To give you an idea, when he was living in Oakland (before he finally managed to persuade his roommates to move across the bridge into SF proper), I explored the possibility of buying a place there (my mother grew up in SF and we returned there after we came back from Arabia…once you’ve lived in the City you always think of it as home).

The vibrant area of Oakland just below Piedmont, relatively safe and full of young professionals in their 20s and 30s plus a few affluent students, has a number of big old family houses that have been subdivided into flats. Rents for a single floor in one of these shacks defy belief. The kids were paying $2,400 for their three-bedroom segment of the place they rented; the couple downstairs paid the same amount for a basement flat that looked very much to me like a converted garage. Houses were selling for $450,000 to $650,000.

$2400 a month would have paid for a mortgage of about $400,300. I could have cleared about $210,000 on my house at the time. A $200,000 down payment would have bought me a house worth $600,000, assuming I only rented out a single flat! For $600,000 to $800,000, I undoubtedly could have found a place with more than one rentable flat. As we scribble, for example, there’s a very sweet property available in Oakland (god only knows what area–some parts of Oakland are alarming) with a front house sporting a three-bedroom and a one-bedroom flat plus a four-bedroom back house: $598,600. For $600,000, you can get a duplex with parking on the property(!!). Rents in Oakland are running from about $1,100 (hole!) to upwards of $3,000.

By comparison: We could get about $800 a month for our 1,300-sf freshly renovated and newly landscaped solid block house in a middle-class mid-town Phoenix neighborhood.

He had a good job in SF until the dot-com bust did him in. In the recession that ensued in the Bay Area during that period, he was unable to land another job. He really craves to go back to the City, but without a job, that’s out of the question. Also it’s become clear that a B.A. in political science plus $5.00 will get you a cup of coffee…no matter how fancy the private liberal arts school that bestowed said political science degree. He needs an MBA if he’s ever going to get a job that will pay him a decent wage — since he’s not the entrepreneurial type, it seems unlikely he’ll try to start a business, and even if he wanted to, it’s hard to imagine where the start-up money would come from in the present economy.

If he enrolls in a f/t MBA program and gets loans, a part-time job, or graduate funding, he should be able to pay his half of the mortgage, which when you come right down to it is about what he’d have to pay for rent in hideous downtown Tempe. This would keep him in the house for another year or 18 months, until he finishes the degree. By then with any luck the economy will be turning around, and maybe he’ll be able to get a decent job. Maybe even in the City!

I think the main thing that gives him pause is the uncertainty of the economy. Quitting a job now, even though it’s a sh**y job, is like stepping off the side of a cliff.

Personally, I can’t say I didn’t bat an eye at losing $180,000 from my investments (hence tart turns of phrase like “the fall of the Bush economy”…). However, you are right that the extreme loss in value in the real estate investment seems more disturbing somehow.

I think it’s because we’re stuck with the house. Losing money in a mutual fund doesn’t leave you chained to a place. As long as you can scrape together the cost of a Greyhound ticket, you can at least move on. And also, a mutual fund or stock market investment doesn’t entail hundreds of thousands of dollars in debt.

But being in debt up to your schnozz for a house that you can’t sell or rent for what you owe on it? That means you’re physically trapped. You can’t move on. You can’t leave town to get a better job, you can’t quit your job to go back to school: all you can do is keep trudging along in your present miserable job, with no hope of escape.

Well, yeah: you could escape. You could be laid off. If you lose your job, then you will lose the roof over your head as well as the tens of thousands of dollars you’ve already invested in worthless equity, and then you’ll be sleeping under the oleanders. That’s an escape, of sorts.

Hmm. I think it actually IS objectively more disturbing. And I think that probably if you’re under about 45, owing more on a house than it’s worth probably is a great deal more dangerous than losing a chunk in your 401(k). At least if you have another couple of decades to work, you have a shot of regaining your equities investments.

But this house thing…frankly, I think it’s unlikely that the value of many houses in the American Southwest will return to the amounts owed on them, certainly not for another 15 or 20 years. By that time, because of inflation the real “value” of the houses will be no more than what it is today–we may be able to retrieve enough dollars by selling to pay off the vast loan, but not enough equity will remain to buy another house without going right back into just as much debt. It’s a trap.

Anyone who’s in this predicament will Never. Get. Out. Of. Debt. That is disturbing.

I wish you luck!

The difference in power bills has to do with the difference in power companies. My house is in the Salt River Project; M’hijito’s is served by Arizona Public service.

Some years ago, APS decided to invest in a nuclear power plant. That white elephant pushed all its customers’ power bills up, tho’ at the outset APS bills were already higher than SRP’s.

SRP is in the process of trying to get some large rate increases approved; sooner or later SRP bills will be as high as APS’s. But for the nonce, they’re still significantly lower.

@ Abigail: good thoughts, one and all.

Rents here rise and fall according to the law of supply and demand. When most people can get into houses, rents drop; when a lot of people can’t afford to buy houses, rents rise. When rental properties are overbuilt, rents drop…and so on to infinity.

Phoenix, like most Southwestern burgs, has a boom-&-bust economy. You may starve for a few years, but then another bubble comes along (we call ‘em booms) and by golly, if you’ve been smart about your pennies during the bust, you make a ton of money.

That’s why I think if we can hang onto this place for a few years, we’ll come out more than all all right.

Arizona property values rise along transportation corridors. People move here from areas where an hour-long commute seems normal and two- and three-hour commutes are not out of the ordinary, and so a ticky-tacky elbow-to-elbow suburb 45 minutes (when there’s no traffic jam) from mid-town looks like heaven. But there are always buyers who abhor the thought of driving upwards of 45 minutes each way to the far-flung stick-and-Styrofoam suburbs, and so that’s why certain in-town areas are vulnerable to gentrification and absurd price inflation.

This is a potential such neighborhood: the houses are sweet (“character”!!!). Construction is 1950s solid brick in two linked courses with an air space between them (unheard of!). In Arizona, a 50-year-old structure is considered
“historic” (tax break!!!!!). It’s a block away from a very upscale North Central lawyer’s & doctor’s ghetto (million-dollar homes!!!!). And if you are a young lawyer or a budding downtown financier or start-up business exec who has yet to purchase the Mercedes and hire the chauffeur, the train, which comes within walking distance, will take you to your office in 15 minutes. If you work in downtown Tempe or at ASU, it will get you to work in about 40 or 45 minutes, in “leave the driving to us” mode.

If the City Parents ever wake up and get a grip on the blight west of 15th Avenue, this will be a very valuable piece of property, indeed. That valuebleness would’ve come a great deal sooner without the Crash of the Bush Economy (oh, God, how I love to annoy the righties with that! ), but I suspect it will come about anyway over the next ten to fifteen years. I think the inevitably escalating price of gas, the endlessly ballyhooed train, and the repeated spectacle of all those stucco-and-Styrofoam shacks self-immolating whenever a lamp falls over will lead to a great demand for middle-class neighborhoods of solidly built structures in town.

It’s just a matter of hanging on. And playing it as it lays.