Tiffany B. Brown

a mish-mosh of stuff

Why homeownership has been a financial disaster for me

Two years ago, I bought a house. Last week, DeKalb County confirmed that this was a financial disaster.

For the last 10 years, pundits, personalities and the President proclaimed homeownership as the balm to soothe a range of ills, including community stability and the racial wealth gap.

For the last 10 years, I listened intently as financial experts extolled the virtues of homeownership. I paid attention as everyone around me started to buy houses and condos. I believed my real estate agent when she assured me that Atlanta was not like the rest of the country. No boom would mean no bust, right? I trusted my parents who said that homeownership was worth it, that it is always the right move.

Except when it’s not.

I had some nagging doubts throughout the whole process. But friends, family, and my real estate agent assured me that this was a good move. And quite frankly, I was so devastated by a prolonged breakup that my judgment was non-existent.

I bought my house in 2007 with a zero-down (100% financing), FHA-backed, fixed 30-year mortgage from Bank of America at an APR of %6.25. Sale price: $169,000. Appraised value: conveniently, $169,000.

Ten months later, my county-appraised value was $156,600. Less than a year in, and I was already underwater.

Now, I also have several thousands of dollars of credit card debt. And by “several,” I mean “over $20,000.” I also have stellar credit. My income was, and thankfully still is, enough to cover my mortgage payment, my credit card payments, 401(K) contributions, and fund a small emergency stash.

Last week, I recevied my county tax assessment papers. My home’s appraised value is now $122,000. My house dropped in value by more than $34,000 in one year.

Know how much I owe on my mortgage? $163,716.03. I have almost $42,000 in negative equity.

It’s true that county assessments don’t always take property improvements into account. My house does have an updated kitchen, a brand new roof, a new water heater, and a new HVAC system. But even in the rosiest of scenarios, those upgrades do not add $42,000 worth of value.

How f*cked am I?

Atlanta’s annual appreciation rate is about 3%. During the height of the housing boom, it was 4%.

In other words, the property values in my ZIP code — which has an 11% vacancy rate, one of metro Atlanta’s highest concentrations of poverty, and one of the state’s highest foreclosure rates — would have to appreciate at the same rate homes did during the real estate bubble for the next five years, just so I can break even.

If home values hold steady — 0% appreciation AND 0% depreciation — I would break even some time around June of 2023 — 14 years from now.

A foreclosure would be off of my credit in seven.

  • http://gregtyree.com/ Greg Tyree

    Hang in there – while I agree that home ownership is always the right move you can't look at it as a short term investment. Just look at your 401k. If you apply the same thinking you would likely have been better to buy a bond rather than invest in the last few years, but you are just riding out the downturn and waiting for everything to turn around.

    You may have bought just before the recent recession so it is magnified but a few good years could erase all the negative equity (if not according to the county likely in your ability to sell at a higher price). It sounds like your finances are secure and I wouldn't worry unless you feel you will have to sell in the next few years. Just know that unlike most anything else you buy the house will appreciate over time – just how long is the big question.

  • http://gregtyree.com/ Greg Tyree

    Hang in there – while I agree that home ownership is always the right move you can't look at it as a short term investment. Just look at your 401k. If you apply the same thinking you would likely have been better to buy a bond rather than invest in the last few years, but you are just riding out the downturn and waiting for everything to turn around.

    You may have bought just before the recent recession so it is magnified but a few good years could erase all the negative equity (if not according to the county likely in your ability to sell at a higher price). It sounds like your finances are secure and I wouldn't worry unless you feel you will have to sell in the next few years. Just know that unlike most anything else you buy the house will appreciate over time – just how long is the big question.

    • http://intensedebate.com/people/tiffanybbrown tiffanybbrown

      I may never "have to sell" because I can always grit my teeth and stay put. But I'm not convinced I will ever make up that loss in the time I *want* to sell.

      My original plan was to move in 5 years (give or take). Life circumstances are nudging that up a bit (I want to move NOW! To California! To be with my probable-future-husband!) But considering the degree to which the market has tanked, and how hard my ZIP code has been hit, I'm not sure that will be possible. Plus the downturn would have to stop THIS YEAR, and appreciation would have to jump back to 3%.

      The one possible bright spot I can see is that so many people are upside-down that housing will either HAVE to rebound to boom prices (because if I have to sell, I need to break even, right?), or so many people will go through foreclosure that having one on your credit will be a non-issue.

  • patricia

    I know nothing about buying or maintaining a home so I'm afraid that I don't have much in the way of advice. Just wanting to let you know I'm thinking about you. I'm sorry things are looking so bleak right now. Things will get better, this I believe but what form that better will take, well, only the future knows. <3 Keep your chin up. You're a smart, strong woman. You will weather this and with grace, I'm sure.

  • patricia

    I know nothing about buying or maintaining a home so I'm afraid that I don't have much in the way of advice. Just wanting to let you know I'm thinking about you. I'm sorry things are looking so bleak right now. Things will get better, this I believe but what form that better will take, well, only the future knows. <3 Keep your chin up. You're a smart, strong woman. You will weather this and with grace, I'm sure.

  • http://socialflow.ws/ Ms_Krista

    Tiffany:

    1. I concur w/Mr. Tyree…you have to look at a house as a long-term, buy-and-hold investment. Don't dispair. Just like with stocks, you only lose $ if you sell it. Hang on. Maintain. Stand the storm, you'll anchor by and by…etc.

    2. Have you looked at what other comparable homes are selling for in your area? I never put much stock in what the county says in terms of market value. That's all purely a tax game. If you were to sell, it would come down to what a professional appraiser would say its worth, not DeKalb County. Go back and re-read what you wrote about the selling price and appraised value magically coming out the same. That scenario works on the flip side too. Real estate agents *cough*pay off the appraiser*cough* ummm….. have a way of making the appraisal come out like they want it too. This is my 2nd home and I've refinanced 3 times – I've yet to have a house appraise under the asking price.

    3. Be patient. I've been in my place 13 years now, and I've been where you are more than once. It will appreciate eventually.

    Hope this helps

  • http://socialflow.ws Ms_Krista

    Tiffany:

    1. I concur w/Mr. Tyree…you have to look at a house as a long-term, buy-and-hold investment. Don't dispair. Just like with stocks, you only lose $ if you sell it. Hang on. Maintain. Stand the storm, you'll anchor by and by…etc.

    2. Have you looked at what other comparable homes are selling for in your area? I never put much stock in what the county says in terms of market value. That's all purely a tax game. If you were to sell, it would come down to what a professional appraiser would say its worth, not DeKalb County. Go back and re-read what you wrote about the selling price and appraised value magically coming out the same. That scenario works on the flip side too. Real estate agents *cough*pay off the appraiser*cough* ummm….. have a way of making the appraisal come out like they want it too. This is my 2nd home and I've refinanced 3 times – I've yet to have a house appraise under the asking price.

    3. Be patient. I've been in my place 13 years now, and I've been where you are more than once. It will appreciate eventually.

    Hope this helps

  • http://intensedebate.com/people/tiffanybbrown tiffanybbrown

    I may never "have to sell" because I can always grit my teeth and stay put. But I'm not convinced I will ever make up that loss in the time I *want* to sell.

    My original plan was to move in 5 years (give or take). Life circumstances are nudging that up a bit (I want to move NOW! To California! To be with my probable-future-husband!) But considering the degree to which the market has tanked, and how hard my ZIP code has been hit, I'm not sure that will be possible. Plus the downturn would have to stop THIS YEAR, and appreciation would have to jump back to 3%.

    The one possible bright spot I can see is that so many people are upside-down that housing will either HAVE to rebound to boom prices (because if I have to sell, I need to break even, right?), or so many people will go through foreclosure that having one on your credit will be a non-issue.

  • Mike

    All the best. I trust you'll make the best choices.

  • Mike

    All the best. I trust you'll make the best choices.

  • Matthew MacCarthy

    Tiffany – This may not make you feel any better, but what you are experiencing is a national phenomenon and is in no way a reflection on your financial savvy or decision-making abilities. I work as a housing economist for the government and there are countless folks in the same position who are intelligent, responsible people, but have been caught, through no fault of their own, in this pronounced recession.

    On the Up Side:

    1. You can still meet your financial obligations
    2. You do not need to sell in the near term
    3. The improvements you have made put you in a good selling position when things turn around
    4. Your property taxes will be lower as a result of the updated appraisal
    5. You probably got a good deal on the purchase price (at a low point in the market)

    On the Less Up Side:

    1. Historically, housing recoveries take 6-8 years (this is a somewhat more rosy scenario than your 2023 estimate, but still not optimal)
    2. The Atlanta area has seen elevated rates of fraud on the side of finance companies, appraisers, mortgage brokers (If you are able to prove that an appraisal was fraudulent or that the appraiser colluded with your financial company, you do have legal recourse to have your mortgage unwound.)

    Food for Thought:

    1. It could be worse (you could live in Detroit, Southern CA, or Las Vegas, where things are bad beyond belief)
    2. Contact your lender about refinancing (or Fannie/Freddie.) It is a stretch, but you could probably do better than the rate you have now by maybe 1/2 to 3/4 of a point. Lower finance charges means you could be paying your principal down faster, thereby rebuilding your equity.
    3. This, too, shall pass

    IMHO, home ownership may not be right for you in the near term. One of the problems we have in this country is over-incenting home buying: it puts downward pressure on home prices (over building) and upward pressure on structural and frictional unemployment (qualified workers cannot easily move for other or better jobs.)

    A single, successful professional (and small business owner) such as yourself may not need the space, but was likely temped by the American Dream of your own plot of land, low housing prices, and affordable financing. When you bag this hot dude in CA, get married and spawn, you'll need the space. Until then, stay flexible, mobile and low-overhead.

    No matter what, good luck, Tiffany.

  • Matthew MacCarthy

    Tiffany – This may not make you feel any better, but what you are experiencing is a national phenomenon and is in no way a reflection on your financial savvy or decision-making abilities. I work as a housing economist for the government and there are countless folks in the same position who are intelligent, responsible people, but have been caught, through no fault of their own, in this pronounced recession.

    On the Up Side:

    1. You can still meet your financial obligations
    2. You do not need to sell in the near term
    3. The improvements you have made put you in a good selling position when things turn around
    4. Your property taxes will be lower as a result of the updated appraisal
    5. You probably got a good deal on the purchase price (at a low point in the market)

    On the Less Up Side:

    1. Historically, housing recoveries take 6-8 years (this is a somewhat more rosy scenario than your 2023 estimate, but still not optimal)
    2. The Atlanta area has seen elevated rates of fraud on the side of finance companies, appraisers, mortgage brokers (If you are able to prove that an appraisal was fraudulent or that the appraiser colluded with your financial company, you do have legal recourse to have your mortgage unwound.)

    Food for Thought:

    1. It could be worse (you could live in Detroit, Southern CA, or Las Vegas, where things are bad beyond belief)
    2. Contact your lender about refinancing (or Fannie/Freddie.) It is a stretch, but you could probably do better than the rate you have now by maybe 1/2 to 3/4 of a point. Lower finance charges means you could be paying your principal down faster, thereby rebuilding your equity.
    3. This, too, shall pass

    IMHO, home ownership may not be right for you in the near term. One of the problems we have in this country is over-incenting home buying: it puts downward pressure on home prices (over building) and upward pressure on structural and frictional unemployment (qualified workers cannot easily move for other or better jobs.)

    A single, successful professional (and small business owner) such as yourself may not need the space, but was likely temped by the American Dream of your own plot of land, low housing prices, and affordable financing. When you bag this hot dude in CA, get married and spawn, you'll need the space. Until then, stay flexible, mobile and low-overhead.

    No matter what, good luck, Tiffany.

    • http://intensedebate.com/people/tiffanybbrown tiffanybbrown

      Matthew you have just made my day with this comment.

  • http://intensedebate.com/people/tiffanybbrown tiffanybbrown

    Matthew you have just made my day with this comment.

  • http://swirlspice.com Erica M

    (Been trying to post this comment for days! Technical difficulties. Also, what Matthew MacCarthy said.)

    Ms Krista makes a good point about the taxes. Detroit's real estate market is all kinds of crazy; my sister (who's in the same position with her mortgage and wanting to move as you are) was just telling me how out of line her tax assessment is with market value of her house. So it is probably fair to say that the market value is lower than it was when you bought it and lower than the amount on your mortgage, but it may not be as bad. I presume you've already looked through zillow.com and other resources to see what comparable (non-foreclosed-on) homes in your area are selling for. Have you talked to your bank about refinancing, since you do have good credit?

    To be with my probable-future-husband! — :D

    At this point, while the obvious answer seems to be "stay in your house" that is obviously not going to make you happy. I suspect you'll pull the trigger on moving sooner rather than later. So there's going to be a tradeoff. Only you can truly decide how much of a financial hit your heart and your credit can tolerate.

    This is the time to make a plan and fucking work it. And this is where you need to have a courageous conversation and trust and lean on JT. Because if y'all are truly seriously going to move forward together, y'all could and should work through this together.

    Can you move out there, shack up with him, and rent your house in the mean time? Even if you can't rent the house enough to cover the cost of the mortgage, can you save enough living with him to cover the rest (and maybe a property manager)? Can y'all both move somewhere else cheaper than LA or Atlanta? Can you say right now, I'm going to move *somewhere* in two years and in the mean time I'm going to pay the everloving shit out of this credit card debt or pay ahead on the mortgage. I don't know how much you are putting into your 401(k), but I'd back off anything more than 5% (or whatever your company matches, if they do) and keep the rest of that money.

    It sounds like you're already trying to cut back where you can and still pay your bills and put money towards things that truly make you happy (like spending time with JT), so I don't know how much more room you have to make those adjustments. But I also understand wanting to handle your own business and not enter into a relationship with that kind of baggage. I'm still struggling with that and, hey, it turns out my gf has her own shit which is pretty much the opposite of what I thought it was. Just gotta work through it and have some faith and trust.

    I don't know, I'm kind of brainstorming here and maybe not telling you anything you don't know or haven't considered. But you are in a position in your life where you can't let a calculator alone make this decision.

  • http://intensedebate.com/people/swirlspice swirlspice

    (Been trying to post this comment for days! Technical difficulties. Also, what Matthew MacCarthy said.)

    Ms Krista makes a good point about the taxes. Detroit's real estate market is all kinds of crazy; my sister (who's in the same position with her mortgage and wanting to move as you are) was just telling me how out of line her tax assessment is with market value of her house. So it is probably fair to say that the market value is lower than it was when you bought it and lower than the amount on your mortgage, but it may not be as bad. I presume you've already looked through zillow.com and other resources to see what comparable (non-foreclosed-on) homes in your area are selling for. Have you talked to your bank about refinancing, since you do have good credit?

    To be with my probable-future-husband! — :D

    At this point, while the obvious answer seems to be "stay in your house" that is obviously not going to make you happy. I suspect you'll pull the trigger on moving sooner rather than later. So there's going to be a tradeoff. Only you can truly decide how much of a financial hit your heart and your credit can tolerate.

    This is the time to make a plan and fucking work it. And this is where you need to have a courageous conversation and trust and lean on JT. Because if y'all are truly seriously going to move forward together, y'all could and should work through this together.

    Can you move out there, shack up with him, and rent your house in the mean time? Even if you can't rent the house enough to cover the cost of the mortgage, can you save enough living with him to cover the rest (and maybe a property manager)? Can y'all both move somewhere else cheaper than LA or Atlanta? Can you say right now, I'm going to move *somewhere* in two years and in the mean time I'm going to pay the everloving shit out of this credit card debt or pay ahead on the mortgage. I don't know how much you are putting into your 401(k), but I'd back off anything more than 5% (or whatever your company matches, if they do) and keep the rest of that money.

    It sounds like you're already trying to cut back where you can and still pay your bills and put money towards things that truly make you happy (like spending time with JT), so I don't know how much more room you have to make those adjustments. But I also understand wanting to handle your own business and not enter into a relationship with that kind of baggage. I'm still struggling with that and, hey, it turns out my gf has her own shit which is pretty much the opposite of what I thought it was. Just gotta work through it and have some faith and trust.

    I don't know, I'm kind of brainstorming here and maybe not telling you anything you don't know or haven't considered. But you are in a position in your life where you can't let a calculator alone make this decision.

  • Live4Life

    I am sorry to here about this Tiffany. You once did some work for me and it really helped me start to understand programming. Your a really great programmer :)

    I think playing by the rules just gets you know where. Now this asumming that your mortgage contract allows you to hand back the keys ,which most do. I would have your house revalued at the current market rate and contact your bank and say you are struggling in the economic climate. Ask them to reduce your loan to current market value. Otherwise you could remind them of your right to hand back the keys and with the removal of all improvements that it will cost them more money if you threaten to walk away and hand in the keys and they have to resell a empty stripped bare house.

    Why should you face higher taxes reducing your income to finiance the banks that caused the bubble in the first place. Your loan has probably been resold as investment over and over again so its doubtful if the bank can legally forclose anyway if challenged as if they have sold it as an investment they have already been paid.

    The banks held the Goverment to Ransom so play there game. Worth a try……

  • Live4Life

    I am sorry to here about this Tiffany. You once did some work for me and it really helped me start to understand programming. Your a really great programmer :)

    I think playing by the rules just gets you know where. Now this asumming that your mortgage contract allows you to hand back the keys ,which most do. I would have your house revalued at the current market rate and contact your bank and say you are struggling in the economic climate. Ask them to reduce your loan to current market value. Otherwise you could remind them of your right to hand back the keys and with the removal of all improvements that it will cost them more money if you threaten to walk away and hand in the keys and they have to resell a empty stripped bare house.

    Why should you face higher taxes reducing your income to finiance the banks that caused the bubble in the first place. Your loan has probably been resold as investment over and over again so its doubtful if the bank can legally forclose anyway if challenged as if they have sold it as an investment they have already been paid.

    The banks held the Goverment to Ransom so play there game. Worth a try……