Classic traditional four bedroom home located in the heart of Tanglewood. Grand oak trees in the front yard with circular driveway in the front of the home. The interior has a wonderful open flow to the house with French doors that overlook the backyard.

Now lets look at Texas, well thanks to the Texas Legislature in their infinite wisdom, we have second mortgages not lines of credit. Although, I will give a fair warning that they are a bit of a pain compared to other states!

Do you remember when you bought your home and you had all those closing cost? Guess what? You will have them again with your second mortgage. But instead of looking at it as bad thing- reconsider the situation in California and similar states.

I will attempt to simplify the details and not go into specifics on the benefit of second mortgages. If the terms are not that great, you do not have to buy a title policy because they are second mortgages. Also the ratio is approximately 75% of the appraised value of your home, which in the end makes for a much lower percentage rate for default/foreclosure rate.

Texas is flat and Texans should be thankful it is!! I have always said the homes that have the least amount of appreciation are the homes that are further out. Why? Well because you will always be competing with the next new subdivision and people will always drive 5 more minutes down the interstate to get the new home versus the 5 year old home.

The difference between the homes that are further out and the ones that are closer in is the redevelopment of neighborhoods. When one area begins to get a little too pricey, the area next door starts to get redeveloped. The best example of this situation is the Heights. The beauty of this though is that Houston has land like California and plenty of it therefore we did not have the 10-15% unrealistic appreciation areas due to a limited supply of land.

Do not get me wrong, prices have softened in Houston but nothing compared to the rest of the country. It is because of how Houston is laid out that allows home buyers the liberty to buy without having to only consider the appreciation in the future. They are now buying based on what they want unlike in past years, when they purchase homes based on what was available.

Lets say you bought your home in 2002 in San Diego for $500,000. Fast Forward to 2007 and that home is now worth $700,000.  You walk into your friendly bank and get a home equity loan a.k.a. a line of credit.  You have very little closing cost because in California you do not have to buy a new title insurance policy order to get a line of credit.  As stated before, many California buyers do not know that these home equity loans are really lines of credit.  It seems like a no-brainer to just accept easy money. The loans lure you in with very favorable/enticing terms with some great advertising, the result- you are hooked. Why would you not want to do it?  You were given a checkbook or better yet an ATM card to access your equity and appreciation of your home. Now that dream of a swimming pool or Hawaiian vacation is no longer a dream but a reality. But then fast forward to 2008. The house is now only worth $480,000 but you now owe $720,000 with interest.  And now you are also making less money and as a result can barely make payments for a $500,000 home much less for a  $720,000 home. You feel buried and seem to only get further and further behind on payments towards that growing $720,000 that you owe. You soon start receiving foreclosure notices, now you are thinking it is time to give the home back. 

I heard the best term for this- “Jingle Mail.” The keys are mailed back and the envelope jingles as it is delivered to the lender.

It’s an unfortunate and yet all too familiar story for many Californians. Now that you know what the real situation is, avoid it all costs.

Well although my blog might strike a nerve for some, I assure you that my opinion is based on years of professional knowledge and extensive outside research on the real estate market. I am fixated with gathering information on the real estate market. And I want to thank my realtor friends for sharing their information and thus adding to my statistical information and research on the industry.

One important thing that I have learned is that the real estate market is no longer national but local for two reasons, which I will explain in upcoming blogs.

For example, Texas is a different market from other parts of the country. However unfortunately, our new “connected” society watches mostly national news and very little local news. The current media focuses on the doom and gloom of California, Florida, Nevada, and Arizona. The question is why did these states have such a huge tumble? The answer is home equity loans/lines of credit.

For another, we have been living times of fast development. New homes and communities are being built all the time. How this affects real estate is key for understanding where, when and what kind of home to buy.