patrick.net

I fit in with the OP's 3 criteria. I'm 29 years old, have an 800 FICO and no debt. Our target price is $80K-$90K or less in our desired area (metro-Detroit). There are many houses for that price.

But it's not so much the house price that's holding me back. I personally think they've leveled off or prices are going slightly higher in my area. What's holding me back is job security and uncertainty. My wife is disabled and doesn't work so we don't have much "diversity" in terms of income. If I lost my job, the only backstop is going to be our savings and my ability to move wherever to find work.

We're actually leasing a house now in our desired area for $775/mo. This is a pretty good deal considering similar advertised house rentals are at least $900+. But we pay the entire year's lease upfront, which makes the landlord happy.

All the online calculators (including Patrick's) say it's best to buy in my situation. It's tough shelling out over $9K to the landlord knowing that that money could have been used for half of a downpayment. But being tied down to a building and pouring half my cash into it is hard to quantify. I guess I think of renting as "mobility insurance".

I actually had the 20% ready to put down,
but for what I finally bought for, and the interest I got.
The difference in the monthly payment with the 20% vs going with the min 3.5% was not that big of a difference.

So we decided to keep that 16.5% and use it for a cushion fund.

don't forget closing costs. not sure what its like where you guys / girl are, but out this way thy can add another 8,000 to 12,000 to the cost of buying depending on the house.

I meet the criteria and can only partially explain my gut feeling:

For the last thirty-plus years americans have had their heads in the feed bag. The political/economic leadership all the way down to the consumer/voter, have rationalized their unaccountable, self centered and highly materialistic lives with a misreading of capitalist theories and blind loyalty to the rants of neo-liberal socio-paths in the FIRE sector.

This time has come to an end. We are apparently just now entering a time of retribution and hopefully redemption. I look forward to buying a home in a society which has reclaimed a sense of virtue and moral accountability.

Currently we have not.

My cash is not on the sidelines, the bank has already lent it out to some speculator, or they are speculating with it themselves.

Glad to be of assistance. NOT!

We're able to buy in cash - have no desire for a mortgage. I don't understand the logic of paying 3x what an item is worth.

We currently rent because:

1) Prices are still falling
2) Homes are not in line with 3x income levels
3) We're not sure where we'll be living long term
4) Too much economic garbage coming down the pipeline

Buy gold. Plant potatoes. Live debt free.

Debt is slavery.

joshuatrio says

I don't understand the logic of paying 3x what an item is worth.

It's called the time value of money.

http://en.wikipedia.org/wiki/Time_value_of_money

You're not actually paying 3X what an item is worth because the value of future money is not the same as the value of money today.

Fuck 20% down. I'd buy in 100% cash today if the prices were reasonable. I've got $200k+ tucked away in non-retirement, liquid accounts and no debt since mid-1998. Just before the bubble started, that would be enough to buy a decent, brand new, 3 bed / 2 bath, 2000 sq.ft. single family detached, middle class house on a 1/3rd acre lot in south Florida.

I see no reason to pay more for a house today. Given wage depression, consumer withdraw, and the bubble burst, I should pay less for that house or pay the same amount for a better house.

I'm certainly in position to move when the market is right, but I'm in no hurry. Worst case scenario, I'll say fuck it to south Florida and move somewhere cheaper in the Bahamas. With the direction the software industry is taking, it may be inevitable that all software developers just have to directly market their own software rather than working for corporations, in which case, I might as well be living in the Bahamas.

In my opinion, I think most if not all of the people who read this blog have something called 'intelligence'.

Nomograph,
That weed comment made me LOL
Thanks

Seriously, owning a home might be a 'less than average investment' for most americans for the next 20 years. I'm basing this on the prolonged drag out in the crash - prices should have crashed way way lower than they did. Sooo 20 years of 'appreciation' is already in the bag when you buy in Coastal US now - thus no future appreciation.

PockyClipsNow says

Seriously, owning a home might be a 'less than average investment' for most americans for the next 20 years.

Home appreciate will come back when the last Baby Boomer has died of old age and the Millennials have paid off their college debt. So we're talking 2050. Until then, expect no appreciation in real dollars for homes.

For the current generation of buyers, a house is only going to be a place to live in.

I fit all the criteria, and I'll probably pull the trigger next year.

I'm just a little concerned about all the government props, and politics that is going to occur next year. Is this going to jiggle prices either way? I'm not sure, but I know for a fact that places I'm looking at are at rental parity, if that means anything.

The GOP says

I actually had the 20% ready to put down,
but for what I finally bought for, and the interest I got.
The difference in the monthly payment with the 20% vs going with the min 3.5% was not that big of a difference.

So we decided to keep that 16.5% and use it for a cushion fund.

William E Baughb

What amount of PMI were you hit with? I hear that 1.15% is the norm...

ie: on a $100,000 loan, that would be ~$96/mo

I am in the same boat right now where I am eligible to buy with FHA and split 50/50 on whether I want to buy with 20% down or instead buy with 3.5% down and use the remaining down payment for another property shortly after

Hysteresis says

i can. i'll buy when 1) prices stop falling 2) they are flat or increasing for a year or three 3) real estate is back to "normal"; no government nonsense propping up markets, foreclosures are at normal level, employment is healthy, debt-to-income are at normal levels, interest rates are at more normal levels, etc.
in other words i'll buy when i'm convinced the down trend in prices is over, even if it means i miss the bottom and prices tick up. they're still dropping and i expect better (read: lower) prices next year.
having said that i'm convinced we(sideline buyers) are in the very tiny minority.

I'm split in the following categories:

#1 - Your position

#2 - Sadly, timing has a huge influence on our affluence. Life is short and many people aren't willing to wait on the sidelines for an ambiguous definition of the right time to buy. Of course renting is always an option obviously. However, prices have dropped significantly over the past few years and interest rates are at historical lows. That's enough for a lot of people to move foward...

#3 - Patrick actually really turned me on to viewing home value in terms of annual rent:price ratio. Although there is a strong correlation between this ratio and the price of the home (higher class areas with more expensive homes generally have a lower ratio while lower class areas with cheaper homes generally have a higher ratio). Any home I buy, I'd like to be sure I can rent it out in the ballpark of the monthly mortgage amount to mitigate risk.

Well, it would seem that p.net has a bunch of savers posting in here. I don't think I can name anyone that I know that has six-figure cash savings. So, I guess this isn't the most representative sampling of "the market" haha.

I suppose that the original post might seem a bit "loaded" to folks that don't have a 20%-plus-expenses cash pile. Let's see, how many folks posted in here, out of the number of regular posters? No, I am not trying to be a dick about it. I really would like to get a feel for how many "people with an interest in buying" have amassed a reasonable pile of cash. P.net users do seem to be a bit more "with it" than typical home-buyers, so I don't really expect this to be a useful statistical study outside of this site in the end.

thomas.wong1986 says

oddhack says

Are you seriously claiming that BA housing prices have not fallen?

Yes, they have fallen. And will continue to fall back to long term trend.

Hi Thomas,

Do you have one of those for LA county by chance?

FortWayne says

Do you have one of those for LA county by chance?

Here it is.

http://www.housingbubblebust.com/OFHEO/Major/SoCal.html

I have about $110,000 in cash, non-retirement stocks (mostly inverse ETFs right now while Europe burns), and physical gold/silver. I am 36, and my wife and I have two young daughters. We rent in the San Gabriel Valley area of So Cal for $2000 per month in a nice townhome (no yard, though).

I see little chance of us buying in So Cal, due to demographic changes over the past half decade or so that are not what we would like to raise our family around for the next 20-30 years (we'll have more kids). However, I am a public school teacher, and, for the time being, I make more money here than I would elsewhere. So, the plan is, stay here until the CA public employee jig is completely up and I either a) lose my job or b) have my salary cut by about 1/3. I figure this will happen no later than Spring 2013. At that time, I will suck it up and buy (most likely Nashville) for mostly (hopefully all) cash, while keeping at least 2 years of "mortgage payments" in reserves. I will most likely look for a teaching job there in Tennessee next school year, to start in Fall 2013. So, to answer your question...mid 2013.

bmwman91 says

Here are the criteria for "who has cash on the sidelines."
- You have enough cash right NOW to put 20% down...
- ...on a SINGLE FAMILY HOME...
- ...in an area that you are coveting / want to live in long-term...
- ...PLUS >6 months of living expenses in cash.

I sort of fit, sort of don't, depending on what kind of SFH we're talking about. For low end starter style SFH w/ carport, sure no problem. For high end SFH, well, I don't have a half million cash and do I want it sitting in the bank doing nothing much for me? No way.

In addition to that, I gotta take care of closing cost, fixing up/remodeling cost, and appliances/furniture cost if that is needed. I can't be driving my old car forever, so... that will be another chunk, out of my fund.

That's why I put in the criteria about WANTING to live in the house. I can afford all sorts of stuff too, but I really don't want to buy it!

tatupu70 says

joshuatrio says

I don't understand the logic of paying 3x what an item is worth.

It's called the time value of money.

http://en.wikipedia.org/wiki/Time_value_of_money

You're not actually paying 3X what an item is worth because the value of future money is not the same as the value of money today.

Yeah Tapabootie , you're right. But it's even more foolish paying 3 TIMES AS MUCH on a DEPRECIATING "asset."

You're statement could also imply that car payments/debt over a period of time is "smart." Do you have car payments?

Either way, I'm a cash buyer. Renting is our choice. That's what I'm comfortable with in this economy.

Years ago I was saving for a house but changed my mind. I was looking at Nevada...boy did it tank...Reno is doing much better than vegas though.

I am on Cape Cod and the bubble has been rather extreme here. Already in 1999 I thought prices had ramped up too fast. In 99 I was single and now I have a wife and kid, and all the while I've been saving and renting. My wife and I have small businesses and are doing great. We want to get as much house and lush land as we can for around 200k. We can put half down and just might do that. The payment will be a breeze for us, but we don't need a big house, we are fine with 1500sq ft. and a big yard.

We just wish the banks would hurry up and put the inventory on the market. Nothing is moving here, it's all overpriced. I will casually make some super low ball offers in January.

All that said, we don't really give a crap about buying because we are too busy working, making money and enjoying life. And i am not the normal person because I have the luxury of a very nice house for cheap rent because my parents own several homes and I rent from them.

One great thing about all of this housing market stuff is the sociological impact. We forgot all about the phony social status house "ownership" may give us ages ago. You don't hear many couples bragging about their swanky places these days which is nice. All of the chest puffing people were doing as fake equity rose is sort of embarrassing now. It's like bling bling days are over. Do people still drive escalades ?

The current situation here in NoVA is eerily similar to 2005: Prices are going up modestly, 4% per year, but few units are being sold. Because "real estate ALWAYS goes up" is again the mantra, sellers are refusing to mark down and instead taking their units off the market until they can get what they paid for it or think they deserve. In the meantime, I refuse to pay $600K for a shack or $400K for a mere townhouse in the suburbs when these same places were going for half that a mere 10 years ago.

What has changed since 2006, really? Not much. Still plenty of federal money being printed up at the Fed and slushed over here. In theory, prices should be shooting for the roof like in 2004 but at least BUYERS have learned something if sellers have not. So there are some knife catchers out there and they're fueling that apparent 4% increase but they are the apparent minority (otherwise, why not go back to 20% year to year increases?)

If there's even a slight hiccup in federal outlays here, that's the end of the housing cash cow and in NoVA, that's military and civilian contracts scheduled to be cut by the supercommittee default in about a year. Sounds like 2 years wait should do the trick for smart buyers sitting on the sidelines.

If you really think about it, why did they raise the FDIC insurance from 100k to 250k? A hunch tells me it is because tons of people have over 100k sitting around.

joshuatrio says

But it's even more foolish paying 3 TIMES AS MUCH on a DEPRECIATING "asset."

Buying a depreciating asset is always a bad move. Of course. If you think that will be the case, then you definitely shouldn't buy.

joshuatrio says

You're statement could also imply that car payments/debt over a period of time is "smart." Do you have car payments?

I don't have car payments at the moment. But you are correct that it could be a smart move to finance. If inflation is running 3% and you can get 1.9% financing, then it would make sense to finance.

joshuatrio says

Either way, I'm a cash buyer. Renting is our choice. That's what I'm comfortable with in this economy.

If that's what you are comfortable with, then you are doing the right thing.

I have 40-50% down for a home in the area in which I am interested (LA beach cities), plus a fairly well funded retirement and 6+ months reserves. I have made offers on 4 homes, been interested in maybe 8. Got one; canceled during the inspection period (more damage than I had hoped). I've been looking for about 18 months. I sold my house in 2008, about 6 months after the downward slide began in the area. Been renting at a rate that is less than my post tax deduction outlay for my previous home and probably 70% of what the next house will cost. Socking the excess away to by applied to one of the above pots.

I fit the criteria (over $100k in the bank), and that would still be true even if the condo I already own were to vanish into thin air.

What I really want to do is buy my next home, in Manhattan or Brooklyn, now and let renters pay my mortgage until it's time to move back there. I actually find myself researching that more and more (and with co-ops it's quite hard to do).

I'm scared stiff of inflation and am tired of seeing prices go up while my bank account pays 0.2% and my CDs pay 0.4%. I just want to get my money into some kind of safe shelter -- I earned that cash through hard labor!

Flawed question. There is no such thing as "money on the sidelines." When you use your money on the sidelines to buy a house, that money goes back to the sidelines in someone else's hands.

bighorse says

If you really think about it, why did they raise the FDIC insurance from 100k to 250k? A hunch tells me it is because tons of people have over 100k sitting around.

Yeah, but how many of those people were too stupid not to realize how to have more than $100K FDIC-protected?

We fit the criteria: Been saving for about 8-9 years, have retirement investments, etc etc. Could put down probably 50-60% depending on the price in the Bay Area. Buying all cash seems financially dumb.

The issue at hand is that for years I've been flipping back and forth on where to live. Part of me wants to stay here. We could do it no problem. On the other hand we could basically semi-retire just about anywhere else with what we've saved. I worked my way up in my career, starting at $8 an hour and eventually making 6 figures. I know what its like to be poor and make decisions at the supermarket. Thus I'm hesitant to blow tons of money on a house.

So in the meantime we save. Not like that's going to hurt anything.

edvard2 says

Buying all cash seems financially dumb.

Well in this market you get better deals open up to you when you're offer is all cash. You can always refinance and take out a mortgage later. Which was my plan when I bought my last house all cash but something funny happened on the way to getting the mortgage. There's a certain peace of mind with owning free and clear and having no monthly payments.
I kind of like it.

My income stayed the same but now I'm saving about 3 time faster so maybe not the most optimal use of funds it's been working out ok.

toothfairy says

Well in this market you get better deals open up to you when you're offer is all cash. You can always refinance and take out a mortgage later.

Two possible problems with that plan I can think of:

1) if you later refi after buying cash, your loan is recourse in states like California where purchase money is non-recourse.
2) the refi market could seize up as it did a few years ago

But you're right that many of the better deals are cash lately.

toothfairy says

Well in this market you get better deals open up to you when you're offer is all cash. You can always refinance and take out a mortgage later. Which was my plan when I bought my last house all cash but something funny happened on the way to getting the mortgage. There's a certain peace of mind with owning free and clear and having no monthly payments.

Most financial advisers will tell you not to pay all-cash for a house. Reason being that you suddenly tie up a huge amount of cash into a single investment versus having that handy for other investments. Mortgages are cheap. That isn't to say that if the house was cheap enough I wouldn't do this- as in 200k or so, but most definitely not on a 500k house. Besides, if you have enough cash to buy a house outright then you'll have enough to pay for a mortgage.

edvard2 says

Most financial advisers will tell you not to pay all-cash for a house. Reason being that you suddenly tie up a huge amount of cash into a single investment versus having that handy for other investments.

Yes, shit can happen. I have a buddy who went all-in into buying a house a few years ago and got a little over-extended temporarily. He had what seemed to be a massive pile of cash in stock, but between contract and escrow, the stock price dropped significantly. He makes good money and figured it all out, but it was not easygoings there for a while.

You could also have other problems. For a California example, most people don't have earthquake insurance, and generally speaking earthquake insurance isn't cheap and doesn't always cover very much (the deductible is very high).

There can be benefits too, and it might make sense in certain cases where it's not your entire cash position, as edvard said.

corntrollio says

There can be benefits too, and it might make sense in certain cases where it's not your entire cash position, as edvard said.

FWIW, I invested my entire cash position in buying my condo (my savings went from six figures to two, temporarily), and in just three years am almost back where I was before. If you're confident that you can build up your savings immediately after buying the property, do it! I don't have kids yet, and have a stable job, so I took the plunge. The peace of mind has been worth it from the start!

Michinaga says

FWIW, I invested my entire cash position in buying my condo (my savings went from six figures to two, temporarily), and in just three years am almost back where I was before. If you're confident that you can build up your savings immediately after buying the property, do it! I don't have kids yet, and have a stable job, so I took the plunge. The peace of mind has been worth it from the start!

+1

Michinaga says

corntrollio says

There can be benefits too, and it might make sense in certain cases where it's not your entire cash position, as edvard said.

FWIW, I invested my entire cash position in buying my condo (my savings went from six figures to two, temporarily), and in just three years am almost back where I was before. If you're confident that you can build up your savings immediately after buying the property, do it! I don't have kids yet, and have a stable job, so I took the plunge. The peace of mind has been worth it from the start!

This is my plan. When a property comes along that like and want to live on, and the cost is of an amount that leaves me able to stash away some cash while making more than the minimum monthly payment, I will be fine with it.