In todays slow housing market, what considerations when buying? (loan, insurance, expenses)

[Need_affordable_home]

To any of you that want to buy a house, what factors do you consider? Do you buy a smaller, cheaper house and/or in a cheaper location and wait for house prices to keep falling? Is appreciation not on your mind anytime soon?
In my case, I read predictions and the 10 year "appreciation" in most cities isnt even keeping up with inflation! This means no hurry and no point going all out for a house, they will get cheaper for many years and one can always "upgrade" to a bigger, better house when they have more money. A cheaper house saves you in mortgage, insurance and taxes, etc. You will be able to pay off the mortgage faster and own the house free and clear. You can easily "upgrade" the first signs of the next housing bubble(there was one back in 1980 I think) then ride the next bubble and gain instant equity. The money you save on a cheaper house will appreciate much faster in mutual funds, easily 10-15% while houses are appreciating less than the 3% inflation in many cities. You also pay insurance and taxes on a house whereas you dont with stocks.

This is the main reason I am going cheap on a house. I will be buying less house than I can afford so ill save on property taxes and mortgage. Ill be buying in a good, cheap, low crime location somewhere in PA, WV or OH probably. What advantage will an expensive $100k house give than a cheaper $50k or even $25k house? Bigger house? I dont really need more than ~2000 square feet. Bigger lot? A quarter acre is enough, if I wanted many acres, id buy a farm. Better location? Whats better about being 2 miles closer or further in a small city or town? Low crime neighboorhood? Ill be living in a city where every neighboorhood is low crime, there wont be any bad areas! The extra money I save will go into mutual funds and ill keep adding more to it!

Say I save $25k on a house, the extra $25k goes into mutual funds instead of all of it into a $50k house.

I put $25k into mutual funds and another $5k each year. If my funds appreciate at 12% a year for 15 years, ill have $345,605.55! In the meantime my $25k house appreciates at the rate of inflation(3%) for 15 years, itll be worth $38,949.19! Even if we put house appreciation at 5% which is generous(because the bubble is over!), my house would be worth $51,973.20!

Now say I bought a $50k house, paid my $25k down and instead of putting $25k into mutual funds, I buy the house 100% down. Because of interest, higher property taxes, insurance and utilities, ill only have $4k a year to put into mutual funds. Ill have $167,013.12! This is less than half what id have if I were to spend only $25k on a house, put $25k initially into mutual funds(instead of $0 initially) and $5k annual addition instead of $4k! Meanwhile the $50k house appreciates 5%(again, im being generous) Id have a $103,946.41! house!

Now take a third scinerio. I buy an expensive $100k house, pay $50k down and the $50k mortgage for 15 years. Ill have no money into mutual funds, the house would be the only asset(which is true for many people) The $100k house appreciates at 5% becomes $207,892.82! If I were to start putting money into mutual funds at this point, id have only $2500 a year to put because of high tax, insurance, utilities costs associated with an expensive house!

Lets review the scinerios and extend them another 15 years!(consider an average appreciation rate of 12%)

1. $25k house, $345,605.55 in mutual funds after 15 years. Start putting $8k/year for another 15 years. Ill then have $2,225,720.95 after 30 years! Enough to retire for the rest of my life!(my mutual funds will keep growing faster than I spend anyway) That house at 5% appreciation would be worth $108,048.56 I would be "worth" $2,333,769.51

2. $50k house, $167,013.12 in mutual funds after 15 years. Start putting $7k/year for another 15 years. Ill then have $1,206,430.26 after 30 years! You realize this just cost me over $1m in mutual funds after 30 years?! That house at 5% appreciation would be worth $216,097.12 I would be "worth" $1,422,527.38

3. $100k house, $0 in mutual funds after 15 years. Start putting $6k/year for another 15 years. Ill then have $250,519.68 after 30 years! You realize this just cost me almost $2m in mutual funds after 30 years?! That house at 5% appreciation would be worth $432,194.24 I would be "worth" $682,713.92


My math should be right. A house was a much better buy before the bubble because its appreciation was equal(sometimes higher!) to mutual funds! But the party is over and my math tells me its wise to go cheap on a house(at least till the next bubble) Comments? Very interesting read!

[mystree]

I'd pick a smaller home 1200 ft or so in a decent area where I can do minimal upgrades myself,wood floors/tile,paint and down the road buy granite countertops and nice cabinets rather than pay the price for them already in the home.I want a home with some work so that I can customize it myself...that is half the fun if you ask me.

[JenM]

I'd pick a smaller home 1200 ft or so in a decent area where I can do minimal upgrades myself,wood floors/tile,paint and down the road buy granite countertops and nice cabinets rather than pay the price for them already in the home.I want a home with some work so that I can customize it myself...that is half the fun if you ask me.

I completely agree (except for the 1200 sq ft, I need a tad more space for my 3kids) In fact character is a major part in choosing a house! My husband and I like older charming homes that, like you said, need fixing up. There's nothing more satisifying then adding your own personal touches to a house.

Generally, I too am looking to save money when I do purchase a home, however if I find a new "cookie cutter" home and an old historic house that needs fixing up and both are in my price range, I'd choose the older home.

I want a home that I can grow old in. I envision myself twenty years from now baking cookies with my grandkids in the same house that I raised my own children. Maybe that's a cheesy thing to look forward to, but hey I'm simple I guess. I'm a sentimental gal and want a "home", not just a house that I am looking to appreciate so I can make some fat cash. Memories and family are more important to me than money.

[MoMark]

I'd just wait until the whole market has truly shaken out so that you can rely on some sense of stability when you commit. Right now, and for the foreseeable future, most housing markets are falling. The U.S. Dollar just dove against the Euro, Canadian dollar, and Chinese Yuan...that tells you that the problems are pretty severe and that at some point, the Feds will have to raise rates to lift the Dollar as the Chinese and others now are losing confidence in it and selling dollars and buying Euros. This means that there's more pain to come for the housing market as the rates will go up and more ARM victims will default. The time to invest in homes for making a profit is gone for now, I'd buy based on what I want to live in over the longterm, but I'd wait for now as it's a pretty big risk to buy when prices are still falling and expected to decrease more. Who wants to buy a house at what seems like a good bargain only to find that the value is falling after one has bought it? That might work out if you paid cash and retain the equity left, but if it's a low down or all financing buy, you're immediately underwater and stuck in that house.

[pkoons]

12% a year mutual funds? Hmm... I'm skeptical.

Hedge fund managers are being swayed by high-risk products that generate a 10% IRR - meaning 7% gets passed on to investors, if that.

You won't see much appreciation on a home in the boonies, it will increase in price at the rate of inflation. Buy a little closer in to Pittsburgh, spend 75k on a home, and diversify your remaining assets in mutual funds, high-yield bonds, and a Roth IRA.

Best of luck.

[CandyApple]

Honestly, I think buying a house just so you can sell it later is really just participating in another pyramid scheme.

First guy buys house- "Ha ha! I'll be rich."- then sells it to the next guy who's thinking the same thing, on down the line until the last guy can't find a sucker to pay more than he did and ends up losing money on the deal, if not the whole darn house.

Imagine if people *rented* places so they could sublet to someone else at a higher price... how would that be any different?

People should buy what they can afford without assuming they can unload it at a ridiculous price later on. Personally, I hope the market keeps going down so I can afford to buy my own house without becomming a slave to it for 30+ years.

[Need_affordable_home]

Originally Posted by mystree66

I'd pick a smaller home 1200 ft or so in a decent area where I can do minimal upgrades myself,wood floors/tile,paint and down the road buy granite countertops and nice cabinets rather than pay the price for them already in the home.I want a home with some work so that I can customize it myself...that is half the fun if you ask me.

I was thinking of that, how much do the upgrades cost? If they cost too much, I could just get a bigger house instead! I had made a thread about finishing an attic into bedrooms and bathrooms. Could I do a such project myself for under $5000?

Originally Posted by MoMark

I'd just wait until the whole market has truly shaken out so that you can rely on some sense of stability when you commit. Right now, and for the foreseeable future, most housing markets are falling............

Is it safe to say a house already cheap wont fall much further? Im worried itll become priced out of my reach because its so cheap, its such a good deal! I plan to move out no later than summer and buy a house costing up to $50k.
Even if it falls, I lose only a few thousand and I arent selling. I buy to live, not invest.

Originally Posted by pkoons

12% a year mutual funds? Hmm... I'm skeptical.

Hedge fund managers are being swayed by high-risk products that generate a 10% IRR - meaning 7% gets passed on to investors, if that.

You won't see much appreciation on a home in the boonies, it will increase in price at the rate of inflation. Buy a little closer in to Pittsburgh, spend 75k on a home, and diversify your remaining assets in mutual funds, high-yield bonds, and a Roth IRA.

Best of luck.

12% is normal, good mutual funds can go as much as 50% a year. My dad has some that went 30% a year every year for the last 5 years. He wishes he bought alot more but no one can predict which mutual funds are the best. He also has a few that are going nowhere. 12% is the average. LOL me spend $75k on a home? Please re-read my first post to see that spending $50k instead of $25k on a house will end up costing me over one million
dollars in 30 years! I would need a house that appreciates 16% a year to be as good a deal as mutual funds which average 12% yearly appreciation. Thats because theres insurance, property taxes and other expenses of home ownership absent in mutual funds. Again, please carefully read my first post(did anyone?) and youll be shocked at the reality of my math!

Originally Posted by CandyApple

Honestly, I think buying a house just so you can sell it later is really just participating in another pyramid scheme.

First guy buys house- "Ha ha! I'll be rich."- then sells it to the next guy who's thinking the same thing, on down the line until the last guy can't find a sucker to pay more than he did and ends up losing money on the deal, if not the whole darn house.

Imagine if people *rented* places so they could sublet to someone else at a higher price... how would that be any different?

People should buy what they can afford without assuming they can unload it at a ridiculous price later on. Personally, I hope the market keeps going down so I can afford to buy my own house without becomming a slave to it for 30+ years.

Its not a scheme if the next buyer knows well enough what he is getting into. Its a free capitalist market but I refuse to play the house bubble game. I will just buy a cheap house(no more than $50k, preferabily $25k) and put the rest of my assets into mutual funds and be rich by the time I retire.
Houses were appreciating as much as 20-30% during the bubble, but that bubble is gone and a house is a place to call home, nothing more. You want good appreciation, buy mutual funds, some of them are going up as much as 50% a year(but no one knows which ones will or how long they will go up and they could fall back down, sell before they do!)

Why wait for the market to keep going down, just relocate to a location where a nice house can be had for $50k and dont worry what the house will be worth, buy it for a place to live in, not because of how much itll be worth in the future. If you are currently renting, I hope it is as cheap as buying a $50k house, otherwise your paying way too much. My expenses on a $50k house will be $400 a year property taxes and nothing more. Renting you will pay several thousand a year and that money is gone. My $400 I pay in property taxes, the house will appreciate 3-5% a year which will make up for property tax expenses(no point insuring, no hurricanes up north) The thousands I save will all go into mutual funds instead of "burned" on rent. I even made a thread saying im not a fan of renting. If there arent affordable houses in your area, blame it on speculators driving the price to rip-off levels and dont play their game, boycott(if everyone does, prices will be where they should be) and buy in an area free of speculation where houses can be had as cheap as $10k!

[mystree]

I was thinking of that, how much do the upgrades cost? If they cost too much, I could just get a bigger house instead! I had made a thread about finishing an attic into bedrooms and bathrooms. Could I do a such project myself for under $5000?

Depends on the condition of the house I suppose.

--------------------------------------------------------------------------------

Honestly, I think buying a house just so you can sell it later is really just participating in another pyramid scheme.

First guy buys house- "Ha ha! I'll be rich."- then sells it to the next guy who's thinking the same thing, on down the line until the last guy can't find a sucker to pay more than he did and ends up losing money on the deal, if not the whole darn house.

Imagine if people *rented* places so they could sublet to someone else at a higher price... how would that be any different?

People should buy what they can afford without assuming they can unload it at a ridiculous price later on. Personally, I hope the market keeps going down so I can afford to buy my own house without becomming a slave to it for 30+ years.

I suppose in a way you could look at it that,certainly a different way of thinking.

[Racelady88]

I have never looked at house in terms of resale value. When I look at a house, I look for things like a solid roof, lack of termite damage/infestation, safe electrical system, walls without cracks, etc.

I look for a house that will be a HOME. I have to like the neighborhood. There has to be room for my pets.

I think that looking at a house to see what you can get out of it in a few years is as not a good way to approach a major purchase.

[pkoons]

Mutual funds generally underperform compared to stock market returns. Avg. stock market return is 11%. So we're talking, realistically, 8-9% returns on AVERAGE. If you are in Euro and Latin America funds now, you're doing a bit better, but who's to say how long that will last?

Here's another question, if you're so confident that you can make 12% on mutual funds, why wouldn't you finance your home at a 6-7% loan and dump your cash into mutual funds instead of directly into the home? If you can borrow money at 6 1/2, 7%, and make 12%, wouldn't that be ideal? Especially b/c you get the tax break on the 6 1/2% interest that you're paying!

NAH, we love ya, but your business mindset is making my head explode. I think this will be my last post on the subject of jobs, home prices, stocks, bonds, investing, etc. Let's stick to city info haha