If you could get 4.875% 30 year fixed...

[wankel7]

Originally Posted by sponger42

Okay, that's fair enough, I'll agree with that. And, you're right, the $26,400 "hurt" for the homeowner is spread out over the 30 years of mortgage, if you can stay put for 30 years, so it's not a big deal for some people. Something like $74 a month in the long run.

So I will amend my statement to: Buying a house doesn't make sense for me or people in similiar situations.

How would factoring in the money saved from writing off the property tax and the mortgage interest play in to his theory?

[islandFever]

Originally Posted by sponger42

It makes NO sense for me personally to buy into this falling market, regardless of how long I “intend” to stay in the house. I can’t count the number of threads started by people who bought after 2001, when the market began it’s crazy run-up, intending to stay forever, but who are now forced--by circumstances beyond their control--to move, despite their house being worth less than they mortgaged it for. Especially considering that I'm living in an apartment that is 1/2 the interest payment on a loan for the kind of house I can afford the old-fashioned way. (>10% down, 30-year fixed, at <30% of gross income)

Now, even if I was renting a more expensive apartment--say a 1500 apt to make the numbers round. And say that my mortgage on a house would be 1500.

Well, that’s about a 300K house, by my formula (10% down, also including tax breaks, insurance, etc.). Now, since you agree values may decline a little bit--let’s be conservative, and assume the market has just 1 year and 10% more to fall.

If I wait out the correction that one year, I pay 18,000 in rent or house payments depending on if I buy or wait. Of those 18,000 in house payments, 1350/month would’ve been interest (thrown away) to the bank, and $300/mo or 3600 would’ve been principle. Add in the 30K down payment, and I only owe $266,400 on the house next year. Hooray!

Only, uh-oh, the house depreciated 10%, and is now worth only 270K. Bummer, but hey, at least I’m not upside-down, right! The small decrease in the market made buying smarter than renting, right? It all evens out in the long-run, right?

Not quite. Because if I was smart, and stayed in my expensive apartment, throwing away rent, now that the market has “bottomed” and I can get the same house at 270K (granted, it will be harder to shop as more buyers will be coming back), I spent the same 18,000 last year, but I’m only indebted to the bank to the tune of $240,000K.

By renting my fancy-schmancy apartment for 1 year until things bottomed, I saved myself 26,400. I could stick that in the bank at a nice interest rate, and in 30 years, I’m mortgage-free for one less year than the guy who bought into a falling market, but I’m also a whole lot richer, and I probably paid off my mortgage earlier.

So, yes, over 10-20 years, it’s MUCH smarter to buy instead of renting. However, during 2-3 year-duration market corrections like this one, you need just a mote of patience to save yourself BIG BUCKS.

But wait! What about interest rates? What if you can get an imaginary 4.8% rate now, but you’ll have to pay a blood-curdling 6% if you wait a year?! Well, yes, that’s an extra 1200/year, or 36K over the course of the 30 year loan! 36K > 26K! Oh no, you got me!

Well, not quite. You see, that $26,400 went into the bank in the form of market-rate CD’s. Now, true, I won’t get 6% interest on a CD when mortgages are at 6%, but I’ll generally stay within 2-3% of the 30-year mortgage rate, meaning I still come out on top from waiting. So while higher interest rates in a year will cut into the profitibility of waiting, it will not eliminate it.

And besides, if the housing market keeps falling, and the stock market follows it and also tanks, the fed isn’t exactly going to jump to crank up the interest rate.

So, no. I disagree. There is nothing within reasonable expectation that makes catching a falling knife a good idea. Not the uncertainty of interest rates, nor the great selection of houses that someone is desperate to unload, nor the “throwing away” of rent to a landlord as opposed to interest to a banker.

If you have no choice but to own a house, then you will bite the bullet and buy. I have a choice. I’m going to make the smart one.

Now, maybe I missing something here, so please feel free to poke some holes or explain how my logic is flawed.

Your case could also be further strenghthened by factoring in the TAX. Property tax for the locations I've considered on said house would range from $4000/yr to $13000/yr. That's $333 to $1083 per month rent to the local government and provides no equity.

[sponger42]

No, actually, I have a spreadsheet that factors in an estimated property tax, mortgage tax break, and standard insurance rate. That's how I came up with my 1500/month (Actually like 1548.32) for a 300K, 10% down, 6% interest (or 4.8%).

It's a pretty useful tool, because it lets me see what % of my mortgage payments would be principle (investments) and what % would be interest/taxes/insurance (throwing money away). Initially, it's pretty sad to see how small the principle payments start on a 30-year fixed.

[msjack]

Originally Posted by tmorrell

I'm pretty sure that rate is from a builder. I know in the Charlotte area MI/Homes is offering 4.875 rates on new inventory homes. Ryan Homes was also offering a 5% rate with a 180 day lock to cover the build time.

I actually got this very promotion from M/I up here in northern VA. I'm going to settlement this coming Tuesday.

I have a 30 year fixed loan, for the 1st year the interest rate is 3.875 and then the remaining 29 years it's 4.875%. To get this promotion I had to put 5% down and pay closing costs. They have another promotion going if you would rather have less money out of pocket, I think they will give $8000 towards closing, but no low interest rate. It was a great deal, plus I got a great price on a spec house, so it truly has been a blessing.