Off Topic - Budget Crisis

When we bought our place a year ago, I put together a monthly budget to make sure we could afford it on one salary, should one of us be out of work for an extended period of time. At the time it seemed doable. Now, I am extremely unhappy at work, and have been looking at our family budget from a new angle: "Can I afford to quit?"


So inspired by today's post on the Juggle Blog, and the State's finances.....I am seeking some budget advice. Before I start in, let me preface this by saying, we have really tried to find a financial advisor, but have not had any luck. Advisers tend to fall into several camps, they only deal with folks with high net worth (focus on fewer clients), they work on commission only (we don't have investments outside our 401ks/IRAs), or they don't follow up with you.


Ideally I would like to get answers to questions like, "Are we saving enough for retirement?", "Do we have a big enough cash cushion?, " "How much life insurance is really necessary?"etc.

Looking on the web, I find lots of advise, but none of it seems that realistic. Do people really have that big of a cash cushion, or that much life insurance? (given that the personal savings rate in this country is so very low).

I have attempted to go it alone, and created a large spreadsheet for retirement projections, factoring in inflation, SS earnings, contributions, and withdrawals. It all seems reasonable, however because retirement is so far off for Mr. BT and I, the projections are especially sensitive to the assumptions due to all the compounding, so the exercise becomes almost meaningless.

If I were to quit, we would no longer be able to save for retirement, and we wouldn't have much extra cash to start saving for our kids college education. On the other hand, we do have a substantial nest egg by national standards (we have been putting away the max contribution in our 401ks for several years now). Mr. BT and I used a combination of loans, work study, and scholarships to pay for our educations.

So any words of wisdom or advice? I'm really not satisfied with any of my options at this point.

Or perhaps a financial advisor to suggest. The irony in all this, to get a financial advisor, you have to have a lot of investable assets. But how do you get a lot of investable assets if you don't have a financial advisor?

Time and Time Again

Hats off to Michael Choe. Time Magazine (2005 & 2009) and the Sac Bee both featured him for his prescient decision to sell his Natomas home (that he bought in 2001) in 2004 and buy a foreclosure in 2008.

While our story is similar but a slightly later timeline......what really struck me was his true reason for purchasing before things had bottomed out. According to the Sacramento Bee "The real story was that his son was ready to start school. Otherwise he would have waited two more years to buy."

Our purchase this year was highly motivated by this same reason. Closing in February gave my daughter enough time to get to know some of the neighborhood kids who are also attending/starting the local elementary (she started Kindergarten in August).

Of course I get serious pangs of anxiety about this decision, as I watch the NODs in our neighborhood pile up. But knowing there are other bubble bloggers out there who followed the same route has us, is giving me great comfort.

Sometimes life just gets in the way of making a buck. For instance I forbade my husband to even think about selling our Townhouse in D.C. when I was pregnant/on maternity leave. I just couldn't handle the stress of a toddler, a newborn and a move. So we missed the peak in the market by about 6 months(luckily the peak in our area was almost a year later than Sac), .......and moved to Sacramento when my son was 9 months old.

The Bee article states that he frequent the blogs....hope he pays Average Buyer a visit, as he sounds like a kindred spirit.

Doubling Up

My cousin, who just graduated UC Davis (after 5 years in the military), has been living with us for the last month and a half while sorting out his life ambitions. He did have employment offers in Salt Lake City, where he grew up, but he prefers to find a job in the Bay Area.

To me, this situation illustrates two important trends. 1) As many have reported, demand for housing and rental units will remain tempered, since unemployment forces people to accept less than ideal housing situations. 2) California will never lose its luster, especially for the young and single.

Investment vs. Shelter

Adjusted for inflation, a home is not a very good investment, especially if you consider transaction costs and maintenance. So if you are looking for long term gains on investment, there are many other relatively safe alternatives that offer higher returns.

This is why I have never been very concerned with when the bottom of the cycle occurs. If I were looking at a home as an investment, the buy low, sell high, would be the rule to follow.

So if it's not an investment (as many were led to believe during the boom), then what exactly is it?

• As long as you don't have a neg-am loan, a home is a forced savings account. With each payment, your equity grows (in a normal market).
• If you do have equity, a home can also be a source of emergency cash in times of crisis (medical bills etc.).
• It could also be a hedge against inflation should it spiral out of control as it did several decades ago.
• And of course most importantly, buying is an alternative to renting.

Hence, I always get a chuckle out of the "now is a great time to buy," which I have heard countless times since we bought our home in Feb. This is part of an investment mindset. When I meet people who are thinking of buying a home because "now is a great time to buy," I always bring up the analogy that they aren't stocking up on gas, since it is now half off what it cost last summer. Why is a home any different?

Changing Horizons

Times have changed. Homes are no longer thought of as a sure fire "flip to get rich quick" investment, they are back to being a place to actually live and perhaps a store of wealth for retirement.

A lot can happen in the 20+ years someone plans to live in a home. Nearby fields are developed, secondary roads are turned into main thoroughfares, infrastructure can deteriorate etc. These are things, humans have control over.

But there are also many things we can't control. One of my early posts examined how parts of Sacramento would fare against some of the the woes mother nature can cause. In those cases, people can try to avoid high risk areas in the first place, or build to resist these problems (i.e. the wood we are considering for our deck has a very high fire rating).

I somehow forgot to mention drought in that post, which is one of the most common of our woes here in California, and is becoming more and more serious this cycle. Living in Northern California, I don't worry about this as much as I would if I were in down south, but I have been increasingly concerned about its impact on our already weakened economy.

I digress...back to long term changes that affect where your chose to live. What I am wondering about.....is this drought, and all the odd weather patterns we are seeing across the U.S., just a part of our regular climate cycle, or are they the result of a larger shift due in part to climate change? Not sure anyone has the answer...but the thought of Sacramento getting hotter and drier is not a reality I want to face over the next 20+ years.

A Bountiful Backyard

Rather busy this week preparing for a conference...but I wanted to comment on something I read in the WSJ related to psychological depression trends (emphasis mine):

"They are taking cash out of the bank in preparation for a long-haul bad time. A friend in Florida told me the local bank was out of hundred-dollar bills on Wednesday because a man had come in the day before and withdrawn $90,000. Five weeks ago, when I asked a Wall Street titan what one should do to be safe in the future, he took me aback with the concreteness of his advice, and its bottom-line nature. Everyone should try to own a house, he said, no matter how big or small, but it has to have some land, on which you should learn how to grow things. He also recommended gold coins, such as American Eagles. I went to the U.S. Mint Web site the next day, but there was a six-week wait due to high demand."

I was rather surprised to read this, as it is reflective of my thinking as well. We went for a bigger lot (smaller house), which will allow us to grow fruit trees and have a garden. I figure not only is it fresh produce, that is more or less organic, but its also not shipped from Chile, and is a good hedge against supply disruptions or massive price increases. Of course this all assumes we have a green enough thumb to keep things alive, and the weather cooperates. Little did I know, the foothills are a great place to have a backyard orchard. On the problematic side, I had forgotten about the whole, you need two trees for cross-pollination to occur.....so we'll see how far we actually get with this endeavor.

The Appeal of a Depreciating Asset

I am compelled to respond to a recent comment, about why one would purchase a home now, knowing the purchase will be worth less in the future, and still feel good about said purchase. The person called this behavior non-coherent and illogical. I thought I would explore this concept a bit. My reasoning may not be solid, but I think I can make a bit of a case.

If one thinks about a home purely as an investment, I somewhat agree with the commenter. I say “somewhat”, because this line of thinking can lead to irrational behavior (bubbles), based on current expectations of future value. It is hard to predict the future, there are many variables and actors involved. This summer everyone thought oil was headed for $150 a barrel….now it’s less than $40.

On the other hand, almost everything we purchase is a depreciating asset (cars, electronics, computers, clothing, furniture etc.) In theory, just as I currently rent my home, I could also lease a car, electronics and furniture. Taken to its extreme, one would never purchase anything given the above logic (except perhaps food and jewelry).

If I do not plan to use an asset for most of its useful life, then leasing makes more sense. But in reality, we typically purchase most items (weighing utility versus price). It’s often a matter of convenience, not having to worry about preserving the condition of the item, less billing etc. Sometimes our life circumstances change, and force us to sell things earlier than we would like. However, Craigslist is an excellent tool for recouping some of the residual value.

That said, I still try to be prudent in my purchasing of depreciating assets. Do I buy the latest and greatest electronics/computers when they first debut? No. I typically wait until I feel they are reasonably priced. Do I have time to shop around at every possible store to make sure I am getting the best deal possible? No. I usually check consumer reports to make sure I am getting a good value, and often purchase at Costco.

Of course some assets lose all value, but people still buy them. I bought a computer at Incredible Universe (now Fry’s) to use for grad school applications back in 1997. It cost me $2000 for the setup, and 6 years later was worth almost nothing. That computer was an enormous purchase for me, as I was only making $10.50 an hour (ah the joys of working for a not-for-profit in the public interest). Yes there were alternatives (library perhaps), but I chose to purchase the computer.

Given current macro/micro economic factors, are home prices where I live likely to depreciate. Yes. Do I feel making a purchase now is a good alternative to leasing given our current time horizon. Yes. Did I do much more homework and due diligence for my home purchase, since it is likely the largest purchase I will ever make? Once could argue either way. Is this illogical and non-coherent behavior? Perhaps, but humans are not always the rational actors economists assume (although some of that is changing).

P.S. I spend a disproportionate amount of time in my home (as a full time teleworker) so my utility of a home is perhaps greater than most.

Form, Function, or Eco Friendly

I am at that point in my life, where I tend to sacrifice form for function. Instead of purchasing a charming old farmhouse or bungalow, we purchased a new tract home. My husband and I both work 40 hours a week, and don't want to spend our limited free time maintaining our home or other possessions.

When we tell folks we are buying a home, the first question is 1) are we getting a dog, or 2) are we going to put in a pool.

Answers, no and no. Both of these require lots of $$ and maintenance. I discussed my swimming pool concerns last spring in this post. Dogs, while wonderful, must be walked, fed, can't be left along for long periods of time, and can tear up your house/yard. I already have two young munchkins that have many of those same traits, so I don't need to add more work for myself (we have fish instead).

So this brings me to the issue at hand.....grass. In our rental the HOA maintains our front yard, and both front and back use recycled water. We currently have a nice patch of grass in the backyard that Mr.BT faithfully mows. But we never really play on it.

As we contemplate what to do with our backyard, I am leaning towards a "no grass" yard. We won't have recycled water where we are moving. In my opinion, grass seems a rather irresponsible choice in a drought plagued state. It also must be mowed on a regular basis, which pollutes the air. No grass, means a lower water bill, and less time mowing/edging. This seems like a win/win since the kids don't really play on it much. If they really need some grass to play on, there is a very large grassy park area within a couple blocks of the house.

So what is the argument for grass, as I don't really see that many, aside from the aesthetic?

We still plan to cover the ground somehow. Living where we do, I feel compelled to cover the ground to keep potential asbestos out of the air.

Trade Offs: Distressed vs. New

While investigating the perverted California property tax system for our new home, I happened upon a very handy tool. You put in the home APN, and it spits out all the additional taxes and fees associated with a property (Mello Roos, library, ambulance fees etc.). It only works for APNs in El Dorado County, but there is likely something similar for other counties.

http://www.co.el-dorado.ca.us/auditor-controller/PropTax/pt_direct_apn.html

Of course we would have preferred a home without a Mello Roos, but so far the trade offs seem worth it. Compared to our short sale and REO experiences, this purchase process is an absolute dream.

So far, the way I see it, buying new, as opposed to dealing with the banks on distressed inventory, has the following benefits:
1) The purchase contract seems much more evenhanded (less skewed toward the bank).
2) There is tons of disclosure.
3) Construction defect accountability etc. (California Civil Code).
4) The supervisor at the development has been very responsive about questions we have had (regarding an abandoned easement, and arborist reports).
5) The builders offer special financing incentives. I recently heard a story of how the bank’s title companies (primarily in SoCal) are charging exorbitant fees, which they are requiring the buyer to pay.
6) Putting in a backyard is pricey (for a new home) but you get exactly what you want, and can control the cost. The distressed homes we put offers on needed complete overhauls on the yard (dead plants and grass). It isn't as expensive, but still requires a lot of work.

Of course, many question the construction quality of new homes. However, I always tell people that homes made in earlier decades had their problems too. It’s just that time makes those defects apparent so they can be priced into the sale or fixed at the owners expense (our home in D.C. was very poorly made, and settled so much that doors wouldn’t close). My hope is that the home we are purchasing now was constructed with more care (since builders are no longer throwing up homes as fast as they can). I guess only time will tell.

California Here I Come....

Just another, of the many many reasons we moved back to California......

The University of Michigan compiled a list of metro areas based on their cooling and heating demand (the less demand, the better the rank). Sacramento was ranked 6 out of 50, only to be beat out by other cities in California (hat tip WSJ Developments blog).

I would hate to think of what my utility bill would look like if we were ranked 50! Of course "demand" and costs are not always related. Just look at the difference between PG&E and SMUD.

How Low Can They Go?

I'm not sure I agree with all the recent comments on Lander's blog about how interest rates will bring prices down. My gut tells me that a home listed at $300,000 now, is not going to fall another 50% due to interest rates. I haven't spent much time mulling this over...so please point out what I may have overlooked.

Right now we are in a situation of oversupply. Currently, prices are moving lower as it gets worked off. At the rate we are going, it seems the extra supply will be worked off by the end of the year (assuming its not just investors buying right now......foreclosures notwithstanding).

If we take much more off today's prices, it will mean we are below the cost to build new homes. Thus, no new homes would be built. Eventually, existing homes will fill due to population growth (the fact that the area is now more affordable may even bring some people back). At some point, this will squeeze supply, bringing home prices up to a point where builders can profitably build more supply.

If interest rates go up, building will pretty much grind to a halt (more than it is now!). Resale home prices are very sticky going down. I doubt we would see prices drop, in line with increases in interest rates, since there is always a lag. In other words, this will take some time to work out, and similar to 2006/2007, purchase activity would dry up as buyers and sellers face off in another stalemate.

I see this scenario taking several years to play out, depending on how long interest rates are up. In my mind, there is just way too much uncertainty related to macroeconomic factors right now, and we are talking a period of many years for this all to resolve.

Personally, I am a bird in the hand kinda gal. I would rather purchase sooner, and get a reasonable price (there are some on par with rent), with a reasonable interest rate, prior to seeing my purchasing power eaten up by rising inflation.

Many argue that home prices will continue to go down (beyond the levels that fundamentals would suggest) as interest rates increase. This would lower my property tax base, my principle, and increase my interest write off. However, I am not sure waiting for several more years is really worth it, if our monthly payment ends up being roughly the same, and I have the ability to appeal my property tax base.

I am looking for a place to live and raise my family. If we can purchase now for the same or less than we can rent, why would we wait? Especially since rents will go up with inflation and decreased housing supply.

Sinking Sentiment

For some time now, I have suspected that we will enter a rather serious depression (not great depression, but certainly not short recession).....and lately, there seem to be daily announcements from the experts that are leaning this way as well. With consumer sentiment at a record low, I got to thinking about how our expectations have changed.

Last year around this time, Mr. BT and I were prepared to spend a considerable amount of money on a home. At the time, we figured we could get a piggy back loan to make up the difference for what our down payment didn't cover.

Come July or so, as the credit markets started to melt down, and as local home prices began dropping, we lowered our price range cap to reflect only our 20% down payment (which has grown a bit over the year).

As home prices have dropped further, we are now seriously looking at homes priced 20-30% below our 20% down payment cap. I am very nervous about things to come, so purchasing a house well below our current means, is very appealing to me.

In essence, our price range has dropped just as much as the local real estate market. As homes drop in price, our expectations are not growing (same price range, but nicer home)......they are instead moving down with the market (lower price range, same type house).

Of course this won't help out the local economy. Less money to a realtor, less money to a mortgage broker, less taxes to local governments etc. On the other hand, a looming recession/depression coupled with inflation prospects, is also driving me to purchase sooner than I probably would like to. I have a feeling the Fed will be raising interest rates come Fall, once they see that inflation is not subsiding with the slow down in the U.S. economy.

In 6 months time, I think home prices will not be dropping as dramatically, so it be the point of maximum value, in terms of the home price interest rate trade off.

Yes, this is all speculation on my part, but after all, I am an average buyer....It's likely I am not alone in my thinking =)

If at first you don't succeed.....

......try, try again. Looks like we will be giving it another go. We found an REO this weekend that fits all our criteria, and is modestly priced. I jumped on the chance, when my husband expressed an interest in this home....which brings me to today's subject, finding a place we both want to call home.

Mr. BT and I, like many couples, value the various aspects of a home differently. I tend to want a smaller home on a medium lot.....whereas, Mr. BT tends to think bigger is better in every respect. Lucky for me, he doesn't like HOA and Mello Roos, so that keeps him out of the new developments with monster homes.

I have heard that remodeling a home is one of the biggest causes of marital discontent (typically finances tend to be number one).

Neither of us tends to be very hard over on any particular item so finding something we both like isn't that hard. But finding something we can both get excited about, and a price that is well within our budget is much more rare.

Many of us talk of finding our dream home.......but is your idea of a dream home the same as your partners?

Why do we Wait?

Why do we wait out the housing bubble? Why do some hate giving money to the government (taxes)? Why do others regularly fret over their investments? Why do we clip coupons and shop around for the best deal?

In the end, I guess it boils down to having more money to do with as we please. But what exactly does that get us?

Most Americans seem to view money as an end in itself, a symbol of status and power. So I was delighted to see a column in the WSJ that addressed this issue a little differently. What’s more, most of the benefits outlined in his column do not require vast sums of wealth. It’s all about lifestyle choices and pursuing what makes us happy. Of course, this avenue of thought caused me to reflect on my personal situation.

Since we moved back to California I have been the happiest I can remember (which to some degree, I define as the absence of stress in my life). In fact, I keep waiting for the other shoe to drop because my life’s experiences have taught me to expect tough times. We have paid off our enormous student loans (around 100k), so the only debt we have is a small car payment. Now that we are back in California, we are just a short drive away from family and friends, whom we see on a regular basis. We have also met some really nice families and made some friends (I have come to realize that the snobby attitude in EDH comes more from the people who work here, as opposed to the people who actually live here). And last, but certainly not least, I have a family and a job I love. None of these things are directly tied to our income level. In fact we took a sizable pay cut, in Mr. BT’s salary to come back to California.

All this to say, I don’t think money necessarily buy's happiness, but it does allow you spend more time on the things you enjoy (assuming you choose to do so). All the $$ we are saving by waiting out the bubble won't necessarily make us happier, but it will relieve financial stress and will likely go toward our childeren's college education.

Agonizing over a Short Sale

Well the bank came back with a price that is not too far from ours (25k more….but a drop of around 75k from asking). Its still a pretty reasonable price, but with all the maintenance needed on the home, it would end up being around 25% above our monthly rental expense.

With the banks approval their agent immediately dropped the price on the MLS (unfortunately we paved the way for him…sigh). So I suspect the home will now generate some more serious traffic. One thing in our favor, it’s a very odd house, so I don’t think we would be competing with investors on it.

So the question is, do we wait, in hopes that no offers come in and the bank changes their mind or forecloses? Or do we jump on it despite the higher price and the fact that the second lien holder has not agreed?

I keep going back and forth. In some ways I am okay if someone else grabs it, because it then sets a great comp for the area. Local market stress indicators keep me hopeful that we are in store for more price drops. On the other hand, homes don’t come up in this neighborhood as often.

Here are some additional pros and cons of our situation as I see it.

Pros:

• Location. Walking distance to the elementary school, and a small park
• Large enough lot to comfortably hold our old fishing boat and even older inoperable ‘68 Dodge Charger.
• Established neighborhood
• Nice looking swimming pool (but not sure how much we will use it)
• I’m really ready to settle down. Another couple that moved into the area a month before we did who rented up the street from us, just bought an REO. I am very jealous.

Cons:

• Road noise. Bordered on both sides by major EDH roads (perhaps more as DOT will be doing some major road work on either side of the house in the next 5 years….luckily the home is not located in an asbestos region)
• House layout (really odd, and with lots of oak cabinetry which I am not fond of). No room for my office if the kids refuse to continue sleeping in the same room. The layout will likely cause problems when it comes time to sell.
• Lot needs major landscaping, and has not been cared for.
• Swimming pool (needs looking after)
• Home needs major updating (at least 7 types of flooring on the bottom floor alone)
• With a recession in full bloom, I am anxious about purchasing a home near the top of our price range.

A Taxing Debate

As an ENFP I tend to be very idealistic......so please forgive the rather naive discussion below. I must be missing some crucial piece of information because the "tax argument" for purchasing a home isn't very persuasive.

We just completed our taxes for this year. It was our first full year in California, and our first full year as married renters with two jobs (we had rented while married previously, but my husband was attending college full-time). We are now at a point where our income is such that we don't qualify for many deductions anymore (except for our two little munchkins of course). So needless to say our tax bill was larger than in past years (the state was what really got us).

Getting to the issue at hand......the "tax benefits" of owning a home are often cited as a reason to buy versus rent. But I have always felt this is a misconstrued argument. For one, you have to pay a lot more in taxes and mortgage interest than your actual deduction. So the "its tax deductible" argument only goes so far in my book.

In all honesty it seems like a big shell game to me. Instead of paying county property taxes, and lining shareholder pockets with the interest on your mortgage, you are paying higher federal and state taxes. I know some have a visceral reaction to paying anything that smacks of a tax, but is paying interest on your mortgage that much more appealing? At least with taxes, in theory the money is being put toward the common good.

Once home prices come down, we will find a middle ground between the two extremes. In theory we will pay less interest and property taxes (since our loan amount will be lower), but federal and state taxes will be higher since we will have less to deduct.

In any case, buying a home for the tax deductibility, seems to be a false argument because those tax benefits are offset with many other costs, such as homeowners insurance, property taxes and maintenance.

Breaking Even

So I did a quick calculation this morning to make myself feel less anxious. I am no math whiz so take this all with a grain of salt.

I assumed a $350,000 principle and then incremented the interest rate by 1/8 to get a payment schedule. I then took that payment schedule and assumed a fixed rate of 6.5% to get a corresponding principle.

This helped me arrive at a general relationship between interest rates and price drops. With my assumptions, for every 1/8 interest rates rise, you would need a 1.4-1.6% decrease in price to still break even.

To put it in easy to remember terms, for every 1% increase in rates, you need a corresponding 11-12% decrease in price to still break even (the relationship is close to linear, but not quite, for the interest rates I looked at).

Of course I would rather have a lower principle and higher interest rate, for all the reasons pointed out yesterday......but in the end, you still have to come up with the cash each month.

I'm sure there is some elegant interactive calculator for this type of analysis. If anyone knows of one, please let me know the URL so I can post it on the sidebar.

One's Lot in Life

To put it in fashion terms, lot size seems to be the new black, now that the housing bust is in full bloom. During the boom, builders put increasingly larger houses on increasingly smaller lots, in order to squeeze more profit out of their land assets.

Now that the boom has ended, the truth comes out. No one really wanted these homes, at least not at current prices. They only sold, because it was all people could afford. If they had a choice, as buyers do now, they wouldn’t purchase a home with a lot so small and a house so tall, that no sun will shine between you and your neighbors except at midday.

Downtown living is different of course. There, small lots allow for walk-ability, and the houses, for the most part, are charming. In the suburbs, all the houses tend to look alike, and very few people walk or bike to the grocery store anymore (not including Davis). So if you are going to bother living in the burbs, why wouldn’t you want a larger lot?….isn’t that the point, to find more elbow room than you would in the city?

The trend is that people would rather have a large lot, and a less grandiose home, as opposed to the other way around. Of course we fall into this bucket, so perhaps it’s my personal bias interpreting comments made by others.

We checked out several homes this weekend, all with above average lot size. I didn’t really fall in love with any of them….but I am not sure how much longer I will be able to hold out.

Prime CA Real Estate for $20 a Night

For those of you who love the great outdoors, this morning at 7am was the big moment. Its was the time when Yosemite campsites become available for reservation (in July). With 5 separate people all trying to get different sites in Lower Pines, only 2 of us succeeded. The sites were sold out within seconds.

This situation is a great example of a deliberate market failure. It is deliberate because the government does not charge a market clearing price on purpose. We as a nation choose not to charge market value for Yosemite campsites because we want to guarantee access to all Americans and Foreign Tourists. Thus there is a deluge of demand for a limited supply. So in this situation the government relies on a first come, first served system instead. Unfortunately there is a great deal of gaming that can occur in this situation, and it doesn't necessarily result in an equitable allocation. Of course I am grateful for this alternative allocation policy, as we at least have a shot at securing campsites this way.

This situation also has much in common with the one I often study, landing slots at busy airports, which are also allocated on a first come, first served basis.....in aviation, when a resource is underpriced, the price is paid in time and not $$....hence all the delay as aircraft are forced to wait their turn.

What's our Price Range?

I really admire buyers who have a firm answer to this question. For us there is a lot of wiggle room and justifying that goes on depending on the house we are considering. So when new home sales folks ask what our price range is.....I really want to answer "it depends."

In theory we could stretch temporarily by paying less into our 401k. This would then be offset in a few years once we aren’t paying for daycare (approximately $1,800 a month). We are interested in finding a home where we can raise the kids and grow old (hence the interest in a single story), so stretching a bit now to make sure it meets our future needs is a big consideration.

We have swung wildly in both directions. In the past we have seriously considered houses with some land, and/or other special features and been willing to spend up to 30% above my desired budget. Other times I think it might be better to purchase a home we could afford on just one salary, to allow us a greater financial safety net (job loss, or stay at home mom/dad).

Over the last 6 months, my range has slowly evolved downward with the home and credit markets. Last year at this time we were looking at higher price ranges. However we didn’t quite have the 20% down for that range. So now with the credit tightening issues, and plentiful home choices, I have lowered my comfort range to the 20% mark.

All this to say, nothing is set in stone for us. Perhaps I am being a typical indecisive woman. But I also think it’s important to continually reevaluate one’s situation based on new information.

(And yes daycare really is that expensive.....if you think about it, its only around 5.50 an hour per kid....why college tuition gets all the press and special perks is beyond me.)