Why buy a house in the next 5 years?

[Soral]

Let me start by saying in 2007, I was about to buy a house, but after talking with educated people, and lots of research, and realizing I couldn't afford to put enough money down, I decided it was too risky, and choose not to.

Three years later, after losing all my money and job in the economic crash, and just now back on my feet... I wonder, what if I did buy that house?

Would I still own it with the mortgage bailouts and such?
Would I have been better off making the bad decision?

I feel punished for being responsible.


That said... it's time to move again, and although I would like to buy a house, I still doesn't make sense if it is still going to keep losing value... and there is currently no break for first time buyers.

I will like your opinions on this... if you don't mind :)

[slackmaster]

1. You almost bought when the price bubble was peaking?

It's a good thing you didn't.

My advice is that if you can find a place you like and can afford, and really want to own a home, just do it.

[GodlessBiker]

2. Well, your house might now be worth less than the mortgage you would have had ...

to take out to get it and you now might be in a foreclosure situation, which is not a terribly good thing.

[Dappleganger]

3. There are plenty of people being punished now

for making responsible choices by buying a house a decade ago, but due to job loss, severe depreciation and/or income reduction plus extreme health care costs, they are also in pickle.

I don't know your situation but IMO it's still not a good time to buy because we've not reached the bottom yet and won't for some time.

[Soral]

4. well, I was making decent money, but didn't have money down...

and after research learned a no money down, or an ARM mortgage was a bad idea.

I was semi-pressured to do it by the realtor, but, alas, made the right decision.

[WorseBeforeBetter]

10. Do you have money now for a down payment?

How often do you move? I wouldn't buy a place unless I planned to stay in it at least 5 years.

Are you able to buy a place and keep the mortgage within 28-33% of your monthly gross household income?

[Amaril]

23. I was right there with you 4 years ago

and made the same decision regarding an 80/20 with a 3 year ARM on the 80% (and like 9% interest on the 20% - which was ridiculous.......(snarky nod of thanks in the general direction of my ex-husband for flushing my credit as a parting gift)). It just sounded like a really, REALLY bad idea, and -- in hindsight -- my suspicion that the loan officer was lying to me has been confirmed:


Him: So, you'll be able to re-fi the ARM to a fixed rate in 3 years after you've fluffed up your credit score a bit more.

Me: But aren't home values still falling here? What if, in three years, the market falls further and the house isn't worth what I paid for it - how am I going to re-fi?

Him: Psshaw! That's not going to happen. The market is already starting to rebound.

Me (present day): Hmmmmmm......I wonder if he still has a job.



So, yeah, I totally get your frustration.


Edit to fix parenthetical error

[Zenlitened]

5. What mortgage bailouts?

There are no vast numbers of irresponsible homebuyers who've suddenly won the home ownership lottery. That's a myth.

There ARE millions of people out in the street or couch-surfing because they lost everything, while the Billionaire Boys who wrecked everything were bailed out by you and me... and then rewarded themselves with record-setting bonuses for all they'd done.

And how can you regret NOT being massively in the hole for a home purchased at the very peak of the real estate boom? Especially when you lost every existing asset as well as your income in the crash that followed?

You feel punished for having avoided that? :shrug:

[Soral]

7. I should rephrase...

I 'did' feel punished when I heard all this homeowner bailout stuff was happening...

Now seeing how bad it has gotten, and how the fore mentioned "bailout" did next to nothing but make things worse...

I'm just pissed off that wasting money on rent actually is a better option right now.
(or so it appears)

Why buy a house if it is just going to keep depreciating for who knows how much longer?

[Greybnk48]

6. I think it's a good investment if you're careful.

Go to a credit union, get a locked in rate. Try to buy a house in a well established neighborhood instead of a new sub-D where many of the houses are sitting empty. Good luck.

[Soral]

8. But why buy a $250k place if it will be worth $200k in 3 years?

That's how things look right now.

/also, I live in a top 3 richest county in America, so that doesn't help.

[slackmaster]

12. Are you looking for a good place to live, or are you looking for a financial investment?

Is it really going to hurt you down the road if a home you buy now loses some value?

[uncommon]

18. Ding ding ding - you win!

Regular people need to stop thinking about real estate ownership as a vehicle to wealth and return to thinking about it as a solid home for them and their families.

[Statistical]

21. and a hedge against inflation.

People seem to forget this boring but understated reason for owning a home.

Rent goes up, and keeps going up. A place renting for $1200 today likely rented $800 a decade ago and $500 a decade before that.

With a mortgage you are protected from inflation. The bulk of your payment will never change. Taxes & Insurance may rise but that is the minority of your overall mortgage payment.


Thus that $1200 payments today will be $1200 tomorrow, and $1200 in 2020 and $1200 in 2040. The same rent in 2040 will have likely doubled.

[enlightenment]

26. Exactly.

If you want an investment, buy something else that may (or may not) appreciate.

Homes are for living in; if you buy with the idea of living in it rather than 'using' it for financial gain, why does it matter if the value of the place fluctuates?

[frazzled]

17. Who says it will be worth less in 3 years, and who buys a house ...

with an eye towards three years of investment? Back even thirty years ago, when we bought our first house, the rule of thumb was not to even THINK of selling it until a minimum of five years. You buy a home because you want to live in it long-term, perhaps your whole life (you'd better be prepared to make that your lifelong home, not just a temporary stepping stone). You buy it because you can actually afford to pay the mortgage, preferably with a 10% down payment. I realize that in these days, one can never be certain of job security. And that is one reason not to buy a home. I totally understand that. If I were a younger, single person, or even a couple without kids, I would rent instead of buying. At a certain point, however, if you have a family (straight or gay family), you want to put down roots in a community that matches your needs, provides good schools and libraries, cultural amenities--whatever floats your boat. You want a yard to put a swingset in. You want steady neighbors. Buying a home is a good idea then. You are investing in your family, not making a financial investment with short-term profits in sight.

Not all homes are losing value. Some parts of the country and some neighborhoods are quite stable, though demand is weak. And a bottom will certainly be hit at some time. When that time is I don't know. When home prices were rising, rising, rising, I kept thinking it had to stop somewhere: and it sure did. This is a needed correction, and it's painful for those caught up in either job loss or needing to move because of a transfer or divorce or whatever. But in the long-term, I think people will benefit from the housing market returning to rational levels. After all, middle-class incomes were falling over the past decade as home prices kept rising and rising.

It's a scary thing to buy a house right now. But if it's the right thing to do for you, and you choose wisely, and keep within your budget, then future market trends should not enter into the picture.

[Statistical]

19. who cares if it ends up being worth $300K in 30 years.

How much is your rent? How much do you think it will go up over next decade?

How much would it cost to buy an equivalent property (be sure to include mortgage, escrow, and an allocation for repairs/maintenance)?
You can substract the tax advantage on interest.

The comparison between the two is a far better metric than will housing go up/down.

If you plan to sell your home in next 5-7 years you shouldn't be buying a home period.

[dixiegrrrrl]

16. uhh....not even buying in an "established neighborhood" works anymore.

We live in a wonderful neighborhood. "Nice" part of town, etc etc.
but.....houses are sitting empty all around me because of the economy, previous owners aged and died.
I watched a house that should have gone for 120,000 sell for 70,000.

And as others have pointed out, the bottom is far from reached.

We bought in 2005 because we retired and moved to an affordable area.
did all the "right" things: 30% down, low payments as a result, paid a fair price for the house,
had/have great credit, no debts.
and now I find the title is clouded because of MERS/countrywide.
And because of declining property values, our equity ( that 30% down) is much lower.

You have the one thing you did not lose if you had bought. Your credit.
( I assume)
as you say, looking back, buying with no money down, then losing your job, would have been a problem.
Property will be very available and much cheaper down the road.
Meanwhile, you have time to research how and where and when to "buy smart".

I think "missing out" as you see it, is an blessing in disguise.

IMHO.

[pipi_k]

9. OK, here's what we did...

Fourteen years ago we bought this place, little more than a converted camp lodge in the woods. The price was almost ridiculously cheap, even with over 8 acres of land. There were just the two of us living in pretty close quarters for 3 years, but then we had the money to expand.

In the years we've lived here we've added a French drain, raised ceilings and skylights in three rooms, put on a large master bedroom and second bathroom...finished basement/rec room...4 season sun porch...two decks, a larger front porch, a fenced yard, shed, car port, two ponds, and had vinyl siding put on.

Even with the miserable real estate market, it's still worth at least 1 1/2 times what we paid for it. The most it was ever worth was in 2003. The least was a few months ago. But still way more than what we paid, even counting the costs of the improvements.

So that would be my opinion. Try to find a place that might start off a little small, but is still structurally sound, that you can add to as time goes on. Eventually the market should improve, and if you can wait it out, your house should increase in value.

[hedgehog]

11. I think the best advice is that the only reason to buy a house is

if you want to live there and you can afford it. Forget all the investment woo-woo; that's for stocks and bonds. A house is where you live.

That said, take another look at the scenario that faced a lot of people: You move to a boom area because there are no jobs back home. Housing prices around you are escalating by the day. So are rental prices!. If you want a chance to live within 60 miles of your job, it's important for you to lock in your costs. The realtor tells you to buy a house with a balloon mortgage. Five years down the road, sell the house at a profit, pay off the balloon mortgage, then use the profit to buy your real house; the one you intend to keep for 20 years or more. You take your numbers to the bank, and the bank agrees to make the loan. If the bank and the realtor tell you that this is the way things are done now, then this must be the way things are done now, right? Sure, that's not how things were done back home, but back home times are tough and here things are booming, so it must be OK, right? Besides, your rent is going up $250 a month this year, and another $250 next year. Better top buy a home now and put that money into equity instead of throwing it down a rat hole, right?


The irresponsible home owner buying a mansion beyond his means comes from the same neighborhood as the welfare queen driving the Cadillac!

[pipi_k]

14. Exactly!

We bought this place because it was smaller than our other place and easier to take care of. We loved the area and wanted to live here.

That was consideration #1. A place to live.

What we added on, we did for our own comfort and enjoyment.


There's a big difference between buying a house and buying a home... :)

[leveymg]

13. There are no "mortgage bailouts." Go ahead, buy your foreclosure - 1000 yrs bad karma

You're not being punished, and you're not a martyr because you're not getting a tax break. Sounds like you're lucky you didn't buy in at the top of the market.

So, what exactly are you complaining about?

[Statistical]

15. Trying to time the bottom (or top) is a suckers game. Better metric is own vs. rent

Figure out what it would cost to OWN the place you are currently renting.

With falling mortgages prices (and record low interest rates) many people are paying more in rent than it would cost to own.
Next thing to look is what is your time horizion. Are you looking to own a house for 4 years, 10 years, 20 years, or all 30?

In some places housing values have actually begun to climb which emphasis the fact that trying to buy at the bottom is foolish.

[pipi_k]

22. That's what happened...

with my daughter and her husband.

My son sold them his smaller house and moved to a larger one. They (daughter and husband) did not have good credit, but were still able to get a home loan, albeit at very high interest rate. This was 3 years ago, during the worst of the whole buying/lending mess.

So now they pay more to own their home than they would pay to rent. I don't think the value of their home has dropped all that much because they're in a pretty popular area, and the house wasn't overpriced to begin with. But they're still struggling because they never took into account the other costs that go along with owning.

They're just barely making it, and have come close to foreclosure at least twice in the past three years.

[Soral]

20. Thanks everyone, I agree, I feel better about renting, less of a victim

[HughMoran]

31. I read different replies

Of course I've never rented, so my opinion might be biased. My payment is actually $200 less than it was 20 years ago when I bought the house due to refinancing, though this won't help you, the rates are really low now which is quite helpful. I get a whole house to use for less than what a 2-bedroom apartment goes for. I couldn't live without a garage for my special car. Oh, and I bought at a peak before a crash, but now my house is worth 2x what I paid for it - not that it matters since I plan on staying here. I was underwater (mortgage higher than home value) for years after the housing crash back then, didn't have any effect on my mortgage payment.

[tilsammans]

24. I don't know enough about your situation . . .

. . . to point you toward the right buy vs. rent decision, but . . .

my house is on the market now, and I'm hoping that there are still some people who hold dearly to that old-fashioned notion of a home as a place to LIVE for a long time, rather than merely an investment and/or an ATM.

:hi:

[Uncle Joe]

25. I believe buying your own home to be a good idea, but one key point is to buy well under your means.

If you can qualify for a 300,000 house amortized for 30 years at 4.125% your Principal and Interest payment would be $1,453.95, but if you look in to a 150,000 home amortized for 15 years at 3.75% your P & I will be $1,090.83.

This would be easier on both your budget and at risk time frame.

Thanks for the thread, Soral.

[pipi_k]

33. I think that's an excellent suggestion, even for things other than a home

I think too many people buy based on what they think they can afford now, but never give a thought to what happens if they lose their jobs or something.

Always have a Plan B...

[elehhhhna]

34. Amen to that advice.

We bought for about half what we "qualified" for so our payment is LOW. Like 950.00. I have friends who carry 2500. monthly payments -- while 2400. covers all our bills: insurance, utilities, mort., cell, water/trash, cable, internet & a small, small credit card payment. Cars are paid for thank god.

I was laid off a week ago and we're not rolling but we're not hurting.

[Barack_America]

35. Exactly. It's like any business decision.

Do your research, know your risks and don't overextend yourself.

[lumberjack_jeff]

27. Because you want a place to live?

If rent works better for you, that's great. If you want a house because rent doesn't work for you, that's great too.

House = investment is a relatively new idea.

Besides, houses are worth what they're worth. Maybe they'll be worth less next year, maybe more. No one knows.

At current interest rates, in my area your interest payments can buy a lot more house than the same amount of rent could buy.

Today, I could buy a house for $130,000 that is currently rented for $650. The tenant would save more than $100 each month if they were to buy it.

[Soral]

29. See.. I can't even find a 2BR 'house' for less than $1500/month here

it's bad, but it's where I live.

/Happy here otherwise.

[lumberjack_jeff]

32. At current interest rates that will buy a $280,000 house.

And if you don't refinance, unlike rent, that payment will never go up, and some portion will go to principal.

Yes, there's downside risk if you think you might be forced to sell in the next few years.

[TwilightGardener]

28. Depends on what the value is of the house to you and your family.

If you are making an investment, that's complicated. If you just want a home and land to call your own, raise your family, settle in for a long time, live according to your rules, that's easy.

[Vinca]

30. If you think prices are bottoming out in your area and you plan to stay

where you are for several years, I'd probably buy rather than rent. I'd be a real bottom feeder though and negotiate a steal of a deal before I'd sign on the bottom line. With mortage rates at historic lows, it may be more affordable to have low mortgage payments rather than rent. I know in our area the average rental is about $500 or more above our mortgage payment. In any case, you shouldn't think of it as an investment, but as paying for a roof over your head. If you plan on relocating within a couple of years you would be better off renting. Purchases are for the long haul at the moment.