Miami-area homeowner Richard Welch is spending $70 less on groceries a week after his house lost $145,000 in value. Rita Roland cut off 11 inches of hair to save on salon trips, and Victor Parris stopped drinking his favorite brands of dark ale.The grocery shopping changes are a bit harder now due to the rise in food costs, however this is an area where a little planning and smart shopping - sales, bulk and coupons - could really amount to no real changes to food consumption. It could also be easily achieved by cutting back on store prepared foods which have a large value-added mark-up.
``Absolutely, I feel less wealthy than I did in 2006,'' said Welch, 48, a corporate tax auditor. He said he and his wife, Barbara, are slashing spending by 30 percent, including canceling their cable television.
He is less wealthy if he considered his home equity part of his usable. The 30% spending cuts are significant cut - but even more significant is if the previous lifestyle was only achieved by using Mortgage Equity Withdrawal methods. Cutting cable and other "extras" is a better choice than losing your house.
The Melrose Cove homeowners' association expects to bring in $20,000 less in dues this year as residents struggle to pay bills. The group plans to reduce spending on landscaping, painting and other improvements by $41,000, said Welch, the association's president.
Eight of Melrose Cove's 153 single-family homes are in foreclosure, Welch said. Fifteen percent of the other households are delinquent on quarterly homeowners' dues, he added.
The association is not making these cuts by choice - the foreclosed home are not paying their dues. With the other 15% delinquent they are probably down almost a quarter of their dues. Also any money they banked for long-term expenses is not generating much interest at all - so this group is really taking a hit.
Roland, a single mother, left Los Angeles and moved to Melrose Cove in 2004, lured by the lower costs and slower way of life. She bought a three-bedroom house, her first, for about $350,000 and intended to sell for a higher price after five years, she said. Her house hasn't appreciated since January 2007, when it was worth about $425,000.
``I looked at my house as a bank account that was going to accrue interest on a daily, monthly, annual basis,'' she said. ``I'm looking at not gaining money on this stock that I call a house, and may actually lose money.''
Sometime during the Great Housing Bubble people stopped viewing houses as places to live - instead they became investment vehicles. Some people got lucky and were smart enough to pull out when the bubble was at the peak. However many people were either too greedy and figured they could beat the system or jumped into the game at the peak. All of these people ended up becoming knife-catchers. Irvine Renter puts it nicely by asking if a new home-buyer is interested in paying for the previous owners excessive lifestyle. Also notice the get-rich-quick because house prices only go up mentality that permeated throughout the bubble.
Also if the house was valued at $425,000 in 2007 it most likely lost value - and since it is in the Miami area it is easily a double-digit loss. A conservative 10% loss would put the value at $382,500 with a realtors 6% fee she would only make a estimate $9,550 so at least should would not be taking a hit. But with a 19.3% loss the Miami area took her house would be valued $342,975 or $7,025 less than the purchase price, with a standard 6% realtor fee she is looking at a $322,397 for an estimated total loss of $27603.
To save more than $1,600 a year, Roland said she cut her 14-inch-long hair to three inches so she wouldn't have to pay for Japanese-style thermal straightening. She's given up $400 monthly shopping trips to the mall with her 6-year-old son, and hasn't bought any new clothes or shoes since October.
Roland said she never tapped her home equity with a line of credit. ``I didn't want the headache,'' she said.
She may have never taken out a HELOC but the article forgot to tell us if she is one of many habitual cash-out refi people. This woman seems to be making a drastic lifestyle change - it is not clear if it is because she realizes she will not get rich of her house or for some other reasons like an Option ARM or is currently underwater. I don't even want to know what the $400 shopping trips to the mall involved. Malls are a great place to go when you want to watch your money disappear - especially with a young child who is going to want snacks and toys. Unless you are incredibly frugal and incredibly strong-willed it is very hard to resist the temptations the mall's provide.
Parris stopped buying Guinness and Royal Extra beers for himself or a round for friends, which used to cost $50 to $60 every Friday night. He's also giving up weekly dinners at the Crab House and Bahama Breeze to save more of his $69,000 salary, Parris said.This is an example of throwing away approximately 10% of your net income. Hanging out with friends is great - and going to the bar with your buddies is great. But blowing over $200/month is no so great. And eating out at least twice per week can easily cost $50-100 ($200-$400 a month and up) depending on the prices and service. I predict the restaurants, nail salons and landscaping will be some of the hardest hit service business as the bubble deflates. These businesses are not directly tied to housing prices like Real Estate and Construction, but these businesses grew astronomically during the bubble when people were throwing away money anywhere they could.
Sal's Italian Ristorante is getting more pizza orders for delivery and pickup and fewer customers dining in, said co-owner Clifford Marzouka.
Just wait until pick-ups and deliveries are considered too expensive.
Annette Aquino, a 42-year-old music-industry production manager, put her three-bedroom home up for sale after a divorce in October 2007. She's dropped the price from $400,000 to $370,000, and is dismayed to be getting offers between $250,000 and $300,000.
There are not enough numbers given to know if this person will lose money by taking one of the lowball offers. But if she is over her head due to her newly single status she may have to take any offer she has - and eventually make a deal with the bank for a short sale if she has to. I read and hear about so many people not wanting to take a large loss but end up throwing away more money as compared to taking a big loss early on, if the market is falling she may think $300,000 was a great offer that she may never see again.
In 2006, Aquino and her then-husband spent $2,500 for a vacation to Puerto Rico. Last month, she bought two tickets to New York City on Spirit Airlines for $77. She walked through Central Park with her daughter, got drinks at Starbucks and looked at snow for the first time. Total cost of the five-day trip that included a stay at a friend's place: $200.
Only $2,500 for vacations - our New Jersey couple featured on Sunday spent a mere $7,000 every year. Actually her $200 vacation in New York sounds incredibly cheap. Spending less than $50 for all other expenses than plane fare sounds almost impossible - the person they stayed with must have picked up most of the tab for food and travel to and from the airport.
``I'm not in the same situation as those people in foreclosure,'' Aquino said, knocking on her wooden kitchen table. ``But the way it's going, I could be.''
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