Rent or Buy? (Concord, Santa Clara, Martinez: real estate, 2014, apartment)

[RD18]

Hello Everyone,

My Fiancé and I are looking to move out of our parents house and finding our own place. We have enough money saved up to purchase a home (down payment and reserve money) and were set on buying. However my parents as well as my uncles have told me to wait until the crash and that we're still at the top of the market. I always grew up being told never to rent because we will be paying someone else mortgage and not our own. So my question to you is what would you do? we do not want to move into each others parents house and no longer want to live separate. So rent or buy?


Looking @ Pleasant Hill/Concord/Martinez

Do you see a crash coming? if so when?

[bmw335xi]

If you will be living in the home and can comfortably afford it, then I would buy. You can always look into buying an investment property if there is another big crash in the future.



The only way I could see renting until the next crash is if you move to a different state where rent is really cheap, where your rent-income ratio is really good. However, we don't know how long it will be until the next crash. The last economic crash started in late 2008, but house prices didn't bottom until 2011 to 2012. The economy is doing good right now, so I'd expect we won't see a bottom in the housing market for a long time.

[beb0p]

Originally Posted by RD18

Hello Everyone,

My Fiancé and I are looking to move out of our parents house and finding our own place. We have enough money saved up to purchase a home (down payment and reserve money) and were set on buying. However my parents as well as my uncles have told me to wait until the crash and that we're still at the top of the market. I always grew up being told never to rent because we will be paying someone else mortgage and not our own. So my question to you is what would you do? we do not want to move into each others parents house and no longer want to live separate. So rent or buy?


Looking @ Pleasant Hill/Concord/Martinez

Do you see a crash coming? if so when?

I would not be buying real estate now and I've been a real estate bull for almost a decade. Here's the thing, I've been getting personal calls from my commercial mortgage brokers looking for businesses and these guys are usually very very busy. So you know the commercial sector is really slow!! The commercial investors typically are the first to smell a storm coming because they are right on the frontline. When a big number of them collectively decided to exit the market, that's a bad sign! Usually the residential market will follow.

The ONLY condition under which I'd buy is if I see myself living in it for at least 15 years and I can stomach a downturn that can potentially wipe out 20-30% of the price I paid.

Rent is cheap in Concord. The rent you pay can easily be covered (and then some) by any slight drop in the market.

No one can tell when the crash is arriving, there may even be a slight bump before the drop, but it's coming.

.

[eastwestcoast]

No one can tell if/when a crash will happen with any certainty, it's simply impossible to fully predict. Maybe there will be one in the next few years, maybe not. According the the various real estate blogs and data sources I follow, the market appears be showing slightly slower appreciation in some places now than what we've seen in the last few years. The typical expectation seems to be that hyper-appreciation may be ending due to a combination of higher interest rates, slightly lower economic confidence among buyers, and a moderate increase in new listings. But these are still just educated guesses - generally the more certain a forecaster is the more likely they are to be wrong!

So for you, what this means is you need to evaluate your needs, preferences, and risk tolerance and decide what makes personal sense for you. It sounds like you can afford a downpayment and are hopefully comfortable with whatever mortgage, tax, and insurance payments are required for your target properties. So then the question is are you pretty sure you want to live in the same home (and take care of it) for at least 5-10 years? If so, you will probably be holding it long enough to ride out any market corrections should they come. Any shorter timeframe, and it is quite possible you'll either risk selling in a downturn or spending more in total than you would have renting a similar home. Also, keep in mind that you can now only deduct 10k total of property tax and local taxes from your federal return, so make sure to factor that, plus the higher savings rates now available for your cash (you can get over 2% in a low-risk savings account) if you're checking old rent vs. buy calculators.

If you do want to buy now, seasonally it could be a good time to get a deal as there are fewer buyers to compete against around the holidays and sellers listing their homes in the winter are generally more motivated to sell, having missed the high season. The flip side is there are fewer homes to choose from, so you can't be too picky (not that you can be picky in this market in the first place).

Good luck with your decision!

[justinbro2002]

The housing market in the bay area has long gone through recessions and recovery always reaching new heights with every recovery. The great recession was a very rare recession and the housing crash it caused will not be repeated during the next recession or the one after that or after that. Traditional housing drops 10% to 15% which is what you can expect with the next recession. Not the 40% to 50% you saw in 2008-2012. Will the next recession be next year the year after that ot the year after that? Will it go up another 10% or more before it falls? That's anyone's guess. You can wait and bet on another crash but you might get burned.

[bmw335xi]

Originally Posted by justinbro2002

The housing market in the bay area has long gone through recessions and recovery always reaching new heights with every recovery. The great recession was a very rare recession and the housing crash it caused will not be repeated during the next recession or the one after that or after that. Traditional housing drops 10% to 15% which is what you can expect with the next recession. Not the 40% to 50% you saw in 2008-2012. Will the next recession be next year the year after that ot the year after that? Will it go up another 10% or more before it falls? That's anyone's guess. You can wait and bet on another crash but you might get burned.

I disagree that the drop will only be between 10-15% from the high. I would bet it will be much bigger, at least double that. Where we agree is who knows how much higher it will go before the next crash happens.

[JJonesIII]

I've seen people making claims about the last recession since 2014. The problem with that thinking is they have no idea (no one does) when the next recession will hit. Since that time, many of these home have appreciated by 40+%. So if the recession hit in a couple of years, what difference would it make? They would have been better off buying in 2014 when they started their little Nostradamus predictions. Most people that try to time a recession are about as successful as those that try to time the stock market. Seldom does it work and usually money is lost.

[bmw335xi]

Originally Posted by JJonesIII

I've seen people making claims about the last recession since 2014. The problem with that thinking is they have no idea (no one does) when the next recession will hit. Since that time, many of these home have appreciated by 40+%. So if the recession hit in a couple of years, what difference would it make? They would have been better off buying in 2014 when they started their little Nostradamus predictions. Most people that try to time a recession are about as successful as those that try to time the stock market. Seldom does it work and usually money is lost.

Exactly, when it comes to real estate if you are going to live in it, dont try to time it. If you are buying an investment property than it’s okay to wait and see. A lot of people become wealthy because they saved money gor the next big down turn. However, as mentioned, by the time that happens, you might have been better off just buying it now. I personally believe the Bay Area will see lower prices ghan current at some point, but I wouldn’t risk renting for 5 years waiting for it to come down because it might not. I think it will but for your primary home don’t time it if you can afford it.

[NoMoreSnowForMe]

I have a different point of view than many other people as far as buying in your position. And what I base my opinion on is how much money you would throw away in rent money.

Because if you plan on staying in this area through a crash or no, which means you would be paying for housing through a crash, then start out by just looking at the cost of housing.

So, let's say you're paying what young friends of mine are paying in Santa Clara - each are paying about $2500/month for a one-bedroom apartment.

Now, in 1 year, they will have spent $30,000 in housing payments. In 2 years, assuming their rent didn't go up, they'd have spent $60,000 in housing payments.

So, now, while waiting for prices to come down, is the cost worth it to you? If waiting for the cost to come down costs you $30,000/year?

And when someone asks me, what if the assessed value comes down? I'll lose money! I say, are you sure? If it's really all about the cost of housing, and you can still afford your house payments, and your house payments will never go up (assuming you're not stupid enough to get an adjustable mortgage) - and let's say you sold your house for "only" the same amount you bought it for - did you lose money?

Not if you just got back all of the rent money you would have spent just renting someone else's place. If it doesn't appreciate, you still just got all of your rent money back. And, you didn't have to worry about getting kicked out. And you could paint it any color you wanted. And you could have a dog if you wanted or two or three or a pit bull...

The only real thing you need to worry about, in my opinion, is whether or not you can feel comfortable with the house payment and the taxes and any maintenance costs.

I highly advise against buying anything with a HOA because those are costs and rules you can't ever foresee. They can change on a whim, and take away the security of owning your own place.

But, otherwise, if you know you can comfortably handle your payments, and the house shouldn't be too hard to resell - even at a price lower than you bought it for - you still come out ahead. Because, you at minimum, just got your rent money back, and had total control of that property while you lived in it, without worrying about your rent payment going up.

Just, really, think about it as housing instead of an investment, and it changes things a lot.

Before the last crash, the banks were telling people they could afford about twice what they could really afford. My daughter was smart enough to know she couldn't afford a $500,000 mortgage and kept saying no to realtors showing her homes for that price with a pre-approval from the bank for that amount, because she knew those payments would be too much of a risk for her. She eventually bought a place at a price she knew she could afford, and did very well.

So, just be smart about what you can really afford on a monthly basis, make sure you can handle emergency maintenance problems and pay the taxes without a huge strain, avoid HOAs. And just look at it as a way to get stable housing you are in control of, and that you might be able to get all of your rent money back from when you're ready to move.

And if not, then just expect to stay in it long enough so that the worst case scenario is that you simply paid rent money you would have paid anyway, but you were also your own landlord during that time.

Also, I know some tax write-offs have changed, but you should also look into any tax write-offs you get as a home-owner that you don't get as a renter. You used to be able to write-off your mortgage interest, for instance.

Odds are, you'll do much better than that, but if you just keep renting, you will have no chance of getting any of that money back.