“I had an interesting chat over the campfire with some friends on the weekend. They are in their mid to late 30s, two kids, renters. A few years ago they were looking at buying a house in the suburbs where they live. They were priced out despite having a household income slightly above average. We got to talking about the coming crash and I told them that their dreams of home ownership may come to fruition in the next five or six years. Those houses that were unattainable at 500k+ may drop right back into the 250k zone they were at only 5 years ago. They informed me that they had made their peace with renting and the math on a 25 year mortgage no longer worked for them. They have plans to take their early pension option and travel. Even a 25 year mortgage won’t be paid off in time for them to have the freedom they want.
I’m not sure I totally agree with the logic that simply because you wouldn’t be mortgage free at retirement, means buying isn’t a sensible option at the right price, as they could still realize some gains if they were to buy near the bottom of the bubble cycle. But I thought their energy and attitude towards real estate was telling. They were looking to buy when their kids were 3 and 11. Now the youngest is almost 7 and the oldest can see University on the distant horizon. This bubble kept them out at the precise time they were most eager to jump in and by the time it runs its course, they will be thinking about downsizing, not buying into a money pit. I wonder how many other families will follow a similar path. Seems to me this bubble burst could be amplified by the thousands of prudent families who stayed on he sidelines during their most urgent nest years only to be in a completely different head space when the prices come back into reasonable range.”
- Lexlimo, by e-mail to VREAA, 3 Sep 2011
Even though this family will do fine financially, they have had to compromise through the bubble. In more typical times they would have been able to buy fairly easily at 3.5x income (or thereabout), and the whole subject of RE wouldn’t have taken up unnecessary space in their lives. It’s yet another example of the very significant inconvenience that this bubble has caused.
Perhaps more noteworthy, Lexlimo raises a very interesting idea about how the length of the speculative mania may result in a whole group of prospective buyers essentially ‘side-stepping’ the whole act of buying. It’s a persuasive argument, even though it likely only involves a smallish minority (most families have not been ‘prudent’). Thanks for the post, Lexlimo.