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I don't think any major implosion is due but there may be in certain areas with large supply of for sale housing inventory, stagnant household formation and declining real income. I say this because in most middle america markets housing is only worth as much as the income of those who live in it.
Markets with restrictive development like California and major coastal gateway cities will probably fair well no matter what due to higher job creation and in turn household formation. Markets in Midwest you will want to check carefully for municipal fiscal management.
Remember Housing choice is a lifestyle based decision. Searching now to prioritize where you find most comfortable and what you need - not necessarily what you 'dream' of owning would be wise. If you find something with everything of most importance go for it. It would be best to put that cash to work for you if you know you are in the area you want to be for the next 7 years or longer.
I can buy a house with cash now, so I don't think interest rates matter all that much for me.
I'm renting, but assuming I will buy a home eventually, and throwing that money away. Should I start looking seriously now, or wait until the prices go back down? Sure seems like they are exploding, and have to implode again soon?
I wouldn't consider "rent" to be throwing money away. No more than paying for a home, repairs, taxes etc is.
Some places it currently its better to rent, some its a break even proposition, and others it pays to buy.
Some people make a decent case that the housing market is going to take another turn down. Anyone who says it can't is silly and clearly didn't learn anything from the last bust.
Some people make a clear case that there isn't any danger of a bust anytime soon.
No way to know who is right.
That said. When purchasing a residence that you plan on making your home I wouldn't worry about timing the market unless your in the middle of a major market move. Even if you buy tomorrow and the home drops 20% over the next 2 years.....if you intend to live there long term it will eventually climb back up. In other words, any long term positions are going to overcome any short term fluctuation in entry price.
So basically I think your question is irrelevant if your buying a home and not an investment.
My personal opinion on the housing market is caution. Lots of yellow lights going off. Easing mortgage requirements (Rocket Loan from Quicken anyone?). Housing prices in many markets are well above historical trend. Lots of people claiming its impossible.
I don't think the next bust is gonna come from subprime loans like the last time. I think its going to be capital flight and over extension of investors in the current market. Lots more people than I can recall are buying 2, 3, 4 or more rent homes, people that have never invested in real estate. People who should be buying homes and the ones who have bought in the last several years are saddled with record level of debt in an economy that is only worsening.
Quote:
Originally Posted by AZ Manager
That and to stop the waste of paying rent, buying a home is probably the best way to use that cash in his situation. Your gains on that cash would need to be huge to make it more valuable to not buy right now.
Not true at all. I would wager in most places its cheaper to rent or at least close to cost neutral. Of course there are markets where it pays to buy.
Its a fact that long term value in a home barely keeps up with inflation. In other words, owning a home is not an investment, at least not a very wise one. The gains needed to beat that are not "huge" by any stretch. Of course in this climate investing is tricky enough so you may come out ahead by holding cash or some other asset.
***Just realized this isn't in the Charlotte thread. Mods, feel free to move my post if it doesn't belong in here.
I am in the exact situation as OP, so I'll share my thoughts.
First, there's a question of pure economics. How much does your current housing cost you? At some point (and you could roughly calculate the break point), paying rent is more costly than the costs and burdens of home ownership.
- I pay about 550/months all included on rent and utilities, but of course at that price I have roommates (who I get along with). Consequently, I am not wasting money or not much money. The cash I am banking would otherwise be equity building on a house. The 6600/year in rent and utilities would easily be consumed on property taxes, utilities, and other costs associated with home ownership.
Second, are you willing to pay the prices requested for real estate in the local market? Consider this regardless of the opinions of other people. This is a purely subjective question to ask yourself.
- Having moved here from the Phoenix area (and having spent plenty of time in both market over the past 5 years), I find Charlotte real estate over priced. And rent is massively overpriced. I cannot comprehend why young workers living uptown are willing to pay rents that start at 1,100/month at the very bottom. For a one bedroom apartment. In Scottsdale or Tempe, I'd almost expect an entire house with a swimming pool in the backyard for that. Seriously. The 2,000 sq ft place I recently moved out of was 1300/month in a nice established neighborhood in Tempe.
Finally, I would not conclude that real estate is necessarily hugely overpriced here in Charlotte, based on what I just said. Individual markets vary. But with what I've seen, houses around here are all probably priced 20-30 *percent* higher, roughly, than what I would instinctively be willing to pay based on the age, build quality, location, quality of school district, crime rate in the immediate area, etc. Also, take with a grain of salt that real estate will generally "always appreciate" in the long term. Coming from one growth city to another, it strikes me that older homes, depending on the neighborhood and build quality, may not necessarily increase in real (not nominal) value over time. New construction will grab dollars, but not "some old house from the 70s" as we would say in Arizona.
You'd better never, ever accept a job in the Northeast. You'll be pitching a tent in the forest!
I can buy a house with cash now, so I don't think interest rates matter all that much for me.
I'm renting, but assuming I will buy a home eventually, and throwing that money away. Should I start looking seriously now, or wait until the prices go back down? Sure seems like they are exploding, and have to implode again soon?
When you buy you can start throwing money away at the home. You get to make the repairs or have someone do them. You get to cut the grass or pay someone to do that. So many things that you do not get back when you own a home. Money and time that is thrown away.
to Own or to rent are lifestyle questions. No size fits all. Also no location is similar. Not all places took off in price and not all places dropped like a rock. Most may have but some places just missed the boat all together.
Another local thing that I have watched over the years. Prices in our area when they drop never seem to drop back to the last low spot. Prices when they go up never seem to stop at the last high place. In our area my street homes were in the high 600K to low 700K range at the top of the market. They Dropped to just under $300K at the last low spot and are so far just under $500K now. I see it going much further up and past the last high spot.
Oh...just a thought, it's interesting that both of the two maltomillionaires I know are selling their 2 and 7 million dollar houses at this time. No particular reason, so they say. But I do wonder what that's all about.
Oh...just a thought, it's interesting that both of the two maltomillionaires I know are selling their 2 and 7 million dollar houses at this time. No particular reason, so they say. But I do wonder what that's all about.
Chances are they will buy another home. I knew of one business owner that sold his home when someone offered him close to $3million for a home that he had paid $1.2 million. They were expanding the company into another state and him and his wife thought that was the time to move the business. They still have the operation here in my area. Prior to that offer they had planned to make the move within a five year time frame. The offer sped up the process.
Realize with high end homes that is another market all together. Many high end owners can afford to sell or buy when they want to. Also when you have a business or asset(s) outside the home that exceed the value of your home then buying or selling is strickly lifestyle.
I am not pretending to know your friends situation, just commenting on similar situations that I have observed.
Not true at all. I would wager in most places its cheaper to rent or at least close to cost neutral. Of course there are markets where it pays to buy.
Its a fact that long term value in a home barely keeps up with inflation. In other words, owning a home is not an investment, at least not a very wise one. The gains needed to beat that are not "huge" by any stretch. Of course in this climate investing is tricky enough so you may come out ahead by holding cash or some other asset.
It is true but I guess it depends on your definition of "huge" when talking returns. On my latest purchase the cost to acquire without the mortgage related expenses was $140k, OP said paying cash and didn't give a location so I'm going to use this to make my point.
I rent that home at $1200 a month which is below market value which is probably between $1250 and $1350, I go below market to keep my vacancy and turnover rates low but a higher rent would increase the needed rate of return mentioned below. That is $14,400 a year, ignoring any costs like renters insurance, you subtract property taxes ($890) and insurance ($760) and HOA dues ($480) from that you get $12,280. That is what renting that home is costing compared to buying that same house. If you were to invest that $140k you need to see an 8.8% annual return on the investment, repairs will bring that down but I find most people vastly overestimate the cost of repairs.
That is completely ignoring the increased home value which pushes that 8.8% return even higher. US average home values are pretty flawed because most of them don't take into account that home sizes have increased which has led to a lot of the increase in average home prices but even accounting for that the averages come in pretty close to inflation rates. OP didn't give an area and some areas see insane growth in value like areas of Colorado and Texas have seen recently. If you match home value growth to inflation that 8.8% is now above 10% and you aren't seeing above 10% returns, and way above 10% in markets that are seeing large increases in values.
I get good returns on all my rental properties but not near 9% a year in the first 5 or so years. I target 7% at time of purchase but with vacancies and repairs, in rentals repairs are higher than primary residences because tenants don't take care of anything, I normally come in between 5% and 6%.
Why exactly would you buy a home all cash right now? You could probably get a 30 year mortgage at 3.8% and that's tax deductible so its probably more like 2.5%. Why not just put down 20%, pay a mortgage that isn't costing you much of anything, and put all that capital into an investment that gets you closer to like 6 or 7%. Sounds like you're potentially leaving a ton of $ on the table.
You could put 20% down on your house and buy 2 or 3 rental properties with 25% down and still have plenty of capital left over for emergency funds.
I mean to each their own, but with mortgages as cheap as they are I see little reason to pay all cash.
At age 67' to sleep better at night.
Not all of life is optimizing economics.
That's fair. Good point.
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