thoughts on buying and selling houses ...

[paladiin]

I don't think anyone has an answer on what's going to happen. There are potential scenerios (like the "bubble") but no one can say for sure what will happen.

New home buyers will still be able to buy homes. If interest rates go up as expected, the initial phase will be a rocky one for both buyers and sellers. Buyers will have to better prepare themselves. Things like "No Down" and "Zero Points" will be replaced with a larger down and discount points to lower interest rates and monthly payments. Home prices will likely come down a bit, especially in areas where they have certainly inflated. But keep in mind, that many places in the nation have not experienced the same "inflation" in home prices. Buyers and sellers in those markets will be less affected by the "bubble".

Hate to say it, but many people who are caught in a possible bubble burst might really feel the pinch. If they purchased an inflated home - say due to a bidding war - and didn't protect themselves, they could get hurt financially. If they purchased a home at an inflated price, hoping to turn it around in a year for a large profit, they may really feel the pinch of higher interest rates.

Homes will still likely increase in the long run (10-30 years). But as I see it, the significant jumps in interest rates (without significant jumps in income) are going to kill the huge short-term jumps in values. I was pretty happy when the home we are building shot up nearly $10k, before it was even finished. Today, I'm just happy that we locked in our interest rate earlier this week (folks who haven't locked in and read today's economic news know what I mean). People who bought homes to profit quickly from are going to be facing some tough decisions very soon I would imagine.

 

[gordita]

reading this thread makes my stomach churn.
my wife and I are starting to look at houses in upstate NY and don't know if we should buy a house in the next 3 mnths or wait till after the elections....

our combined income is about $100k (was $65k up until a month ago) and we are only looking at houses costing around $100-$120k, something like a townhouse, a starter home.
we also hardly have any savings but I imagine that will change in the next few mnths.

all we want is a nice split-level 2or3 bedrm with 2 baths......
I guess the hardest part is in choosing 1 out of the 4 locations.......we just can't seem to make up our mind.

 

[spacejamz]

I hear of a lot of young people that are upset because they can't afford the house that they WANT. Well maybe you should be buying something cheaper. You aren't entitled to owning a big fancy house. That's something that you earn. Buy a smaller house that has some problems and move up to a bigger house. Stop with the GIMME GIMME GIMME attitude. Everyone starts at the bottom. My first house was a $50k two-bedroom in the ghetto.

don't forget about the 2 Lexus SUV's and the vacations to the Bahamas....there is no way we can get rid of those in order to get a house either...

 

[dman]

Was just chatting w/ my friend about how even if we sold our house, made a profit, and rebought a home we probably would be over the top from the tax increase.

Taxes on a $320K house are probably 6K/year or $500/mo.

And it's hard to find a home for <$300K that isn't in the ghetto. That's in S.FLA but I'm sure it's like that other places as well.

IMO, The market may not crash (people will resist selling at a loss) but it's not going to keep rising at the rates it has been and it's going to be a while for salaries to catch up. It'll start taking longer to sell homes, etc.

 

[kranky]

The low interest rates have dangerously fueled the rise in home prices. Not only are people getting mortgages who would not have qualified a few years ago, but people who were well established in their homes cashed in their equity because the repayment interest rate is so low, and have nothing to show for it.

I just read a story yesterday about a couple in Chicago who bought a $225K townhome at a 4% variable rate with 3% down. Why didn't they take the 5% fixed rate? They couldn't afford the payments! When rates start to rise (and they will eventually) there are going to be a lot of people who no longer can afford their homes. The race to dump the high priced homes will be on. That couple is going to be screwed. When they want to sell because their variable payment has gone up, there won't be anyone to sell to. They will be upside down and screwed.

No one "needs" a luxurious home. If they can't afford one, they will make do in a cheaper home. There will be plenty of those expensive homes for sale when rates go up, but I fear it's going to cost many families dearly. Those who are playing "real estate tycoon" will be at risk also, as they may not able to keep their apartments filled with paying renters unless they drop their rents. And that's assuming they have fixed rate mortgages to protect themselves.

Reward doesn't come without risk. When people start thinking real estate is a risk-free guaranteed money machine, they have lost touch with reality. Being highly leveraged can be great when everything is rosy. If things turn south, you can be wiped out in a hell of a hurry.

 

[Vette73]

Most believe, as I also do, that we are in a housing bubble. When rates go down prices go up. In the LONG run, 15-30 years, it is better to buy a house when the rates are high as house prices are usually lower and then when the rates drop refinance.

And like kranky highlighted. When the rates go back up there is going to be a hard cooling on the market, and a lot of houses put there as some people will be hurt by the lose of equity and lack of ability to make payments.

 

[kranky]

Ran across this post on another forum and it makes a great point - this guy is going to save over $10,000 a year by trading his house for an apartment. Great analysis, and makes you wonder.

[ripped post follows]

I recently put my house here in Dallas on the market for $295k and just accepted an offer for $285k. It is definitely a buyer's market here so I'm lucky to get this amount.

Why am I selling? The ever increasing costs of homeowner's insurance and property taxes make it not worth it in my opinion. I have seen my homeowners insurance increase at least 10% a year for the last 4 years - now $2100 a year. Additionally, I have seen my property taxes raised 20% every two years over the last 4 years - now at $7100 a year.

I don't see these increases ever stopping (especially the property taxes) so I'm getting out. I just found a deal on a 3BR / 2 BA apartment in a very popular part of town for $1595 a month. They had a special going where I get 2 months free on a year lease bringing the total rent down to $1329 / month. My insurance will drop to $150 a year and I no longer pay property taxes.

In my apartment I no longer have to pay a gas or water bill - these averaged me about $125 / mo in my house. I no longer have to pay homeowner's dues of $80 a month and I have also eliminated appx $3k in annual house repairs, maintenance, etc.

Based on my scenario - here are my projected savings

Mortgage vs Rent = 0 (these two are within $10 of each other)
Insurance = $1950 annual savings
Property Taxes = $7100 annual savings
Water and Gas = $1500 annual savings
House maintenance = $3000 annual savings
Homeowner's Dues = $960 annual savings

My CPA told me I will lose about $4k / yr on my tax return by not have mortgage interest and property taxes to deduct. By my calcualations, I will save $10,510 a year by renting. In addition, I will get $65k at my closing to stick in a savings account

 

[Rapidskies]

Originally posted by: kranky
Ran across this post on another forum and it makes a great point - this guy is going to save over $10,000 a year by trading his house for an apartment. Great analysis, and makes you wonder.

[ripped post follows]

I recently put my house here in Dallas on the market for $295k and just accepted an offer for $285k. It is definitely a buyer's market here so I'm lucky to get this amount.

Why am I selling? The ever increasing costs of homeowner's insurance and property taxes make it not worth it in my opinion. I have seen my homeowners insurance increase at least 10% a year for the last 4 years - now $2100 a year. Additionally, I have seen my property taxes raised 20% every two years over the last 4 years - now at $7100 a year.

I don't see these increases ever stopping (especially the property taxes) so I'm getting out. I just found a deal on a 3BR / 2 BA apartment in a very popular part of town for $1595 a month. They had a special going where I get 2 months free on a year lease bringing the total rent down to $1329 / month. My insurance will drop to $150 a year and I no longer pay property taxes.

In my apartment I no longer have to pay a gas or water bill - these averaged me about $125 / mo in my house. I no longer have to pay homeowner's dues of $80 a month and I have also eliminated appx $3k in annual house repairs, maintenance, etc.

Based on my scenario - here are my projected savings

Mortgage vs Rent = 0 (these two are within $10 of each other)
Insurance = $1950 annual savings
Property Taxes = $7100 annual savings
Water and Gas = $1500 annual savings
House maintenance = $3000 annual savings
Homeowner's Dues = $960 annual savings

My CPA told me I will lose about $4k / yr on my tax return by not have mortgage interest and property taxes to deduct. By my calcualations, I will save $10,510 a year by renting. In addition, I will get $65k at my closing to stick in a savings account

Umm the dude is totally forgetting about the fact that a mortgage payment is like sticking money in the bank while rent is like flushing it down the toilet. If his property taxes were that high he should have moved to a different area oppossed to getting an apartment.

 

It works differently in different markets.

Generally real estate is a good investment. Now the market in certain areas is going so far through the roof that the values arn't really realistic
They have been pushed up by the low interest rate borrowing frenzy that everyone and their mom is partaking in. Not everyone is going to be able to continue to afford their homes.
In about 2-5 years you're going to see a lot of foreclosures, which will push values back down. The market will adjust itself in most areas.

 

[gordita]

so does that mean that potential new home buyers should not buy??

 

[Jumpem]

Originally posted by: gordita
so does that mean that potential new home buyers should not buy??

It means buy if you find a good deal since the rates are low, but house prices will go back down whenever interest rates head up.

 

[kranky]

Originally posted by: Whade
Umm the dude is totally forgetting about the fact that a mortgage payment is like sticking money in the bank while rent is like flushing it down the toilet. If his property taxes were that high he should have moved to a different area oppossed to getting an apartment.

The $10,000 a year he's saving is also like sticking money in the bank.

 

[CrazyDe1]

Originally posted by: Fausto

Originally posted by: Skoorb
Avg mid 20's couple will have to set sights lower, or increase income. If they're making $90k/year they can get financed for a $300k+ house, so it's not terribly far off.

They'd be stupid to take out a mortgage that large tho.....which isn't to say people don't do this all the time. 😛

I did a 266 on 42k of income...

 

[Vette73]

Originally posted by: kranky

Originally posted by: Whade
Umm the dude is totally forgetting about the fact that a mortgage payment is like sticking money in the bank while rent is like flushing it down the toilet. If his property taxes were that high he should have moved to a different area oppossed to getting an apartment.

The $10,000 a year he's saving is also like sticking money in the bank.

And when rates go back up and the bubble pops/prices drop he can buy the same style house for less then he sold for.


My parnets sold their house and were about to build a new one, but builders are charging a arm and a leg right now so they save their money now and build when demand drops.


People are just over paying because rates are low so they THINK they are saving money. But when rates go up and prices drop they will have negative equity. So it would have been better for them to save the money and live in a apartmnet like the other guy is doing. Then buy when demand drops.