Housing market crystal ball?
April 2, 2007 2:39 PM   Subscribe

Is this the worst possible time to become first-time home owners in Portland, Ore., even though we found what looks like a pretty good deal on a condo? This sort of thing scares me, but we just found a place that we like and that seems very reasonably priced.

My husband and I have been going to open houses for the past six months, with the aim of getting to know the market better and save more cash for a home purchase some time in 2008.

Most of the places that appeal to us have been around 750 square feet (smaller than ideal), and $240,000 and up (more than we'd like to pay). We'd also like access to public transportation with a good commute for my car-less husband, extra on-site storage, somewhere to park my car, and modern appliances (dishwasher, washer/dryer, garbage disposal).

This weekend we found a place that met and exceeded all our requirements. It's 25% less than other condos in the same neighborhood, includes lots of storage and a garaged parking space probably worth $20,000 on its own. It's two blocks from my husband's office, in a decent neighborhood, with great access to public transportation. It's close to 1,000 square feet. It's an end unit.

In other words, it's everything we want and more. But I have read that the housing market is crashing nationwide (although Portland home prices have continued to climb), and that there are all kinds of problems in the mortgage industry.

Is this a foolish time to become a first-time homeowner? It really is what we want, we can afford a 10% or 15% down payment, and I'm just really torn about whether entering the market at this time is totally idiotic.
posted by croutonsupafreak to Home & Garden (26 answers total) 2 users marked this as a favorite
Buying a 4,000-square-foot suburban Phoenix, Ariz. McMansion surrounded by empty rentals on an adjustable rate mortgage with 0% downpayment would be a bad idea. What you have proposed, especially in a city like Portland, would not be a bad idea, in my opinion.
posted by M.C. Lo-Carb! at 2:52 PM on April 2, 2007

Seconding M.C. L-C. I don't think there's any sense trying to time the market, particularly when you're buying your primary residence. Get a good inspection and buy that!
posted by robinpME at 3:05 PM on April 2, 2007

I think it's okay. you're doing a conventional mortgage, not some crazy scheme on the edge of affordability. You may lose out because if the market does crash, your place might lose value. You sound in it for the long-haul, but you might be able to get a better deal if you wait a little bit.

somewhat related to this post: when are housing prices supposed to crash- when does the mefi crowd think we'll bottom out?
posted by unexpected at 3:09 PM on April 2, 2007

Trying to do market timing can be a very difficult thing to do. Don't treat this as financial advice but if you can afford this place with a "normal" mortagage i.e. nothing really exotic with balloon payments and no money down etc. then this is something you should look into. You want to stay away from places that force you to take out mortgage schemes that only make sense if your abode goes up and up in value (e.g. the mortgages that you only pay interest but not on the princpal).
With that said, make a budget, stick to it and try not to freak out during the bidding process. You don't want to "fall in love" with the place and do something foolish. There will always be other places.
posted by mmascolino at 3:12 PM on April 2, 2007

If it is everything you want, you can afford it, and you don't anticipate moving in the next few years, why not? The only question might be why this condo seems to be underpriced compared to neighboring property. Try to interview a few of your condo neighbors. Make sure you look into the finances and minutes of the condo association. You don't want any surprises like finding out that you immediately have to shell out thousands for new roofs or other expensive pending maintenance.

Even if prices go down somewhat for a few years, in the mean time you are enjoying a great home in a great location for you and you should have no regrets. I would think the elimination of commute time would be of great value. You can't buy back lost hours of your life.
posted by JackFlash at 3:13 PM on April 2, 2007

It's not idiotic, because even if the housing market "crashes", you will still have a place to live (providing you've purchased a home you can afford at a rate you can afford). Even if your home goes down in "value", you would only realize that loss if you sold it. Keep living there, and the loss is unrealized.
posted by ThePinkSuperhero at 3:13 PM on April 2, 2007 [1 favorite]

I'm in a similar situation to you (But, Seattle, not Portland; and have not found the place I think is well-valued) My feeling is that if you think it is well-valued to go with it.

However, do a worst-case analysis -- if the market goes down 20% past your purchase price, and takes 5-10 years to recover, will that make other things in your life difficult / impossible? (e.g. kids, desired education, rainy-day fund, etc.)

I tend to be fairly conservative with these sorts of investments, so I'd worry about less than 20% down. That's my only reservation. And Portland is a city that's going to do decently well no matter what gas prices do.
posted by printdevil at 3:16 PM on April 2, 2007

We live in Portland. When you say "the housing market is crashing", it sounds like prices are going down. No way. It is just possible that they won't go up quite as fast. Portland had a brief spate of that last fall, but recovered quickly. Certainly it will happen again. But it is very unlikely that the price of housing is going down.

If you are buying with the hope of rapidly increasing your equity and moving on, perhaps it isn't the perfect place/time. If you are buying because you want to live there, I think you'll be fine.
posted by PeteJacobsen at 3:17 PM on April 2, 2007

If the cost of owning a house is comparable to the cost of renting I think you should be ok. In my opinion housing prices are going to decline for at least the next decade but if the value lost each year is comparable to the amount you would have lost in rent then you'll come close to breaking even (at least that's how I convinced myself to buy last year). So to answer your question - if you know you want to stay in Portland for at least 15 years I say go for it. If there is a chance you'll have to move within the next 5 you might want to consider continuing to rent because with only 10% down you might end up owing more to the bank when you sell.
posted by any major dude at 3:20 PM on April 2, 2007

Now is a GREAT time to get a home, because prices are low compared to where they would be in a good market. Honestly, i repeat, now is a buyers market for sure....As long as you can afford the home and the payments, you're fine. The mortgage industry is in trouble because some made a lot of loans to those with low credit or who couldn't pay consistently, when delinquency and foreclosure numbers came out investment banks buying the mortgages, and funding the loans, stopped buying, other institutions stopped funding the lenders, and investors (who buy the loans from the lenders) started to take up clauses in their contracts saying that lenders must buy back foreclosed loans. All this stuff happening at once really put the mortgage industry in a pinch.

Investors in mortgage lenders have called for higher credit standards, so it's probably much more difficult now to get a no down payment or untraditional loan, but if your credit is fine and you in good shape as far as affording the home, then you are fine.

When it comes to finding the right home, the process can be so daunting that when you do find the right place , you start looking a gift horse in the mouth. Get an inspection, do your homework, have a realtor represent you...and when everything seems right do it, or someone else will. The truth is no home deal is perfect, you find out things after you get a place, but generally a good inspection, and some of the other considerations I've mentioned are the best start.

PS - not withstanding a depression, nearby volcano that's recently become active or something like that, an idiotic home buy is always an idiotic home buy, regardless of market environment, for the most part. On a more specific level, it would be less wise to buy at the top of the market, though not really idiotic.

In five years, if you are ready to move you should be ready to reap some seriously excellent equity.

Check these stats for fourth quarter 2006:

The Regional Multiple Listing Service (RMLS) reported that the average price for residential homes in the Portland metro area for 2006 rose 14.1%. The average sale price was $332,600 compared to $282,800 in 2005.
posted by Salvatorparadise at 3:21 PM on April 2, 2007

As printdevil says something similar is happening in seattle, were my wife and I recently sunk a bog chunk of cash into a house. I think the thing is that so long as you are playing the long down a little slowdown in price-rices shouldn't hurt you that much: It's the short term speculators that are going to get burned.

That said, I fear for the people building the many, many condos here.
posted by Artw at 3:25 PM on April 2, 2007

What ThePinkSuperhero said.
posted by unixrat at 3:29 PM on April 2, 2007

The city of Portland keeps all of the housing, crime, census, utility, and just about any other kind of information you would want about a house, online. Find out how far away schools are, what the crime level is like, how much your property sold for before, property tax history, and whether they intend to rip your streets up any time soon.

posted by foobario at 3:43 PM on April 2, 2007

PSS: My comments are in general, and I suppose lean toward houses...condos have a lot of drawbacks regardless of the market, and they usually have to do with a steady downward pressure on value, cause so freaking many of them get built and why the hell buy an old condo if you can get one of a gazillion being built right now - BUT, if the area is as good as it sounds (and there isn't room for LOTS AND LOTS more condos) you should be fine

check property records for the area and see what appreciation has been like
posted by Salvatorparadise at 3:45 PM on April 2, 2007

Sounds like a go to me. (But did you check if the neighbors mind the saxophone?)
posted by nonmyopicdave at 3:46 PM on April 2, 2007

nonmyopicdave: There would only be one neighbor, and it's definitely on our to-do list. :)
posted by croutonsupafreak at 3:53 PM on April 2, 2007

To me, this is the key question: Are you buying a home that you plan to make your home for several years to come? Or are you purchasing an investment that you plan to sell in a couple years' time? If it's the former, go for it.
posted by Robert Angelo at 5:45 PM on April 2, 2007

The key question is -- what's your time scale of possibly wanting to sell the place and move? If it's in the next two years, you'd want to worry more about stagnant prices. If it's never (or "long enough," whatever that is), ThePinkSuperhero's comment is exactly right.

In general, I'll add to the chorus. I read all those housing bubble blogs and still think that since you know the market so well from six months of open houses, and you think you've found a great deal, you should go for it.
posted by salvia at 6:41 PM on April 2, 2007

I would not say this is a good time to buy. historically housing has risen on average at the rate of inflation. that has not been the case in the past five years. in many parts of the country prices are disconnected from the fundamental drivers. (Salary, Rents, etc)

this site has some good information on the specifics as well as links to several articles giving much explanation. The site is worth reading if you are looking into buying, it can help you make an informed decision.

What I have learned from reading this site for over a year. *this is what I took away from reading hundreds of articles about housing you may draw another conclusion from the same info*

think of it this way. if prices just 'normalize' and there is no 'crash' you will start to see increases of about 3% a year in real-estate. so, your risk there is about 3% a year.

now if values do go down you are talking possible losses of say 20% a year on a very not liquid asset.

also, when taking "the amount you pay in rent" argument here are a few catches.

1. Tax savings. Remember to subtract the standard deduction from the 'mortgage interest savings' so if you mortgage interest is $10,000 a year and you are married you are only saving about $4,000 in deductions. Remember this does not translate into direct savings. If you are in say the 28% tax bracket that is $1120 a year.
2. Remember to subtract your lost opportunity on your savings, if you have say $20,000 in savings earning 5% you are loosing that 5% a month buy buying the house.
3. Finally, take a look at how much you are paying in property taxes, maintenance (about 1% of home value a year) and insurance and add that to your costs when looking at rent vs own.

I live in Austin, TX and using these types of calculations, I decided that now was in fact a very bad time to buy. I currently rent a home for $400 less then it would cost me to own this same house. I am able to save that $400 a month extra and put it in a savings account for when I am ready to buy. In the mean time worse case, housing will 'normalize' and I will pay 3% more for my house in 2 or 3 years with my $400 a month savings. Best case (from a financial standpoint for my situation) housing does drop and I have my $400 a month savings plus pay 20% less for my next house.
posted by kantgirl at 6:43 PM on April 2, 2007 [3 favorites]

I'm just really torn about whether entering the market at this time is totally idiotic.

I sure wouldn't do it, but that doesn't mean that it's idiotic. Keep in mind that you're asking a bunch of strangers on the internet for advice.

kantgirl has the smartest answer in this thread; you should play with the numbers yourself to understand what you are getting yourself into. Try the rudimentary spreadsheet linked here to figure out the economics of your personal situation.
posted by Kwantsar at 8:00 PM on April 2, 2007

As long as you finance conventionally, and don't take stupid risks, you'll be OK. If you overbuy with an interest-only loan, or an ARM with a killer intro rate, that's when you'll get into trouble. If your income stream is stable and your mortgage is rational, go for it.
posted by pdb at 8:58 PM on April 2, 2007

wow this rings true to my wife and I, who are also looking for a home in Portland (don't worry, we're not in the condo market. We have also been looking for almost 6 months, and while I can't say things have crashed here, we have noticed a definite slowdown in the market. I'd say a majority of the homes we looked at in december are still sitting on the market, and a significant number of those have undergone price reductions. In fact, one that we're seriously looking at buying right now is on the market for a second time. Stuff just isn't moving right now...and neither is a whole lot more coming on the market, like we were told it should in the spring. Everything just seems slow, which in my mind definitely weights in favor of the buyer. Best of luck. I'd say BUY BUY BUY!
posted by saladpants at 9:25 PM on April 2, 2007

Take this into consideration, you do not want to be the poorest member of the condo association. Find out all you can on fees, future projects and all things condo gossip-wise. I personally avoid condos because of fees and projects that may not be to my liking. YMMV
posted by jadepearl at 3:59 AM on April 3, 2007

Try to interview a few of your condo neighbors. Make sure you look into the finances and minutes of the condo association.

I strongly second this. My previous house was a condo, and by the time my wife and I sold it we were delirious with delight to be getting out. Any work done on the outsides and roofs needed the approval of the condo association. The roofs of our section needed to be replaced, as did the siding on about half the houses (including ours). The weekly meetings of the association were tedious, contentious ("I told this guy I didn't want his brother's kids on our lawn, and just last Tuesday..."), and ultimately pointless, because there was never a quorum. Literally. So even if a given meeting had somehow managed to get its act together and approve the expenditures needed, it couldn't legally order them. Every year the repairs got more necessary and the projected cost was shooting up. It became clear to us that within a couple of years either 1) we would be hit with a massive bill for "extraordinary costs" that we couldn't afford or 2) our house would fall down, or at least become so dilapidated we would be unable to sell it. We bailed, and I still occasionally wonder how the nice couple who bought it are managing. Do not let this happen to you. Make very sure you know what you're getting into, and don't listen to reassurances from either your agent or the condo management. Wander around the place and talk to people, especially grumpy-looking people. And good luck!
posted by languagehat at 5:55 AM on April 3, 2007

NPR reported that a major issuer of subprime mortgages declared bankruptcy today, which is an indicator of potential market slowdown, but an early one, and I think the bulk of the decline is yet ahead of us, especially in areas where there hasn't been as much speculation.
posted by Mr. Gunn at 9:52 AM on April 3, 2007

We placed a bid and I am totally hyperventilating. Home ownership! Aaaahhhhh!!!!!
posted by croutonsupafreak at 10:52 PM on April 3, 2007

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