Even Financial Pro Felt ‘A Little Crazy’ Eyeing $500K Homes

Carl Richards in front of the home he purchased in Las Vegas. (Photo: Eric Thayer for The New York Times)

In the bubble build-up, it was common for those not familiar with the housing market, intricate mortgage terms or the pitfalls of financial risks to fall victim to pitches of over-priced real estate -– only to see the American Dream collapse along with home prices.
But even a financial adviser and certified financial planner, who admits he should have known better, got caught up in the whirlwind of soaring home values, 100 percent financing and fancy mortgages that put folks with modest-to-moderate means in half-million-dollar homes.
“There are many stories these days of people who lost their financial bearings during the housing boom and the crisis that followed, but my story is a bit different from most,” writes Carl Richards in the New York Times. “I’m a financial adviser. I get paid to help people make smart financial choices, and I speak and write about personal finance issues for this publication and others.”
Richards’ story published in the New York Times — and his upcoming book, “The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money” (Portfolio, a Penguin imprint) – recounts his family’s trek in 2003 from Salt Lake City to Las Vegas, where an opportunity arose to form a partnership with a successful Merrill adviser.
“I felt we could afford around $350,000,” Richards writes. “We called a real estate agent named Mitch, who had signs on all the bus stops: ‘Talk to Mitch!’ He picked us up in a gold Jaguar, and suddenly we were looking at houses that listed at $500,000 or more.”
He and his family ended up purchasing a house for the asking price of $575,000.
“It felt a little crazy to be shopping for houses that cost half a million dollars, but my income was growing rapidly,” Richards writes. “Everywhere I looked, people were being rewarded for buying as much house as they could possibly afford, and then some.”
By 2010, Richards would end up short-selling his home for $531,000 — he owed $200,000 more than the original loan balance. Before that, he had been urged to “walk away” and he wrestled with the morality of such a decision as so many borrowers have done across the foreclosure and negative equity landscape. He arrived at the conclusion that “my moral obligation to my family trumps the contractual obligation to the bank.”
“I should have known better,” he writes. “No matter how well things are going, borrowing 100 percent of the purchase price of a home is not a good idea. I shouldn’t have relied on someone else to make that calculation, let alone the guy who was making money putting me in the loan.”
Read Richards’ full account in the New York Times.

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