To Buy or Not to Buy

[ChristieP]

Originally Posted by Macbeth2003

Me too, Where did you work? I was at Worldcom. Made for fun reference checking having your entire division gone.

Ericsson. Yeah, my inability to get a reference made finding a new job extremely difficult for a couple of YEARS...

[ChristieP]

Originally Posted by autotech4dallas

I have always liked the concept of renting, such as an apartment as an example but everybody is telling me it is like throwing away 500 dollars or more every month.

Here's the deal: renting is not all bad. Yeah, the money you spend on rent is money that isn't going to home equity, but you have to consider the person's circumstances. If you're not financially able to keep up the maintenance on a house, or you simply don't want to mess with it, then renting might be a better choice. Also, these days if your credit is less-than-perfect, you're going to have a very difficult time getting a mortgage loan. It might be better to rent and rebuild credit for a few years.

Another situation where renting can be better is if someone can't afford to spend much on a residence. In DFW, if you can only spend $100k on a house, you'll be be pretty limited on where you can live and not be in a bad neighborhood. But renting for $1000 a month will give LOTS more options!

In this person's situation, he/she is employed in a highly volatile industry, and with the economic downturn, job security is not there. If he/she bought a house and then was laid off, they could very easily end up in foreclosure and lose the house AND ruin their credit. That would be a LOT worse than renting for a few years...

[Macbeth2003]

Originally Posted by ChristieP

Ericsson. Yeah, my inability to get a reference made finding a new job extremely difficult for a couple of YEARS...

Well there was also so much hiring going on in the industry then. I remember being glad to work an $7 an hour temp job, standing next to guys who had also been in the telecom industry making twice what I did, also glad to have that $7 an hour temp job. Course I'm about to go that route again, being once again in a field that isn't doing well at all.

To the OP Only you know how stable your economic situation is. If you are suddenly unemployed, can you, and your spouse if you have one, cover the mortgage for six months or so? If not then I wouldn't do it right now. You might loose the equity you would build over th enext few months, but that is a lot better than loosing your home. On the other hand if you feel your job is relatively stable, or your savings would allow you to get along until you found another job, then it mught be a good decision. None of us can know enough about your situation to give you any but th emost general advice. My last piece of that general advice would be simpy this; if you aren't sure it is a good move, don't make it.

[motoman]

Originally Posted by ChristieP

Here's the deal: renting is not all bad. Yeah, the money you spend on rent is money that isn't going to home equity, but you have to consider the person's circumstances. If you're not financially able to keep up the maintenance on a house, or you simply don't want to mess with it, then renting might be a better choice. Also, these days if your credit is less-than-perfect, you're going to have a very difficult time getting a mortgage loan. It might be better to rent and rebuild credit for a few years.

Another situation where renting can be better is if someone can't afford to spend much on a residence. In DFW, if you can only spend $100k on a house, you'll be be pretty limited on where you can live and not be in a bad neighborhood. But renting for $1000 a month will give LOTS more options!

In this person's situation, he/she is employed in a highly volatile industry, and with the economic downturn, job security is not there. If he/she bought a house and then was laid off, they could very easily end up in foreclosure and lose the house AND ruin their credit. That would be a LOT worse than renting for a few years...

You also have to look at the pure economics of it. To break even on a house you need to sell it for about 10% more than what you paid for it to cover agent commissions and closing costs. On top of that you have maintenance, property taxes, higher utility bills, higher furnishing costs, yard maintenance, homeowners insurance, and things like that. Yes, you get a tax break on the mortgage interest which offsets some of the higher costs, but it doesn't offset it all.

Studies have shown that, on average, owning a home is a very poor investment, netting a return just slightly above the long-term rate of inflation, and far below what you could have earned by putting that money in bonds or stocks.

The reason people have the perception that owning a home is such a good investment is that they either 1) sold at the top of a bubble, or 2) lived in the house a very long time and sold it for more than they paid.

As an example, my parents bought their house in the Lakewood area 36 years ago for $33,000. They sold it about a year ago for $400,000, or thereabouts. Wow, you might say. They made $367,000. Actually, no. Closing costs would be a minimum of about 6%. So at most they would have netted $376,000.

The compound rate of return on an initial investment of $33k, with a net of $376k, 35 years later is 7.2%. And that doesn't adjust for all of the money they put into the house over the years, including a room addition, a remodel, new fence, painting, landscaping, general maintenance, etc. If you were to adjust for all of those things, their return would be well below the 7% and would likely not be much more than general inflation. In other words, not a very good investment.

If they had put their money into the stock market, just the initial $33k, even at today's level of the Dow, their annaul rate of return would be 6.9%, just a touch below the capital appreciation on the house. The difference is that they wouldn't have had all of the extra expenses of the house in the market returns, so the net is a much better return in the market, plus they could have taken those extra dollars they put into maintaining the home and invested them, further boosting their current nest egg.

Of course, there are intangibles to owning a home, such as having a place to call home, a place that you can do to it whatever you'd like, a place where you have plenty of room to raise a family, or have family over for gatherings and such. But those only have value if you value them.

From a financial perspective, owning a home typically doesn't make sense. But from an intangible, personal perspective, it's up to you.

[lh_newbie]

Home ownership isn't some big financial boon - so IMO - if you are concerned at all about your job and don't have a pretty good level of certainty that you'll stay put for 5 or more years - then I'd stay with renting. There is absolutely nothing wrong with renting. You'll have a lot more free time if you do (no repairs and maintenance).

[fmwalk]

Originally Posted by househunter1970

I don't want to sound silly but I am really confused on whether to buy or not to buy a house, especially with the economy being so unstable. I work for a Telecom company and all that I hear every day is Layoffs and job cuts and this is just driving me crazy.

Also, the number of foreclosures in the rise, does it even make sense to buy a house that is not foreclosed.

Any input is much appreciated. Please help me in making a better decision.

I was a victim of the 1985 Dallas housing decline and after 11 years, I sold it for what I paid minus all the closing costs, etc. I bought house a few months before the decline. The Dallas real estate prices have increased and are holding up well in this market. With credit tightening, higher interest rates and loss of jobs, will that change? Will buyers qualify for homes at current prices? If you desire to own and live in a home for a few years, look for pre-foreclosures and bid low.

[texdav]

I am sitting tioght in thsi market;but I already own property. I see no reason to rush especaily since buyign in a forecloure neighborhood can be riusk, Where I live there are few foreclosures now but I am goignto move about 400miles.I'll just sit tight for now.People I know that have looked at foerewclosures say many of them are terribalr on teh inside and really show no maintenance on the inside;plus many other the same in teh same neighborhoods.