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Like my mother said: "interest rates can rise and fall, but your purchase price stays the same".....in other words, if you buy at a higher interest rate the price of your home should be discounted to factor that cost of financing, and you can always re-fi if rates drop, but if rates are already at the bottom you'll never be able to refinance your loan (assuming a fixed rate loan).
West366, your Mother had a lot of common sense. You never want to buy a "payment".
The fact that 40% of MN homes that were listed on MLS had to be reduced in July speaks volumes. If there is a bidding war, the guy who "won" really lost. The bidding wars have calmed post tax credit.
It's impossible to time things exactly to get the very bottom. There isn't any pressure for rates to go up anytime soon or for housing to go up. So what's the hurry??
The next 6-9 moonths will be interesting to see how this plays out. Just remember that the long-term price effect of the interest rate hike will almost always be higher than the immediate impact of the lower purchase price, especially if rates are hiked one point at a time.
The next 6-9 moonths will be interesting to see how this plays out. Just remember that the long-term price effect of the interest rate hike will almost always be higher than the immediate impact of the lower purchase price, especially if rates are hiked one point at a time.
Enough said for me on this topic.
I can think of a several scenarios where it might make sense to buy now especially if you don’t care if you lose money. But not because it is a "great" time to buy. I say that with sincerity because I made a decision knowing I’m going to lose money (buy a 2nd home that sits empty 90% of the time with no real chance of appreciation overtaking expenses). There are also other examples that make sense to buy now like families that are relocating to specific more healthy markets, the under $100K extremely affordable markets, etc.
Google “Now is a great time to buy” and you will see 2007 and 2008 articles touting what you are saying in 2010. It looks like we are going to enter a double dip recession and there is sound data all over the place discussing how home prices are being artificially held up (see http://www.businessinsider.com/banks-cant-hold-back-highend-mortgage-repos-for-long-2010-7?utm_source=patrick.net.net ). After reading that article, should a person buy a $400K home without studying what is happening in the market by digging a lot deeper by themselves?? Or should we just trust or commissioned representative assuming they did this research for us?? I assume you sell houses. Have you done any research yourself on this topic (I'm not talking Broker meetings or listing to NAR)??
I gave you a link about what the Fed’s said about interest rates in the foreseeable future (that they have to stay low). I gave you a link that discussed the over supply in real estate and the deflationary economic pressures. With deflationary pressures, interest rates cannot go up without crashing the economy (and further crashing the housing market). Jobless claims are increasing not decreasing. So far you haven’t given me any opinions on how and why interest rates are going up any time soon other than “it cannot stay this way forever”. People are fleeing to safety (bonds) pushing down rates because the EU is also “sick”. China is about to have its real estate bubble (see http://www.businessinsider.com/chinese-real-estate-a-capital-trap-2010-7 ). We don’t live in a vacuum anymore; the USA use to be 25% of the world economy and times-are-a-changing so old rules don't apply. In January 1st, taxes go up for EVERYBODY See http://atr.org/six-months-untilbr-la...x-hikes-a5171# . The economy is in real trouble and you naively talk about interest rates rising when "employment comes back". Why do you assume employment can EVER come back even close to the way it was?
The bottom line is it’s very possible to get trapped into an underwater mortgage. Underwater mortgage makes it so you cannot refinance, you cannot move without re-renting it and a slow market makes your home difficult to sell. I can afford a home because it is paid for. If it goes down, the next one I buy will go down as well. But if my Kid's wanted to buy a $400K home in 2010, I'd plead with them to wait it out so they didn't get trapped. I would not explian why it's a great time to buy because the "payment is lower".
People; it takes 90 days to become an agent. I'm just saying be careful who you listen to.
Last edited by MN-Born-n-Raised; 07-22-2010 at 05:04 AM..
I can think of a several scenarios where it might make sense to buy now especially if you don’t care if you lose money. But not because it is a "great" time to buy. I say that with sincerity because I made a decision knowing I’m going to lose money (buy a 2nd home that sits empty 90% of the time with no real chance of appreciation overtaking expenses). There are also other examples that make sense to buy now like families that are relocating to specific more healthy markets, the under $100K extremely affordable markets, etc.
Google “Now is a great time to buy” and you will see 2007 and 2008 articles touting what you are saying in 2010. It looks like we are going to enter a double dip recession and there is sound data all over the place discussing how home prices are being artificially held up (see http://www.businessinsider.com/banks-cant-hold-back-highend-mortgage-repos-for-long-2010-7?utm_source=patrick.net.net ). After reading that article, should a person buy a $400K home without studying what is happening in the market by digging a lot deeper by themselves?? Or should we just trust or commissioned representative assuming they did this research for us?? I assume you sell houses. Howwell do you understand what is really going on??
I gave you a link about what the Fed’s said about interest rates in the foreseeable future (that they have to stay low). I gave you a link that discussed the over supply in real estate and the deflationary economic pressures. With deflationary pressures, interest rates cannot go up without crashing the economy (and further crashing the housing market). Jobless claims are increasing not decreasing. So far you haven’t given me any opinions on how and why interest rates are going up any time soon other than “it cannot stay this way forever”. People are fleeing to safety (bonds) pushing down rates because the EU is also “sick”. China is about to have its real estate bubble (see http://www.businessinsider.com/chinese-real-estate-a-capital-trap-2010-7 ). We don’t live in a vacuum anymore; the USA use to be 25% of the world economy and times-are-a-changing so old rules don't apply. The economy is in real trouble and you naively talk about interest rates rising when "employment comes back". Why do you assume enemployment can EVER come back even close to the way it was?
The bottom line is it’s very possible to get literally trapped into an underwater mortgage. Underwater mortgage makes it so you cannot refinance, you cannot move without re-renting it and a slow market makes your home difficult to sell. I can afford a home because it is paid for. If it goes down, the next one I buy will go down as well. But if my Kid's wanted to buy a $400K home in 2010, I'd plead with them to wait it out so they didn't get trapped. I would not tell it's a great time to buy because the "payment is lower.
People; it takes 90 days to become an agent. I'm just saying be careful who you listen to.
What if that $400K house was once worth $600K and it appraises out at $450K? You can't just state "don't buy a house that costs xxx". Buy a house if you want to buy a house, it is as simple as that. A house IS an investment no matter what some people say, however it is a LONG term investment. Yes, it is a place to live, but it also a place where you put a lot of money. Over time, things will improve but the problem is everyone is still remembering the 90's when you could get a huge turn around on a house in under a year, that is NOT typical. I look at the house that I grew up in. My parents bought it in 1970 for just under $30,000. They sold it in the early 80's for $100,000. It was turned into a rental property and was not well taken care of. It just sold last year about this time for $425,000 in BAD SHAPE-probably would have gone for over $600,000 it had still been single family and taken care of. Year to year you can't expect much but over the course of 30 or so years, you can expect a pretty good return on your money.
Location: Cleveland bound with MPLS in the rear-view
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Yeah, I mean people still buy cars and finance them even though they become essentially worthless over time.....houses make even more sense.
As far as inflation concerns go, don't forget how inflation essentially works: the more money supply (MS) an economy has for the same amount of goods and services (G&S) causes inflation to rise. Money supply can increase organically by a strong economy through trading goods and services for cash, or the government can create money any time it needs to do some spending. And in case nobody has noticed, the government has been doing a LOT of spending the past 5 years or so. THIS is the primary reason why there were inflation concerns in this recession. However, the government recently announced that they will not fund any new bailouts, so maybe this is their way of controlling the money supply without increasing the federal funds rate (FFR)?
What if that $400K house was once worth $600K and it appraises out at $450K? You can't just state "don't buy a house that costs xxx". Buy a house if you want to buy a house, it is as simple as that. A house IS an investment no matter what some people say, however it is a LONG term investment. Yes, it is a place to live, but it also a place where you put a lot of money. Over time, things will improve but the problem is everyone is still remembering the 90's when you could get a huge turn around on a house in under a year, that is NOT typical. I look at the house that I grew up in. My parents bought it in 1970 for just under $30,000. They sold it in the early 80's for $100,000. It was turned into a rental property and was not well taken care of. It just sold last year about this time for $425,000 in BAD SHAPE-probably would have gone for over $600,000 it had still been single family and taken care of. Year to year you can't expect much but over the course of 30 or so years, you can expect a pretty good return on your money.
This analysis was done in IL. Without question it worse in IL than in MN. For someone who is starting out, you do not want to get trapped into an upside down big mortgage. It's as simple as that. A little more than a year ago it was difficult to sell a $400K home (a.k.a. a super soft demand). Hence, I'd be telling my Kid's to wait it out a little to see what the market looks like in a few short months. Then re-examine 3 months after that if it looks to be softening further.
That $600K (past tense) example you gave was in bubble times. It's history and frankly meaningless as to what it worth today. So just because it is worth $150K less in 2010 only is important if you bought it for $600K and are now upside down. Nothing says it cannot fall even more. I sure the heck would be concerned for my Kid's to sign-up for a $400K loan on a $450K house in July of 2010 with what I've researched to be happening in the market.
Dig a lot deeper as to what is happening in this economy and you too will understand my point of view. I think your opinions were spot on in 1999. But in 2010, it is is a completely different game.
Location: Cleveland bound with MPLS in the rear-view
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Still....most people purchase homes because they want to own where they live, right? I mean it's not like people are flipping houses to support their families (I hope!). So if you can't afford to purchase a house outright (seriously, who does this), you have to finance it, and as far as financing goes, a home is still a very safe investment in terms of getting a premium of what you paid for, but that bodes most true for the long run. I'm guessing in 30 years when you're done paying your mortgage on your $400K house you aren't going to be slapping your forehead wishing you had purchased that same house for $375K a month later. Instead you'll be happy you own equity in such a valuable asset and feel good about the fact that you paid relatively little interest to do so. And by valuable, I mean $400,000*(1.05)^30 = $1,728,777. (assumes 5% annual appreciation over 30 years, on average).
This analysis was done in IL. Without question it worse in IL than in MN. For someone who is starting out, you do not want to get trapped into an upside down big mortgage. It's as simple as that. A little more than a year ago it was difficult to sell a $400K home (a.k.a. a super soft demand). Hence, I'd be telling my Kid's to wait it out a little to see what the market looks like in a few short months. Then re-examine 3 months after that if it looks to be softening further.
That $600K (past tense) example you gave was in bubble times. It's history and frankly meaningless as to what it worth today. So just because it is worth $150K less in 2010 only is important if you bought it for $600K and are now upside down. Nothing says it cannot fall even more. I sure the heck would be concerned for my Kid's to sign-up for a $400K loan on a $450K house in July of 2010 with what I've researched to be happening in the market.
Dig a lot deeper as to what is happening in this economy and you too will understand my point of view. I think your opinions were spot on in 1999. But in 2010, it is is a completely different game.[/QUOTE]
Again, applying short term issues to a LONG TERM investment. The difference from when we were growing up to the 90's was that people bought a small starter home, lived there for 5 years until they outgrew it, moved into a larger home, stayed there for 30 years, then downsized, in the 90's people were moving every 2 years. If you buy a $400K now and expect to stay there for 30+ years, what difference will it make in the long run, none.
Again, applying short term issues to a LONG TERM investment. The difference from when we were growing up to the 90's was that people bought a small starter home, lived there for 5 years until they outgrew it, moved into a larger home, stayed there for 30 years, then downsized, in the 90's people were moving every 2 years. If you buy a $400K now and expect to stay there for 30+ years, what difference will it make in the long run, none[/.
Golfgal. I didn't read your 1st paragraph close enough (your example about buying below market). If the property is really worth $450K and you got it for $400K, you midagated a lot of risk.
If you bought a home with the intention of living there for 30 years that $50K isn’t a huge factor.
2010 Realities are that 50% of couples split, families grow or families shrink, people transfer jobs and change careers, have health issues, hate their (new) neighbors, lose jobs and take pay cuts or just want something different. But if you want to put a constraint on it and attach a 30 year commitment and make the assumptions that things will be as they have always been (no potential economic collapse and the USA will always do well economically) I suppose we agree.
Where we differ is that you are looking backwards assuming the things you learned are applicable in 2010 and beyond. IMHO, we are in a different market forever.
So considering living in a home long time isn't the norm, I'd still be staying put for a while attempting to figure out how bad this 2nd wave of depreciation will last.
Still....most people purchase homes because they want to own where they live, right? I mean it's not like people are flipping houses to support their families (I hope!). So if you can't afford to purchase a house outright (seriously, who does this), you have to finance it, and as far as financing goes, a home is still a very safe investment in terms of getting a premium of what you paid for, but that bodes most true for the long run. I'm guessing in 30 years when you're done paying your mortgage on your $400K house you aren't going to be slapping your forehead wishing you had purchased that same house for $375K a month later. Instead you'll be happy you own equity in such a valuable asset and feel good about the fact that you paid relatively little interest to do so. And by valuable, I mean $400,000*(1.05)^30 = $1,728,777. (assumes 5% annual appreciation over 30 years, on average).
Trivia: What makes a home "appreciate"??? Your window, roof, and carpet wear-out, designs get old (think 1975 rambler), expectations change (open floor plans, 10 foot ceilings, theater rooms, no longer a need for a formal dining room etc).
Putting it another way, why does about everything else you know of depreciate other than some collector items?? Inflation pulls up the replacement cost. But why would someone be willing to pay more money for your old designed home??
When you have that answer, you will realize that Your $400K to $1.7M math is heavily flawed unless you pick the right spot for the right reasons.
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You never want to buy a "payment". 
The bidding wars have calmed post tax credit.
It looks like we are going to enter a double dip recession and there is sound data all over the place discussing how home prices are being artificially held up (see 
