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Buying or Renting? (In the U.S.)
JamesKeenan
Registered User regular
Registered User regular
So, my basic understanding of the current economic situation is weak. Compound that with the approximately 800 variables included (state taxes and laws, individual wealth, credit), and I wouldn't even know where the hell to start making a decision like that.
But any advice would be great. I was under the impression that buying a house right now was bad, and as the overall economic situation of the U.S. gets worse, it's even less advisable. Something to do with the value of your home hurting your actual worth, credit... I just don't know.
Brought this up to my girlfriend (We're in college and in a few years we want to get a house together which is why this is so important and relevant) and she's convinced that everything's peachy because it's a buyer's market cause prices are so low.
That, to me, sounds stupid, like Fox's argument that falling US dollar value is good for foreign exports because more, poorer countries can trade with us now. But I know nothing, so I can't argue. And I could always be wrong.
Information is power, so... pretty please?
But any advice would be great. I was under the impression that buying a house right now was bad, and as the overall economic situation of the U.S. gets worse, it's even less advisable. Something to do with the value of your home hurting your actual worth, credit... I just don't know.
Brought this up to my girlfriend (We're in college and in a few years we want to get a house together which is why this is so important and relevant) and she's convinced that everything's peachy because it's a buyer's market cause prices are so low.
That, to me, sounds stupid, like Fox's argument that falling US dollar value is good for foreign exports because more, poorer countries can trade with us now. But I know nothing, so I can't argue. And I could always be wrong.
Information is power, so... pretty please?
JamesKeenan on
0
Posts
Generally speaking, if you plan on buying and holding for a while (say 5-7 years or more), then the market is probably good. If you're planning on selling in a couple years, there's really not much guarantee the housing market will have recovered. But a lot of it will depend on where you are.
But for now, sure. Let's say Florida.
Real estate is an investment you can live in. Owning a home is almost never a bad thing in the long term. It's a good idea to buy something you can actually afford, though. Creative financing is a bad idea in any circumstance.
Honestly, if you're not even going to make the decision for a few years, then there's really nothing you can do now except start saving. Even talking now about a "buyer's market" vs. a "seller's market" is ridiculous; it's like trying to predict the weather years in advance.
General consensus seems to be that prices will continue to fall through about February-March, and then who knows what's going to happen. Prices are dropping to a relative minimum right now but I would not call them 'low.' In 2000, for example, I was looking at maybe buying a condo which was going for a reasonable $120K. It turned out that I didn't have the money and so I rented. Now only 7 years later that same condo is going for oh, $300K.
If you can predict the overall economic situation of the U.S. over the next several years, there are some folks in Sweden that would like to give you a medal. Even at the end of the dot-com boom, when everyone predicted a recession, the Fed did some serious manipulation of rates and staved it off. Now, everyone is predicting huge shifts in the economy along with major foreclosures due to the number of people buying houses they can't afford. That seems logical, but the government has bailed out stupid Americans before (remember junk bonds? S&Ls?) and they may do it again.
Also, in theory, we should see a massive downturn due to unsustainable government spending strategies. You've got the Democrats, who are tax-and-spend, and the Republicans, who are supposed to be cutback-and-save, but have been for the past 10 years borrow-and-spend. Either strategy is pretty much a national Ponzi scheme, of course, but yet we're not dealing in microeconomics here. The national debt doesn't work like your checking account, and we seem to have ridden it far beyond the point where it should have reasonably collapsed us. Is there really a substantive difference between a national debt of $4 trillion and $Infinity?
When you are 9-12 months out from making a real rent/buy decision, then start looking at what kind of market changes are approaching and attempt to gauge your decision. But until then, just bank what you can, or maybe invest - buy Yen or Pounds Sterling with your dollars if you really see a massive currency devaluation in the future.
My impression is that this is a good time to be a buyer, though. (Depending on your location.)
If you can buy a home that is selling below its market value, but you know it will go back up, then it's a good choice. If the price is just lower than the fantasy number the sellers made up before bubble popped, then not a good deal.
But for God's sake: Fixed Rate!
That's what got all these morons in trouble, is getting an ARM (Adjustable Rate) or balloon mortgage; like being a new cable customer, their rates suddenly went up except unlike cable, they knew it was going to happen.
EDIT: As Frylock said, save! If you can make a 20% down payment when you're ready to buy, you'll save tons in the long run.
The other thing is that owning a house is a lot of work, since it's all yours. Fridge breaks? You gotta buy a new fridge. Roof leaks? You gotta pay for a new roof. On the other hand, YOU pick your fridge and appliances and so on, so you don't get stuck with shitty leftovers that the previous tenants beat up. We replaced the stove & fridge in our house when we moved in a year and a half ago, and while it cost money we got damn nice stuff that I enjoy using every day. It's a nice perk.
But no, the mortgage "market" is in bad shape. The actual purchase and sale of homes from one homeowner to another is slowed, sure, but definitely there, even in these "depressed" areas. There's no more killer gains or double-digit growth, but that's not something you need to worry about as first time home buyers. Most of the info you'd need depends on where you're going to live; for instance, I wouldn't suggest buying a house in Florida in 2008, or San Fran or LA. But it's unlikely if you're fresh out of school anyway.
But.
If you don't stay for at least a few years while the market recovers, you'll probably loose money on all of the closing costs etc.
E.g. you buy a house for $300k. Three years later you have to sell - you are moving somewhere else for work, you can't afford the mortgage for whatever reason, etc. If the home is now worth $250k, but you still have $265k on your mortgage, you still owe the bank $15k even though you no longer have a house to live in. This may be the root of the credit stuff JamesKeenan was getting at - the credit agencies may consider you to have some kind of "virtual debt" if your home is worth less than what's left on the mortgage.
Anyway, it's is the main reason that I always thought ARM-type loans were a stupid gamble to take. They more or less force you to sell after 5 years (or whatever the term is), whether the market is favourable or not.
My instinct is that it will be awhile before houses start to go up in value nationwide again, but with all the meddling the government and real estate corporations are doing now it's hard to say. Obviously you'd ideally want to buy when they were at their lowest, but doing that reliably means being precognitive.
As others have mentioned, there are also regional things to take into account. For example, like with most fashions, only now has Seattle realized that they were behind the times and suddenly home prices have started to fall, many months after they did elsewhere.
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