Is it a bad time to buy a house?

[Reasonable Doubt]

I read that when interest rates go up the price of houses will go down.
Any truth to this?

 

[A Casual Fitz]

I have reasonable doubt.

 

[highland145]

I have reasonable doubt.

Most definitelly.

Bring back jimmy carter and 22% mortgage rates and houses will be free.()

 

[soulcougher73]

Most definitelly.

Bring back jimmy carter and 22% mortgage rates and houses will be free.()

House prices would surely plummet. Some good, some bad with that

 

[TwiceOver]

For my area, it's a bad time to be a buyer. I can currently rent a condo with about 2/3 the sq ft of my house for 30% MORE than my mortgage. I laugh every time I drive by that sign.

 

[Capt Caveman]

Completely dependent on the area.

 

[Humpy]

The best time to buy a house is right before lunch on a Tuesday.

 

[dullard]

I read that when interest rates go up the price of houses will go down. Any truth to this?

Yes and no. In a closed system, when interest rates go up, then the prices of houses tend to go down. But, we don't live in a closed system.

Lets consider a typical 30-year mortgage at the current interest 3.83% rate. Suppose buyers in a certain location can afford $1000/month towards the mortgage (fees, taxes, etc. are extra). In that case, the buyers can afford a $213,827.50 mortgage.

Now suppose over the next year, interest rates are raised twice by 1/8% each time (probably a reasonable guess as to what the fed will actually do). Then that same $1000/month can only pay for a $207,452.10 mortgage at 4.08% interest. The house must either go down by $6375.33 or those buyers in that area can't buy the house.

However, we aren't in a closed system. What if in the next year, the buyers also get a $1/day raise? That would be a pretty tiny raise for a buyer looking at a $200k house (maybe a ~0.5% yearly raise). Now that buyer can afford a $1030 mortgage payment. A $1030 payment at $4.08% can afford a $213,675.70 mortgage. Meaning the house price doesn't change at all over time with this particular example of raised interest rates. If the yearly raises in your area are more than ~0.5%, then the house price would actually go up with these higher interest rates because salaries went up faster than the likely miniscule interest rate change.

Also, consider if your area has a growing population (housing prices generally will rise over time) or a shrinking one (housing prices fall). Is your area experiencing a building boom? Is your area gentrifying or becoming blighted? Etc. All of these factors matter far more than what the interest rate will likely do.

 

[Charmonium]

That's a perfect example. :thumbsup:

I'd just add that so far, most construction has been focused on multifamily dwellings, so think apartments and condos. Although I think it's mainly been apts.

That looks like it might be changing though. If so, more single family units will be coming on the market so you won't have the same supply constraints you do now. Plus, bank underwriting requirements will probably loosen up a bit more than what we've seen in recent years.

If that happens, buying now is probably a good move since the market for single family homes will probably increase. But as others have said, it really depends on where you are. Are you in an area that has enough undeveloped land and a high enough demand for housing that you could reasonably expect there to be a construction boom.

 

[SketchMaster]

To add to the last two posts. I Personally think a good time to buy a house is when one of these three criteria are met:

-Buying is cheaper than renting AND you'll be staying put long enough to get a good ROI
-You're married AND ready to have kids
-You have plenty of cash to burn OR you want to get into renting

 

[Reasonable Doubt]

Thanks for the replies.

I think I'm going to hold off for a little while unless I see a house that I absolutely love and have to have.

 

[jpiniero]

The Fed isn't raising rates, so it's kind of moot. That being said... they will eventually. Keep in mind that the two are not directly correlated. But you should plan on thinking that your buyer would be paying like 6-7% and it probably wouldn't be a bad idea to think how that would impact things.

 

[Fanatical Meat]

Timing a home purchase is like trying to time the stock market. You know when its high and you know when its low but everything in-between is close to impossible to time.

 

[DrPizza]

Dullard did some specific math above, but keeping it simple, don't forget about the miracle of compounded interest. It might be cheaper, but with a higher interest rate, it's quite possible to pay more in the long run.

Also, something that I haven't seen a lot of people mention: if you have a very stable job that you expect to be at for a long time, then buying can be cheaper for a couple of reasons - most of the comparisons above only consider "now." In most markets, rent goes up over time; your mortgage payment is relatively fixed. (Taxes go up, insurance goes up, so with escrow, your payments may go up a little bit.) But, over time, perhaps even a decade, rent payments may very well go up beyond what your ten year old mortgage payment it.

E.g., if you have historical data for your area, see how much rent was 10 years ago, and see how much your mortgage payment would have been on a similar house 10 years ago. Your mortgage payment won't have changed significantly on a fixed rate mortgage - see how that compares to rents now that it's 10 years later.


And, the biggest thing: unless (like many people do) you keep deciding, "I can sell my house, put my equity into a downpayment on a new house, and afford a more expensive house." Then, after 15 years, or 20, or 30 - however long your mortgage is for, you're done. Just taxes, maintenance, and insurance after that. That is, if you buy when you're 25, then once you hit 55, you could be done making mortgage payments. How much is rent going to be 30 years from now? If you live to be 80, you can rent for 60 years, or pay a mortgage for 30 years or less. Of course, to do a perfect analysis of this, you would have to consider how much money the extra difference between mortgage and rent would be worth, with interest, until the point where the rent being more than the mortgage used up that excess.

Though, staying fixed to one house long term isn't for everyone. The alternative is moving laterally into another home at the same level in the market, rather than continually upgrading to bigger and bigger homes. But, a significant percentage of homeowners tend to always want to be in as much home as they can afford.

 

[Blanky]

As a home owner I would say the best time to buy a house is never. They are money pits and the amount of money put into them is rarely going to be worth anything and this even applies when buying new (because the house won't be new forever). Get one when you need it or your wife begs you for it, don't try and time the market, and absolutely do not see it as an investment. It is a very shitty one.

 

[DrPizza]

As a home owner I would say the best time to buy a house is never. They are money pits and the amount of money put into them is rarely going to be worth anything and this even applies when buying new (because the house won't be new forever). Get one when you need it or your wife begs you for it, don't try and time the market, and absolutely do not see it as an investment. It is a very shitty one.

Sucks to be you. I enjoy my home and space. And, with some basic skills, maintenance fees aren't very excessive. Only major repair that needs to be done regularly - every 20 or 30 years - is a roof. Almost anything else is trivial if you can do it yourself.

 

[NetWareHead]

As a home owner I would say the best time to buy a house is never. They are money pits and the amount of money put into them is rarely going to be worth anything and this even applies when buying new (because the house won't be new forever). Get one when you need it or your wife begs you for it, don't try and time the market, and absolutely do not see it as an investment. It is a very shitty one.

Disagree. I did an extensive kitchen upgrade in one of my properties that cost me almost 18,000. New flooring, lighting, cabinets, appliances, paint etc... Almost 4 years later and all of the money I put into that kitchen I have recouped merely through a rent increase. Now that the kitchen is paid off, next are the two bathrooms with another corresponding rent increase.

As far as timing the market, I need to strongly disagree again. This year was probably the best time to buy. Scored a fixed upper 2 family house for cheap with a mortgage rate of only 3.25%. From day 1 and without any upgrades/rennovations of my own, the property is profitable.

My properties generate profit. I wouldnt go as far as calling them cash cows (perhaps when the mortgages are paid off) but they are lucrative. Properly taken of, a house of not that expensive to maintain other than a roof ever few decades, maybe landscaping that adds up every year and the occasional disaster (which is why we have insurance).

In terms of personal property (not a rental), I'd always want to own my own place and build my own equity than put $ in the landlord's pocket. I have on numerous occassions borrowed against the built up equity in my home to finance projects, taking advantage of the better interest rate on a second mortgage vs other loans. There are numerous tax advantages for homeowners too.

 

[Red Squirrel]

I see a house as a place to live more than an investment, the fact that it can be an investment is just a bonus. I personally prefer a place I can do mostly what I want, have no one else living in and that will eventually be paid off. I guess it can be seen as leasing a car vs buying. If you lease you're always making payments if you buy, it's yours, and if you want to mod it or do anything to it you can.

Other than blips, house prices tend to always go up, so the sooner you buy the cheaper it is, generally. I would not buy in a place where the houses are ridiculously high though, like Toronto or Vancouver where they're in the millions. That's just insane, and that bubble is probably going to eventually burst. Personally I would move out of a place like that so I can establish myself in a house that I can buy for a more reasonable price. If houses are that expensive then chances are rent is high too.

 

[Denly]

The best time to buy a house is when you can afford one, no one know what will happen in the future but it is better to make a safe bet(buying a house) than burn you cash(rent).

I knew people that waited 15years and they regret that.

 

[Fanatical Meat]

Sucks to be you. I enjoy my home and space. And, with some basic skills, maintenance fees aren't very excessive. Only major repair that needs to be done regularly - every 20 or 30 years - is a roof. Almost anything else is trivial if you can do it yourself.

Same here. Yes you need to do repairs but no you don't need to pay for everything to be done by a contactor. You can also shop and time you purchase when we bought our house we knew the roof was at the end of its life we also knew it could wait a few years if needed we got it replaced immediately because in our area in 2011 plenty of roofers were looking for work. Total roof replacement cost was $4100.00 our neighbors that waited have paid 8-10k (two houses I can't remember the exact cost). We will need a furnace soon but it doesn't need replacement right now we'll save and occasionally shop when we're ready we'll replace it.
I'm not a fan of homes being investments but ours has worked out we purchased for 214k we're valued at 248k, we've appreciated enough to add solar which once its installed should pay for itself in 6-8 years depending on the SRECs.
Our old place we rented would cost about $1300 per month today our current mortgage, tax and homeowners is slightly more than $1400 per month.

 

[Charmonium]

In some places taxes can kill you. I pay almost $10k per year or about $830 per month. And for this area with the amount of land I have, that's pretty good. Just a couple towns over I think the rates are at least 50% more. It really cuts down on the amount of mortgage you can afford.

 

[Fanatical Meat]

In some places taxes can kill you. I pay almost $10k per year or about $830 per month. And for this area with the amount of land I have, that's pretty good. Just a couple towns over I think the rates are at least 50% more. It really cuts down on the amount of mortgage you can afford.

Yup my Parents old home 20 minutes away was almost 14k in taxes. Admittedly its twice the square footage of ours but I used to ask them what benefit they got from such high taxes. I have sewer, trash pick up and most of my city has natural gas. Their old town had none of that.

 

[SSSnail]

So is 3.62% 30 years fixed a good rate? This is through Chase, think I can get better rates elsewhere?

Oh yeah, about the taxes, I have to pay them but at least I can claim deductions. Lawd knows I need the damn deductions.

 

[NetWareHead]

So is 3.62% 30 years fixed a good rate? This is through Chase, think I can get better rates elsewhere?

Oh yeah, about the taxes, I have to pay them but at least I can claim deductions. Lawd knows I need the damn deductions.

You could shop around but Id say 3.62% is pretty good. Keep in mind two things though:

1. That mortgage rate quote from Chase is typically only good for a set time. Mine expired at 60 days.

2. If you want to get another quote, you have to do alot of legwork in terms of submitting documents (pay stubs, tax documents etc...). And wait while they process all of that. Every new quote is an inquiry on your credit which does hit your score.

My 3.25 % for a 30 year mortgage was just in July this year and I had a hard time finding better (unless I went to a 15 year mortgage). If you have a great credit score than you might be able to find better than that.

 

[Greenman]

As a home owner I would say the best time to buy a house is never. They are money pits and the amount of money put into them is rarely going to be worth anything and this even applies when buying new (because the house won't be new forever). Get one when you need it or your wife begs you for it, don't try and time the market, and absolutely do not see it as an investment. It is a very shitty one.

That's an interesting point of view, but it doesn't include a few fundamental benefits of owning your home. The first being that the landlord can't decide to toss you out on a whim. The second being the ability to make it your own, paint, cabinets, tile, landscaping, all those things that make a place home. The third benefit is equity. Equity is money in the bank, and it can be leveraged, that's a valuable thing to have laying around. Also, if you happen to be in a desirable market, or even close to one, the ever increasing prices are good for your bottom line if you ever decide to sell. The value of my home today is triple what I paid for it, even after the 09 crash.
If you happen to live in California, the state can't increase your property taxes as your home value goes up (my yearly property tax bill is just under 1% of my homes actual value), and if you sell after you turn 55, you get to take that tax basis with you to your new house.

tldr. Owning your home is where it's at.