If you buy now, you must be dumb. (foreclosed, investment, mortgage)

[santaclara34]

Why The Rich Are Renting - Forbes.com

And I say this as a former homeowner who made a lot of money simply by luck. I luckily bought in 1999, and I luckily sold in 2006. With all of the uncertainty with today's market and econ, I just can't understand why anyone would buy now. In fact, I am starting to think that unless you are buying very very low, which is STILL impossible in many cities on the coasts (look at caravan paying 500k for a 1700 sq foot box in Seattle), you are, to quote many housing experts, "destroying wealth instead of building wealth."

I am renting because I can't imagine overpaying in the current econ and market. And I am finding that renting is a lot less expensive than owning. I forgot how wonderful it is not to have to pay property taxes, lawn maintenance, insane utility bills, insurance etc. The truth is MOST AMERICANS probably can't afford to own. The media says prices are low. The NAR says "it's the best time to buy." Realtors say "the bottom is here." Yeah sure. Maybe in rural parts.

Unless you are building wealth by buying (buying very very low), you should not be buying in this market. Period.

[chet everett]

I tend to agree that NOT ENOUGH people understand the strategy to have in mind when they are shopping for a house. LOTS & LOTS of local / personal factors.

Frankly there were too many people that SHOULD NOT have buying as most areas were at historic peak levels, but for all those people that DID buy only a FRACTION are now truly in dire straights.

Similarly I suspect that even with the massive decline in prices that has hit many place ONLY A FRACTION of people that are buying will rely be in a position to build real value much faster than the marketplace averages. Those who do will extraordinarily well versed in the LOCAL factors, will have the RIGHT kind of LOAN at the RIGHT terms and have the PROPER GOAL in mind. Further while the EXECUTE ON THEIR PLAN they will need to have most things go their way, and that requires a lot of knowledge that is frankly pretty uncommon. Some people will "bumble" into deals, but that will not be the norm anymore than it was as people bought close to peak...

[caravan]

Just to be clear, since you referenced me (and I assume you are calling me and my husband "dumb," according to your title?)... our "box," as you call it, was renting for $2000-$2300 up until August this year, when the owner decided to put it on the market. That is approximately what our mortgage will be, including PITI, and that will be 1/3 of our income... seems about right to me, I don't know about you.

We are also getting twice as many bedrooms as we would be with any other house at that price point right now (we've looked at 20-30 houses in the area), and considering the inspection has not turned up anything of major concern on a house built 90 years ago, in a fantastic neighborhood with the best public schools in a city with otherwise shabby schools, as well as long-term investment opportunities (Seattle's new light-rail will have a station just blocks from our house, a factor which has increased property values almost universally around the areas of current stations), and multiple offers on the house within days on the market... we feel quite good about our upcoming "box" purchase.

Granted, we have been renting far below our price range ($1275) specifically to save money before buying, so the mortgage shock will take some getting used to--but we have the income to support it, and it will still not be greater than 1/3 of our income. Now, help me to see why this is "dumb," especially since we plan to stay in the home for at least 10 years and raise our children in the local schools, and really invest ourselves in the community.

[Ceece]

If people have the money and can afford the house then they are not stupid to buy....IF having a house is important to them. And there are many MANY reasons that could be. Owning a house isn't just a financial transaction, for many it's an important part of their life.

[sheenie2000]

I disagree. Many markets have become much less volatile and are just very slowly declining. I don't think it's terrible to purchase now as a person would just be wasting money on rent and lose the opportunity cost of living in their own home. I think markets in TX and NC for example are relatively stable now.

But I do agree about trying to purchase a home very low that way you can hedge against any future declines.

[chet everett]

Originally Posted by caravan

Just to be clear, since you referenced me (and I assume you are calling me and my husband "dumb," according to your title?)... our "box," as you call it, was renting for $2000-$2300 up until August this year, when the owner decided to put it on the market. That is approximately what our mortgage will be, including PITI, and that will be 1/3 of our income... seems about right to me, I don't know about you.

We are also getting twice as many bedrooms as we would be with any other house at that price point right now (we've looked at 20-30 houses in the area), and considering the inspection has not turned up anything of major concern on a house built in 1922, in a fantastic neighborhood with the best public schools in a city with otherwise shabby schools, as well as long-term investment opportunities (Seattle's new light-rail will have a station just blocks from our house, a factor which has increased property values almost universally around the areas of current stations), and multiple offers on the house within days on the market... we feel quite good about our upcoming "box" purchase.

Granted, we have been renting far below our price range ($1275) specifically to save money before buying, so the mortgage shock will take some getting used to--but we have the income to support it, and it will still not be greater than 1/3 of our income. Now, help me to see why this is "dumb," especially since we plan to stay in the home for at least 10 years and raise our children in the local schools, and really invest ourselves in the community.

If I were going to rent out my home I could do it for about triple what my mortgage payment was. Unfortunately I would also have to find a place to live and my wife would kill me if we were going to rent a place that is half the size and twice as noisy as our home for the same as our PITI payaments. Even if we could rent more cheaply it would not be a smart move for us, and I say this as some that HAD made lots of money as a land lord / investor in rental properties.

It is impossible to say it is "universally dumb" and I happen to know some folks that got terrific values on home FOR THEM even at peak valuations. Generally these are the 'special situations' --like some one who wants / needs a property setup for in-law living or with handicapped access or some other out-of-the ordinary feature(s) that they were able to secure as the lenders were so much more willing to go outside the box than they are now... There are two sides to every coin.

[stonecypher5413]

Hubby and I are waiting to use his V.A. benefits to buy a house but we're in no hurry, luckily, and continue to rent a nice place on two acres in western Washington for only $1150 a month.

We are following the posts on an interesting "housing bottom" site (started in 2007) as we watch housing prices in this area slowly decline:

Timing Housing Bottom - HousingBottom.com (http://housingbottom.com/timing_housing_bottom.shtml - broken link)

[SIZE=-1]Several things have to happen before housing bottom is established: [/SIZE]

1. [SIZE=-1]
2. Adjustable mortgages have to finish adjusting. That will not be completed for several more years. Adjustable mortgages lead to dramatically higher monthly payments, which leads to foreclosures.
3. Banks have to sell all their foreclosed homes at current market prices. Right now banks are holding on to their foreclosed homes, and they keep the values of these foreclosed homes on their books at bubble-top figures. Banks will have to write down the values of these homes (by 50%-75% in many cases) and sell them.
4. Sellers psychology has to change from hope/wishful thinking/denial to complete acceptance (complete acceptance means they are at peace with that and it no longer bothers them) that their house is only worth perhaps 25% of the 2006 price. This will take several additional years after rates finish adjusting and banks sell off their foreclosure inventory. Here is the grief cycle:
   1. Denial
   2. Bargaining
   3. Guilt
   4. Fear
   5. Depression
   6. Anger
   7. Acceptance
   Now at the end of 2007 we are still in Denial phase, gradually moving towards Bargaining. It will take several years to get to across-the-board Acceptance.
   [/SIZE]
   
   

I [SIZE=-1]agree with Caravan's explanation of why they chose to buy now instead of continuing to rent. I hope the "sticker shock" from their new mortgage payments is survivable for their budget and their dreams. [/SIZE]

[caravan]

Originally Posted by stonecypher5413

agree with Caravan's explanation of why they chose to buy now instead of continuing to rent. I hope the "sticker shock" from their new mortgage payments is survivable for their budget and their dreams.

Thank you. We did sit down together and write up a very detailed budget, dollar for dollar, including PITI (at 30% of income) and enough living expenses for 6-12 months (in fact, we will have enough leftover to sustain us for 2 years of unemployment, though if that happened, we would have a lot more to worry about in the world economy than a house!), and we still ended up with a bit of savings each month. So with that in hand, we feel confident making our first home purchase, even if the initial sticker-shock will be rough. We are aware of the shock ahead of time, but we also know that the shock will be lessened by the knowledge that we have a beautiful, classic house in a fantastic neighborhood, with parks, shops, and public transportation all around. We could have picked out a house at $300K easily, about 20 mins. north of Seattle... but we dislike new construction, suburban lifestyles, and generally being dependent on a car for everything. So yes, at $497K, what we're getting is far from shabby for that price, if you ask us (or anyone else who truly knows the market we're shopping in).

[BCG8]

Originally Posted by Ceece

If people have the money and can afford the house then they are not stupid to buy....IF having a house is important to them. And there are many MANY reasons that could be. Owning a house isn't just a financial transaction, for many it's an important part of their life.

I agree with this 100%. I have no intention of putting my life on hold by renting IF i find a house that fits our needs and price range. I am not letting fear or money put a hold on my life.

[DowntownVentura]

put me on the dumb list too. I plan to keep buying.