buying a home | Squirrelers

City or Suburbs: Where Do You Prefer to Live?

We each have our own preferences in terms of where we live. Some of that is geographic, meaning we want to be in a certain part of the country or a specific metropolitan area. For example, in my case I choose to live within the Chicago area and have a specific reason for doing so: family. Who knows where I could be decades from now, but that’s the area for now.

Another aspect of where we choose to live can be broken down to a decision of city vs. suburbs. Some people love living in a city and couldn’t imagine living in the suburbs, and vice-versa. Now, we could also bring another type of location into the picture, which would be rural areas or locales far removed from a substantial city.

Why People Like Living in the City

It’s interesting how people who live in the city, here in Chicago, tend to view the suburbs. I should clarify up front that I’m currently living in the suburbs. Anyway, the stereotypes city dwellers I have known (many over the years) tend to have about the suburbs tend to paint the latter as being lame, for lack of a better word. Accordingly, here are some of the advantages they tend to rattle off either directly or indirectly:

More “cool” people (as said by others)
Diversity of people
Fun, trendy restaurants
Much better nightlife
Cultural opportunities (museums, theatre, etc)
Quick access to major professional sporting venues
A more cosmopolitan environment

People tend to be willing to trade off space for location in the city. Condo or apartment living are the options for most. Not all, but most in the popular areas.

The suburbs tend to be viewed as one giant sinkhole of culture, all lumped together. There isn’t much distinction in the thoughts of how very different each suburb might be in terms of character and quality of life. To the loyal city person, they’re all bland and all cut from the same boring cloth.

Why People Like Living in the Suburbs

So, I’ve heard things from the other side of the fence as well. From comments I get from people who are devoted suburbanites, it seems like some kind of foregone conclusion that “of course” a person would want to live in the suburbs. Almost as if the city is not a “real” option to be considered.

Here are some of the reasons I’ve heard about why suburban life is preferred:

Safer, with less crime
Better schools
More family-oriented
Quiet
More spacious housing
Less congested
More green

I’ve heard people talk about the city as if it’s one big, angry place. The notion is almost that one must always keep doors locked when driving, so the bogey man doesn’t chase you down at 40mph and carjack you. You know, knee-jerk reactionary stuff.

People in the suburbs tend to characterize the city as having areas that are either bad, trendy, or for business (downtown). Or, the city is seen as a place to visit a few times a year to get some culture and have some fun. Perhaps see a show, visit a popular restaurant, or see a ballgame. Then, high tail it back to the perceived security of the suburbs.

What Do I Think?

I realize that some of the things noted above are total generalizations. Just things I’ve heard or picked up on. They may not even be applicable to every city or area. Every U.S city is different, and not all provide the same city experience – and not all have the same number or variety of suburbs.

That being said, it seems like people tend to fall into one of the two camps. Some more entrenched than others!

For me, it’s really been a matter of timing. As in, the stage of life I am in when I have to choose.

As I mentioned, I currently live in the suburbs. So, you can see where I ultimately decided to live. When looking at the advantages and disadvantages of each type of environment, suburban living won out. Again, just based on this stage of life.

Currently, what I value most is safety and good schools. I’ve talked before about how I think schools are important when buying a home, and how a lesser quality home in a great school district is absolutely my choice over a great home in an average district. Not that I’m saying this is the only way to look at it of course, just the way I do.

Beyond schools and safety, I think nice cities have a lot more to offer. Here, the city has the entertainment, cultural opportunities, and diversity of choices that appeal to me. It’s more fun than being in a suburbs. I prefer a cool neighborhood restaurant over some generic chain any day! Seeing a major league game played under the bright lights and national spotlight is better than seeing some minor league affair that has no real significance.

But, there is a time and place for everything. When younger, I had a condo in the city. It was great, and I enjoyed as much of the city as I could. For a young professional, it was almost like an amusement park of sorts 🙂 With no kids, I had far fewer reasons to worry about schools, and was not stressed about safety. But when your main responsibility is no longer yourself but other people, your priorities tend to change. At least mine did.

So, suburban life it is. For now, anyway. Who knows, as an empty nester many years from now, a move into this (or another) city might happen!

My Questions for You

What do you prefer, city or suburban life? Why?

Could you see this changing at any time in your future?

The Selective Real Estate Rebound

By Squirrelers 10 Comments

We all know about the U.S. real estate boom that occurred in the first half the prior decade. In the early 2000’s, real estate shot up in value in a ton of markets around the country. Existing homes increased in market value, and renovations were all the rage. New construction was popping up all over the place.

Then, as we also know, things came to a crashing halt. Home prices started to decline, and in some places they simply cratered. There have even been $1 homes for sale in Detroit! Now, I don’t live there – it’s suburban Chicago for me – and haven’t seen anything remotely like what’s happened in the motor city. Nevertheless, even vibrant suburbs here have seen big price decreases in recent years.

Not long ago, things started to change again. I observed this earlier in 2013, where I asked: is this good time to invest in real estate? It seemed at the time that prices were stabilizing, and perhaps the window of opportunity to get great deals may be closing. What I didn’t think, of course, was that the market had become strong again. Just stable.

Well, a very recent conversation I had with a couple makes it clear that the market is more than just stable in some places. In certain markets, it’s apparently a seller’s market once again. To the point where homes are selling quickly once on the market, as in within a few days!

This couple told me that they were looking for a home in a few suburbs that I would consider to be upscale. They made it seem like they were looking for something at more of an “entry level” price point in those suburbs. Now, an initial price point there might be in the half million range. Not exactly chump change, to say the least.

But this couple – really nice people – said that it was actually really hard to get a home in their target community. The homes at the high end – for the truly wealthy – sat on the market for a while. But the more reasonably priced homes were going very quickly, within a few days as I mentioned earlier.

Quite a difference from what was the case not too long ago. I’m not sure how many locales would see real estate as being red hot in the last 5 years. Even further, I think there are still many places where properties are not seeing buyers stampede to make purchases. I say this because I’ve followed prices in a few other areas, not far away and a bit lower priced, where homes still seem to be staying on the market for a while. Prices have stabilized to be sure, but no increases.

So, maybe there is a selective real estate rebound. Some areas are seeing a seller’s market, while others are still a buyers’ market. Even if the specific locales are close by each other geographically.

My Questions for You:

How is the residential real estate market near you doing?

Are you still noticing a buyer’s market where you are, or is becoming more competitive again?

Do you think we will see a full-scale housing rebound soon, or is this simply fool’s gold?

Is This a Good Time to Invest in Real Estate?

By Squirrelers 8 Comments

Over the last few years – actually, more than that – we’ve seen a lot of people lose a ton of money in their homes. Prices in many parts of the country cratered, and it seems like stories of declining prices were prevalent in most places.

Here in the Chicago area, I’ve seen prices drop measurably over the last 5 or 6 years. There were places that saw homes go off the market very quickly, and have multiple bidders, turn very quiet. As if they were parts of ghost towns, nearly devoid of buyers, with tumbleweeds blowing by. Interesting, because this is an area that has a large corporate and business base, and is quite diversified overall as the center of commerce between the coasts. If it could be like this here, what could things be like elsewhere?

We’ve heard all kinds of stories about houses that could be bought for a massive discount from prices of not too long ago. Places like Miami, Phoenix, and Las Vegas come to mind. Detroit might be the poster child, as there are plenty of homes there that could be purchased on a credit card! Go check real estate listing for that city, on a major site. You’ll find plenty of homes under $1,000. Of course, there’s often a very, very god reason that homes are priced so low.

Anyway, I’ve noticed over here that after some years of falling prices, there appears to be some stability. This isn’t based on a scientific, professional assessment of tons of data, but rather from just a person checking websites here and there and looking at prices within a few different suburban areas. Where there had been steady price declines, there now appears to be a leveling off. In fact, I’ve seen some areas with prices that are surprisingly healthy, given the previous declines.

With interest rates still very low, and prices leveling off, I wonder if the window to purchase true bargain real estate is closing. Is this a good time to buy real estate?

While my interest is primarily for living purposes at this time, there are others who might see this an opportunie time to invest. If one could take out a super low interest loan, and rent out while ensuring the vacancy rate is kept low, a really solid rate of return might be had in this present environment. It’s entirely possible, who knows? High end real estate in Hawaii is one example. Additionally, there is the possibility of future asset value increases as well. Sort of like getting dividends and seeing capital appreciation on a stock.

Real estate can be a component to one’s long-term investment plan. Many people have done very well, and have been able to grow net worth this way. There are plenty of personal finance bloggers that invest in real estate, and operate as landlords!

What Do You Think?

Do you see prices stabilizing where you live?

Do you think the window of opportunity to get a low-priced home is closing, or do you see prices continuing to drop?

Have you considered investing in real estate as a landlord?

How Much Money Should be Saved for Home Repairs and Maintenance?

By Squirrelers 26 Comments

I remember when looking for my first home, a condo, and never giving a second thought to potential home repairs. The building was new

Home repairs don't have to break the bank

construction, so I didn’t think of the need to do future work.

While that did end up being the case, things are vastly different when buys an older home. In particular, an existing single-family home can require more work and money than the new condo example. This is something that might only be given a passing thought by new homebuyers, but should really be given much more attention and consideration. The practice of saving for home repairs is important indeed.

Why do we need to save for repairs and maintenance?

A first-time homebuyer, particularly one buying a pre-existing house, should think carefully about such expenses. Additionally, one must always remember that the difference between apartment expenses and homeowner expenses is not just the rent payment versus the mortgage payment!

The reality is that stuff happens with houses. You can’t just call the landlord or management company to fix a problem. Rather, you’re responsible. The scope of things for which one becomes can vary depending on the type and age of home. That being said, here is a small sampling of the types of bigger expenses that might come up:

Roof repairs or replacement
Siding
Gutters
Air conditioning
Carpeting/flooring
Plumbing

Things happen. Often they can be unexpected (plumbing, in my experience) or planned (carpeting). Some expenses can be minor, other can be large. Thus, while home repair costs can be irregular in nature, they do add up overall.

How much to budget for home repairs and maintenance?

Well, that again depends on the type and age of the home. In general, I think that it’s a decent framework to view the home’s value as a starting point on which to base a budget. Then, taking 1.5% (as an average) of the home’s value and saving it each year for home repairs and maintenance is a general guideline that seems to work. Again, with expenses being irregular, this is an average cost. Some years more, some years less. Money not spent in one year can be saved for future expenses.

Translating this into a budgeted monthly amount for home repairs, let’s take the following example:

Home Value: $200,000

Average annual repair budget: $3,000

Monthly budget: $250

My Questions for You

What do you think of the 1.5% figure for home repair savings?

Do you budget regularly for home repairs, and set money aside accordingly?

Do you agree that many first-time buyers don’t spend enough time thinking about these ongoing costs?

Underwater Mortgages and the Current Real Estate Market: Buying Opportunity or Not?

By Squirrelers 11 Comments

The word “underwater” would normally connote literally being under the surface. I would usually think of the ocean, or maybe being in a

This house is interesting - as is the current real estate market

swimming pool and going under. Either way, actual water would be a part of the instant reaction when hearing that word. Not money, right?

Well, if you’re a personal finance blogger, the word underwater might now bring to mind real estate-related issues! I came across an article from the LA Times that referenced some data showing that over 31% of U.S. homeowners are now underwater on their mortgages. So, just over 3 in 10 homeowners here in the US have been hit by the real estate problems in this particular way.

When one is underwater, more is owed on the mortgage than the value of the actual home. A very simple example might be a case of someone who put down $40,000 on a $200,000 home, thus owing $160,000. If the value of the home suddenly dropped by 25% to $150,000, the home would be worth less than the amount owed on the mortgage. The homeowner is now underwater on the mortgage.

Even more staggering is a figure noting that of those who are underwater, 15% owe at least double the amount of their home’s value! Applying that to the 31% figure noted earlier, one can say that almost 1 in 20 homeowners in the U.S. have a home no more than ½ of what they owe on the mortgage!

With such abysmal figures, it makes me think once again about whether or not this is a good time to buy a home. It sure seems like a much better time to buy for somebody currently renting! But regardless, with home prices dropping so much, people who held off buying a few years ago have to be thanking their lucky stars they stayed on the sidelines.

Is this a good time to buy? Well, prices have dropped despite interest rates being exceptionally low by historical standards. The thing is, I wonder if prices have more to drop. I suspect that there are quite a few people who would like to move, but are probably overpricing their homes. Why? If they are underwater or close to it, they don’t want to take a paper loss on a home sale. My guess is that there are some homes for sale that are at lower prices than they would have been a few years ago, but not low enough. People just don’t want to take a big loss.

With such stats, I wonder if we’re becoming a less mobile society for the immediate term. If you buy, it’s not like you can expect to resell quickly as you might have been able to a decade ago. With less movement in the market, people seem to be stuck in place a bit more.

My takeaways:

In some markets, home prices might still have some room to drop, and we might not have seen the price floor yet
If you buy, utilize all available data when making a home purchase. The short sales out there might really wreak havoc with market values.
Be prepared to view your home as being a much less liquid asset than it might have been a decade ago. In other words, be ready to stay there for a while, even longer than you need to, so like the place you’re getting.

My Questions for You:

What are your thoughts as you read that almost 1 in 3 homeowners is underwater on their mortgage, and 15% of that group owes twice as much as the home value?

Does this surprise you in terms of how high these figures are?

Do you tend to view this as a buying opportunity to be taken advantage of now? Or, do you think that the market will likely head lower and that buying now could be premature?