A nice house. But should I buy it?

As I browse the business sections of MSN.com, so many articles are written to encourage prospective buyers to take the plunge and buy a house. Headlines read like a “going out of business” sale, “Mortgage rates at rock bottom, buy now” is the theme. But just because mortgage rates are the lowest they’ve been in years, and home prices are much more reasonable than three years ago, does that mean everyone should go out and buy a house?

I’m playing devil’s advocate here, even though my goal is to purchase a home of my own, because I think these articles that are appearing in the business section of major news sources mislead prospective buyers. My stance is this: No one should buy a home unless they are financially prepared to do so, no matter how low interest rates are or how inexpensive homes may seem. Financial Samurai recently posted his interview with Consumerism Commentary and stated that he believes in the 30/30/2 rule when it comes to purchasing property. That is you have 30 percent saved, for a 30 year mortgage (I think this is the second 30, I can’t remember this one – Sam?), and pay no more than twice your annual income for the house. I agree, but with a slightly different variation; a person can probably comfortably afford a home at 2.5 time their income.

This means, however, that if you want to purchase a $300,000 house, you need $90,000 saved. How many new home buyers do you know that put down that much in cash for a house? It’s difficult to save that much money when an average salary hovers around $40,000. And, if you only make $40,000 a year (add a spouse that may equate to $80,000 total income), your home should cost no more than $200,000. Where I live, there are few homes in this price range. So what does this mean? It means I’m not ready to own a home yet, even with articles luring me to purchase because mortgage rates have never been this low and are primed for spiking within the next year.

Marketing pressure is what lead to the recent housing bubble, hopefully this pressure isn’t leading more purchasers down this same path. With tighter lending practices in place, due to the financial melt down, this should remedy some of the problems of the housing market. However, no matter how enticing home prices and mortgage rates seem,  I won’t be making that plunge until I’m sure I can afford a home comfortably.

What is your thought on buying a home? Is it always the best option? Are renters financially illiterate people? What about all the articles sounding like advertisements for prospective home buyers? Should people follow the advice and just buy a home before it’s too late?

I don’t know if kit homes were ever popular, so I can’t say they’re “making a comeback.” However, kit homes today are making themselves known. MSN.com created a great slide show of beautiful kit homes. Some of the companies I’ve never heard of, and considering I’m always researching ways to save money with buying or building a home, there were a few surprises. Here are a few companies worth mentioning that are reasonably priced:

• Shelter-Kit: Most of their homes they offer have prices listed on the site. They range from as low as $10,000 for the materials, up to about $60,000. These prices are really reasonable, and some of the lowest priced, based on other kit home I’ve found. They are located in New Hampshire, so I’m guessing shipping the materials across country would tack on some additional fees that might match the price of the home!
• KitHAUS: I’ve come across this site before. Their structures are fairly small ,and I think most people build these to use as home offices. However, their K4 + bath could be built as a small starter home. They start at a little over $52,000.
• Gastineau Log Homes: According to MSN.com, their homes are priced between $48,000 and $93,000. However, they offer many different styles of log cabin kit homes. They don’t specifically price out their homes, but they do offer an excel spreadsheet that helps determine a budget.
• Multi-facettedhomes.com: These homes are beautiful, octagonal- shaped cedar sided homes. Too bad their website is really difficult to read. It is hard to figure out the pricing and floor plans. However, their site makes it seem like it’s very easy to put together with the help of a few friends! They are located in Hawaii, but will ship to the mainland.

As much as I love the idea of building my own home, primarily to save money and include “green” features, finding land is problematic. The flat lots are pushing $200,000, and the less expensive lots are on dramatically sloping hillsides!  My search for land continues!

Wieler Starter Rapson Greenbelt Home, I could live in this.

To quench my continuing curiosity with small house options, I’ve done extensive research on small, energy efficient, house plans. Since it’s very possible that my husband and I might end up buying land first, living on it in a tent, then building a home, I’ve had to get a little creative in what kinds of plans we could build quickly and inexpensively. Prefabs seem to be the best option, whether we go with pre-cut materials, or a prefab kit. Not only do they get built quicker than traditional construction, we can add energy efficient add-ons to them.

I found a great website with lots of links to prefab options called Jetson Green. It’s basically a blog about green building. Not only does it post information about green communities popping up, it also has lots of resources like books and links. I searched many of his copious links and found a few prefab sites I’d never come across before that were really helpful in deciding if it’s worth building a prefab house. Three that I think are worth mentioning are below:

• weeHouse by Alchemy Architects: I’ve heard of these guys before, but I think they’ve revised their website and made it easier to view samples. They have lots of examples of actual homes they’ve built. They are quite modern in design, but I like their variety. They also have a sample pricing guide that describes the three main expenses: Land+ weeHouse + Site work. I didn’t know about the site work pricing before seeing their diagram, so this at least gives me a ball park figure.
• Zamore Homes: This site is completely new to me. I don’t necessarily like their house plans, but their pricing over view is pretty detailed. I would think I could use this as a guide to any build-from-scratch model.
• Wieler: I like that they offer a “starter” home that can be expanded upon. They don’t offer concrete pricing, just an overview of how most square footage pricing breaks down. However, if their starter home is reasonable, it might be a great option. Again, I like the modern look of these prefabs. They remind me of the modern homes built by Wright and Eichler of the 1950’s and ’60’s.

Next, I think I’ll look into tiny trailers or sheds that my husband and I might be able to live in temporarily while building a house (or waiting to build a house) on land that we buy. We’ve already called Tuff Shed, they seem like they might have a few models we could set up shop in while we “rough it.” I’m just not sure how the cats would like it!

I recently revised my monthly budget, in November, and it came in at $5,450 a month. So, when I pulled my final Quickbooks year-end report, my budget wasn’t accurately reflected in the total monthly expenses for the entire year. In 2009, I was spending about $6,705 a month. Part of this higher monthly total was due to business expenses. My husband has recently simplified his business and has cut down his employee’s hours so we can save a little money on outsourcing. We’ve also reduced our extraneous expenses by as much as we comfortably can (we could do more, but we’re not willing to go this far yet.) I’m curious to see how close I can get to our new, revised budget by the end of January. It will give me a peek into this year’s total expenses.

Examining where our money is going, the three top categories in highest to lowest order are 1.) rent, 2.) business expenses, and 3.) utilities. My husband and I have a drastic plan to reduce items 1 and 3 if need be: move out of our rental house and move into an RV or tent! Of course, this will only happen if we feel that we’ve not saved enough toward our down payment for a house by this summer. Then, drastic times call for drastic measures! As long as we are able to have internet access and running water, I think we could make it work. Note how I listed internet access before water. Water may be more important and vital to survival, but we still need to make a living and must have internet access in order to do so.

I know this sounds crazy, but we live in temperate Southern California where our temperatures hover around the mid-70’s all year. We also feel that living in such an expensive area calls for some unusual moves. I posted a while back about a neighbor who is rebuilding his house and living in a tent in the corner of his lot. The structure is now up, but it’s no where near finished. He’s been “roughing” it for the past 7 months. If he can do it, surely my husband and I (who are quite a bit younger than him) can do it too.

Best case scenario, if I can stick to our monthly budget and even reduce it by a few hundred dollars, we may be able to get away with staying in our rental house until we buy a house of our own. As long as our income remains consistent, this should be doable.

What items have you sacrificed to save money? Have you been known to do some drastic things in order to reach a goal? How many of you have lived in an RV for a while or alternative form of housing?

This year, my husband and I will be digging in our heels with the idea of fulfilling our home ownership goal. We couldn’t have picked a more opportune time; housing prices have finally come down to more reasonable levels and mortgage rates are quite low, historically in fact. Five years ago during the peak of the market, we thought we wouldn’t be able to afford a home in Southern California for many years, possibly not until we reached our late 40’s or early 50’s. We were fine with that, owning a home wasn’t on our agenda. Paying thousands of dollars a month for a tiny plot of land in a fixer upper just didn’t sound appealing. But, times are a changin’!

The homes in our area are still on tiny plots of land and require a bit of TLC, as many seller descriptions mention. But, the houses are literally two-thirds to half the price they were compared to 2005, and the mortgage rates have remained steady hovering around 5 to 6%. I’m also feeling positive since a few of the homes in our price range, the mid to high $200,000, are pretty cute and may not require as much work as we had originally planned. Here are some of the most recent homes surrounding our neighborhood that on the market, you’ll notice they are small, but quaint:

A cute little house for $225,000

Another little house for $240,000

A slightly bigger home, but not much, for $285,000

Based on these home prices, using the Quicken Loan calculator, our monthly mortgage payment would be between $1,291 to $1,785 including taxes and insurance. That’s anywhere between $15 to $509 LESS than our monthly rent! These figures are based on homes ranging from $225K to $285K with only $15,000 down.

Of course there are many unknown variables such as we may not qualify for the lowest finance rate. We also are working on saving up for our down payment, so predicting that $15,000 down may not be very accurate. Another factor that may change is that by the time we are ready to purchase our house, which will most likely be towards the end of the year, the interest rates may rise. Below is a historical chart showing that interest rates on a 30-year fixed mortgage haven’t been this low in the past 10 years.

Historical Mortgage Rates for the past 10 Years

Obviously, the sooner we can submit offers on homes, the more likely we will be able to lock in a low mortgage rate. Over time, the amount of money that can be saved on finance charges can quickly add up. For instance, below I’ve outlined how much interest will be paid on a home loan of $250,000 at various rates:

• 5% APR: total interest paid over 30 years – $233,139.46
• 6% APR: total interest paid over 30 years – $289,595.47
• 7% APR: total interest paid over 30 years – $348,772.25
• 7.5% APR: total interest paid over 30 years – $379,293.06

Whoa! If we don’t qualify for the 5% loan, we end up paying more in interest over 30 years than the actual cost of the home! Using Bankrate’s amortization chart,  the majority of mortgage payments go towards the interest for the first 17 years of home ownership. This is why it is so important to shop around for the best mortgage rate. These figures also explain why so many people who purchased their homes at the peak of the market are upside down on their loans; not a position I envy.

With careful planning and homework, my goal is to be a responsible home owner by the end of 2010. An obtainable goal if I stick to my 3-step plan!

My obsession with residential architecture seems to grow with age. Or, perhaps it’s because I still don’t own my own little house. However in my quest to own my own place, I have come across some fantastic little cottage plans along the way. Some of the plans I’ve encountered are from architects building communities in other states, so purchasing the plans is my only option at this point. Other plans are kit homes my husband and I have discussed as an alternative to buying an existing or older home. The more I search, the more amazing alternatives I come across. (In my next life I think I’ll be an architect!)

Ross Chapin is one architect that I admire. His housing communities are well thought out and the house plans are adorable! Too bad I don’t live in Washington. My favorite house plans fall in the small house plan category, homes between 1,300 sq. ft. and 2,800 sq. ft. Though the larger square footage, 2,800 sq. ft.,  I wouldn’t consider small. The Kaleah and Vinnlee plans are my favorite, each house has a sunroof or two and a fantastic front porch. The Vinnlee has a slightly more open floor plan that I like more so than the smaller Kaleah plan, but I’d be thrilled living in either home. All of Chapin’s plans are for sale. His website also offers PDF files for examination before purchase, this is smart. I have little experience building my own home, but I would think you’d want to run the plans by a contractor before purchasing to make sure the layout would work on the existing lot.

Another option my husband and I have discussed is buying a kit home. It seems a like a slightly easier and less expensive alternative to building our own home from scratch. There are so many choices today, but I have listed a few of my favorites below:

• Michelle Kaufmann’s Glide House – This prefab house incorporates sustainability. The price isn’t too bad, but it is one of the more expensive prefab homes I found. Square foot average cost is $145 per sq. ft.
• Maple Homes – This prefab home company has some great designs, I especially like their Craftsman houses. The only downfall is they are based out of Canada. I’m not sure what the pricing would be to deliver to Southern California. Square foot price up to $60 per sq. ft. which is 1/3 of the total build price, according to their site. Not bad if the total price ended up at $90 per sq. ft, much less than anything where I live.
• Marmol Radziner – Has some great modern looking prefab homes, think Frank Lloyd Wright in design. The price isn’t bad, $179,000, for the smaller Rincon 5 series, but the larger Skyline series seems a little steep starting at $500,000.
• Cottage in a Day – Small cottage cabin, reasonably priced, can be put together in a day! I personally like the larger model, 2842 T, and I think you can add to it looking at the picture on the contact page.
• Lowe’s Katrina Cottage – Originally designed to replace the temporary housing in New Orleans after Hurricane Katrina hit, these kits are apparently being purchased as regular homes as well. The price is really affordable.

As much as I love the idea of building a brand new home or kit home, finding the land where I live is a little challenging. I might just have to settle for an existing older home and renovate it. I found a cottage retreat in Venice that inspired new ideas for doing just that: Venice Beach Eco Cottages. I might have to talk my husband into booking a weekend retreat to check out the cottages.

Have you completed a major renovation on a house? Have you built a house from scratch? Any information on these topics would be helpful!

The other day my husband was discussing our progress of saving for a down payment with his mother, my mother-in-law. Now, my mother-in-law holds a PhD in Business Management, specifically International Student Affairs, or something like that. She is quite knowledgable, or I would assume so based on all of her education. She was concerned about our progress on our down payment. However, my husband explained that saving 20% of $250,000 is difficult and takes a while. Her comment went something like this, “Oh, you don’t need to buy a nice home for your first home.” My husband tried, again, to explain to her, as he often has to do with his family in general, that a “starter home” in a Los Angeles suburb starts at $250,000.

We’ve tried many times to explain to family members living in other, more affordable, states that homes in California are expensive compared with the rest of the nation. Somehow, even when we browse realtors windows when family visits, it just doesn’t sink in. They think we are being “picky” and won’t settle for a small, starter home. So, my goal in this post, is to explicitly show with graphs and examples, that we’re not exaggerating, or being too picky when explaining that starter homes really do start at $250,000, and that’s not in a prime neighborhood.

I’ll begin with a city comparison from BestPlaces.net. I love comparing cities to see where the deals are, and the comments left on this site are very insightful as well. First, I chose to compare Mesa, AZ, where my husband’s family resides, and Los Angeles. Of course, I live in a suburb of Los Angeles, and not directly in the city, but a few of my examples will show this initial chart isn’t that far off the mark. I chose to compare only the housing. However on a side note, Mesa is less expensive in all areas.

Mesa, AZ compared to Los Angeles, CA housing costs

Notice that the percentage of people renting homes in Los Angeles, something my husband and I do, is 33%  higher than in Mesa, AZ. This is, of course, due to the fact that so many people cannot afford to buy their own homes. Where as in Mesa, AZ, homes are so affordable that it doesn’t make much sense to rent. I also noticed, looking at this graph, that Mesa’s houses cost $25,000 less than the national average. So, my in-laws live in a very inexpensive housing market. My mother-in-law’s comment begins to make more sense to me now. Graphs are great visual aids!

I then decided to also look at Zillow.com for specific sale listings to get a better idea of how our specific communities’ prices differ as well. I chose a house that looked similar to my mother-in-law’s in the Mesa area. Actually, I have to say that most of the houses in Mesa, AZ look the same to me, so this task wasn’t very difficult.

A Mesa House Very Similar to My Mother-in-Law's House

This cute home is under $200,000, and it’s a large 1,643 sq ft., well large to my standards (see previous post about Small Houses Rock if you’re interested!) It also appears nicely landscaped for the desert terrain. (I really do wish builders would stop featuring the garage as the prominent focus of the house! Drives me nuts.)

Next, I searched Zillow.com for a home in my neighborhood that we could actually afford, and this price is really stretching our budget. We originally budgeted $250,000.

This house is just around the corner from where we live.

This is a home around the corner from where I live. I think it is priced a little high for our neighborhood, especially since it is under 1,000 sq. ft. Again, this is one example of many that I could find on Zillow that shows that you get much less in a Los Angeles suburb than in Mesa. According to what Zillow had listed, it looks as if the prices are rising a bit in my area. However, a close informant (a manager at a bank) mentioned to us that there are a slew of foreclosures that will take place in the beginning of next year. So, we may see prices decline at the first of the year.

Sometimes, my husband’s creative ideas sound enticing when I search Zillow. But, we’re still pursuing our goal and are focusing on becoming home owners within the year.

Recently, I’ve been reading and hearing some buzz about how small houses are a better choice, for many reasons, as opposed to large, box-style homes. I personally adore small homes and feel that I could be more creative with a small house, than I could a large home. Small homes also are a better financial choice for smaller families, obviously if you have 6 kids, it would be a little tight in a 2- or even a 3-bedroom house. Though, it doesn’t mean families can’t make it work.

First, let me define my version of a “small” home so that I’m clear. To me, a small home is 1,200 square feet or smaller. I currently live in a 1,100 square foot rental home and my husband and I don’t even utilize all of the rooms. My sister-in-law lives in a large, newer, cookie-cutter home with a sprawling 2,500 square feet. Their family of 5 practically lives in the family room, barely venturing into the living/dining room. This seems like a bit of wasted space, as does their loft that they don’t know what to do with.

There are so many benefits to a small home that I don’t even know where to start, so I’ll begin with something everyone can relate to: the cost of utilities. The smaller the square feet, logically, the less space there is to heat and cool. Now, of course with inefficient, drafty houses, this basic rule may not apply. Energy efficiency wins out over old, inefficient homes and corroded air ducts. However, if all is equal in energy efficient appliances and heating and cooling systems, the small house wins: the utilities will be less expensive.

Small houses are easier to clean. Again, the less square footage means the less mopping, vacuuming, and sweeping of the floors area wise. I’d prefer to vacuum 1,200 sq. ft. versus 2,500 or more square feet. Wouldn’t you? If I choose to re-carpet or re-floor your home, the cost is again less because the area is smaller. I may even decide to invest in higher quality materials since I won’t need to purchase as much as I would for a large house.

This Tiny House small cottage

When looking at homes in my neighborhood, I can see many of them are in need of maintenance, such as painting and landscaping. The smaller the house, the less I have to roll my paint brush over the exterior walls and the less paint I will have to buy. I save money while saving my shoulder and elbows from bursitis. My creativity can be used towards making sure the trim and the window dressings are painted and decorated to match which ever style I decide best suites the house. On a larger house, with more windows, I might be cash-strapped and have to stick to more simplistic decor.

The fewer the interior rooms, the more time I can spend carefully choosing how best to decorate each one. Or, pick a theme that runs throughout the house. Frequently, smaller homes are less expensive than larger ones. The money I save on the difference in a mortgage, can go towards purchasing furniture that matches my theme or style. I won’t have to worry about a huge house sparsely furnished. If I can’t buy furniture for my small house right away, at least it won’t be as obvious!

One great addition to a small house, and some may disagree given their personal family situation, I don’t have to worry about uninvited relatives crashing at our house with their 3 kids and 2 dogs. A small house would only allow us to have a guest room with a single or double bed. One or two people max is my motto. Luckily, my husband and I don’t currently have family members who show up with their RV and park it out front, at least not yet.

On a final note, small houses are more eco-friendly, using and consuming less resources. My husband has recently mentioned that he’d like to add solar panels to the home that we purchase. A small house would need fewer panels and take less energy, again saving money in the long run.

In case you’re not convinced, OR you’d like to read some articles on other sites, here are a few links:

• Treehugger – “Small Houses Getting Big Coverage” (I love Treehugger.com)
• Sunset Magazine – “Crafy Makeover”
• Tiny House Blog – an ode to small houses

A few years back, when purchasing a home was completely out of the question and outside of our budget, I began to think creatively and come up with alternative options to owning our own home. One option that stood out amongst all others was ordering a prefab kit home. Prefab homes have been around for many years, some of the first affordable prefabs were the Lustron homes made of porcelain and steel in 1950. I was lucky enough to see one on display in New York last year at the MOMA. Unfortunately for the Lustron company, prefab homes didn’t catch on and Lustron went belly-up.

Today, there’s a new wave of prefab homes that incorporate many “green” elements, such as recycled wood and energy efficient designs. A few that I find aesthetically pleasing are Rocio Romero LV homes and the Marmol Radziner Skyline series. On a side note, Rocio Romero is more cost effective and within our budget. Some of the prefab’s I’ve encountered cost more than home’s selling in my neighborhood. Rocio Romero’s website also breaks down the costs of each home with past projects as a guide line.

A Small House Plan - Rocio Romero's Prefab LV Home

There are also many little house plans that are incredibly unique and space-efficient, like the  Tumbleweed Tiny House Company. Jay Shafer has created and designed some of the tiniest homes using space efficiently. Some of his smaller models fit on trailers and are portable, however I like some of his slightly larger stationery homes, like the Sebastarosa shown below. My father-in-law is newly retired, divorced, and has been playing with the idea of building a portable house on his trailer that he pulls behind his truck. Last Christmas I bought him one of the Tumbleweed books that has lots of creative designs he might eventually be able to use as a guide.

Tumbleweed's Sebastarosa Model

On top of being a cost-effective alternative to purchasing an older or newer home, prefabs give the purchaser more floor plan options. For instance, since you can choose the floor plan that works best with your family needs, there’s less space to be wasted. One thing I notice, especially in new homes, is wasted space in houses. My sister-in-law purchased a brand new home a couple of years ago and they opted for a loft on the second floor. They now regret selecting this option since no one in their family uses it. They also had chosen a dual-staircase model, but ended up with one ‘L’ shaped staircase instead. Sometimes, when you work with a development model, you end up with altered floor plans. When purchasing a prefab kit, you order exactly what you want, no surprises when you move in.

Tiny Portable Tumbleweed House

Another great bonus with prefab is location. Since you must purchase your land before you purchase your prefab, you can select exactly where you want to live. This can also be a drawback, however. In my neighborhood, we are completely land-locked. There’s not any available land for miles upon miles. We’re hindered by our surrounding mountains and suburban sprawl.  In this case, if my husband and I were able to live in a space under 200 square feet, a Tumbleweed Tiny House might work. We could move from location to location with all of our belongings following behind us. From the beach to the desert, this 200 square foot home could travel just about anywhere.

We’re not ready for this quite yet.

I remember when my parents purchased their first house in 1978 in Granada Hills. They bought a 3-bedroom, 2-bath fixer-upper for $68,000. I was 7 and very excited to have neighbors with small children to play with. My parents spent the first few months replanting the lawn and garden, tearing out old bushes and planting new flowers. Over the next few years, they lost a little steam, adding brick to the front of the house, but then only painting the front a grayish-blue and leaving the sides and the back the old yellow it had previously been. They lived in that house 12 years, selling it in 1991 for $189,000. As they moved 2 hours north of me, I stayed behind to finish college. I’ve never left, I live 6 miles from where I grew up as a child.

I grew up with the notion that everyone eventually owns a home with a yard for their children to play in. This is something my parents were able to easily do. Yet, a home purchase has eluded my husband and me. Years ago, when my husband and I were in the early stages of our relationship, we happened upon an open house in an older, yet respectable neighborhood. The house was selling for $110,000. It was a 750 square foot, 2-bedroom, 1-bath house with a somewhat prestigious zip code. At the time, we knew nothing about purchasing a house. We were under the impression that we would never qualify, nor did we know what it would take to qualify and actually purchase a house. So, we made the decision to continue renting.

Then something began to happen in the surrounding neighborhoods that we couldn’t make head or tails out of. The housing prices began to sky rocket: $300K, 350K, 450K, 550K, 628K for a 1000 sq ft starter home, or what most would consider a starter home. These prices weren’t just homes in Malibu or on the ocean, these were homes in our somewhat run-down neighborhood. We started to realize owning a home in a suburb of LA was an impossible dream for us.

In December of 2005, during the peak of the housing market, we decided to move out of our 2-bedroom apartment into a 3-bedroom rental house. This was the closest we could get to living in a house with a yard and private garage. As I became acquainted with the neighborhood through evening walks, I would cringe at the For Sale signs with price tags of $525,000 and up. I couldn’t figure out how these people were doing it, purchasing homes for over half a million dollars. One sign I made a mental note of was a sale sign detailing out the monthly mortgage payment, I nearly choked. Not because it was excessive, quite the contrary, this particular home was selling for $529,000. The monthly mortgage price they were claiming a purchaser would pay was only $1,349! This was almost $500 less than our monthly rent. I remember thinking, “How is that possible? The math doesn’t work out unless you pay that amount for almost 100 years!”  Something smelled fishy.

Then things began to fall into place and make sense. Mortage brokers were allowing unsuspecting homeowners to take out negative ARM loans. Their monthly payment was less than the interest due on the house. With lax qualifying measures, anyone could purchase a home, but the catch was they would have to pay for it later. Many people probably thought, “Oh, I’ll sell it for a profit before the time comes that I have to pay principal plus interest.” Unfortunately, that time never came.

Mid-2008, the fish smell materialized and it all became clear. Recent purchasers were loosely qualifying for these quasi-loans that allowed them to pay less than the interest on the home. Once their 5-year ARM reset, they would have to pay 3-4 times more than their current monthly mortgage payment. Most people would not be able to afford this once this happened. Hence, all the foreclosures that are now in my neighborhood. With banks realizing their huge mistakes, they began to realize many of these loans would never be paid in full. Now, many homeowners are underwater, owning way more on their home than their home is worth.

When I ride my bike through the neighborhood I can’t help but see the neglect of homes with overgrown lawns, the sales signs on some houses are foreclosure property, others are on their way to being foreclosures. My husband and I aren’t realtors or bankers, yet we called this bubble breaker back in 2007. We knew that most people didn’t make $250K a year in salary, the standard income ratio of 2.5 times the house price. There wasn’t any reason to believe these people were making more than twice as much as us. We also knew houses couldn’t continue on this escalator forever, if it did, how would people qualify for a 1 million dollar home in the future?

Many realtors were lead to believe this housing boom would last forever, housing prices would never decrease. But looking as 10 year trends in the neighborhood, I could see that this “bubble” didn’t make any sense over time. A steady price increase is normal, the huge jump is not.

A look at home prices over 10 years in my neighborhood

I used the Zillow home value index chart to show home values over the past 10 years in my neighborhood since it’s easier to read over time. When I looked at the prices homes sold for, it was all over the place and made it difficult to see the increase vs. decrease over time. Yet, the end results were similar. The dark orange line is the neighborhood I currently live in. This chart is estimating home prices just below $400K, still too pricey for my husband and me. However, the sales list on Zillow shows some homes selling for below $300K. Below is a sampling of homes listed in my neighborhood that are well below the average $387,800 price tag:

A sampling of affordable homes in my neighborhood from Zillow

If all goes as planned, by mid-next year my husband and I should be in one of these affordable, fixer-uppers. We’ll be happily fixing up our little house in the valley.