First-time homebuying for dummies

March 26, 2006 6:42 AM

If you were a first-time homebuyer, would you buy a home right now? Specifically, would you buy in Chapel Hill, NC?

My wife and I are moving to the Chapel Hill area this summer to attend graduate school (she'll be at UNC, I'll be at Duke). Since we know we'll be in the area at least five years, until my PhD is done, it would seem to make sense to buy if we can. But with all the talk of housing prices dropping and the housing bubble finally popping, I'm reluctant to sign up for a 30-year (fixed-rate, don't worry) mortgage and potentially be stuck with debt I can't recoup later when I sell.

The places we're looking at are mostly in the 80-120 thousand dollar range, and they're mostly townhomes and condos, if that matters to you.

If you were me, would you buy right now, or would you rent?

posted by BackwardsCity to home & garden (22 comments total)

Waiting for a bubble to burst before you buy a house fall into the same category as someone who waits for the next revision before he buys a computer. You will always be waiting.
Is there a housing bubble? Maybe. But, like so many other economic events, there is no guarantee that a busting bubble will effect different areas equally. Here in Indiana, I think a housing bubble bursting will have an enormous effect because, frankly, it's not a place people are flocking to in great numbers. Chapel Hill, on the other hand (and NC in general) probably won't suffer as much (if at all), given the popularity of the place.
If you need to get into a home, buy it. Over the course of the mortgage, you will probably go through periods where the prevailing rates are a little lower than you are paying. Then you will go through periods where the rates are higher than what you pay. That's the whole point of a fixed rate...to smooth out the ride.
posted by Thorzdad at 6:57 AM on March 26, 2006

In the $80,000-$120,000 range in a college town, I don't think you can go wrong buying. I'd go with the townhome if you can't get a free standing house. condos are only as good as their R&R's and some of those can be quite restrictive. Good luck!
posted by 45moore45 at 6:57 AM on March 26, 2006

I would think carefully about buying a condo in a downward trending market. If you do, be sure that it is within a reasonable distance to the college, has had some or all of the heavy maintenance (roofs, paving) performed recently, in a fairly good sized development,(stay away from a recently split two or three family, and older apartment buildings) I would go for a 5 year adjustable instead of a fixed. You say you plan to sell after 5 years. Go for the lower cost mortgage. Basically quality will always sell, so look at the high end of what you can afford.
posted by Gungho at 7:01 AM on March 26, 2006

Waiting for a bubble to burst before you buy a house fall into the same category as someone who waits for the next revision before he buys a computer. You will always be waiting.

Hyperbole. That said, homes in your area might be fairly or under-priced.
posted by malp at 7:56 AM on March 26, 2006

there's no reason why you can't rent for awhile and choose to buy a place later, when you've had a chance to get more familiar with the area and the market ... 80-120 probably wouldn't be too dangerous for a house ... i'm not sure that buying a townhouse or a condo would be that great a deal, but you're not taking a real big risk, either

Here in Indiana, I think a housing bubble bursting will have an enormous effect because, frankly, it's not a place people are flocking to in great numbers.

but in indiana, the prices didn't inflate as much as they have other places, so they don't have as far to fall

the people who are paying 200 - 300 on up are the ones who are really going to get burned by the market ... (adjust numbers in accordance to where you live - i'm going by s w michigan prices, which aren't much higher than indiana's)
posted by pyramid termite at 8:31 AM on March 26, 2006

There is no bubble. There are only separate regional bubbles. AFAIK, the RTP area is basically unaffected by a bubble. Checking, things are a bit more expensive than when I left in 2000, but only by a normal inflation-ey percent.

That said. Is there a strong reason why you'd want to live in Chapel Hill? I mean, that is the single most expensive city for what's gotta be ~100 miles in any direction.

You can get into a single-family house in a decent neighborhood in Durham for 120K. You might also look at Mebane, two towns N/W on 40/85. It's only ~15 minutes to Durham or Chapel Hill and (was) cheaper than either. The area south of Chapel Hill in Chatham County is likewise cheaper than Chapel Hill itself.
posted by ROU_Xenophobe at 8:45 AM on March 26, 2006

(Originally the question said Durham/Chapel Hill. I erased Durham for clarity and because I figured people would assume that Durham was on the table. It definitely is. The best places we've seen available are in Durham.

Thanks for the help so far, everyone, this is really good.)
posted by BackwardsCity at 8:48 AM on March 26, 2006

Consider the ratio of price to rent. If you can rent some place for much less than it costs to carry a mortgage, then that's a pretty strong signal that it's better to rent. If not, I'd go for it.
posted by sfenders at 9:11 AM on March 26, 2006

This is really a very difficult issue. It seems to me that it is a function of how much equity you will have in the house, the margin of discretionary income you will have after making your payments, how much of a down turn in price you could afford, the stability/growth of your equity vis a vis what you would pay in rent. blah blah blah. It would seem that the bottom line is whether or not it is a good investment assuming it does not appreciate. I think there is a real chance of a significant down turn in the real estate market (regardless of where you live) but that must be weighed against the equity that you would have in the house and your ability to weather a prolongs down turn or zero growth. Are you handy, do you have savings/discretionary income for repairs and if you did not buy how good are you at investing and managing the money you would have used as a down payment. If you are trying to finance more than 90%. have little savings or discretionary income and are not handy I would be cautious. However, it is much better to buy in the 80-120 range than go for broke (which is what you might be) with as blind belief in the appreciation of 250K plus homes.
posted by rmhsinc at 9:26 AM on March 26, 2006

Talk about your coincidences! My husband and I went to Chapel Hill just yesterday afternoon to look at houses. Our price range is a tad higher than yours, and one reason for that is related to the existing housing stock in Chapel Hill (and Carrboro). Much of the reasonably/cheap housing tends to be student housing, which does not include many upgrades, or even decent upkeep for that matter! Many homes under US$ 150,000 'tend' (I use 'tend' tentatively, someone could very easily prove me wrong) to be old (25+ years), less accessible to campus and small. That is not to say that we have not found cheaper townhouse units, they are just very shoddily constructed. I cannot say anything about Durham, we are pointedly avoiding it, given its poorly performing schools.
Then there are property taxes to think about - Chapel Hill in particular has some of the highest property taxes in the state. I have heard Durham taxes are lower, although I am not entirely certain. This is definitely something to take into consideration as well. I would definitely take what ROU_Xenophone said into consideration, there are plenty of towns in the area that could be better choices for your housing search. Good luck!
posted by msali at 9:33 AM on March 26, 2006

If you can, it's always better to own than rent. When you buy, buy smart, and you won't go wrong.
posted by growabrain at 9:43 AM on March 26, 2006

Growabrain--It certainly is not always better to buy than rent and saying "buy smat " is meaningless with out specifying the parameters of "smartness"--in many places and for many people it is more financially prudent to rent and invest in other instruments. Just google "Better to rent than buy" and start reading. It is often better to buy than rent but it depends on income, investing prowess, personal tax rate, local housing trends, length of ownership, personal level of comfort with debt, luck and the list goes on.
posted by rmhsinc at 10:08 AM on March 26, 2006

...but in indiana, the prices didn't inflate as much as they have other places, so they don't have as far to fall
Everything is relative, I suppose. Though, you'd be amazed at how many $250-350,000 homes are being planted in the areas surrounding the larger cities...especially Indy.
posted by Thorzdad at 10:19 AM on March 26, 2006

I hope to be a first-time homebuyer soon. If I were looking at it just as a financial decision, I wouldn't do it -- but emotionally, it's a good time for us.

Buying isn't going to keep us up nights worrying, but renting is causing us stress (we're having problems with our landlady, no fault of our own, and we know she's the best landlady we're ever going to have).
posted by The corpse in the library at 10:19 AM on March 26, 2006

My husband and I were in the same predicament about 2 years ago. We bought a house in Durham, which we like, but realize now that we would have made a far better choice by renting in the area first. If you are going to be here for 5 years, it makes a lot of sense to rent an apartment or condo first before committing to a mortgage. It is a renter's market here and you can get some great deals.
posted by JuliaKM at 10:47 AM on March 26, 2006

If you can, it's always better to own than rent.

More hyperbole. Buying a home is an investment. Investments carry risks. Investments with low risks tend to have low rates of return.

You can minimize the risk in buying a house by knowing what you're doing. The web has plenty of rent vs buy calculators. I suggest you try several as they use different formulas.

Also, be aware that the tax benefits of owning are overrated. The standard income tax deduction is $10k for a married couple. Interest and property taxes on a $120k house are probably less than this. Unless you have other items to deduct, you will receive no tax benefits from owning. Well, except for when you sell.
posted by malp at 11:12 AM on March 26, 2006

Yeah, I'm with malp on this. $100k doesn't sound like much when you're comparing it to homes in the northeast/west coast, but it would buy a pretty decent place in Lincoln, NE. But then, it cost $400 a month to rent in Lincoln, NE. How much are rents in D/CH? Looks like about $600/mo.

With the current average mortage rate on a 30 year loan at a bit more than 5.5%, you can get a loan of around $100k with payments that are about the same as rent. So you'd just about break even, provided you don't spend a single dime more on the home. Which is really, really unlikely.

If you were to stay for the duration of the loan, you'll spend at least the value of the home in interest. If you leave in 5 years, you'll have barely touched the principle. Personally, I'd really want to be sure of the market before taking the risk. If you're not very familiar with the area, it might be a good idea to rent for at least a year to get a feel for the different areas and get a sense of whether home prices are going up/down.

I don't think that the housing bubble matters much to areas not affected with speculatory craziness--a $100k house might drop $10k, which, though sucky, won't hurt nearly as badly as the fools shelling out $500k for a 1 bedroom in CA.
posted by Civil_Disobedient at 2:15 PM on March 26, 2006

I live just south of Chapel Hill, in North Chatham Co. The rush hour commute on 15-501 between Chapel Hill and Durham is pretty bad now, and will only get worse in the very near future as development in North Chatham is pushed to its limits. You might want to consider looking west of the 15-501 corridor between Efland in the north and White Cross in the south.

By the way, don’t even think about doing business with Lucy Davis... a lot of people have, and a lot of them have ended up regretting it.
posted by Huplescat at 2:51 PM on March 26, 2006

There is a housing bubble. It's going to burst. It's going to hurt a lot of people. There are places in the US and in the rest of the anglosphere where rental returns are deeply out of whack with house prices.

You, however, should probably buy and Chapel Hill is probably not one of those places.

The tax advantages in the US alone make it worthwhile. Check that out. My US friends who have bought love the fact that it helps them.

Chapel Hill is also a great area.

For comparison - in Melbourne, AU a good two bedroom place will cost $AU200K+. People earn approximately the same in AUD as Americans do in USD. Also, the tax advantages in AU you only get if you buy the house as second home - not if it is your primary residence. If I could buy a place I wanted for $AU120K I would immediately do so.

The best thing to do might be to draw up a spread sheet with likely returns, likely interest costs, likely appreciation and likely tax costs.
posted by sien at 3:04 PM on March 26, 2006

If you are planning on living in the house for 5 years or less, you are basically speculating on the housing market. You won't pay off much principal in that time, so you're screwed if the market stays flat or goes down. (Don't forget all the money that is lost in a real estate transaction -- closing costs & agents' fees for starters). If it's a place you could live in for 10+ years, then such a scenario isn't such a big deal.

Friday's news was particularly bad for the market.

Figure out if it is cheaper to rent for a comparable place. If it is, just invest the extra money in something a little less bubblelicious every month. Of course, $80K seems insanely cheap to me. For starter houses in Seattle, add about $300K to that price.

I don't mean to sound flip; we're actually in the same boat. My wife and I are actively looking for a new house, which would be our first, and I'm nervous. I read conflicting advice every day. Some days I feel terrible that we haven't gotten into the market by now, some days I feel terribly glad to be saving over a thousand dollars a month by renting (renting a house we couldn't afford to buy, by the way). The only thing I know for sure is that if we do buy, I am going to damn sure it's a house we can be comfortable in for a long time. I you think you're really ready to settle down, all of this market craziness is much less of an issue.
posted by _sirmissalot_ at 4:20 PM on March 26, 2006

My wife and I just moved from Chapel Hill last year, and sold a townhome in the process. Nearly everything everyone said is true: you'll get more house in Durham, you're very unlikely to do poorly in the housing market in the area. Chapel Hill is a phenomenal place to live, despite the outcries of too many taxes and such.

All that said: look in the Carrboro area. If you haven't visited, Carrboro is attached to Chapel Hill to the west...it's the more interesting, less expensive version of CH. More students, less professionals, but that means slightly lower home costs as well.

I might suggest renting for 6 months to a year, simply to get an idea of the place first. Durham might be better value now, but I'll guarantee you it won't sell as fast as a home in CH. When we sold, our townhouse went in less than 24 hours. No joke.

Feel free to email if you have questions about the area..we were there for 7 years, and still have a lot of friends. It's number one on our list of "if we could move back to..."
posted by griffey at 4:37 PM on March 26, 2006

I've lived in the area for years, mainly in Carrboro and south Durham. Housing prices are going to be much higher anywhere in the Chapel Hill/Carrboro school system because of its solid reputation and higher tax rates. I'm not going to talk badly about it, but if you are currently without kids, then this might not be such a priority right now.

Most people tend to develop strong feelings about which area they would like to live in. I'm not going to pretend to offer advice, since I don't know you. I'd recommend renting an apartment close to one of the schools. You can live here for a year and explore to find what area suits you best. This area has not been affected by a real estate bubble, so don't worry about that.

A good compromise would be North Chapel Hill, near Airport Rd, since that's in between UNC and Duke. That gets you away from 15/501 and 54 (rush hour traffic can be bad on those roads). I like Carrboro, but most of the apts there are kind of run down.

If you want to look for apts near Duke, I HIGHLY recommend Ticon Properties. They own a ton of apartment complexes in Durham and do a really good job on maintaining them. You'll be looking in North & West Durham, where 1 bedrooms run $500-600 and 2 bedrooms are $700-800. I lived in multiple Ticon apts in South Durham and they were the nicest apts I've ever lived in.
posted by Sasquatch at 9:15 AM on March 27, 2006