I received a letter in the mail the other day from the lender of our second mortgage. The second mortgage is technically an interest only HELOC. Arguably not the best method of buying a house, but that's an entirely different post.
Although I call it a house, where we live is technically a townhouse. That is, the building our house is in also holds two other townhouses. Fortunately, we have an end unit, so we only share one wall and have direct access to the garage, which adds to the value of our home. Unfortunately, townhouses and condos are usually the first to drop when the housing market takes a hit.
When we bought our house in 2005, we paid $280,000 (Remember, this is Massachusetts). It was appraised 2 weeks after we closed for $305,000. Sweet! Very exciting. Instant equity. Of course, what something is worth only counts if you're selling it.
The letter from our second mortgage stated that we couldn't further draw on our HELOC because our house's value had dropped so much. I don't know exactly how they calculate the houses' value or how much of the value they will lend up to, so it's difficult to say if our house's value has dropped so much that we are now upside down on our mortgage. It's possible, if it dropped enough. We didn't have any plans to draw further on the HELOC, or take any equity our of house at all, so that part doesn't affect us directly. What I am worried about is when we do want to sell our house.
I checked Zillow.com, and they list our house at $253,000 currently. Their estimates aren't perfectly accurate, but the letter from our mortgage company lends a bit of credibility as well. I want to close my eyes and shut it out, but it appears we now owe more on our house than it is worth. Or at least it's close.
When we bought our house, we intended to live here for 3-5 years. This summer will be 3 years, and we moving isn't even on the horizon right now, for a variety of reasons. We'll be staying put for the foreseeable future, and we may end up staying past what we had originally planned. There is still plenty of room here, even for when we eventually start adding people. I just liked having the option to move if we wanted to, and right now it would be pretty foolish to do so. Even more reason to pay down the debt - eventually we'll get to paying off the mortgage!
Thursday, February 7, 2008
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9 comments:
Unfortunately, you must have bought at the height of the market. Don't worry though, if you can stick it out for several more years, the market will go back up. Real estate is very cyclical. The problem that the market is facing now is from the risky loans that were given out --which is why there are so many foreclosures. As long as you can pay the mortgage, and the HEL (nice acronym, right?), you should be fine.
I've changed my http site, and my blog name. Test to see if you can still get there! Thanks!
The market is bound to go up, so don't worry to much about the prices, especially if you know you will be staying put for a while.
I get the same feeling when I look at my 401K statement and I see it has gone down. I just try to block it out and know it will go up again.
S.B.
http://bethriftylikeus.blogspot.com/
Me too, bought in 2005. But what can you do?
where are you, JVW? Is something big happening in your life?
We miss you!
Just checking in that everything's cool! :)
My wife and I bought in 2006 at the height of the bubble. Now our home seems to haev lost about $20,000 in value. We're just sticking in there knowing that it will turn around eventually - and we plan on staying in our house for at least 5-10 years. It does kinda feel like a sucker punch in the gut though when you're looking at those home value estimates and your estimated value has dropped to less than you paid, doesn't it?
sharon - that's why I say HELOC, it makes me feel better. Congrats on the new domain!
s.b. - we weren't planning on staying put for too much longer, but as they say: the bast laid plans...
lal - build a time machine? still need that pesky flux capacitor.
df - Things are cool, thanks! Big things, indeed, details soon.
peter - I guess I just always thought RE was supposed to hold its value well. I knew my car would depreciate, but the house I assumed would be steady. OOPS!
JVW,
In my opinion, real estate is still a good investment. Your home will never depreciate as much as a vehicle, and even when it does drop in value, it's going to raise back up. I think Sharon said this as well. The key is having enough flexibility to wait it out. Unfortunately, my career doesn't have that flexibility...
I too suffered like you did. Bought a house beginning of 2005. Had to sell it end of 2007. Lost $13,500 when it was all said and done due to the drop in home prices. Good thing you dont have to move and can wait out the drop in prices.
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