benefit of buying a home now?

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benefit of buying a home now?

Postby bbqkingster » Fri May 31, 2013 12:39 am

Seems home prices and interest rates are increasing and people are jumping in left and right.
    I was wondering which option is preferable.

    1. buy house now, put down 20%+, then pay down mortgage aggressively + mortgage deductions

    or

    2. wait a bit (several years), save aggressively, and then buy with all(or more)cash/much small(er) mortgage?

    psychologically, it bothers me to buy when everyone is trying to buy. I wonder if it may slow down a bit as rates rise.

    full emergency fund, Max ing retirement funds, no other debt. I am ok with renting but wife prefers to own a home but she is willing to wait. Like the idea of a home, but the thought of debt and potential for significant declines in home prices give me pause. I have friends that bought pre and even now, their homes are still considerably less than what they initially paid for it.

    Trying to look at it from both sides. From a strictly financial perspective, which way is the better way?
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    Re: benefit of buying a home now?

    Postby Rodc » Fri May 31, 2013 6:30 am

    Unless you can tell me the future I can't answer based on financial considerations.

    Likely it also depends on where you are looking and possibly on what specific property you are interested in.

    The best time to buy a house is often when you desire to own a home.
    We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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    Re: benefit of buying a home now?

    Postby Leemiller » Sat Jun 01, 2013 3:28 pm

    I think much of this depends on where you are in the country. In certain places it may be a mistake to keep out of the market right now, but it is also hard to time these types of decisions.
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    Re: benefit of buying a home now?

    Postby MN Finance » Sat Jun 01, 2013 3:47 pm

    Buying a home (vs renting) has very little to do with financial considerations (assuming it's affordable anyway). Buying a home has everything to do with lifestyle. It's incredibly common that your spouse would want security and stability by buying. My spouse would have a heart attack if I had to negotiate a lease every 12 months and risk having to leave the neighborhood or end up having to put the kids in a different school. Buying your "second" house might have a more to do with finance and less lifestyle than the first (when we move next I plan to pay for the next house outright, but I can afford to wait for that since we have a "home" already, for ex).
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    Re: benefit of buying a home now?

    Postby jeffyscott » Sun Jun 02, 2013 11:45 am

    The monthly cost of buying may be less than renting, in which case there is no benefit to be gained by renting and saving (unless prices decline again).

    When we bought our first home in 1986, interest rates had dropped rapidily to the incredibly low rate of 9.5%. At that time the monthly cost of buying the home we bought was about the same as the cost of renting something similar.

    At that time I had a co-worker whose plan was to save until he had enough to buy for cash. I said something like, if prices are going up 5% per year you have to save $2500 per year just to stay even on a $50,000 house (the idea of price declines did not occur to me).
    press on, regardless - John C. Bogle
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    Re: benefit of buying a home now?

    Postby TomatoTomahto » Sun Jun 02, 2013 12:44 pm

    Do not underestimate the value of being able to pick up and leave.

    If we were renting, I would only have to overcome my wife's emotional attachment to the house in order to move to another place. It's not a battle worth having right now, so I'll wait until we become empty nesters.

    I usually counsel younger people to appreciate the benefits of being able to move for a job. Ironically, before we married, my wife saved the down payment for our house by working in the UK as an ex-pat and saving a large portion of her housing allowance.
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    Re: benefit of buying a home now?

    Postby enderland » Sun Jun 02, 2013 1:04 pm

    TomatoTomahto wrote:Do not underestimate the value of being able to pick up and leave.


    There was a period not too long ago I really wanted to own my own home. But the fact is, realistically, purchasing a home is a commitment to stay in one place (and consequentially one job/position/etc) for quite some time and after thinking through this (plus reading a fair bit on this forum :) ) I decided I was not ready to make such a commitment.

    I'm still saving for a down payment but that timeline is considerably longer now than it was before.
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    Re: benefit of buying a home now?

    Postby surfer1 » Sun Jun 02, 2013 1:30 pm

    Last year was a better time to buy than now. Simply due to the now limited inventory and buyers rushing to get low interest rates. I still think its "ok" to buy now, but I think prices may drop again as interest rates rise and houses become less affordable. So make sure its a house you really like and plan to stay in for 10+ years. Btw, don't call it a "home". That's real-estate agent talk. :)

    As far as renting, it has a lot of pluses. No maintenance or upkeep expenses. No property taxes. The freedom to move at any time for a new job.
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    Re: benefit of buying a home now?

    Postby Bungo » Sun Jun 02, 2013 2:21 pm

    I agree with others that it's more of a lifestyle choice than a financial choice. There are times when it's a bad financial choice vs. renting: buying between say 2004-2008 was a costly decision in many areas. But normally it's more balanced than that. Rents increase over time whereas mortgages (at least non-toxic ones) don't. But ownership has a lot of other costs that do increase over time, notably maintenance: don't underestimate the amount of money, labor, and mental energy involved in keeping a house in good shape, when its natural tendency is to slowly decay.

    As others noted, buying can limit your ability to change jobs, and I'll add that it also limits your ability to move away if the living arrangement itself turns out to be problematic (e.g., bad neighbors).

    I moved around a lot for jobs and didn't end up settling down and buying until I was over 40. No regrets, even though it meant I didn't participate in the housing boom or the subsequent bust.
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    Re: benefit of buying a home now?

    Postby bbqkingster » Sun Jun 02, 2013 7:08 pm

    Rodc wrote:Unless you can tell me the future I can't answer based on financial considerations.

    Likely it also depends on where you are looking and possibly on what specific property you are interested in.

    The best time to buy a house is often when you desire to own a home.


    What about the future would you like to know? :happy

    I appreciate all of your responses. Simply trying to look at it more from a financial perspective instead of an emotional one (would be nice to own my very own home, etc).

    I was looking at a newly built home in a good neighborhood with good schools. Do not predict moving somewhere else in the near future, but who knows. Currently have a 3 year old and another on the way. Unfortunately live in a higher cost location, so if I were to throw some numbers out, I think renting would be around 1900-2500 for a decent sized apartment versus a mortgage payment of 3000-3500 (including tax, insurance but not maintenance) and, of course, a 20% down payment. Looking at home prices go up over the past year, and also remembering how they went down previously - feels like monopoly money - too bad I have to pay for it with real money that we've worked hard to earn and save.
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    Re: benefit of buying a home now?

    Postby ilovedogs » Sun Jun 02, 2013 7:29 pm

    This sentence caught my eye: "Last year was a better time to buy than now." It seems to confirm the very regional experiences we have. I live in a city on the East coast and my volunteer work helping neighbors facing foreclosure because I was good at it.... brought me into contact with their circumstances and the realtors they talked to. I found the realtors being very up to date on the facts each time. And guess what. The media does not seem to report this story, or I missed the ones that did. We --- neighbors and me -- surely thought this year would be better than last year, end of May 2013 over end of May 2012. No way. With evidence in hand, realtors show what houses are selling for here, and the sold prices dropped about 9 to 12% over 12 months since May 2012. It continues to go down and it makes a very real difference to people who want to or have to sell.
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    Re: benefit of buying a home now?

    Postby denismurf » Mon Jun 03, 2013 2:39 pm

    surfer1 wrote:Last year was a better time to buy than now. Simply due to the now limited inventory and buyers rushing to get low interest rates. I still think its "ok" to buy now, but I think prices may drop again as interest rates rise and houses become less affordable. So make sure its a house you really like and plan to stay in for 10+ years. Btw, don't call it a "home". That's real-estate agent talk. :)


    They call it a "home" if you're looking to buy, but a "house" if you're looking to sell. :happy

    Local Seattle radio ads for the real estate industry continue to warn that the low interest rate window is closing fast, so buy now.
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    Re: benefit of buying a home now?

    Postby jeffyscott » Mon Jun 03, 2013 3:19 pm

    You can buy a home that is not a house...also S&P/Case-Shiller [b]Home[/b] Price Indices Image
    press on, regardless - John C. Bogle
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    Re: benefit of buying a home now?

    Postby reggiesimpson » Mon Jun 03, 2013 3:35 pm

    Sounds like there are no kids as yet? Keep renting and saving.
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    Re: benefit of buying a home now?

    Postby harrychan » Mon Jun 03, 2013 4:52 pm

    If you enjoy your neighborhood including friends, family, and support and know that you can find a similar job or do business within your area, I say buy. There is something comforting to know that the mortgage payment you make will not change and no landlord's hovering over you for the chance for to jack up your rent. My wife and I have two boys and we bought because by putting 20% down, mortgage is the same as rent around here (Southern California). Prior to buying, we moved once every 1-2 years and HATED it. We also bought because we make enough to be able to pay the mortgage, property tax, and relevant expenses and look for the house to be paid off when we turn 50. This way we do not have to factor in an unpredictable expense for rent when we retire.
    This is not legal or certified financial advice but you know that already.
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    Re: benefit of buying a home now?

    Postby Perpetual » Mon Jun 03, 2013 5:17 pm

    reggiesimpson wrote:Sounds like there are no kids as yet? Keep renting and saving.


    This.

    The only time I would even remotely consider buying a house is when kids are about to enter the equation.

    Even then, I would be on the fence. Contrary to popular belief, there are a lot of great school districts where renting is possible. And nothing is stopping you from renting the same place for a long period of time, which would give you a similar sense of security and stability (especially if you make friends with the landlord).
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    Re: benefit of buying a home now?

    Postby interplanetjanet » Mon Jun 03, 2013 5:33 pm

    Perpetual wrote:Even then, I would be on the fence. Contrary to popular belief, there are a lot of great school districts where renting is possible. And nothing is stopping you from renting the same place for a long period of time, which would give you a similar sense of security and stability (especially if you make friends with the landlord).

    This is a very good point. I've just renewed a lease on the house I am renting for the seventh year in a row. The school district is excellent and the rent has stayed flat in nominal dollars, so in real terms my cost has actually declined slightly.

    I'm not against buying (it wasn't an option for me, due to other issues) but renting with children is far from the end of the world.
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    Re: benefit of buying a home now?

    Postby Clearly_Irrational » Mon Jun 03, 2013 6:13 pm

    interplanetjanet wrote:
    Perpetual wrote:Even then, I would be on the fence. Contrary to popular belief, there are a lot of great school districts where renting is possible. And nothing is stopping you from renting the same place for a long period of time, which would give you a similar sense of security and stability (especially if you make friends with the landlord).

    This is a very good point. I've just renewed a lease on the house I am renting for the seventh year in a row. The school district is excellent and the rent has stayed flat in nominal dollars, so in real terms my cost has actually declined slightly.

    I'm not against buying (it wasn't an option for me, due to other issues) but renting with children is far from the end of the world.


    As a landlord I love long term renters. Changing tenants usually involves extra costs like repairs and loss of rent while it's empty.

    As a consumer, I would normally prefer to buy. Having a fixed payment is better than paying market rate and gets better the longer you stay in one place.
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    Re: benefit of buying a home now?

    Postby Rodc » Tue Jun 04, 2013 9:40 am

    I was looking at a newly built home in a good neighborhood with good schools. Do not predict moving somewhere else in the near future, but who knows. Currently have a 3 year old and another on the way. Unfortunately live in a higher cost location, so if I were to throw some numbers out, I think renting would be around 1900-2500 for a decent sized apartment versus a mortgage payment of 3000-3500 (including tax, insurance but not maintenance) and, of course, a 20% down payment. Looking at home prices go up over the past year, and also remembering how they went down previously - feels like monopoly money - too bad I have to pay for it with real money that we've worked hard to earn and save.


    That is a hint at the future. :)

    I think with kids and the need/desire for good schools and a fairly stable set of friends, etc. this is likely a decent time to buy.

    Maybe last year was a little better, or maybe next year will be a little better, who knows. Today a hew home in a good neighborhood with good schools is likely a decent enough deal. With a three year old any time in the next couple of years could be good. Probably want to be in a house by kindergarten. Not required of course, but seems like what you desire.

    Best of luck with the house and the new one on the way.
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    Re: benefit of buying a home now?

    Postby swaption » Tue Jun 04, 2013 10:13 am

    Rodc wrote:
    I was looking at a newly built home in a good neighborhood with good schools. Do not predict moving somewhere else in the near future, but who knows. Currently have a 3 year old and another on the way. Unfortunately live in a higher cost location, so if I were to throw some numbers out, I think renting would be around 1900-2500 for a decent sized apartment versus a mortgage payment of 3000-3500 (including tax, insurance but not maintenance) and, of course, a 20% down payment. Looking at home prices go up over the past year, and also remembering how they went down previously - feels like monopoly money - too bad I have to pay for it with real money that we've worked hard to earn and save.


    That is a hint at the future. :)

    I think with kids and the need/desire for good schools and a fairly stable set of friends, etc. this is likely a decent time to buy.

    Maybe last year was a little better, or maybe next year will be a little better, who knows. Today a hew home in a good neighborhood with good schools is likely a decent enough deal. With a three year old any time in the next couple of years could be good. Probably want to be in a house by kindergarten. Not required of course, but seems like what you desire.

    Best of luck with the house and the new one on the way.


    Agree with this. Just looking at your numbers, keep in mind that only the interest portion should be technically considered your housing expense and that in many instances it is tax dedcutible, assuming you are above the standard deduction. From a back of the envelope perspective, perhaps you can view your principal portion as covering maintenance.

    I don't think it can completely be characterized as a lifestyle decision seperate from the financial components. What is important is to drown out the noise. Perhaps you will be paying more for this house monthly than the apartment. Is that worth it to you? In terms of the financial component, let's say after crunching the numbers you conclude that this will cost you $500 more per month. If you think the house will provide you additional value beyond that amount, then it may be reasonable to assume that others will ultimately come to that same conclusion. This is what drives house prices. So forget about what everyone else is doing, buying houses or not buying houses. Assess it based on your values.

    One last point. That uncomforatable feeling of commitment and putting up 20%, there is a word for that, it's called risk. You are investing in something with real money. You bear the consequences if it declines in value and you reap the rewards if it goes up. If you want to move, you bear the risk and cost of the illiquidity of the asset. But like any risk, you should expect to be compensated, or at least assets should be priced such that you expect to be compensated. It is up to you to determine whether or not that is the case here. Also keep in mind that you likely assume that you will ultimately be a home owner, and then be one for quite a long time. For most, it is the only investment they make that on one specific day they go from being net short to net long. There si no DCA. There are definitely long term financial implications of this dynamic.
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    Re: benefit of buying a home now?

    Postby swaption » Tue Jun 04, 2013 2:04 pm

    I'll add one other thing. Individuals tend to view risks in assymentric ways. For instance you are concerned about prices falling after you purchase. Right now bond investors are concerned about a rise in interest rates. But these things are never one sided. While it is very clear the nature of the risk associated with owning a home, there are also risks asscoiated with not owning. I'll start with the premise that you will some day want to own a home (understanding that this might not be correct for all). With that in mind, your current net short position in housing is a money loser every year the market goes up. It is not all that different than holding cash for retirmenet and the risk of lagging inflation. It is entirely possible that the house you like becomes less affordable for you in the future, and you could be priced out of it entirely (or required to take a larger, less affordable mortgage).

    The above consideration are the types of things that cause people to make really bad mistakes. Let's take someone in your shoes. You decide to wait because you want to save more and have not really considered the consequences of prices going up. Let's say prices then go up, so you save more, and then prices go up more. Suddenly you get to a point where you can't afford to have prices move any further. That is when you act. We have seen this with housing. We have seen this at the tail end of stock market declines. There are lots of people for whom this summarizes their decision making process. It's all about emotions and rationalization.

    Obviously this is by no means a prediction. Just meant to be a comprehensive view looking at both sides of the risk equation. In your shoes, to some extent it may be a matter of assessing one risk against the other, along with the specific financial parameters.
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