Buying a house in Chicago - good or bad?
August 10, 2007 2:49 PM Subscribe
Given the current market situation, should I buy a condo in Chicago?
I'm aware of the existing question with applications to the UK. This is regarding the U.S., specifically Chicago.
I am looking to purchase a condo - for my own residence - in Chicago (downtown, $300,000-$350,000). I have a great buyer's agent. I know exactly what I want.
I am just worried about all the talk of a housing market collapse...upside-down mortgages...recession.
Am I, an average Joe(sephine) going to get caught up in all this? Is it prudent to wait? If so, how long?
I am currently in a month-to-month renting situation that can continue indefinitley. I'm doing OK on money, and am planning on a 20% down, 30 year fixed mortgage. As of this morning, interest rates from my 3 lenders ranged between 6.32%-6.7%.
Any advice is, as always, deeply appreciated.
I'm aware of the existing question with applications to the UK. This is regarding the U.S., specifically Chicago.
I am looking to purchase a condo - for my own residence - in Chicago (downtown, $300,000-$350,000). I have a great buyer's agent. I know exactly what I want.
I am just worried about all the talk of a housing market collapse...upside-down mortgages...recession.
Am I, an average Joe(sephine) going to get caught up in all this? Is it prudent to wait? If so, how long?
I am currently in a month-to-month renting situation that can continue indefinitley. I'm doing OK on money, and am planning on a 20% down, 30 year fixed mortgage. As of this morning, interest rates from my 3 lenders ranged between 6.32%-6.7%.
Any advice is, as always, deeply appreciated.
Response by poster: I'll be there at least 5 years. This would not be my "end all and be all" house, rather, a place to live until I meet the man of my dreams and start a family (I am 27).
posted by BuddhaBelly at 3:04 PM on August 10, 2007
posted by BuddhaBelly at 3:04 PM on August 10, 2007
If you don't spend more than you can afford and don't get more mortgage than you need and pick a lender that does not sell its loans (my credit union--my mortgage lender retains 100% of its mortgages), there is no need to fear purchasing a condo in this market, particularly not if you anticipate remaining in it for five years.
posted by crush-onastick at 3:38 PM on August 10, 2007
posted by crush-onastick at 3:38 PM on August 10, 2007
Why would it be bad for a lender to sell its loans?
posted by croutonsupafreak at 4:45 PM on August 10, 2007
posted by croutonsupafreak at 4:45 PM on August 10, 2007
Why would it be bad for a lender to sell its loans?
I asked that very question in a related MeFi thread. Quick answer: it's bad because the lender might care less about whether you'll be able to repay the loan. (If the lender can/does sell the loan, it becomes somebody else's problem.)
posted by spacewrench at 5:07 PM on August 10, 2007
I asked that very question in a related MeFi thread. Quick answer: it's bad because the lender might care less about whether you'll be able to repay the loan. (If the lender can/does sell the loan, it becomes somebody else's problem.)
posted by spacewrench at 5:07 PM on August 10, 2007
From what I've heard on the periphery (via friends, casual news stories, etc) the housing market in Chicago is some or all of the following:
1. Insulated from much of the rest of the nation because people are "always" likely to want to live here, unlike freaky no-name over built sub and ex "urbs" in shit states like Florida and Texas.
2. Slowing some due to the fact that builders have over saturated the market with condos.
3. Under going a very minor adjustment in values as the speculation market cools.
Basically what I've gathered is that the whole "flip a condo" and walk away with $50,000 profit (or whatever) is increasingly becoming a pipe dream and that the people who bought in the past few years who were hoping to make a killing as property values rose (rather than plateaued which is whats happening) aren't going to be too happy.
If your goal is to buy a place in order to save money (while building equity) over renting and you're not looking to sell in a few years for the exclusive goal of profiting from your property then I say go for it.
Anecdotally I have a friend who bought a one bed room condo (in a six unit building) last year and dropped what I considered an absurd amount of money on it (about $290k) in yuppiefied Lincoln Park. His whole purpose for buying the condo was the thought that he could turn around in a year or two and sell it while pocketing tens of thousands of dollars in appreciation. Now he's getting married and the one bedroom isn't cutting it now that there are two people living there. He's thinking about putting it on the market, and realizing that he may actually loose money on the property (because he overpaid.)
Alternatively I have some friends who just bought their first house (a handsome older brick bungalow) in need of some TLC in Humboldt Park. Its a wonderful two story house with a full basement, front and back yard, and a two car garage. The spent $250k and got about an $8,000 credit from the city for settling there. Sure, they are spending some money having the house replumbed and electrified, but in the end I think they will come out far better than my impulsive condo-owning friend...
posted by wfrgms at 6:00 PM on August 10, 2007
1. Insulated from much of the rest of the nation because people are "always" likely to want to live here, unlike freaky no-name over built sub and ex "urbs" in shit states like Florida and Texas.
2. Slowing some due to the fact that builders have over saturated the market with condos.
3. Under going a very minor adjustment in values as the speculation market cools.
Basically what I've gathered is that the whole "flip a condo" and walk away with $50,000 profit (or whatever) is increasingly becoming a pipe dream and that the people who bought in the past few years who were hoping to make a killing as property values rose (rather than plateaued which is whats happening) aren't going to be too happy.
If your goal is to buy a place in order to save money (while building equity) over renting and you're not looking to sell in a few years for the exclusive goal of profiting from your property then I say go for it.
Anecdotally I have a friend who bought a one bed room condo (in a six unit building) last year and dropped what I considered an absurd amount of money on it (about $290k) in yuppiefied Lincoln Park. His whole purpose for buying the condo was the thought that he could turn around in a year or two and sell it while pocketing tens of thousands of dollars in appreciation. Now he's getting married and the one bedroom isn't cutting it now that there are two people living there. He's thinking about putting it on the market, and realizing that he may actually loose money on the property (because he overpaid.)
Alternatively I have some friends who just bought their first house (a handsome older brick bungalow) in need of some TLC in Humboldt Park. Its a wonderful two story house with a full basement, front and back yard, and a two car garage. The spent $250k and got about an $8,000 credit from the city for settling there. Sure, they are spending some money having the house replumbed and electrified, but in the end I think they will come out far better than my impulsive condo-owning friend...
posted by wfrgms at 6:00 PM on August 10, 2007
Condo prices, more so in the burbs than in the city though, are the hardest hit in these real estate slowdowns. What happened to condo prices in that neighborhood during the 1988-89 real estate slide? I think that would be relevant.
posted by caddis at 6:20 PM on August 10, 2007
posted by caddis at 6:20 PM on August 10, 2007
I am just worried about all the talk of a housing market collapse...upside-down mortgages...recession.
This is largely affecting people that have already purchased homes, not new buyers, provided they are not locking themselves into silly mortgages (essentially repeating the mistakes of others). As a new buyer, you get to capitalize on the mistakes of others that have driven down prices.
Forget the calculators -- they assume you're able to make back in interest from your savings what you would in equity, which is not always possible or easily done. If you expect to stay in one place for 3-5 years, buying is almost always better than renting.
posted by Cool Papa Bell at 6:46 PM on August 10, 2007
This is largely affecting people that have already purchased homes, not new buyers, provided they are not locking themselves into silly mortgages (essentially repeating the mistakes of others). As a new buyer, you get to capitalize on the mistakes of others that have driven down prices.
Forget the calculators -- they assume you're able to make back in interest from your savings what you would in equity, which is not always possible or easily done. If you expect to stay in one place for 3-5 years, buying is almost always better than renting.
posted by Cool Papa Bell at 6:46 PM on August 10, 2007
buying is almost always better than renting.
buying in the shadow of a 50-100% run-up in prices, with the goofy financial products that drove these prices up now being removed, however . . .
What the poster needs to do is CLOSELY TRACK what the market is doing . . . find a building you want to buy into and monitor when units are listed, how long they stay up, and the final price (via eg. zillow.com) if/when they move.
I've been doing this on a complex in N San Jose for about a year now.
By all means, if buying saves you money over renting, buy away. If not, then the dynamic becomes a race between your landlord and Mr Smith as to when the decision to buy makes sense.
posted by Heywood Mogroot at 8:22 PM on August 10, 2007
buying in the shadow of a 50-100% run-up in prices, with the goofy financial products that drove these prices up now being removed, however . . .
What the poster needs to do is CLOSELY TRACK what the market is doing . . . find a building you want to buy into and monitor when units are listed, how long they stay up, and the final price (via eg. zillow.com) if/when they move.
I've been doing this on a complex in N San Jose for about a year now.
By all means, if buying saves you money over renting, buy away. If not, then the dynamic becomes a race between your landlord and Mr Smith as to when the decision to buy makes sense.
posted by Heywood Mogroot at 8:22 PM on August 10, 2007
"...pick a lender that does not sell its loans..."
The only reason something like this matters to the person taking the mortgage is the off chance that they will end up with a crappy servicing company that has "unusually slow" mail delivery. I personally wouldn't make it part of my search to find a good rate, which is much more important. I would, though, look at credit unions first because that is generally where the best deals are anyway.
As for purchasing right now, that's a tough one. I would avoid like the plague anything that has been flipped recently. The flipped properties are easy to spot by looking at the sales histories. If the condo you're looking at has recently been owned by an LLC and jumped in value an inordinate amount, avoid it. I would also avoid "up and coming" areas in favor of more established areas.
I don't know anything about the Chicago condo market but I do know about the midwestern residential properties and I can tell you that vast majority are priced over what I would expect their value to be. The question that is important to you is whether or not they will retain that value while the rest of the economy catches up (their price will stagnate) or whether their value will drop because people can't afford to hold them while they wait for the rest of the economy to catch up.
"This is largely affecting people that have already purchased homes, not new buyers, provided they are not locking themselves into silly mortgages (essentially repeating the mistakes of others). As a new buyer, you get to capitalize on the mistakes of others that have driven down prices."
I disagree, if there is a crash this person will be purchasing right near the top of the market. If they want to take advantage of the stagnant market they should be looking at foreclosed HUD homes (easiesr to find) or houses with some equity in them that are about to be foreclosed upon (harder to find), which it doesn't sound like they are.
In any market there ar deals to be had but this is a tough time to be a both a buyer and a seller. Right now, I'd be looking for the deal rather than exactly what I wanted in a condo.
posted by 517 at 9:23 PM on August 10, 2007
The only reason something like this matters to the person taking the mortgage is the off chance that they will end up with a crappy servicing company that has "unusually slow" mail delivery. I personally wouldn't make it part of my search to find a good rate, which is much more important. I would, though, look at credit unions first because that is generally where the best deals are anyway.
As for purchasing right now, that's a tough one. I would avoid like the plague anything that has been flipped recently. The flipped properties are easy to spot by looking at the sales histories. If the condo you're looking at has recently been owned by an LLC and jumped in value an inordinate amount, avoid it. I would also avoid "up and coming" areas in favor of more established areas.
I don't know anything about the Chicago condo market but I do know about the midwestern residential properties and I can tell you that vast majority are priced over what I would expect their value to be. The question that is important to you is whether or not they will retain that value while the rest of the economy catches up (their price will stagnate) or whether their value will drop because people can't afford to hold them while they wait for the rest of the economy to catch up.
"This is largely affecting people that have already purchased homes, not new buyers, provided they are not locking themselves into silly mortgages (essentially repeating the mistakes of others). As a new buyer, you get to capitalize on the mistakes of others that have driven down prices."
I disagree, if there is a crash this person will be purchasing right near the top of the market. If they want to take advantage of the stagnant market they should be looking at foreclosed HUD homes (easiesr to find) or houses with some equity in them that are about to be foreclosed upon (harder to find), which it doesn't sound like they are.
In any market there ar deals to be had but this is a tough time to be a both a buyer and a seller. Right now, I'd be looking for the deal rather than exactly what I wanted in a condo.
posted by 517 at 9:23 PM on August 10, 2007
The last two answers mention what I call "catastrophe language". Like "50-100% run-ups" and "crash." And, unlike a stock market scenario, where Pets.com literally goes bye-bye, it's just not ever the reality with real estate. Scarlett O'Hara's dad was right about one thing, and that's "land is the only thing that matters," because it's the one thing they're not ever making more of.
Do the research. If it's right for you, it's right for you. But don't buy into the catastrophe language.
posted by Cool Papa Bell at 9:42 PM on August 10, 2007
Do the research. If it's right for you, it's right for you. But don't buy into the catastrophe language.
posted by Cool Papa Bell at 9:42 PM on August 10, 2007
The only reason something like this matters to the person taking the mortgage is the off chance that they will end up with a crappy servicing company
there's also the issue of (possibly) being able to renegotiate terms when talking to the noteholder. Modern-day loans that have been bundled into debt instruments don't (currently) have this option, from what I've read at least.
or houses with some equity in them that are about to be foreclosed upon
all the RE genius fliptards are moving onto this beat.
posted by Heywood Mogroot at 9:43 PM on August 10, 2007
there's also the issue of (possibly) being able to renegotiate terms when talking to the noteholder. Modern-day loans that have been bundled into debt instruments don't (currently) have this option, from what I've read at least.
or houses with some equity in them that are about to be foreclosed upon
all the RE genius fliptards are moving onto this beat.
posted by Heywood Mogroot at 9:43 PM on August 10, 2007
But don't buy into the catastrophe language
dude, you just wake from a 5 year coma? Until last month I thought the "Housing Panic" and "Housing Doom" blogs were a bit drama-queeny, but recent events have certainly borne those names out.
Here's a graph of my world -- the kind of unit I'm tracking where I live.
The 2005 zoom-up was driven by:
Lenders qualifying borrowers on the teaser portion of 2/28s
stated income liar loans bringing more bidders into the market
IO / Neg-Am "affordability" products
Piggy-back (100%) financing also widening the market
the speculative premium
Minimal risk premiums for Jumbo loans
All the above factors are GONE right now -- REMOVED from the playing board. I'm not saying prices here HAVE to return to the 2002-2004 plateau, but I'm very curious as to what's going to drive them any higher.
For me, right now, renting in this flat market is saving me around $4000/yr. My landlord knows this and is tightening the screws to the tune of 10%/yr.
posted by Heywood Mogroot at 9:56 PM on August 10, 2007
dude, you just wake from a 5 year coma? Until last month I thought the "Housing Panic" and "Housing Doom" blogs were a bit drama-queeny, but recent events have certainly borne those names out.
Here's a graph of my world -- the kind of unit I'm tracking where I live.
The 2005 zoom-up was driven by:
Lenders qualifying borrowers on the teaser portion of 2/28s
stated income liar loans bringing more bidders into the market
IO / Neg-Am "affordability" products
Piggy-back (100%) financing also widening the market
the speculative premium
Minimal risk premiums for Jumbo loans
All the above factors are GONE right now -- REMOVED from the playing board. I'm not saying prices here HAVE to return to the 2002-2004 plateau, but I'm very curious as to what's going to drive them any higher.
For me, right now, renting in this flat market is saving me around $4000/yr. My landlord knows this and is tightening the screws to the tune of 10%/yr.
posted by Heywood Mogroot at 9:56 PM on August 10, 2007
dude, you just wake from a 5 year coma? ... Here's a graph of my world
And here's a graph of THE world.
Or rather, the median home prices in the U.S. in the last 40 years. Notice the constant rise in median home prices. Notice the ups and downs of price growth. Notice also that it's ALL growth -- never a negative number in 40 years. This same pattern gets repeated everywhere. Except maybe Kansas.
Money quote from the page about California:
California has shown price declines, but nothing comparable to famous bubbles of the past. Japan's Nikkei bubble declined to 19.53% of its former value. The NASDAQ bubble declined to 21.6% of its former value. There has never been anything like that in real estate and it does not appear there will be.
Don't buy into catastrophe in real estate.
posted by Cool Papa Bell at 12:32 AM on August 11, 2007
And here's a graph of THE world.
Or rather, the median home prices in the U.S. in the last 40 years. Notice the constant rise in median home prices. Notice the ups and downs of price growth. Notice also that it's ALL growth -- never a negative number in 40 years. This same pattern gets repeated everywhere. Except maybe Kansas.
Money quote from the page about California:
California has shown price declines, but nothing comparable to famous bubbles of the past. Japan's Nikkei bubble declined to 19.53% of its former value. The NASDAQ bubble declined to 21.6% of its former value. There has never been anything like that in real estate and it does not appear there will be.
Don't buy into catastrophe in real estate.
posted by Cool Papa Bell at 12:32 AM on August 11, 2007
One of the reasons that people are losing their homes is that they have adjustable rate mortgages. When the rates were low, all was well. When the rates rose, they were unable to make their payments and lost everything. Beware.
When you get to the buying stage, it is a good idea to have a certified inspector look over the property before signing anything. Your lender may insist on it.
posted by Cranberry at 12:40 AM on August 11, 2007
When you get to the buying stage, it is a good idea to have a certified inspector look over the property before signing anything. Your lender may insist on it.
posted by Cranberry at 12:40 AM on August 11, 2007
CPB: Median Prices are NOT what individual properties are trending at. We don't buy the median, we buy a friggin' house.
This is basic stuff here. Median prices are driven by what people can borrow. How much house they're getting for the money is the question.
California has shown price declines, but nothing comparable to famous bubbles of the past
""We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,' Mozilo said during the call."
Get back to your cave for another 40 winks CPB, you're not helping here.
posted by Heywood Mogroot at 10:00 AM on August 11, 2007
This is basic stuff here. Median prices are driven by what people can borrow. How much house they're getting for the money is the question.
California has shown price declines, but nothing comparable to famous bubbles of the past
""We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,' Mozilo said during the call."
Get back to your cave for another 40 winks CPB, you're not helping here.
posted by Heywood Mogroot at 10:00 AM on August 11, 2007
Cool Papa Bell is missing some important points about the real estate market:
1) Yes, in all the real estate market has always gone up. But it's very regional; there have been huge price collapses in certain areas which have taken many years to recover. In other words, if you bought 50 houses, each in a totally different market, the total value would - based on history - increase in actual dollars each year. But in reality, in some years the value of many of those fifty houses would decrease.
2) The 'easy money' of home loans has never been as over-the-top as it is now, so previous history may not be as meaningful as one may think. And most important . . .
3) Yes, housing has "gained" every year. But it HASN'T GAINED every year in relation to inflation - even when measured against the chart provided by Cool Papa Bell. In fact, some years the "real" (i.e. constant dollar) value has been terrible. So in reality, when measured against what a dollar actually buys, there have been many years with "real" decreases in home value. Probably about a third of the years shown on the graph. The National Association Of Realtors (who provided the info) doesn't want you to realize this, so the graph is shown in actual dollar figures, not constant dollar figures. And people, as can be seen, don't interpret these purposefully deceptive charts very well.
There was a study of real estate values in Holland, which found that housing values have basically increased at exactly the same rate as the cost of living for over 400 years! What this means is that housing may see some years with spectacular increases relative to inflation, but that, in time, these increase will also be matched by decreases which bring the net equation to something of a match.
I wouldn't buy a condo now; the rental market is good for the renter and I think you'd be better off waiting. Keep saving your pennies and your right time will come.
posted by Dee Xtrovert at 10:02 AM on August 11, 2007
1) Yes, in all the real estate market has always gone up. But it's very regional; there have been huge price collapses in certain areas which have taken many years to recover. In other words, if you bought 50 houses, each in a totally different market, the total value would - based on history - increase in actual dollars each year. But in reality, in some years the value of many of those fifty houses would decrease.
2) The 'easy money' of home loans has never been as over-the-top as it is now, so previous history may not be as meaningful as one may think. And most important . . .
3) Yes, housing has "gained" every year. But it HASN'T GAINED every year in relation to inflation - even when measured against the chart provided by Cool Papa Bell. In fact, some years the "real" (i.e. constant dollar) value has been terrible. So in reality, when measured against what a dollar actually buys, there have been many years with "real" decreases in home value. Probably about a third of the years shown on the graph. The National Association Of Realtors (who provided the info) doesn't want you to realize this, so the graph is shown in actual dollar figures, not constant dollar figures. And people, as can be seen, don't interpret these purposefully deceptive charts very well.
There was a study of real estate values in Holland, which found that housing values have basically increased at exactly the same rate as the cost of living for over 400 years! What this means is that housing may see some years with spectacular increases relative to inflation, but that, in time, these increase will also be matched by decreases which bring the net equation to something of a match.
I wouldn't buy a condo now; the rental market is good for the renter and I think you'd be better off waiting. Keep saving your pennies and your right time will come.
posted by Dee Xtrovert at 10:02 AM on August 11, 2007
Dee: but it's good to lock in a fixed expense for one's housing even (especially!) if inflation is raging . . . especially in Prop13 land . . . my mom's house purchased in 1981 has an annual carrying cost of $1000 + maintenance now LOL, said tax basis I stand to inherit someday.
I plan on buying in the next 1-3+ years, btw. I just want to see what this post-lending-insanity market conditions produces, when all the IO/NegAm/ARM monkeys fall from the trees over the next few quarters and the market-making lenders are forced to go back to sound lending guidelines (5-20% CLTV, income/asset verification, etc) in order that they can find buyers for their debt offerings.
Some sea-change shit is going down right now, and if prices aren't going up where one wants to buy -- and what with the current lending retrenchment I guarantee you they're not -- then it behooves one to see how this plays out.
Condos where I am at have gone down YOY 1989-1996 and 2001-2003. What drove them up was the late Reagan-era recovery, dotcom employment levels, and, most recently, unsustainable lending practices.
Reasons to buy right now are locking in a 6-7% fixed rate that we might not see in a while, and then refi down should rates come down on the other side of the cycle.
Plus it's sometimes good to buy in a fearful market, since fear can produce bargains.
On the other hand, if & when prices *start* heading down we will see a VERY long & painful trend of price depreciation, due to reverting to the mean of home-affordability levels and the mass psychology of the market getting out of a depreciating asset.
The joker in this deck is what other tricks the regulators and legislators have up their sleeves to keep the real estate party going. Anything's possible, but since 2006 it has made sense for me to keep my powder dry and my ready cash growing.
posted by Heywood Mogroot at 11:52 AM on August 11, 2007
I plan on buying in the next 1-3+ years, btw. I just want to see what this post-lending-insanity market conditions produces, when all the IO/NegAm/ARM monkeys fall from the trees over the next few quarters and the market-making lenders are forced to go back to sound lending guidelines (5-20% CLTV, income/asset verification, etc) in order that they can find buyers for their debt offerings.
Some sea-change shit is going down right now, and if prices aren't going up where one wants to buy -- and what with the current lending retrenchment I guarantee you they're not -- then it behooves one to see how this plays out.
Condos where I am at have gone down YOY 1989-1996 and 2001-2003. What drove them up was the late Reagan-era recovery, dotcom employment levels, and, most recently, unsustainable lending practices.
Reasons to buy right now are locking in a 6-7% fixed rate that we might not see in a while, and then refi down should rates come down on the other side of the cycle.
Plus it's sometimes good to buy in a fearful market, since fear can produce bargains.
On the other hand, if & when prices *start* heading down we will see a VERY long & painful trend of price depreciation, due to reverting to the mean of home-affordability levels and the mass psychology of the market getting out of a depreciating asset.
The joker in this deck is what other tricks the regulators and legislators have up their sleeves to keep the real estate party going. Anything's possible, but since 2006 it has made sense for me to keep my powder dry and my ready cash growing.
posted by Heywood Mogroot at 11:52 AM on August 11, 2007
I'm doing OK on money, and am planning on a 20% down, 30 year fixed mortgage. As of this morning, interest rates from my 3 lenders ranged between 6.32%-6.7%.
I frankly have no expertise in this area, but really with stats like those, doesn't that say it all? No weird mortgages, plenty of equity going in and pretty good interest rate.
The only thing I would say is, does it have to be downtown? But that's just my personal prejudice as a dyed-in-the-wool Rogers Parker.
posted by nax at 3:36 PM on August 11, 2007
I frankly have no expertise in this area, but really with stats like those, doesn't that say it all? No weird mortgages, plenty of equity going in and pretty good interest rate.
The only thing I would say is, does it have to be downtown? But that's just my personal prejudice as a dyed-in-the-wool Rogers Parker.
posted by nax at 3:36 PM on August 11, 2007
plenty of equity going in
? zero or 50% equity going in doesn't effect the wisdom of buying into this market from the buyer's perspective.
Lenders are wanting to see more skin the game from buyers, though. Given this, it makes sense for the buyer with a 20% D.P. queued up to wait for the market to adjust to this renewed reality.
From all appearances, 20% downpayment buyers will be able to buy a lot more house for the money, since they will competing against buyers with lesser assets having to pay 100 or more basis points more in risk premiums for the same property.
This market-dynamic math could work out to getting ~8/6ths more house for the money. . . ie. 20% buyers getting a $2000/mo payment on $300k while 5% buyers with the same buying power are topped out at $200k.
This is thinning the supply -- and buying power -- of buyers, which in basic economics means prices will go down.
Whether or not basic economics applies to this situation remains to be seen, given the politics involved.
posted by Heywood Mogroot at 4:44 PM on August 11, 2007
? zero or 50% equity going in doesn't effect the wisdom of buying into this market from the buyer's perspective.
Lenders are wanting to see more skin the game from buyers, though. Given this, it makes sense for the buyer with a 20% D.P. queued up to wait for the market to adjust to this renewed reality.
From all appearances, 20% downpayment buyers will be able to buy a lot more house for the money, since they will competing against buyers with lesser assets having to pay 100 or more basis points more in risk premiums for the same property.
This market-dynamic math could work out to getting ~8/6ths more house for the money. . . ie. 20% buyers getting a $2000/mo payment on $300k while 5% buyers with the same buying power are topped out at $200k.
This is thinning the supply -- and buying power -- of buyers, which in basic economics means prices will go down.
Whether or not basic economics applies to this situation remains to be seen, given the politics involved.
posted by Heywood Mogroot at 4:44 PM on August 11, 2007
My guess is that, given your time horizon, you won't lose. But whether there will be bigger bargains 6 months from now? And whether mortgage rates will be higher or lower? No one knows. (My personal guess is that prices will be flat, meanwhile you'd be earning 6% on your down payment rather than -7% on your mortgage interest. But I know San Francisco's market, not Chicago's. Meanwhile, the mortgage rates are a big unknown.)
But another point that usually comes up in these threads is that personal finance is as much about the personal as the finance.* There are all kinds of important personal factors -- in this case, that it sounds like you want to do this.
*Some personal finance blogger uses that phrase sometimes, but it's a hard phrase to google, so apologies to them for the lack of credit here.
posted by salvia at 12:23 AM on August 12, 2007
But another point that usually comes up in these threads is that personal finance is as much about the personal as the finance.* There are all kinds of important personal factors -- in this case, that it sounds like you want to do this.
*Some personal finance blogger uses that phrase sometimes, but it's a hard phrase to google, so apologies to them for the lack of credit here.
posted by salvia at 12:23 AM on August 12, 2007
This thread is closed to new comments.
Personally, I wouldn't buy for a year, then would reconsider.
posted by procrastination at 2:54 PM on August 10, 2007