I envy my friends in Washington, D.C. Four years ago, one of them paid $165,000 for a half duplex near Old Town Alexandria. She encouraged me to buy a place just like hers right down the street, but I hesitated. I wasn’t sure I would stay in the area. I thought the price a little high.
But what do I know about anything? I had no idea just a few years later interest rates would plummet. I had no idea the Federal Reserve would pump an unimaginable amount of dough into the economy, or that aggressive mortgage firms would use interest-only gimmicks and other tricks to qualify anyone for a massive loan.
That duplex I could have bought for $165,000 now sells for $465,000, and I’m out a cool $300,000 for not buying when I could have.
That’s why I read with great interest a recent article in The Washington Post. Housing envy is the newest psychological phenomenon in America’s high-growth metro areas.
You see, there are people working side-by-side, making the same income, but the one who bought a home four years ago is worth, on paper anyway, $300,000 more than the one still renting. And the one still renting now must pay a king’s ransom to buy the same house.
I often daydream about what I would have done with all that money. I could have sold the Old Town duplex and paid cash for a six-unit apartment building in the Pittsburgh suburb where I now live.
I could have moved into one of the units and rented out the others. After all my costs — taxes, insurance, etc. — I would have a positive cash flow of $2,000 a month or more. I could have retired my corporate clients for a year or two, and spent all my time completing the books I’ve been struggling to write. But all has been lost.
Because I missed the housing boom in Washington, I am forced to attain wealth the old-fashioned way. I have to earn it.
Scared off by the insanity of the Washington real estate market, I fled to Pittsburgh. With job growth and population growth flat, there isn’t much of a boom in Pittsburgh. Property is very affordable.
I bought a modest property, my second, because it will make a nice rental. I’ll live there a spell, then rent it and buy another. Gradually, slowly, painfully, I’ll grow a nice little nest egg for my retirement years.
And as I struggle to build wealth, I am filled with envy for those who made boatloads of money doing absolutely nothing but buying homes in high-growth metro areas before the insanity kicked into high gear.
The envious part of me would delight in seeing their bubbles burst. It happened before in Washington. In the mid-1980s, the last time the market soared there, people got caught up in the frenzy and speculators snapped up condos as investments.
In 1999, while looking for a place to rent, I met an older fellow who had bought five condos in the mid-1980s. He had paid $115,000 each for his condos then expecting their values to soar over the next decade. But they didn’t soar.
When we talked in 1999, he told me the units he paid $115,000 for were worth $90,000. After years of managing his five properties, his investments produced a negative debt of more than $100,000.
Of course, he told me his story a little more than five years ago before the current boom kicked in. Now those same condos are probably selling for $250,000 or more. After being flat for years, their “value” has doubled in the last two years.
His story makes me wonder if today’s buyers will experience a similar fate when interest rates go up, money availability tightens and the loan gimmicks disappear.
Who knows, maybe the day will come when such folks envy fellows like me.
TOM PURCELL
Writer
E-mail address: TomPurcell@aol.com
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