Me and the markets

I own no stocks or bonds, and have no retirement account. I live in a house that one might say I "own," if one were to overlook the fact that I currently have zero equity in said house, and am paying somewhere around half my monthly income to be allowed to live in it.

A year and a half ago, I had substantial equity in this home, not the result of appreciation but reflecting the 20 percent down payment I made when I bought it a little more than two years ago. Sadly, that all vanished in the economic collapse of recent months, and at the moment, I'm underwater on my mortgage for the first time in my life.

I'm 49 years old, and have been in the San Francisco Bay Area real estate market since I was 21 years old, before real estate prices went insane here. Every home I've purchased has gone up in value during the years I lived in it, sometimes as much as 100 percent. I've bought up, down, and horizontally at different times, but have never bought a house the payment on which I couldn't afford, never financed at more than 80 percent of the value of my home and often much less, and never did any of the "irresponsible" things a hundred mortgage brokers tried to convince me to do.

And yet right now, today, if I lost my income, I'd lose everything I have in the world. I can't sell my house to get out of this dangerous position, because I owe more on it than it's worth.

I can't re-finance into a better interest rate (I'm paying 6.75 percent, but rates right now are more like 5.25 percent for a fixed), even though it would reduce my monthly payment by several hundred dollars to do so, because I no longer have any equity.

And I probably won't be able to qualify for the new mortgage assistance program even though it lets you re-fi to 105 percent of your home's current value, because it also restricts you to 31-38 percent of your income in mortgage payments, and in San Francisco, that's simply unrealistic. Nearly everyone here pays more like half their income in housing costs, because this is one of the most expensive real estate markets in the country.

It's also my hometown. I was born here and this is where my family is. And while two years ago I could honestly say none of my income was tied to my location, now quite a bit of it is.

So, what can I do? If I sell this house and move somewhere less expensive, I'll be left with nothing, and I'll never get back into the real estate market here, nor will I have anything on which to retire.

I will leave my mother, who is elderly and has cancer. I'll no longer live near my brothers and their families, which means I won't see my nephews grow up. They won't know me, and I won't know them.

And I'll lose income, although not all of it.

To make all this worse, quite a bit of my income is coming from the newspaper business, which is not what I'd call in a growth phase right now.

/sarcastic understatement

There's nothing profound about this post. In some ways, these are the breaks, and I guess if I can just hold on to this house for the next 5 or 10 years, I'll be more or less okay after that.

But there's no way out of this place I'm in. In the short term, I can't win, I can't break even, and I can't quit the game.

And you know what's left.

Comments

[Red]

As much as I live my adopted City By The Bay, I have never entertained the thought of buying a home there. SF's real estate market is, as you say, one of the most expensive places in the country to live. I've always carried the notion that, when I do get to buy, it'll be back in Oregon, where the housing prices have always been cheaper, and I can have land under it, instead of sidewalk. At the present, that's not looking too good.

Things will turn around. They always do. This time, it's just gonna take longer.

[Barbara Ruth Saunders]

Your situation is an example of why I am irritated by people who insist that people's problems in this market are caused by "living beyond their means." As you so eloquently express here: many people who followed the most "responsible" strategies possible still got caught up in this, and the reality in a place like the Bay Area is that just about everyone is living "beyond their means" by any sane definition of that phrase.

As a New Yorker, I'm also often annoyed by the stigma that exists here about not owning. Middle-class NYers live in rent-controlled apartments. Here, the conventional wisdom is that any- and everyone should just "get in" to the real estate market at any cost.