Lessons from the Housing Bubble

Have we learned nothing? Real estate Web site Zillow.com just came out with a new survey that shows, despite the real estate bubble and economic crisis, American views about home-buying are still utterly warped. I'm sitting here with my mouth open, I'm so amazed. Here are some of the most astonishing things Zillow found and my reality checks to go along with them.

17 percent of people say they plan to buy a house with zero percent down

Um, good luck with that. Have people not heard that credit has tightened up? In fact, zero-down loans are not available anymore. Probably the best you're going to do is an FHA loan, backed by the government. Even the required down payment on those has gone up – from 3 percent to 3.5 percent.

The average sales price of houses in America is roughly $250,000. So you're looking at a down payment of at least $8,750 – plus closing costs, with that generous FHA loan. A 20 percent down payment makes a lot more sense. Time to start saving up.

55 percent of people say the reason they want to buy a new home is so they can get a bigger one than they have now.

My goodness, I thought the "not-so-big house" was chic right now. Maybe not. Hey, if your family can afford a bigger house in this economy, buy it. The rest of us will thank you for being a one-family stimulus package!

But for those who can't afford it, it's time to get comfortable with more modest living. There's nothing wrong with that. Here's a compromise: fix up your current house. It's a great time to do it. Contractors are hurting for work and willing to drop their prices.

30 percent of home buyers told Zillow they plan to own their next home for five years or less.

Again, experts are horrified. Most real estate watchers are saying you should not bother buying a home these days unless you plan to stay for at least seven years. Why? Because the market is volatile. Prices could go down further. These pundits are trying to give homes plenty of time to appreciate in value, so you can get your money out when you sell.

Forget about making a profit. Just recovering your closing costs would be a great goal. On a $250,000 property, the closing costs would likely be about $5,000. So you need to live in the home long enough for it go up in value $5,000 to earn back your closing costs.

Home ownership is an admirable goal. After all, it's the one investment you can make with money you have to spend anyway. You have to live somewhere.

Zillow's survey found 41 percent of prospective buyers were either first-timers or investors. But the fast and loose lending and buying habits that brought us to the brink of the bubble need to be banished to the history books. I call for a return to more traditional home buying benchmarks: put 20 percent down for a house below your means and plan to stay at least seven years.

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