Would you buy this house?
March 24, 2023 3:10 AM Subscribe
Is it crazy to buy a house *in this market* and *in this economy*? Details inside.
My partner and I have had to move four times in the last year and a half, and we're over it.
Where: The Rockies mountain town where we live has been booming, and the price of housing has doubled in the last few years. Houses that sold for 250k in 2018 are now 450k+. Not a lot is available to rent, or buy.
Why: Our landlord wants to sell, and suggested we might be interested in buying it. No appraisal yet, but let's say the ballpark figure is 410k. We could afford the 20% downpayment.
The cons:
- The house needs renovations (it hasn't been updated in decades). Probably 30k worth.
- The interest rates are positively frightening
- No idea if the housing market will bomb like in 2008 anytime soon
- No freedom to just pick up and move
- If we were to rent the house, we would probably do so at a slight loss
- Houses just aren't worth such inflated prices. It seems insane to me to buy a 400k house that was 200k less a few years ago. Feels a bit like a House of Cards.
The pros:
- Don't have to move every few months and can fix and decorate etc as we want
- Equity building, of course
- No agent's fee
- If the market stays the same, could sell at a profit at a later date
$$: No kids, but caregiving responsibilities towards a parent (think $800 a month). Household income 230k.
How long: I assume we'd want to stay here a minimum of two years.
Help me out, beehive. This feels like an impossible choice because I don't have a crystal ball. They say there's never a bad time to buy. Well, is there?
My partner and I have had to move four times in the last year and a half, and we're over it.
Where: The Rockies mountain town where we live has been booming, and the price of housing has doubled in the last few years. Houses that sold for 250k in 2018 are now 450k+. Not a lot is available to rent, or buy.
Why: Our landlord wants to sell, and suggested we might be interested in buying it. No appraisal yet, but let's say the ballpark figure is 410k. We could afford the 20% downpayment.
The cons:
- The house needs renovations (it hasn't been updated in decades). Probably 30k worth.
- The interest rates are positively frightening
- No idea if the housing market will bomb like in 2008 anytime soon
- No freedom to just pick up and move
- If we were to rent the house, we would probably do so at a slight loss
- Houses just aren't worth such inflated prices. It seems insane to me to buy a 400k house that was 200k less a few years ago. Feels a bit like a House of Cards.
The pros:
- Don't have to move every few months and can fix and decorate etc as we want
- Equity building, of course
- No agent's fee
- If the market stays the same, could sell at a profit at a later date
$$: No kids, but caregiving responsibilities towards a parent (think $800 a month). Household income 230k.
How long: I assume we'd want to stay here a minimum of two years.
Help me out, beehive. This feels like an impossible choice because I don't have a crystal ball. They say there's never a bad time to buy. Well, is there?
We used this mortgage calculator.
410k-(20%)+30k = 358k to borrow. Interest... 16% (Make sure you can afford it if rates go nuts. They have before.) For 30 Years... Calculator says:
Monthly repayments: $4,814
Total you will pay: $1,733,123
Including interest of: $1,375,123
$4,814/mth = $57768/yr = 25.1% of 230k/yr.
IIRC housing costs should be <40% of your income so I say go for it.
posted by gible at 4:00 AM on March 24, 2023
410k-(20%)+30k = 358k to borrow. Interest... 16% (Make sure you can afford it if rates go nuts. They have before.) For 30 Years... Calculator says:
Monthly repayments: $4,814
Total you will pay: $1,733,123
Including interest of: $1,375,123
$4,814/mth = $57768/yr = 25.1% of 230k/yr.
IIRC housing costs should be <40% of your income so I say go for it.
posted by gible at 4:00 AM on March 24, 2023
My spouse and I are in our mid 40s and last summer we bought our first house. We paid more than double than what the house had sold for in 2015. So I feel you. But I'm happy with our decision. We like the house a lot and it's in a great location. My spouse in particular enjoys the feeling of ownership. For me location is a big factor- do you like your neighborhood? Are you happy living there? Houses are expensive as F and I'm no expert but if you're in a desirable location I don't see prices dropping, like ever. And perhaps you could refinance down the road if interest rates drop? Plus you're in the house now so you know it already. I think if you like the house and like the location you should do it. If you don't, then pass.
posted by emd3737 at 4:28 AM on March 24, 2023 [2 favorites]
posted by emd3737 at 4:28 AM on March 24, 2023 [2 favorites]
Inspect the hell out of it (maybe pay for two full inspections), but sure, why not?
Waiting to buy will suck and only be a good idea on the chance the market crashes there and you are not so run-down you can swoop. And it's not clear at all how likely that is.
On the other hand, you know this house better than most, and know you like it, and can also avoid the stressful hassle of house hunting, smarmy realtors etc. And if it goes underwater why you own it, why should you care? You don't want to move or plan to sell it in the foreseeable future, so it's not like it really matters much.
(Spouse and I also rented a lot and moved a lot for almost 20yrs, bought first house in our 40s, although with a different setting and timing)
posted by SaltySalticid at 4:44 AM on March 24, 2023 [3 favorites]
Waiting to buy will suck and only be a good idea on the chance the market crashes there and you are not so run-down you can swoop. And it's not clear at all how likely that is.
On the other hand, you know this house better than most, and know you like it, and can also avoid the stressful hassle of house hunting, smarmy realtors etc. And if it goes underwater why you own it, why should you care? You don't want to move or plan to sell it in the foreseeable future, so it's not like it really matters much.
(Spouse and I also rented a lot and moved a lot for almost 20yrs, bought first house in our 40s, although with a different setting and timing)
posted by SaltySalticid at 4:44 AM on March 24, 2023 [3 favorites]
Even though you're living there, have the house inspected all the same. An inspection will add some data to factor into your decision and give you a roadmap for tackling repairs if you do buy it.
posted by Elsie at 4:45 AM on March 24, 2023 [14 favorites]
posted by Elsie at 4:45 AM on March 24, 2023 [14 favorites]
They say there's never a bad time to buy. Well, is there?
You buy a house when you need/want one, not when the market is a certain way.
posted by NotMyselfRightNow at 5:05 AM on March 24, 2023 [15 favorites]
You buy a house when you need/want one, not when the market is a certain way.
posted by NotMyselfRightNow at 5:05 AM on March 24, 2023 [15 favorites]
Relevant questions to ask yourself:
*Do you like the house and neighborhood?
*Would you like living in that house and neighborhood for the next 15 years?
*Can you afford the payments?
*Do you have some other pressing need or want for that money? Are you planning to start a business, are you way way behind in retirement saving, are you planning to buy a supercar, etc?
*Does it need renovations or are renovations merely desirable? Can you tolerate doing the reno? Can you afford the reno?
Not relevant question:
*Is there an alternate version of you in another timeline facing these questions with a lower price and with hot dog fingers or eyestalks?
posted by GCU Sweet and Full of Grace at 5:09 AM on March 24, 2023 [6 favorites]
*Do you like the house and neighborhood?
*Would you like living in that house and neighborhood for the next 15 years?
*Can you afford the payments?
*Do you have some other pressing need or want for that money? Are you planning to start a business, are you way way behind in retirement saving, are you planning to buy a supercar, etc?
*Does it need renovations or are renovations merely desirable? Can you tolerate doing the reno? Can you afford the reno?
Not relevant question:
*Is there an alternate version of you in another timeline facing these questions with a lower price and with hot dog fingers or eyestalks?
posted by GCU Sweet and Full of Grace at 5:09 AM on March 24, 2023 [6 favorites]
I would buy a house if I didn't have one.
The numbers matter but I think gible doesn't know that in the US 30 year fixed rate mortgages are available. The rate for these is a much more reasonable ~7.5%. Also, it's often (but not always!) been reasonably simple to refinance house loans when/if interest rates go down.
posted by jclarkin at 5:47 AM on March 24, 2023
The numbers matter but I think gible doesn't know that in the US 30 year fixed rate mortgages are available. The rate for these is a much more reasonable ~7.5%. Also, it's often (but not always!) been reasonably simple to refinance house loans when/if interest rates go down.
posted by jclarkin at 5:47 AM on March 24, 2023
It seems insane to me to buy a 400k house that was 200k less a few years ago.
I am you, a few months in the future. Which is to say, I just bought a place that would have sold for 60% of what I paid for it a few years ago. It bugs me some but then, I dunno, I have a place; I can afford it; and I didn't step into a horrible rental market. So far I feel good about it. I got, yes, a horrible interest rate, and maybe in a couple of years I'll refinance. The things people told me that, so far, feel right to me are: 1) you can't guess what's going to happen with the housing market and 2) unless you're buying as an investment, there's no need to. If you buy a place you like and can afford and want it to be your home for a long time, it doesn't matter that much if in one year or three it's not worth what you paid for it. My only concern would to be pretty sure that it's 30K in repairs it needs and not a lot more.
posted by less-of-course at 6:14 AM on March 24, 2023 [5 favorites]
I am you, a few months in the future. Which is to say, I just bought a place that would have sold for 60% of what I paid for it a few years ago. It bugs me some but then, I dunno, I have a place; I can afford it; and I didn't step into a horrible rental market. So far I feel good about it. I got, yes, a horrible interest rate, and maybe in a couple of years I'll refinance. The things people told me that, so far, feel right to me are: 1) you can't guess what's going to happen with the housing market and 2) unless you're buying as an investment, there's no need to. If you buy a place you like and can afford and want it to be your home for a long time, it doesn't matter that much if in one year or three it's not worth what you paid for it. My only concern would to be pretty sure that it's 30K in repairs it needs and not a lot more.
posted by less-of-course at 6:14 AM on March 24, 2023 [5 favorites]
Also, if you want to feel a little better about interest rates, look at what they were in the 80s.
posted by less-of-course at 6:15 AM on March 24, 2023 [12 favorites]
posted by less-of-course at 6:15 AM on March 24, 2023 [12 favorites]
How long: I assume we'd want to stay here a minimum of two years.
This seems like a potentially iffy aspect. Instead of paying whatever you pay now in rent, you plan to pay a higher monthly mortgage + spend $30k in upgrades ...for the same space ... And you might only live there for 2 more years?? I'd want a significantly longer minimum time horizon to feel more comfortable about getting a return on that investment. Not that it's guaranteed.
This is a tough environment. I wish you luck whatever you decide.
posted by Text TK at 6:15 AM on March 24, 2023 [6 favorites]
This seems like a potentially iffy aspect. Instead of paying whatever you pay now in rent, you plan to pay a higher monthly mortgage + spend $30k in upgrades ...for the same space ... And you might only live there for 2 more years?? I'd want a significantly longer minimum time horizon to feel more comfortable about getting a return on that investment. Not that it's guaranteed.
This is a tough environment. I wish you luck whatever you decide.
posted by Text TK at 6:15 AM on March 24, 2023 [6 favorites]
We also bought in the last couple of years, and certainly paid more than we would have a year or two prior. But it honestly doesn't bother me -- it wasn't someone specifically being greedy or me specifically being taken advantage of; it was a national change in housing costs and it was still within what we could afford. There's certainly always the risk of a sudden drop in house values, but there's also risks with renting, too.
If you are sure you will be there for only a couple of years, make sure that when you are comparing renting vs buying that you factor in the transaction costs (like paying realtor fees, etc. when you sell). Typically the rule of thumb for when buying makes sense is about 5 years, but with both house prices and rental cost increases being crazy, that simple rule of thumb isn't going to apply well in all cases. Still, I'm guessing that a short ownership like this will pencil out as higher cost because of that.
Having said that, though, it might still be a much better idea in a holistic sense for you to buy, even if it will cost you more than renting, if it gives you comfort and satisfaction to no longer be moving every 4-6 months. The money side of things matters, and definitely don't do something that gets you in over your head, but there are other factors, too. We were renting until fairly recently, and I mostly liked it, but I didn't like the uncertainty of not knowing how much the rent would increase or if you might be forced to move on fairly short notice due to the landlord selling.
posted by Dip Flash at 6:31 AM on March 24, 2023
If you are sure you will be there for only a couple of years, make sure that when you are comparing renting vs buying that you factor in the transaction costs (like paying realtor fees, etc. when you sell). Typically the rule of thumb for when buying makes sense is about 5 years, but with both house prices and rental cost increases being crazy, that simple rule of thumb isn't going to apply well in all cases. Still, I'm guessing that a short ownership like this will pencil out as higher cost because of that.
Having said that, though, it might still be a much better idea in a holistic sense for you to buy, even if it will cost you more than renting, if it gives you comfort and satisfaction to no longer be moving every 4-6 months. The money side of things matters, and definitely don't do something that gets you in over your head, but there are other factors, too. We were renting until fairly recently, and I mostly liked it, but I didn't like the uncertainty of not knowing how much the rent would increase or if you might be forced to move on fairly short notice due to the landlord selling.
posted by Dip Flash at 6:31 AM on March 24, 2023
I think for me the biggest consideration is your desire or ability to stay in your town. If the property values are booming, as a renter you should assume they will continue to boom, and finding a home to rent will become harder and more expensive. On the other side, as an owner, you should assume there will be a correction (not necessarily a devastating drop), and your house will decline in value, which would make it harder to sell at a profit, should you want or need to move.
So I think you should do some soul searching about whether or not you will want or need to move out of town in the next few years. If you're confident that you'll stay there, I would buy a house... Rents can get crazy in these situations.
But take precautions! You've lived in that house for under a year and don't know its full history. You want to have a thorough home inspection before agreeing to a price. This may include things you haven't thought of, like getting the sewer line scoped to see if there are breaks in it. And you mentioned the benefit of having no agent's fee. You should have a highly respected real estate agent handle your side of things. The seller typically pays their fee, but even if the seller won't agree to that, I would not proceed without a real estate representing you.
One more thing: Make sure you are factoring the costs of property taxes and homeowner's insurance into your expected monthly payment.
posted by happy_cat at 7:02 AM on March 24, 2023 [3 favorites]
So I think you should do some soul searching about whether or not you will want or need to move out of town in the next few years. If you're confident that you'll stay there, I would buy a house... Rents can get crazy in these situations.
But take precautions! You've lived in that house for under a year and don't know its full history. You want to have a thorough home inspection before agreeing to a price. This may include things you haven't thought of, like getting the sewer line scoped to see if there are breaks in it. And you mentioned the benefit of having no agent's fee. You should have a highly respected real estate agent handle your side of things. The seller typically pays their fee, but even if the seller won't agree to that, I would not proceed without a real estate representing you.
One more thing: Make sure you are factoring the costs of property taxes and homeowner's insurance into your expected monthly payment.
posted by happy_cat at 7:02 AM on March 24, 2023 [3 favorites]
I would not proceed without a real estate [agent] representing you.
A buyer's agent won't do much for you at this point. Typically a buyer-side rep will show you houses and prepare the purchase contract for presentation to the seller and not much else. Sometimes they act as a middleman on the price negotiation but honestly they have very little financial/time incentive to work on that in earnest.
On any purchase you want a real estate lawyer involved to prepare/review the contract and be there at your side during the closing process. I'd say maybe get one in the loop now to write up the purchase contract and make sure you're covered if something goes wrong during the inspection process.
If the house needs $30K work by your napkin calculation you will most likely find even more problems once a professional starts looking. You want to make sure your purchase contract gives you a post-inspection option to walk way if the house doesn't meet certain livability criteria. (and get that sewer line scoped out!)
posted by JoeZydeco at 7:47 AM on March 24, 2023 [6 favorites]
A buyer's agent won't do much for you at this point. Typically a buyer-side rep will show you houses and prepare the purchase contract for presentation to the seller and not much else. Sometimes they act as a middleman on the price negotiation but honestly they have very little financial/time incentive to work on that in earnest.
On any purchase you want a real estate lawyer involved to prepare/review the contract and be there at your side during the closing process. I'd say maybe get one in the loop now to write up the purchase contract and make sure you're covered if something goes wrong during the inspection process.
If the house needs $30K work by your napkin calculation you will most likely find even more problems once a professional starts looking. You want to make sure your purchase contract gives you a post-inspection option to walk way if the house doesn't meet certain livability criteria. (and get that sewer line scoped out!)
posted by JoeZydeco at 7:47 AM on March 24, 2023 [6 favorites]
Find an inspector NOT recommended by your realtor, who may have divided loyalties if the realtor recommends him/her to clients often. You want someone who works only for you.
posted by citygirl at 8:40 AM on March 24, 2023 [4 favorites]
posted by citygirl at 8:40 AM on March 24, 2023 [4 favorites]
I would not buy a home in a Rockies mountain town without an investigation into wildfire risk and, if near the river, flood risk. And also pricing insurance for same.
Also, the sales costs especially with renos tend to make ownership a bad deal if you're moving in a couple of years. You know and we don't whether the second half of "minimum two years" is "but four years tops" or "but probably fifty".
posted by Superilla at 8:41 AM on March 24, 2023 [6 favorites]
Also, the sales costs especially with renos tend to make ownership a bad deal if you're moving in a couple of years. You know and we don't whether the second half of "minimum two years" is "but four years tops" or "but probably fifty".
posted by Superilla at 8:41 AM on March 24, 2023 [6 favorites]
Don't buy the house because it's easy. If you're ready to own a house (and it sounds like you are), you should at least look around the market and see if you're getting what you want and need for the price you can afford. If you like this house and want to be in it for the next 5 years, then go ahead and buy it.
When I was renting, I thought it would be great if my landlord would just sell me the house I was in. I'm quite glad I looked around and found something even better.
Don't stress about interest rates. They are what they are and you can't change them. They've been higher and they've been lower. It's like the cost of gasoline. People gripe and gripe, but it's just part of life.
posted by hydra77 at 9:22 AM on March 24, 2023 [2 favorites]
When I was renting, I thought it would be great if my landlord would just sell me the house I was in. I'm quite glad I looked around and found something even better.
Don't stress about interest rates. They are what they are and you can't change them. They've been higher and they've been lower. It's like the cost of gasoline. People gripe and gripe, but it's just part of life.
posted by hydra77 at 9:22 AM on March 24, 2023 [2 favorites]
I would not buy a home in a Rockies mountain town without an investigation into wildfire risk and, if near the river, flood risk
Pop the address into RiskFactor.com.
posted by pinochiette at 10:36 AM on March 24, 2023
Pop the address into RiskFactor.com.
posted by pinochiette at 10:36 AM on March 24, 2023
I have no advice on whether you should buy the house or not, but I do have this advice: get it inspected, then go through that inspection with a fine tooth comb and if anything is missing - i.e. "couldn't get into the whole crawlspace due to falling insulation" - do not accept it, go back with a different inspector. Consider getting a structural engineer to inspect it. I would not right now be facing >$60,000 in repair work I can ill afford if I had done those things.
posted by mygothlaundry at 1:50 PM on March 24, 2023 [3 favorites]
posted by mygothlaundry at 1:50 PM on March 24, 2023 [3 favorites]
I heard something good once that separates ability to pay the price and the (projected or historical) value of a house: "The price only matters if you're planning to sell." It's one of the few home buying aphorisms that has stuck with me.
posted by rhizome at 2:08 PM on March 24, 2023 [3 favorites]
posted by rhizome at 2:08 PM on March 24, 2023 [3 favorites]
My opinion is that things are only going to get worse instead of better. Companies are buying up single family housing and now I’m even hearing about companies that facilitate people investing in fractions of rental properties. I don’t see either political party reining in big business and I don’t believe there will be any crash because a company that bought a house with cash can always rent it to earn income off it. So to me any thought about whether it’s worth buying a 410k house that had cost 250, it’s never going back down to 250. It’s going up. To paraphrase a saying, the best time to buy a house is 70 years ago. The 2nd best time is right now.
We bought a more expensive house with only 5% down in a state with higher taxes and with child care fees while making less money than you. The only thing we have going for us is the interest rate. So I have absolutely no doubt you could afford it.
If you are truly sitting on like literally $100000 in the bank (20% plus closing costs plus cushion), I would absolutely be looking to buy something. If you love this house, go for it. Nthing getting it inspected out the wazoo because it’s rental property so the maintenance might be not up to snuff. Don’t worry about upgrades right now if it’s livable and functional.
But don’t jump at this house just because it may be a deal. If you want a forever home, find your forever home.
posted by cali59 at 5:49 PM on March 24, 2023 [2 favorites]
We bought a more expensive house with only 5% down in a state with higher taxes and with child care fees while making less money than you. The only thing we have going for us is the interest rate. So I have absolutely no doubt you could afford it.
If you are truly sitting on like literally $100000 in the bank (20% plus closing costs plus cushion), I would absolutely be looking to buy something. If you love this house, go for it. Nthing getting it inspected out the wazoo because it’s rental property so the maintenance might be not up to snuff. Don’t worry about upgrades right now if it’s livable and functional.
But don’t jump at this house just because it may be a deal. If you want a forever home, find your forever home.
posted by cali59 at 5:49 PM on March 24, 2023 [2 favorites]
Two things stood out to me:
1) If you have caregiving responsibilities towards a parent, were you going to pick up and move anytime soon anyway? Or do they live far away?
2) Get the best possible estimate for how much the renovations will cost, and then assume they will cost double that. If you're comfortable with that price, great, but don't fall into the trap of imagining that you could save somehow and lower the price.
posted by equipoise at 9:39 AM on March 25, 2023
1) If you have caregiving responsibilities towards a parent, were you going to pick up and move anytime soon anyway? Or do they live far away?
2) Get the best possible estimate for how much the renovations will cost, and then assume they will cost double that. If you're comfortable with that price, great, but don't fall into the trap of imagining that you could save somehow and lower the price.
posted by equipoise at 9:39 AM on March 25, 2023
Nah. If you're gonna buy, buy something you want, on your own terms, instead o settling because you're in a pinch.
posted by Miko at 8:53 PM on March 25, 2023
posted by Miko at 8:53 PM on March 25, 2023
This thread is closed to new comments.
Really, though, this comes down to the basics: do you want to live in this house? Do you want to own this house? At the sum end of your pros and cons list, assess how you both feel about this scenario. It's anxiety-inducing and a bit terrifying, but at the end of the day its a banal, commonplace process and experience. If you don't think you'll enjoy waking up in this home knowing it's your baby, don't buy it. If you smile when you think about that prospect, buy it and be your own landlords.
posted by late afternoon dreaming hotel at 3:52 AM on March 24, 2023 [10 favorites]