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Why Now Is a Good Time to Buy a House


By mili   Follow   Thu, 12 Apr 2012, 12:53am PDT   15,343 views   123 comments
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Although the economic recovery remains sluggish and some fear rising interest rates, there are growing signs that this a good time to buy a house, according to a new study.

http://www.thefiscaltimes.com/Articles/2012/04/11/Why-Now-is-a-Good-Time-to-Buy-a-House.aspx

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RentingForHalfTheCost   Sun, 15 Apr 2012, 4:56am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 84

E-man says

Can you convince us now is a good time to sell? One man's misfortune is another man's blessing.

All-in baby. :)

Learn from your victory. Prosper from your failure.

If you have more than 40% of your wealth in your house, then you should sell. You are in fact gambling for your wealth, rather than creating it.

B.A.C.A.H.   Sun, 15 Apr 2012, 5:15am PDT   Share   Quote   Permalink   Like   Dislike     Comment 85

FortWayne says

If you think prices are normal now, just think what they will do once interest rates go up

Damn. If the rate goes from 3.5 to 4.5% that will be an increase in borrowing cost (borrowing cost = "housing cost") by about a third.

RentingForHalfTheCost   Sun, 15 Apr 2012, 6:09am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 86

B.A.C.A.H. says

FortWayne says

If you think prices are normal now, just think what they will do once interest rates go up

Damn. If the rate goes from 3.5 to 4.5% that will be an increase in borrowing cost (borrowing cost = "housing cost") by about a third.

Forget house prices. Just imagine what happens to the U.S. revolving debt if we have rising interest rates. That is the whole reason why the Fed is buying up 70% of the notes. It has nothing to do with housing. Housing is just benefiting on the heals of our enormous debt/deficit problem in this country. Just as the judgment day will come for the debt, so will the judgment day come for housing. Your guess is mine as to how bad this will get, but it will get bad, make no mistake.

http://theeconomiccollapseblog.com/archives/it-is-now-mathematically-impossible-to-pay-off-the-u-s-national-debt

freak80   Mon, 16 Apr 2012, 12:08am PDT   Share   Quote   Permalink   Like   Dislike     Comment 87

RentingForHalfTheCost says

If you have more than 40% of your wealth in your house, then you should sell. You are in fact gambling for your wealth, rather than creating it.

Well put. If a house is an "investment," it's not a very diversified one. And in places like CA, it's value will be very volitile. It's not a very "liquid" asset either. And the transaction fees (thanks to Realtors) are very expensive. And, oh yeah, this "investment" pays negative dividends: insurance, property taxes, and maintenance.

That's not the kind of investment I want.

A house is a place to live, not an investment.

bubblesitter   Mon, 16 Apr 2012, 12:46am PDT   Share   Quote   Permalink   Like   Dislike     Comment 88

RentingForHalfTheCost says

If you have more than 40% of your wealth in your house, then you should sell. You are in fact gambling for your wealth, rather than creating it.

Exactly,from an investor(landlord) perspective being cash flow positive is like living rent to rent with debt slavery and being a renter from landlords perspective is living paycheck to paycheck with no debt slavery. It does NOT make sense on being a landlord on a zero or negative equity mortgage. DO THE MATH.

hanera   Mon, 16 Apr 2012, 2:37am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 89

If now is not the good time to buy a house, then when? Will it ever be a good time in Bay Area?

freak80   Mon, 16 Apr 2012, 2:48am PDT   Share   Quote   Permalink   Like   Dislike     Comment 90

hanera says

If now is not the good time to buy a house, then when? Will it ever be a good time in Bay Area?

It will be a good time to buy when the average monthly mortgage interest payment drops below the average monthly rent.

FortWayne   Mon, 16 Apr 2012, 4:19am PDT   Share   Quote   Permalink   Like   Dislike     Comment 91

You know the writing is on the wall. Prices will be going down at some point big time after elections. I'm even more convinced after I heard Romney speak today.

Property taxes won't be a write off, interest rate write off is going away as well... all that translates to a market that is more free, but also market that is based on supply and demand, not arbitrary government desires.

Obama *might* fight against the idea with lip service on a campaign trail, but lets be realistic he'll still sign it when it will arrive on his desk.

BoomAndBustCycle   Mon, 16 Apr 2012, 4:32am PDT   Share   Quote   Permalink   Like   Dislike     Comment 92

FortWayne says

You know the writing is on the wall. Prices will be going down at some point big time after elections. I'm even more convinced after I heard Romney speak today.

Property taxes won't be a write off, interest rate write off is going away as well... all that translates to a market that is more free, but also market that is based on supply and demand, not arbitrary government desires.

Obama *might* fight against the idea with lip service on a campaign trail, but lets be realistic he'll still sign it when it will arrive on his desk.

Quality Auto Repair Since 1979

That's kind of crazy talk... Not allowing property taxes to be a write off.. just lowers property values.. so the state collects less tax overall. Same with interest rate deduction. If anything states and government want to keep housing high. It's like cutting off your nose to spite your face.

It might be decreased by a small amount... or have a cutoff.. But it's only going to affect homes over $500K and UP. I predict far less drastic changes than you are predicting. Lots of pressure on $500K homes and up is likely. You can't squeeze any more blood from the middle class, without killing GDP and the economy.

hanera   Mon, 16 Apr 2012, 4:33am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 93

No property tax and interest write-off means landlord have higher costs which would be recovered from tenants leading to increase in rentals. This would push the buy or rent equation towards rent.

BoomAndBustCycle   Mon, 16 Apr 2012, 4:34am PDT   Share   Quote   Permalink   Like   Dislike     Comment 94

wthrfrk80 says

It will be a good time to buy when the average monthly mortgage interest payment drops below the average monthly rent.

My monthly interest on a 4 bed/2bath pool home is only $1180 a month (and dropping every month)... I'd be lucky to rent a studio or 1 bedroom apartment for that in my area, so I would say we are already there.

David9   Mon, 16 Apr 2012, 4:38am PDT   Share   Quote   Permalink   Like   Dislike     Comment 95

BoomAndBustCycle says

If anything states and government want to keep housing high.

Yeah, well, that's for sure.

hanera   Mon, 16 Apr 2012, 4:40am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 96

BoomAndBustCycle says

. Not allowing property taxes to be a write off.. just lowers property values.. so the state collects less tax overall. Same with interest rate deduction. If anything states and government want to keep housing high. It's like cutting off your nose to spite your face.

Exactly. Debt=Money. The more people borrows, the more money is created, the higher the GDP and the bigger the economy grows. Housing loan is likely the biggest debt for most of us. So pushing for each citizen to have a house and subtly encouraging rising (not too fast) house prices is at the top of the agenda for most government.

freak80   Mon, 16 Apr 2012, 6:21am PDT   Share   Quote   Permalink   Like   Dislike     Comment 97

BoomAndBustCycle says

My monthly interest on a 4 bed/2bath pool home is only $1180 a month

The interest is "only" $1180/month? You're making some banker very happy!

My rent is $750 a month. It costs me less to rent a place to live than it costs you to rent money for a place to live. And my property taxes, insurance, and maintenence are included in my rent!

bubblesitter   Mon, 16 Apr 2012, 6:58am PDT   Share   Quote   Permalink   Like   Dislike     Comment 98

wthrfrk80 says

BoomAndBustCycle says

My monthly interest on a 4 bed/2bath pool home is only $1180 a month

The interest "only" $1180/month? You're making some banker very happy!

My rent is $750 a month. It costs me less to rent a place to live than it costs you to rent money for a place to live. And my property taxes, insurance, and maintenence are included in my rent!

Yeah,you are like spending 60 cents only,and spending NOT spending 1 $ and getting 25 cents back,so your net change is +15 cents. Once you own you can never get that math right. :)

tatupu70   Mon, 16 Apr 2012, 8:59am PDT   Share   Quote   Permalink   Like   Dislike     Comment 99

bubblesitter says

Yeah,you are like spending 60 cents only,and spending NOT spending 1 $ and getting 25 cents back,so your net change is +15 cents. Once you own you can never get that math right. :)

Well, if you really want to get the math right, I'd expect one to compare renting and owning in the same city. Owning in Bay Area vs. renting in Corning, NY is a bit of a false comparison, wouldn't you say?

freak80   Mon, 16 Apr 2012, 9:11am PDT   Share   Quote   Permalink   Like   Dislike     Comment 100

tatupu70 says

Well, if you really want to get the math right, I'd expect one to compare renting and owning in the same city. Owning in Bay Area vs. renting in Corning, NY is a bit of a false comparison, wouldn't you say?

True. Unless the ability to move is part of the equation! Why pay more than you need to? There are plenty of good jobs in locations outside of the bay area. There aren't too many in Corning, NY but there are plenty elsewhere. It all boils down to what kind of job you can get vs. cost of living. The ratio isn't very good in the bay area.

tatupu70   Mon, 16 Apr 2012, 12:46pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 101

wthrfrk80 says

Unless the ability to move is part of the equation! Why pay more than you need to?

Good point. My post was mainly towards bubblesitter, but I forgot he's got me on ignore so it's a useless endeavor.

Regradless, your point is a valid one.

Clara   Mon, 16 Apr 2012, 12:57pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 102

Many of my friends bought this year. They don't look too dumb to me. They seems to be enjoying their new homes.

BoomAndBustCycle   Mon, 16 Apr 2012, 4:57pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 103

wthrfrk80 says

BoomAndBustCycle says

My monthly interest on a 4 bed/2bath pool home is only $1180 a month

The interest "only" $1180/month? You're making some banker very happy!

My rent is $750 a month. It costs me less to rent a place to live than it costs you to rent money for a place to live. And my property taxes, insurance, and maintenence are included in my rent!

Did you even read what i wrote!? It would cost me more than $1180 a month to rent a 1 bedroom 600 sq ft apt! I also pull in six figures working in the tv and film industry. I wouldnt make close to that anywhere else without going back to school and changing careers. So moving isnt a viable option or a desire.

dodgerfanjohn   Tue, 17 Apr 2012, 12:48am PDT   Share   Quote   Permalink   Like   Dislike     Comment 104

I already feel vindicated.

My employer has been dealing with their lack of incoming revenue issue for the past several years by placing employees on four furlough hours per week amoungst other measures, most of which there are lawsuits filed against at this point.

In our most recently proposed contract, the furloughs would be eliminated and we would receive a 4% cost of living increase. We would also have to give up all the lawsuits as well as contribute 8% more to vested benefits that we would be permanently voting away. Obv this is absolutely horrible.

But many of my co-workers foolishly stretched to mortgage homes. And they are bitching and whining about how much furloughs are "costing" them. LOL. Keep in mind, at least one of these people makes 30% more than me, and another makes almost twice what I do...both very well into the $100K+ range.

I rent, and even though I make substantially less, I am in a MUCH better financial situation. All furloughs mean to me is that I save $1000/mo instead of $1400-1500/mo(on top of my 457 contributions).

The difference is, I did not buy a house I cannot afford. I do not renovate a home with renovations I cannot afford. I live in a place were rent is very affordable. I have enough savings to live on well past my lease. If my income dropped substantially, I could very easily move into a place that is about 2/3 the cost of my current rental.

At this point, mortgaging a home is like throwing money away.

freak80   Tue, 17 Apr 2012, 1:13am PDT   Share   Quote   Permalink   Like   Dislike     Comment 105

BoomAndBustCycle says

I also pull in six figures working in the tv and film industry. I wouldnt make close to that anywhere else without going back to school and changing careers. So moving isnt a viable option or a desire.

As long as you make six figures you're just fine living in CA. And you're probably right, if you're in TV and film you're "stuck" in CA.

New Renter   Tue, 17 Apr 2012, 1:54am PDT   Share   Quote   Permalink   Like   Dislike     Comment 106

hanera says

No property tax and interest write-off means landlord have higher costs which would be recovered from tenants leading to increase in rentals. This would push the buy or rent equation towards rent.

And what makes you think your friendly neighborhood landlord isn't already charging you the maximum possible? Raising the rent means risking losing you as a tenant. Even in times of low vacancy this is risking a lease to a deadbeat who will trash the place upon eviction. This happened in the last apartment I rented. I found this out when I asked why the apartment had just been renovated as we were looking to rent it. Those people went somewhere, maybe they're looking to rent your place next.

New Renter   Tue, 17 Apr 2012, 1:55am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 107

Clara says

Many of my friends bought this year. They don't look too dumb to me. They seems to be enjoying their new homes.

Yes, lots of people feel great as they are GETTING herpes, not so great after.

freak80   Tue, 17 Apr 2012, 1:57am PDT   Share   Quote   Permalink   Like   Dislike     Comment 108

New renter says

Yes, lots of people feel great as they are GETTING herpes, not so great after.

Ba zing! +1.

hanera   Tue, 17 Apr 2012, 8:01am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 109

New renter says

Even in times of low vacancy this is risking a lease to a deadbeat who will trash the place upon eviction. This happened in the last apartment I rented. I found this out when I asked why the apartment had just been renovated as we were looking to rent it.

Which neighborhood of San Jose? I want to avoid that neighborhood.

thomas.wong1986   Wed, 18 Apr 2012, 5:01pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 110

mili says

Although the economic recovery remains sluggish and some fear rising interest rates, there are growing signs that this a good time to buy a house, according to a new study.

its never a question of WHEN ... but HOW MUCH ???!

for the uninformed who will overpay today! its NOT a good time to buy today.

but for the informed who will NOT overpay its a different story...

for the biggest purchase in your lifetime.. its always better to question the PRICE and not WHEN.

hanera   Wed, 18 Apr 2012, 5:05pm PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 111

http://www.mercurynews.com/business/ci_20410464/bay-area-rent-renters-expensive-squeeze-tight-market?source=email

Kennon Reinard and her husband were among those who felt the time was right. The couple has rented a two-bedroom apartment in Chicago for the past six years. Over the past month, they looked at 14 houses before making an offer of nearly $260,000 on a four-bedroom home on the Northwest side of the city.
"We've always wanted a house, but we never thought we could afford one," said Kennon Reinard, 33. "But we started noticing friends buying houses last summer and, when we checked it out, we realized we could own a whole home with a backyard without paying that much more than what we're paying in rent."
The Reinards had been socking away a portion of their paychecks for all the years they rented and both have solid credit histories. They are coming to their closing in May with a down payment of more than $25,000.
"We feel very safe in our jobs," Reinard said. "We've been pretty financially responsible so we got thumbs up after all the checks."
http://www.mercurynews.com/real-estate/ci_20416459/new-home-construction-pick-up-soon-report-suggests?source=autofeed#

StoutFiles   Thu, 19 Apr 2012, 12:23am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 112

hanera says

"But we started noticing friends buying houses last summer

But we noticed the Joneses got a new house, and we had to keep up with them! I would hope that they aren't tapping into all their savings for that paltry 10.5% down payment.

New Renter   Thu, 19 Apr 2012, 3:59am PDT   Share   Quote   Permalink   Like   Dislike     Comment 113

hanera says

New renter says

Even in times of low vacancy this is risking a lease to a deadbeat who will trash the place upon eviction. This happened in the last apartment I rented. I found this out when I asked why the apartment had just been renovated as we were looking to rent it.

Which neighborhood of San Jose? I want to avoid that neighborhood.

Foxchase by Blossom Hill and Almaden Expressway.

The complex is quite nice though and is quite reasonable when it comes to returning your deposit - at least they were with us

Shawn   Thu, 19 Apr 2012, 4:31am PDT   Share   Quote   Permalink   Like   Dislike     Comment 114

wthrfrk80 says

BoomAndBustCycle says

I also pull in six figures working in the tv and film industry. I wouldnt make close to that anywhere else without going back to school and changing careers. So moving isnt a viable option or a desire.

As long as you make six figures you're just fine living in CA. And you're probably right, if you're in TV and film you're "stuck" in CA.

I have to disagree with that. It's really frustrating to look at the census data and see that your above the average income and then talk to realtors who suggest you downsize your expectations. "You should consider a townhouse or a condo....."

Then again, I guess I never upsized the % of income I was willing to spend on housing when I moved out here, so I'm not really playing the game according to local rules.

strange little vine   Thu, 19 Apr 2012, 4:56am PDT   Share   Quote   Permalink   Like   Dislike     Comment 115

In the cities I am interested in, the average homes that are 1,200sf or less are selling for $400-$600 a square foot and the ones that are 1,300sf + are selling for $250-$400 a square foot. Most of the homes in the $250-$400sf price range are nicely remodeled, were as the homes in the $400-$600sf are mostly fixer-uppers. What is the logic behind this?

CrazyMan   Thu, 19 Apr 2012, 5:27am PDT   Share   Quote   Permalink   Like   Dislike     Comment 116

Clara says

They seems to be enjoying their new homes.

Today's buyers are tomorrow's defaulters, me thinks.

hanera   Thu, 19 Apr 2012, 8:05am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 117

Rent or buy?

Assume a 30-year fixed interest loan.

Rent: Total rents paid over 30 years is less than Interest paid over 30 years for the mortgage + Property taxes paid over 30 years + Insurance taxes paid over 30 years + Home improvements/maintenance made over 30 years

Principal repayment should not be included as it is not expenses, it is equity i.e. PITI without the P and add home improvements/maintenance.

Buy: Price of house has appreciated more than 20% of the purchase price at the end of 30 years.

bubblesitter   Thu, 19 Apr 2012, 9:11am PDT   Share   Quote   Permalink   Like   Dislike     Comment 118

hanera says

Principal repayment should not be included as it is not expenses, it is equity i.e. PITI without the P and add home improvements/maintenance.

Sure,but it has to be considered as lost "opportunity cost". For the time period of that 30 years(especially next 10 years or so) price may go down and you are just paying a $ to the bank for let's say 90 cents(assuming 10% decline with no DP on the loan) you borrowed,you are not gaining anything - Instead you could have invested that principal into something worth that fetches some money,let's say at the least 2% on a 5 year CD,yeah I'd go for that rather then having 5 years of declining home equity. PITI calculation does not include DP. If you have DP then you loose a part of DP as well. Most people here can't do the math correctly on how much is lost if the value of home sinks after one has bought - it is SIGNIFICANT. The argument I hear from the other side is,but you still pay the rent? right? sounds like speaking for Larry Yun.

hanera   Thu, 19 Apr 2012, 9:43am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 119

Bubblesitter,

For the house that I'm currently staying in, if the price of the house has not appreciated by more than 20% + opportunity cost by the end of 30 years, it is better off for me to rent it (just theoretically). Unfortunately, opportunity cost is hard to compute. For example, if at the peak of stock market in 2007, I'd invested in a very safe bank stock like C, I would have lost 90% of my investment. Whereas if I'd invested in a risky growth stock like AAPL, my investment would have tripled. To push this to the limit, if I'm a lucky person, renting would be the way to go since investing in AAPL would grow my net worth by leaps and bounds.

bubblesitter   Thu, 19 Apr 2012, 10:18am PDT   Share   Quote   Permalink   Like   Dislike     Comment 120

hanera says

Unfortunately, opportunity cost is hard to compute.

All I am saying is prices are sinking in some of high priced areas of CA and may do so for another 5 to 10 years - It is not a good time to buy when prices are sinking. I recommend renting until the prices are sinking,and buy only when price/rent makes sense. I am NOT recommending renting for life. That is why I pointed you a safe 2% CD option,at least you don't loose your $,but if you buy a property now in some insanely priced areas it'd be a bad decision - turn your 1 $ into 70 cents(loosing 2% interest on 1 $ and completely loosing 30 cents).

New Renter   Thu, 19 Apr 2012, 12:29pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 121

APOCALYPSEFUCK is Tony Manero says

No, it means waking up to a tongue bath from the harem, being carried to the dining salon by your adoring wives and fed fresh fruit from your fields, before retiring for the first orgy of the morning and later, over coffee brewed from beans from your fields, planning the afternoon's concert with the castle's music director and conductor of the resident symphony. Lunch figures in there once in a while if you can move your jaw after the orgy. . .

THANK YOU for putting things into perspective! Screw home ownership as the American dream - Sultanization, that's the dream for me!

fewy   Fri, 20 Apr 2012, 2:57am PDT   Share   Quote   Permalink   Like   Dislike     Comment 122

strange little vine says

In the cities I am interested in, the average homes that are 1,200sf or less are selling for $400-$600 a square foot and the ones that are 1,300sf + are selling for $250-$400 a square foot. Most of the homes in the $250-$400sf price range are nicely remodeled, were as the homes in the $400-$600sf are mostly fixer-uppers. What is the logic behind this?

strange little vine,

This effect is attributed to that I like to call the 650k barrier. It depends on the area but 650k is approximately the highest amount a first time home buyer with a small down payment and a FHA loan can afford. Again depending on the area once you get over 700k people tend to have 20% down payment which limits potential buyers. The next barrier if you are not looking in the fortress areas is 800k. If you want a conforming loan you will need to put down 20% and any amount over the 800k.
Smaller homes make for good rental units, if it is under 600k and you can rent it out for 2.5k some people look at this as a long term investment even if it does start with a negative cash flow.

1sfrenter   Fri, 20 Apr 2012, 4:27am PDT   Share   Quote   Permalink   Like   Dislike     Comment 123

fewy says

This effect is attributed to that I like to call the 650k barrier. It depends on the area but 650k is approximately the highest amount a first time home buyer with a small down payment and a FHA loan can afford.

We are considering (and qualify for) 90K worth of down payment assistance from the city (interest free, deferred payment, some of it entirely forgivable) and the max we are allowed to buy is 637K.

There have been 2 houses we loved that went for 650K and 675K and they were out of reach for us.

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