Should I buy now...?

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IIIrvine_IHB

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On one hand, I need to buy this year because (1) tax write-offs (2) so that my family will have a home





On the other, to recap the headline news of late (1) "Late Property Taxes A Growing Woe" - OC Register, April 8 (2) "Mortgage Mess On Par With Dot-Com Bust, Stock Crashes" - OC Register, April 8 (3) "Homebuilder: Spring Hasn't Sprung" - CNNMoney, April 10 (4) "D.R. Horton 2Q Orders Fall 37 Percent" - AP (5) IMF Warns Subprime Woes May Spread, Dollar Falls - Reuters, and on and on (too many to list all)





I feel that if I buy now, I may get instant negative equity.





Comments?
 
1) Tax write-offs are not free money. They are a discount on the amount you pay to borrow money. If you rent, you don't get the discount because you are not spending the money at all. It's kind of like saying that you should buy something because it's 30% off. Sure, it's nice to get something on sale, but you save more by not buying it at all. Not to say that the interest deduction isn't an important consideration in the rent vs. buy equation - it is - but it is only one variable among many.





2) Your family will also have a home if you rent. Do you think your children care whether you rent or own? There are hundreds of nice single family homes on the rental market right now.





You are right to be concerned about the housing market going down. If you really are not convinced, and still think it could go one way or the other, then you can ask yourself the following risk management question. Which will leave me worse off: buying now and having the market crash to the tune of 30-50%, or not buying and having the market resume it's "normal" 5-10% annual appreciation. When I asked myself this, I realized that I was much better off renting either way.
 
<p>In all seriousness, I think one should rent now and see how the market does after the summer. If it stays flat or has a modest price increase, you can buy at that time. However, I suspect summer will suck for RE and prices will decline further.</p>

<p>In either case, you don't lose much by waiting a little bit before you make the decision. I highly doubt prices will sky rocket up between now and the fall. Also, if you must buy, look at new homes where builders are willing to make decent deals.</p>

<p>Also, I highly recommend comparing rents to your payments if you were to buy in the same neighborhood. If rent is much cheaper, rent the house and enjoy pocketing the difference. I don't get the fascination with "owning" the house though my wife insists there is a big difference between renting and owning the same property... </p>
 
Here is an interesting <a href="http://www.nytimes.com/2007/04/11/realestate/11leonhardt.html">NYTimes piece</a> addressing this very question.
 
I would wait to see what the summer selling season brings. The rate in which inventory is increasing and pendings decreasing it would be prudent to wait. I don't think you need to worry about being priced out of the market. Even if it does stay flat you are still in the driver's seat. Consider the fact that Irvine is down over 20% from the peak and even more depending on the zip code and not only that from the year end 2006 numbers they are down with only one zip being up .5%. I posted in the headlines topic that March should see 945 NODs and well April is starting off even worse. The rate of increase is even worse than the 90s so this downward trend could be worse. It seems DataQuick is a bit behind in the foreclosure numbers since the last report is Q3 2006. By the way I own and love the tax breaks and I could afford to buy now but I wouldn't.
 
A first time home buyer here and I'm closing a brand new town house in Irvine in 2 months. Every night before I sleep I wonder about the same question.





This will be my single biggest investment in my whole life and thats why I am so concerned. I am not purchasing something way over my head though and no fancy loan programs here either - 30 year fixed fully amortized.





Honestly I still don't know the answer until now and I've been sleepless for 5 weeks now regarding this matter.
 
<p>arctichaze - before my parents bought their house in LA in the 90's, we were living in a 2 bedroom apartment. Based on raw sq ft, the house was about 2.5 times the size of our apartment and the mortgage was about 2 times the rent. The numbers made sense and more importantly, my dad knew that he could afford the house without any additional income and that our family lifestyle wouldn't change.</p>

<p>I don't think the numbers make sense right now and I wouldn't be able to sleep either. However, if you can comfortably afford the payments and are not depending on a major change in your financial situation, then you will be alright. If you are stretching yourself thin to buy the house, I would reevalute the decision.</p>

<p>Finally, if you decide to buy, enjoy the house and stop coming to sites like this. You will drive yourself nuts thinking about the what ifs! Just like paper gains, there are paper losses - live in the house and enjoy it for 7, 10, 15 or how ever many years you plan on living there. </p>
 
<p>arctichaze,</p>

<p>This is your self-imposed, working for free, faceless realtor speaking here. No need to be sleepless and stop wondering if you made a right decision, it does no good. You made your decision to purchase, it's only the right thing to do is to close escrow in 2 months! And I am speaking from my own experience.</p>

<p>Now, did you make a right choice? I think you did great! Why? Many reasons and I list in order of goodness;</p>

<p>1. You accomplished something grand! A good feeling - Peace of mind - Mission accomplished.</p>

<p>2. You can stop looking at homes now and start enjoying your new home - A time saving</p>

<p>3. You can move on with your life - A time saving</p>

<p>4. Your family does not have to report to a landlord anymore. A good feeling</p>

<p>5. You can start having tax write offs. - A money saving</p>

<p>6. You took advantage of low interest rate - A money saving. You will save even more if rate drops later in the year (normal cycle) and refi</p>

<p>7. You are buying at near bottom (my gut feeling). Good timing. Builders are slowing down and put inventory on clearance, an indicator of bottom as I had seen many times. If I am in position to buy, this is the time I would buy for myself. Have you heard "It's over when the f** lady sings?". </p>

<p>7.5 Your payment stay the same from here on while your salary should move up if you work hard. A good feeling</p>

<p>8. Price drops in near future? Who cares - Your payment does not go up or down. - It's only a paper loss</p>

<p>9. You are stuck if price drops. So? I am sure you picked a place you love to live</p>

<p>10. Over a long term - You will come out ahead. Equity accumulation.</p>

<p>Congratulations from NIR!</p>
 
<p>arctichaze-</p>

<p>You might want to pinpoint further the exact source of your anxiety. What potential occurance concerns you? It's great to hear that someone is even considering a 30 year fixed loan, but this still isn't the time to buy.</p>

<p>What I tell people is that if you are absolutely certain that you will be completely unfazed if your residence is worth 80-90% of your purchase price in the next 18 months (you'll know this because your neighbors who waited will own similar houses at these lower prices), then you can ride it through as easily as NIR suggests in #8. But "only a paper loss" doesn't console me if I plunked down my hard-earned downpayment and I'm making a higher payment and are stuck with higher taxes forever. It also becomes much more real if you are forced to sell sooner than planned. I didn't hear too many folks claiming it's "only a paper gain" as they were cashing out HELOCs during the runup.</p>

<p>The value of your house relative to what you owe reflects your economic freedom. If "owning" has a higher value to you than this economic freedom in a down market, that is your choice.</p>

<p>As far as your deposit, $5-20k is going to be a fart in the wind compared to the declines coming. I hate to hear someone sleepless for 5 nights over this, but the realities are justifiably worrisome.</p>

<p>SCHB</p>

<p> </p>

<p> </p>
 
<p><em>8. Price drops in near future? Who cares - Your payment does not go up or down. - It's only a paper loss</em></p>

<p>I stopped reading right there. </p>
 
I'm sorry Nirvinerealtor, while it is nice to have the voice of someone in the industry here, I have to disagree with pretty much all of your points.





Points 1-4 are silly and meaningless. Peace of mind? I don't think anyone buying right now will have peace of mind for a long time.





Tax writeoffs? You are paying more than you get back. Paying 3k a month to the bank in interest to save 1k a month in Tax?





Refi? Hard to refi when you are underwater.





Buying near the bottom? The downturn hasn't even started and the bottom isn't in sight. You can expect 5 - 10 more years of depreciation. Housing values are too far detached from fundamentals for the bottom to be called. David Learah has been calling the bottom every month now this year. Pure propaganda.








Your post reads like a puff piece form the NAR. Buying right now is a terrible mistake.
 
IIIrvine...never consider buying a house for the tax write off. Their are many other ways to mitigate your tax exposure by utilizing employer 401Ks, IRAs, S-Corps, LLCs...etc. My best advice to you is that you sit down with a CPA and go over your current deductions and see what other things you could do.





arctichaze...congrats on the home purchase I am sure everything will work-out. Similiar to what others have said, which if you are buying then you need to be totally committed to buying and enjoying the house. Lucky for you that you decided to go with a 30yr fixed and hopefully you plan on living in it for quite sometime. Just don't expect double digit appreciation.
 
<p>mino2126 said:</p>

<p><em>"Just don't expect double digit appreciation."</em>


</p>

<p>Understatement of the year. </p>

<p><strong>Expect double-digit depreciation.</strong></p>

<p>SCHB</p>
 
IIIrvine: I agree with the others when they say it would be a mistake to buy in this market. 1) the tax savings will not offset the additional cost of owning a home (I can run the numbers if you'd like) 2) Your family needing a home doesn't necessarily correlate to <u>owning </u>a home





arctichaze: I don't think you should worry because what's done is done. If you plan to own the home for >5-10 years, you can sleep soundly.
 
<p>irvine_grad said:</p>

<p><em>"I don't think you should worry because what's done is done."</em></p>

<p>Close of escrow is two months away! It's not done by any measure. Get out of the deal.</p>

<p>SCHB</p>
 
<p>arctichaze,</p>

<p>While it is true that you will be "OK" (whatever that means) if you stay in the house for the long-term (10+ years), I believe most people only stay in the same house for 5-7 years on average (can somebody confirm with a link?). It is very possible that housing prices could still be dropping 5-7 years from now (when accounting for inflation). I agree with SCHB, get out of the deal if you can! BTW, where did you buy?</p>

<p>Does anybody have advice for artichaze on how he can "get out?" Will he/she lose their deposit?</p>

<p>It pays to be patient in this market. Even the most bullish "experts" are expecting 2007 prices to be flat at best. The longer you wait, the higher the probability that builders and/or distressed homeowners are forced to cut prices to move inventory.</p>
 
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