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Boston ITer
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 Posted: Wed Jan 28, 2009 3:26 am GMT Post subject: If you don't have 2-3 yrs of liquidity, don't buy a house |
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Here's my heuristic about work and housing, starting in the '03 period, during the bottom of the tech recession in MA, I'd come to the conclusion that on top of any equity, whether it be in RE, an active business, or securities, one needs at least 2-3 yrs worth of liquidity before one can buy a house. Part of this is because I started to look at every possible layoff as the beginning of a career change than just as a loss of a job.
A career change could involve a combination of training and unpaid internship experience, to make the transition, in addition to having to change cities for that work, i.e. a petrochemist may need to move to Houston from Boston to get any equivalent work if that lab closes near Burlington.
Somewhere in this time period, the housing bubble took off and people embarked upon the road to euphoria despite reasonably flat wages outside of being futures/HF traders. That's where I'd broken off from mainstreamers and in a permanent sort of way as they derided the IT/telecom recession, of the '01-'03 time period, as a blip on the road than as an omen for something worse to come ala one credit bubble after another. Well, that something worse is here and a lot of people are ticked off that I'd predicted it because they're stuck in their houses and can't fish for work in a better paying industry or city. Now, if/when their company gives 'em the pink slip, many will turn in the keys and take advantage of the non-recourse clauses in their mortgage agreement. |
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Guest
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| Posted: Wed Jan 28, 2009 6:55 am GMT Post subject: Real Estate |
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In a broad sense, I agree with you that too many people have bought real estate that they can't afford, and the tanked economy has only made that worse.
But if everyone needed 2-3 years cash reserves to get a purchase-money mortgage, we'd have 5% homeownership in America. |
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Rental Lease
Joined: 28 Jan 2009
Posts: 21
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| Posted: Wed Jan 28, 2009 6:57 am GMT Post subject: Rental Real Estate |
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The mortgage requirements right now have gotten pretty tight, especially for rental properties, so I think we've seen the market correct itself on that front.
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Brian |
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floatingingalway
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| Posted: Wed Jan 28, 2009 9:17 am GMT Post subject: Re: Rental Real Estate |
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| Rental Lease wrote: | | The mortgage requirements right now have gotten pretty tight, especially for rental properties, so I think we've seen the market correct itself on that front. |
I think the market has a long way to go. They are talking about drops of up to 80% here in Ireland and I'd imagine it's the same story over your way. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Wed Jan 28, 2009 2:13 pm GMT Post subject: Re: Real Estate |
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| Anonymous wrote: | In a broad sense, I agree with you that too many people have bought real estate that they can't afford, and the tanked economy has only made that worse.
But if everyone needed 2-3 years cash reserves to get a purchase-money mortgage, we'd have 5% homeownership in America. |
I don't think that it would reduce homeownership nearly so far because the supply side could adjust as well. Many sellers need to sell and would have to take the price that the market dictates. If everybody made saving 2-3 years of cash reserves their priority, rents and purchase prices would necessarily adjust to accommodate what people could pay while doing so.
However, I don't think that Boston ITer's point was that everybody should be required to have such a cushion. I think that the point was (correct me if I'm wrong) that when you go to buy personally, you had better have enough cash reserves to weather the storm if your life situation changed substantially. If you don't have this, then you are playing with fire. If following this rule means you can't buy now, then don't buy now - save first. Just because other people gamble and buy without an adequate cushion does not make it a good idea. Self preservation must come before following the herd.
- admin |
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Boston ITer
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| Posted: Wed Jan 28, 2009 2:52 pm GMT Post subject: |
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| Quote: | | I think that the point was (correct me if I'm wrong) that when you go to buy personally, you had better have enough cash reserves to weather the storm if your life situation changed substantially. |
Yes, this was my main point.
I did, however, also wanted to highlight the prior recession and how its affects weren't factored into many people's experience log.
Prior to 2002, there were good jobs. True, some were in Pets.com and other fluffy organizations, however, there were good positions at reasonably stable companies and a lot of people had gotten great experiences, from the whole outgrowth of those tech sectors and ancillary services.
Since then, however, at least for MA, the job market was tenuous at best, and at the same time, a huge rise in housing costs. I think, for one, that that should have set off alarms. In other words, the thought of "What if my position moves to Austin, StLouis, or Beijing/Bombay? What's my plan B?" but what I saw instead was, "Oh, I'll get a HELOC or sell the place and then move to let's say Dallas." Or worse, "I'll keep my place, let the equity build, and rent a studio in Dallas".
Then the above, supplanted everyone's commonsense, until every other person I knew was a Cramer-esque, Real Estate Bull. Now, we have people, who have a stake in RE, near non-growing commercial cities like Boston, but are under pressure to move to maintain employment. |
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