Buy or rent in this economy and market?

[SarahLovesJS]

Are you planning on buying or renting after the wedding?

 

[MaggieB]

Buy.

 

[Octavia]

We rent right now, and are casually looking for a place to buy. We''re not exactly sure what we want to do at this point, but if the right house pops up, we would probably buy it. If the homebuyer credit goes through, though, it will probably motivate us a bit more.

 

[chrono]

This is a buyer''s market now. There''s a glut of houses out there and I''ve never seen interest rates so low.

 

[CrookedRock]

The market has another 10- 15% to go. But we are close. Very. Keep in mind that there is very serious talk about great incentives for first time home buyers in the near future. I would hold out a little longer, but be glad you waited! We sure are!

 

[rockzilla]

I would say that, while you do want to take the economy into account, there are bigger personal factors to consider when you're asking the buy/rent question. My first order questions would be:

1. Do we plan on being in this area the next 5+ years? What reasons could lead us to want to/have to move? Career? Family obligations?
2. Can we easily support a (standard, fixed 30-year) mortgage payment on our salaries? Could we do it on one salary? Do we have a down payment? What about insurance/repairs/property taxes?
3. Is there a possibility that either one of us may not be working at some point in the next 5 or so years? This could be due to having a child, going back to school, or planned/unplanned unemployment. Would we still be able to make the payments in this case?
4. What are our other expenses? (credit card debt? student loan debt?) Can we see a big increase in expenses coming down the pike? (starting own business? need to support a parent or other dependent?)

Once you have those questions answered, then I think you can look at the economy/market. In our case, we will continue to rent because I am (hoping to) go to business school next year, in a location as yet unknown. We also don't know for sure what area of the country we want to settle in. So I'm out on #1 and #3.

I think a lot of the problems occured when people didn't honestly answer the personal questions for themselves. Being blinded by the market, with everyone telling them "renting is throwing your money away!" "get in or you'll be priced out forever!" "the market is so hot you'll have no problem selling/refi for a HUGE profit" "you can always rent it out to pay the mortgage!" they didn't honestly answer those 4 questions for themselves, and went with what everyone else was doing/telling them to do. Going with the herd = not always a good idea.

Then you ask yourself the economy related questions. These are actually MUCH harder to answer, there are a lot of experts out there who get these wrong everyday:

5. Do we think values are going to continue to go down in our area? Keep in mind that many areas that are "cheap" now are ones that may continue to go down in the near future. Areas that are "protected" e.g. Beverly Hills may mean you're not getting that much of a deal.
6. How would we feel if our home value went down by 10%? 20%? 30%? Are we comfortable with this level of risk? Do we plan to stay in this home long term if that's what it requires for prices to recover?
7. How is our area being affected by forclosures? How many homes for sale on our block/in our neighborhood are foreclosures/short sales? Again, may get a better deal, but do you want to live on a street with multiple empty houses due to people losing their homes?


Hope this helps. I think its important that each couple assess their situation individually, instead of jumping on the bandwagon of "ohhh houses are so cheap we HAVE to buy now" or "prices are going to keep going down there is NO WAY we're buying anytime soon." As with anything else, people who try to time the market usually lose. BUT if you look at your home as a place to live and a major life decision, rather than a short term investment, you should do ok

 

[fleur-de-lis]

*EXCELLENT* post there, Rockzilla.

 

[Hudson_Hawk]

Home owner here who wishes we rented. I just want to remind everyone that mortgage payments are only a part of the equation when determining whether you can afford something or not. There''s also property taxes, city utilities (sewer, water, trash), maintenance, and insurance. All of these add probably an additional 500-700 on to our monthly mortgage payment.

 

[Lanie]

Hudson_Hawk: you are exactly right. I got so excited when I used one of those mortgage calculators and figured up that buying a house would be way cheaper than renting my apartment. But then you add in taxes, insurance, etc.

I have 2 pairs of friends who just moved into nice, new houses. Both of the husbands were laid off. Now they don''t know what they are going to do.

As good as the market is right now for housing, it''s getting bad for employment.

 

[sunnyd]

Our current rental runs out 1 week before our wedding (yay...

) so we''re hoping to arrange something like a month to month, or short lease instead of a full year to take advantage of the market. The lessor is a homeowner who gave up trying to sell. So we''ll see. We definitely don''t have a down payment ready or anything, and I''m quite happy at the moment renting.

Awesome points to think about RZ!

 

[chrono]

Rockzilla made many good points. You have to be sure that you can still be able to afford payments should one spouse be laid off, meaning, having a hefty cash cushion in the bank. There''s also a lot of extra equipment to purchase and the usual maintenance to consider - snowblower, lawnmower, utilities will go up, etc.

 

[October2008bride]

This is a GREAT (and timely) question - DH and I are looking right now too, but I sometimes worry about what the future holds...both of us are in good jobs that are not at risk of being affected by the market YET. Who knows what will come or how bad it will get right? So is it a possibility that one of us will lose our job? Probably. Not sure how likely that is though...

We are just slowly looking - since we are not in a panic, we won''t settle for just anything, and we will NOT enter into a bidding war (yes, those are still happening in my city). I feel like bidding wars are part of the problem here - driving the price up well above the ''value''. We would rather walk away and find something else.

We got good advice from a friend - no matter how much you love a house, it is just bricks and wood. So yeah - we are looking but are taking our time.

You are right, Rockzilla, with your comment about "jumping on the bandwagon of "ohhh houses are so cheap we HAVE to buy now" or "prices are going to keep going down there is NO WAY we''re buying anytime soon." It seems like EVERYONE has an opinion about buying a home, and they usually fall into those two categories. It is hard to know what is right or who to trust.

We don''t need to a) get a huge bargain or b) make a tonne of money when we move. We just want to pay a fair price (i.e. not over inflated by bidding wars etc) for a house we like in a decent area. I''ll let you know how that goes haha.

Long answer...sorry! So yes, we are looking to buy - just not in a rush.

 

[bee*]

We''re renting right now and will probably continue to do so for the next while. If your market is anything like ours over here, it still has another bit to go before prices will be at their lowest, so we''re going to hold out till then.

 

[elrohwen]

We''ll be renting for a few more years. First, we don''t have $80k for a 20% deposit (teeny tiny starter homes are around $400k here ... insane). Even if we did magically get the money, I don''t think it''s a good time to buy in my part of the country. Prices really haven''t dropped much and many experts are saying that they''re going to drop even more before this is over. I would hate to buy a house and be stuck in a mortgage after a few years because it was worth less than what we bought it for. Maybe if we knew we''d be here for the next 5 years at least we''d go for it, but we really can''t make that commitment yet. Oh well ... I would love to have a house with a nice yard.

 

[elrohwen]

Date: 2/5/2009 12:29:16 PM
Author: rockzilla
I would say that, while you do want to take the economy into account, there are bigger personal factors to consider when you''re asking the buy/rent question. My first order questions would be:

1. Do we plan on being in this area the next 5+ years? What reasons could lead us to want to/have to move? Career? Family obligations?
2. Can we easily support a (standard, fixed 30-year) mortgage payment on our salaries? Could we do it on one salary? Do we have a down payment? What about insurance/repairs/property taxes?
3. Is there a possibility that either one of us may not be working at some point in the next 5 or so years? This could be due to having a child, going back to school, or planned/unplanned unemployment. Would we still be able to make the payments in this case?
4. What are our other expenses? (credit card debt? student loan debt?) Can we see a big increase in expenses coming down the pike? (starting own business? need to support a parent or other dependent?)

Once you have those questions answered, then I think you can look at the economy/market. In our case, we will continue to rent because I am (hoping to) go to business school next year, in a location as yet unknown. We also don''t know for sure what area of the country we want to settle in. So I''m out on #1 and #3.

I think a lot of the problems occured when people didn''t honestly answer the personal questions for themselves. Being blinded by the market, with everyone telling them ''renting is throwing your money away!'' ''get in or you''ll be priced out forever!'' ''the market is so hot you''ll have no problem selling/refi for a HUGE profit'' ''you can always rent it out to pay the mortgage!'' they didn''t honestly answer those 4 questions for themselves, and went with what everyone else was doing/telling them to do. Going with the herd = not always a good idea.

Then you ask yourself the economy related questions. These are actually MUCH harder to answer, there are a lot of experts out there who get these wrong everyday:

5. Do we think values are going to continue to go down in our area? Keep in mind that many areas that are ''cheap'' now are ones that may continue to go down in the near future. Areas that are ''protected'' e.g. Beverly Hills may mean you''re not getting that much of a deal.
6. How would we feel if our home value went down by 10%? 20%? 30%? Are we comfortable with this level of risk? Do we plan to stay in this home long term if that''s what it requires for prices to recover?
7. How is our area being affected by forclosures? How many homes for sale on our block/in our neighborhood are foreclosures/short sales? Again, may get a better deal, but do you want to live on a street with multiple empty houses due to people losing their homes?


Hope this helps. I think its important that each couple assess their situation individually, instead of jumping on the bandwagon of ''ohhh houses are so cheap we HAVE to buy now'' or ''prices are going to keep going down there is NO WAY we''re buying anytime soon.'' As with anything else, people who try to time the market usually lose. BUT if you look at your home as a place to live and a major life decision, rather than a short term investment, you should do ok

A huge ditto to Rockzilla!

 

[musey]

Renting, but not to do with the economy. Even the cheapest 2-bedroom condo (because if you're going to buy as a married couple planning for kids in the future, why buy a 1-bed?) in an acceptable neighborhood in our city would run us at least $420k. No one we know here under the age of 30 owns a home (condo or otherwise). On top of the ridiculous cost of housing, we are not at a stable point in our careers yet to know what we will need as far as a house. My father has always advised me not to consider buying a home unless you are sure to be living in it for at least three years. We don't have a clue where our income will be in three+ years (even though both of us, my husband especially, work in some of the best industries for a poor economy), how soon we'll be adding children to the mix (dependent on the income question), whether we'll be staying in this city, etc. so buying makes NO sense.

Now, if we could buy a 3-bedroom house for under $100k like you can in many cities, I'd be singing a different tune. I know 22-year-old singles in my hometown that live in 3-bedroom houses that already have half the mortgage paid down

 

[blackpolkadot]

We will be renting. As much as we would like a house, we really don''t have the income for the insurance, maintenance, etc required for a home.

We also want to move around and not be limited to where we live. Once I graduate, we want to move away (from where we grew up) while it''s just us two. No idea where that will take us, so for now we rent.

 

[honey22]

We have done things a bit backwards, we bought our house together about 4 years ago, so we will be coming back to home sweet home as Mr and Mrs after our wedding

 

[Bia]

We want to buy a house. Currently he owns a co-op which is great, but small to start a family. Since we still have a few years before we''ll be ready to do that, we want to save as much as we can. This is not best time to sell our co-op either since we might not get what it''s worth.

Another problem is that in NY, where I live, single family homes are soooooo expensive

I honestly don''t know how we''ll do it. We just can''t afford a million dollar home, its that simple.

 

[Diamond Confused]

Date: 2/5/2009 3:04:12 PM
Author: elrohwen
We''ll be renting for a few more years. First, we don''t have $80k for a 20% deposit (teeny tiny starter homes are around $400k here ... insane). Even if we did magically get the money, I don''t think it''s a good time to buy in my part of the country. Prices really haven''t dropped much and many experts are saying that they''re going to drop even more before this is over. I would hate to buy a house and be stuck in a mortgage after a few years because it was worth less than what we bought it for. Maybe if we knew we''d be here for the next 5 years at least we''d go for it, but we really can''t make that commitment yet. Oh well ... I would love to have a house with a nice yard.

Lucky girl! A starter home, 2 bed 1 bath, in our area is around 700,000. We need about another year to save the $140K or so we need for the down payment. The plus side is that in that year the prices should drop a bit more.

 

[lliang_chi]

Home owner (well, condo owner) here. Rockzilla had some very excellent points you need to consider before buying a home. FI moved into my condo and we planned to put it on the market the summer after we''re married. I bought the place 4 years ago, and, luckily, missed the hyper-inflated prices. We''re sitting at a good spot, and I think, if/when we do sell, we''ll be okay.

If/when we do sell we''re at odds on which neighborhood to live in (that''s not our current one). FI loves neighborhoods that are already priced out and I like "up and coming" neighborhoods that he doesn''t. Oh well, we have time to figure it out.

 

[CDNinNYC]

We''re renting.

 

[KatyWI]

FI bought a house a year and a half ago, so we''ll be living here for 5-10 more years until we''re worried about our kids'' school district

 

[DiamanteBlu]

3+ decade multiple property owner here . . .

I, personally, am hanging loose to see what the market is going to do [I believe it is not done tanking yet]. There is no rush. I believe that there will be some great buying opportunities coming up in the next couple of years.

So, if you do not currently own, I would suggest renting and keeping an eye on what is going on.

 

[Sabine]

Rockzilla''s post was great, and I think her #1 has to really be the first thing you ask yourself. I would even try to give yourself a cushion of more than 5 years in a place in this economy (more like 10) because although it''s a buyer''s market right now, there is a good chance that house values are going to continue to fall for some time, and if you are planning on buying and then selling anytime soon, you could easily end up losing money.

This is so frustrating to me because I''m so sick of feeling like we are throwing money away on rent, but we know that we won''t be settled in any one place for quite some time, so we will have to continue to rent.

 

[Winks_Elf]

We plan on renting for a year, because we don''t believe the market is done tanking, and we want to see what the schools are like and it''s hard to do that from across the state. I hope we can rent something in one of the towns that we would eventually purchase in, but as long as it is very close by I''ll be happy. I''d just hate to have to move the kids from one school system to another three times in three years.

 

[SarahLovesJS]

Thanks everyone, was just curious to see what everyone was doing!

 

[mollyjones]

We bought a co-op last month. We were looking sort of casually (we live in an expensive area, and we had a very nice, affordable rental apartment, so we were happy to wait to find the right place), and everything with this place just worked out - we love the apartment, and it was affordable because of the market and because the sellers were moving to California and wanted to sell quickly. It''s also in a good school zone and large enough for kids one day, so we''re not as concerned about what will happen in the market in the short term (especially since the timing worked out great for our mortgage rate) - this is a long-term home, and I can definitely see us still living here in 20 years.

 

[meresal]

Date: 2/5/2009 12:29:16 PM
Author: rockzilla
I would say that, while you do want to take the economy into account, there are bigger personal factors to consider when you're asking the buy/rent question. My first order questions would be:

1. Do we plan on being in this area the next 5+ years? What reasons could lead us to want to/have to move? Career? Family obligations?
2. Can we easily support a (standard, fixed 30-year) mortgage payment on our salaries? Could we do it on one salary? Do we have a down payment? What about insurance/repairs/property taxes?
3. Is there a possibility that either one of us may not be working at some point in the next 5 or so years? This could be due to having a child, going back to school, or planned/unplanned unemployment. Would we still be able to make the payments in this case?
4. What are our other expenses? (credit card debt? student loan debt?) Can we see a big increase in expenses coming down the pike? (starting own business? need to support a parent or other dependent?)

Once you have those questions answered, then I think you can look at the economy/market. In our case, we will continue to rent because I am (hoping to) go to business school next year, in a location as yet unknown. We also don't know for sure what area of the country we want to settle in. So I'm out on #1 and #3.

I think a lot of the problems occured when people didn't honestly answer the personal questions for themselves. Being blinded by the market, with everyone telling them 'renting is throwing your money away!' 'get in or you'll be priced out forever!' 'the market is so hot you'll have no problem selling/refi for a HUGE profit' 'you can always rent it out to pay the mortgage!' they didn't honestly answer those 4 questions for themselves, and went with what everyone else was doing/telling them to do. Going with the herd = not always a good idea.

Then you ask yourself the economy related questions. These are actually MUCH harder to answer, there are a lot of experts out there who get these wrong everyday:

5. Do we think values are going to continue to go down in our area? Keep in mind that many areas that are 'cheap' now are ones that may continue to go down in the near future. Areas that are 'protected' e.g. Beverly Hills may mean you're not getting that much of a deal.
6. How would we feel if our home value went down by 10%? 20%? 30%? Are we comfortable with this level of risk? Do we plan to stay in this home long term if that's what it requires for prices to recover?
7. How is our area being affected by forclosures? How many homes for sale on our block/in our neighborhood are foreclosures/short sales? Again, may get a better deal, but do you want to live on a street with multiple empty houses due to people losing their homes?


Hope this helps. I think its important that each couple assess their situation individually, instead of jumping on the bandwagon of 'ohhh houses are so cheap we HAVE to buy now' or 'prices are going to keep going down there is NO WAY we're buying anytime soon.' As with anything else, people who try to time the market usually lose. BUT if you look at your home as a place to live and a major life decision, rather than a short term investment, you should do ok

Rockzilla ITA with everything you have said. Thanks for doing all the work

Just because it's a "Buyers Market" doesn't make everyone a "Buyer". Be smart.

 

[newsboysgrl777]

Rockzilla, great post, and awesome advice!! And Hawk, thanks for chiming in. I guess there are other things to consider when playing around with the mortgage calculator (like Lanie said)! It always LOOKS like renting is the bad choice, but in reality, is it? I mean, when we played around on the calculator, it looked like it would be CHEAPER to own than rent, but again, we didn't take into account some of the things you all mentioned. Also, we have no clue about what the interest rate would REALLY be. And, on top of that, sometimes I think about the $ my landlord has to spend on things and I say "THANK GOD I'M RENTING!" (like new water tanks, or furnaces, and he actually had to dig up BOTH sewer lines (it's a building with 4 adjacent apartments, 2 connected to one sewer, the other 2 to the other), etc. and I do NOT want to know how much that cost him! YIKES!!

Also, I want to mention that just because it's a 'buyer's market' doesn't mean the banks feel the same way. LOL What I mean is, it is going to be EVEN HARDER NOW than in the recent past, to get approved for a mortgage, even if you really DO qualify. Banks are just so afraid of foreclosures, etc. because of the economy AND the giant mistakes they've made in the recent past, that they're being even more stringent about approvals.

However, ALL of that aside, FI and I weren't going to buy anyway because I do NOT plan on being here any longer than I have to. I absolutely DESPISE the winter and have been wanting to move somewhere south for a loooong time, so in another few years (5 at most?), we'll hopefully be heading south. That said, it just wouldn't make sense to buy a home up here for that short a period of time - even if we were financially 'well off' (as in, even losing money wouldn't affect us). Also, as a first time homebuyer, there are SO many perks, and I'd hate to waste them on a home I know I won't be in for long...and then not get that in my possible 'forever home' when we moved.

So, we plan to assess our money situation just before we're married to see if we can actually move me to another (better) apartment before we're married, or if we need to keep renting for at least a few months after the wedding to save up. Right now, we live right next door to each other in separate apartments, so he'd just move in with me in mine, since I'm alone and he has a roommate. The rent is RIDICULOUSLY cheap here, but there are reasons for that...LOL...so it's not all peachy. We definitely want to get somewhere nicer and hopefully closer to his work, just not sure if that'll be BEFORE July, or after.