To Buy or Not To Buy, That Is the Question

[don]

Condos in an area my wife and I have decided to live in have reached the low 100K mark, down from highs near 400K. Over the next few years they may very well drop farther. That's not in dispute. On the other hand, they don't have much further to go, unless they're thrown in for free with a car purchase

Assuming we are going to buy, should we pay cash.

The incentives:

Currently and in the near future we are getting ZIRP on the $$$.

No load origination gouging by a bank. A friend just bought a condo for 150K, putting down half. Total costs for the bank's half was 10%.

Even with historically low interest, it's nearly all interest to the bank for the first decade.

Cash buyers are getting on average a 5-10% further discount on pricing.

With our dwelling overhead reduced to a minimum, we can at least initially save, putting the $$ into PM or a cash return that's the safest/best out there short term.

All of the above dovetails with my wife's retiring from her 32 year job. Revenue streams are tightening and options more so. There is a known factor here that's appealing. Of course the neighborhood could still go to hell in 5-10 years and were stuck. I do expect the coming robust inflation to catch housing eventually, maybe 10 years from now, giving us back some pallid bonars for our trouble. Nevertheless, we haven't paid the bank a dime. I like that part . . . a lot

What do my fellow itulipers think of my situation above ? I know its not for everyone. In the past, when conditions were different and I was younger, I would never consider cash.

[jiimbergin]

Re: To Buy or Not To Buy, That Is the Question

I have bought my last 2 homes with cash. I felt much more comfortable than I did when I had a mortgage. But I use no leverage in any investment, so I may not be the best one to answer your question.

[flintlock]

Re: To Buy or Not To Buy, That Is the Question

I'd say if you can get that kind of discount with cash then pay cash. Where else would you put the money? Making what? I don't see that many other safe options. And you'll always need a roof over your head regardless where prices go from here. The only thing that scares me about condos is the association fees when times get bad can go crazy when others don't pay. That's really the big unknown. With them selling in the low 100s, the fees could end up costing more than the mortgage. At that price, how you pay is not going to make or break you either way. As long as I still had some cash available, I'd pay cash personally.

[Munger]

Re: To Buy or Not To Buy, That Is the Question

Interactive link: http://trulia.movity.com/rentvsbuy/

[c1ue]

Re: To Buy or Not To Buy, That Is the Question

Don,

The question isn't merely rent vs. buy.

You note that condos are getting cheaper. A huge issue with condos is the homeowner's association fees.

In particular, if a HOA paying percentage goes below a minimum threshold, the HOA fees become untenable for everybody. This is a completely separate issue than normal maintenance: a condo is very much a communal existence. I've seen many HOA's go under the threshold and almost overnight turn into extremely bad places to live - coupled with extremely high HOA fees.

HOA politics is also not necessarily trivial.

Secondly you would need to gauge your goals: if your goal is to choose a place to live in for the foreseeable future, and you have no desire to take on risk, then putting cash down on the 'last house' isn't at all a bad choice with the normal caveats including that of the above.

On the other hand, if you're seeking a better return on your money, then jk for example has employed the strategy of borrowing cheap money, keeping the full loan repayment relatively safe and liquid, and wait for the inflation to kick in. An iTulip Treasury/gold/silver would be a pretty good way to go, for example.

What I would do is closely examine the job picture in your area. This is the best gauge on where things will be in the next decades.

[mmr]

Re: To Buy or Not To Buy, That Is the Question

There are also some shorter-term fixed-rate mortgages (10-year, for instance) that would let you build equity more quickly, typically carry a slightly lower rate than a 30-year mortgage (based on the differential between the 10-year and 30-year treasury rates, roughly), and would allow you to keep cash on hand reinvest at higher yields if QE2, 3, etc. ever end.

[don]

Re: To Buy or Not To Buy, That Is the Question

Don,

The question isn't merely rent vs. buy.

You note that condos are getting cheaper. A huge issue with condos is the homeowner's association fees.

In particular, if a HOA paying percentage goes below a minimum threshold, the HOA fees become untenable for everybody. This is a completely separate issue than normal maintenance: a condo is very much a communal existence. I've seen many HOA's go under the threshold and almost overnight turn into extremely bad places to live - coupled with extremely high HOA fees.

HOA politics is also not necessarily trivial.

Secondly you would need to gauge your goals: if your goal is to choose a place to live in for the foreseeable future, and you have no desire to take on risk, then putting cash down on the 'last house' isn't at all a bad choice with the normal caveats including that of the above.

On the other hand, if you're seeking a better return on your money, then jk for example has employed the strategy of borrowing cheap money, keeping the full loan repayment relatively safe and liquid, and wait for the inflation to kick in. An iTulip Treasury/gold/silver would be a pretty good way to go, for example.

What I would do is closely examine the job picture in your area. This is the best gauge on where things will be in the next decades.

"last house" is how my wife and I are framing the question. HOAs, as you describe them, are the big question for us. The places we're looking at are currently stable, have an excellent history, few distressed owners, etc. The wild card is the high number of retirees that may leave due to end of life issues, not financial difficulties. Who replaces them? Many of these people are snowbird transplants. Is that an obsolete ownership pool? I think it may be. (Then again, there's EJ's 'easier to sweat than freeze' near-future desirability of warmer climes consideration.)

[BiscayneSunrise]

Re: To Buy or Not To Buy, That Is the Question

(Then again, there's EJ's 'easier to sweat than freeze' near-future desirability of warmer climes consideration.)

If you are going to try to "sweat it out" in a warm climate just think it through like people did pre-air conditioning. Select a building with good cross ventilation, preferably near enough the ocean to catch the on shore flow which is predominantly from the south east. Also consider landscaping including old growth shade trees and buildings with awnings or large porch overhangs to provide shade. For middle class tract homes, most of these architectural features disappeared in the early 70's. For condos, they are, by and large, non existent. Most Florida architecture post 60's is highly dependent on air conditioning.

[housingcrashsurvivor]

Re: To Buy or Not To Buy, That Is the Question

Good advice on weather but just to add that the closer to beach (pretty much anything E of I-95 in south Florida) the higher wind insurance costs which is then written on a policy separate from homeowner's (they are combined elsewhere). I think it was that a condo association had exterior insurance and the homeowner insured their own interiors, but I think I recall a relatively recent law passing that requires unit owners to insure entirely (I've no idea how that works so check me on that).

Even though just a few miles apart, you will have noticeably warmer days and colder nights further from shore. Beyond that, it is even suspected that the more the western areas develop, the colder nights get because development dries up the land so there is less water coverage to heat the evenings. The citrus industry progressively moved south from its early days in south Georgia and northern Florida supposedly as it created deeper freezes by depleting local water supplies. Where I am on the west coast of Florida, there can be a 9 to 10 degree difference at night in less than a 20 minute drive at similar elevation. I noticed the temp difference less in south Florida but it did seem more humid there, again, particularly in the western areas.

Be prepared to sweat at night in the summer. That was one of my draws to move a bit further north. We still sweat summer days, of course, but at least at night we can walk without a change of shirt.

As to population growth, fear not. With all its faults, Florida is still a lovely place to live and people will continue moving here.

Two items I quickly googled on that:

http://edr.state.fl.us/Content/population-demographics/data/Methodology_Projections.pdf

"...For the medium projections, foreign immigration was projected to remain at the 1995–2000 level in 2005–2015 and to exceed that level by 10% during each five-year interval thereafter....

...the medium projections imply net migration levels (including both domestic and foreign migrants) of 111,000 per year between 2005 and 2010. These levels are projected to rise to 166,000 per year between 2010 and 2015 and to 208,000–218,000 thereafter.

...To put these numbers into perspective, net migration averaged 260,000–280,000 per year during the 1970s, 1980s, and 1990s....

...In the low and medium series, birth rates were projected to remain constant at 2004–2006 levels for non-Hispanic whites and to decline gradually over time for Hispanics and non-Hispanic nonwhites...

...Our low and medium projections imply that natural increase will decline slowly over time, reaching annual levels of -5,000 and 7,000, respectively, in 2030–2035..."

&

http://www.aolnews.com/2010/12/24/florida-population-growth-not-so-slow-after-all-census-shows/
fficeffice" />
"It turns out that ffice:smarttags" />Florida's future may not be so bleak. It remained one of the fastest-growing states in the past decade, in spite of the recession, new census data show. The Sunshine State added 2.8 million people, enough to win two new seats in Congress and assure that Florida remains on track to overtake New York as the third most populous state in the 2020 census."

"To me, that's saying the long-term trends have not really changed all that much," said Stan Smith, director of the University of Florida's Bureau of Economic and Business Research in Gainesville."

Regarding plants to cool your home. I do this and it can produce degrees of difference (my last place was a jungle as this one will one day be) but I do not live in an association which would likely object to my bamboo collection, some of which reaches 80 to 100+ ft tall. I consider bamboo the perfect Florida plant. If the wind knocks it down, who cares; it's not like a tree just fell on your house.

As to whether or not to buy with financial regard, I'm not real good with finance but I would note that buying now does pretty much lock in your taxes to today's home values by way of our "Save Our Home" amendment. Though mil rates might adjust (up or down) to maintain prior year budgets, your assessment will go up max 3% per year from when you homestead. Having downsized, moved to a lower cost area and ported my long-held savings with me, I figure I'll break the $1000/year property tax barrier in about 21 years and it might hit $2000/year a year or two after I'm dead.

[BiscayneSunrise]

Re: To Buy or Not To Buy, That Is the Question

Don, I tried to respond to your PM but your inbox is full. You need to delete some old messages. Greg

[Thailandnotes]

Re: To Buy or Not To Buy, That Is the Question

To sell or not to sell.
My wife and I have a house in Virginia that we could not have sold at the height of the housing bubble. We will probably sell it sometime in the next five years. The upkeep is minimal. The property taxes are 1000 $ per year, insurance another 1000 $. but I'm just as confused from the other side. Should we hustle to sell it, or ride things out for a decade while the dollar slides. We are also looking for "last house."

[Thailandnotes]

Re: To Buy or Not To Buy, That Is the Question

should we pay cash?

Here's a little nudge towards cash...fire at the top of its game...

Dana Milbank in the Washington Post

http://www.washingtonpost.com/wp-dyn...d=opinionsbox1


“Last fall, my wife and I refinanced our mortgage with Citibank. Sixty days later, we received a "cancellation notice" from our homeowners insurance company "for non-payment of premium."

“Turns out Citibank, which had been collecting hundreds of dollars a month from us to pay the insurer, hadn't made the payments. It was, I later learned, one of the usual tricks mortgage servicers use to squeeze more cash out of their customers. About a month later, I learned of another trick: Citibank informed us that it was increasing our monthly payment by nearly $300.

“Along the way, a simple refi became a months-long odyssey: rates misquoted, interest charged on a phantom account, legal documents issued in wrong names, a mortgage officer who disappeared for days at a time (first it was his birthday, then his laptop was in the shop), a bounced check from Citibank's own title company, and the freezing of our bank accounts.

“My wife and I are reasonably savvy consumers - she has a brand-name MBA, and I began my career as a business reporter for the Wall Street Journal - but we were no match for a bungling bank. After five months of trying, we still haven't been able to resolve all of Citibank's mistakes - nearly all of them, curiously, in the bank's favor.

“Of all the miscues, the highlight was when we were handed, at closing, a large check that we didn't want for a new home-equity line of credit. I tried to redeposit it into the home-equity account but was told that the account did not yet exist. I tried to deposit it into my checking account, and the check was returned unpaid - while interest accrued.”

[don]

Re: To Buy or Not To Buy, That Is the Question

What a story

The banks are unhinged, lawless.

Even with an all-cash sale, be damn sure you're clearing title.

[c1ue]

Re: To Buy or Not To Buy, That Is the Question

Witnessed in court today:

4 plaintiffs suing a defendant over HOA dues.

Apparently the defendant was the developer of a 4 unit condo plex.

The first tenant purchased on December 29, 2008 - but the developer/head of HOA (at the time) held a meeting with himself (his own words) and exempted his remaining 2 units from having to pay HOA assessments.

The other 2 tenants bought during 2009, and were suing for the defendant having collected HOA assessments from them, then not actually paying the water, electricity, insurance bills.

More fun with HOAs....

[don]

Re: To Buy or Not To Buy, That Is the Question

I tend to agree with another of our itulipers that only the most egregious HOA debacles reach the MSM. A longtime Floridian, he mentioned that Condo Commanders have been an evergreen filler in the Orange state papers forever. There are thousands (tens of thousands?) of HOAs in Florida. You really can't avoid them if you don't want 100% stand-alone home ownership.

A side note: one of our queries I had was is there benefits/drawbacks in an HOA's magnitude of scale? A friend told me yesterday that in the 5,000 unit complex she's in, it is sub-divided by building into separate HOAs. Try to figure that out from afar. Her's is doing great. The one across the green, not so great. It has a 50% vacancy, with all the associated implications.

A side-on-the-side note: The reason her's is doing so well is the Canadian buyers. With units in her building reaching down into the $30 and $40k range, the Canadian snowbirds are snapping them up. She also said they're the ones she sees buying consumer stuff in the stores. I told her its the soon-to-end Canadian housing bubble wealth affect. (Most of the Canadian buyers are French Canadian, which she enjoys, hearing Spanish all day at her job. She said that is not the resident consensus. "Why don't they speak English, if they're going to buy property here!")