Silicon Valley Real Estate Blues

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Does this sound like anyone you know?

1. I’m a smart person with good solid  job. I should own a house.

2. That idiot down the street makes less than I do, but he just bought a cool house. He’s a homeowner!

3. I wonder how much house I can afford?

4. I don’t know much about real estate. It sounds complicated, so I’ll talk to someone who does it for a living.

5. Realtors and mortgage brokers know what they’re talking about! (No conflict of interest there, right?) They tell me to spend as much as possible, because housing prices always go up. I don’t have to even research that; it’s so darn obvious!

6. I’ll take out the biggest mortgage the broker will give me. I’m not worried, because they wouldn’t loan me the money if they didn’t know I could afford it. They’re professionals after all.

7. Everybody else is doing the same thing, so I have to be as aggressive as possible. They’re not making any more land and there’s a shortage of housing (again, it’s so obvious!), so I have to get into a house now or the prices, which never go down, will rise out of reach.

8. I make $100,000 per year, which puts me way above average, some might consider me rich. The median price of a house in my area is $700,000. I don’t care if that’s seven-times my income (the rule of thumb is that your house should cost 3 to 4 times your annual income), I’m a rich guy so I should get an $850,000 house. I deserve it!

9. Cool! I just bought my house. It cost me $928,000. I had to bid aggressively because some other jerks were trying to get it and we really love this house. I got it with an interest only adjustable rate mortgage, because the rates on ARMs are one whole percentage point lower than a fixed-rate mortgage (yes, rates are currently at 40-year lows, but I needed that extra percentage point to make the monthly payment).

10. My interest rate doesn’t reset for 3 years anyway, and I’ll certainly be making more than I am now in five years, (even though on average, people are now making less than they were 5 years ago).

11. The interest-only part of the mortgage also ends in 3 years, so I’ll just refinance the mortgage. The broker told me that should be no problem. (Unless, of course, there’s a massive global credit crunch that causes the biggest tightening of credit since the 1970s, but that won’t happen).

12. I’m a smart person who owns a house. All is right with the world.

13. Honey, some guy has stuck a notice on our door.

The morale is:

WHAT YOU DON’T UNDERSTAND CAN AND WILL COST YOU.

GET EDUCATED.

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