May 01, 2005

housing quandary

Picking up and moving an entire family across a large continent is no simple thing. Picking up and moving with no certainty of employment at the other end? Raise that complexity by a factor of ten. We have a lot of decisions to make right now. Some feel easy. Others, not so much.

Take our living situation. Two people (one in comments and one in email) have suggested we hold onto our house in LA, rent it out till we're ready to buy in New Jersey. It's the sensible thing to do. It's what we should do, in fact. Housing prices continue to skyrocket. Our bungalow has more than doubled in value in the past four years. How can we sell but not buy again right away, knowing that with prices rising 20 to 25% per year, we could easily be priced out of our new local market? We should either buy right away or hold onto what we have now.

But we can't. We need the money to cushion our transition and ease our stress level the first year or so. I'm not a big fan of equity lines. They're just like Visa debt. You take the money now but you have to pay it back plus interest, giving you yet another monthly bill, another headache. The only way to get that money out cleanly is to sell. And if we buy right away, that nest egg vanishes again, right into a new house, leaving us with too high a burden once again. Because though houses aren't as expensive there as here, property tax is much worse. I did the math before we went east on this exploratory visit. We can buy a pleasant house there, around the same size as our current house but on a much nicer street, and end up with the same overall monthly payments we have now. Which sounds fine but isn't. We may not have any income some months, we may have half the income other months. We don't know how long it'll take Dan to get established there, we don't know what kind of work I'll do and what income that'll generate. We won't be able to afford the monthly outlay we have now. In fact, we need a serious cushion in the bank for hard times. Otherwise, we're looking at debt and fear and despair and man, do I not want to go there.

Besides, what if we hold onto our house and there's another earthquake? After the Northridge quake, house prices plummeted. Even without a shaker to crack prices and send everyone rushing for the door, it's not a sure thing. Most economists think real estate prices can't keep going up. And when they stop rising… well… There was an article in the LA Times a month ago about how people are struggling to get into this insane market. How are they doing it? More and more people are going for the low-interest-to-start ARMs, and on top of that, they're choosing interest-only loans. Translation: they're going to get screwed two ways when the terms change. First: An adjustable rate mortgage WILL go up after the first few years, especially because rates have been artificially low for too long. They're going to go up. And even a point or two could devastate people living on the edge. Second: An interest-only loan means you're not paying off any of the principal. You're counting on the housing bubble to provide equity and planning to refinance when you reach the magical 20%. Well, okay, I guess, but that interest-only period has an end date. And when it comes? Your payment goes up. And the people interviewed in this article all pretty much said, "I did it this way so I could borrow more, I'm stretching to pay this amount." The artificially lowered amount. Which WILL go up. Uh huh. Can you say "foreclosure"? I have a feeling the word's gonna become really familiar not too long from now.

Is this a California-only phenomenon? I don't think so, not entirely, but it does seem to be more pronounced here. And if that's true, then California's going to be hit first and worst by the bubble bursting. Which means if we own here and not there, we could lose big time.

Makes your head hurt? Mine too.

We're toying with the idea of buying, though. But buying a multifamily dwelling. Two to four apartments in one building. We live in one, rent out the other(s). This kind of house seems to cost less than a single family home. If we do it right, we might even be able to have our mortgage and tax nut covered by rental income. Wouldn't that be cool? And that way we're sheltered against a continuing surge in the real estate market. Our home's value goes up with the market, we ride the wave.

But I don't know. From poking around online, it seems like it might be hard to find something we like. Far too hard to do it long distance. Maybe we could rent short term and look around town once we're there. How fast can prices go up, after all? (Don’t answer that.)

I'll admit, the idea of renting feels extremely odd after four years as homeowners. I love transforming a place, painting the walls and changing the fixtures, making it our own. I love that there's no landlord peeking in the windows, judging our furniture and mentally deducting our security deposit. I love the feeling of ownership. I'll miss that dreadfully. And of course there's the risk we may never get that back. If the market stays this out of control. If the bubble doesn't burst after all. If. But man, the equity transformed into cushion is an awfully comforting concept during such a huge transition. I'm not sure we can do without it.

Lots to decide. Lots to learn. Lots to do.

Posted by Tamar at May 1, 2005 08:17 PM

Sounds like you have really done your research (of course). I like the idea of the multi-family dwelling. It sounds too good to be true, which is probably why it will be hard to find something you like, but... even if it paid half your mortgage, it would be so much better not to lose your asset - or rather, have the money sitting there but have the market go up (while your nest egg gets whittled away) so that you can't buy back in.

I'm not making it any better am I? I just hate the thought of you never being able to get back in again. I have a sister and a brother-in-law both trying to break into the housing marketin Australia now, and just four years after we bought this place they are looking at minimum double what we paid. Actually probably more like triple or even quadruple in the places where they live. It's scary.

Posted by: Kay at May 2, 2005 02:32 AM

You might want to check out:

This family made the move from Minneapolis to Victoria, BC so there was the whole element of emigrating as well, but they looked at the multifamily dwelling idea as well.

Good luck!

Posted by: Rachel at May 2, 2005 07:15 AM

Maybe you guys should approach Mordecai & Dianne, who have been looking to buy but Manhattan's insane; little Susan just grows bigger. I doubt if NJ as occurred to either of them, but their apt is about the same size as ours....

Posted by: Chris at May 2, 2005 02:16 PM