Now, these aren't exactly Biltmore House, but then you aren't George Vanderbilt. They've got paper-thin walls, no trees in the yard, 'contractor quality' fixtures and grass planted on topsoil three inches deep. But they're a roof over your head, you've got some elbow room, there's central air for the Texas heat and you're a 20-minute commute from downtown. All things considered they're still better than living in an apartment.
They even have garages for the car you can't afford and took on a lease with a balloon payment. At local developments run by D.R. Horton and other developers, the prices and offerings are typical. For $80K you get a 2/1 900-square foot house. For $100K you can upgrade to a 2/2 1100-square foot model and at $120K you can get a 3/2 1300-square foot house with some features like walk-in closets. The floorplans are all similar and look like they were designed by a high-school junior for his class project, but there are variations in appearance and layout including two story options and bonus features like fireplaces and appearance upgrades which can be added for a price.
The marketing of these homes when they were first built heavily aimed at first-time buyers with little or no experience with mortgages or home ownership, targeting minorities and young working people who under other circumstances might not have been able to afford a house until they were in their 40s. Often this meant they didn't even have to qualify for the loan in normal ways. Credit could be ignored and income cut-offs were flexible. If you had a halfway decent job you could get a house, even if it was kind of small and horrible like the bottom end model shown in the picture to the right.
An easy to enter home market is not necessarily a bad thing. Buying a house at a price you can afford and building up equity is probably better than renting. That may even be true if you have to pay a slightly higher interest rate or finance your down payment, assuming you buy within your means. But the higher costs associated with these so-called 'marginal' loans can put you right on the edge of what you can really afford, and if you're on the wrong side of that line or the payment's higher than what you'd be paying in rent, then there might be a problem. A few reversals or a bit of financial mismanagement or just overextending your revolving credit can put you in a situation where the home becomes an expense you can't justify any longer.
Article comments
1 - Lumpy
It really is shocking how ignorant most people are about personal finances and basic business practices, even college graduates. They can't even balance a checkbook much less handle anything involvimg credit. And so many of them are carrying huge student loan debt. It's ridiculous.
2 - Dave Nalle
I need to write an article about student loans and college costs in general - the one thing in the economy which has exceeded the rate of inflation every year. I'm particularly sensitive to the subject because I've got a teenager headed off to school in a couple of years and she's looking at colleges that cost $40K a year - how the hell is anyone supposed to pay that?
Dave
3 - Nancy
The colleges are also sinks of uncontrolled, unregulated spending. Talk about throwing money down ratholes, or good money after bad, IMO-! The irony is, they're notorious for not paying any but the top echelons of faculty (the "names") decent wages - & the Names are 'way overpaid, like all CEOs.
In any event, good article, & for once I agree w/your economic analysis & proposed solution, Dave. A combination of stupid, ignorant consumers & greedy, irresponsible sellers is a baaaaad thing. Very.
Speaking of education, they USED to make all of us (back in Neanderthal days when I was in school) take a semester of basic living skills, which involved balancing checkbooks, reading a bank statement, reading labels, basic consumer legalese, etc. Obviously they don't do that anymore, or are today's kids just too dumb to learn?
4 - Dave Nalle
I think it's been a long time since they had a practical skills class like that, Nancy, but apparently some effort is being made to bring them back.
As for college pay, I sure know what you're talking about. As a junior faculty member I had to teach all the most boring classes and got paid less than half what someone with tenure would get.
Dave