“How much have homes appreciated in value where you live?” I asked.

“Well, I sold a home in early 2000 for about $180k” he started. “Now that same home, with maybe $300k worth of upgrades would go for $700k-$800k”

Uh oh, I thought strike one

I proceeded to tell him about Bend and how at our height, the median was around $400k.

“What is it now?” he asked.

“Well, I think last month the median was around $180k”

The businessman sat there, mouth agape, stunned.

“Glad that isn’t happening up north, I’d be in trouble.  I think homes in Canada are going to just level off in large YoY appreciataion because they were so cheap before”

strike two I thought.

“Well why couldn’t it happen with Canada also?” I asked directly.

He looked at me, and with conviction, said “Well, Canada is different…” and proceeded to tell me how.

Strike three I thought this thing is toast

And then today I read this article from mish

…

Imagine, 68% of your disposable income being spent on housing costs with the remaining disposable income likely being spent on their favorite Top Ramen and KD dinners. This is insane as well as unsustainable. It’s funny that many Canadians seems to think that the 49th parallel has magically created immunity from a housing bust that in their minds is exclusive to the United States. I can’t tell you how many times friends and acquaintances say that Canada’s banks are sound and there was no sub-prime lending and it just can’t happen here. I’m quick to remind them that the loss of one income from a two income family will in essence convert a low credit risk to a poor credit risk akin to that of a sub-prime borrower real fast. Now, multiply this my hundreds of thousands if not millions of borrows and we too have a major problem in Canada no different from that of the US. Wishful thinking really. The proof’s in the pudding and this puddings going to bring a dose of reality to those that are living in fantasy land, way beyond their means and who apparently have missed the global financial crisis that’s been gaining traction and intensity since August 2007.

We’re not only “Hosers” in Canada but we’re royally Hosed as well!!

Robert Clegg, JD, LL.M
Ombudsman, University of Calgary
Calgary, Alberta

Now if only I could figure out how to short the housing mess that we all know is coming to Canada, I’d be insanely rich.

-peace

Its ok, I was there too. For a long time, I hoped and schemed that I could own a home with some property some day. But after spending a exorbinate amount of time (some may even call it obsessing) researching Real Estate, I know that it is an impossible dream. And I see the world, and especially the United States of America very, very differently.

“Bah” you say “I own my home! And I am damn proud of it!”

And to this response, I would argue that there is already a profusion of subterfuge about the very definition. So first we have to quantify what home ownership actually is.

1. Is home ownership an interest only loan, where the borrower takes out a  125% LTV suckers loan in order to not have to put any cash down? (On their dream property of course)
2. Is home ownership a 30 year fixed rate mortgage. With the stability in knowing what your monthly is never going to change over the life of the loan?
3. Or is home ownership when you finally pay of the mortgage, and you owe nothing more to the lender?

(I realize that there are many other financial instruments that we could list concerning housing. But for the sake of argument, I believe that these three represent a solid scale on which to reflect)

So back to the question at hand. Which of these best represent the term “Home Ownership”?

Now the first one is fairly easy to rule out these days. Most everyone reading this has seen these loans explode. Either by watching family or friends, or experiencing it themselves. And so lets just scratch it off the list.

The second one, is probably what the American populace would define as home ownership. But for now, everyone who is reading needs to understand that when you take out a loan on a home, it is actually the bank’s and not yours. So scratch number two.

At this point, most folks would settle on the definition of home ownership. Which is when you own the deed flat out, owing nothing to any lender. But if that were the case, then this post would be over. And my take is that most people forget about one very important aspect.

Taxes.

Yeah, good ol’ taxes.

And with taxes in mind, here is where I reason that you never truly own your home. That at any point, the goverment can and will come and weasel your property away from you. And don’t give me the I have rights bull crap. These illusionary rights only go as far as their (the government’s) need. And if the need is great, the illusion falls right along with your rights.

But the land, even despite the taxes, the land is the real value!

Heh, right, the land. Is it on anything of value that can be sold on the world stage? If not, then I really don’t want the “value”. Especially the taxes that come with it. It is also my belief that the government is going to do whatever it can to increase taxes over the next decade (just the next decade?). I mean, face it, our nation is broke. We owe a crap load, to a lot of people.

But don’t worry, it is nothing to be afraid of, you just need to understand it. Once you realize that with most current home purchases you are only buying the “right” to further taxation, you are good.

I mean, think of it this way. Do you think I sat there after my brother died thinking

“Man, I am glad that Jaye got to see our new place before he passed away!”

Hell no!!!

I was happy that we had the money to make memories with him by going on trips and other awesome adventures through out his life.

And so the target must be ”buying” a home when it becomes less expensive than renting while projecting future tax increases into the model. Along with the understanding that a home, in an of itself, is a depreciating asset at best. And at worst, a depreciating liability when the note is held by a lender. At some point, you will have to invest your reserves into either fixing and maintaining, or all together rebuilding the home (disturbingly similar to a car, no?). And even with this, you must know emotionally that it will never be truly yours. And this is a good thing.

I personally do not want to be owned by my things. I will not sacrifice myself and my families’ opportunities in order to make the pipe dream of home ownership into a ball and chain reality. I plan on using my surplus cash to MAKE MEMORIES!!! That is the real value.

Despite these current beliefs, I am always open to new ideas. Because you can’t learn something new if you are not willing to listen right? And I appreciate people’s thoughts, even if I don’t always agree. So I would be happy to hear other’s perspective on this. And so I leave you with this.

“Why do you personally want to own a home?”

Back in 05′ I was just a wee grass hopper, only twenty four years of age. And the world was a hustling and a bustling. Everywhere, people were going a million miles a minute, especially in Bend Oregon.

If you were to ask the people around you what they were running around so much for, the would have answered, “Well, I’m building wealth of course”. And as I have mentioned before on this blog, everyone was chiming the same freaking lines. The most basic of which was “BUY REAL ESTATE”.

“But why?” I would ask.

“Kid, haven’t you heard? Real estate only goes up.” they would all say.

So what does a guy like me do? I research the crap out of the housing market, which leads me to try and understand economics and markets in general (stock, emerging, etc). I realise that things “are not adding up” and soon conclude that we have a serious bubble on our hands. And it will not end well.

Also, I ended up warning my friends (or trying to). But did any of my friends listen to me? Nope. I even went so far as to write a program to scrape housing data from the county website to prove my stupid point. And what do most of my friends face today? Either foreclosures, short sales, or high mortgage payments.

And so I sit with my little munchkin in my arms and wonder. If little ol’ Jared could see what was happening, why couldn’t Ben Bernanke? And I’ll tell you why, because Ben Bernanke is a frickin joke.

]]> http://www.acloudtree.com/bernanke-is-a-joke/feed/ 0 http://www.acloudtree.com/for-closure/ http://www.acloudtree.com/for-closure/#comments Tue, 08 Sep 2009 16:28:13 +0000 jared.folkins http://www.acloudtree.com/for-closure/

I saw this sign over the weekend and it caught my eye, so I took a picture.  Losing your personal residence can be a very traumatic event. Especially to the adult who has labored and chored to provide not just a house, but a home for their family. Yet here, in this picture, a child (assumedly) has drawn a ‘heart’ and a ’star’ to decorate the sign. And the more I thought about the event (foreclosure) and how a child perceives it, the more hope filled my vision as I looked upon the sign.

So I ask a simple question to anyone who wants to answer.

“What does foreclosure look like to a kid?”