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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?
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I'm interested in knowing how much of a down payment was required for this young woman to buy said house? I'd also be very interested in knowing if the homebuyer tax credit and/or HUD loan was used in lieu of an actual saved down payment and /or closing costs.
I certainly hope that when this story appears on the radio, the point will be made that FHA is in many ways facilitating a continued housing bubble as a matter of policy (Barney Frank was recently quoted saying as much). This, in my view, is the bigger story here.
While in the short term, it does allow some would-be buyers to make a home purchase when they might otherwise not be able to, it is a very open question whether or not it will be in any of our interests in the long run. It almost certainly is, however, in the interest of all the large institutional banks that have also recently benefited from unprecedented taxpayer generosity.
By arresting house price reversions prematurely, through a sort of FHA sponsored 'sub-prime 2' (along with the inefficient 1st time buyer tax credit), the banks get a reprieve on the value of toxic assets still hiding (behind FASB 157) on their balance sheets and the government gets some 'green shoots' press, but it may not be much more than kicking the can down the proverbial road..
No, not $18K down, $36.6K (20%) down payment needs to return as a rigid requirement. The upside leverage of small down payments are great, but that same leverage is absolutely disastrous when prices fall.
This whole housing crisis reminds me of the Dutch Tulip Mania. http://en.wikipedia.org/wiki/Tulip_mania
I have to point out that it's unfair of the reporter on this piece to characterize these homeowners as "underage." At age 18 you are of legal majority and can enter legally into contracts such as mortgages. Now, if we're talking about a 16 year old who bought a house, that's an "underage" homeowner. Anybody over the age of 18 can purchase a home and many do in much of the country where homeownership is still realistic for the average laborer. In the future, you should reconsider labels such as "underage" for people who are legally of age to buy real estate.
This story and the video talk about the incredible dedication to hard work and saving that made this possible.
Denise said she put $1,500 into this house. In other words the price of a good set of golf clubs.
She is already deeply underwater despite her delusional belief in a $100k profit.
Tracy,
What exactly does "that is how they all do it" mean?
Is that a racist comment? Seems blatantly racist to me.
Just like any other citizen, Denise the absolute right to do whatever she wants (barring the illegal)with her house. Is the green-eyed monster at work here?
<i>Seems blatantly racist to me.</i>
You're the kind of person, with your 'boy who cried racism' nonsense, who has helped to make the terms 'racism' and 'racist' virtually meaningless. It seems anyone can be called a 'racist' these days for the flimsiest of reasons. Even for no reason at all. As here.
Congratulations.
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