When is the best time to buy??????????

[columbussquare.com_IHB]

If you can guarantee you have employement for 30 years then you can buy without paying attention to what's going on.

There will likely be bumps in your employment too, that's why having some cash reserves (i.e. 6 months expenses or more) is prudent before you increase your risk level with the purchase of a house. Don't dump all your cash into your house. Equity will always fluctuate short-term and you might not be able to access it if that is your only backup.

SUSTAINABILITY IS THE KEY. If you a good financial foundation and a strategic plan then you can ignore the market and focus on working your plan.

 

[WestparkRenter_IHB]

If you can guarantee you have employement for 30 years then you can buy without paying attention to what's going on.

There will likely be bumps in your employment too, that's why having some cash reserves (i.e. 6 months expenses or more) is prudent before you increase your risk level with the purchase of a house. Don't dump all your cash into your house. Equity will always fluctuate short-term and you might not be able to access it if that is your only backup.

SUSTAINABILITY IS THE KEY. If you a good financial foundation and a strategic plan then you can ignore the market and focus on working your plan.

Years ago, if you loose your job, you maybe able to find a job after 6 months or so. Nowaday, jobs just disappear. For example, I have 2 friends who still are unemployed since loosing their jobs in 2001 and they are living in Sillicon Valley.

Everything sounds good until it actually happens.

 

[columbussquare.com_IHB]

Years ago, if you loose your job, you maybe able to find a job after 6 months or so. Nowaday, jobs just disappear. For example, I have 2 friends who still are unemployed since loosing their jobs in 2001 and they are living in Sillicon Valley. Everything sounds good until it actually happens.

Yes, that's true. Sometimes you'll have to rent out your house, and move to another house and/or retrain in a new field. That lends support to being "more" sustainable.

The problem is that if you wait until the situation is perfect then you might be buying your first home in 20 years. But most people who don't buy their first home when they're young become permanent renters.

 

[WestparkRenter_IHB]

Years ago, if you loose your job, you maybe able to find a job after 6 months or so. Nowaday, jobs just disappear. For example, I have 2 friends who still are unemployed since loosing their jobs in 2001 and they are living in Sillicon Valley. Everything sounds good until it actually happens.

Yes, that's true. Sometimes you'll have to rent out your house, and move to another house and/or retrain in a new field. That lends support to being "more" sustainable.

The problem is that if you wait until the situation is perfect then you might be buying your first home in 20 years. But most people who don't buy their first home when they're young become permanent renters.

I bought my first starter home when I was younger when the real estate market was at the top, lost at least 20% when I sold.

Bought my second home during the 90s when it was recession. And because we bought at the right time, the house is nearly paid off. There is little chance that if we ever loose our jobs we have to sell it. We profit handsomely by timing it right. How many people do you know that own a 5BR house out right in less than 10 years? Waiting to buy a second home. Permanent renters, hardly.

 

[flmgrip_IHB]

For example, I have 2 friends who still are unemployed since loosing their jobs in 2001 and they are living in Sillicon Valley.

mmmhhh... 7 years without a job.... that's the definition of a looser to me

 

[flmgrip_IHB]

Years ago, if you loose your job, you maybe able to find a job after 6 months or so. Nowaday, jobs just disappear. For example, I have 2 friends who still are unemployed since loosing their jobs in 2001 and they are living in Sillicon Valley. Everything sounds good until it actually happens.

Yes, that's true. Sometimes you'll have to rent out your house, and move to another house and/or retrain in a new field. That lends support to being "more" sustainable.

The problem is that if you wait until the situation is perfect then you might be buying your first home in 20 years. But most people who don't buy their first home when they're young become permanent renters.

I bought my first starter home when I was younger when the real estate market was at the top, lost at least 20% when I sold.

Bought my second home during the 90s when it was recession. And because we bought at the right time, the house is nearly paid off. There is little chance that if we ever loose our jobs we have to sell it. We profit handsomely by timing it right. How many people do you know that own a 5BR house out right in less than 10 years? Waiting to buy a second home. Permanent renters, hardly.

you were lucky (now you call it "timing it right")... i bought a home in the 90's too, all my friends told me i was crazy, rent was dirt cheap and my mortage was "high"... did i time it right, hell no, i was just lucky that i licked the home i bought... paid off after 6 years...

back then and now i didn't buy a home because i wanted to make money or create wealth, i bought because i loved the home and i enjoyed living there...

 

[WestparkRenter_IHB]

Years ago, if you loose your job, you maybe able to find a job after 6 months or so. Nowaday, jobs just disappear. For example, I have 2 friends who still are unemployed since loosing their jobs in 2001 and they are living in Sillicon Valley. Everything sounds good until it actually happens.

Yes, that's true. Sometimes you'll have to rent out your house, and move to another house and/or retrain in a new field. That lends support to being "more" sustainable.

The problem is that if you wait until the situation is perfect then you might be buying your first home in 20 years. But most people who don't buy their first home when they're young become permanent renters.

I bought my first starter home when I was younger when the real estate market was at the top, lost at least 20% when I sold.

Bought my second home during the 90s when it was recession. And because we bought at the right time, the house is nearly paid off. There is little chance that if we ever loose our jobs we have to sell it. We profit handsomely by timing it right. How many people do you know that own a 5BR house out right in less than 10 years? Waiting to buy a second home. Permanent renters, hardly.

you were lucky (now you call it "timing it right")... i bought a home in the 90's too, all my friends told me i was crazy, rent was dirt cheap and my mortage was "high"... did i time it right, hell no, i was just lucky that i licked the home i bought... paid off after 6 years...

back then and now i didn't buy a home because i wanted to make money or create wealth, i bought because i loved the home and i enjoyed living there...

Luck, timing, whatever. But I just want to respond to the false statement made by CS "But most people who don't buy their first home when they're young become permanent renters".

 

[IrvineRenter_IHB]

ColumbusSquare.com, Thank you for your post. You touched on every fallacy of real estate in your sales pitch. You serve to remind us that kool aid intoxication is alive and well.

I think you missed my point. Real estate is not a quick in & out type of asset. You need a long term approach. If you bought a few years ago, and you can actually afford your house, you'll be fine. Wait until the credit crisis and the excess of short-sale inventory is purged from the system. Only about 5-10% of the market is setting the prices right now. If you buy now, don't do it because you think "Wow, prices have dropped 30%, this is the bottom, it's time to buy and in a few years I'll make a quick profit".

My knowledge of Columbus Square was not a sales pitch, it just happens to be a market that I've researched a lot. The principles are the same for all of the O.C.

Luck is only required for the people who try to time the market. If you buy good properties that you can actually afford and maintain a long-term approach (i.e. 10 years minimum) statistical evidence says that you're net worth will increase.

I apologize if you were not giving a sales pitch. Given your screen name, and the realtorese you were spouting, it was a natural reaction. It looks as if you are still suffering from kool aid intoxication. Perhaps if you read through some of the analysis posts, you can begin the detoxification process.

"If you bought a few years ago, and you can actually afford your house, you'll be fine." I suggest you read Timing Does Matter

"Only about 5-10% of the market is setting the prices right now." Only about 5%-10% of the market sets the prices all the time. Market prices are always set at the fringes.

"Luck is only required for the people who try to time the market." Luck can be very helpful, but careful analysis and an understanding of fundamental value can greatly increase one's chance of getting lucky.

"statistical evidence says that you're net worth will increase." Actually, if you don't time the market properly, you will not see an inflation adjusted return. People who bought in 1990 waited 10 years to get back to breakeven. During that 10 years inflation reduced the value of the dollar 25%. By the time we get to the bottom of this bubble cycle, all the "statistics" about making money in real estate will need to be rewritten. If you want to research the true Investment Value of Residential Real Estate, click the link.

 

[columbussquare.com_IHB]

I just want to respond to the false statement made by CS "But most people who don't buy their first home when they're young become permanent renters".

You stated that you bought your first home when you were young. You're later success is wonderful. However, it doesn't prove my statement false. Had you never bought when you were young you might never have realized many of the benefits of ownership (not all are financial).

I was making the assertion that the longer an individual waits to purchase a home the lower the probability that they will do so. For example, I know of one family that has lived in a home that they've enjoyed for many years. Their landlord was "nice" because he has kept their rent low. With such a deep divide between renting and owning they didn't take the necessary steps to become an owner. They had an opportunity to save more but instead their budget accommodated other desires like driving a BMW. As a result, they have now spent about 20 years in the home are in their 50s and still renters. Yes, their rent is "below market" but the savings don't make up for the appreciation that the owner has received. They were closer to buying their first home when they were younger. Now it is more difficult, both financially and psychologically.

 

[ipoplaya_IHB]

I just want to respond to the false statement made by CS "But most people who don't buy their first home when they're young become permanent renters".

You stated that you bought your first home when you were young. You're later success is wonderful. However, it doesn't prove my statement false. Had you never bought when you were young you might never have realized many of the benefits of ownership (not all are financial).

I was making the assertion that the longer an individual waits to purchase a home the lower the probability that they will do so. For example, I know of one family that has lived in a home that they've enjoyed for many years. Their landlord was "nice" because he has kept their rent low. With such a deep divide between renting and owning they didn't take the necessary steps to become an owner. They had an opportunity to save more but instead their budget accommodated other desires like driving a BMW. As a result, they have now spent about 20 years in the home are in their 50s and still renters. Yes, their rent is "below market" but the savings don't make up for the appreciation that the owner has received. They were closer to buying their first home when they were younger. Now it is more difficult, both financially and psychologically.

So Columbussquare, if one can afford to buy now, but prices are falling and will continue to fall for at least a short amount of time, why buy now? Affordability notwithstanding, why make a purchase of an asset when it will be cheaper next month and even cheaper next year? Would you buy a new car if you knew you could get it for 10% less next year? Most prudent people would milk their existing ride for a few more quarters and wait to get that shiny new car for cheaper later...

 

[columbussquare.com_IHB]

I apologize if you were not giving a sales pitch. Given your screen name, and the realtorese you were spouting, it was a natural reaction. It looks as if you are still suffering from kool aid intoxication. Perhaps if you read through some of the analysis posts, you can begin the detoxification process.

"If you bought a few years ago, and you can actually afford your house, you'll be fine." I suggest you read Timing Does Matter

"Only about 5-10% of the market is setting the prices right now." Only about 5%-10% of the market sets the prices all the time. Market prices are always set at the fringes.

"Luck is only required for the people who try to time the market." Luck can be very helpful, but careful analysis and an understanding of fundamental value can greatly increase one's chance of getting lucky.

"statistical evidence says that you're net worth will increase." Actually, if you don't time the market properly, you will not see an inflation adjusted return. People who bought in 1990 waited 10 years to get back to breakeven. During that 10 years inflation reduced the value of the dollar 25%. By the time we get to the bottom of this bubble cycle, all the "statistics" about making money in real estate will need to be rewritten. If you want to research the true Investment Value of Residential Real Estate, click the link.

I respect the approach that you have taken and the viewpoint that you have. I admit that some of these statements were a bit generic and don't apply in all situations. I also agree that you should take your time and look for the best deal that meets your needs. A more academic approach would benefit many people if they applied the discipline that you have.

If I may, I would classify your position as a sophisticated investor with a current viewpoint that is bearish. The primary audience that I was writing for is the owner-occupied individual(s) who may be in a current state of panic. Where the conversation becomes muddied is when investment models co-exist with the choice of a primary residence. In many ways we're both right.

My primary thesis is this: More wealth is destroyed by frequently changing your primary residency (as an owner) and by not considering a business model when choosing a property to purchase (as a backup for owner-occupied OR as a foundation for an investment property)

Both of these points are based on the Southern California housing market.

Here are some of the reasons why:

- Prop 13 gives a competitive advantage to long-term holders of CA real estate

- Selling a property to purchase another will at a minimum destroy 6% of your existing equity

- If you pay points to reduce your interest rate and then you sell the property before you've broken-even you've destroyed wealth

- Some investors fail to consider the various business models, and contingency plans, for a property that they are purchasing. They only take a macro-economic approach instead of considering the micro-economic realities of the unique piece of property. (Note: This was more true a few years ago when the excitement of real estate brought in to many unqualified investors).

- If you're purchasing a property for a primary residence you should also consider the business models if you were to turn it into an investment property. While you're decision may be based on emotion or your current situation the future value will be determined by the merits of the property and what type of listing it will have in the MLS (i.e. Sale or Lease)

- Making a property into an "investment" will incur costs for property management, accounting, and marketing regardless of who does the work (i.e. yourself or someone you hire). Failing to consider these costs or the opportunity cost will have a negative impact on your ROI.

- On balance, be prepared to recognize unexpected successes and unexpected failures. Rapid increases may give you reason to sell. Rapid decreases may give you reason to buy. (i.e. buy low sell high; sell high buy low).

- It's best if real estate is one of multiple asset classes that you own. (i.e. it's bad to be house rich & cash poor).

- While some appreciation can be attributed directly to inflation, if the asset is properly leveraged (i.e. with consideration to cash-flow), the purchase cost will also effectively decrease as you use the future value of the dollar to pay the principle & interest that was established in the past. To say it another way, a properly leveraged asset is a hedge against inflation.

 

[columbussquare.com_IHB]

So Columbussquare, if one can afford to buy now, but prices are falling and will continue to fall for at least a short amount of time, why buy now? Affordability notwithstanding, why make a purchase of an asset when it will be cheaper next month and even cheaper next year? Would you buy a new car if you knew you could get it for 10% less next year? Most prudent people would milk their existing ride for a few more quarters and wait to get that shiny new car for cheaper later...

While purchase prices have been dropping there is no guarantee that relative prices will go lower. The relative price includes the impact of both financing and taxes.

For example a $500k house could "drop in price" by 1% (or $5,000) but it could actually have an increase in the relative price if the net effect of an interest rate change is greater than one discount point. So an increase in interest rates by say 0.50% (or two discount points in this example) could actually cause relative prices to increase by $5,000 on a $495k purchase (because it cost $10,000 to get the same interest rate as when the price was $500k). The uncertainty in the financial markets, and the failure of multiple banks, could mark the end to the "historically low" interest rates. If rates increase faster than prices drop the relative prices will go up.

Another example, would be where someone pays an additional $10,000 in federal income taxes while saving on rent. Rental rates should be adjusted for taxes to provide an accurate benchmark against the "cost of ownership".

As a balance to your new car example, you might do the research and determine that there is a 70% chance that the cost of the new car that you're considering purchasing will drop. However, if you need a vehicle to get to work, or as a component of your job, you might still purchase it today for the utilitarian value. Even if your existing car is functional, you might value the enjoyment of the new vehicle over the year more than the financial savings that you would realize if you waited.

Location is another factor. By moving you might realize savings of both time, gas, and vehicle wear by being closer to work.

Availability might change in a year and you might not get the exact property that you want. That might warrant paying a "premium" today.

The best time for you to buy, if you can afford it and choose to do so, is when the situation makes the best sense for you. It's possible that the known savings in taxes, gas, and time might overweigh the unknown profit (or loss) that you'll incur from a change in prices or financing options. If you have a sustainable long-term purchase then it won't matter that much at the end of the day if you buy today or tomorrow. If you were to wait, the risk is that it might not be sustainable in a year and therefore unattainable. If you were to act now, the risk is that you might not make as much money as you would had you bought at the bottom.

I can give you examples of people who have bought at the top and at the bottom and many points in between. More often than not, it's the long-term plan and micro-economic focus (i.e. your situation not the rest of the world) that works best.

 

[graphrix_IHB]

"statistical evidence says that you're net worth will increase." Actually, if you don't time the market properly, you will not see an inflation adjusted return. People who bought in 1990 waited 10 years to get back to breakeven. During that 10 years inflation reduced the value of the dollar 25%. By the time we get to the bottom of this bubble cycle, all the "statistics" about making money in real estate will need to be rewritten. If you want to research the true Investment Value of Residential Real Estate, click the link.

I would like to add, that as I watch the foreclosure market, I am starting to see many who bought their homes in the 88-92 period who would not be positive or barely breaking even when adjusted for inflation. So... that means you could essentially buy the same property today for the same price as they bought in the late 80s and early 90s. Now as more and more foreclosures happen, it will only mean that more and more homes will become available at below 88-92 prices, or below when adjusted for inflation. I really should post these gems to show that real estate doesn't double over 10 years, unless you pick the right time period, otherwise you are f*cked. It's kinda sad how these people didn't learn from the last bubble, that they extracted the equity from their home, but it is optimistic for those who didn't.

As we see more and more foreclosures, I just have to wonder why anyone with any common sense would think now is a good time to buy. As they mount, and as the MBS pools continue to get worse, I really can't understand why anyone with any reasonable logic or common sense would try to say that opportunity will pass you by. Heh, opportunity is only beginning, and it will only continue to get better. It will especially get better if the RE market stays flat, and it will get even better if it continues to go down. Either way, anyone who has any college econ courses knows that waiting will be best, as this is only the beginning of the end of the RE boom. If you can't figure that out, then you shouldn't be buying a home. Those that do believe will most likely find themselves as another foreclosure number.

Trust me, if I had the ability to short the 2007 vintages of mortgages, then I would, as they are only a prediction of how bad the 2008 vintages will be.

 

[no_vaseline_IHB]

I can give you examples of people who have bought at the top and at the bottom and many points in between. More often than not, it's the long-term plan and micro-economic focus (i.e. your situation not the rest of the world) that works best.

Can I get a conventional 30 year fixed on $385K for $1750 a month, including impounding taxes, with $2000 down?

Thought so.

When I can rent an equivlent property for half what I can buy it for, either my rents are going to skyrocket, or prices are coming down. This much imbalance between rents and ownership costs can't exist.

I'm not laying my money on rents skyrocketing.

 

[columbussquare.com_IHB]

Can I get a conventional 30 year fixed on $385K for $1750 a month, including impounding taxes, with $2000 down? Thought so. When I can rent an equivlent property for half what I can buy it for, either my rents are going to skyrocket, or prices are coming down. This much imbalance between rents and ownership costs can't exist. I'm not laying my money on rents skyrocketing.

Assuming that you could get 100% financing (which is becoming less likely these days) I would estimate the monthly cost for principle, interest, insurance, and taxes on a $385k home to be $2,887. So it would have a monthly difference in cost of $1,137. But that isn't accurate since the renter is paying for housing with after-tax dollars. My guess is that renting would costs more than $2,000/mo in this scenario. The current system doesn't allow you to keep the money, it has to either go to the bank or the government. With the government there is very little upside potential on a personal level.

If you have a 30-year fixed rate then your combined principle & interest payment will not change over the life of the loan. There will be some increases in taxes but those will grow slower than the real estate market (thanks to Prop 13) so you could expect between 1-2% increase per year max. Insurance rates will increase but his is more a factor of actuarial tables and the increase of the value of the home. This means that the ownership rate of $2887 will stay fairly stable. Yet, you can almost guarantee that the rent rate will double or triple during the same time period. So rent at the end of the mortgage period would be over $5k.

Renting a property gives you certain rights to occupy a property including "peaceful enjoyment" so the owner can't just stop by on a whim. But your rights are limited. If you have to get permission from a landlord to paint then you can almost guarantee that opening up that wall to install a surround sound system will result in reductions to your security deposit. If you rent in a community with a HOA you're subject to their rules but you don't have a right to vote or sit on the board. How much is that worth a month?

You don't receive any tax advantages from renting. An owner of an investment property (i.e. not their residence) can take passive losses against their active income when the actual cash expenses are greater then the rent they receive from you. Also, they have the ability to "depreciate" the value of the building over a 27.5 year period (a non-cash expense that improves their profitability).

Look at the trends (chart below) for 30-year fixed-rate loans. You'll notice that since 2003 rates have been much lower than they had been over the last 25 years. This means the relative purchase price from 15 or 20 years ago would need to be increased to be comparable to todays' prices. If you combine this with looser underwriting standards that existed during the boom you can see why prices would move up so quickly so fast.

Source: Mortgage-X.com

In conclusion, yes we're in a bear market in real estate. This may or maynot be the bottom. But when discussing the rent vs. own question it's my assertion that there are a lot more variables to consider and accurate comparisons require adjustments. Bringing these up isn't a sales pitch but rather a balanced perspective for someone actually considering purchasing within the next year or two.

In your scenario, if you had the cash to put 20% down then the actual cost per month for your housing would be $2250. Say you receive $250 in tax advantages from owning then you're only paying a $250 premium in the first year. But as rents continue to increase you're premium will decrease and within a few years switch to an advantage. Also, your cash as an investment will perform very well. If prices increase just 1% you realize a gain of 5% on your $77,000. Leverage doesn't exist for renters.

 

[graphrix_IHB]

Yes... there are many, many variables to think about. And to put it into a visual perspective...

http://mortgage.freedomblogging.com/files/2008/09/foreclosures-9-17-08.jpg

It's still growing and growing and growing and growing...

 

[columbussquare.com_IHB]

Banks have stopped many of the practices that resulted in those foreclosures. Today if those same people applied for a loan they would be denied, and rightly so.

 

[columbussquare.com_IHB]

Plus, the Fed's waiver for the tax impact of a foreclosure or short-sale, gives more people an incentive to "lose their home" now. The IRS rules state that debt-forgiveness is equivalent to income and is taxed as such. Making this waiver permanent is inconsistent with the policy of encouraging home ownership. The long term policy will not include tax advantages while you own and when you stick it to the bank.

 

[graphrix_IHB]

Plus, the Fed's waiver for the tax impact of a foreclosure or short-sale, gives more people an incentive to "lose their home" now. The IRS rules state that debt-forgiveness is equivalent to income and is taxed as such. Making this waiver permanent is inconsistent with the policy of encouraging home ownership. The long term policy will not include tax advantages while you own and when you stick it to the bank.

They just extended that law with the bailout plan.

More foreclosures are coming, more foreclosures mean lower prices, lower prices mean that it is better to wait no matter what your situation is. You can't time the bottom perfectly, but it doesn't take more than a three year old's level of common sense that it is going to be better to buy at a lower price later.

Were you living here in the 90s? Do you know how housing cycles work?

 

[no_vaseline_IHB]

Can I get a conventional 30 year fixed on $385K for $1750 a month, including impounding taxes, with $2000 down? Thought so. When I can rent an equivlent property for half what I can buy it for, either my rents are going to skyrocket, or prices are coming down. This much imbalance between rents and ownership costs can't exist. I'm not laying my money on rents skyrocketing.

Assuming that you could get 100% financing (which is becoming less likely these days) I would estimate the monthly cost for principle, interest, insurance, and taxes on a $385k home to be $2,887. So it would have a monthly difference in cost of $1,137. But that isn't accurate since the renter is paying for housing with after-tax dollars. My guess is that renting would costs more than $2,000/mo in this scenario. The current system doesn't allow you to keep the money, it has to either go to the bank or the government. With the government there is very little upside potential on a personal level. [/i]

My brother and his wife purchased a home last year. The addition of the "RE income tax deduction" pushed them over the AMT cap, because your personal deductions (personal exemptions and those for for dependents, state income tax, property tax, and your mortgage interest) are considered "tax shelters". Too many individuals find this out the hard way because they don't do adaquate tax planning. My wife and I are in similar circumstances. If we were to buy a home, the tax advantage would be negative compared to renting unless prices fall off another 40% or more. If we were in Nevada it would be different, but we're in California and we have the highest effective state taxes in the nation.

Every year, AMT renders the standard "Real Estate has Tax Advantages" advice more and more obsolete. Banks will soon reflect this reality and factor thier debt/income ratios (especially in California), allowing less leverage than what they've taken in the past, further depressing house prices.

But I wouldn't expect you to know that because you sell houses and aren't a EA or a CPA.