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I don't see rates going back to the level of the early 2000's when it is over 8% (30 yr) any time soon. The Fed has indicated that they will not raise rates after tapering ends (which is on track to be in October) for an extended period of time. Market consensus is that they will probably keep it low for another year so rate hike could be some time in 3Q 2015. If the Fed changes its mind and raise rates earlier, expect the stock/housing market to react negatively.
But even then, it will be a long time to get from 4% to 8%. One reason is that we have never been in a situation where the Treasury's balance sheet is over $4 trillion dollars. In fact, the Fed isn't even sure HOW to raise rates, as the Fed Funds rate target is probably ineffectively because of the bloated balance sheet. That is why they are experimenting other tools (such as reverse repo and interest on reserves), but they are finding other unintended (bad) consequences.
In short, it is not going to be easy for the Fed to raise rates without stunting this economic recovery, or ruining its dual mandate of low unemployment/stable inflation.
What does that mean for potential homebuyers? Rates are low, and although the prices are high, if you can afford it, then stop guessing where the market and find a home and town that you like. The mortgage interest will reduce your tax liability, but you will also have to set aside some reserve for maintenance (I just spend 7k last month for the HVAC/AC).
Since I got such great inputs from everyone .. I wanted to give a quick update. We have decided to wait it out till we find something we absolutely love. Found a new broker, hoping she works out better for us. Lots of lessons learnt in the last many weeks. We are still area hunting .. Hoping we find our home soon.
Take your time....seriously - the longer you take the better decision you will make. Also - there is no perfect area. Accept that each area comes with its pros and cons. Good luck!
If rates rise a lot, prices will fall to offset - it doesn't mean you will get a lower monthly payment however - you will just pay more in interest on a lower principal! Tell your aunt to take an economics class before giving out financial advice and to turn off the television.
Just make sure to get your math right and do your homework before giving advice to people. There are tons of flaws in your assumptions and arguments.
Agree that if rates rise, house price will fall to a certain level as it become more expensive for people to buy (simple economics). I am talking from my own experience. I bought my house in 2013 when rates were 1% lower than today. Assuming I bought a $500K house with 20% down and rate was at 3%, I would have paid $1,686 in mortgage. But if rate was 4%, my mortgage would have $1,910 (property tax should be the same in both case as it is based on the town's assessment). If I want to keep my mortgage payment at $1,686 a month, I could only afford a house that worth $440K instead of $500K. Do you think the $500K house price would drop to $440K (over 10% to compensate for 1% increase in interest rates) to accomodate the decreasing purchase power of buyers? I doubt that.
In your argument earlier about yearly maintenance, it showed either you never own a house or have no understanding about finance and economics. The average maitenance cost for a house should be 1% of your house value. In addition, you did not account for the debt you paid off from your mortgage (roughly 30% of your total debt will be paid for a 15-year period).
All other expenses such as upgrade can be varied depending on your needs. But those are discretionary and some of your them may be recouped when you sell your house.
Just make sure to get your math right and do your homework before giving advice to people. There are tons of flaws in your assumptions and arguments.
Agree that if rates rise, house price will fall to a certain level as it become more expensive for people to buy (simple economics). I am talking from my own experience. I bought my house in 2013 when rates were 1% lower than today. Assuming I bought a $500K house with 20% down and rate was at 3%, I would have paid $1,686 in mortgage. But if rate was 4%, my mortgage would have $1,910 (property tax should be the same in both case as it is based on the town's assessment). If I want to keep my mortgage payment at $1,686 a month, I could only afford a house that worth $440K instead of $500K. Do you think the $500K house price would drop to $440K (over 10% to compensate for 1% increase in interest rates) to accomodate the decreasing purchase power of buyers? I doubt that.
In your argument earlier about yearly maintenance, it showed either you never own a house or have no understanding about finance and economics. The average maitenance cost for a house should be 1% of your house value. In addition, you did not account for the debt you paid off from your mortgage (roughly 30% of your total debt will be paid for a 15-year period).
All other expenses such as upgrade can be varied depending on your needs. But those are discretionary and some of your them may be recouped when you sell your house.
There are no flaws in my arguments. Go ahead and quote me. Dare ya.
Homes are "purchased" (financed) based on employment (wage) and monthly payment - if you pay more interest, you can afford less principal so the price comes down. This is really not debatable at all. Yes, the house would drop in price instantly. In fact....YOU the buyer do not set the price at all! The bank does. You just think you do. Trust me stranger - I know of what I speak. If rates hit 7% tomorrow and your wage remained the same one of two things happen - the price plummets or the bankers agree to reduce their lending standards and your monthly payment skyrockets.
As for maintenance - I have never owned a townhome but have looked into them and simply adding prop taxes to maintenance makes them poor investments in my opinion. Less work for sure though but ymmv there. But have a look at foreclosure listings - tons of townhomes there.
I will add this - lots of people will defend home purchases (mostly people with mortgages)...but it is a really poor investment in my opinion. There are far better ways to invest your money. Houses are huge liabilities that come with huge taxes and debt and all based on the *assumption* there will be jobs growth and regional employment for the duration of the loan period - hey it worked for the past 50 years why not the next 50?
But it is a risk and nothing is guaranteed so....live within your means no matter what.
I will add this - lots of people will defend home purchases (mostly people with mortgages)...but it is a really poor investment in my opinion. There are far better ways to invest your money. .
I agree for the most part. If you have a mortgage and you're going to be paying interest for 30 years then it's really not a good investment in the long run. If you buy a house for 300k and pay interest on a 30 year mortgage, you end up paying about 600k total for that house. In all likelihood the value of the house after 30 years probably is not going to be 600k if you go to sell it.
If you buy a house and the value skyrockets in a short amount of time then you can make some good money. But those instances are few and far between in general.
There are no flaws in my arguments. Go ahead and quote me. Dare ya.
Homes are "purchased" (financed) based on employment (wage) and monthly payment - if you pay more interest, you can afford less principal so the price comes down. This is really not debatable at all. Yes, the house would drop in price instantly. In fact....YOU the buyer do not set the price at all! The bank does. You just think you do. Trust me stranger - I know of what I speak. If rates hit 7% tomorrow and your wage remained the same one of two things happen - the price plummets or the bankers agree to reduce their lending standards and your monthly payment skyrockets.
As for maintenance - I have never owned a townhome but have looked into them and simply adding prop taxes to maintenance makes them poor investments in my opinion. Less work for sure though but ymmv there. But have a look at foreclosure listings - tons of townhomes there.
Let's also think about your rate increase scenario.... isn't it possible that one reason rates go up is a very strong economy? Or possibly inflation is rising? In either case, there's a pretty good chance that wages would also rise.
Yes, you can paint doomsday scenarios. And yes, your overall advice to keep a budget within your means is excellent.
I agree for the most part. If you have a mortgage and you're going to be paying interest for 30 years then it's really not a good investment in the long run. If you buy a house for 300k and pay interest on a 30 year mortgage, you end up paying about 600k total for that house. In all likelihood the value of the house after 30 years probably is not going to be 600k if you go to sell it.
If you buy a house and the value skyrockets in a short amount of time then you can make some good money. But those instances are few and far between in general.
Buying a house at 300K, even putting only 10%/30K down (so $270k mortgage) would amount to about $475K in total payments on a 30-year fixed at 4.25% (today's approximate going rate). Even if the value of the house isn't 505K when you go to sell it 30 years later, it will have some appreciable value as an asset owned free and clear--and we can't disregard the fact that it also provides a place to live for those 30 years, as well as the tax benefits (both mortgage interest and property tax deductions). What would the same person have spent renting a house over that time, with no tax benefits and no asset to be owned at the end of the day?
And I wholeheartedly agree that living within one's means is crucial, and that it's really important to have a healthy down payment and a sufficient emergency fund. But those things are completely separate than the concept that having a mortgage at all is bad.
hey there, just stating our experience and belief here... not offering any advice... take your cues.
we started our search last fall, its still on...
we waited, waited and waited too long... prices in the area we were looking in have gone up considerably in last 6 months alone... definitely not sky rocketing but enough to make a dent in our plans...there is hardly any new listing... very very low inventory.
we were bid out 4 occasions, because we decided not to go over $5 to $10k over listing price in our first 3 bids. And last time we bid $25k more on top of listing price, we lost it too...
there is no perfect home, it took us a lot of time to sync it in... no matter how much we kept saying we get it in the beginning.
we passed too many homes, that we feel could have worked for us today. no, we are not regretting but we think experience made little more wiser and less of whiner.
we are one of those 19 families out of 20 like one poster said here who didn't end up getting home.
abt home buying math talk here, we believe in doing it now if you can afford it works well vs. not doing it at all... it makes lot of sense, looking back 10 years from now, we think we will definitely be happy we did it.
we believe lot of ppl now tend to think if an asset is over priced or expensive, its price will fall, especially after 2008 crisis and 2000 tech bubble burst... it doesn't have to... numbers keep shifting...
we decided buy because we want to live in our "own" home, not to speculate, not as an investment, in 10 or 15 year+ time horizon everything doesn't wash out... we hope we will make a coin in that time frame...
what if we are wrong in our belief? what's our loss? we say nothing.. good grief... "this too shall pass"...
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another perspective...
