When to buy a house

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TwoIdenticalIndexes
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When to buy a house

Post by TwoIdenticalIndexes »

We are all familiar with the rent vs. buy debate which frequently arises here. Are there any thoughts or guides on when to buy, if you have flexibility?

1. Obviously, if you can buy in the midst of a financial and housing crisis, it great to do so
2. Right now, with interest rates negative in real terms and rate hikes likely coming in 2022, seems like a great deal, but housing prices are skyrocketing

Should I take the EMH approach and assume that the interest rate - price combination will always be covered by the market? My intuition says that there should be a correct answer, since housing as a consumer good + unique tax incentives for individuals to buy could affect the markets ability to price.
123
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Re: When to buy a house

Post by 123 »

A good time to buy a house is 1.) You have the necessary income to support the expected mortgage and you have the resources for the down payment, 2.) Your personal/family situation is stable/known and you can anticipate residing in the house for at least 7 to 10 years, and 3.) Your career situation is stable and there appear to be sufficient career opportunities in the area for at least 7 to 10 years.

Issues about house prices and mortgage interest rates fall within item #1 above. The best deal and mortgage on a house is no bargain if it won't be a family and career fit for at least 7 to 10 years.
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KlangFool
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Re: When to buy a house

Post by KlangFool »

OP,

You buy a house when it is significantly cheaper than renting the same house. Aka, the PITI (20% down payment with 30 years fixed rate mortgage) is at least 20% to 30% lowered than market rent. You can calculate the price of the house ahead of time. When it drops low enough, you buy. Or else, you rent.

Why would you take the RISK of house ownership if it is not significantly cheaper than renting? I won't.

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firebirdparts
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Re: When to buy a house

Post by firebirdparts »

I bought one when I was 24 years old. To me, if you can buy about as cheaply as you can rent, and if you're not going to move, and if you don't get fired, then there's just not much reason to wait. I do think real estate is high, but if you can buy about as cheaply as you can rent, then the high prices don't really provide any disincentive.

I noticed in the "personal finance" section occasionally somebody will ask "what % of my net worth" should be the house. For me it was infinity percent. it's an expense and there was a lot of upside there and all it cost me was some illiquidity.
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scout1
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Re: When to buy a house

Post by scout1 »

The housing market is efficient. You should buy a house when there's one you want at a price you're willing to pay.
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RickBoglehead
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Re: When to buy a house

Post by RickBoglehead »

KlangFool wrote: Wed May 12, 2021 1:47 pm OP,

You buy a house when it is significantly cheaper than renting the same house. Aka, the PITI (20% down payment with 30 years fixed rate mortgage) is at least 20% to 30% lowered than market rent. You can calculate the price of the house ahead of time. When it drops low enough, you buy. Or else, you rent.

Why would you take the RISK of house ownership if it is not significantly cheaper than renting? I won't.

KlangFool
1 out of 1,000 would follow this logic, and that may be generous.

People buy a house when they want a house.
scout1 wrote: Wed May 12, 2021 5:42 pm The housing market is efficient. You should buy a house when there's one you want at a price you're willing to pay.
No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
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Ocean77
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Re: When to buy a house

Post by Ocean77 »

KlangFool wrote: Wed May 12, 2021 1:47 pm OP,

You buy a house when it is significantly cheaper than renting the same house. Aka, the PITI (20% down payment with 30 years fixed rate mortgage) is at least 20% to 30% lowered than market rent. You can calculate the price of the house ahead of time. When it drops low enough, you buy. Or else, you rent.

Why would you take the RISK of house ownership if it is not significantly cheaper than renting? I won't.

KlangFool
You didn't mention the RISK of renting. Rents go up on average by 4% per year. The fixed rate mortgage will not.
Dave55
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Re: When to buy a house

Post by Dave55 »

I bought 6 houses in the past 33 years. I bought when we needed a place to live, never thought to "time the market", never paid more than I could afford and it all worked out just fine.

Dave
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Garco
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Re: When to buy a house

Post by Garco »

I agree with "1-2-3" and "KlangFool" above.

We bought our first house when I moved to my second secure job in my career. To put this in context, a) My salary was $18,000 per year, b) We had $8,000 in cash savings for a down-payment, c) I was in my second "career" appointment (job) (we were a one-income family). This was in 1978. We thought it was likely we'd stay at this job for the indefinite future.

We took a 30-year $32,000 mortgage on a house that had a price of $39,900.

We never looked back. The house was 3-bedrooms, and after a few years we added 2 kids to our family.

The kids are grown up and living on their own. My salary grew steadily, and we put both kids through college without any debt for us or for them.

In a simple summary: our housing costs were within our means. The kids were able to graduate from college debt-free in 4 years and are well established in their careers now. I sometimes summarize this in other terms. One wife (the only one I ever had), Two kids, One job, Seven cars (so far) -- one car at a time -- VW Beatle, VW Dasher, Chevy Malibu, Ford Taurus, Ford Taurus, Ford Fusion Hybrid, Ford Fusion Hybrid). Sound boring? We traveled the world, as did the kids. We have fine retirement finances from my 403b + Social Security.
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Re: When to buy a house

Post by elle »

Garco wrote: Wed May 12, 2021 6:38 pm I agree with "1-2-3" and "KlangFool" above.

We bought our first house when I moved to my second secure job in my career. To put this in context, a) My salary was $18,000 per year, b) We had $8,000 in cash savings for a down-payment, c) I was in my second "career" appointment (job) (we were a one-income family). This was in 1978. We thought it was likely we'd stay at this job for the indefinite future.

We took a 30-year $32,000 mortgage on a house that had a price of $39,900.
Wow, the house was only 2.5 x your salary? Would you consider yourself at that time a high or low income earner? And are you in a HCOL area? MCOL? LCOL? I feel like I read about how housing is unaffordable for the current generation vs past generations and this highlights it to me. Our first modest house was 4x two good salaries and my commute was 1.5 hours each way because we were so far in the burbs.
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Re: When to buy a house

Post by secondopinion »

Ocean77 wrote: Wed May 12, 2021 6:07 pm
KlangFool wrote: Wed May 12, 2021 1:47 pm OP,

You buy a house when it is significantly cheaper than renting the same house. Aka, the PITI (20% down payment with 30 years fixed rate mortgage) is at least 20% to 30% lowered than market rent. You can calculate the price of the house ahead of time. When it drops low enough, you buy. Or else, you rent.

Why would you take the RISK of house ownership if it is not significantly cheaper than renting? I won't.

KlangFool
You didn't mention the RISK of renting. Rents go up on average by 4% per year. The fixed rate mortgage will not.
So correct. Also, you are transferring much of that mortgage payment into owning the house; not a single dime goes toward owning anything with rent.

Yes, those who move a lot or flat out cannot afford it need to rent (since they have no real alternative); but it is close to garbage to suggest that renting is the better choice if you are staying for the long term and you can afford it. I doubt it will ever be in rent's favor long term.
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Re: When to buy a house

Post by KlangFool »

secondopinion wrote: Thu May 13, 2021 3:39 pm ...
secondopinion,

The peak of the housing market in my area was 2004/2005. It was down for 10+ years. Not until 2019, it recovers to the 2004/2005 level. Only this year, it exceeds the 2004 level.

KlangFool
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LittleMaggieMae
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Re: When to buy a house

Post by LittleMaggieMae »

Ocean77 wrote: Wed May 12, 2021 6:07 pm
KlangFool wrote: Wed May 12, 2021 1:47 pm OP,

You buy a house when it is significantly cheaper than renting the same house. Aka, the PITI (20% down payment with 30 years fixed rate mortgage) is at least 20% to 30% lowered than market rent. You can calculate the price of the house ahead of time. When it drops low enough, you buy. Or else, you rent.

Why would you take the RISK of house ownership if it is not significantly cheaper than renting? I won't.

KlangFool
You didn't mention the RISK of renting. Rents go up on average by 4% per year. The fixed rate mortgage will not.
NOt really disagreeing with you... but
It's true that PI part of the Mortgage doesn't change - but the other two parts of the equation can and often do - Property Taxes and Insurance(s).
If the house comes with an HOA expense - that too may go up over time. You cannot base your ability to afford a house solely on the amount of PI you will be paying.

In theory, if you are renting and costs go up too much - you may be able to move and you may be able to better "control" your housing expenses.

If Property taxes jump or HOA fees jump - you are pretty much stuck. Selling a house is time consuming and expensive.

Maybe the size of the mortgage matters here. At some point in the life of my mortgages the TI part became larger than the PI part. Maybe I just didn't have big enough mortgages to avoid this. :)
txhill
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Re: When to buy a house

Post by txhill »

You should buy a house when you want to live in a house--don't give thought to timing the market. Just stay within your means and pick a place you'd like to live in for a long time, and don't even check whether house prices go up or down. If you're buying a house for investment purposes, then you have to give more thought to market conditions.
secondopinion
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Re: When to buy a house

Post by secondopinion »

KlangFool wrote: Thu May 13, 2021 4:03 pm
secondopinion wrote: Thu May 13, 2021 3:39 pm ...
secondopinion,

The peak of the housing market in my area was 2004/2005. It was down for 10+ years. Not until 2019, it recovers to the 2004/2005 level. Only this year, it exceeds the 2004 level.

KlangFool
Granted, but does rent really protect you from this? I live in an area that has been bad for renters; if you bought a home in 2007 (at its peak prior to a dip), you will have had to wait 8-10 years to neutralize price; but rent did not benefit from that dip. As a result, rent is terrible now. One would have to kept shrinking their residence just to afford it from 2007 until now. And no ownership either to add insult to injury.
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Re: When to buy a house

Post by KlangFool »

secondopinion wrote: Thu May 13, 2021 4:34 pm
KlangFool wrote: Thu May 13, 2021 4:03 pm
secondopinion wrote: Thu May 13, 2021 3:39 pm ...
secondopinion,

The peak of the housing market in my area was 2004/2005. It was down for 10+ years. Not until 2019, it recovers to the 2004/2005 level. Only this year, it exceeds the 2004 level.

KlangFool
Granted, but does rent really protect you from this? I live in an area that has been bad for renters; if you bought a home in 2007 (at its peak prior to a dip), you will have had to wait 8-10 years to neutralize price; but rent did not benefit from that dip. As a result, rent is terrible now. One would have to kept shrinking their residence just to afford it from 2007 until now. And no ownership either to add insult to injury.
secondopinion,

<<Granted, but does rent really protect you from this? >>

The rent was going down while the house's price was going down. When the house's price was low enough to be significantly cheaper than renting., I bought my house.

<< I live in an area that has been bad for renters; if you bought a home in 2007 (at its peak prior to a dip), you will have had to wait 8-10 years to neutralize price; >>

Housing is local. So, rent can go up 4% per year does not apply everywhere.

And, just in case you think I live in the middle of nowhere. I live in the #1 richest county in the USA in terms of the median household income.

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DB2
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Re: When to buy a house

Post by DB2 »

KlangFool wrote: Thu May 13, 2021 4:03 pm
secondopinion wrote: Thu May 13, 2021 3:39 pm ...
secondopinion,

The peak of the housing market in my area was 2004/2005. It was down for 10+ years. Not until 2019, it recovers to the 2004/2005 level. Only this year, it exceeds the 2004 level.

KlangFool
I naively bought my house in the summer of 2004 which was the peak in my area. Only this year am I finally back to near that price. 17 year recovery in nominal terms.
secondopinion
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Re: When to buy a house

Post by secondopinion »

KlangFool wrote: Thu May 13, 2021 4:48 pm
secondopinion wrote: Thu May 13, 2021 4:34 pm
KlangFool wrote: Thu May 13, 2021 4:03 pm
secondopinion wrote: Thu May 13, 2021 3:39 pm ...
secondopinion,

The peak of the housing market in my area was 2004/2005. It was down for 10+ years. Not until 2019, it recovers to the 2004/2005 level. Only this year, it exceeds the 2004 level.

KlangFool
Granted, but does rent really protect you from this? I live in an area that has been bad for renters; if you bought a home in 2007 (at its peak prior to a dip), you will have had to wait 8-10 years to neutralize price; but rent did not benefit from that dip. As a result, rent is terrible now. One would have to kept shrinking their residence just to afford it from 2007 until now. And no ownership either to add insult to injury.
secondopinion,

<<Granted, but does rent really protect you from this? >>

The rent was going down while the house's price was going down. When the house's price was low enough to be significantly cheaper than renting., I bought my house.

<< I live in an area that has been bad for renters; if you bought a home in 2007 (at its peak prior to a dip), you will have had to wait 8-10 years to neutralize price; >>

Housing is local. So, rent can go up 4% per year does not apply everywhere.

And, just in case you think I live in the middle of nowhere. I live in the #1 richest county in the USA in terms of the median household income.

KlangFool
Right that it is localized; what may have worked in one area fails in another. I am just saying that one could get forced out of an area if they are renting. The more important it is to stay in an area, the more willing you have to be to buy a house. It depends on which risk one wants to take.
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Re: When to buy a house

Post by KlangFool »

secondopinion wrote: Thu May 13, 2021 5:15 pm
Right that it is localized; what may have worked in one area fails in another. I am just saying that one could get forced out of an area if they are renting. The more important it is to stay in an area, the more willing you have to be to buy a house. It depends on which risk one wants to take.
secondopinion,

<< I am just saying that one could get forced out of an area if they are renting. >>

And, why is that a bad thing?

<<The more important it is to stay in an area, the more willing you have to be to buy a house. It depends on which risk one wants to take.>>

If the person does not have the income to rent and stay in that area, there is no financial future for that person in that area. Buying a house just make it worse.

Conversely, if the person has the income to rent at that area, they have the financial resource to buy at the right time. And, if the income does not go up enough to rent in that area, it is time to move to some place else. Buying a house where you cannot afford to rent and stay is a bad idea.

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willthrill81
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Re: When to buy a house

Post by willthrill81 »

I would not recommend focusing much on the external factors, such as interest rates and recent price movements. Instead, I would recommend that you focus on your own situation (i.e., when it makes financial sense for you to own). If renting is likely to be a better long-term financial decision, which is often the case in HCOL and especially VHCOL areas, if you don't have the needed down payment saved, or if you plan on moving in under 5-10 years, then buying is not right for you. These are only some of the factors to consider.
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Drewski04
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Re: When to buy a house

Post by Drewski04 »

If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
KlangFool
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Re: When to buy a house

Post by KlangFool »

Drewski04 wrote: Thu May 13, 2021 7:51 pm
If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
Drewski04,

Your assumption of all landlords make money is flawed.

Many landlords "buy and pray". They hope that the house will appreciate enough to cover up the money that they lose by renting out the house.

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Kookaburra
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Re: When to buy a house

Post by Kookaburra »

Drewski04 wrote: Thu May 13, 2021 7:51 pm If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
This is grossly-oversimplified, horrible advice.
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Re: When to buy a house

Post by 59Gibson »

KlangFool wrote: Thu May 13, 2021 8:08 pm
Drewski04 wrote: Thu May 13, 2021 7:51 pm
If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
Drewski04,

Your assumption of all landlords make money is flawed.

Many landlords "buy and pray". They hope that the house will appreciate enough to cover up the money that they lose by renting out the house.

KlangFool
+1. Many LLs are accidental landlord, amateurs, and or not selling for emotional/ sentimental reasons.. I've know a few of those. Certain areas are more conducive to generating + cash flow, where as vhcol is all based on appreciation, which in the recent past has worked.
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Re: When to buy a house

Post by Drewski04 »

KlangFool wrote: Thu May 13, 2021 8:08 pm
Drewski04 wrote: Thu May 13, 2021 7:51 pm
If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
Drewski04,

Your assumption of all landlords make money is flawed.

Many landlords "buy and pray". They hope that the house will appreciate enough to cover up the money that they lose by renting out the house.

KlangFool
Many people invest poorly in the stock market and lose money...but the market is the best way to plan for retirement.

Owning real estate is better than renting which hundreds of years of landlords helps substantiate.

The fact that some landlords lose money doesn’t change this fact.
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Re: When to buy a house

Post by Drewski04 »

Kookaburra wrote: Thu May 13, 2021 8:30 pm
Drewski04 wrote: Thu May 13, 2021 7:51 pm If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
This is grossly-oversimplified, horrible advice.
Simplified sure, but hard to argue that landlords have existed for hundreds of years for a reason...and it is a rather simple one.
Kookaburra
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Re: When to buy a house

Post by Kookaburra »

Drewski04 wrote: Thu May 13, 2021 8:50 pm
Kookaburra wrote: Thu May 13, 2021 8:30 pm
Drewski04 wrote: Thu May 13, 2021 7:51 pm If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
This is grossly-oversimplified, horrible advice.
Simplified sure, but hard to argue that landlords have existed for hundreds of years for a reason...and it is a rather simple one.
That’s a non sequitur. Guess who else has existed for hundreds of years? Renters who consciously chose to rent even though they could afford to buy. And for what reason? Because it was in their best financial and lifestyle interest to do so.
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Garco
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Re: When to buy a house

Post by Garco »

Response to elle: In response to my previous comment you wrote:

"Wow, the house was only 2.5 x your salary? Would you consider yourself at that time a high or low income earner? And are you in a HCOL area? MCOL? LCOL? I feel like I read about how housing is unaffordable for the current generation vs past generations and this highlights it to me. Our first modest house was 4x two good salaries and my commute was 1.5 hours each way because we were so far in the burbs."

The house price was indeed just 2.5 times my starting salary at my then new job. I considered myself a low-medium earner at an early stage in my career and whose salary would grow steadily. I could live decently in a moderate cost-of- living town. It was a college town and there was plenty of affordable housing, including a lot that was near the campus and therefore attractive to university personnel. My house was a modest "older" home -- 2-stories, about 1900 sq. ft.; built in the 1930's. I spread out the costs with a 30 year mortgage! The selling price today would be in the low 200's.
Drewski04
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Re: When to buy a house

Post by Drewski04 »

Kookaburra wrote: Thu May 13, 2021 10:06 pm
Drewski04 wrote: Thu May 13, 2021 8:50 pm
Kookaburra wrote: Thu May 13, 2021 8:30 pm
Drewski04 wrote: Thu May 13, 2021 7:51 pm If renting was better than ownership...then Landlords wouldn’t exist.

I really don’t think it’s more complicated than that, if you can afford it own, if you can’t then rent.
This is grossly-oversimplified, horrible advice.
Simplified sure, but hard to argue that landlords have existed for hundreds of years for a reason...and it is a rather simple one.
That’s a non sequitur. Guess who else has existed for hundreds of years? Renters who consciously chose to rent even though they could afford to buy. And for what reason? Because it was in their best financial and lifestyle interest to do so.
I’m sure most people rent because they want too...

I don’t disagree that there are circumstances that make renting better for some people.

Overall though, home ownership is more advantageous than renting, and for many reasons.
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Metsfan91
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Re: When to buy a house

Post by Metsfan91 »

TwoIdenticalIndexes wrote: Wed May 12, 2021 1:34 pm ...Are there any thoughts or guides on when to buy, if you have flexibility?
The best time to buy is when there are more sellers than buyers. Buy in a buyer's market. You get the flexibility to buy at a discount. If I am in the market to buy a house, if I have the flexibility, this is what I'll do.
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calwatch
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Re: When to buy a house

Post by calwatch »

I caught that falling knife in 2010, but it has recovered and then some. I do tend to agree with firebirdparts, I was living with my folks and did not want to pay rent, but was concerned about the late 2000's bubble. Then at some point I just needed to get out and bought then. I probably wish I would have bought more house in hindsight living in California, but then again ask me in 2012 when the value dropped 25% and I might answer something completely different.
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Re: When to buy a house

Post by secondopinion »

KlangFool wrote: Thu May 13, 2021 6:52 pm
secondopinion wrote: Thu May 13, 2021 5:15 pm
Right that it is localized; what may have worked in one area fails in another. I am just saying that one could get forced out of an area if they are renting. The more important it is to stay in an area, the more willing you have to be to buy a house. It depends on which risk one wants to take.
secondopinion,

<< I am just saying that one could get forced out of an area if they are renting. >>

And, why is that a bad thing?

<<The more important it is to stay in an area, the more willing you have to be to buy a house. It depends on which risk one wants to take.>>

If the person does not have the income to rent and stay in that area, there is no financial future for that person in that area. Buying a house just make it worse.

Conversely, if the person has the income to rent at that area, they have the financial resource to buy at the right time. And, if the income does not go up enough to rent in that area, it is time to move to some place else. Buying a house where you cannot afford to rent and stay is a bad idea.

KlangFool
I am to disagree on this; housing and rent are often a big expense. If you are tied to a job but nowhere nearby is cheap, you will have to lose that job and gain another (which is has its own risks). If one can fix their housing expense, they cannot be forced out of the area or that job. Granted, I am keeping my eyes peeled to pick up investment property in my area; but I can not afford to buy anything much (and it is getting much worse every year). But I can stay put regardless, since my housing is fixed (while everything else in the area has gone crazy) and all other expenses are stable in comparison to other living areas.

I have a future in the area because I fixed the costs.
barnaclebob
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Re: When to buy a house

Post by barnaclebob »

RickBoglehead wrote: Wed May 12, 2021 6:01 pm No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
Its a fact that to buy a house in many markets you can't have an inspection contingency. That's not emotion, its a market condition and it doesn't mean the market is inefficient.

Also people put too much weight on inspection contingencies. Very few houses are going to have unknown $50k problems which an inspection can detect. If you are in a hot market, you don't need someone to tell you that a few windows are stuck, the driveway has cracks, and the roof only has 10 years left.
secondopinion
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Re: When to buy a house

Post by secondopinion »

barnaclebob wrote: Fri May 14, 2021 12:12 pm
RickBoglehead wrote: Wed May 12, 2021 6:01 pm No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
Its a fact that to buy a house in many markets you can't have an inspection contingency. That's not emotion, its a market condition and it doesn't mean the market is inefficient.

Also people put too much weight on inspection contingencies. Very few houses are going to have unknown $50k problems which an inspection can detect. If you are in a hot market, you don't need someone to tell you that a few windows are stuck, the driveway has cracks, and the roof only has 10 years left.
Right. A thorough search by the buyer will uncover such problems; other senses can help here as well.
KlangFool
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Re: When to buy a house

Post by KlangFool »

barnaclebob wrote: Fri May 14, 2021 12:12 pm
RickBoglehead wrote: Wed May 12, 2021 6:01 pm No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
Its a fact that to buy a house in many markets you can't have an inspection contingency. That's not emotion, its a market condition and it doesn't mean the market is inefficient.

Also people put too much weight on inspection contingencies. Very few houses are going to have unknown $50k problems which an inspection can detect. If you are in a hot market, you don't need someone to tell you that a few windows are stuck, the driveway has cracks, and the roof only has 10 years left.
barnaclebob,

Counting on being lucky is a lousy strategy.

https://www.washingtonpost.com/local/th ... story.html

<<This Md. family says their ‘dream home’ is infested with snakes>>

KlangFool
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barnaclebob
Posts: 4471
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Re: When to buy a house

Post by barnaclebob »

KlangFool wrote: Fri May 14, 2021 12:23 pm
barnaclebob wrote: Fri May 14, 2021 12:12 pm
RickBoglehead wrote: Wed May 12, 2021 6:01 pm No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
Its a fact that to buy a house in many markets you can't have an inspection contingency. That's not emotion, its a market condition and it doesn't mean the market is inefficient.

Also people put too much weight on inspection contingencies. Very few houses are going to have unknown $50k problems which an inspection can detect. If you are in a hot market, you don't need someone to tell you that a few windows are stuck, the driveway has cracks, and the roof only has 10 years left.
barnaclebob,

Counting on being lucky is a lousy strategy.

https://www.washingtonpost.com/local/th ... story.html

<<This Md. family says their ‘dream home’ is infested with snakes>>

KlangFool
From the article:

"During all inspections of the house, no one, including the Brookses, observed snake activity."
sureshoe
Posts: 295
Joined: Tue Jan 15, 2019 4:26 pm

Re: When to buy a house

Post by sureshoe »

barnaclebob wrote: Fri May 14, 2021 12:29 pm
KlangFool wrote: Fri May 14, 2021 12:23 pm
barnaclebob wrote: Fri May 14, 2021 12:12 pm
RickBoglehead wrote: Wed May 12, 2021 6:01 pm No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
Its a fact that to buy a house in many markets you can't have an inspection contingency. That's not emotion, its a market condition and it doesn't mean the market is inefficient.

Also people put too much weight on inspection contingencies. Very few houses are going to have unknown $50k problems which an inspection can detect. If you are in a hot market, you don't need someone to tell you that a few windows are stuck, the driveway has cracks, and the roof only has 10 years left.
barnaclebob,

Counting on being lucky is a lousy strategy.

https://www.washingtonpost.com/local/th ... story.html

<<This Md. family says their ‘dream home’ is infested with snakes>>

KlangFool
From the article:

"During all inspections of the house, no one, including the Brookses, observed snake activity."
That's the key, isn't it? I think your point is this > an inspection is mostly a tool for negotiating. I have always bought with an inspector and tried to use that knock money off the price. Sometimes it worked sometimes it didn't. But, if a seller doesn't have to negotiate with you, why would they?

House 1: Owned by a relo company. Inspection found a bunch of ticky tack crap. They gave me $2k to shut up. Deal done.
House 2: We paid list because we loved it. Found a bunch of ticky tack crap. Seller told me to suck eggs. I still bought it because I wanted it. House leaked water. I fixed it.
House 3: Owned by a divorcing couple who rejected our offer for another, then that alternative offer fell through on inspection. We used our inspection to knock off $3k more for ticky tack crap.

So yeah. Maybe other people's mileage will vary, and I do value having someone go up in the roof, etc. But if you love a place, you're going to buy it. There aren't a lot of massive things an inspector is going to find that you're not going to observe that isn't simply viewable from the street. I think people forget how BS the home buying process is.
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RickBoglehead
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Re: When to buy a house

Post by RickBoglehead »

barnaclebob wrote: Fri May 14, 2021 12:12 pm
RickBoglehead wrote: Wed May 12, 2021 6:01 pm No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
Its a fact that to buy a house in many markets you can't have an inspection contingency. That's not emotion, its a market condition and it doesn't mean the market is inefficient.

Also people put too much weight on inspection contingencies. Very few houses are going to have unknown $50k problems which an inspection can detect. If you are in a hot market, you don't need someone to tell you that a few windows are stuck, the driveway has cracks, and the roof only has 10 years left.
Because in a hot market, it's ok if you need to replace a $20,000 roof that you thought was fine? :oops:

I reject the premise that it's not emotion - when people throw logic aside in a panic, that's emotion. People participating in this market are clearly driven by emotion, hence it's not an efficient market.

We're looking for our retirement home this summer. Today a listing came up that was for sale in 2018, and now again in 2021. Price increase is 101.2% in that period, putting home in the very high 6 digits. While the listing says "custom renovations, I couldn't find $100k worth of them if I tried hard and rounded up. It's greed - simple and pure - and the fact that someone is willing to pay that price (we'll see) is simply EMOTION. "I don't want to be left out" "I don't want to miss the market".

Most, i.e. the vast majority of people, wouldn't be able to identify a major defect if it stared them in the face. "Hey Ethel, does that look like a roof to you?"

I'll stand by my assertion that anyone that doesn't have inspection contingencies (notice the plural) is simply being foolish.

We sold a property last Fall, thorough inspection, found all the issues we listed on the Seller's Disclosure. Gave Buyer a written list of things to do to "winterize" the property because it would be vacant. Come March the Buyer emails me, "hey, was I supposed to do ____ before winter? Cause I didn't, and ____ froze, and now I have to fix it. Not your fault, just asking." I referred him to the emailed list, plus the section by section of files that I provided for him to download. His response, "yeah, I know you told me to download that stuff by end of year (30 days after closing), but I didn't. Can you provide it again?"

The other reason a Seller should welcome an inspection is that your smart lawyer puts a clause in the agreement that states that any inspection report, oral or written, is deemed an amendment to the Seller's Disclosure.
Last edited by RickBoglehead on Fri May 14, 2021 12:53 pm, edited 1 time in total.
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struva
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Re: When to buy a house

Post by struva »

Housing in most markets and most times is not very liquid. There are unavoidable costs to third parties to both buy and sell (many states are jacking up recordation taxes as well), and higher carrying costs. Also, if you take the standard deduction now then the tax advantage of a home mortgage is largely gone.

So the flexibility you need is less financial and more your ability to stay put for 5+ years. If you will lose significant opportunity costs (new job, wishing you were in a nicer neighborhood, wishing you had a lower monthly payment) by staying put for at least the next 5 years, then you should lean towards rent. Conversely, if you absolutely do not want to be forced to move for the next 5 years (say you really want or need to be in a particular neighborhood) then you should definitely lean towards buy. This sort of life situation risk I think is far more important in the rent/buy decision than a few percentage points of market return on real property vs. rental rate risk. Consider whether it would be worse for you to be forced to move or worse for you to be forced to remain and you will know whether you are a renter or a buyer.
expat
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Re: When to buy a house

Post by expat »

When your wife tells you to.
Monsterflockster
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Re: When to buy a house

Post by Monsterflockster »

scout1 wrote: Wed May 12, 2021 5:42 pm The housing market is efficient. You should buy a house when there's one you want at a price you're willing to pay.
This
59Gibson
Posts: 384
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Re: When to buy a house

Post by 59Gibson »

sureshoe wrote: Fri May 14, 2021 12:38 pm
barnaclebob wrote: Fri May 14, 2021 12:29 pm
KlangFool wrote: Fri May 14, 2021 12:23 pm
barnaclebob wrote: Fri May 14, 2021 12:12 pm
RickBoglehead wrote: Wed May 12, 2021 6:01 pm No, it's not. Right now the prices have climbed too fast, and people are making stupid emotional decisions like buying with a home inspection. Just because someone pays too much for a house doesn't make it a good transaction. Efficient? Market theory? No. Emotion.
Its a fact that to buy a house in many markets you can't have an inspection contingency. That's not emotion, its a market condition and it doesn't mean the market is inefficient.

Also people put too much weight on inspection contingencies. Very few houses are going to have unknown $50k problems which an inspection can detect. If you are in a hot market, you don't need someone to tell you that a few windows are stuck, the driveway has cracks, and the roof only has 10 years left.
barnaclebob,

Counting on being lucky is a lousy strategy.

https://www.washingtonpost.com/local/th ... story.html

<<This Md. family says their ‘dream home’ is infested with snakes>>

KlangFool
From the article:

"During all inspections of the house, no one, including the Brookses, observed snake activity."
That's the key, isn't it? I think your point is this > an inspection is mostly a tool for negotiating. I have always bought with an inspector and tried to use that knock money off the price. Sometimes it worked sometimes it didn't. But, if a seller doesn't have to negotiate with you, why would they?

House 1: Owned by a relo company. Inspection found a bunch of ticky tack crap. They gave me $2k to shut up. Deal done.
House 2: We paid list because we loved it. Found a bunch of ticky tack crap. Seller told me to suck eggs. I still bought it because I wanted it. House leaked water. I fixed it.
House 3: Owned by a divorcing couple who rejected our offer for another, then that alternative offer fell through on inspection. We used our inspection to knock off $3k more for ticky tack crap.

So yeah. Maybe other people's mileage will vary, and I do value having someone go up in the roof, etc. But if you love a place, you're going to buy it. There aren't a lot of massive things an inspector is going to find that you're not going to observe that isn't simply viewable from the street. I think people forget how BS the home buying process is.
I agree it can be a nice negotiating tactic in a normal market...but in this mkt you can do an inspection contingency but it'll most likely be an as-is with right to terminate. Meaning you will not be going back w/ ticky tack $500 here, 200 here, 400 here. It's basically if something huge is discovered that wasn't accounted for the buyer can bail and get Earnest $ back, otherwise you buy as-is. Which really isn't that bad of a risk.
sureshoe
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Re: When to buy a house

Post by sureshoe »

59Gibson wrote: Fri May 14, 2021 2:01 pm I agree it can be a nice negotiating tactic in a normal market...but in this mkt you can do an inspection contingency but it'll most likely be an as-is with right to terminate. Meaning you will not be going back w/ ticky tack $500 here, 200 here, 400 here. It's basically if something huge is discovered that wasn't accounted for the buyer can bail and get Earnest $ back, otherwise you buy as-is. Which really isn't that bad of a risk.
And that's the trick most people buying homes for don't get. In most cases, you can USUALLY get your earnest money back... but it also depends on the nature of the bid.

If it's a $500k house, which is almost quaintly affordable anywhere in this country. If the house has been on the market for a couple weeks and you're the only offer - sure, you can put down $2500 earnest money alongside inspection and financing contingencies. For a decent price, the seller probably takes it.

But if that same house just went on the market and there are multiple offers, I might take a slightly lower price with no contingencies. And that's exactly what happened on the house we were buying. The family took someone else's offer - it was probably $10k or so more (so I don't blame them), but they were a shakier buyer. The deal fell through and they came crawling back to us.
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bligh
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Re: When to buy a house

Post by bligh »

TwoIdenticalIndexes wrote: Wed May 12, 2021 1:34 pm We are all familiar with the rent vs. buy debate which frequently arises here. Are there any thoughts or guides on when to buy, if you have flexibility?

1. Obviously, if you can buy in the midst of a financial and housing crisis, it great to do so
2. Right now, with interest rates negative in real terms and rate hikes likely coming in 2022, seems like a great deal, but housing prices are skyrocketing

Should I take the EMH approach and assume that the interest rate - price combination will always be covered by the market? My intuition says that there should be a correct answer, since housing as a consumer good + unique tax incentives for individuals to buy could affect the markets ability to price.
There is nothing efficient about the housing market. It is stacked from start to finish to make sure house prices can go up, or at worst stay stable at their current nominal prices. They simply cannot be allowed to go down. The financial system is built on the assumption that house prices cannot go down. The last time this assumption was broken, we ended up with the GFC.

Ask yourself this. What do you think will happen if the house prices start to come down a year or two from now if interest rates rise? Do you think the government will stay on the sidelines and watch?

I'm not saying that there will never be another GFC style event. I'm just saying that if there is another opportunity to buy it wont be all that great either, and it will be swiftly rectified.
scout1
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Re: When to buy a house

Post by scout1 »

bligh wrote: Fri May 14, 2021 3:03 pm
TwoIdenticalIndexes wrote: Wed May 12, 2021 1:34 pm We are all familiar with the rent vs. buy debate which frequently arises here. Are there any thoughts or guides on when to buy, if you have flexibility?

1. Obviously, if you can buy in the midst of a financial and housing crisis, it great to do so
2. Right now, with interest rates negative in real terms and rate hikes likely coming in 2022, seems like a great deal, but housing prices are skyrocketing

Should I take the EMH approach and assume that the interest rate - price combination will always be covered by the market? My intuition says that there should be a correct answer, since housing as a consumer good + unique tax incentives for individuals to buy could affect the markets ability to price.
There is nothing efficient about the housing market. It is stacked from start to finish to make sure house prices can go up, or at worst stay stable at their current nominal prices. They simply cannot be allowed to go down. The financial system is built on the assumption that house prices cannot go down. The last time this assumption was broken, we ended up with the GFC.

Ask yourself this. What do you think will happen if the house prices start to come down a year or two from now if interest rates rise? Do you think the government will stay on the sidelines and watch?

I'm not saying that there will never be another GFC style event. I'm just saying that if there is another opportunity to buy it wont be all that great either, and it will be swiftly rectified.

Prices being high because everyone knows the government will step in to prevent prices from collapsing supports the claim that markets are efficient. It would be inefficient if prices were low while everyone knew the government would step in to stop a large price decline.
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bligh
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Re: When to buy a house

Post by bligh »

scout1 wrote: Fri May 14, 2021 3:07 pm
bligh wrote: Fri May 14, 2021 3:03 pm
TwoIdenticalIndexes wrote: Wed May 12, 2021 1:34 pm We are all familiar with the rent vs. buy debate which frequently arises here. Are there any thoughts or guides on when to buy, if you have flexibility?

1. Obviously, if you can buy in the midst of a financial and housing crisis, it great to do so
2. Right now, with interest rates negative in real terms and rate hikes likely coming in 2022, seems like a great deal, but housing prices are skyrocketing

Should I take the EMH approach and assume that the interest rate - price combination will always be covered by the market? My intuition says that there should be a correct answer, since housing as a consumer good + unique tax incentives for individuals to buy could affect the markets ability to price.
There is nothing efficient about the housing market. It is stacked from start to finish to make sure house prices can go up, or at worst stay stable at their current nominal prices. They simply cannot be allowed to go down. The financial system is built on the assumption that house prices cannot go down. The last time this assumption was broken, we ended up with the GFC.

Ask yourself this. What do you think will happen if the house prices start to come down a year or two from now if interest rates rise? Do you think the government will stay on the sidelines and watch?

I'm not saying that there will never be another GFC style event. I'm just saying that if there is another opportunity to buy it wont be all that great either, and it will be swiftly rectified.

Prices being high because everyone knows the government will step in to prevent prices from collapsing supports the claim that markets are efficient. It would be inefficient if prices were low while everyone knew the government would step in to stop a large price decline.
Fair point.

True the rising house prices reflect the assumption that the prices will continue to rise into the future. I guess I was thinking of a different word. Perhaps the word was free market? As in a market free from government intervention and price control?
Lee_WSP
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Re: When to buy a house

Post by Lee_WSP »

If you treat the house and alternative rent as consumed items as opposed to investments, I think the choice becomes easier. However, pretty much everyone wants their own little plot of land.
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