Saturday, November 15, 2008

Making myself at home – but not in The Zone

This Progressive has taken a long time off of blogging. I just bought my own home for the first time and it’s consumed me for the past couple of months. Between escrow, moving, unpacking, and painting, I’ve had no time for blogging … until now.

I’ve been struck by a couple of interesting things going through this process. I opened escrow concurrent with the final meltdown that led Treasury Secretary Paulson to foist his $700-billion bailout plan on congress and the President (no matter that it was resoundingly rejected by the American people). My mortgage was funded weeks after Paulson’s insistence that the credit markets were dried up and no one could get a loan anymore. This was right on the heels of me also getting a very large vehicle loan. How did I manage to get all this credit—at very favorable rates, I might add—when no one is lending money right now?

It’s also interesting where the real estate valuations that I bought into are at right now. There have been many foreclosures lately, so prices have dropped at least 30% off their peak just over a year ago. How much further might they drop before the bottom of this cycle is reached?

I’m prepared for the possibility for the value of my condo to drop to significantly less than the outstanding principal on my mortgage in the next year or two. However, there is one strong indicator that the market in my neighborhood is near the bottom of the cycle. My total cost of ownership for the condo is significantly less than what it would be to rent comparable housing around here.

So I wonder how wise a move it was for me to buy this home at this time. The wisest investors say the best time to buy is when the market looks very negative and everyone else is getting out. It will be interesting to see if the market conditions a year or two from now would even support me being able to buy a home had I instead waited until then to buy.

The minimum down payment for an FHA loan to a first-time home buyer was 3% when I bought but it’s already 3.5% now. There’s even talk of it going up to 5% soon. If the credit market is as dry as Paulson claims, could the minimum down payment get to ten or twenty percent in a year or two? Could I be looking at a 10% APR, or even more, in a year or two rather than the 5.5% rate I got? How high would my FICO score need to be to even qualify for a mortgage in a year or two? Even if the price of a comparable condo next year turns out to be ten or twenty percent lower than what I just paid, it might still be unaffordable to me under the market conditions we’ll have in the near future.

All things considered, I feel pretty good about becoming a homeowner so far. The walls are finally painted and the condo is looking great. Even if my mortgage goes underwater in the next year, I can afford to make my payments. I’m sure five years from now, I’ll have some equity. Most importantly, I’ll have more time to blog in the near future.

A man's home is his castle.

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