Home Buying - Wait or Buy Now? (Phoenix: 2013, apartment)

[Zippyman]

Originally Posted by WriterDude

because mortgage applications are way down, and I'd guess that goes along with a dramatic drop in qualified buyer traffic.

As for builders - meh, I dunno.. but as for mortgage apps - I have a friend in the business who's absolutely, completely buried in (qualified) mortgage apps. Working Sundays & staying late every-night type-buried. This is in the last 60 days or so..

I'd also challenge your assumptions as to price growth over the next 3 years in Phoenix - we don't "do" average appreciation (or depreciation, for that matter!) here.

Over a 50-year timeframe, sure.. but short-term, we have "rip-your-face-off" appreciation, or "ohmigawd we're all gonna die!" depreciation. In three years, odds are we're up 25%+, completely flat.. or down 25%+, and my bet is on up...

[RenW]

You guys are awesome! We really, really appreciate the advice. Writer Dude thank you so much for going to that work.

I wanted to give you more information with our present housing situation after speaking to our leasing office. We have a pretty strict contract with a corporate landlord. Prices in August aren't available yet, but I have some estimates.

*Buyout for our lease is 4 months rent (almost $3,600) and 60 days notice
*Our rent in August is likely to go up at least $50.00 per month for a year lease to $950+
*6 month leases appear to be about $100+ more a month 1,050+
*Month to Month leases would be likely double - $1,800 / mo

Now I'm also concerned about the timing of it all. Is 4 months not long enough to time this right if we get on the ball right now? A couple of weeks overlap from closing to the end of the lease would be preferable. If we went on a house hunt in earnest now would closing in mid-July be possible? On average how long does it take to close?

We had been planning to sit down with a lender very soon and start getting solid estimates working towards pre-approval. I believe we can shop competitively for loans for 45 days and only have one hard credit hit? Would one hard credit hit now effect our credit scores enough for next year if we decide to wait?

Thank you so much for the help!

[Tall Traveler]

I would advise you to buy now. There is a greater probability in my opinion for prices and mortgages to go up than down in the next few years. You love the area, plan to stay, put your money where your heart is.

[ajonesaz]

Originally Posted by RenW

You guys are awesome! We really, really appreciate the advice. Writer Dude thank you so much for going to that work.

I wanted to give you more information with our present housing situation after speaking to our leasing office. We have a pretty strict contract with a corporate landlord. Prices in August aren't available yet, but I have some estimates.

*Buyout for our lease is 4 months rent (almost $3,600) and 60 days notice
*Our rent in August is likely to go up at least $50.00 per month for a year lease to $950+
*6 month leases appear to be about $100+ more a month 1,050+
*Month to Month leases would be likely double - $1,800 / mo

Now I'm also concerned about the timing of it all. Is 4 months not long enough to time this right if we get on the ball right now? A couple of weeks overlap from closing to the end of the lease would be preferable. If we went on a house hunt in earnest now would closing in mid-July be possible? On average how long does it take to close?

We had been planning to sit down with a lender very soon and start getting solid estimates working towards pre-approval. I believe we can shop competitively for loans for 45 days and only have one hard credit hit? Would one hard credit hit now effect our credit scores enough for next year if we decide to wait?

Thank you so much for the help!

4 months should be more than enough time to find a house, unless you are super picky.

Just get pre-qualified now.

When we sold our house it was a 30 day closing, when we bought our new house, it was also a 30 day closing. That gives you three months to find something!

[Paige65]

Originally Posted by RenW

You guys are awesome! We really, really appreciate the advice. Writer Dude thank you so much for going to that work.

I wanted to give you more information with our present housing situation after speaking to our leasing office. We have a pretty strict contract with a corporate landlord. Prices in August aren't available yet, but I have some estimates.

*Buyout for our lease is 4 months rent (almost $3,600) and 60 days notice
*Our rent in August is likely to go up at least $50.00 per month for a year lease to $950+
*6 month leases appear to be about $100+ more a month 1,050+
*Month to Month leases would be likely double - $1,800 / mo

Now I'm also concerned about the timing of it all. Is 4 months not long enough to time this right if we get on the ball right now? A couple of weeks overlap from closing to the end of the lease would be preferable. If we went on a house hunt in earnest now would closing in mid-July be possible? On average how long does it take to close?

We had been planning to sit down with a lender very soon and start getting solid estimates working towards pre-approval. I believe we can shop competitively for loans for 45 days and only have one hard credit hit? Would one hard credit hit now effect our credit scores enough for next year if we decide to wait?

Thank you so much for the help!

Based on this additional information, it probably makes more sense for you to buy now. You may not get exactly what you want, but you could always sell your home at some point down the line to find what you really want when you have more financial certainty with income and (hopefully) additional equity.

[Paige65]

I often use the site linked below to get an overall feel for the mortgage market, as it's updated daily. It's a national versus local picture, but if you scroll down to the bottom, it also includes housing data (mortgage application changes, etc.)

Mortgage Rates and Market Data

[john3232]

Originally Posted by asufan

If you find the perfect home on the market and in your price range, I would go for it now. Rates are low and no one can predict whether housing prices will rise or fall over the next year.

Agree. I would start looking now.

[AZ Tracy]

I wish we had a crystal ball....but, we don't.

Effective August 1, 2015, the Consumer Financial Protection Bureau will be implementing new disclosure rules. It is estimated that it will take at least 60 days to close a deal, instead of the 30 - 45 day process now. Just keep that in the back of your mind, when you are considering closing dates.

[WriterDude]

Originally Posted by asufan

Paying with cash is foolish these days when debt is so attractive. People would have to be crazy or bad at math to plunk down $300K on a house when they can borrow it for under 3.75% and put that money to work.

^^ This.

One major advantage in buying is leverage over time (someone else already mentioned it, but I'll reiterate).

The way that breaks down looks like this. I'll use raw numbers rather than adjusting for mushy variables like taxes and PMI:

Let's say I buy a house @4% interest, and I put down enough money so that I don't pay PMI, and my loan amount is $300,000. My Principle and Interest (P&I) payments are $1432.25/month. That payment breaks into principle (what I'm paying down on the loan balance) and interest (the cost of the debt).

Month 1, the payment to principle is $432.25, and the interest is $1,000. The ending loan balance is $299,567.
Month 2, the payment to principle is $433.69, and the interest is $998.56. The ending loan balance is $299,134.
Month 3, the payment to principle is $435.14, and the interest is $997.11. The ending loan balance is $298,699.

And so on. Note that as of month 3, you have paid down your mortgage by almost $1300. You add this to your down payment to figure out how much stored value you have in your home. This assumes your home price stays fairly flat. If the home price goes down, that can quickly eat equity. If your home price goes up, that can quickly build equity.

What happens over time is that, because your actual loan balance goes down, your interest payment goes down as a proportion of your mortgage payment. After 10 years, as of payment 120, your mortgage payment is still the same, but the balance is $236,994, the payment to principle is $642.27, and the interest payment (now calculated on the balance) is $789.98. If you pay down your principle more aggressively, your interest payments will go down as well.

Another thing that happens over time is that you're in your 30s. Your income should generally go up at this stage of your career. As a result, the mortgage payment (which doesn't go up) represents a smaller and smaller percentage of your income. You mentioned that your income was set to go up significantly. If you have a mortgage, and your income goes up, the change in your income supports your lifestyle. You can buy a nicer car, nicer furniture, more easily pay for a personal chef, or what have you.

The challenging thing I've seen mentioned is the idea of buying a house for cash. In that model, you are basically taking the entire cash value of the home and "investing" it, hoping that your house will appreciate in value, or at least stay the same. Because you're not paying the interest cost of the loan, the assumption is that you wind up ahead. Let's investigate that.

If you have a $300,000 mortgage at 4%, over the life of the loan, you'll pay $215,607 in interest. So we can think of that as a cost. At the end of the mortgage, you'll have a home that's worth something. Let's say the home appreciates 25% over 30 years. You'll have a $375,000 home with no debt.

If you invest that same $300,000 as cash in a home, over the life of the investment, you'll gain what? If the home appreciates 25% over 30 years, you also gain 75,000. You end up with $375,000 and no debt.

So why would you mortgage if that option costs $215,607?

Well, let's say you paid only the down payment on the house, borrowed the rest, and invested the $300,000 in a 2% treasury bill. Very safe investment, and almost no risk that you'll lose money. The first month, you will earn $500 in interest. But what will the investment be worth in 30 years with compounded interest? Spoiler alert, it's $545,454.

So if you just pay your down payment (and the minimum possible down payment, for that), borrow the rest at a cost of $215,607, and invest in safe investments, you'll earn more over 30 years than the cost of your debt.

Let's say you invested the $300k in a corporate bond that earns 5%. (Very safe - I think Duke Energy was paying 5% fairly recently, and they're very low risk.) Compounding there would mean your $300,000 converts to $1,334,762 over 30 years.

So if you invest in slightly more risky investments, you'll earn almost 4x the cost of your debt.

Or let's say you invested the $300k in an ETF. The stock market as a whole returns about 10% per year. Compound that over 30 years, and your $300k turns into $5.9 million.

So if you invest in the stock market as a whole, just based on historical averages, over 30 years, you'll earn more than 25 TIMES the cost of your debt on that loan. Plus, your income level will be at a point where your mortgage payments will be a joke.

Effectively, if you have the cash in hand, you should have it working harder than it can in a house. If you buy your house with cash, you're not leveraging.

[The_Cadillac_Lawyer]

Thanks for the insightful info! I have a similar question but did not want to start a new thread. Similarly, I'm in a position to buy with similar numbers as the OP, however have been considering a condo because of the low maintenance and my busy lifestyle.
Moreover, its strong possibility that I may relocate in about 3 years, but still considered purchasing to keep some property here in the PHX area and rent it out.

However, lately I feel like being bound to a mortgage when I am not certain where I'll be is unwise. Alternatively, I will most likely be paying up to $1400 in rent for a downtown condo location.

Any input?