House buying

[Ticker]

I'm trying to figure out if it would make sense to buy now or wait a bit longer and keep renting. On one hand I love the idea of having our own house on the other I don't like parting with the down payment. We are in San Fran Silicon Valley and the prices are insane.

What do people think about buying now?

T

[disneysteve]

The time to buy is when you are ready to buy. That means having a 20% down payment, an adequate emergency fund and a stable job. If you know you will be in the house for at least 7-10 years, I think any time is a good time to buy as long as all of your financial ducks are lined up.

[Ticker]

Yes, I hear that a lot I don't agree with it at all though.
If the housing market drops another 15-25% in the next year or two, then "Now" was a bad time to buy. I doesn't matter how long you stay or anything else. The idea of losing couple a hundred thousand in down payment is not to be trivialised.


T

[disneysteve]

Yes, I hear that a lot I don't agree with it at all though.
If the housing market drops another 15-25% in the next year or two, then "Now" was a bad time to buy.

Unless you have a nice clear crystal ball, I disagree if we are talking about purchasing your primary residence, not an investment property. Your home is not an investment. It is your home. We bought our house in 1994. I honestly couldn't care less how much it is worth today. Why? Because we have zero interest in selling it. We like it. It meets our needs. We can afford our payments. If and when we sell it, we'll get what we get and move on. I would hope that it would be a fair amount more than we paid for it since we've owned it so long, but if not, I wouldn't be all that upset. We didn't buy the place to make money. We bought it to have a place to live and raise our family.

Now if you are talking about an investment property, that's different. Then the intent is to make a profit and your concern is much more valid. I want to pay as little as possible for an investment in order to maximize the potential return when I turn around and sell it later.

[MonkeyMama]

The time to buy is when you are ready to buy. That means having a 20% down payment, an adequate emergency fund and a stable job. If you know you will be in the house for at least 7-10 years, I think any time is a good time to buy as long as all of your financial ducks are lined up.

Agreed.

Timing the market is impossible.

I have friends in the Bay Area who have been waiting for prices to drop for over a decade. (Prices today are not lower than a decade ago...)

Buy when you are ready and it makes sense. Period.

I am not here to say it is 100% that prices can't drop. But I think it looks pretty darn unlikely... Meanwhile, you also risk higher prices while sitting around and waiting.

[jefffou]

Agree with the advice given.....and would like to throw out another issue to consider.

Of course, we all remember the foreclosures of late 2008 and then thru much of 2009. It appears that there has been some easing there.

But, according to John Hussman's letter, (this one was dated towards the end of 2009, but the facts should be unchanged) we are about to face another round. He has written many subsequent follow-ups on this subject. BTW, his fund sat well-hedged during the fall of 2008. He later admitted to not getting in the market soon enough following the final drop in March of 2009. As a value investor, he knew the market was pretty cheap.

Anyway, this next round of mortgage trouble, based upon "Alt-A's" and "Option ARM's", could provide another buying opportunity.

I'm not really familiar with either of these mortgages. But, apparently, thousands of them are just now about to "reset", creating higher rates, and payments. Unfortunately, this will put pressure on a lot of home-owners out there, possibly with anothe round of foreclosures and some good deals to follow.

Unless you have a crystal ball, as Steve said, you're out of luck in terms of timing the market.

But, if I were you, I would at least consider this issue. Read his letters, and get acquainted with some of what many smart men and women believe is to come. BTW, there are just as many smart men and women that believe the worst is over.

Who knows if this next round will be anything like the last. But, it sure wouldn't hurt to arm yourself with some good info.

Hope this helps.

[disneysteve]

Unless you have a crystal ball, as Steve said, you're out of luck in terms of timing the market.

Timing the market serves no purpose. You are considering buying a property that you will live in for years or decades to come. What difference does it make what happens to the property value in one or two years? It is no different than investing in the stock market. Unless you are hoping to flip this house in a year or two or three, it just doesn't matter, and hopefully nobody with half a brain cell still thinks flipping real estate is a good idea.

[LMA]

If you are ready now is a great time to buy. First and foremost is your personal status on wether you can afford to become a home owner. But considering how low mortgage rates are and the fact that prices in general have come down so much that makes it a good time to buy if it's right for you.

The next biggest thing is that you buy right. There are some great deals out there but you have to make sure you get one. If you overpay, you overpay regardless of what is going on in the market. Plus you are in the Bay area which is a strong market where it is reasonable to believe prices will rise again.

The best way to protect yourself is to make sure you are ready to buy and then make sure you are getting a good deal.

[tdls17]

Whether you buy now or wait another year, you're going to get a great deal on home. Homes will remain heavily discounted due to the oversupply of empty homes in the market.

Now, if you wait a year, that gives you that much more time to save for a down payment, reduce your debt and/or beef up your savings!

Tim

[TheStreetCeo]

DisneySteve is right. Get your ducks in a row first. On one hand it stinks having to rent because your basically throwing money out the window, but on the other hand, purchasing a house is a huge commitment and one that you need to be prepared for. Without knowing your financial situation i would make sure I have at least these three things in place before I purchase a house.

Zero credit card debt
8 months emergency savings in place
Retirement plan in place with automatic deposits

With that said, housing prices are low but climbing slowly. interest rates are very low and will start to climb and may price you out of the market so make hay while the sun shines.

[jIM_Ohio]

A house is an asset
it is NOT an investment

it can help you preserve some of your wealth
but it is not what will provide your wealth.

I realize from talking with some co-workers in your area that house prices go up (by percentage) more than most raises (like 5%-10% annual house appreciate and 3% raises), but that should not impact
a) when you buy
b) how much house you buy
c) why you buy

Buy because you want stability in your life. Rental units could increase in cost each year. You do not get consistent neighbors.

A house is a home first and asset second.
I bought at peak of bubble in 2005. Only 3 houses in my neighborhood were purchased for more than my house. I only lose my down payment if I sell.

We have no intention of moving, so we don't consider the situation bad.

[disneysteve]

Buy because you want stability in your life. Rental units could increase in cost each year. You do not get consistent neighbors.

I would tend to disagree about neighbors. Buying doesn't guarantee consistency. If I look at my 10 nearest neighbors, 3 on either side and 4 across the street, only 2 are the same as when we moved in. 8 have changed owners at least once and at least 2 have changed 2 or more times. And we live in an older established neighborhood.

Rentals may be more or less transient depending on the locale. If you are in a college town, you'll probably see more turnover. If you are in a complex with a lot of young couples, you'll see more turnover as they move on once they start having kids. If, however, you live in a building with more established, mature folks, there may be very little turnover.

[jIM_Ohio]

I would tend to disagree about neighbors. Buying doesn't guarantee consistency. If I look at my 10 nearest neighbors, 3 on either side and 4 across the street, only 2 are the same as when we moved in. 8 have changed owners at least once and at least 2 have changed 2 or more times. And we live in an older established neighborhood.

Rentals may be more or less transient depending on the locale. If you are in a college town, you'll probably see more turnover. If you are in a complex with a lot of young couples, you'll see more turnover as they move on once they start having kids. If, however, you live in a building with more established, mature folks, there may be very little turnover.

In my apartment before I moved there were 12 units. When I moved out 3 years after moving in, quick reflection told me each of the other 11 units turned over at least once.

2 of 10 is better than 0 of 11 (right?)

my point was not that there is "high" stability, just "more" stability in who is around you.
even with a more mature rental population, the people will come and go because leases are 1 year and mortgages are usually 15 or 30, and when the mortgage is gone, there is more incentive to stay (I think).

[Ticker]

Thank you all for the comments.

I think the idea that you can't time the market (and shouldn't) is flat out wrong. Three years ago it was obvious what was coming. In bay area the house prices have droped a bit (20-25%) in the parts I'm interested in. I don't see any reason why they wouldn't continue down 15-20% more. So far by not buying we have "saved" 300k+. While our rent is relatively high it is a lot cheaper then that.
So my options are put 300-400k in downpayment now and buy something or wait 1 to 2 more years until recasts blow over (which are hitting here big time now). We have been going to open houses for years now (when we see something interesting). The quality of the houses and lot sizes have drastically improved over the last 3 years. I think if I bough something then I would be very disappointed right now.
The area I like has typically 2-3 sales a year so neighbour turnover is not a big issue.

For me the main reason to buy something would be that I'm sick and tired of moving and would love to get the whole "my own backyard" thing going on for the kids.

T.

[disneysteve]

I think the idea that you can't time the market (and shouldn't) is flat out wrong.

Good luck with that. Lots of people have lost lots and lots of money believing that they could time the market when nobody else ever could before them.

I think if I bough something then I would be very disappointed right now.

This is really the only thing you've posted that matters. If this is true, then now is not the time for you to buy. You aren't ready, which is fine. Nobody should buy until they are ready - ready financially AND ready psychologically. You might be ready financially but you aren't ready psychologically. If you will be very disappointed if there is a short-term drop in your home's value after buying it, you aren't prepared to be a homeowner quite yet so I would wait.