Housing market : Buy or wait?
March 22, 2010 8:03 AM   Subscribe

How much should the uncertainty of housing prices affect one's decision of buying a house in this market ?

There is a lot of talk of the housing prices falling further in 2010; with the tax credit ending and the government possibly ending its backing. Although that could means higher interest rates to go with the falling prices. If you were qualified, had the money, and liked a house, would you buy or wait out the summer to see how things unfold? Also, how reasonable is it to buy if the short-term plan is to live in the house for 5 years? What are other factors to consider?

In the Washington DC metro area, prices remain stubbornly high - is that an indication of the elevated living costs of the area or just a delayed correction waiting to happen. I understand that the answer is not so simple, but I am curious to hear your thoughts and if there are metrics and statistical data to help make a more informed decision.
posted by cusecase to Grab Bag (8 answers total) 2 users marked this as a favorite
This calculator from the NYT is always an eye opener. I highly doubt it will prove economical to stay in your house for only five years. Based on my facts, the calculator indicated that buying a house would be economical only if I intended to stay for 17 years!

I don't recommend trying to time your purchase, personally, because you have no better knowledge than anyone else, and thus prices will generally already factor in your conclusions--but I am not a or your financial advisor.
posted by Admiral Haddock at 8:08 AM on March 22, 2010 [2 favorites]


I live in the DC Met area and the housing costs are indeed stubbornly high. I don't expect a correction more significant than what we've witnessed already; perhaps a stagnation of increases in the mid-term at best.

I think, first and foremost, one needs to be objective about one's foray into ownership; not looking at specious investment principles of the past, but value driven metrics: Is the price worth what I am receiving and is it within my utility?

Taking advantage of historically low interest rates, in my opinion of the macro trend, is a golden opportunity, as is that tax incentive if you're tax situation make it an appealing carrot. However, in such a time of uncertainty, risk will remain and one needs to factor in one's tolerance as such. Large downpayments are increasingly more important to hedge such risk as is a conservative approach to ownership. Best of luck and think it through carefully.
posted by Hurst at 8:50 AM on March 22, 2010 [1 favorite]

I read somewhere that we need to stop looking at our homes as investments that will make us money if we stay in them for a certain amount of time. That time is over, at least for now.

Seconding Hurst on all the rest.
posted by cooker girl at 8:57 AM on March 22, 2010

I read somewhere that we need to stop looking at our homes as investments that will make us money if we stay in them for a certain amount of time.

Indeed. And we need to start looking at them as liabilities that will cost us massive amounts of money if we don't stay in them for a certain amount of time.

I am currently trying to decide whether to purchase the house that I currently rent, for what my landlord thinks is a very generous price. The problem? I think house values where I live (SoCal) will drop at least 10-15% in the next year, and I'm not thrilled about the idea of being upside down by about $100,000 a year after I buy. Also, I'm very apprehensive about what will happen to the market (and the global economy) when the owners of bundled mortgages in the U.S. figure out a way to start foreclosing on the millions of foreclosable homes where the "owners" haven't made a payment in months or years.
posted by The World Famous at 9:03 AM on March 22, 2010

Agreed with most of the above.

FWIW, I had the opportunity to talk to some attendees of a conference for professional real estate deelopers here in NYC. The list of attendees included some rather well-known names. The general consensus of the meeting is that real estate investors should not expect much price appreciation over the next decade. These comments were specific to the United States.

My general rule is that, if after buying your house, you don't have two times its purchase price in liquid assets, you should rent. This is far more conservative than most people's views.
posted by dfriedman at 10:00 AM on March 22, 2010

Response by poster: I feel that home affordability and home pricing are two (slightly) different things. High income professionals for 3/4 times their income may be able to comfortably buy a nice house. That does not make the market or the house necessarily fair-value. At least locally, I feel that the values remain high because of several stable government/consulting jobs that allow people to afford the high prices for houses -

What is the prudent thing to do : wait for prices to correct so house is at its "fair-value" or buy a house that you can afford (even if a little overpriced) if you can afford to pay the mortgage at current value.
posted by cusecase at 10:21 AM on March 22, 2010

Along the lines of what cooker girl was saying I think the reasons behind buying a home are important to examine. The situation we're in now is as a result of people buying a home for the wrong reasons (Real estate speculation). I bought my first house a little over a month ago. I bought a house I liked, that I could afford in a nice neighborhood just outside of downtown. I don't really care about appreciation for the sake of dollars; I want my house to appreciate because it means the neighborhood is becoming more desirable (clean, safe, etc), I want to live in a place that I enjoy and can afford, not some place that will give me the highest possible return on investment.

I think you have to define WHY you want a house. I had my reasons, the "investment" aspect of it was definitely a secondary concern; yeah it will be worth more some day, but I'm not looking at Zillow every 6 months to find out how much I can flip this place for.
posted by Scientifik at 11:09 AM on March 22, 2010

The only way to really know what the prudent thing is for your particular case is to run the numbers.

Open up a spreadsheet and plug in ALL the numbers you can possibly think of that apply:

starting amounts:
* downpayment, and what you would be making on that downpayment if you bought bonds or even put it in CDs

getting in costs:
* application fees
* inspection fees
* moving fees?

* current federal credit

monthly amounts:
* current monthly rent
* probable principle and interest on a mortgage
* monthly properly taxees
* monthly homeowners insurance
* HOA fees, if any
* mortgage insurance, if any
* monthly house maintenance (I think I've seen 1% of the house price a year as a decent maintenance estimate)
* on the positive side, home interest tax deduction ( ... but if you're currently taking the standard deduction, it may not make a huge difference ...)

getting out costs:
* realtor fees

(Actually, this is probably all in the NYTimes calculator. I should have looked before typing.)

Now, compare a few scenarios:

What if you move in 5 years? 2 years? 12 years?
What if you need a new furnace? roof? foundation?

And while you're at it, see if you can imagine how you'll feel under various circumstances. What if you have to move suddenly? What if home prices go way up? What if home prices go way down? How will you feel if you bought? How will you feel if you didn't?

My guess is that buying will cost you more than renting, by a significant amount, and if you think there's a good chance you'll be moving in less than 7-10 years, the stress factor alone (having to unload a house) might rule it out. Only you know your own details, though, so the only way to really answer this question is for you to think it through as thoroughly and honestly as you can.
posted by kristi at 2:03 PM on March 25, 2010

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