> Then out of nowhere I lost my job, ..., and after about 3 months I was effectively homeless.
You absolutely, positively, need to have 6 months of buffer when you buy a home. If you're homeless in 3 months, then it means you're overextended.
Nevertheless, the vast majority of people purchasing their first homes in Canada and the US do not have six months of buffer. No bank has ever denied my application for a mortgage for not having six months of mortgage and tax payments in a savings account. My government backs certain kinds of loans for first-time buyers, and it does not require this buffer.
So while I agree with what you're saying in a logical sense, in a practical social sense, you are asking the vast majority of people who buy their first home to pass on buying a home, in the face of all social evidence that seems to contradict your advice.
It's good advice of a sort, but recognize that this is not accepted wisdom. It's highly conservative and contrarian. Which is smart, but if you want people to embrace it, you'll need to wrap it in a lot of justification and other mechanisms for explaining why they should zig while all around them, people are zagging.
(FWIW, My very first real estate purchase was a loft condo where I actually had cash for the entire thing, but took out a small mortgage to kick-start my credit rating. It was paid off in two years. From that point on, I have not had six months buffer in cash, but I have had more than the nose-bleed minimums in equity, and that's another kind of risk management. So I do empathize with your message, but I suggest it needs a lot of selling to get people to adopt it in the face of a trillion-dollar industry convincing people otherwise.)
I don't want to weigh in on whether they overextended themselves or not. 2008-2009 were rough years, and financial situations that didn't work out during that period would probably have been fine any other time. Also, let's cut some slack and presume that they were doing the best they could with a difficult set of circumstances.
With that out of the way, I think it bears mentioning that, while it isn't illegal to encourage people to overextend themselves, that's what everyone related to the housing industry seems to be doing. Realtors don't want you to be conservative with your money because they earn a percentage of how much you spend. Bankers don't (or didn't) because they don't (or didn't) give a rat what your chances of covering the mortgage are -- they just needed you to be able to make payments long enough for them to sell the loan to Fannie or Freddie or whoever. There are all sorts of do-gooders who have decided that homeownership is not a mark of prosperity, it's actually the path to it, and consequently have (or had) a tendency to get a bit too cheerleader-y. Even other homeowners, the victims of the housing boondoggle if ever there were any, are a part of it, because thinking of your house as an investment goes hand-in-hand with believing that of course home prices should be taking a one-way trip to the moon.
(Tangentially, that last aspect has me starting to suspect that the house and condo market is something of a Ponzi scheme that we are collectively pulling on ourselves.)
I don't know where I'm going with this, so I guess I'll throw one last thought out: The contrast does seem pretty stark to me. The rich are getting justice, and everyone else gets victim blaming.
In some markets, yes. I sometimes suspect that NIMBYism is an unconscious way to prop up the ponzi scheme.
The overwhelming majority of first time home buyers do not have enough cash on hand for a down payment and a 6mo long emergency fund. It's just not possible for most first time home buyers to amass that kind of cash in any reasonable timeline while paying for the existing roof over their heads. You save for a down-payment, blow your savings on the down-payment and closing costs then rebuild your savings over the next year or two while putting up with the increased risk as a result of less savings during that time. People buying their 2nd through Nth home can generally roll the money made on the sale of their own home into the down payment and closing costs of the home they're buying without obliterating their savings. Sure, it would be nice if everyone were wealthy enough to have a down payment and emergency fund but so long as renting is the financial equivalent of lighting your money on fire people will stretch themselves as thin as they need to in order to buy.
The point is, then these people are not first time home buyers.
They manifestly factually are, whether or not by the standards you would prefer to apply to the decision they should be.
-We are having a baby, so we need to move out of our 2 bedroom apartment and get a 3 bedroom house -Our rent is increasing so we need to buy a house (even though the mortgage is often more than rent) -We need a garage for our cars, so let's buy a house -We have money in our savings that isn't earning anything for us, so let's buy a house and put it to work. -We don't like sharing walls with neighbors, so we need a house. -Our parents say we are throwing money away at rent and should buy a house so we can build wealth.
Each excuse has some validity to it, but none of them really mean you need to buy a house RIGHT NOW.
- We (US) loose about 1/3rd of our income to taxes. These aren't paid when you have no income.* - A certain portion of income goes to retirement and saving for a rainy day... Well, you don't save for a rainy day when it's a rainy day. - Major purchases can be deferred - Major expenses, like vacations, can be skipped. - Some banks will let you switch to interest-only in hard times - ect
So, roughly speaking, 6 months of reserve is much less than 6 months of pre-tax income.
* If you have the misfortune of an extended unemployment, it will shift your tax bracket and you pay even lower taxes.