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Housing: Now or Later
There are some ways in which buying a house can be a path to independent living.
On the other hand, we’re expecting currency devaluation and the housing market is propped up on limbo rates. Is it worth taking on debt to buy? Will inflation eat away at the principal, or would you have been better off in PMs?
Have you bought recently? What factored into your decision?
I think you need to look at this specifically for your own locality, e.g. what is the price ratio between renting and buying in your specific area.
In my opinion the biggest deciding factor is whether you have children. There’s a huge advantage to being able to paint stuff, rearrange stuff, attach things to walls, move walls around, build tree-houses, etc, if you have children. Also, if you have children you don’t really want to have to move just because the landlord wants to stop renting the house out.
Without children, it’s not such a big deal either way.
30 year fixed mortgages at these rates are gifts. If the cost of owning is equivalent to the cost of renting in your market, and you plan to live their awhile, these prices, and these mortgage rates are very attractive. The mortgage interest deduction is also an attractive feature.
In most states, home mortgages are non recourse by statute, meaning the lender bares most of the real estate pricing risk.
I’m a firm believer in buying. It’s been our main path to financial security, and I’m hoping a comfortable retirement. We bought our first house in 1985. Always paid an extra $100 toward principle every month, whether we could afford it or not. Never took out an equity loan. We’re both self employed, so don’t have the ol’ 501K or government pension to look forward to, so we knew we had to cover ourselves. Every 6 to 10 years, we traded up, after making small, affordable improvements, and put all the profit into the next house, and continuing to pay a little extra. 10 years ago, we owned our fourth house free and clear. And then 3 years ago, during the housing debacle, we bought a cheap short sale, fixed it up a little, and are renting it out till we sell this house and move into that one. The renters are paying the mortgage, and this house we live in is currently appreciating again. . . it should support us fairly comfortably when we sell it, either outright or as an owner-finance.
The hub’s a carpenter, and I’m a former bartender, current pet-sitter. Without having bought that first house, we never would have been able to accumulate the money this house will provide.
Just wanted to note that EVERY time we bought a different property, or sold an old one, it was stressful and SCARY. We always thought we couldn’t possibly afford to do what we were doing. But we always managed. Just don’t make the mistake of buying “The Dream House” first time out. That’ll kill it.
I’ve been toying with this very topic for quite some time. I finally bit the bullet and bought recently after some deep consideration into the pros and cons. While I am highly concerned about confiscatory taxes somewhere down the road and the fact that even “buying” is really just renting from the government, I think there are enough pros to overcome these in certain circumstances.
The property we bought is well outside of the nearest urban area and quite a few miles out of the nearest town. This provides privacy, low crime, and general freedom from nosy government agents. Additionally, there are a good number of acres which allows for large gardens and ranching. We will be able to grow a large portion of our food. This means cheaper living and better health, not to mention partial independence.
Just consider the options and you’ll do alright.
A home is not an investment, it is consumption, the value of your home will normally not exceed the triple amount you pay for it in the long run. I am of course discussing the home you live in. If your self- employed you have other alternatives, but the past generation certainly fell into the trap of “home as a retirement investment”. Pay your home off and put your money in more liquid assets. The money pit just keeps costing you effective returns in other places which are much more profitable!
Maybe not, if you do it the typical way. But if you deviate from the standard 30 year pay off, and if you bought low and can sell high, having purchased in a good area and done improvements along the way, a person CAN make a sizable profit. You just have to be smarter than the average bear. And not too greedy.
It’s important to have a sound reason for taking on a commitment as large as the purchase of a house, with or without devaluation and asset bubbles.
It may well be that for many people property ownership is not a priority. You may wish to move around a lot for work in the future. Places may become unstable in the times ahead and you may need to get out in a hurry: ceasing to rent is always going to be easier than selling a house to someone else.
I’m not advising anyone not to buy, but we ought not treat it as axiomatic that everyone should buy either earlier or later. Some may choose not to buy at all. Indeed there are efficiencies to be found in the most unusual living arrangements: ten to a house with meshed shifts and rotating bed-linen!!
Let me run some reasoning by this group and see what falls out:
Most people buy a mortgage, i.e. $X/mo. If rates go up, which I think many of us here expect, principals need to come down if X is going to remain a sane number.
Thoughts?
Doesn’t work that way. Once you lock in a fixed rate mortgage, your payment stays the same. In times of extremely high interest rates, lending institutions start getting creative with short term loans with balloons due in 5-7 years, or interest only loans, anticipating that people will either sell or refinance at a lower rate within that term.
Some of us lived through times when mortgage interest rates were up to 17%. Ugly times. People panicked, but they still bought houses. When everything is going up, most people think the trend will continue forever, and buy because they think it’s their only chance. When things are going down, they sell because they’re afraid they’re going to lose their whole investment.
Never make big money decisions in a panic.
To clarify, I’m not saying a particular mortgage will change – fixed rates and all that. Rather I’m discussing the market and when one might want to jump in.
For instance, if you had been saving and renting before 17% rates hit, couldn’t you snatch up a smoking deal in the panic?
Yes Jeff, that’s how it works.
Some people borrow as much as they can, to buy the best house they can “afford”. When interest rates rise, they can’t afford so much, which cools the market and house prices drop.
I see it as being all about the cash flow because this takes the ‘appreciation/depreciation’ factor out of the equation if one is considering housing as an investment.
For me, as a single man, I do not want to be geographically restricted at the moment which means buying later. However, for those who are starting a family and know where they want to be then buying may be the better option. Especially if a rental suite can supplement the mortgage payment.
In the end it comes down to individual means and circumstance but, as Rick Rule said above, if you can find a reasonably priced house and lock in a low rate for the long-term you’re in good shape. Although it may not be the time to go on a housing speculation spree.
It might be worth it to time the market in the area you are considering buying in. Take south central Alaska- home prices are inflated and cooling rapidly. Many rentals are available, many multi-family units are around 65-75% occupied. The same home here that sold for 80k during the early 2000s is now selling (or not selling) for around 120k. For 120k, you can buy a home at similarly low interest rates as back in the early years of the bubble but at much greater principal. Or you can wait 5 years for the local market to cool further. Or buy the four plex and have an income property. Low occupancy in the rental market can depress prices there.
It’s really down to what suits you best at the time, but I say no sense in buying something now that’s going on sale next year unless it saves you money either way.
Interesting. Stuff in the SouthEast is a LOT more expensive. But then, there’s less space to build, and the climate’s more mild, too.
South East has plenty of room, it’s just state and federal parks lol. Alaska and the west in general have that issue. 2/3 of Alaskas landmass is government owned. It definitely inflated the price a bit.
