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The home buying decision has moved beyond a price to income or future foreclosure or affordability argument.
Fact is, if you're going to buy a house, the train is leaving the station. Now is the time to buy. But, as I stated before, you have to be very certain of some very important factors before you do buy, namely:
1. Stability of your job and the local job market/personal income
2. Stability of your neighbors' jobs and financial health
3. Stability of your locality, municipality
4. Fiscal health of your locality, municipality, and state
5. Accounting for future taxes and costs associated with home ownership, such as tax increases (coming), altering of tax codes (removal of mortgage interest deduction, also forthcoming) and implementation of new fees from your local municipality up to the federal government (fees for replacing aging sewer/water infrastructure, fees for services like police/fire/schools/trash).
6. Higher costs of essentials like energy, food, and clothes.
So, if you account for all those measures, and still have found a place where you feel secure about your personal financial health and also that of your neighbors and town, and still feel if other costs rise you are within your affordability, I suggest you buy and buy now. Prices can go lower but interest rates can't, so unless you're paying cash for your home, I fail to see a reason to postpone buying.
On the other hand, for many people, the calculus above will not yield a result which says "buy", so the argument is moot. And for those who are prudent and feel they are making an informed decision, they'll unfortunately find things may not work out so well.
Who will care if you bought and can afford a home which sold for 750k in 2005 for 375k today when the bill for propping up housing comes due for all? Do you have confidence your neighbors, some of whom could afford their 750k mortgage the whole time will continue to do so, as the taxes and other costs choke them off? How will you feel if your home price falls another 10-15%?
Heads I win, tails you lose. That's housing right now.
You explained from buyers' side. Do you think sellers will be better off in 2011 onwards? I don't thinks so. They might be able to hold off the property for little while, say 1 yr or 2. Then what?
I guess if you are a buyer and have large down payment ready and have a good credit score and stable job and can wait for a year or 2 then you can take the RISK of waiting. Prices can't go up much in next 2/3 years, but there MIGHT be chance of going down (who knows!!).
Lower prices make sense if you want to pay the mortgage off MUCH sooner than 30 years.
I also believe next year will be a better time to buy than this year. Low interest rates and easy availability of credit has artificially inflated housing prices.
Please note that I have 2 properties, one bought in 2003, the other in 2006. I have made mistakes in the past and learned from them.
Rates will most likely stay low, maybe get to 6% next year, not much higher. Credit availability will remain relatively loose.
I would much rather buy a house for $200K in 2012 at 6% than $250K today at 5% interest. Home prices are way more important than interest rates as you can always refinance out of higher interest loan if you have equity in the property.
Gold price is at 1200 per ounce. Inflation is coming soon. When Fed raises the interest rate next year, the house price will not decline. If you buy next year, you may face 6% interest rate and the same housing price or higher price.
Gold price is at 1200 per ounce. Inflation is coming soon. When Fed raises the interest rate next year, the house price will not decline. If you buy next year, you may face 6% interest rate and the same housing price or higher price.
Gold is not just a hedge against inflation... On the complete opposite end of the spectrum I've seen it called a hedge against deflation. Bottom line is that it's a hedge against economic uncertainty and that's the reason it's been climbing like crazy.
I sure hope you sell that property soon so you can stop dropping inane tidbits and random unrelated reasons about house prices going up.
I honestly hope we bottom later this year or next. 2011 is the earliest I see us bottoming. Interest rates will remain historically low for awhile. I don't think they will be above 7% before 2012, maybe 2013.
Housing prices may slow their declines and then stagnant. I don't think we will see significant housing price appreciation for a long time, maybe not before 2014-2015.
This is definitely not a V-shaped recovery, U-shaped at best if we are not already in the start of double-dip. I just don't see home prices having bottomed just yet.
I think the answer to "Is this the right time to buy a house" is going to vary greatly depending on the location, the economy of that location, and the price point of the individual looking to buy.
For example, in my area (Northern Arizona), we have a very "hot" low-end/bank-owned property market. Homes in this price range have actually seen some appreciation. However, the higher the price point, the more stagnant the market, and there will definitely be some additional price softening in those upper price ranges. Meanwhile, homes in the low to mid price ranges seem to be stablizing.
I do believe that parts of the country that are able to maintain a fairly robust economy will also fare well in the housing sector, as more people move to where they can find employment.
Let's put it this way, 2010 is a much better year to buy a house in most parts of the country than 2005/2006 was, especially with the low interest rates.
Of course, a good time for one buyer might be a horrible time for another buyer, depending on their financial and personal situation.
You make good points that now is a better time than 5 years ago to buy but many are not able to buy now, especially move-up buyers as they have negative equity in their existing home or limited equity and thus no or little down payment.
I believe next year will be even better with more and more foreclosures, but only if you qualify for loan.
The question is not whether home prices will rise or fall, or whether housing has bottomed, or whether interest rates will rise or fall, but whether or not now is a good time to buy or not.
I don't disagree with you, because nobody knows exactly what the future will portend, but I think if one is going to buy, now is a good time to buy.
We both have our ideas about what the future will bring, both of us agree the housing market's overall health (not measurements of individual indicators like rates or YoY price changes or inventory) will be poor. If I'm going to buy, I would rather risk *some* potential savings to lock in low prices, low interest rates, and choose from what is plentiful inventory. Waiting is accepting the risk that any or all of those factors, plus the risk the capital is not there.
Last edited by trickymost; 06-15-2010 at 06:09 AM..
None of that is relevant to the post that prompted my exercise.
It kind of was, because looking at a 2% return without also looking at the 5% it costs to buy that return is missing half of the picture.
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And where I live, a $300,000 house will have less than 1% property tax, which will generally trail behind inflation rates in increase historically.
$30,000 in property tax in ten years is not likely.
Yeah, that's why I didn't include inflation. Anyway, the first near-300K house I found near me had a tax rate of about .94% That subtracts about $35 a month from my estimate. It's not a big difference. And it'll be made up for in the difference between renters and homeowners insurance.
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Question: What percentage of renters actually capitalizes on investment of their potential down payment nest egg to sieze the income/growth opportunity of their capital?
I suspect it is small. We have too much debt in the USA to think otherwise.
I have no idea, but the fact that someone spends that money on something instead of a down payment shows that the opportunity cost is very real.
And how many buyers take the equity out of their house over a ten year period? It's not just renters getting in over their head with debt.
It kind of was, because looking at a 2% return without also looking at the 5% it costs to buy that return is missing half of the picture..
No, not really, for terms of the specific exercise. The poster merely stated that equity was "...less than you might think." The cost of equity was not in the mix as well as many other omitted items.
Doesn't mean it should be ignored, but working tightly those vague guidelines makes the example meaningful.
All I was attempting to do was to show the poster the value of 2%, his number, compounded over 10 years.
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Originally Posted by KCfromNC
Yeah, that's why I didn't include inflation. Anyway, the first near-300K house I found near me had a tax rate of about .94% That subtracts about $35 a month from my estimate. It's not a big difference. And it'll be made up for in the difference between renters and homeowners insurance.
Taxes are hard to pin down, just because assessments and market value are historically not linked in any "real world" fashion, particularly in NC.
Is that $300,000 house at market value, or assessed value? And did the property owner appeal the assessment?
Assuming your .94% is from the Triangle, or even Cary or Raleigh, it appears you are looking at a closed sale at market value, which is the proper number for a homeowner to consider.
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Originally Posted by KCfromNC
I have no idea, but the fact that someone spends that money on something instead of a down payment shows that the opportunity cost is very real.
Opportunity cost is real. It is just that it is like the mortgage interest deduction: grossly overstated in terms of actual application and realized value.
Spending $60,000 (20% of $300,000) on stuff with absolutely no residual value, baubles and such, or stuff that depreciates 50% immediately, like boats, may well mean that wisely investing it in housing is a smart personal finance choice.
Homeownership can be somewhere between taking a loss to a forced savings plan like the old bank Christmas Clubs to having a very nice return.
Americans turn their backs on opportunity daily, in infinitely variable ways.
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Originally Posted by KCfromNC
And how many buyers take the equity out of their house over a ten year period? It's not just renters getting in over their head with debt.
Sure. And some folks take equity off the table with 100% financing. Choices....
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Inflation is coming
