Monday, February 25, 2008

House hunting, pt 2 of a million

TBO and I have joined the ranks of adults. No, we don't own a house (yet), but we "put in an offer" on one! Exciting and terrifying. We'd be committing ourselves to paying more than double what we do now for shelter, which is astounding. For a little over 1400 square feet, yet. Not exactly a McMansion, you know? We bid on a "short sale", which means nothing of the kind. A short sale is one where the owner is in the process of defaulting on one or more of his/her mortgages, so the bank has to forgive that debt before allowing someone else to buy the house. In our case, the owner took out a 100% mortgage and added another $150K loan on top of that. Our best guess is that this is a classic case of someone trying to flip the house in a down market, because the house itself is in immaculate shape, with new windows, a new A/C unit, new carpeting, new paint, fresh looking everything.
Ordinarily, we would feel bad taking advantage of someone else's collapsed finances, but I have no remorse taking advantage of an over-aggressive flipper. There should be risk in any kind of investment, and house flipping is an egregious form of investing, because it is done solely on borrowed funds. I don't begrudge someone owning more than one property, as long as they intend on paying those mortgages themselves (or via rental income). Absentee remodeling and reselling, though, irks me because it relies on, and has caused, an undue inflation in the price of housing. This overheating of real estate prices had made it virtually impossible, until very recently, for even moderately well off income earners to buy a house (at least, here in SoCal). Even with the nearly 20% drop in price for the house we bid on, it will cost nearly twice as much as the (much larger) house our friends bought only 6 years ago. Perhaps the neighborhood is a bit nicer, but $200K nicer? Not to my eyes and wallet.
I often reflect on how different a world we now live in from the one I grew up in, and going through this process makes me realize how truly different the economy is. My father was the sole provider for our family, and he bought a house that was not much more than 1/2 of his annual salary--in one of the richest counties in the country, in one of the nicest and newest parts of it, to boot. You can't even touch a house in the deepest slum in LA for what I make annually, let alone anything less! TBO and I plan to spend 2X our combined salaries for a house on the very northern reaches of the San Fernando Valley, because we can't afford anything closer in that would be comparable in quality, and certainly nothing closer to our jobs. The median house in the city I work in--which is not at all considered glamorous, by the way--costs over $700K, or it did the last time they did the calculation a year or so ago. That's simply crazy, and just another measure by which we can be seen as rapidly becoming a third world country, where there are a few rich people completely divorced from their surroundings and a whole host of the rest of us on the outside looking in. Disgraceful.