment in particular. According to zillow and others its worth less than two thirds what I am currently paying. But I don't really care. I bought within my means and have been able to maintain payments without killing myself. I met my fiance (who's home value is even worse) and moved in with him and turned my house into a rental so now pretty much someone else is paying for what might possibly be my future retirement home, so its all good. My fiancee has one of those $245000 mortgages on a house currently valued at $150k. He was totally screwed when he had to refinance to pay off his ex wife. He got a loan mod that only has a tiny balloon payment of 165k in about 20 years, at which time either he will have passed on already and if I'm alive I'll go live in my fully paid off retirement house, or he will have been able to gain a more reasonable refi by then. Who knows, but right now, I ignore the current values.
No home drops in value unless you actually sell it at a loss. If you're not selling, its just on paper. If you really plan on living there the life of the mortgage, 30 years, who cares what zillow says?
Unless you're hoping to get a home equity loan in order to expand the house to accommodate a growing family in 5 years. Not many people can finance a large addition with cash, but I suppose we'll have to try.
Unless you're hoping to get a home equity loan in order to expand the house to accommodate a growing family in 5 years.
That is a different question... but for this family they're probably better off trading their paper equity deficit
to another family with a paper equity deficit. There are plenty around to do this with.
Quote:
Not many people can finance a large addition with cash, but I suppose we'll have to try.
It's always better to remodel using your own cash.
Unless you're hoping to get a home equity loan in order to expand the house to accommodate a growing family in 5 years. Not many people can finance a large addition with cash, but I suppose we'll have to try.
If that's the case, you can't afford to expand the house and should instead live with what you've got. Look at your house and think: Do I really need to expand?
I would fit your description. Bought my tiny 900 sf starter home in 2003 for about $205k, put in another $8k for insulation, double pane windows, and will need to rewire the whole thing, it now it is worth $175. I owe $180. I would like to be able to move to pursue professional options, but don't want to be bringing cash to closing, or short-selling. Not destroyed by the meltdown, but not keen to have paid $1400/mo for almost 9 years with nothing to show for it. Not sure how it will all play out, but we'll survive.
Its hard for me to tell since we live in a non disclosure state now. Zillow is worthless first off in my opinion AND it already had my home valued at over a 100k, than what I paid for it 3 years ago. I look up listings just to get a feel and I see quite a few 4 bed. homes selling for what we paid 3 yrs ago. Ours is only 3 bed. I am really unsure how the market works anymore. Even though these homes are bigger they are severely outdated. I am not talking about having the latest greatest thing, I am talking about where they have wallpaper and kitchens from the 70's. Horrid carpet and so forth. My house has been updated and is modern looking on the inside but no granite or high end finishes. We also have a professionally finished basement where many homes around here do not. I guess the only way I will know for sure is if I call a realtor but then I hate to waste a realtor's time when we are not looking to sell.
Anyone have any ideas on how to know the general value in a non disclosure state?
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Not sure how it will all play out, but we'll survive.
I look up listings just to get a feel and I see quite a few 4 bed. homes selling for what we paid 3 yrs ago. Ours is only 3 bed. I am really unsure how the market works anymore. Even though these homes are bigger they are severely outdated. I am not talking about having the latest greatest thing, I am talking about where they have wallpaper and kitchens from the 70's. Horrid carpet and so forth. My house has been updated and is modern looking on the inside but no granite or high end finishes. We also have a professionally finished basement where many homes around here do not. I guess the only way I will know for sure is if I call a realtor but then I hate to waste a realtor's time when we are not looking to sell. 
