Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
It just doesn't make economic sense to buy a house now no matter which way you slice it.
Your wrong, it makes perfect sense for someone that wants to buy a home to live in long term. Yeah the market will most likely decline some more, however for the long haul rates are still low and there are alot of good deals out there. If someone needs a home there is no reason to really wait unless they just can't afford a home yet or need to clean up their credit. It may not make sense for investors to buy right now, because a lot of investors like to flip, and this isn't the best market for that now. But for you to say that it doesn't make sense for anyone to buy is completely off.
Your wrong, it makes perfect sense for someone that wants to buy a home to live in long term. Yeah the market will most likely decline some more, however for the long haul rates are still low and there are alot of good deals out there. If someone needs a home there is no reason to really wait unless they just can't afford a home yet or need to clean up their credit. It may not make sense for investors to buy right now, because a lot of investors like to flip, and this isn't the best market for that now. But for you to say that it doesn't make sense for anyone to buy is completely off.
I second this. One is paying rent, or paying a mortgage.. as long as you spend the same monthly, owning beats renting everytime..
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.
I second this. One is paying rent, or paying a mortgage.. as long as you spend the same monthly, owning beats renting everytime..
True except the recent bubble in many coastal markets made buying unfeasible with fixed rate amortizing mortgages. But most of the country is in the process of getting back to fair value again. If you can get a PITI with 30 year amortizing loan for close to equivalent rent you should go for it. I would bet in 10-15 years the cost of living will double or triple at the least as will rents and housing prices with interest rates dramatically higher. Folks must own property again to protect themselves from the terrible policies of our government in recent years that will result in a continued massive debasement of our dollars even though it was the wrong decision in the past 3.5 years when the "ownership society' mantra was pushed to extremes by our leaders in DC and the entire RE and finance industries..
That $26,400 you say you're saving is over the life of the loan. It's not a lump sum that you can just put into an account to earn interest. That savings is recognized throughout the 30 years on the total loan. At least that is how I'm reading your figures.
I also don't have anything wrong with what you feel is right "for you". I just have a problem when you say that it is right for everyone else. At least that is what your statement implied:
"It just doesn't make economic sense to buy a house now no matter which way you slice it."
It can be sliced a lot of ways and more than one would make sense. That is all I'm trying to say.
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.
Lower rates = higher house prices = good for sellers.
Higher rates = lower house prices = good for buyers.
(Because most people only look at the monthly nut.)
As someone with money to put down, I would rather buy a cheaper house at a higher rate. My downpayment will stretch further, I get a better tax write-off and as I would pay down faster, I would have less to pay down. Plus, when interest rates dropped again, I could refinance INTO that lower rate.
Interest rates are changable. The price you pay is forever.
I would..but I would probably keep making the same payment towards the principal that I'm making now.
Very smart - or take that extra money and put it your "rainy day" fund or invest. Unfortunately, most consumers don't think like that.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
