Warning for those of you who are easily offended, this post may not be for you. You are now proceeding at your own risk.
Housing Prices
Hello boys and girls! Let me tell you a story! When I was 14 years old my mom, brother, and I moved to San Diego. That was the summer of 2000. Does anyone remember what 2000 was like? One memory I hope that remains with me my entire life came in October 2000 at a church meeting. This quote (actually from 2001 but very similar to what I heard in 2000) comes from Gordon B. Hinckley, the president (at the time, he passed away in 2008) of my church:
"The economy is particularly vulnerable. We have been counseled again and again concerning self-reliance, concerning debt, concerning thrift. So many of our people are heavily in debt for things that are not entirely necessary. "
When I heard this, I wanted the people around me to take heed immediately but even after a few months in San Diego, I knew they wouldn't. The results around me in San Diego were amazing. Housing prices were increasing at a crazy amount. I remember one day while in my kitchen thinking, "These prices are not sustainable when wages are not increasing at a similar rate!" Yep, typically 14 year old thinking, right? It wasn't about girls, it was about California housing prices. I told my mom that the bubble would pop in the next couple of years.
Well, I was right about it popping, not very good about the timing. It actually took 7 years.
11 years later I often think about all the resultant suffering. God gave us a Joseph-in-Egypt-type 7 years of excess but too many people wasted it on "things that are not entirely necessary." Very sad. While I could be worrying about the Jazz and their new coach or where Carmelo is going to go, etc, I focus a few minutes everyday on where I want my life to turn out. I am so thankful to live in a country (and a certain part of that country) where I have limitless options and potential if I'm willing to put in the work.
As I have heard and read anecdotal accounts of these hard times, I had an idea pop in my head. Some of you won't like what I'm writing and that's ok. I would be mad too! So in 2007, housing prices in most, if not all, of the country declined at an historic rate. This drop is continuing. My idea was that this wasn't the first time in mankind's history that this has happened. Where have I heard of something like this before?
JAPAN!
Ah yes! The land of the rising sun! I have spent a total of 3 hours in Japan (Nagoya airport) on my way to Taiwan for my church mission. I felt like I was in an episode of the Jetsons. Very modern (at least 10 years ahead of the US in everything) but I digress.
A lot of you might be too young to know this (I am one of these people) but there was a time that Americans feared the Japanese were taking over--that time was called the 1980's. The Japanese were buying American real estate (Pebble Beach Golf Course is one famous example) and Americans didn't like it. Congress was probably glad they passed the Foreign Investors in Real Property Tax Act in 1980 to at least get a cut of the action!
Eventually the 1980's came to an end and so did the Japanese real estate bubble. The following chart shows Japanese real estate prices between 1980 and 2005. This chart comes from efinancedirectory.com:
Sorry for the smallness! So between 1985 and 1990, Japanese home prices in the 6 largest cities jumped from around $125,000 to $325,000 (that's a 160% jump in 5 years). The interesting part is what happened after 1990. While this chart is out of date, it shows that 15 years after the peak, housing prices have not gone up once! Maybe you remember the line everyone in the U.S. was being fed, "Real estate always goes up! It's not like we are making any more land!" (Unless you are in Holland, Singapore, or Hong Kong). Just ask a Japanese about that.
Now for the part that might make you made if you bought a house between 2005-2008. This chart shows U.S. housing prices and is also from efinancedirectory.com:
Does this chart look anything like the Japanese one? Maybe cut it in half and it will look more familiar. I just want people to be a little bit skeptical of the realtors on TV who claim a turnaround is just around the corner, it is possible they are right but just as possible they are very wrong.
Finally, back to what I was saying. Megan and I discuss our future together and what
we want it to be. Others don't decide it for us. There is no one I trust more in this world than Megan and no one I trust less that someone who wants my money. Please keep this in mind as I share one of the best quotes I've ever read about this subject. The author of the following wisdom is Kris Calhoun, he wrote this
freelance article for Yahoo!:
"My House
The home I purchased in 2008 is probably the worst thing I could have done to hurt my financial future. With hindsight being 20/20, it's easy to look back now and say, "Well, that was a bad move." But at the time, and in the location my wife and I were looking, it appeared that things were leveling out and home prices didn't have much further to fall.
About 20% in reduced home value and two property tax increases (plus a reduction in our homeowner's exemption) later, I'm kicking myself for ever allowing myself to be talked into home ownership (I've always been more of an apartment kind of guy). At the time, my wife and I thought we were doing things the right way. We put a nearly 45% down payment on the home, took out a 5.35% fixed rate, 15-year mortgage, and made extra payments along the way.
It wouldn't be such a terrible thing if we could ride out the storm for five or ten years in hopes of recovering our losses, but we really don't like the area we chose and have found that home ownership just isn't for us (I worry about things constantly and am afraid to go on vacation anymore for fear that something will happen to the house).
So now, for our mental health and happiness, we have put our home on the market and done so at a much lower price than we purchased it for. If it ever sells, it will set me back significantly in my retirement plans, but even I will admit that being happy is sometimes worth more than money -- depending upon the amount of course."
I feel bad for this guy but I'm glad he's now doing what he really wants to do. It just took tens of thousands of dollars to figure it out. So if you are reading this and still can choose what you want to do, remember that you don't have to be like everyone else. "Everyone else" (Japanese or American) got burned. You don't have to join the party to fit in. You can rise above "Everyone else's" mistakes.
As Henry David Thoreau said:
"If a man loses pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured, or far away."
