Do you need a job to buy a house?

Back in the day, the answer was clearly no, you did not actually need a job to buy a house. At least that’s what we all gathered from the way lenders and borrowers got together and did deals independent of reality or facts. Today, you not only must be gainfully employed with impeccable credit scores, that just might not be enough to get you financing on a purchase or to refinance your present home. “Underwriting” standards are much tighter than they were at any time in the last decade.

Since that is the new normal, & probably what should have been all along, we will work with it and adjust. Just think, if lenders had stronger restrictions on mortgages thru this last decade, how many fewer homes would have been sold. Are we thankful that we had an inflated real estate market that allowed numerous families to become homeowners? How can we be happy about that when so many have lost that same home or are about to lose it? Was that such a good idea; to increase the number of people that could chase after the American Dream of homeownership only to put them into homes that might now be worth less than their mortgage balance? If you know someone that says that all of those creative and low documentation loans done over the last 10 years are legitimate and should by all means have been done when they were done, please make a citizen’s arrest and bring that perpetrator to the nearest precinct office. I will never try to convince you that a small cadre of professional lenders, or ambitious home buyer dreamers, or ravenous Realtors were to blame for the real estate bubble bursting which happened to coincide with an international economic crisis. Heck, we were all to blame. No one group or no one contingent did wrong while the rest did the right thing. We all get credit for the problems.

So now we are paying for it. And yes it’s true that some that are paying are doing so out of pocket and not just repaying obscene and unearned profits from the past decade. There is still this big gap between the total asset value of all American real estate around June 2006 and today. But if you want to find out who ran away with the money, stop looking. Nobody took that money and did anything constructive with it. It just vanished into thin air. When you look at your own home, and figure that in 2004 it was worth $300,000 and then in 2006 it was worth $500,000 and now its worth $300,000 again, you might feel as it you lost some money to the market. but you never had that money in hand. It was a paper wealth that represented what might have been if you sold and realized that price and then pocketed the remainder after paying for all the settlement costs. But you did not sell, probably because nobody told you to get out while the prices were still going up. And once they peaked and started heading down, your desire to bank that paper equity out muscled your desire to sell and move on so you never did sell, racing to the bottom with the market correction.

Problems arise when you take out a mortgage for a home supposedly worth $500,000 that later on settles down to an approximate value of $300,000. Pity the homeowner, the lender, the appraiser and anyone else that fed that monster of belief that homes always go up in value (and are reliable ATM machines that spit out cash any time you want to buy another toy or take another trip). We are dealing with those problems today.

How about some new information, Alan? Tell us something we don’t already know! Maybe you are tired or hearing about how we got into this mess in the first place? Maybe we should never stop talking about it in the hopes that it never happens again. The sooner we forget about the past, the sooner we will begin our imitation of it in the future.

There are long lists of reasons to be a homeowner and there are comparable lists of reasons why some people will not qualify to buy a home. That group should find that being a tenant has its own rewards; they are just different than being a homeowner. The most alarming thing you can hear or read about real estate right now is how much more it will be worth in the future. That is a red flag that I suggest you get away from as fast as possible. Just because a home went down in value the last several years does not create a firm foundation to predict that it will go up in value in the future. We want homes to start appreciating again and we really want to see them gain value over the next 3 to 5 to 10 years. But will they? Your’s truly will not be predicting that they will. Someone may tell you that but please check to see if they have crossed their fingers while they are trying to convince you that your home will be worth more in the future.

Is home ownership desirable for different reasons than the old “good investment” reason? Probably so. There are many reasons to be a homeowner, just not the one that allows you to treat it as if someone gave you a blank check. I do not know why that lesson is so difficult for so many to grasp. You can still see people focused on what their new home might be worth in several years. Why? Do they plan to sell in several years? Then quite possibly they should consider doing something else and not learn the painful way that their home purchase did not result in an increase in their net worth in just a few years time. Good things might take a little longer to evolve and equity in a home you own is likely to take quite some time these days.


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