Friday, September 23, 2016

Market Forces

Yesterday I met with a contractor to investigate building a new house. The folks I met with were very nice. They are a well-known builder in the area that has been highly recognized as providing quality services. I was referred to them by someone who had used them to help build their house around 15 years ago. It surely was a different market then.

The meeting was highly informative on some aspects as well as deeply discouraging on others. I learned that my numbers for site development were very much inadequate where I had considered them well-padded. They repeated the mantra that 2-story is cheaper to build than ramblers.  They told me about the absurdity of the North Kitsap real estate market including instances of $400K-$500K houses being sold for cash without even making it to market because it was sold within whatever real estate office was listing it. And they told me about FHA 203K Rehab loans that I might be able to use for a renovation, if I chose that instead of a new build.

They also told me about the pitfalls of owner-building. The pitfalls they told me about were almost verbatim from what the several owner-building books that I've read had told me they would say. They said the main difficulty was finding subcontractors, and that was what was causing me the most heartache. They also told me (indirectly) they are not willing, under any circumstance, to give out subcontractor referrals. Again, in alignment with the reading.

All in all, very useful. Those guys are clearly talented builders, but talent only gets you so far. At the end of the month, you still have to know how to work the business. They sincerely wanted to open my eyes to the process and let me know what was in store, whether they built my project or not.

Being equal parts thick-headed and belligerent, I do not consider the project dead. Delayed, reconsidered, reshaped, but not dead.

My main problem is the market. The market is pretty silly right now. Again. See the aforementioned absurdity of the North Kitsap market. Things down in Port Orchard are not much better. In the meeting, they said one of the reasons that happens is people see the dollar signs when they find their house is worth a bunch and decide to sell. They are then successful pending the purchase of a new place. Now the pressure is on to get the new place. Figuring they are making out like a bandit on their old house, they are willing to plus up the offer a little to ensure success. Realtors will encourage this. After all, 6% of more is more than 6% of less.

Soon, the guy down the street sees the success of his neighbor (whether or not he knows that they ended up spending the extra them made to get into the new house) and decides he wants to realize the same benefit. Probably by this point, the talking heads on cable news or are saying that the market is great, and you should totes sell. Pretty soon things compound and you have a silly market. Personally, I view buying in a silly market to be a poor financial decision embarked by folks with more money than sense.

In all fairness, the vast majority of people have more money than sense, the only variable is exactly how much money we're talking about. It's just as stupid for a guy like me to buy a house for $700K as it would be for somebody with a much lower income to buy my house. The foreclosure would  be unavoidable either way. I mean, I still consider the timing and purchase price of my house to be the worst financial decision I've ever made. Even after seven years. When you think about it, though, when it comes to houses, most people just have more ability to contract debt than sense.

I guess that's what it really comes down to. For my next house, one of my absolutely non-negotiable requirements is that I don't have any mortgage insurance. I'd like it to be a 15 year mortgage, but that's not as important as no mortgage insurance. Right now, in this place, at this time, that's not likely to be possible.

I don't want to make a move in a silly market, but I can't ignore the fact that my family needs more space. As for now, it's more closet organizers and a few more trips to goodwill. One thing I have going for me is that I really do like this house.


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