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This forum has been immensely helpful, thank you in-advance. We are looking to buy our first home, however, are struggling with if we should purchase a home this year, and how much to put down. It does appear (in my opinion) that the present real-estate market is overvalued (this may be more of a geographically specific statement, than in general - please correct me if I am wrong).
Relevant Background Information:
Recently Married (I am 30, she is 28)
Zero Debt - school loans paid off, no CC loans and no car debt (cars will last another 5-7 years, they are newer cars)
Total Gross Income ~ 140k (me), 85k (wife) + bonus (around 20-25k - combined)
We are looking for a home in the $400k with taxes in the range of 6-10k (depending on the area). The area we live is a low cost of living area (think Cleveland, Indianapolis, Cincinnati, Detroit type of cities). Currently, we have $135k in down payment. We are living off her income, and saving mine (about $100-110k/year after taxes). If we wait another 2 years, we could probably save up another $200-220k for a down-payment, which would give us a total down-payment around $350k. The goal is to be done with paying the house before I turn 34-35.
Question: Is it better to wait and save for 2 more years, or get a house now and put down the $135k in down payment, and make a higher mortgage payment on a 15 year APR fixed loan? As mentioned above, I do think the housing market is overvalued. But, that is my opinion, and what I think does not really matter as it is what the market dictates. Another drawback of waiting 2 more years is that we will need to continue to pay rent, which right now is $1,150/month and over 2 years that will be about $27k (assuming no increase in rental price, which is unlikely). If it is assumed that property taxes will be about $8k and interest paid over 2 years is $4-6k, and house maintenance costs, very likely that $27k in rental costs is what we would have paid on related housing expenses.
Thanks for the help. Please feel free to ask any questions that would help.
Being that you can comfortably afford a house and will be buying one sooner or later, my advice would be to jump in as soon as you find one that you both like. As they say, you can’t time the market and do not know what the future will hold with interest rates.
Also, you won’t be wasting rent money, you will have tax write offs and get to begin accumulating some principal. A few intelligent people gave me that advice when I was young, to buy a house as soon as I thought I could afford one and it’s been one of my best moves ever, that is financially!
Being that you can comfortably afford a house and will be buying one sooner or later, my advice would be to jump in as soon as you find one that you both like. As they say, you can’t time the market and do not know what the future will hold with interest rates.
Also, you won’t be wasting rent money, you will have tax write offs and get to begin accumulating some principal. A few intelligent people gave me that advice when I was young, to buy a house as soon as I thought I could afford one and it’s been one of my best moves ever, that is financially!
I agree. You cannot know what will happen in the future.
It is a gamble and if anyone could tell you with any accuracy, they would be billionaires and probably not answering questions on CD.
It appears real estate in many places is leveling out. In my experience over the last 35 or so years, that is what it does before a crash or "correction" However that is also what it does for a while before taking off again. Could be either is coming up.
Whether real estate is overpriced at the moment is subjective. What is the real value of real estate? technically it is zero. It is a piece of paper saying the government gives you the right to control and limited dominion over that land. Like investments that piece of paper only had value in excess of the value of a piece of paper for as long as the government and the market say it does. the fact is, prices can go anywhere are any moment. the one security you have is that massive jumps rarely happen.
right now there should be a shortage of housing. Builders have no been building the massive projects like they did in the 1990s and early 2000s since about 2007 or a bit later for some areas. Conceptually, there should be a shortage, and I do see lots of prospective buyers online complaining about very limited selection. Notwithstanding that prices seem to be leveling out and even dropping a bit in many locations.
Trying to time purchase of a house is like trying to game the stock market. Some people think they can do it. Some people even do very well for a while. Ultimately it is unpredictable.
Most investment gurus say a house should not be considered an investment. Or they say it is simply a bad investment. If you buy a house, buy a place to live. If you want investments, go to them and they will help you find investments that better fit your needs for security,growth or income. If you are buying a home, not an investment, then there is no point in trying to game the housing market. You buy a home when you need home. It is like buying a car, or a toilet. You buy it when you need one to use, not when you thing you might get the best price compared to potential prices later.
You could wait two years and nothing happens, then in two years and one month the market crashes. Too bad, you needed to wait one more month. You could buy in when prices go down some, and discover they keep going down and down and down. You could buy in when the start going back up and discover it was a blip and then they fall even further. Frankly it matters a lot less when you buy than when you sell. If you buy at a peak, and then sell during a higher peak - you make money. If you buy in a dip and then have to sell during an even bigger dip, you lose money. You can make or lose money regardless of when you buy. It all depends on when you sell. (Kinda like stocks).
What would I do? Personally I would wait right now. At least I would wait if I did not need a house right now. However i would be prepared o wait as long as is necessary. If prices go back up over the next two years, I would be prepared to wait five years. I also would not worry about trying to time the market and jump in at the very bottom. I would buy a house when the prices were satisfactory to me and not worry about whether they keep falling or go back up. I can pretty much guarantee that in your lifetime, real estate prices will both rise and fall at least a couple of times. You need to buy or sell when you are comfortable with where prices are, not when you think you will make an investment killing.
I would only wait if you plan on this being your "forever home." Personally I don't think at 28/30 you can have a "forever home" in most cases....too much uncertainty and too many possibilities. But if you are determined to stay put, wait. If there's any chance that you might want to move in 5 or ten years, buy now.
Also rethink paying off a mortgage in your 30s or at least talk to a good financial planner. You could really be shooting yourself in the foot by getting rid of a tax shelter at that point in your life.
I would only wait if you plan on this being your "forever home." Personally I don't think at 28/30 you can have a "forever home" in most cases....too much uncertainty and too many possibilities. But if you are determined to stay put, wait. If there's any chance that you might want to move in 5 or ten years, buy now.
Also rethink paying off a mortgage in your 30s or at least talk to a good financial planner. You could really be shooting yourself in the foot by getting rid of a tax shelter at that point in your life.
That may be true, however, being debt free in your 30s minimizes your risk to any downturns and increases your ability to grow your wealth exponentially (my opinion) in comparison to being strapped with debt. Would I be "shooting myself" if its only a few years (i.e., 3-4 years - max)?
Real estate appreciate is just a bonus if you are the type of person who would rather live in a single family home than an apartment and if you need a write off or hedge with your tax base, then it really a n brainer. If you are handy and self sufficient and use your head it’s like nurturing your investment. You should be able to improve on the value of your house over time. And no, it does not need your “forever” house, that’s nonsense!
This has nothing to do with your question about when to purchase, but it sounds like you're in excellent financial shape. With all that excess income, please tell me you're maxing out IRAs and/or 401Ks! Rather than front loading a house purchase with a huge down payment, put as much as you can into retirement savings. If you establish a good nest egg at this early age, you'll be set for life later on.
That may be true, however, being debt free in your 30s minimizes your risk to any downturns and increases your ability to grow your wealth exponentially (my opinion) in comparison to being strapped with debt. Would I be "shooting myself" if its only a few years (i.e., 3-4 years - max)?
We have enough money to pay off our debt however we own several businesses. We need every last write off. It really depends in what you are doing career-wise. There's a big "debt free" movement and I understand that it's very appealing but there are good financial reasons to create/keep debt in many cases. Again talk to a financial planner. I know it sounds counterintuitive but having a mortgage can actually lower your bottom line. It's not always as straightforward as it seems.
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