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Bought the book...love it.
One question: My girlfriend and I are getting married and looking to buy a house....is this a crazy thing to do in such bad economic times?
We currently rent.
All the best,
Burt
Hi, glad you liked it.
Seems that house prices are still going down. Between renting and buying, it’s a pretty thin line but I’d say keep renting if buying would be too much of an effort in your current situation.
Now, if you are financially capable of doing it and not put yourself too much at a risk if you happen to lose your job or have other inconveniences, you have a location you already plan to live in, then go for it.
What we saw here happening a lot was people going back to live to their parents house, even those married with kids. Living together saves you rent, and you also help with other house expenses. I’ve received several emails of people already doing just this in USA. There’s other advantages as well, such as older folks or those unemployed watching over the kids so as to save on nanny or daycare money.
Again, this will depend a lot on your personal financial situation, but if in doubt, keep renting until you are certain. I don’t think the real estate bubble is about to inflate again any time soon.
In a worst case scenario, renting means the owner pays for anything that breaks, for house taxes, so it’s the better option if in a tight budget. If you can’t afford rent anymore, it’s much less of a pain compared to not being able to pay the house loan any more. One means you just get your stuff and leave, the other means you may be losing tens of thousands of dollars. Specially for newly weds, and specially during the first years, renting makes a lot of sense.
These are all things you’ll have to evaluate and come to a decision yourself.
22 comments:
old saying:
if it appreciates in value: buy.
if it depreciates: lease/rent.
so....
1. rent housing. it's going down.
2. lease NEW cars. duh. or buy old.
3. buy gold. it may go up or down,
but it will buy the same thing
tomorrow as it does today.
Right now, if you don't already "Own" or "Rent to Own from the bank" you should rent a place. Preferably something that you can afford on one of your incomes. We live in great uncertainty when it come to employment. We are going to see the shake out of this recession for another 5-8 years (actual data from the Reagan Recession). As long as you are renting, you are inherently more flexible and able to relocate when needed - lease be damned.
Some single rich guy -- I can't remember his name -- noted the high maintenance/rapid depreciation of airplanes, yachts and mistresses.
He came up with the rule "If it flies, floats, or f***ks then lease it".
The price of US real estate is still high relative to the median incomes -- but that also varies by location.
If you do buy house, make sure that it is in an area with an improving future -- not a declining economy like Detroit's.
Real Estate is very slow to adjust to declining economic prospects because owners trying to sell don't want to accept losses.
There are several web sites that give you locations of foreclosed homes in a particular zip code. worth looking at not only for a deal but also to make sure an area isn't going downhill.
Try http://www.foreclosure.com/ .
Note: Foreclosures can be a deal because the bank only wants its principal back -- it doesn't care if the original owner loses all that he paid into it.
Pretty much what the others said.
Buying a house here is like catching a falling knife - it can be a lot of exciting fun, but you can get very hurt.
Live with your folks/in-laws for as long as possible, and then push it some more. We did it and it was hard and it caused some friction, but we were about to save a lot towards a down payment. Having family near with small children is priceless (babysitting, play with cousins and kin, etc.)
Yes, you don't get so much "freedom" when you are forced to live with family but remember, how much "Freedom" do you have when YOU are responsible for mowing, cleaning the yard, taking down trees, replacing the roof, repairing the walls, installing a/c, repairing insect/vermin damage, insulating, painting....?
If you can't rent out a property for 10%/year of the price you paid (i.e. $10K/year in rent on $100K of house) it's not a good investment. It may be a great place to live, just don't expect it to be a good INVESTMENT. If you absolutely need a place to live well then OK buy it, but be prepared to lose money on your investment - and BE SURE you have a solid income flow over the next 15-30 years of the mortgage. Cracking that monthly mortgage nut, plus house insurance, car payments, car repairs/insurance, cell phone, cable, electrical, gas/oil, water, food, going out, etc. adds up real fast.
Money is "made" in the buying, not the selling. There are some decent deals in housing IF you're on the inside track at a bank or realtor's office, but for John Q. Public, not really, not yet, not until the banks are forced to mark their housing inventory to real market prices. That may happen in the next five years and if you buy between now and then, you're screwed and will be "paying" to refinance all the folks who paid more than their houses are currently worth if plans in Congress come true for debt forgiveness and mortgage writedowns.
Great bargains lay somewhere ahead. Good luck!
More plusses to moving in with the parents/inlaws: More people around means more people to share the chores. More people around means fewer hours that the house is vacant and decreases the risk that you'll be a target for a break-in.
Housing is not an investment - technically it's a liability - contrary to what real estate people will tell you.
If you can generate income from it, great, but it is still a liability and not an investment as it produces nothing.
Some people use a ratio of earnings vs. the cost, to determine if they should buy, many say the limit is about 14%
The worst financial trap is the no money down, neg. am. loans.
People are probably sick of hearing me say this, but... I hope it helps someone, visit thehousingbubbleblog.com to get a handle on housing - those people saw the housing bubble for what it was and saw the crash coming before most everyone else.
Hi there!
I've just bought a house. I rented a cheap appartment for 450 euros a month, now I 'own' my house for just two hundred more. I got it at a very very good price. With the improvements / repairs that we're doing, I'm increasing the worth of it by the day.
Next year I'm going to get it's current worth checked, to see what I did get back from my investments. Not that I plan to sell it within the next 10 years...!
I think this is a very good investment because there are numerous things that are easy to fix and improve, and add worth to the house. The best thing is that these are things that have to get done no matter what; it's just that the former owner didn't bother.
In the meantime, my family has got a very nice and affordable place to live in.
But everything depends on the country you live in. Europe is a maze compared to the US!!
Ed from Europe
I've read that in the Netherlands the housing bubble is just as bad, if not worse, than in the U.S.
Deferred maintenance is not an improvement or an investment.
Anything done to a house only has value if someone sees value in it.
If you add things like an alarm system you might find value in having it, but others might not.
The biggest thing that often helps to determine value in a house is the comps in the neighborhood. These figures are often skewered and built upon lies or unsustainable financing.
For example, adding a million Dollars worth of improvements to a shack in the ghetto does not mean the house has now increased by a million Dollars, or even one.
There is an "opportunity cost" to fixing and maintaining a house. The money might be better spent on other things, or better yet, put into savings for when times get tough. And when times get tough, that's when you'll learn the value of the property, not when the good times are rolling.
Spend ~$20 and buy "Conquer the Crash" by Robert Prechter.
If instead you buy a house now (on 5:1 leverage if you put 20% down), good luck. You'll probably need it. All it takes for you to be entirely wiped out is a 20% decline in the market value of "your" "new" home. Given that the US Government is backing 19 out of 20 mortgages now, and the Government Sponsored Enterprises doing so are losing hundreds of billions each year, this is not a good time to think a return to normal is around the corner.
If $20 is too much, read the reviews of the book on Amazon.com.
If that's too much work, then you're probably going to do what everyone else appears to be doing (which is what farmers call "herding.") Most people herd.
As a life long homeowner, I think this is a great time to buy since mortgage rates are at their lowest in years. I would buy if:
1. your job is not going to be at risk
2. you're not getting a mortgage too big for your income and the down payment is not a dreadful amount of your capital
3. you like the neighborhood and know you're going to stay there for 5 years or more.
I never liked having a landlord to whom I was responsible and could snoop around.
JMHO.
Steve
I agree with what the com mentors have said above.
Here is a calculator:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
There are other ones that include estimated costs of repair.
However, there are two items to throw in as pluses for the owner.
One of the big advantages of home ownership is that the cash flow can be timed to your planned retirement: or some other event. If you are very frugal you can pay for an affordable property and at that point you will only be worrying about taxes. In theory you can save up the differential between you cost of rent versus ownership, and do the same thing, but it rarely works that way for most people.
The other big advantage is that you can make improvements to the property. It is pretty hard to homestead, or use some other stay in place strategy on a rental.
Hi Steve,
I agree a lot with your requirements. That's why we bought this place.
1. I've got the type of job that is not going to be at risk at least the next couple of decades. Moreover, I'm not getting bored of it either..!
2. The mortgage is very affordable
3. We'll be staying here at least 10 yrs, the neighbourhood is excellent.
Anonymous said that in the Netherlands there is a big house prices bubble, which is very true. In fact, the government subsidises home-owners by deducing tax they pay with the rent over a mortgage...
This means that without government support, people can't afford their homes. And guess which parties don't want to change this system? The liberals, christians and extreme-right. :-D
The left parties think that this bubble needs to be de-bubbled between now and the next 30 years (without crashing the system of course).
We will see what comes out of it; but even without government support we can afford this place.
About the investments in our home; we bargained a lot off the original asking price because of some bad maintenance, now we've fixed this stuff, there's no way that these arguments can be re-used to bargain if we were going to sell. We don't improve the house by adding golden door-knobs of course! Where there wasn't a doorknob at all, we installed a decent doorknob. And so on for more serious stuff that was lacking...
Ed
In the U.S. it is best for most to rent, unless you can pay cash or mostly cash, leaving only a small mortgage payment, or will no down with a no recourse loan, and have LOTS of job security. The Depression will become much worse. Expect high price inflation next spring, currency devaluation and possibly hyper inflation. With the money you've been saving for a down, buy essential tangibles.
a
Hi people!
A lot of good posts here so far.
2 things to consider:
A) House is a long-term asset - if you are not quite sure if the house is fair priced, there is a basic rule:
The lower the interest the higher the house price.
Basicly a house is like a bond. Where the sheeps disposable income is the monthly payment. The lower the interest the higher the value of the house climbs until it reaches the maximum disposable income - simply speaking :P
Now ask yourself this:
"Do you think interest rates will go up or further down in the next decade?"
If you think it will go up you should not buy at this time because you pay too much.
B) There is a difference between "Price" and "Value".
For example you have 2 pairs of shoes - both made in china, in the same factory.
One has a well known brand name and cost 3 times as much as the same "no-name" version.
You get the same value but the price is different.
The same rule applies to cars, stocks, bonds ...and houses.
I like to know exactly what i am buying so in the optimal case you first rent and after you already been in the house for 6 months+ you know exactly what you are buying.
This is not always easy and it certainly is not for the sheople.
PS: In the current situation of this planet i know not a single job i could label as "secure" for a period more than 5 years. Not one. We are living in a dream world.
"It is pretty hard to homestead, or use some other stay in place strategy on a rental."
I would say yes and no, but mostly no.
Here in the U.S. Midwest renting property is how many farmers farm, and they have done so for decades. If it weren't a stable practice I don't think they would do it.
Leases can be for any length of time the two parties wish it to be. If necessary, sign a five year lease?
Renting is also a widespread practice used by people to get into farming and make the money to buy some property. They buy the cows and rent the land. Often there is a house that comes with the land too.
If nosy landlords leave a bad taste, try offering a few Dollars more so they won't, or simply tell them that's what you're looking for. Some landlords feel the same way and will respect your wishes.
There are some bad landlords out there (especially in the large apartment complexes) but doing things like visiting their house to see how they live or asking prior tenants what their experience was might help you to weed out the socialistic leaning busy body landlords.
Or install a security system? The first time a busy body landlord sets one off will probably be the last.
I rented an apartment once where the landlord wanted to enter without notice to do maintenance, so I simply changed the locks. If he wanted to evict because of it, so be it. He didn't.
I knew of one landlord that wanted people to fill out an application form and a credit check form before she even told you the address.
Another guy must've come across that landlord too because I saw a rant on Craig's List one day complaining about this same practice. Seems like a criminal scam to get your info too. I don't think it was though.
My favorite landlord was the one that lived in another part of the country and I rarely saw him.
p.s. TO the "chinese shoes" guy who says there's no stable job over the next five years, I CAN think of a few:
gov't employee
working at the Treasury, FDA, SEC or one of the other various gov't agencies
English teacher
History teacher
Math teacher
custodian
nurse (school or otherwise)
doctor
judge
jail warden
priest
I'm not arguing that they're "good" jobs, "bad" jobs, helping or hurting the public, only that they're pretty stable
add value and "worth" to the house and get bled blind with value and worth taxes...
once upon a time without the borrowings that allowed fractional reserve debt currency productions and competitions, the average yearly wage per worker and the average house cost was 7500 dollars....today..the average household income wage is 54,000 and the ratio to house prices is skewed by a very large bit due to the allowances or tolerances of borrowed moneys......manipulators
Huh, stable jobs?
They're not laying off teachers, closing prisons or reducing staff and releasing prisoners, or reducing hospital staffs all over the U.S. as a result of budget shortfalls and unexpected losses involving things such as from the derivatives market?
I guess I was imagining all those news headlines. I guess even cities in states like Wisconsin managed to off load their losses, er I mean investments in derivatives with no effect on the future?
And for certain the cost of maintaining things isn't going to increase in any significant way going forward and throw off budget plans.
Cetarius paribus - forever, baby!?
The one that really stuck out to me was cities threatening to lay off personnel such as police and teachers, or actually doing so while ignoring the administrators. But even the administrators are not immune.
And as far as FedGov goes, you do know there are branches that are looking at a reduction in staff and many of the planned increases in personnel are Not going forward as advertised?
Oh but that news headline was fake or something too, right?
I saw a quote along the lines of this somewhere:
It's the things you're certain of that get you.
Well who'd a thunk it? And this is only the begining:
Schwarzenegger Orders Furloughs to Start
California Governor Arnold Schwarzenegger said 150,000 government workers must begin taking time off without pay starting Aug. 20 following a court ruling lifting an injunction temporarily blocking the furloughs.
The California Supreme Court, saying it would review the governor’s plan, stayed decisions by lower courts that had halted the furloughs. Schwarzenegger directed state workers to take three unpaid days off each month to save cash.
California began its fiscal year on July 1 without a spending plan after Schwarzenegger and Democrats who lead the Legislature remained deadlocked over how to fill a $19.1 billion deficit. The Republican governor on July 28 issued an executive order for the monthly furloughs until a budget is passed.
“The result of the Supreme Court ruling today means that the furloughs will continue until the court says otherwise,” Aaron McLear, a Schwarzenegger spokesman, said by e-mail.
A union for state engineers has sued to block the plan.
City Employees asking the Mayor of Seattle to cut senior level positions.
http://seattletimes.nwsource.com/html/politicsnorthwest/2012658144_city_employees_urge_the_mayor.html
“A large group of City of Seattle employees confronted Mayor Mike McGinn in his office lobby at noon to ask him to lay off senior-level employees instead of targeting the rank-and-file.
The group delivered hundreds of postcards to the mayor. “On your first day in office, you issued Executive Orders recognizing that the City is top heavy and relies too heavily on contracting out,” they wrote. “With revenue shortfalls and a lack of follow through on your orders, employees are being laid off and City services are being jeopardized.”
The mayor promised during his campaign he would cut senior-level employees. After he was sworn in in January, he began taking steps to cut 150 senior-level positions, but he backed off after managers organized to fight his proposal.
Now his office says he is “committed to reducing the number of senior positions” but won’t say by how many. The mayor points out that 35 percent of the staff members cut during mid-year budget reductions were senior-level employees, even though those employees make up only 9 percent of the workforce.”
I saw this well educated comment and thought it might help a person to decide, especially after viewing the chart of historical U.S. house prices at this URL:
http://img89.imageshack.us/img89/9413/graphcaseshillerlonginf.gif
Comment by Professor Bear
2010-08-23 07:22:23
My argument for why this is a terrible time to buy RE goes a few steps beyond that of the typical MSM financial journalist’s analysis:
1) Anyone who is paying attention right now knows that the U.S. residential RE market is on govt life support, and that the discussion in DC has shifted from how to reflate the housing market to how to (eventually) withdraw the massive level of federal government interference in the free market for housing which is primarily responsible for inflating the real estate bubble.
2) There is also an open acknowledgment that the housing market currently remains too weak for govt feeding tubes to be disconnected.
3) As the housing market eventually regains the strength to stand on its own two feet, the case for withdrawing govt life support will strengthen.
4) Eventual green shoots of residential REcovery will also encourage many would-be sellers who are currently holding homes off the market to finally try to sell.
5) The withdrawal of govt life support coupled with marketing of pent-up supply will put downward pressure on housing prices for “longer than expected.”
6) The current cohort of real estate flippers are likely to discover that they, too, caught themselves falling knives, which will lead to yet another rush for the exits right at the point when the housing market is supposed to be recovering along with the rest of the economy.
Many will eventually come to agree that, “Real estate is the worst investment.” We’re not there yet!
P.S. The tricky thing is that the upward movement in real estate prices was so great and protracted that few will estimate how massive and protracted the countervailing move to the down side will eventually turn out. This is why many folks will lose a great deal of money buying during the correction phase of history’s greatest real estate bubble.
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