Elle,

Thanks so much for the links related to housing booms and busts. I would
have never guessed the data would show what it did. Very interesting.


"Ell" <elle_navorski[at]earthlink.net> wrote in message
news:Qhnff.2217$jI5.1377[at]newsread1.news.pas.earthlink.net...
- quote -


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.

<The builder we selected can build us a home approximately 6,000 square
feet,
including 2,000 square feet finished space in the lower level, for
about
$650,000.
That is A LOT of house to heat, cool, clean, maintain, and pay property
taxes on. Hubby and I had a 3,200 sqft home with two kids and great
finishing and had room to spare. Perhaps you can find a plan that
anticipates an addition .. a patio that can be covered (lay in conduit
for wiring and heating).

Almost every home project runs over budget. Don't put yourself in a
financial jam by taking on too much

"Patrick Fitzsimmons" <NOSPAM[at]HERE.com> wrote
- quote -

I think the following documents are helpful to understanding
the nature of bubbles in the U.S. particularly how spotty
they are; how they often don't burst but simply stop
increasing, etc.

"Historical Evidence of U.S. Home Price Booms and Busts."
http://www.fdic.gov/bank/analytical/...21005fyi_table
1.pdf

The pdf chart is broken down into several regions (and then
many cities)
across the U.S., listing regional home price changes from
1978-2003 and
highlighting booms and busts.

(Some folks here criticized this document. Yet they couldn't
produce anything more meaningful.)

An update to this article is summarized at
http://www.bankrate.com/brm/news/mor...uldYouWait2.as
p . Excerpt:
"In an update based on newer home-price data, Angell and
Williams calculate
that 55 metro areas were experiencing booms in 2004 -- 'the
highest
proportion of 'boom' markets nationwide in the 30 years of
historical price
data,' they write.

The FDIC update itself:
http://www.fdic.gov/bank/analytical/...050205fyi.html

Note: Right now, ninety-one percent of the real estate boom
cities are on the two coasts.

If you and your wife have studied housing numbers and
believe there is a bubble in your area, and the two of you
can bear waiting and watching, in the expectation that
prices will fall, then, sure, wait and watch for the next
few years. I personally don't know that I could stand that,
given all the conditions you list.

You also noted that you are self employed, so "we don't have
maternity care, either, so complications from the pregnancy
could be a financiaul burden."

This cares the heck out of me. What is your health insurance
situation with three kids? And you're considering more kids?
Are you saving money for college for the kids? If not, why
not?

That you're asking questions is great. Plus, they're good
questions. But I am getting the feeling that all things
considered, particularly the kids' well-being and the not
dead certain reliability of your income, it would behoove
you to pay a for-fee financial planner and figure out what
you can really afford, whether you have covered the
possibility of being laid off a few years; whether you and
your wife are insured so your wife and kids are provided for
should you or she, god forbid, get cancer and die, etc. I
don't say that easily. I ordinarily am an ardent proponent
of DIY financial planning.

That you can run your own business and clear $250k a year,
yet seem to not have all these other incredibly important
other bases covered, suggests to me you're in that category
of folks who found an opportunity and has worked very hard
to milk it, but it's not one that can necessarily be milked
forever. You need to make sure you have a command of
financial planning topics. Maybe you do have it, or are on
your way to having it, but, geez, if you lose your income
tomorrow, or you or your wife dies tomorrow...

Do you have that emergency fund John Weeks mentioned? Do you
have your family's income and outcome laid on a spreadsheet?
Is your life insured? Your wife's, assuming she's doing most
of the raising of the kids? Do you know how much your health
insurance premiums will run in the coming years? Do you know
those costs are exploding? (I'm not seeing universal health
care coming before ten years.) Do you have car or college
loan or other debts?

If you decide to watch and wait home prices for awhile, then
I think you should take that time to simultaneously get to
know your situation intimately, using the basic advice of
many popular gurus such as Suze Orman, Clark Howard, some
folks here, etc. If you want, start a new thread and ask
what every family should have, as a basic financial
foundation, to ensure its well-being.

Alot of advice has provided on this thread, I have a few opinions on
what has been presented:

a. Pay off the house early. Do so at the peril of the mortgage
interest deduction. (This might not be critical for you as you are
self employed and it is assumed that you take full advantage of the tax
incentives that are provided to business owners)
b. Make a large down payment: Do so at the peril of ignoring the laws
of leverage. When you consider that you can control a large asset (a
home) with a small asset (small down payment), your ROI is better then
you can get on Wall Street.
c. If you proceed with the construction of your "dream home", avoid
getting two loans (one loan for the land; one loan for the
construction) by getting either a 3-1 (loan that rolls in the purchase
of the land and construction and converts to permanent financing once
construction has been completed) loan.
d. If you don't like the interest rates once construction is
completed, simply refinance or do nothing. It sounds like you are
pretty financial saavy and discplined. A person in your position could
consider either an Option ARM or Interest Only loan type. This would
serve you in two regards; 1) Increase your mortgage interest deduction
allowance and 2) accumulate weath by investing the savings into a
interest bearing device (despite popular opinion, home equity is a
dormant asset which has no value until one of two things happen; you
either cash out or sell out the equity). The other path is doing
nothing and benefit from the lower AGI from the higher interest rate
loan. In the end, you need to consult with a competent mortgage and
tax planner to create a plan that takes tax deductability, networth and
future real estate intentions in mind.
e. With the advent of government sponsored reverse mortgages, an
individual of your stated networth has more options then most. Meet
with a financial planner to determine if equity acceleration or
principle payment delaying is your best interests. (An argument can be
made that an individual that has a 500K loan on a property appraised
for 500K with 500K in an interest bearing account is worth more then an
individual that owns a 500K house (appraised for the same) free and
clear with no cash reserves).

By your statements, you have achieved a certain level of success, you
can afford to invest a little with a tax/financial professional to
learn what is best case. You know how to make it, now learn how to
keep it and grow it.

Regards,

Scott

Patrick Fitzsimmons wrote:

- quote -

Lets say you buy this big house, and then, in order to stay afloat
financially, you and/or your spouse have to work longer hours, and
spend more time on home maintenance, and take less vacations, during
your children's growing years than if you had stayed in the original
home? Will the added enjoyment the children get from the bigger house
be greater than the enjoyment the children will lose because their
parents have less time to spend with them? In 20 years will you be
advising someone that you wished you had waited to build your dream
house so you could have had more time to spend with your children when
they were young?

My point is, there is more than one way to skin a cat, and if your goal
is your children's quality of life, you should look at the big picture,
including how much time they get to spend with you and what things you
could do to improve the children's quality of life that are less
expensive than building a big house.

I would also suggest putting together a list of the activities that you
think a big house will allow you to do, and then think of ways to do
those activities outside the home. It may be substantially cheaper to
take the family to various venues for sports, etc. than to build your
own personal facilities.

I personally find that the more house you have the more of your time is
sucked into paying for it and maintaining it; a large house and yard
can take over your life and leave you little time for anything else.
If you enjoy home maintenance as your only hobby, then you should
definitely buy a big house, but if you enjoy doing other activities
then buy a small house and spend your extra free time doing those
activities.

Andy

In article <etbff.215126$lI5.5109[at]tornado.ohiordc.rr.com> ,
"Patrick Fitzsimmons" <NOSPAM[at]HERE.com> wrote:

- quote -

When I replied, I had the impression that you were a bit older
and nearly done with kids. With this additional information,
I'd like to suggest a different way of making this decision:

Think of the worst possible case scenario, and ask yourself
if you can live with that.

Lets say that 3 years down the line, you are moved into the new
house. The primary breadwinner of the family is diagnosed with
a major medical problem, and has to miss 6 months of work. Will
you have the money to coast through this problem without going
deeply into debt or bankruptcy? Lets say you don't. You are
then faced with selling this house, possibly at a $75,000 to
$150,000 loss. Can you live with that?

With the amount of down payment you will have, you could survive
this situation, but you would be banged up a bit financially.
If you can live with this outcome, then I'd say full speed ahead.
If this situation is something you want to avoid, then you know
you need to back off.

This is a fairly useful decision making tool--asking what the
worst case scenario is, and if you can live with that worst
case, then move forward. A motivation speaker once added "that
which does not kill you only makes you stronger."

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

Patrick Fitzsimmons <NOSPAM[at]here.com> wrote:

- quote -

I just want to say that regardless of what kind of a house you have,
you should have some form of disability and/or other insurance that
should cover for situations like the one where you cannot work but
still wish to have a level of income to keep you close to your
existing lifestyle.

- quote -

We actually can't wait for our kids to grow up so that we can get a
bunch of things fixed knowing that it's going to last much longer. <-:

--Ram

"Don" <dwzimm[at]telus.net> wrote in message
news:HRJef.124715$yS6.51318[at]clgrps12...
- quote -

Thanks for your thoughts, Don.

We don't have any real desire to be landlords, yet, but have seriously
considered paying off the current mortgage. If we pay our new mortgage
payment against the current debt instead of moving, we'll own our current
place in about 3 years. That certainly has some emotional appeal but
doesn't seem be to be wise, financially. If we didn't have a mortgage
payment, we would simply invest more. Although we have minimal savings now
compared to our current income, we're saving a huge percentage of what we
make. Saving for the sake of saving just doesn't make sense. Saving enough
to educate the kids, provide for a drop in business or general "rainy day
fund", and savings for retirement is a top priority. Overkill has some
appeal for simple greed (I don't use greed as a derogatory term here) but
too much is still too much.

- quote -

payment. That's not a bad return, especially since we can protect $500k
from capital gains under the current law and deduct much of the interest
payments. (We're starting to get phased out of deductions and may be paying
AMT soon - not sure how interest is handled for AMT purposes.)

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote in message
news:mj3ff.117761$zb5.17414[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

Elizabeth - great questions.

One of the things that bothers us about building the house is simple guilt.
My siblings and my wife's siblings are all doing well enough to have food,
clothing, and shelter and 7 of the 8 siblings in our two families have some
savings and can take vacations. None of them, however, have the ability to
build the house we want, nor do our parents, and none have the ability to
take vacations as we do. It seems silly but we don't want anybody envious
or jealous - I sincerely doubt we're happier than any of our siblings simply
because we have more money.

Aside from the emotional impact, there's a clear financial impact. From
what we read, many people who build huge houses end up getting stuck and
being house poor. Although it sure seems like we can afford the bigger
place, on paper, there's got to be something we're missing. Maybe we're
underestimating real estate taxes, insurance, HVAC costs, landscaping,
upkeep and maintenance, cleaning, etc.

John Weeks mentioned a recession and that's clearly a possibility. I'd hate
to buy the house, have a serious drop in income in 1-2 years, and either
struggle severely or have to sell the house as a result. If we struggle,
I'll resent the idea of the house and get no enjoyment from a huge expense.
If we have to sell it, that could be as bad or worse. I'd rather not
experience the new place than to get a taste and lose it.

If we have a 4th child, we need the space even more but there's also added
expense from another child. Being self employed, we don't have maternity
care, either, so complications from the pregnancy could be a financiaul
burden.

And probably the biggest obstacle was our initial desire to stay within the
$550k - $600k price range. We're having a touch time getting over the fact
that we're now talking about $200k over our original upper target. It's
just shocking to see how little $550k buys compared to what we thought it
would buy.


RELATED QUESTION: What is the groups opinion on what will happen to the
midwest housing market in the next 3-5 years? With interest rates going up
quickly and many people taking atypical mortgages, we think there may be
higher defaults which could depress market values. Is that realistic? It
appears that the only time housing prices dropped was right around 1981 when
mortgage rates were close to 20%. Is slower growth more likely than a
reduction in property values? (Remember talking about Midwest, not New York
or San Diego)

"John A. Weeks III" <john[at]johnweeks.com> wrote in message
news:john-21BBD0.09295716112005[at]ip-lcc.supernews.net...
- quote -

We live at 12:00 on the cul-de-sac and the soon-to-be-widened street is at
9:00. Our back yard fans out to about 10:30. Part of our could be taken if
they widen the road. At a minimum, there will be more traffic very close to
our yard - a trait that would make the home less desirable to many families,
I think. Howver, I think you're right that for some people, particularly
empty-nesters or those with older children, the highway access would be a
bonus.

- quote -

Excellent points. Thank you.

- quote -

We won't be empty nesters for at least 15 more years (we have a 3-year old
now) and even longer if we have more children. One of the reasons we want
to move is we've heard from several older peers from my industry that they
wished they would have built the "dream house" when the kids were young
enough to enjoy it rather than pinching pennies when they were young so they
could a big, but empty house, later in life.

That said, we certainly don't want to do anything foolish.

- quote -

Thank you, John. I appreciate your feedback.

- quote -

- quote -

I think you need to do some different math, John. Kids start being able to
drive at 16. Therefore, this couple has children who are not yet teenagers
and several years of child-rearing in a larger house.

I wonder why the OP is asking here, rather than just building the house.
What is it that scares you about building this house? You carefully and
logically listed the reasons why you should go ahead. Have you also listed
reasons why you should not? Which list has more weight?

Elizabeth Richardson

"Patrick Fitzsimmons" <NOSPAM[at]HERE.com> wrote in message
news:QVwef.99435$Hs.8440[at]tornado.ohiordc.rr.com...
- quote -

You are looking at more space for entertaining and exercise equipment, more
closet space, and more trees, for an increase of $3650 per month. That is a
whole lot of money for what you would be getting. If I were in your place,
personally I would much prefer to stay put and use the extra income to pay
down the mortgage and eventually own the place free and clear. Or I would be
using the money to buy a lakefront cottage or some other smaller attractive
property that could be rented to tenants and be there waiting for retirement
years, rather than moving into a bigger house.

In article <QVwef.99435$Hs.8440[at]tornado.ohiordc.rr.com> ,
"Patrick Fitzsimmons" <NOSPAM[at]HERE.com> wrote:

- quote -

You might be surprised...having good freeway access would be a
huge positive item for me, something I would pay extra for. I
think you will find that many other folks would much rather have
convenient highway access than being stuck on some narrow street
miles from anywhere useful.

- quote -

These two points cancel out. You don't have enough experience to
understand what a recession or mini-depression is all about. I
have seen computer people go from billing $150 an hour down to being
unemployed and not able to find anything for a year or more.

Your first priority here should be protection of the family unit,
which means building up a fund that can handle 2 years of having
no work. You never know when the job market will turn down, your
industry evaporates, or you get hurt and cannot work.

I also question your timing. You say you have new drivers coming
on board. I take this to mean that your kids are in the high
teens, and ready to move out soon. Just as you get this new
castle built, you will be entering the empty nester stage of
your life. That is when most people start downsizing. I think
you are trying to build the house that you needed 10 years ago.

At this stage in life, I would suggest staying where you are at
until you get a year or two of being and empty nester behind you,
and you have a good idea of what you really want in a house.
You may find that what you want changes dramatically.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

My wife and I are considering building a new home. After looking around for
many months, we don't like anything in the price range we want to spend and
don't want to spend the amount of money required to buy the house we want.
But we know we need to move soon - our yard backs up to a fairly busy road
that will likely be widened in the next 3-4 years AND a new exit from a
major highway will be added to that road a couple years from now that will
increase traffic. We expect our current property value to take a hit at
that point. We will also have another driver in the house in 4.5 years, two
more drivers shortly thereafter, plus maybe another child in the mix in the
meantime. We have about 3,000 square feet now and are fine for day-to-day
living but have no space for entertaining, no space for exercise equipment,
the closets are small, etc.

We found a perfect lot for about $160,000. This is about $60k more than the
average 1/2 acre lot in the area but it's on a private drive, 1.5 acres
total, with LOTS of trees. We feel that the $60k premium is justified.

The builder we selected can build us a home approximately 6,000 square feet,
including 2,000 square feet finished space in the lower level, for about
$650,000. The finish work is FAR superior to anything else we've seen and
the price per square foot is drastically lower than what we've seen. Once
again, we think we've found an awesome deal. We've had three different
trusted friends check out the builder and all agree with our assessment.
One of those friends was a custom home builder in his previous career but
his since sold his partnership.

That means the purchase price is around $800,000. We were hoping for
$550k - $600k.

We realize we don't NEED to move. We simply want to but not at the expense
of our sanity or financial future. Here's the financial details:

Self-employed. Income fluctuates some and is currently around $250k. Never
had a year where we made less than the year before but understand that could
happen. Currently saving about $9k/yr for college (we know we'll cash flow
some of the college expense) plus $42k in a SEP plus another $42k in a
non-qualified deferred comp plan.

Current mortgage is only about $1,350 per month. The new one will be closer
to $5k with taxes and insurance. We can handle the extra $3,650 per month
without much problem. Cars are paid for and we expect to pay cash for
future cars. No other debt.

We're young and only recently started saving significant money. Before that
we were paying off student loans and other debt and investing in the
business. Total savings is only about $125,000 but we're increasing that
quickly.

Ideally, we would move in two years. However, if interest rates go up 2%
and construction costs go up 10% during that time, our mortgage payment will
be 35% higher. That's a huge difference.

What do you think we should do? Buy the "dream house" now, buy something
smaller now, or simply stay put and see what happens in the housing market
the next two years? Try to balance emotional and financial answers, of
course. :-) Interested in your thoughts and logic to back it up.

THANK YOU!