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My Fiancé and I are looking to move out of our parents house and finding our own place. We have enough money saved up to purchase a home (down payment and reserve money) and were set on buying. However my parents as well as my uncles have told me to wait until the crash and that we're still at the top of the market. I always grew up being told never to rent because we will be paying someone else mortgage and not our own. So my question to you is what would you do? we do not want to move into each others parents house and no longer want to live separate. So rent or buy?
Northern California
Do you see a crash coming? if so when?
Wait. Get married first. Actually married not “we’re going to”.
I agree with all of you family. There’s going to be a slump - it won’t be a 2007 crash, but you’re going to see stuff relax a little and more inventory come on the market in the next year and the holders on the fence start dumping.
It’s not about the market or about “paying someone else’s mortgage”, it’s about your own life and priorities. If you are buying for the long time then market fluctuations have much less impact. And renting has its own advantages. Don’t like location, found better job? Move. Water heater broke? Call landlord to fix it.
Ownership comes with additional expenses and responsibilities. If you don’t have a good downpayment and will have no cash reserves after purchase then consider postponing.
There will always be someone who had a better deal, timed the market right, bought low, sold high. There will also be those who overextended themselves and ended up in foreclosure. Pay no attention to that. Your own life is what matters.
I heard on the radio this afternoon that prices in the large market north of me declined about 3% a couple months ago, the first monthly decline in years, but that market has been one the hottest in the country, so even with the decline, prices there are still unaffordable for most. If prices go down because interest rates go up, it just means new buyers can't afford as much house for the same payment. So if that drives prices down a bit, it doesn't help the buyer much, and it certainly doesn't help the seller.
One thing you need to keep in mind - people often overestimate what a good investment their house is, because they don't take into account inflation, the opportunity cost of having their money tied up in an asset that provides no income or gain until sold, interest expense (it's amortized, so you pay most of it in the beginning years of a mortgage and pay down very little principal), etc.
From the article linked to below: "With the size of homes getting bigger and inflation adding to the cost of building materials, it is only logical that home prices would rise. But what happens if inflation is factored out of the picture? The result is something completely unexpected. Even before the real estate crash of the late 2000s, home prices fell frequently and significantly." A lot of people are in denial about this, only looking at what the house could sell for today vs what they paid for it many years ago. They can appear to have a large paper gain, when in fact they have an only average real gain.
Still, with a conventional mortgage, you know what your monthly payment will be, unlike rent, which will usually increase over the years. And, you need to live somewhere. If you plan to stay put, it makes sense to buy. The bottom line, according to an Investopedia article that points out the mistakes people make in viewing their primary residence as an investment: "With history as a guide, most would-be homeowners would do well to buy a place they actually hope to inhabit, pay off the mortgage quickly, live there until retirement and then downsize and move to a less expensive home. It's not a sure bet, but this strategy does increase the likelihood of making a profit."
I'd buy. Not because of some saying that if you rent you're "paying someone else's mortgage", even though you probably are, but because usually when you run the numbers, it's a financially smarter decision to buy. If you can afford to buy, the only time I can see renting would possibly be a better option is if you only plan to live there a short while or if you have a crystal ball predicting housing prices will crash. And since no one has a crystal ball, I'd buy if I were you. You have to remember that buying come with it's own recurring monthly expenses. It's almost like rent in that it's a housing expense. At the beginning of your mortgage loan most of your payment will be interest so that's a huge expense right there. Still, you'd be paying down your mortgage and your property will hopefully increase in value. I did a spreadsheet for my locale to see how my housing expenses (not including mortgage principle) compared with buying versus renting a similar residence. My rough estimate was around $500/month more renting than buying. Of course I had to make some assumptions based on my personal situation like down payment, interest rate, appreciation rate of purchased residence, etc. Still I'm pretty sure you'd usually come out ahead buying or renting in most cases.
renting and investing elsewhere in more lucrative liquid investments can work just as well .
we never would hav been able to take advantage of the investments we did if the money was tied up in a house .
so there may be lifestyle reasons for choosing one over the other but financially there is nothing inherent that says you can't do much better renting and investing elsewhere.
the limiting factors are of course personal ones not so much financial ones when it comes to having the discipline to invest elsewhere .
to many retirees end up house rich and cash poor because they trap to much liquidity they need in the house .
cutting costs is great in retirement , but cutting costs has a bottom . once expenses keep rising and there is nothing left to cut you realize growing income can be as or more important then cutting costs .
we have so many here in the tristate area who paid off their 1970's 30-35k mortgages only to find taxes are 10-15k a year . that paid off mortgage does not even represent the utility bill today , so affordability is no greater and they forced to leave ,even with a paid off house .
so ideally you need to balance it out between cutting costs yet still growing income .
"So rent or buy?"
old saying: after buying, if it will increase in value, buy. if not, rent.
and, agreeing with above, marry first. legally.
my opinion:
get married first.
then rent. save up even more.
then buy during the coming slump.
New saying, if you can afford the payments, buy it if it's your forever home. If you don't intend to sell you don't have to worry about how much it's worth. In 30 years with rents going nowhere but up your home will increase in value.
If you take care of the place the value will go up even if it drop for a while like after the last crash.
to many retirees end up house rich and cash poor because they trap to much liquidity they need in the house .
we have so many here in the tristate area who paid off their 1970's 30-35k mortgages only to find taxes are 10-15k a year . that paid off mortgage does not even represent the utility bill today , so affordability is no greater and they forced to leave ,even with a paid off house .
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And if you rent you can end up rent poor. House rich means you have money to downsize.
And those homes that cost $35K now can sell for $700K, so they can sell, stop paying ridiculous taxes and downsize or move to a lower cost area like Florida where you can find modest $150K homes and never have to worry about blizzards.
And if you rent you can end up rent poor. House rich means you have money to downsize.
And those homes that cost $35K now can sell for $700K, so they can sell, stop paying ridiculous taxes and downsize or move to a lower cost area like Florida where you can find modest $150K homes and never have to worry about blizzards.
the people who rent who are not investors are renting BECAUSE THEY VERY LIKELY HAVE NO MONEY TO BUY OR ODDS ARE THEY WOULD NOT BE RENTERS.
MOST RENTERS CAN NOT AFFORD TO BUY . the group is made up of the very poor the very rich and everything in between but it is mostly those who can't buy for one reason or another
And if you rent you can end up rent poor. House rich means you have money to downsize.
And those homes that cost $35K now can sell for $700K, so they can sell, stop paying ridiculous taxes and downsize or move to a lower cost area like Florida where you can find modest $150K homes and never have to worry about blizzards.
You are ridiculous and speak in such generalities that it makes me wonder where you were so clearly UNschooled on housing.
You say most renters are poor- which cracks me up! We rent BY CHOICE and by design. We are able to rent a beautiful home on an acre for an extremely low price, enabling us to save aggressively.
IF we buy a house again, it will be with cash. Some of us who got burned 10 years ago, actually had the brains to learn from it.
Contrary to your posts, along with a few others who constantly toot the “housing will never tank again” horn, it IS struggling. I’m not going to waste time posting links. You can google housing market and hit the news button. Lending is starting to once again get “creative”, wages are not keeping up with home prices, and interest rates are creeping up.
Will it ever crash to the bottom? Hopefully not, but to deny there are some issues brewing once again, is an untruth. The beauty of being a cash buyer is that we don’t care what interest rates are; we are just waiting for home prices to drop and find our forever home. Our retirement will be completely funded, including a structure owned free and clear.
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