63
On the flip side...
Sticking with the housing market, here's the story of a young first-time home buyer. And I mean young. She bought a foreclosed home about a month ago. At age 20.
In fact, Denise Tejada and her 22-year-old brother both bought homes in the San Francisco bay area. Denise is a reporter at Youth Radio, which featured their story:
You gotta like them. Two immigrant kids saving from age 15, working hard, encouraged by their father to be smart with their money. But we wanted to know why they wanted to buy homes, what the process was like and what they're giving up to do this.
This week, I interviewed Denise. You can listen to it below, but here are a few details, some of which aren't in the interview:
Denise works three jobs so she can afford her new house. She makes $2470 a month but pays $1328 to service her mortgage. That means 54% of her income goes to the house, leaving her with $285 a week to live on. Doable, but tight. She's breaking the 30% rule and then some, not to mention she's still spending out of pocket to renovate the yard, fix the roof and paint.
She got a loan to renovate the place, which was just a "box" with no kitchen or bathroom when she bought it. She says the renovation has increased the value of her home from $155,000 to $255,000. In the interview, she describes the process of getting the loan.
She also answers the question, "Do you see this as an investment or a home?" (That's at 6:10)
Denise is clearly intelligent and motivated. She's learning a lot through the experience. And she's already light years ahead of many young people in terms of respecting the money she makes. But so far, she's sacrificed going to college to buy this home. And she's spending an awfully big chunk of her income on it. I hope she doesn't lose one of her jobs.
If she can find a buyer, she might make a nice profit. She'll also collect the first-time home buyer tax credit next April. But is this what young people should be doing? Take a listen. What do you think?
Pages
I appreciate this lively and interesting comment stream, and I just want to clarify some of the questions that are coming up.
But first something you should know about me. I came to this country to achieve the American Dream. I'm an immigrant and I know the value of hard work and making good, honest choices. I didn't buy this house on a whim. Buying a house is a risk for anyone, and as a young buyer, I’ve been challenged all along the way. With hard work and sound decisions, I’m planning to prove my doubters wrong.
First, my loan is for 183k which includes my mortgage loan of 155k and my remodeling loan of 29,600 minus my initial deposit of $1,500. My mortgage payment of $1,328 does in fact include my homeowner’s insurance and property taxes.
Secondly, if you subtract my mortgage payment from my monthly income, I’m left with $1,142 per/month, which is plenty for me. I have two credit cards—that I barely touch—a cable bill, gas, food, and utilities. I’m not scraping to get by.
During a time when so many people are losing jobs, of course, I think about what would happen if I lost one of mine. However, I honestly think I am prepared. I have some options. I could find renters for my two additional bedrooms. I’m young and able-bodied and ready to work, so I could probably still get work that other people don’t want. For instance, I could clean floors, windows, etc. I don’t want to be someone that depends on the government to sustain me financially. I was brought up with a work ethic of working hard until the end. If I was really strained financially, I know my family would be there to support me.
Many of the comments asked why I’m not in school. I do plan on continuing my college education. By having roommates, I can cover most of my mortgage, which would help me pay for college. Plus there are people who are twice my age going back to school. I’m only 21; I have time on my side.
I know that my type of loan is controversial to some people, but I’m confident that my house is a good investment. I got a historically low interest rate and paid far less than market rate.
Denise, this is going to sound harsh, but copy this post and file it away on your computer. I fully expect you to be foreclosed on before 2012. And the reason why I'm not giving a shorter timeline is that I'm assuming that you're going to get several credit cards and max those out as you play the credit juggling game.
I'm 48 years old, majored in economics in college, and saw the housing bubble getting ready to pop back in early 2007 after a couple of subprime originators went belly up. The following analysis of the housing market is backed up by thousands of hours of research.
First, there is a HUGE housing glut in this country. The country is currently experiencing negative household formation which makes the housing oversupply even worse. Based on this statistic alone, housing prices will continue to fall until an equilibrium is reached - by my ballpark estimates, that'll be 2014 or so.
Second, interest rates are at historic lows. When interest rates are low, home prices are high. This has to do with home affordability; you can qualify for a bigger loan when interest rates are low. With the federal funds rate at 0-.25%, mortgage rates are not going to decrease from here. They are at the bottom.
Third, you're in the SF Bay area. A large percentage of the housing in that area were financed with pay-option ARMs (negative amortization loans). They have a higher default rate than subprime. This is going to crush all real estate in the SF Bay area.
By 2014, I fully expect your house to be appraised at less than $100K. The only way that I can see a more favorable outcome is if we start to experience high inflation. However, with continuing job losses and massive credit contraction, I see inflation as an extremely unlikely outcome. Rather, I fully expect us to experience deflation.
All the best to you, but I see home ownership ending in tears for both you and your brother. A home is NOT an investment (historically, it's a lousy investment); it's a place to live.
sounds like you put a lot of effort into your ekonomik inalysis. your a geneus! i'm sure it will be exactly as you say! no doubt!
because san francisco bay area jobs are always as hard to find as in the catskills...
how many people got economics degrees again? you're proving her point, or rather the point of the posters that suggest that a college degree (oohhh watch out!) has anything to do with anything, 'cept workin for the man
Denise-
I, too, wish you good luck. No one really knows for sure what is going to happen in the future.
I think there is a lot of bitterness attached to this issue and it's unfortunate that you personally are being made a target when people who have made fortunes off of this whole horrible mess get to live anonymously (or stay in their elected office). You didn't make the rules, and who can blame you for playing by them?
Rental properties are a legitimate type of real estate investment. If she is able to rent out the rooms while keeping it her primary residence, then I think she will be doing well. After she increases her emergency savings (if she needs to), if she starts throwing excess money at the house to get it paid off she will have an asset that she can use for shelter (even if the assets value has decreased.) So, this could end very well for her despite what the housing prices are doing - maybe not as well as if she had waited another few years to buy a house, but certainly better than the situations faced by some of the people with whom I graduated from college.
To all of the people getting self-righteous about immigration and gov money in this situation, read this chapter of The Millionaire Next Door and pay close attention to where it talks about immigrants and their children. Actually if you have time, read the entire book. http://www.nytimes.com/books/first/s/stanley-millionaire.html
Also, if Denise and her family are US Citizens then they have every right you have to government money. Don't like gov handouts? Don't vote for big government. You only sound like a bitter $$$hole when you single another American citizen or resident out because you think they are getting "your" money unfairly. Who cares how they obtained their citizenship. Obviously they went through whatever was required by our government to receive citizenship because they ARE citizens now. And Guess What? When you pay your taxes, the money becomes "everyone's" and is controlled by our elected officials. Vote for the candidates who take your side on the issues and get over it. Wow.
To Denise - you sound like a very hard worker and that is something to be extremely proud of. Many people do not have the discipline to save their money and make sacrifices in the short term for their long term well being. If you continue to live beneath your means and make investments you will most certainly be better off than the majority of the people in our country. See if you can make bi-weekly mortgage payments (half the payment every two weeks applied towards principal and interest.) Google the topic - you can save a lot of interest money and pay off your house sooner without having to put extra money towards the mortgage.
Wow, VeeCee, way to bring racism in where it's not even mentioned. Thanks for helping us continue to look at people not by the "color of their skin but by the content of their character."
Beyond that, this story amazes me--not only by the sheer determination of Denise, but the fact that this kind of loan is still being made available, even after everything that has happened in the past few years. I don't doubt Denise will work hard to keep her home, but the chances of something going wrong (everything from a car accident, to losing one of her jobs) is ridiculously high. While I admire her tenacity, this was not a wise thing to do (for anyone involved).
Finally, to Scott Jagow and the rest of your staff--I am so impressed that you take the time to actually read and comment on the comments! So many news stories online become a giant pit of mindless comments, without any input from those who worked on the sotry. So thank you, for taking the time to truly report and interact with your readers. It's one of many things that makes Public Radio stand above the rest.
Thanks, Crystal. Here's something else to consider - home buyer tax credit fraud:
Despite the obvious fact that based on any reasonable underwriting standards Denise cannot afford the house, I can't fault her for taking what amounts to a Government handout. She has so little "skin in the game" that even an eventual foreclosure will result in her financial gain. California is a non-recourse state, so if she never makes a mortgage payment she can not be held responsible for the cost associated with a foreclosure. Also, it would probably take a year or more to evict her if she defaulted. Her downpayment is equivalent to about half a years rent. No risk on her part since it's nearly all OPM.
Karen,
I did not look at the video. <a href="http://mangans.blogspot.com/2009/10/government-dominates-mortgage-market... read she was from Guatemala here.</a> But you are right, she claims to be from El Salvador in the video.
I don't see anything controversial about her decision to buy a house. She can buy a house if she wants to; I don't care what she does. What is inappropriate, i.e. "controversial", is the government has guaranteed the loan for such an uncreditworthy buyer. Please note that this does not mean anything other than that under traditional underwriting standards -- which is what we ought to be using now, certainly for loans guaranteed by the taxpayer -- she would not qualify for such a loan.
And I'd still like the question about immigration (status) answered.
Pages
