Article: Is Now the Right Time to By a Home?

Is now the right time to BUY a home? Article: http://www.theatlantic.co ... e/241301/
I think this was very well written. What do you think?

Happy funding, Rudi
  • July 01 2011 - El Segundo
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Answers (16)

Profile picture for shasta_steve
Rudi I am sure you are going to get beat up for posting this and I will almost bet Dan will pull out his chart showig how prices "must" go down is rates rise but for my area I tend to agree with it.  

There are a couple of reasons I think it may be a decent time to buy a house now in my area Elk Grove/Sacramento area.  One is you can purchase a house now for less than you can rent one around here, even if you are using an FHA loan with 3.5% down.  Next it is pretty easy to purchase a house for under 10 times rent and even some of the bigger ones going for way less than 12 times.  Many of the houses are being snached up by investors paying cash so even if rates rise it may not have as much effect as it would in other markets. 

I recently convinced one of my friends I used to work with to come to work for us.  He was back home in Texas and does not want to buy a house out here until he figures out if he wants to stay here.  I told him he would have no trouble renting as there were rentals everywhere.  To tell you the truth I was wrong. That he has a dog made it even tougher.  Every house that was decently priced had several people looking at it.  In the end he ended up paying about $100 more, to rent a house that is over 1000 feet smaller than mine, than I pay for my mortgage.  
 
Now I don't think everyone should run out and buy but in many areas of California if you have a secure job and are not planning of having to move in 7 plus years, it may not be too bad. 
  • July 01 2011
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Survey Says:

It's always a good time to buy property as long as:

1. You are a long term holder, 5++ years

2. For Owner Occupants - payments are affordable and have a solid job

3. It isn't significantly more expensive to own over renting <= very important!!!

4. For Investors - It makes cash flow sense, 4-5%++ cash on cash - the higher the better but watch out for returns that sound too good to be true!!!!

5. It is the RIGHT property for you for all the right reasons, you "love" it!

6. It is fairly priced relative to the market

7. Vacancy isn't too high in the area < = very important whether an owner occupant or investor!!!

8. It is in decent shape and doesn't need much "fixing-upping"

9. You complete the proper due diligence steps to reduce your risk as much as possible! – so mind your contract terms and contingencies, so pencil out your deal, get a couple of bids on financing and dissect your GFE, review the HOA condition, review the property condition, make sure you have the right type and amount of property insurance in place, make sure you adequately review the title abstract and title policy and everything else you need to do to lower your risk!



10. You plan to own it a long long time!

 

Good luck!

  • July 01 2011
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Profile picture for hpvanc
I think the article is well written and thought out, and advises a fair amount of jurisprudence. 

The thing they missed that I think is a potential risk is the possibility that we are in a long term zero inflation cycle/deflation cycle.  That is not something that any of us have experienced in the US in our lifetimes, and I think there is a definite tendency to understate or fail to consider the risks from that possibility. 

The article also does not address the cost of the alternative which is renting.  I have read several articles recently talking about several high cost markets where the typical renter is paying 50-75% of their net income in rent.  That is extremely unlikely to be sustainable and is in the very same markets where PITI ratios are still in heavily in favor of renting (I realize that these have always been expensive markets to live in relative to income, but the percentage of income being spent on rent is at a historic high and rising with declining income).  Unless the income side of those markets change, those markets are going to continue seesawing between the pressure on rents and purchase prices until they have ratcheted down to a sustainable level.

  • July 01 2011
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Profile picture for the_country_hick
The article was not to bad but they could have gotten a few more ideas into it.

"As explained earlier, interest rates are expected to rise over the next few years. As they do, purchasing power will decline. A recently bought home's price falling by 10% could turn out to be better a better outcome than waiting to buy if interest rates rise 2% or more over the ensuing period."


That is both right and wrong. If a person buys a house to live in forever it makes some sense. If they buy it to sell in 5-7 years it is wrong. If rates increase by 2% from 5% to 7% and buying power drops by 23.7% when the time to sell arrives a lot of money will be lost as house prices will also be pushed about 1/4 lower. If rates go to 10% (or more) the amount lost at resale time would be huge.

"Unless some really drastic economic shocks create a deep double dip recession, it's hard to see how buying now could be a big mistake, if you're in the right position to do so."


They answered their own question showing one thing that could make it a big mistake.

"If the government isn't standing behind a mortgage, the private sector will demand more collateral to ensure that a default won't lead to a deep loss. Moreover, new proposed regulations encourage banks to require down payments of 20% or more for some mortgages."


As higher down payments are required fewer people will have that large amount of money needed to buy a house. That one factor alone could drive house prices lower as fewer qualified buyers create lower prices.

"Over the next few years, the housing market will continue to be relatively soft, so selling a home won't be a quick, easy process.
Make sure you will be happy staying put."

If the market is going to be soft why bother buying for a short term 5-7 year normal buyer length of stay?

"Fixed interest rate debt is a great hedge for inflation. Inflation will drive up nominal wages, so it'll be easier to afford your mortgage payments if inflation rises considerably"


Did they bother to look at the 1970's? We had what they called stagflation. That is both stagnant wages AND high inflation. History shows this idea to be false.

"Some analysts
expect higher-than-usual inflation due to the Federal Reserve's aggressive intervention during the financial crisis."

I expect this also. I do not mean inflation that will bring a small mortgage rate increase to 6%. QE2 ended. Bond yields are already increasing. If QE3 does not arrive interest rates will go higher. If QE3 does arrive it will only make it much worse long term.

The rate the U.S. government must pay to borrow money for a decade — 3.1 percent on Wednesday — is higher than the 2.5 percent rate around the time of Bernanke's August speech.  This shows QE2 did not do a long term improvement.

My $1,000 a month payment can buy a
$200,000 mortgage at 4.25% paying $983.88 monthly or
$110,000 mortgage at 10%    paying $965.33 monthly or
$_47,000 mortgage at 25%    paying $979.75

In the 90's mortgage rates were in the high 7's to 8 or 9%. Higher than normal rates says to me double digits for mortgage rates. We may not see 25% (or more) but even a small 10% mortgage interest rate alone would cut house prices almost in half just based on buying power.
  • July 01 2011
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Profile picture for Lady Chattel
Now is a good time because the SHTF is coming and at least if you are in a home you rent from the bank you won't be kicked out when all heck breaks loose.  Interest rates will rise....but with bread at $50 a loaf.......well, who cares about house buying.......
  • July 01 2011
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Profile picture for ryanbos

It really depends on your specific financial goals and most importantly what market you plan to buy in. Regardless of where the market goes if you purchase at a deep enough discount that should protect you even if the market dips another 10 or 20 percent.

  • July 01 2011
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Profile picture for Dunes....
Swish!
3 Points for Shasta_Steve
  • July 01 2011
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Profile picture for Michael Helton

Here is a very convincing article about why now is NOT the right time to buy (except for a few circumstances).  I am not associated with the site in any way other than agreeing with much of what he says:

http://patrick.net/housin ... ash1.html

  • July 01 2011
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Profile picture for nandaben
Is now a good time to buy Alcoa?
Is now a good time to go back to college?
Is now a good time to send your child to a private school?
Are you employed in a field where you can expect to be relocating often?
Do you have children and want to give them a sense of stability and security?
Are interest rates at a 50 year low?
Is the type of home you want 3 times your annual income?
Was Ann Landers always right?
  • July 01 2011
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Whether now is a good time depends on your situation.

1.  Check your local market.  In some areas home prices are still dropping, while in others prices have stabilized, and yet others have had prices creep up a little lately.

2.  Check your life.  Job seem secure for awhile?  Plan on owning this home for awhile? 
  • July 01 2011
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Profile picture for Lady Chattel
Twenty statistics on why you should not buy a house in 2011.....

#1 According to Zillow, 28.4 percent of all single-family homes with a mortgage in the United States are now underwater.

#2 Zillow has also announced that the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month.

#3 U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

#4 During the first quarter of 2011, home values declined at the fastest rate since late 2008.

#5 According to Zillow, more than 55 percent of all single-family homes with a mortgage in Atlanta have negative equity and more than 68 percent of all single-family homes with a mortgage in Phoenix have negative equity.

The list goes on........funny how they quote Zillow so much :-p
  • July 02 2011
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nandaben,  Of course Ann Landers was always right...she is Ann Landers ;~)

There is much about the timing of home buying that has nothing to do with finances.  We all need a place to live, if the place we live no longer meets our needs/wants we should consider a change.  What the right change is depends on our individual situation.

No one can predict the future of house prices or interest rates consistantly.  If we buy a home and prices drop even more, did we make a mistake?  Not necessarily.  It depends on many other factors.  A mistake compared to what?  buying in the past?  Too late.  Buying in the future?  Who knows?

If later, rates go up, even if prices go down, you are better off as long as you don't need to move.  If before you move prices go up again, you did good on price and payments.

The Zillow 20 stats and Patrick.net doesn't help buyers today, they look to the past.  20/20 hindsight does not help
  • July 03 2011
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Profile picture for SteadyState
"No one can predict the future of house prices or interest rates consistantly.  If we buy a home and prices drop even more, did we make a mistake?  Not necessarily.  It depends on many other factors.  A mistake compared to what?  buying in the past?  Too late.  Buying in the future?  Who knows?"

1.Non one can predict the future yet most REAs say with confidence that this is the right time to buy.
2. Did we make a mistake? Ask the millions who have lost their homes. Ask the tax payers what they thought when the government was forced to use $700B to bail out the banks because RE was over inflated?

At lease think about what you write before you write. I know you need to make home buying and selling attractive because your livelihood depends on it but at least understand the dangers of your false advice.
  • July 04 2011
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"1.Non one can predict the future yet most REAs say with confidence that this is the right time to buy."

Ok, I guess you would have to ask them when they say it.  I  don't speak for all Realtors any more that you speak for anyone but yourself.

2. Did we make a mistake?

Some did, some didn't, it's more that a financial answer.

"...but at least understand the dangers of your false advice."

Right back at ya.

p.s. I didn't give advice, I gave a point of view and asked retorical questions for others to consider in response to Rudi's question "What do you think?".
  • July 04 2011
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Profile picture for the_country_hick
Jim, "The Zillow 20 stats and Patrick.net doesn't help buyers today, they look to the past.  20/20 hindsight does not help"

Jim, if those stats do not help people what does? Only a psychic claims to see the future. Many who claim to be psychics have gotten a lot very wrong about the future as several published books and shows have proven.

If we can not see the future clearly we can only make reasoned decisions based on past events and current trends. The past stats define the current trends. Although it is true that I could see the trend going down and miss the exact bottom I can also wait until things are actually leveled off and maybe rising a bit and lose little if anything by waiting.

The other option is to "guess" or "hope and pray" that you know what is going on with nothing to show for it. That seldom works out.

Seeing a change in direction for a month or 2 is nothing. It could be a temporary blip that goes away. It could also be a suckers rally.
  • July 04 2011
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I have to agree with Dan.  We can only look at stats as they become available and try to make a reasonable decision based on what we see.  The problem is when people take something like a "national" stat and blindly apply it to all situations.  A new Case-Shiller Price Index report says that prices in the DC area have gone up 4.09% since a year ago, so it's a good time to buy a home in DC.  However, that same report shows that it's not a good time to buy in Phoenix because prices have gone down another 8.75% in the last year.  It also depends on which stats you trust, because CoreLogic reports Phoenix prices are down 12.1% from a year ago.
  • July 04 2011
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