Should I Wait to Buy a Home?

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virginiabirdie
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Should I Wait to Buy a Home?

Post by virginiabirdie » Tue Oct 24, 2017 7:41 pm

They're talking about getting rid of the state income and property tax deductions. Maybe the mortgage interest deduction, too. Would this make you hesitate to by a home now?

The higher-end market in our area has stalled. I'm wondering if people are waiting to see what happens with tax reform. Should we wait too?

We're in a high-tax state. Our income is in the highest federal tax bracket. Neither groups inspire much sympathy, and it sounds like they're a target for reform.

Anyway, if the said reforms come to pass, it would cost us quite a lot. Did a quick excel spreadsheet and it looks like the the value of our desired house could go down by 200k, assuming markets are rational. They're not, but the point is that the potential tax law changes are quite meaningful for us.

FWIW, I'm all for tax reform. It just stinks that home prices have the current tax breaks baked into the price. So if we buy now and tax reform happens, we're screwed.
Last edited by virginiabirdie on Tue Oct 24, 2017 8:24 pm, edited 1 time in total.

Archimedes
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Re: Anyone Holding Off on Buying a Home?

Post by Archimedes » Tue Oct 24, 2017 8:08 pm

There has been talk of removing deductions for local and property taxes in the past. And there is a large real estate lobby working against this. It hasn't come to pass before, and while you should never say never, it seems highly unlikely that it will pass this time either. Don't hold your breath waiting.

chevca
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Re: Anyone Holding Off on Buying a Home?

Post by chevca » Tue Oct 24, 2017 8:13 pm

Nope, we just closed on a new house Oct. 4th and we love it!! :D

Personally, I would like to see the mortgage interest deduction go away anyways. It does little to nothing for the majority of folks out there.

runner3081
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Re: Should I Wait to Buy a Home?

Post by runner3081 » Tue Oct 24, 2017 8:32 pm

I would never make a decision like that on a "possible" change.

Take the best information you have now and if you find a house, buy it.

LBYM with a house and the low interest rates makes the deduction a pittance anyways. (obviously, this won't work in a HCOL area).

inbox788
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Re: Anyone Holding Off on Buying a Home?

Post by inbox788 » Tue Oct 24, 2017 8:33 pm

chevca wrote:
Tue Oct 24, 2017 8:13 pm
Personally, I would like to see the mortgage interest deduction go away anyways. It does little to nothing for the majority of folks out there.
When housing prices go down, people often just hold on for a recovery, so sales volume tanks.

http://journal.firsttuesday.us/sales-vo ... ces/34319/

Eliminating the mortgage interest deduction and property tax deductions will be a one two punch on housing markets that will likely knock them off balance for a very long time. Some markets are very tight already, and pulling the rug from under sellers is going to drive a big wedge and open up spreads. People won't want to sell at a loss and buyers still can't afford the higher prices.

An actionable strategy would be to buy when homes and selection are more plentiful, not in dysfunctional/chaotic markets.

BTW, higher interest rates on the horizon is yet another downward force on housing prices. The only silver lining is the continuing meltup of the market and prospects of wage inflation. And if the market corrects, it's likely to take both of those down too.

If you're going to market time the purchase, holding off may the lesser risk (crash/correction vs. runaway rising prices).

bigred77
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Re: Should I Wait to Buy a Home?

Post by bigred77 » Tue Oct 24, 2017 8:44 pm

virginiabirdie wrote:
Tue Oct 24, 2017 7:41 pm
They're talking about getting rid of the state income and property tax deductions. Maybe the mortgage interest deduction, too. Would this make you hesitate to by a home now?

The higher-end market in our area has stalled. I'm wondering if people are waiting to see what happens with tax reform. Should we wait too?

We're in a high-tax state. Our income is in the highest federal tax bracket. Neither groups inspire much sympathy, and it sounds like they're a target for reform.

Anyway, if the said reforms come to pass, it would cost us quite a lot. Did a quick excel spreadsheet and it looks like the the value of our desired house could go down by 200k, assuming markets are rational. They're not, but the point is that the potential tax law changes are quite meaningful for us.

FWIW, I'm all for tax reform. It just stinks that home prices have the current tax breaks baked into the price. So if we buy now and tax reform happens, we're screwed.
I don’t know how you came up with that 200k figure but I wouldn’t have much confidence in any kind of calculation like that.

I suspect that a lot of the high end market is less mortgaged than the entry level or middle market. Quite frankly I expect a lot of grumbling from a lot of parties with a vested interest in the mortgage interest tax deduction but ultimately a very muted market response even if it did come to pass.

inbox788
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Re: Should I Wait to Buy a Home?

Post by inbox788 » Wed Oct 25, 2017 2:57 am

bigred77 wrote:
Tue Oct 24, 2017 8:44 pm
I suspect that a lot of the high end market is less mortgaged than the entry level or middle market. Quite frankly I expect a lot of grumbling from a lot of parties with a vested interest in the mortgage interest tax deduction but ultimately a very muted market response even if it did come to pass.
There are two groups that will be severely impacted by increased costs. Those that are marginally qualified for a loan, and the added costs puts the deal past the breaking point. I'd guess this is about 5-20% of buyers and most will not be able to buy. The other group is the one where increased costs reduce the comfort level. While they could still qualify for a loan, they'd be more hesitant to buy without sufficient reserves and extra cash after the deal is completed. This could be half the buyers and I'm guessing maybe a quarter of those might opt against buying. Depending on the degree of increase in costs, I can envision quite a significant reduction in buyers.

bigred77
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Re: Should I Wait to Buy a Home?

Post by bigred77 » Wed Oct 25, 2017 6:51 am

inbox788 wrote:
Wed Oct 25, 2017 2:57 am
bigred77 wrote:
Tue Oct 24, 2017 8:44 pm
I suspect that a lot of the high end market is less mortgaged than the entry level or middle market. Quite frankly I expect a lot of grumbling from a lot of parties with a vested interest in the mortgage interest tax deduction but ultimately a very muted market response even if it did come to pass.
There are two groups that will be severely impacted by increased costs. Those that are marginally qualified for a loan, and the added costs puts the deal past the breaking point. I'd guess this is about 5-20% of buyers and most will not be able to buy. The other group is the one where increased costs reduce the comfort level. While they could still qualify for a loan, they'd be more hesitant to buy without sufficient reserves and extra cash after the deal is completed. This could be half the buyers and I'm guessing maybe a quarter of those might opt against buying. Depending on the degree of increase in costs, I can envision quite a significant reduction in buyers.
I really think your giving homebuyers and potential homebuyers as a group WAY too much credit. Bogleheads type homebuyers make up a small, single digit percentage of that group. The mortgage interest deduction isn’t taken into account during mortgage qualification and most buyers don’t REALLY take it into account when buying. Banks use gross annual income divided by 12. Most buyers use their current monthly take home or compare the PITI to their current housing expense. Most people, at best, say to themselves “ohh yeah, and I get a nice tax deduction from buying a home”. It’s actually a far bigger misconception for most buyers that the deduction helps them at all. Many aren’t going to itemize anyway so it’s of no use to them. Many that will start itemizing will only benefit by a marginal amount.

If you are adjusting your withholding based on the mortgage interest deduction and using your new theoretical take home pay to justify affordability you would be affected, yes. That group is small. That group is probably better off buying less house anyway.

runner540
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Re: Should I Wait to Buy a Home?

Post by runner540 » Wed Oct 25, 2017 7:02 am

virginiabirdie wrote:
Tue Oct 24, 2017 7:41 pm
They're talking about getting rid of the state income and property tax deductions. Maybe the mortgage interest deduction, too. Would this make you hesitate to by a home now?

The higher-end market in our area has stalled. I'm wondering if people are waiting to see what happens with tax reform. Should we wait too?

We're in a high-tax state. Our income is in the highest federal tax bracket. Neither groups inspire much sympathy, and it sounds like they're a target for reform.

Anyway, if the said reforms come to pass, it would cost us quite a lot. Did a quick excel spreadsheet and it looks like the the value of our desired house could go down by 200k, assuming markets are rational. They're not, but the point is that the potential tax law changes are quite meaningful for us.

FWIW, I'm all for tax reform. It just stinks that home prices have the current tax breaks baked into the price. So if we buy now and tax reform happens, we're screwed.
Pending legislation, including taxes, is off limits, so I'm going to stick to when to buy a home regardless of policy changes. I'm not clear if you are casually shopping for a home, or if you already found one and are about close. Are you in the Greater NYC metro area? Some news reports have described that high end market slowing down.

If you're letting the tax issue drive the bus on when to buy a house, don't buy - you should be buying for more fundamental reasons than speculation about the value. If you have an income that high, and tax changes would change whether you can afford a home, in my opinion you are buying too much home and cutting it too close. Leave some cushion - things always change.

I view a house as a consumption item that *may* hold its value after carrying costs are included. While certain housing markets at certain times have outperformed inflation, academic research says if you disciplined enough to invest the money you're not spending on a home, you can come out even or ahead in terms of net worth (https://business.fau.edu/departments/fi ... ent-index/).

virginiabirdie
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Re: Should I Wait to Buy a Home?

Post by virginiabirdie » Wed Oct 25, 2017 9:48 am

PP, you're right. We're near NYC. We are seriously considering a townhome. We would put half down. Then, the PITI fits in fine w/our budget (can still save for retirement, college). Not worried about cash flow, so much as it being a bad "investment." I used to view housing mostly as a consumption, but being in a HCOL area, that's changed.

When I lived down south, I had a house that was a good commute and took up less than 15% of my gross monthly earnings. That's just not possible here. 15% of our earnings means we're either crammed into an apartment or have a suburban house w/a 3 hour RT commute.

We've been LBYM for a while, but it seems like now is the time to "catch up" our spending. Middle age is here, and the kids are only around for so long. The reason I'm torn is that if things go sideways, a job loss or illness for example, and we need to sell the home, will there be buyers? I worry that we'll be seeing a very different market w/taxes and an unstable world in general. As I type this, I am beginning to feel like my worries are way blow out of proportion. But there's always this niggling thought--"maybe it's different this time."

Olemiss540
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Re: Should I Wait to Buy a Home?

Post by Olemiss540 » Wed Oct 25, 2017 5:00 pm

Regardless of potential law changes which are forbidden fruit around here, being in one of the high property tax states (IL) has DEFINATELY weighed on my desire to upgrade our living situation. Paying $1k/mo on taxes when the mortgage is only $1.3k seems like a steep penalty to pay for a lifestyle upgrade, even if we can afford it.

The tax deduction does take a bit of sting out of the thought (and obviously improves cash flow a bit). Eigther way, it makes my mortgage of .7 x gross income hard to leave.

feehater
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Re: Should I Wait to Buy a Home?

Post by feehater » Wed Oct 25, 2017 7:14 pm

I'm in a similar boat to the OP...right time of life/family/career to buy, have the down payment and everything, in a HCOL. I'm not too worried about these changes I don't think will happen. What worries me is when I go on redfin and look at the price history of houses currently on the market and see that they sold for the same price to some poor soul in 2007-2008. I *know* that should have nothing to do with whether now is a good time to buy. But man, if you plug in 0% growth into the NYT calculator, buying looks pretty bleak. (Conversely, plugging in the actual 1.5% I'm currently earning at Ally on my down payment makes buying look amazing!)

itstoomuch
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Re: Should I Wait to Buy a Home?

Post by itstoomuch » Wed Oct 25, 2017 7:30 pm

Depends.
In Seattle area, homes increased 18-20% 2017. Projected increase was for 10-12%. Projection for 2018 is 6%.
YMMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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RetiredMule
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Re: Should I Wait to Buy a Home?

Post by RetiredMule » Fri Oct 27, 2017 10:30 pm

virginiabirdie wrote:
Wed Oct 25, 2017 9:48 am
PP, you're right. We're near NYC. We are seriously considering a townhome. We would put half down. Then, the PITI fits in fine w/our budget (can still save for retirement, college). Not worried about cash flow, so much as it being a bad "investment." I used to view housing mostly as a consumption, but being in a HCOL area, that's changed.

When I lived down south, I had a house that was a good commute and took up less than 15% of my gross monthly earnings. That's just not possible here. 15% of our earnings means we're either crammed into an apartment or have a suburban house w/a 3 hour RT commute.

We've been LBYM for a while, but it seems like now is the time to "catch up" our spending. Middle age is here, and the kids are only around for so long. The reason I'm torn is that if things go sideways, a job loss or illness for example, and we need to sell the home, will there be buyers? I worry that we'll be seeing a very different market w/taxes and an unstable world in general. As I type this, I am beginning to feel like my worries are way blow out of proportion. But there's always this niggling thought--"maybe it's different this time."
I live in a HCOL, rented for about a year before plunging into a buying decision. When it comes to a buy vs. rent decision, I look at reasons beyond the basic financial angle of whether it's a poor investment (down payment locked up, prop taxes/insurance etc. as additional expenses...) vs. renting. As long as you think you've a longer time horizon, say, greater than 5-8 years, to live/work in the region, I'd say, go buy a home you can afford. My viewpoints on buying a home, even if it's in a HCOL area, below:

1) "Emotionally" speaking: A home that you own is very different from a home you rent - I do not like the idea of having to move with one month's notice that a landlord might ask me to (even if I've been a great tenant ) and that was one of the primary reasons I bought a home.

2) A family - especially with a child or children - would probably enjoy an "own" home a lot more than a rented one.

3) No need to worry about selling the home if you had to move for whatever reasons - job related or otherwise- as long as you buy in a good neighborhood (w.r.t. schools, crime, etc.); such a neighborhood home will always be in demand.

RetiredMule

aaronl
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Re: Should I Wait to Buy a Home?

Post by aaronl » Sat Oct 28, 2017 1:50 am

virginiabirdie wrote:
Tue Oct 24, 2017 7:41 pm
They're talking about getting rid of the state income and property tax deductions. Maybe the mortgage interest deduction, too. Would this make you hesitate to by a home now?

The higher-end market in our area has stalled. I'm wondering if people are waiting to see what happens with tax reform. Should we wait too?

We're in a high-tax state. Our income is in the highest federal tax bracket. Neither groups inspire much sympathy, and it sounds like they're a target for reform.

Anyway, if the said reforms come to pass, it would cost us quite a lot. Did a quick excel spreadsheet and it looks like the the value of our desired house could go down by 200k, assuming markets are rational. They're not, but the point is that the potential tax law changes are quite meaningful for us.

FWIW, I'm all for tax reform. It just stinks that home prices have the current tax breaks baked into the price. So if we buy now and tax reform happens, we're screwed.
I am in a similar situation and am holding off on buying for exactly these reasons.

Mudpuppy
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Re: Should I Wait to Buy a Home?

Post by Mudpuppy » Sat Oct 28, 2017 2:02 am

virginiabirdie wrote:
Tue Oct 24, 2017 7:41 pm
The higher-end market in our area has stalled. I'm wondering if people are waiting to see what happens with tax reform. Should we wait too?
Some markets stalled well-before any proposed legislation. If you are in such a market, you may want to wait just due to the stall, not the proposed laws. Like chickens, you shouldn't count your laws before they hatch.

But if your local market is cooling, that's a whole different issue that's probably better discussed with appraisers or real estate professionals who aren't actively selling homes. For example, in my area there is a local appraiser who regularly issues a real estate market report that tracks all sorts of metrics. Someone who is actively selling homes may not be able to give an impartial view of the market (it's hard to admit when your livelihood is getting less profitable).

StealthRabbit
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Re: Should I Wait to Buy a Home?

Post by StealthRabbit » Sat Oct 28, 2017 3:33 pm

virginiabirdie wrote:
Tue Oct 24, 2017 7:41 pm
They're talking about getting rid of the state income and property tax deductions. Maybe the mortgage interest deduction, too. Would this make you hesitate to by a home now?

The higher-end market in our area has stalled. I'm wondering if people are waiting to see what happens with tax refîorm. Should we wait too?

We're in a high-tax state. Our income is in the highest federal tax bracket.

FWIW, I'm all for tax reform. It just stinks that home prices have the current tax breaks baked into the price. So if we buy now and tax reform happens, we're screwed.
1). Have you been talking to realtors? I doubt that the tax rates / perks are currently ‘baked in the price’, But future changes could cause a slight bleep.
2) you seem concerned about taxation . A LT primary residence will not do much good for your taxes. But there are a LOT of very desirable places to invest the equivalent capital in real estate that can result in immediate beneficial tax strategies. AND position you strongly in a high valuation market. (Find a benevolent and seasoned private mentor who knows and is successful in YOUR RE market.
3) the only GREAT tax advantage of primary residences is to use the $500k TAX FREE capital gains windfall every 24 months. :sharebeer
4) I am of the school that a primary residence is not a performing asset, and is likely an additional financial liability :shock: . So.... do what makes sense to your family and financial situation. (If I were in a too high valuation market that I didn’t need / desire to stay forever) I would invest my home capital elsewhere (someplace I may stay long term, and certainly a place I like to visit! (My travel between RE locations and 50% of my food is deductible against My aggregate income)

I use a very simple formula (thus too simple to be generally applied).

I will not buy unless I can check all these boxes: (because real estate is a non-liquid asset, and life throws curve balls)
1) I can rent the joint monthly for 1% of the total price. ($1m home has to rent for $10k/ month....if you are paying less rent... keep renting)
2) I can sell for 110% of purchase price TOMORROW (costs to resell are ~10%) IF you can resell...
3) I must buy a unique property (ez to sell, desirable, potential equity gain)
4) I must desire to keep the place FOREVER... real estate is like that. +/- but realize this!
5) buying this joint will NOT jeopardize the Quailty of life of my family (I have blown this rule too many times... I buy farms / rural props that take a ton of work) :oops:
6) I and my spouse need to feel Warm Fuzzies about this choice for long term.
7) I have talked extensively with regional development planning and tax assessors about this specific property. (And I am willing to accept THEIR plans, costs, controls of this property. (Which is really theirs, not yours))

Good luck, and crank up those spreadsheets! Mine have illustrated the Frogs I have thought were Princes. Numbers usually do not lie (if you have an objective set of eyes helping you).

Ps... Real Estate has been 50% + of my wealth building, but there are easier ways to make a buck.
Historically, I get 10-12% cap rates plus 13-17% equity gains (high growth market). Except for the HUGE expenses...My primary residence is excluded from my net worth and financial planning.
Of 34 props I have used a realtor 2 miserable times. They have their purpose, but are about 1000x more expensive than a good lawyer, and they can cost you a LOT of lost deals. Too many people at the negotiation table, other people telling you what YOU need / can spend...

When investing... (in anything) Do what is best for you, and within your expertise. It is no crime to rent, sometimes it is best.

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