Is it crazy to buy a house in this market? - Updated

[iGas]

You can also look at the bottom line when it comes to tax deductions and the like.

Housing was never MEANT to make money. At least, not the ones you are living in. You just had to be smart enough to make sure any improvements you made were not idiotic (rooftop hot tubs, Garage discotheques and massage parlors.

You know, typical Man-tasies. 😉

I love to have a man-tasies/man-cave, but I don't think I can afford one at the moment.

 

[Sho'Nuff]

Rates are all over the place all over the country as are prices. But the median house in most states is in the $3000-$4000 tax per year mark. Your numbers seem right in line with other states. Remember, states need that few thousand dollars from you - they will just adjust the rate as prices change until they get there.

Notice the value that my numbers were based on. $200k. The home we are considering is more than double that amount. Meaning that the taxes would also be more than double (i.e., ~$8500/year). Not cheap by any stretch of the imagination.

 

[vi edit]

Not cheap by any stretch of the imagination.

Neither is a $400,000 house.

 

[Adul]

Ok, so the concensus seems to be that now is a good time to buy. That said, what is the lowest you all would consider a "serious" offer on a $439k home? As I mentioned, we are considering offering $350k, but I do not want to piss of the sellers (too much, anyway). The home has a lot of exterior maintenance issues that need to be taken care of, some of which are not all that minor (e.g., the back deck has never been taken care of and needs to be completely replaced). Couple that with the fact that this home has been on the market for just over a year, and I think we have a good case for making a lowball offer with an eye towards purchasing at or around $400. Thoughts?

try zillow.com and look for the avg the houses are selling for in the area you interested in.

 

[Sho'Nuff]

What kind of exterior problems?

Around here 10K for new siding, 3~5K for paint, and 10K for new roof, foundation & perimeter drain can be expensive therefore walk away if it look extensive.

Back deck is dried out and rotten beyond repair. It needs to be replaced completely. Since it is low to the ground, I can replace it easily in one weekend with the help of my relatives.

Back roof needs to be replaced. It is 17 years old (20 year shingles) and the front was replaced in 2007 because an ice dam caused a leak. Back should be redone with an eye towards preventing the same issue.

No gutter was ever installed on the back roofline, which probably resulted in the rotting issues with the deck (water is directed from the roofline directly onto the middle of the deck, where it was allowed to pool). To correct the issue, a gutter should be installed.

There are some rotten clapboards where the deck meets the house, and around a doorway leading from the back of the garage to the back yard. Those boards need to be removed and replaced, and the surrounding area inspected for mold. If a mold issue is found, we will most certainly NOT be purchasing the home.

Front entryway has some soft boards that need to be replaced.

Wooden steps from the garage to the house are made of plywood that is starting to show its age. They should be rebuilt.

The interior of the house appears to be in good shape, save for a few small settling cracks. Depending on how long those cracks have been there they could be of concern, or not.

 

[iGas]

Back deck is dried out and rotten beyond repair. It needs to be replaced completely. Since it is low to the ground, I can replace it easily in one weekend with the help of my relatives.

Back roof needs to be replaced. It is 17 years old (20 year shingles) and the front was replaced in 2007 because an ice dam caused a leak. Back should be redone with an eye towards preventing the same issue.

No gutter was ever installed on the back roofline, which probably resulted in the rotting issues with the deck (water is directed from the roofline directly onto the middle of the deck, where it was allowed to pool). To correct the issue, a gutter should be installed.

There are some rotten clapboards where the deck meets the house, and around a doorway leading from the back of the garage to the back yard. Those boards need to be removed and replaced, and the surrounding area inspected for mold. If a mold issue is found, we will most certainly NOT be purchasing the home.

Front entryway has some soft boards that need to be replaced.

Wooden steps from the garage to the house are made of plywood that is starting to show its age. They should be rebuilt.

The interior of the house appears to be in good shape, save for a few small settling cracks. Depending on how long those cracks have been there they could be of concern, or not.

I'm not sure as to how much it will cost to replace all of that in your area, but it look like 10K~20K in my area, or less than 10K if DIY.

It is extensive enough of a problem that you can knock 25~30K off list price.

 

[Sho'Nuff]

Insurance is $450 a year, interest is 4.5%. Renting is not common in my area. If you rent then it's either some shithole apartment or ghetto shack (which I lived in while mine was being built) or a very expensive corporate housing rental that is approaching what my monthly costs are. Normal "family" homes that are in safe areas with good school districts are not common.

This is the same issues we face in NH. All the rentals are ancient houses that have been carved up into crapholes. Either that, or they are small apartments with ocean views and an ocen view price tag.

 

[Barfo]

Not crazy if you have the money.

 

[Sho'Nuff]

Neither is a $400,000 house.

Agreed. But I guess that all depends on perspective and market. $400,000k in Boston does not buy what $400k in Louisiana does. In fact, I bet you could fit 3 $400k boston homes inside 1 $400k Louisiana home.

 

[Sho'Nuff]

I'm not sure as to how much it will cost to replace all of that in your area, but it look like 10K~20K in my area, or less than 10K if DIY.

It is extensive enough of a problem that you can knock off 25~30K off list price.

Obviously depends on materials and whether we do the work ourselves or not. But we came to the same conclusion as you. I.e., its enough work that we could justify taking 20-25 k off the price tag. Which is just fine, because we would be ok with paying ~$400-415k for the home. Anything less is just gravy.

 

[IndyColtsFan]

Ok, so the concensus seems to be that now is a good time to buy. That said, what is the lowest you all would consider a "serious" offer on a $439k home? As I mentioned, we are considering offering $350k, but I do not want to piss of the sellers (too much, anyway). The home has a lot of exterior maintenance issues that need to be taken care of, some of which are not all that minor (e.g., the back deck has never been taken care of and needs to be completely replaced). Couple that with the fact that this home has been on the market for just over a year, and I think we have a good case for making a lowball offer with an eye towards purchasing at or around $400. Thoughts?

Coming in at $350K is too low and will piss them off. In 2008, I offered a seller $19K under their asking price and they were "insulted" and counter-offered me with their ORIGINAL asking price. The house had been empty for a year so I knew I was in the driver's seat, so I told them that when they decided to quit playing games, they knew where to find me. They called back within 5 days and I bought the house. 🙂

On any offer you make, make it contingent on them fixing the problems. If they say "no," reduce your offer.

 

[Tweak155]

I waded through all these posts and didn't notice anyone mention previous sales prices. Have a history of sale amounts for that address?

 

[iGas]

Vancouver Crack Shack or Mansion?

I'm in Victoria, and the housing price is around 10~15% cheaper than Vancouver.

 

[Sho'Nuff]

Coming in at $350K is too low and will piss them off. In 2008, I offered a seller $19K under their asking price and they were "insulted" and counter-offered me with their ORIGINAL asking price. The house had been empty for a year so I knew I was in the driver's seat, so I told them that when they decided to quit playing games, they knew where to find me. They called back within 5 days and I bought the house. 🙂

On any offer you make, make it contingent on them fixing the problems. If they say "no," reduce your offer.

Yeah, I've been on the other side of the game too. When we sold our first house, the first offer we got was from a young couple who wanted to pay 20k less than our asking price and have us pay closing costs. At the time (early 2007) the market was not THAT bad, and so we told them to buzz off. 3 days later, we had a three way bidding war and our home went for 2 k above asking price, to a buyer that paid cash. That was a nice payday. I sometimes feel bad for that buyer now, as the assessment on that home is about 2/3 of what she paid. Too bad for her. But good for us.

$350k is probaby too low. $390-395k is probably a better starting point.

 

[IndyColtsFan]

I waded through all these posts and didn't notice anyone mention previous sales prices. Have a history of sale amounts for that address?

Or better yet, your realtor should be able to provide you with home sale prices for the immediate area over the past few months.

 

[Sho'Nuff]

I waded through all these posts and didn't notice anyone mention previous sales prices. Have a history of sale amounts for that address?

No prior sales. The current owners built the house in 1992 and have been living there ever since.

 

[vi edit]

Vancouver Crack Shack or Mansion?

I'm in Victoria, and the housing price is around 10~15% cheaper than Vancouver.

One of our vendors is from Vancouver and my support rep says the big thing there is buying the old nasty homes, dozing and rebuilding on the lot. That's what he was doing most of last year.

 

[Sho'Nuff]

Or better yet, your realtor should be able to provide you with home sale prices for the immediate area over the past few months.

Already done. Which is why I said that comps were all over the place. NH is an odd market. Prices vary widely based on town, and even within the same town. As I mentioned in a prior post, there are $600k homes in the neighborhood we are considering, and there are $390k homes. With some sprucing up, the home that is of interest to us is legitimately in the middle of that price range. But in its current condition I just don't think it justifies its price tag.

We have also considered building a new home from scratch, or buying a new home that is already constructed. For $20k more, we could get into a really nice new construction home in a developed neighborhood (the home is on one of the last unsold lots). But the lot is not ideal, and I really do not want to spend that much.

 

[Sho'Nuff]

Bump for update in OP

 

[Slew Foot]

Congrats, we bought a house a month ago and are moving in next week. Got a great interest rate, locked in when rates were dirt cheap, and got great deal on a nice house in a great neighborhood.

 

[Sho'Nuff]

These are crude numbers but homeownership is typically like this:
First few years: Home $1500/month, rent $1000/month.
After 10 years: Home $1500/month, rent $1500/month.
After 20 years: Home $1500/month, rent $2000/month.
After 30 years: Home $300/month, rent $3000/month.

It is painful at first, but don't forget the financial rewards that will be coming. And that doesn't even count the principal that is adding up giving you a sizable savings account.

One thing I think should also be pointed out is that the "cost" of renting goes well beyond the rent that is paid to the owner. Asa renter, you forego the extra income that you would be able to take home by deducting the real estate taxes and interest accrued on a mortgage if you owned a home.

E.g., Say you rent a 2 BR apartment for $800 a month. You could buy a similar place for $240k. You can put 20% down, and will have to finance the remaining $200k at a rate of 5% interest. Taxes on the property are $4k per year, and you are in the 25% tax bracket.

In the first year of your mortgage, you would pay roughly $10k in interest, and $4k in taxes. As a result, you can deduct $14k from your federal taxible income. Taking into account your 25% tax bracket status, you could take home an additional 3500/year, which comes to ~291.00 per month (assuming you manipulate your w-4 appropriately).

Thus, your true cost to rent is 1091.00 per month, i.e., the amount of your rent, plus the amount you forego by renting instead of buying the $240k apartment.

In contrast, the monthly PITI payment on $200k at 5% interest for 30 years is ~1132.00 (1172 PIT + $60/mo for insurance). That means that it costs you a whopping $41 a month more to own, than it does to rent.

But even that doesn't paint the whole picture. As some have mentioned already, ownership has one major benefit that renting doesn't, and that is the accrual of equity in the home. In the initial years, each payment on that 200k loan nets the owner ~$250 in principal. Thus, for that extra $41 a month, the owner gets to keep an addition $209 of his hard earned money, albeit in the form of home equity, and not liquid cash.

In our particular scenario, the difference between our PITI payment and our true cost to rent is ~$250. But each payment nets us ~$420 in principal. And the home we are buying is ~10000% nicer than the craphole we currently rent.

 

[sandorski]

Vancouver Crack Shack or Mansion?

I'm in Victoria, and the housing price is around 10~15% cheaper than Vancouver.

9/16 lol

 

[vi edit]

E.g., Say you rent a 2 BR apartment for $800 a month. You could buy a similar place for $240k. You can put 20% down, and will have to finance the remaining $200k at a rate of 5% interest. Taxes on the property are $4k per year, and you are in the 25% tax bracket. In the first year of your mortgage, you would pay roughly $10k in interest, and $4k in taxes. As a result, you can deduct $14k from your federal taxible income. Taking into account your 25% tax bracket status, you could take home an additional 3500/year, which comes to ~291.00 per month (assuming you manipulate your w-4 appropriately).

While correct in theory, it's largely hyped. The standard deduction for most couples is already $11,400. So all you are really getting an assist on is the tax at that point. Many people in smaller/less expensive homes will never surpass the standard deduction.

On a $400,000 home the value is there. But on something in the 200k and under range it's not as big of a deal.

 

[rcpratt]

Congrats and good luck.

Pics?

 

[ebaycj]

We are not first time homebuyers, so none of the government subs would apply to us anyway.

We can definitely afford to own. I'm an attorney and my wife is a federal criminal investigator, so we both have good jobs with solid incomes. We also have a huge downpayment that is a carryover from when we sold our first home in 2007 (we made ~108% profit from that sale).

One major problem I have is that we are sitting in a nice loophole tax wise. As renters, we do not have to pay New Hampshire's real estate tax (which is historically very high), and we also do not pay state income tax. If we buy a home, we will be subject to those real estate taxes, which means ~$600-800/mo less in income (real estate tax rate in New Hampshire range from 1.5-2.3% per thousand, meaning that a 200,000k home will have yearly taxes ranging from $3000-4600). We can afford that, but it is definitely nice having such a low tax base.

I believe if you have been renting for a while you still count as a "first time homebuyer" or some such thing. You may want to look into it.