we may be a bit unusual in our housing needs. we have 2 kids and are contemplating a 3rd before we get too old. we really like our current house and property, but want to expand from 1800 square feet to about 2800. that is mostly because we only have two bedrooms in the current configuration and need home office space and basement space. i think if we do this, we can actually increase our utility bills only marginally by taking advantage of solar gain and hydronic radiant floor heating.

we have excellent credit and are at about 75% loan to value on our current mortgage. we reached out to several banks. the ONLY options for us are

a: interest-only construction loan with "we've got you over a barrel" refinance after construction complete
b: B of A has a renovate and refi option but you'll pay at least 4k in closing costs and MUST hire a bank approved general contractor to oversee the expansion adding an instant 20% or more to the cost.

basically, they are saying this: if you want a good rate with low closing costs, move to a bigger house to help us clear out our inventory or we will******you for trying to add on to your existing house.

of course, we have the same dilemma as most families: once the kids are grown and gone, the wife and I will have more house than we need if we add on. plus we will have to pay the extra taxes, utilities and insurance on the bigger house all our lives. one way this additional square footage would make sense is if we can take care of elderly or aging family members in our larger home. that is a BIG question mark, though.

i'm voting for bunk beds in the kids room and, eventually, an RV out back for mommie and daddy. then, once the kids are grown, we travel in the RV. but, the wife isn't "excited" by this idea. so, for now, we are in idle mode doing nothing but saving a little each year. i think if we do decide to add on to the house, we will probably end up doing it with cash a little bit each year.

and yes, adding on would be extremely expensive even without a loan due to the high cost of lumber and cement and finishing materials. when you buy an already finished home - say 30 years old or older, a lot of the depreciation is already baked in to the price around our area. i am acquiring things as i can and will probably add a carport-type storage area for building materials we pick up on the cheap as we go along if we decide to go that route.

I think Demarcos job security just took a hit. The O administration will do this. Right or wrong something needs to happen. Either write them down or foreclose and sell these homes. Then shutter Fannie and Freddie. Let the chips fall where they may. Just stop the games and holding everyone in limbo.

Silly Karl. Everything you say is right, but only if we lived in an unmanipulated free market system. Clearly we don't.

Amp - sell your place and move into a rental. Then look for what you want and be patient. There will be many bargains come on the market.

JMTC

TMD, I keep telling my wife that too, but after 3 years of it she is starting to get*****ed.

tmd - not interested in selling.

i do understand how your advice would be good for the vast majority of folks, though and believe me, it is well considered by the wife and i. we just keep coming to the conclusion there is no place we would rather be in our town than where we are.

taxes and insurance are a constant drain, though. that is our main squeeze right now and hoping the county commission will stick to their guns against future increases as they sense the locals are growing restless on that issue while our infrastructure continues to degrade year after year.

The whole dynamics of this discussion are off. First of all, someone brought up lumber, chainsaws and such stopping at a point in price. Trees are literally free and I am sure these people want to eat, but that has little to do with the price of a house.

The most important part of a homes price is where is it. A 1000 square foot shack in La Jolla California is worth more than a 3000 foot Taj Mahal in Detroit. Scrape the shack off the lot and the lot might be worth even more, so the shack might have negative value.

What happens if the entire country becomes Detroit, meaning there isn't any demand to get a place to live because there is an attractive, high paying job down the street? It was land prices that declined 90% in Japan. The houses went with it. So did the stock market, which was floated on the equity bubble of financed real estate. The Fed won't prop that forever.

What is the FHFA really doing? I think for one thing, the mortgage balance puts a floor under housing. Lower the balance and you lower the price. $20,000 on 10 million homes is only $200 billion, which in the scheme of things isn't a lot of money. This is especially true when looked in the light that this is money that would likely be lost in foreclosure if even a portion of these loans went bad. But, drop the loan balance $20,000 and you effectively drop the minimum selling price of these properties $20,000 as well. The story is still that just wait and houses will be selling for even more once this blip has passed. It hasn't sunk in the game is up in regard to the general public.

The downpayment Karl mentions and the housing market can't mix at any price near the recent top. 20% of 300% of pre-tax income is 60% of income. This means, after taxes, a 10% savings rate would go entirely to a downpayment for close to 10 years before someone could buy a house. How many of these people could permanently be in the stock market? We are talking about a roll of 2 million a year roughly, if we are talking about mom and pop. Not going to happen any time soon. TMD knows this.

The best we can hope for is the old 90% loan. There has been nearly 100% financing as long as I can recall, as long as there was a VA or FHA financing possible. I have been around the real estate market since 1976 and the FHA structure we presently have was effective then. 95% conventional financing had begun just a few years earlier. There was a solid 35 years of this in effect when the bubble burst in 2007. 7 year auto loans and such don't lend themselves to massive savings rates, especially when it is the young, who don't already have a car and derive a lot of image in owning one nicer than their friends. Throw in student debt and low paying jobs and it just isn't going to happen.

What is lost in all this shuffle is the old idea of paying a house off. This is really nothing more than a deferred annuity, putting money in and having it available at retirement. If you don't own your house, you are still funding your annuity. This is a guarantee. All other returns are speculative. Sure, there are taxes and insurance, but there isn't a basic debt. Being we were told to not do this, the boomer generation in many cases is looking at a picture many of their parents weren't looking at, a debt incumbered place to live. There isn't a lot of difference between rent and a mortgage, despite the idea there is. When this idea sinks in, the recent modus operandi of housing will change.

Not one house for sale in my neighborhood.

Mann wrote..

The story is still that just wait and houses will be selling for even more once this blip has passed. It hasn't sunk in the game is up in regard to the general public.

One question I ask when this subject comes up at work and the hopium smokers chime in that, "this is just a cycle.. a bump in the road.. a blip.. housing prices will come back!"

Where is the demand going to come from to drive those prices????

Ask that question a few times and it slowly starts to sink in...

Agreed that input costs can come down as the entire economy deflates but to get there is a whole different world than where we are at now. $100k for a house sounds nice but I doubt we will have easy to obtain $50k salaried desk jobs in that world. Here's my example of a near $100k house price world:

My folks bought a very decent house in 1983 for $110k. Called dad and verified he was making about $35k then. Mom didn't work and they had 2 kids. Also interest rates were astronomical back then. (Double digits)

I bought a very similar appointed house (3 bed 2 bath) in 2006 for $290k and we had a combined gross income of about $140k. Looking at gross income to purchase price I was doing better "at the peak" in 2006 than dad was in '83 and I also didn't have the expense of kids. The difference is the dual income, but that's a different discussion. Interest rates were about half of '83 so cost of borrowing was way less to boot.

My point is, a home going from $110k to $290k in 23 years isn't an inflation rate outside of the rise in the DJIA or equities over the same period. The cost of everything else was rising with the inflation rate of about 4-5% annually. What didn't rise is incomes. I had to resort to adding a spouses income to fill the gap.

Drop the second income and I think a reasonable price is closer to $200k based on my income today relative to what Dad carried back in the 80's. And back in 1983 it took a lot to qualify for a mortgage so people that should be renting were renting. The idea that every Wal-Mart cashier should own their own home hadn't become a torch to carry for the politico's yet. Don't forget the .gov involvement via that crap. Drop those people and I think the carrying rate is above $100k, IMHO.