Million Dollar Question - Buy or Wait? 2022 Edition (real estate, rent)

[numbersguy100]

Originally Posted by Wittgenstein's Ghost

One under-appreciated aspect of this is that an insane market discourages people from selling their primary residence because they don't believe they can easily buy the upgrade house. Selling the sure roof over your head to throw your offers in the ring with forty other people isn't enticing, and contingent offers aren't likey to be accepted. So a lot of people are sticking with what they have.

If we start to see the market normalize a bit, it's very possible we see an increase in inventory from people feeling like they have choices again.

Maybe. The problem is that it will come with a steep tax bill and many potential sellers will try to avoid that by staying put. You can "overpay" for another house if someone is "overpaying" for your house, but the new tax bill will be very real. That's always been true but the magnitude and speed at which the recent pricing increases happened make it different than before.

[Wittgenstein's Ghost]

Originally Posted by numbersguy100

Maybe. The problem is that it will come with a steep tax bill and many potential sellers will try to avoid that by staying put. You can "overpay" for another house if someone is "overpaying" for your house, but the new tax bill will be very real. That's always been true but the magnitude and speed at which the recent pricing increases happened make it different than before.

A married couple doesn't pay any taxes on the first $500k of gains, so long as they've been in the house for two years or more. Some people are sitting on bigger gains than this, but most aren't.

[san11]

Originally Posted by Wittgenstein's Ghost

A married couple doesn't pay any taxes on the first $500k of gains, so long as they've been in the house for two years or more. Some people are sitting on bigger gains than this, but most aren't.

By steep tax increase, i think the poster meant Property tax on the new property.
For their current property, the owner is paying the property tax and there is homestead exemption. The homestead exemption will keep their property tax low for next few years.

But for new property, i think the property tax might be charged for almost the price for which it is bought.

[Wile E. Coyote]

Stay in that rental. You should be able to save way more money for a down payment (with a $370k income). Save until you can pay cash for a house (not a mini-mansion). Then buy. However, if prices come down 50% you will have your down payment ready (for a house, not a McMansion).

I would not give the same advice in the area that I live in (because it's a completely different tight market that has been ongoing since closer to 2016 than to the pandemic). My house is up 5% this month (that's a lot).

The smallest house in the best location is true. But, make sure you have the best systems in the house (foundation, HVAC, A/C, backup generator, storm shelter, etc., etc.) before you spend money putting lipstick on the pig.

[TurtleCreek80]

Originally Posted by san11

By steep tax increase, i think the poster meant Property tax on the new property.
For their current property, the owner is paying the property tax and there is homestead exemption. The homestead exemption will keep their property tax low for next few years.

But for new property, i think the property tax might be charged for almost the price for which it is bought.

Yes, exactly this. Our home is on the tax rolls for around $775k. Based on what I’ve seen recently in the neighborhood, we could sell it for $1.2-1.4M. So if we sold, the new owners would be paying 2X the property taxes we are. On the flip side, appraised values can only be raised up to 10% per year so it will take 5-6 more years until DCAD can possibly tax us on the 2022 value of our home.

If we sold and for some reason wanted to use the equity to buy a similar home at a similar price, our cost to own would be up significantly ($1200-1500/mo more) as our tax bill would almost double.


It doesn’t help solve the housing market problem of low inventory, but if you have no significant reason to move or are not majorly downsizing (like selling your $2M home for an $800k “empty nester” townhome), I wouldn’t.

But….if you are renting like OP is, I would be looking to buy while you can still get a mortgage at 4% Range vs 6%+. My question for Op though is why they have so little to put down with such a large income. I would not buy a $1M house with $50k down. That’s just not wise, financially, even with that income, unless you have significant other cash assets on hand.

[chrisroane]

I am working through the same thought process. Our budget is not that large but by selling our house we can put 20% down. I do think if you can have more equity right away, that does lower the risk a little bit.

But then part of me wonders if it would be better to just rent. But we aren't too fond of renting for a few years and "hoping" things come down.

From a person who is not strong in economics, I look at this by breaking down the two main risks:

1. You jump into the fire pit of the market now and get something that you can live with. But the real risk here is how secure is the income you are depending on to make that payment? if things go down, you are paying a high premium for getting the house now. But if it is a house you love in a location where you want to be, how big of a deal is this? I go back and forth, but for me, as long as it is a payment I can comfortably afford, I think I could live with that.

2. You hold off and continue to rent until the market corrects. Even if we aren't in a bubble, the market has got to correct at some point. Or maybe property taxes have to go down? I wouldn't bet on taxes going down though, lol.



At least from someone selling their house, I kind of think the best scenario is to sell while the market is hot, rent until things cool off and then buy something you can afford (while staying in the same school district). But then again that seems like a lot of work....

[Wittgenstein's Ghost]

Originally Posted by TurtleCreek80

Yes, exactly this. Our home is on the tax rolls for around $775k. Based on what I’ve seen recently in the neighborhood, we could sell it for $1.2-1.4M. So if we sold, the new owners would be paying 2X the property taxes we are. On the flip side, appraised values can only be raised up to 10% per year so it will take 5-6 more years until DCAD can possibly tax us on the 2022 value of our home.

If we sold and for some reason wanted to use the equity to buy a similar home at a similar price, our cost to own would be up significantly ($1200-1500/mo more) as our tax bill would almost double.


It doesn’t help solve the housing market problem of low inventory, but if you have no significant reason to move or are not majorly downsizing (like selling your $2M home for an $800k “empty nester” townhome), I wouldn’t.

But….if you are renting like OP is, I would be looking to buy while you can still get a mortgage at 4% Range vs 6%+. My question for Op though is why they have so little to put down with such a large income. I would not buy a $1M house with $50k down. That’s just not wise, financially, even with that income, unless you have significant other cash assets on hand.

Yes, I was wondering the same thing. If income is good, how is there only $50k for a down payment? If this level of income is not new (it could be....maybe a doc fresh out of fellowship/residency), and current rent is only $2k, the numbers just don't work to afford a $1MM property given their past savings rate. Then again, if this level of income is new, that's a totally different situation.

And that's a pretty significant effect on the property taxes. I didn't realize property taxes could only go up by 10% annually. Theoretically, the appraisal district is supposed to be hiking valuations at all times, not just after sales. But I'm sure that in practice you can probably fly under the radar with a house didn't just buy.

I do wonder how strong of a motivator that is for most people in whether they move or stay, though.

[hiwot]

Originally Posted by Wittgenstein's Ghost

My opinion: $370k isn't enough income to support a $950k mortgage. Others will disagree, of course.

950k loan 20% down considering 8.4k home insurance, $30k prop tax, $3k hoa == ~$7200/month.

gross income == $30,833 per month after fed tax (3 dependents) == ~$22,706 net income.

$22,706 - $7200 == $15,506k income after house payment.

You're right, how can he possibly live off of $15,506 monthly to spare? Throw in the towel, nothing to see here.

** EDIT ** I just saw the "only 100k down payment" aspect. Many credit unions will do 90% LTV jumbo and assuming a higher interest rate @ 4.8%, the monthly PITI is $10,721.99.

$22706 - $10,721.99 == $11,984 monthly leftover. Still seems like a STRETCH right?

[Lorne]

Originally Posted by Kenro911

Do what everyone else does. Over-leverage yourself to the absolute max and get that house! It will only go up right. I remember 2007 - eerily similar mood. More and more people who I speak to, are dumping every single disposable income cent into the mortgage payment.

Oh man... If you would have purchased a home or invested in the stock market in 2007, during the bubble and before the great recession, and kept it until now? You'll be sitting real pretty right now. As long as you buy quality assets and have time on your horizon, you can't lose in my opinion.

[Lorne]

Originally Posted by hiwot

950k loan 20% down considering 8.4k home insurance, $30k prop tax, $3k hoa == ~$7200/month.

gross income == $30,833 per month after fed tax (3 dependents) == ~$22,706 net income.

$22,706 - $7200 == $15,506k income after house payment.

You're right, how can he possibly live off of $15,506 monthly to spare? Throw in the towel, nothing to see here.

Maybe they eat a lot?