Savings Advice Not Valid in California
How old-fashioned can you get?
This longtime observer of the national housing scene blinked and then read again the quotation (in Newsweek) attributed to housing specialist Anthony Downs. On the topic of housing affordability, Downs suggested that median-income households can buy a median-priced first home without too much difficulty by saving determinedly for five or six years.
Downs, a solidly grounded housing scholar on the Brookings Institution “think tank” staff, contends that most potential first-time home buyers are able to overcome the pressures of high mortgage and housing costs unless--and here’s a significant caveat for readers of the Los Angeles Times--they live in high-cost areas like California or Hawaii.
The Downs’ view is personally interesting because it stirred the memory of how this writer and his wife had to scrimp and save after World War II to become homeowners in 1954--nine years after the war had ended. In our case, it must be confessed that we waited until we found a house we really wanted in a good neighborhood.
We were fortunate that our landlord for much of the waiting time was a nice guy called “Dad.” We also benefited from two extra part-time incomes.
Homes to Grow On
To complete the story, we bought our first and second homes in the 1950s with no thought of tax advantages and little prospect of any significant investment appreciation. Most World War II veterans bought houses in those Eisenhower non-volatile years just so we could live in a place where our families could grow (and they really did!), and where we could paint the walls any color we liked and could finish off a rec room in the basement or put up a basketball backboard in the side driveway.
During the upcoming decade we will likely see more modular, factory-built houses constructed on lower-cost land for entry-level young buyers. And, according to conservative but compassionate realtor Justin Hinders (himself a father of eight), we might also convince some young couples to be more restrained in their sybaritic spending of disposable income and, thus, more disciplined in saving at least $20 a week for five years to buy a small house.
Realtor Mike Brennemann, who got his condo maven reputation here by selling apartments in the first Watergate building, added that young couples would be well advised not to insist that the first house purchase be a single house on its own quarter-acre lot. He and Hinders agreed that it often makes sense to start with the purchase of a unit in a condo apartment or a small town house--making as certain as possible that the dwelling is likely to resell quickly in five or six years for at least 30% more than purchase price. That would ensure a profit at least twice the small down payment and closing costs.
Patience Is Key
In other words, save doggedly for five years and buy a small dwelling and then keep it looking good or improve it modestly and resell it in five or six years and be ready to get a single house on its own lot. Both the house and the lot are likely to be small if the couple is “average” and in the median-income bracket. But then a few more years down the line, before the couple turns 40, they should be ready--in terms of accumulated housing equity, decent career progress, and saving habits--for the house they really wanted all the time. Patience is the key operating word, advised Hinders whose own realty impatience is well-known here.
SHORTLY: Under current IRS rules, Real Estate Today magazine estimated that a couple with a combined $36,000 annual income could gain $10,000 in federal and property tax deductions by buying an $85,000 house with a big mortgage at 13%. . . . HUD is being praised here for its proposal to insure mortgages for construction and rehabbing of “board and care” homes for elderly persons as an alternative to nursing homes.
