Originally posted by: DBL
Originally posted by: LegendKiller
If I were in your position I would not buy a TSX, unless it was used and pre-certified or get a much cheaper car.
For people saying buy a place, that is about the worst thing you can do at this point. The housing market *IS* going down, places in Boston have already lost 40% of their value. Here in VA outside of DC the average depreciation is 10%, so far. If he goes and buys a place he will be flipped on it within the next 3 years.
As opposed to a car loan, which puts you upside down the moment you drive the car off the lot? Besides, he would have to save in order to purchase, which means his real estate market timing could be very good.
It sounds like you are just out of college and got a pretty nice job. Your position is enviable to many.
Here is what I would do...
1. Check to see if your employer has a 401k program. Shove the max matched amount into it if they do.
2. If your company is public, see if they have a stock purchase program. Put 3% or so of your salary into it. Every 6 months sell it and purchase an index fund, say a Spider or something similar.
If you buy a cheaper car, you could probably save what? 150? Thats 1,800/yr. Not to mention cheaper insurance costs. Make it 2k a year. In 5 years, the term of the loan, you will have saved $10k, not have paid somebody 6%+ interest, AND you will have made your own money.
Essentially you will be up probably 13k, which includes interest saved, insurance saved, and less payments.
Unless you got gobs of money, buying an expensive car at your age is a stupid purchase. Buying a house is even worse, especially considering you will probably want to switch jobs within the next 5 years.
Use that cash, in 5 years, to pay for grad school or something.
Buying a house or apartment is rarely a poor decision provided you purchase something within your means. Rates have gone up so prices have slid a bit. Either way, so what? Save a down payment and buy a place for 5-8 years and build up some equity. If prices happen to go down, that will make your next upgrade more affordable. Essentially, it would be a wash.
Regardless, it's hard to imagine a scenario where renting an apartment and purchasing a new car (even a more affordable one) is a better choice over saving for and purchasing a house.
Also, besides the mortgage tax deductions, realize that a typical mortgage will net you probably close to 10% in equity over 5 years.
I don't believe you fully appreciate the market we are in. I work in the captial markets, and I do appreciate the situation. Lets run down the past 10 years.
1. Housing prices have gone up more than 50%, inflation adjusted, in the past 10 years, according to some of the best financial researchers.
2. The housing market, adjusted for inflation, went up 20% from 1890 to 1995. So, in 1/10th the time, the market appreciated 2.5x as much. That means we have deviated from the mean by a huge amount. What happened to the last deviation from the mean (99/00 anybody?). When it comes down to it, there are two ways you can regress to the mean, stay even or go down. If we stayed even, houses wouldn't appreciate for more than 100 years. So we gotta go down!
3. Since 1995, personal debt has more than doubled
4. More than 1 TRILLION dollars of hybrid mortgages are going to become unlocked in the next 3 years. That means that ARMs expire, and IO unlocked. This means that for many people, payments are going to go up 30%+.
5. Once the slowdown starts (it has) people will try to unload overstocked inventory at lower prices (they are now), developers will be left holding the bag (10k's (annual financial statements) from major housing developers show huge cancelled orders and larger inventories). They will then drop the price to get rid of excess inventory (they are doing so now). THis in turn squeezes speculators and investors, as it is happening now.
Since the prices will level off, many people who took IO or ARM mortgages to "squeeze" into their houses, or keep them just for appreciation will be flipped. They will have 2 options, forclosure, or selling for a loss. Once they sell, prices will go down further.
The economy has been growing on debt, once the housing market pops, the economy stops growing as much and debt gets called.
If you look at your current area, the price of a place should only be 100-200x monthly rent. So, for my place, that means that it should cost, at most, 300k, my place (which I am renting) costs 475K. According to all analysis, the DC area is overpriced by 37%, which is, ironically, about the amount my placed is overpriced.
Assume that I spend 10k extra than a homeowner and I do so for 3 years (the term of my lease). Within those two years, if my place goes down more than 20k, then I have *SAVED* money. Consider the fact that it might go down 150k, that means I have made 130k over my landlord.
Ouch.
Don't believe me? Warren Buffet spoke of it last weekend. If you don't believe the Oracle of Omaha, and his uber-returns for the last few decades, than you are a loon. Fitch Ratings (It was either them, S&P, or Moody's) released a report that more than 40% of Apartment -> condos will go under in the next 5 years due to poor debt management, poor build quality (they are apartments), and other problems.
The mortgage industry and the realtors have kept pumping housing as the superior investment. Sorry, but it isn't.
People think realty is a safe bet, but it isn't. People think it always goes up, but it doesn't. People think it's a good return, but .3% inflation adjusted sucks, you are much better off going to the diversified market.
save your money. Don't be a miser, but don't be foolish.
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