My original attempt at a blog, begun and ended in 2005, discussed what had been a third pillar of what I now call RationalUrbanism. Along with the misperceptions regarding the quality of public schools, and the risk to personal safety of living in an urban area there was the bizarre belief that already nearly unaffordable suburban homes were good bets to go up in value forever. I have that essay somewhere and will link to it when I find it. I’m not overly proud of my prescience with respect to real estate values because it seemed so obvious at the time that wages were not keeping up with the increased cost of housing.
It’s not that people stopped seeing homes as an investment, but discussions started to involve concepts like strategy and risk. Before the crash of 2008 the idea which clearly served as the foundation for purchasing a home as far as investment value was concerned was, without exception that if the price has gone up, it will continue to go up, and if the price hasn’t increased, it will never increase.
What I find most interesting is just how quickly attitudes changed. All of a sudden the idea of buying low, to later sell high, was a good one. It’s not so much that even that idea is a solid one. The problem with the idea of “your home” being an investment is that we all require shelter to survive and selling a residence means an obligation to buy or rent new housing and that will take place usually within the same market, and therefore any increases in value on the sale will be will be reflected in the cost of any new purchase or rental.
But I digress.
When I purchased a condominium in 1991 for $79,000 no one remarked on how little debt I had taken on in order to provide housing for myself and my family. It was viewed as a serious mistake because the space had been valued at nearly $200,000 and its decline in value made the prospects of reselling at a profit unlikely. It did sell for $140,000 12 years later, so even those criticisms were misguided, but what was missed was the fact that my family’s monthly outlay for housing was so low…month after month after month for 12+ years, that money was available to do, or to invest in, other things.
Having gotten out of the real estate market in 2005 I re-entered it at the very end of 2008. My banker told me I was pre approved for $200,000, perhaps even $250,000 if the house was the right one. I had no intention of getting anywhere near those figures. I really never understood the idea of “getting as much house as possible”. My daughters and I visited dozens of homes in the city. There was one in particular, perhaps 3/4 of a mile from our current home on the same street, which was nearly perfect for us, but the seller refused to come down from his asking price of $200,000. It was beautiful, but it would have put me too close to the edge. Any unexpected expense, any major reversal, had the potential to put me in crisis.
So I went for a home, a little bit larger, but in need of a bit more TLC. It set me back $110,000 less but I have had to put $60,000 into it to get it into the same high quality state of repair as the other home on Maple Street. But it is not just that it is still less than the cost of the first home, it’s that the expenses have come at intervals of my choosing and have never placed me at financial risk and I’ve always had a buffer between me and a financial crisis.
There are other reasons I chose my home at 80 Maple Street. I like the fact that it is located only about a block from both State Street and Main Street, I like its verticality and its semi-attached status and the impact that has on energy usage, I like its “walkability” and most of all I like the flexibility of a structure which can be anything from a single family home, to a block of flats, to an office building. Most importantly though, 25 years ago people thought I was insane for buying housing as inexpensively as possible, now, not so much. Perhaps “common sense” regarding danger and schools could change just as much in the next quarter century. Reality, eventually, has a way of insinuating itself even into the most strongly held erroneous beliefs.