This Washington Monthly article discusses whether the real estate bubble is about to pop, exploded by the fact that with interest rates as low as they are probably going to go, everyone who is going to refinance has probably already done so, and sooner or later everyone’s going to have to use real money instead of home equity to pay for their toys, and when that happens: Bang.
This is of interest to me because of our house in northern Virginia, currently occupied by renters, the value of which has gone up an amount that is nearly double what we paid for it six years ago. On one hand I’ve been very pleased that the value has gone up as much as it has, because for the last three years, while the stock market has been in the crapper, we’ve come to look at the additional value of the house as retirement money. On the other hand, I wouldn’t be entirely surprised if a reality check hits the price of the house and the rise in its value slows tremendously, or even backtracks slightly. On this score I don’t mind — we plan to keep it a while, so long term we can absorb any setbacks (also, you know. Rental income helps a bit). But I also haven’t refinanced based on the new value of the house and spent that money; I’m healthily paranoid against holding more debt than is absolutely necessary. Other people aren’t in that position.
Interestingly, though, the article notes that most of the housing bubble is confined to specific areas, namely places like New York, San Francisco, and a few other largely overheated markets (The Washington DC area, where that house I just mentioned is, is another example). Over at MetaFilter, some commentors are despairing of ever being able to own a house. I do wonder how many of these folks have considered moving out of New York or San Francisco or other expensive places and trying their luck in another area entirely. Clearly this isn’t a decision that one can just lightly make: You have to make sure there are job opportunities and enough of a local culture that you’re not bored stiff (although, now that I think about it, I do know at least one couple who picked a place to live pretty much by opening a map and saying “hmmmm… this place looks nice”). But if you’ve got those two, wide expanses of the US are open to you.
While I absolutely love going to New York, and I’m very happy we kept our house in Virginia rather than selling it (I loved living in that area), I think it’s a fair question to ask many people whether the simple attraction of being in New York, or Los Angeles, or San Francisco, really justifies having to jam yourself into a far less than optimal living situation. A few weeks ago the New York Times did a spotlight article on a family with a teenage kid who lives in a one bedroom apartment: The teen gets the bedroom and the parents sleep in a Murphy bed in the living room, and when one of the people in the apartment wants to be alone they leave their home. And this family has been doing this for years. People, that’s just flat-out nuts (The Times followed this up a few weeks later with another story about people with babies doing the same sort of thing — with studios).
I mean, I love my wife and kid almost insensibly, but I would have to kill myself if the only way to get some personal time in my own residence was to go out of it. It’s one thing to jam yourself into a broom closet when you’re living alone, or are a couple tolerant of lack of personal space. But when you get a family, well, it’s time to consider one’s options. The near-certain fact that this family’s one-bedroom, no-elbow-room apartment has a market value greater than my four-bedroom house on five acres is just bad craziness.
I’d offer myself and my family up as an example of people who made the transition successfully, but I don’t know if we fit the mold exactly: I work from home, and we moved rather drastically rural — indeed, rather more rural than I had expected at first. In the end, I’ve been happy with the move, but at the same time I don’t necessarily recommend the same sort of whipsaw transition for others. But maybe something like moving from the San Francisco area to a snazzy midwestern college town, perhaps, where the university brings in lots of cultural attractions and someone ambitious could start a new small business for themselves. Would that sort of life be so bad? All the while you’d be able to go home to a place that it would take you more than 30 seconds to walk the perimeter of, and that won’t suck away all your income paying the mortgage (and won’t leaving you mulling bankruptcy after the housing bubble pops).
Obviously this isn’t going to work for everyone — my friends in New York who are in the publishing or financial businesses, or my LA friends writing screenplays and acting are exactly where they need to be. But for the rest of you, it’s something to think about.