interesting lecture on income/consumption over the last 30 years

[Walt34]

I swear its the whole keeping up with the Joneses that's doing everyone in and creditcard debt. Of course not everyone can survive a vacation with an all inclusive resort like I can. I think a lot of people feel entitled to things that they don't really need.

I think that has a lot to do with it. Expectations have exceeded the reality of what is possible. Perhaps it is a case of people looking around, and seeing that this one has a new car every three years, this one goes to Disney World every year, this one has a nice boat... but perhaps what they don't pick up on is that not all of their neighbors do all of those things at once.

The lure of credit card supplied immediate gratification is a killer. I have to wonder how many marriages have been destroyed by Master Card, including my first one.

That's "Priceless" all right.

 

[ERD50]

If I invest in stocks and make a bad bet then I get to write down the loss as an investor on my taxes. Why not a home, the single biggest investment for most Americans.

With stocks, you don't get to exclude the first $250,000 ($500,000 for a married couple) in gains from taxation.

In addition, you need to *realize* the loss in stocks (actually sell them) to write the loss off. And, you can only write off $3,000 in any one year. The rest can only offset other gains.


Stock loss - personal residence loss: It's not the same.

-ERD50

 

[Johnphx]

ERD 50, I realize its not the same. I was just in a pretty bad mood last night after reading that article. The very suggestion that my house could have possibly gone from $233k to $99k (or less) in about 2.5 years or so was pretty sobering.

My wife and I have no intention of moving anytime soon and I we are able to make our payment comfortably and still save a fairly significant portion of our income (although with a baby on the way later this year its going to be a little more difficult - $850/mo daycare is NUTS).

But it does irk me that there are so many politicians wanting to bail out irresponsible borrowers and lenders, the very people who got us into this mess.

 

[P.S.]

My wife and I have no intention of moving anytime soon and I we are able to make our payment comfortably and still save a fairly significant portion of our income (although with a baby on the way later this year its going to be a little more difficult - $850/mo daycare is NUTS).

I wondered the same thing before our ds was born, and we actually spent much more for the first 1.75 y since he had a nanny. But we found that our savings wasn't too much off, probably b/c infants/toddlers consume so much time and energy, that discretionary expenses really wasn't/isn't apart of our vocabulary.
Also think of the benefit that after this, private schools or a state college sound cheap.

 

[Johnphx]

I wondered the same thing before our ds was born, and we actually spent much more for the first 1.75 y since he had a nanny. But we found that our savings wasn't too much off, probably b/c infants/toddlers consume so much time and energy, that discretionary expenses really wasn't/isn't apart of our vocabulary.
Also think of the benefit that after this, private schools or a state college sound cheap.

We don't have a great deal of discretionary expenses to begin with so we won't be realizing any savings from eating out less or not going to the movies as often. We are pretty much homebodies with only basic cable =)

My wife teases me because while we will have to cut back from saving 40% or so (probably to about 33% at least at first until raises help to bring it back up) I have talked about getting a second job simply to maintain the savings rate we enjoy now.

 

[P.S.]

My wife teases me because while we will have to cut back from saving 40% or so (probably to about 33% at least at first until raises help to bring it back up) I have talked about getting a second job simply to maintain the savings rate we enjoy now.

hehe, don't worry you will. It's called keepin' momma happy and baby sleepin'.
Enjoy though! It really goes by sooo quickly.

 

[ERD50]

ERD 50, I realize its not the same. I was just in a pretty bad mood last night after reading that article. The very suggestion that my house could have possibly gone from $233k to $99k (or less) in about 2.5 years or so was pretty sobering.

My wife and I have no intention of moving anytime soon and I we are able to make our payment comfortably and still save a fairly significant portion of our income

This might come across sounding flip, but hear me out:

What difference does it make?

You are not selling your house, so it is a paper loss - and one that doesn't really mean much. If your house value dropped the same amount as other houses, and if you were to sell and buy another house, that house would be at a low price also. So... what's the problem?

If you were looking to upsize , this should be good news, no? That bigger house is cheaper. If you were looking to downsize, or move to an area with less deflated house prices, yes, it is a problem.

Yes, I know it hurts when you look at a net worth statement, but unless you were in a position to sell your house, and NOT buy a replacement, you really aren't worse off. Other than you can't use the bigger equity number of your house as collateral on a loan, but again, if you were not planning to do that, it's not a problem, is it?

Get over the 'coulda, shoulda, woulda's' and see if there is some hay to be made here. Houses are on sale - that can be a good thing.

I don't include my home value in my net worth calculations. I figure if I sell, I would buy something roughly equivalent, so it's a wash. Late in life, it could fund a rental property or maybe I'd reverse mortgage it, but I'll cross that bridge when I come to it.

-ERD50

 

[Johnphx]

This might come across sounding flip, but hear me out:

What difference does it make?

If your house value dropped the same amount as other houses, and if you were to sell and buy another house, that house would be at a low price also. So... what's the problem?

-ERD50

Forgive me but there is a HUGE difference.

Primarily you are looking at it from the perspective of if I sold and bought another house, instead of realizing I can't sell at all. Should something happen to my wife or I where we couldn't make the payments or something we can't simply pick up and move or downsize to make things more affordable.

We are upside down by more than $100k . Regardless of the effect on my net worth statement (and that isn't my primary concern because I don't actually include my home value in my net worth since I have to live somewhere) its the hugely limiting factor of being house trapped that has caused me concern.

While I stated that I don't intend on moving in the near future that doesn't preclude some unforseen event that would force me to have to. Having equity (and it sounds like you obviously are not in a similar position to mine) means that you could sell your house if you had to.

 

[ERD50]

Forgive me but there is a HUGE difference.

Primarily you are looking at it from the perspective of if I sold and bought another house, instead of realizing I can't sell at all. Should something happen to my wife or I where we couldn't make the payments or something we can't simply pick up and move or downsize to make things more affordable.

We are upside down by more than $100k . Regardless of the effect on my net worth statement (and that isn't my primary concern because I don't actually include my home value in my net worth since I have to live somewhere) its the hugely limiting factor of being house trapped that has caused me concern.

While I stated that I don't intend on moving in the near future that doesn't preclude some unforseen event that would force me to have to. Having equity (and it sounds like you obviously are not in a similar position to mine) means that you could sell your house if you had to.

OK, I was thinking it through based on your statement that you were not planning on moving.

So, yes - what you have just experienced (if indeed your home value dropped that much) is the danger of leverage.

For years and years, we have heard ' take out a big mortgage, your house is always a great investment' - but every once in awhile, we hit a time frame when it is not.

I realize you didn't stretch out that much, you had real money down. Many of us could have been bit if the market fell like that when we were leveraged. But that is what leverage can do - it is a fact, no way around it. I think people forget that a mortgage is leverage.

Sorry, that doesn't help, but it just 'is'.

-ERD50

 

[Delawaredave5]

We are upside down by more than $100k . Regardless of the effect on my net worth statement (and that isn't my primary concern because I don't actually include my home value in my net worth since I have to live somewhere) its the hugely limiting factor of being house trapped that has caused me concern.

I don' think there's any "defensive moves" to do now. I hope you enjoy the house. Like a stock, there's no loss until/if you recognize it.

I "bought at the peak" in the late 80's where I was living. Houses rose sharply for a couple years prior, I was "spooked" by the advances, and when I finally "pulled" the trigger, the boom market ended.

I remember thinkiing "I could have had this house for $xx less had I acted a couple years earlier. Then the local prices started falling.

Then my first daughter was born and all my "house price anxeity" got put out of my mind. 18 years later my daughter's going to college and my "house purchase fumbling" 20 years earlier really didn't matter "in the grand scheme of things".

 

[kcowan]

Obsessing about net worth is definitely a sickness resulting from our information age. My Dad bought his house in 1945 and a cottage 3 years later. He never concerned himself with their values.

 

[ERD50]

Like a stock, there's no loss until/if you recognize it.

Just to take the stock/loss analogy a step further: If someone had bought a stock on margin ('mortgage' is just the housing term for 'margin' and 'leverage'), and the stock fell below the amount they had put up, they would get a margin call and be forced to sell. Then they might stand helplessly by and watch the stock rebound (without them).

Stock margin is limited to 50 cents on the dollar, looks like Johnphx was leveraged 10 cents on the dollar.

I'd also be curious, what was that $233 house selling for 3 or 4 years ago? It's one thing to buy a stock on margin when it is at historic lows, it's another to buy it at after a recent steep rise (if that's the case here).

Not trying to pile on you Johnphx, just trying to explain the reality of the situation. No point in getting depressed, time will very likely heal this wound, and your property value. What's the old cliche' - It's not the dirt that life throws at you, it's how you handle it? You'll be fine, you have a lot going for you.

-ERD50