I'm getting emails from prospective homedebtors asking my opinion on when's a good time to buy a home again.
I figured I'd turn it over to the HP'ers for your take.
My 2c: It's time to buy when the cost of owning is less than the cost of renting (it's the P/E stupid).
It's time to buy when home prices have returned to their historical mean.
And it's time to buy again when people are disgusted with housing as an investment.
In other words, not for quite some time.
Years. Years and years.
December 03, 2006
When is a good time to buy again?
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i would say: a) if you can actually "buy the place" in 20 to 30 years, otherwise you are "renting money" to live in a house versus "renting," b) if, on paper, it makes financial sense over renting.
One might invest in a house that can be rented out for more than your mortgage + insurance + property tax + condo fees (if applicable). Then consider the 20% downpayment and the amount of money you could get by buying a high yield CD online (FDIC insured) at about 5% + and subtract that from the expected rent as that is the cost of putting money down. Then calculate the hours required to manage the property, bookeeping, 6% real estate commission if you ever have to sell the place (unless you use a deep discount broker or get books or find websites about "For Sale By Owner"). Check your local rental vacancy rate and if it is high, consider you might need to rent it out at a lower than average rent and have lag times between tenants. In one apartment complex the average tenant stayed two years. After the tenant moves, you may need to get the place painted, new carpet, cleaning, and repairs. There was danger of a "holdover" tenant not paying and requiring eviction.
There were advantages to renting if the rents were lower than the price of owning a home. The tax breaks on the interest for owning a primary residence were substantial, but it was better to have positive cash flow than a bunch of losses to write off against income. Keep in mind that many of the nation's wealthiest people made their money owning company stock more than by owning real estate. Not all company stocks were worth buying (Enron). There was wood rot, termites, aging pipes that sprung leaks everywhere, sinking foundations, cracks in the ceilings and walls, flooded basements, special local tax assessments in addition to regular property taxes and all sorts of surprises in a real estate investment that can not be rented out for enough to pay the cost of owning it. While the price of a house went up, sometimes health care, tuition, food prices, and homeowners insurance(Florida) went up faster.
Because the Republicans borrowed hundreds of billions of dollars to squander on an unnecessary war, consider there might be a mess for years to come. Republican deficit spending, maxing out the public sector credit cards, and emptying out the social security reserves to try to get some sort of oil inheritance from the Muslims in Iraq was a miscalculation. The war costs were greatly underestimated as Bush was desperate to send people into the fight, losses were compounded as Bush stayed an errant course expecting different results. Remember that as the debt grew the interest on the debt grew also. As more money was spent on interest to pay government bond holders and taxes were cut, roads became rought and people had to spend more money on auto repairs to their suspensions. Every cause has and affect.
Keep renting, and -- this is key -- bank the difference. Now is not the time to re-enter the RE market. Hold on to your savings and wait. We're in only the 2nd inning of the downturn, folks. I'm saving more than a third of my income each month.
Think about it, we haven't even seen stories in the press about foolish, greedy Baby Boomers who have raided their IRAs and 401Ks for RE, and who are now living in their Hondas. IT'S COMING, lots of this. Be patient, and buy your dream home at 50% or more off today's inflated prices.
As an aside, I went to a party last night in a true million dollar home. It was architected, built into a hill with about 4 levels, in a posh Seattle neighborhood called Laurelhurst. Insane views of Lake Washington and the 520 bridge. A real gem.
I couldn't help thinking about all of the million-plus catboxes that idiots have been buying in California. This place was a gorgeous structure, what this kind of money should buy. Fantastic house, and gracious hosts.
oh dear god, she is at it again - that reagor twit over at the arizona republic, quoting the head of realty executives, too. good time to buy.
i nearly spit up my coffee.
http://tinyurl.com/ybdqar
After the massive ARM adjustment which will result in a flood of foreclosed homes swamping the markets.
Q1 of 08 should be an ugly picture for sellers and a pretty one for buyers.
Now is definitely not a good time to buy again. For so many reasons. These are just a few indicators:
- It will be the right time to buy when saying you're thinking of buying a house makes you the laughing stock of the cocktail party. Then you know sentiment is at it's worst and few further declines are likely.
- it will be the right time to buy when homes for sale inventories make a significant decline, like 50% of current levels.
- it will be the right time to buy when the foreclosure rate declines significantly, like 50% of current levels.
Be patient. Save. Aspire. Dream.
San Diego is far far away from a buying opportunity - my condo rents for $1500 a month, but the current purchase price is still around 400K. I figure if I bought and even put 100K down, and financed 300K (usually $600 per 100,000) my mortgage would be $1800, HOA $350, and property taxes $5000 year or $416 a month. . .total $2566 a month. . .that doesn't even account for the loss of say 5% interest on my $100K downpayment (of course nobody ever puts that much down anymore). . .so - when this condo gets down to $200K, it would be worth buying. A LONG LONG way to go.
not years, years and years. Renting is still a pure expense and buying does build equity (even in falling market). If you wait too long, renting is a sucker bet. Even in a down market, there is a breakeven point, in terms of years, where if you wait any longer you lose.
you don't build equity if the value of the home falls faster than you pay off the principal. that said, I think there is a possibility that a housing correction will come more quickly than we think, at least in certain markets. This will be a function of arm-resets, foreclsures, and new homebuilders dumping inventory at whatever price clears the market.
Buying builds equity in the principal portion of the amortization, through the interest tax deduction and price appreciation.
Using the condo example above, $300 per month will be recovered in principal on the mortgage payment, and $420 per month in the interest tax deduction assuming 28%. That's $720 per month. Add the property tax deduction, another $110 per month and its now $830.
So, really it would only cost you $1736 per month to own, not $2566. Sure, you won't get interest on your down payment, or the principal portion of the amortization, but the cost to own isn't as high as you think.
However, I would NEVER buy into a falling market. There are too many variable rate mortgage derivatives out there and they will have a seriously negative effect on housing prices.
Price declines are inevitable.
The primary indicator that I will be watching for is when my Realtwhore, Suzanne, stops offering me blow jobs and crack to view open houses. Once the blow jobs and crack stop flowing, that will be a good sign that things are getting back to normal. Until then, blow jobs and crack! And a side of schadenfreude! Woo-hoo!
Mark in San Diego and anon Sunday, December 03, 2006 5:41:13 PM:
You left out an important piece from your P/E analysis. I notice most people leave this out. That down payment of 100k could be making you about 5% per year with no risk, or probably at least 8% per year with some minimal risk, in the securities markets. That's 5-8k per year with zero to little risk. So you're also out $400-$700 per month in interest on the principal that is tied up in that money pit.
Based on the opportunity loss of investing the money elsewhere, the buy/rent decision can actually look a lot worse for someone making a big downpayment than for a moron making a zero downpayment.
Buy a home? No
Alternative Plan: Rent and buy the TV's, appliances, and furniture to fill a home as the stores selling them go out of business...
IMO, the high percentage of toxic mortgages will bring the US housing market to its knees faster than most are forecasting.
What area of the country are we talking about here? Here -> http://tinyurl.com/yc7wco Keith shows a graphic that shows large parts of the country fairly or even under valued.
I do agree that buying in an over valued area is not your best option. Renting for the short term is likely a better option.
The question of when a good time to buy again is a tough one because it really depends on where you live. I'm in California and I don't think it will be a good time to buy for at least another 3-4 years, depending on how fast prices fall. Could be even longer if prices trend sideways for awhile.
There are areas in the midwest or south where buying now is probably OK but those areas are few and even fewer have a decent job market or are somewhere you'd want to live. Some places in south such as Raliegh seem OK as prices have not gotten to out of hand and the job market is decent.
Cali is rediculous though. Median income in my area is $60k but houses are 600k to 700k having more than doubled and almost tripled in the last 4 years. It's gonna be a painful fall though
2-3 years from now.
Wait for the fed to start to cut rates and when the market is completely shaken out. High unemployment numbers might be the key because they are a lagging indicator -- unemployment is not high at the moment if you believe the statistics. Unemployment should lower inflation and trigger the cut. Hard to gauge with all the m3 shenanigans.
I remember the .bomb market meltdown -- it started happening right before the 2000 election. That was the reason I voted for Bush the first time around. Maybe a similiar thing is in store for 2007-2008.
congrats on the job promotion HHforH.
Well done.
Get this!
Just got back today Sun.3rd, from a quick trip to Palm Desert!
My father(an ex san diego realtor) and I stopped at an open house just to see what was available?
The old man didn't identify himself as a realtor.
Believe it or not the woman agent actually said, "California real estate never goes down! Better buy now!"
No Joke!
I agree. I remember when it buying was more affordable compared to renting.
I think I'll buy again the day that a mortgage is in line with the current rents.
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Three years if you're under 65 and not terminally ill. Two years otherwise.
PS. I was referring to AGE 65 (those with IQs under 65 already have 3 houses).
House prices should bottom out in a few years, and then stay flat for a few more years.
You can buy at the bottom, or you can wait even longer and not own a non-appreciating house.
The best buy should be just before real prices start to rise (IMO in about 6 years).
If you are not recieving about 8% ROI, then don't buy.
If you are, then do so.....but I still probably wouldn't.
Right now I would take out a loan on a house if :
- I was a public servant, or my income was 100% secure.
- I could pay off my house in 15 years easily.
Real estate is always a good investment.......probably the best, but not now. Too many speculators and amatuers spoiled the market, and we are all gonna get burnt.
Right now, the only good real estate in my opinion is farming land. People need to start becoming self sufficient. All these 'so called' professions like marketing, advertising, PR and other so called service professions will go the way of realtors. They better learn to plant a tomato or a potato.
$1500/month rental.
Maybe that's why they say real estate is local. $1500 a month rent here would get you a $200,000 4 bedroom, 2.5 bath 1-5 year old house in the best part of town. I just sold a 1 year old rental for $215k that was leased for $1600/mo.
If prices were $1500/mo. for a $400k home, I too would say that market will collapse. How many can afford a $400k home? Not near as many as can afford a $200k home. Wages in our area are lower than San Diego, but not 50% lower. More likely 15%-20% lower. Are taxes are a heck of a lot less too.
what area?
Hey real estate 101,
Try english 101....it's 'our' taxes
well lets talk outisde of ca and az, where all the crazy people live anyway
even if you think housng prices will only go up minimally over time, copnsider that nothing is free, you must PAY to rent just as to own
so if rents go up about 4% a year, you will be paying perhaps 60% more in rent to some landlord - while the guy who can afford a mortgage and buys a home could be paying the same monthly payment for his home while paying down the principal ultimately to have no mortgage payement at all- of course there are taxes but this is a wash, any landlord will pass on the tax cost to you as well of his property..
and if you own you can at least deduct your mortgage interest and real estate taxes, while if you rent sorry the LANDLORD can deduct it not you - and of course if the landlord decides to sell when lease is up you must move out clean the place and pay for movers etc, no stability
and of course theres the bonus that if your not buying some crazy overpriced ca house you may get equity too.. but even if prices of homes are the same nationally ihn 10 years (doubtful statistically unless peoples wages stop going up
you are gonna be way off better owning in the longterm..
renting might be cool when your young and single, but do you really aspire to be on a fixed income in retirement renting at the whim of a landlord with rents possibly 150% higher then now at 4% a year over 20 years, next to some college kids?? while the owner next door hast the same mortgage payment and or already owns it other then taxes (again you pay taxes either way , the landlord will pass off tax increase to the tenants)
on average (again not talking about the 1,ooo,ooo piece of junk 400 sq ft condo in scottsdale that rents at 1500 a month) it is most probable that you here that buy a fairly priced house will be MUCH better off in net worth, monthly cash flow, and stability 10 or 20 years down the road..
it may be that in some areas in az , ca , or nv etc, many houses are overvalued but is EVERY home that way, doubtful, and who says you have to live in phoenix and rent their for the rest of your life there are better options..
I get the feeling here, that for many here its NEVER gonna be the time to buy, and they will simply be in a worst position financially for it down the road, buying an overpriced house in ca etc for a short time frame is not the road to riches, but there are other places to buy, and renting certainly is not the road to riches RENT NEVER ENDS, youll be paying the landlord till you die, adn he can make you move out at his whim after a lease ends, not a smart strategy to manage cash flow over a lifetime, sorry...
My advice, never buy until it's so obvious (i.e. rent << mortgage) that it'll be a steal.
The truth is that jobs, the underpinning of a true housing market, are disappearing and being replaced by lower waged positions which'll exert a downward slope on the housing prices in addition to the whole mortgage thing (i.e. scam artist industry). I believe that once the nation, as a whole becomes poor, then houses will reflect their true price and most bubble sitters at that point will be able to either buy it out right or with 50% down which'll guarantee any loan even if it's a rough lending environment.
The math is even more clear when you actually have the full purchase price saved up. I am making money renting. And I pay no upkeep, taxes, insurance, etc. It's a strange time.
To Paul E. Math - Who is that picture on your profile? It cracks me up just to look at it. It's as if the guy is looking at someone who is telling a whopper and he is saying in reply "Bullshit".
"I am making money renting. And I pay
no upkeep, taxes, insurance, etc. It's a strange time."
Yep, and my landlord's maintenance guy also shovels snow because he can't afford for anyone to slip and fall (or even be stuck) on his watch. So, even in the worst snowstorms, I'm usually up and about in no time whereas the typical homedebtor is spending hours digging his way out w/o a powershovel.
It's a great time to rent and as I've said in other posts, keep your credit score up because it'll really help you during the bust when creditworthiness will affect your personal safety in finding residence in a safe area while everyone else is rioting in pre-gentrified areas that have turned into slums. Believe me, it will happen and that's when your 780+ FICO will kick in.
"and renting certainly is not the road to riches RENT NEVER ENDS, youll be paying the landlord till you die, adn he can make you move out at his whim after a lease ends"
How about this... save your cash while working in the Boston to Richmond corridor and then buy a retirement home in Buffalo NY (rust belt bordertown) for $150K?
There are numerous retirement strategies out there. Buying and holding in bubble zones probably isn't one of them considering that most people have to move nowadays to maintain their income levels and at a $80-to-100K/yr income, renting in any of those bubble zones, moving every 5 or so years thanks to today's job insecurity, you can save for that retirement pad within 8+ years. The rest will simply be your living expenses.
A good time to buy has always been the same, when it is more cost effective to own than to rent. Remember, even during the Great Depression people bought homes. Even when interest rates were 18%, people bought homes. Even during the RTC meltdown, people bought homes.
You got to live somewhere so if you have a stable job, 20% down, stay within a payment that is fixed for 15-30 years and takes no more than 28% pretax income and can't rent the same place for significantly less than PITI-tax benefit, then it is always a good time to buy.
PS, forgot to mention if the home value index doesn't show your house to be 20-40% overvalued! So if you can afford a $400,000 house and your bubble city says it is 40% overvalued, rent until prices come down even if you can afford it and the payment with 20% down is within 28% of your pre-tax income. Value and affordability have to go hand in hand.
As I'm mentioned here many times before, $60-100 a sq ft is the inflation adjusted norm for homes from entry level to upper-middle quality, a little more in coastal areas, and of course less if you are in areas of high unemployement, rust belt areas with little growth or industry.
Remember even a $60,000 house in a town with no jobs isn't a bargain.
:Remember even a $60,000 house in a town with no jobs isn't a bargain.
Yeah, but I thought your idea was to have a place for retirement. So, a $60K abode in a nice area (sounds like something priced up in New Foundland, Canada?) where one can live off one's investments et al isn't a bad idea for a person who's about to stop working a regular job.
The problem right now is that a slew of jobs, esp those who pay a low six figure and are reasonably dependable , have a lot of work where people do move a bit from Boston to NY to Chicago, etc, throughout one's career, so a modern day 'gypsy' white collar professional isn't so abnormal. And by moving about, one can keep working instead of going through bouts of unemployment (or significant pay cuts) between business cycles. Remember, once a cluster of white collar work crystalizes, it's generally offshored to India or the Phillipines so having lateral flexibility is extremely important.
The problem is that many of these cities are in clear bubble territory where rent is ~50% of a typical mortgage payment so why bother but instead, bank the cash, invest it, and keep one's eye on a retirement home.
I agree annonymous but since most posters here speak of making a living and the desire to buy an affordable house then the issue of jobs is important. As for moving to retire, live off investments, etc, yes, some of those areas may be appealing, still, many who want to not "just exist" do want more than say a small house in Ft Stockton, Texas just because it is cheap enough there to buy and live off investments or pensions.
The reason so many small towns in America are dying is the lack of jobs. A lot of small towns have a base economy that can't support new workers in the work force so the kids leave.
The system has you coming and going. If you need to work and have to move to a city like Phoenix you end up paying a higher cost of living to do so but sometimes the trade off is worth it. I'll always remember the movie "El Norte" where the lady from Central America said, "They always told me how much money we could make in the North but they didn't tell us how expensive it was to live there."
Still, apparently, many migrants feel (and by migrants illegal and the American kind that migrate for work) they'd rather pay more to live as long as they imagine they get paid more. It is all an illlusion that keeps the pipes greased with workers.
::they'd rather pay more to live as long as they imagine they get paid more
Well, perhaps the notion that a viable long term white collar professional is someone who moves every 5-7 years for a better position should be reflected upon the price of ownership vs renting but it clearly doesn't until the idea of RE, as an asset class, diminishes as a whole. The practice, nowadays, is that despite all the moving about, a home is a leveraged inflation hedge so that every 6 years, one can make a tidy profit (silver parachute) which carries one over to the next city/job for the next cycle. And then a few years later, hit the repeat button. The problem, however, is that moving about is the only true constant, any abode is a roof over one's head. I believe the Texas oil patch bust of the mid 80s was the first time when an entire region's white collar professionals went into negative equity (ala Houston to Dallas) while looking for work in other cities. So, until prices come in line with renting, I'd rather enjoy the mobility, bank the difference between renting and owning, and not worry about bubbles in DC or Boston and just focus on my job(s) and managing my passive investments. I know that in a few years, I'll have enough to buy that retirement home in upstate NH or Maine and then I'll just concentrate on managing an income stream for upkeep, taxes, and food stuffs. For me, that's a better way to look at the future than in believing that the perennial American job machine will create high paying white collar work to maintain those high priced condos in places like Chicago indefinitely.
I hear you annonymous. When I was an airman in the Air Force there was a phillipino Msgt who lived in the dorm. He owned his uniforms and one change of civilian attire. His family was still in the Phillipines. He sent them their housing stipend and a small amount of money to invest, buy land, pigs, etc and had a meal card and ate all his meals on base. He invested all his spare change in stocks. He was about to retire when I met him and by mid-70 standards he was sitting pretty. He had a couple hundred thousand in stocks and his family owned land in th PI where he was headed to retire. Don't know what became of him but I remember how impressed I was that he could live 20 years like that for a long term goal.
Not sure many Americans could or would. Owning isn't for everyone. I've rented when I've had to, short term like when living overseas or at locations I knew I wasn't going to be at for more than two years.
Knowing what I know now? Still would have bought but probably would have kept and rented out some of the homes we owned instead of sell and take the money to our new location since the first house we bought would have been paid for and three others we bought so low (under $60,000 at the time) would have made for good rental incomes.
Still, at this stage in my life I'm beginning to not want to be tied down any longer to taking care of a house. Been enjoying my sabbatical but recognize that if I hadn't bought a house in Austin I could have spent even more of my time traveling, living over seas renting in Spain or Italy, instead of having to take care of this house, pay property taxes, pay someone to watch it while I travel.
I don't think a lot of us think about options when we buy. Long term I think it good to own if the price is right, short term definitely better to rent.
90 GRAND IN SOME MARKETS IS TOP DOLLAR, DEPENDS ON THE COST OF THE 90, AS CASH! SOMEWHAT SORRY, I SEE NO VALUE IN 20 MILL NYCITY COOPS, CO-OPS, SAME THING
Most Americans dream of owning their own home. Buying a house from the department of housing and urban development, or HUD, may be a good way for many to make that dream come true. Applying for HUD housing usually invlolves getting approval for an FHA loan, because HUD does not handle financing. The FHA and HUD together offer low-interest loans to those who qualify to purchase homes on their low to moderate income. Looking at distressed properties can be a great place to find houses at reduced prices, but they must go through the same process as all the other HUD homes. A person looking to buy a HUD home really should start by going to the HUD web site and following the links to see what properties are available in his or her town or whatever area they're looking to live in. For more tips and info on buying a HUD home, visit my site at http://vdha-hud-home.info
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