HELP! Buy this year or Wait?

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mylanbrown

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My husband and I are first time buyers and have been renting since 2007.  We are contemplating on buying this year since rates are low; however we are wondering if this is the right time to buy a starter home.  We toured
The Peake and waiting for Sheldon to open. 
 
mylanbrown said:
My husband and I are first time buyers and have been renting since 2007.  We are contemplating on buying this year since rates are low; however we are wondering if this is the right time to buy a starter home.  We toured
The Peake and waiting for Sheldon to open.
Click to expand...

Buy if you can afford it.. no sense trying to time the market right now. 
 
jmoney74 said:
Buy if you can afford it.. no sense trying to time the market right now.
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Compare renting to buying assuming housing pricing stays flat for the next 5 years. Assume you will only stay in the home for 5 years and your rent will go up 3-5%/yr. Be sure to include opportunity cost (the amount you lose by committing your down payment and other cash to your home).

If you come ahead buying with those assumptions, then buy. Be really careful using the standard online calculators because most of them have ridiculous assumptions in favor of buying such as:
- Assuming your home appreciation will be greater than your interest rate on your mortgage
- Not factoring in the opportunity cost of your down payment
- Assuming you are in the 35% federal and 9.3% california tax bracket and were already itemizing deductions when calculating tax savings
- Not allocating enough to home repairs / maintenance (keep in mind that one advantage of renting is that you don't WANT to sink money in to the home)

I bought because buying was clearly a better financial decision than renting based on a fair apples to apples comparison. Obviously you don't know if home prices will go up or down, so buying a home is much bigger risk/reward scenario than renting. Even if the comparison favors one or the other, the risk/reward factor may swing the decision one way or the other.

Then of course there are several non monetary benefits to renting and buying to consider such as:

Pros of buying I can think of:
- Stability: You don't have to worry about being evicted because the landlord decides to sell or live there again, etc.
- Forced to save: Mortgages force to save money every month by paying down the loan
- Payment Stability: Landlords can increase rent 10% or force to move and find rent on the open market is 40% higher
- Customization: Since the home is yours, you can customize how you see fit
- Make it nicer: You can upgrade your home, something landlords typically don't do

Pros of renting:
- Easy to move: If home values dip and you end up under-water, or if it just takes a while to find a buyer, you may be "stuck" in a home you own for longer than you want to be.
- No costly repairs: Don't have to worry about slab leaks or other costly repairs
- Less risk: Don't have to worry about losing your entire down payment if home prices dip
- Don't need as much cash: For many families, lack of a down payment is the biggest impediment to buying.
 
paperboyNC said:
- Not allocating enough to home repairs / maintenance (keep in mind that one advantage of renting is that you don't WANT to sink money in to the home)
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What is a realistic value for maintenance? Any data freaks out there have some real life numbers?
 
peppy said:
paperboyNC said:
- Not allocating enough to home repairs / maintenance (keep in mind that one advantage of renting is that you don't WANT to sink money in to the home)
Click to expand...

What is a realistic value for maintenance? Any data freaks out there have some real life numbers?
Click to expand...

Depends on if you buy new or resale, how much maintenance your yard takes, etc. We spend around $40/mo on pest control.. not exactly maintenance, but something that isn't usually included in rent vs buy calculators either.

I've heard a good rule of thumb is 1% of the home's purchase price. But if you buy a new home, especially in pricey Orange County, you should spend way less than that the first few years.
 
paperboyNC said:
peppy said:
paperboyNC said:
- Not allocating enough to home repairs / maintenance (keep in mind that one advantage of renting is that you don't WANT to sink money in to the home)
Click to expand...

What is a realistic value for maintenance? Any data freaks out there have some real life numbers?
Click to expand...

Depends on if you buy new or resale, how much maintenance your yard takes, etc. We spend around $40/mo on pest control.. not exactly maintenance, but something that isn't usually included in rent vs buy calculators either.

I've heard a good rule of thumb is 1% of the home's purchase price. But if you buy a new home, especially in pricey Orange County, you should spend way less than that the first few years.
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I was having a discussion recently about just that:  the 1% rule of thumb. On a cheaper house this may make sense, but once the price goes up does it scale proportionally? 
 
You know what your rent and utilities are today. Let's say it comes to $3,000

For ease of calculating.... If you buy at $1,000,000 with 20% down and a 4.0% rate, the PITIHOA payment is going to be around $5,200. With utilities, this number moves to $6,000

Next rent payment, pay your $3,000 then put additional $3,000 in the bank at the same time. This builds financial "muscle memory" for what you can reasonably expect to pay when owning. If your budget can survive this over the next 120 days, time to buy. If you find yourself struggling, pass.

There are tax benefits, but calculating everything to the nearest dime is something best done after you can figure out how to afford the home on a month in, month out basis.

My .02c

SGIP
 
Thank you so much irvinehomeowner, jmoney, paperboyNC, peppy and soy for all your comments.
We have been saving and can afford to buy, however I am struggling with such high prices and am regretting that we should have bought in 2011. I am hoping for a crash but it does not look like that will happen in Orange County anytime soon. If you were buying, would you buy in Greenwood or Baker Ranch?  Location does not matter for us, both is good for our jobs in Irvine.
 

BR: Good lot sizes, good schools, nice mountain views, less property tax, but near to jail and far away from the freeway.

GW:  :-\  :-X
 
I wonder if real estate prices drop when mortgage rates rise....seems correlated.  But we are talking about Irvine here where 40% are all cash offers...perhaps it doesn't affect Irvine so much.
 
zubs said:
I wonder if real estate prices drop when mortgage rates rise....seems correlated.  But we are talking about Irvine here where 40% are all cash offers...perhaps it doesn't affect Irvine so much.
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Time will tell?
 
Back in '08 everyone said rates were going to go up.

And in 09, and in 10... and so on.

Rates went the opposite.

But seeing as they can't possibly go lower(?), is it safe to say they will go up... eventually?

Again, try not to time the real estate / mortgage rate cycle, just buy when/what you can afford.
 
i1 said:
I would only buy if I wanted stability or prices were low. It's not the latter. Historically houses are just an ok investment (but good as a diversifier) so no need to buy just because you can.
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So if you own, you should sell and rent?
 
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