Time to buy a home is now?

[WDCRob]

Re: Time to buy a home is now?

I think I've pretty much resolved on waiting until I can put 20% down on a house I'm willing to live in for at least ten years, where the true cost of owning over those ten years is roughly equivalent to what I'd pay in rent for the same property.

The interesting thing is that the lowered cost of owning that comes from putting 20% down (no PMI, much lower interest payments) actually makes owning competitive with renting in my neighborhood.

If I ignore the return I could be getting on that downpayment that is.

[LargoWinch]

Re: Time to buy a home is now?

If I ignore the return I could be getting on that downpayment that is.

well...that should be part of the equation.

Like saying a house is cheaper than renting if I don't pay prop. taxes.

You know all that WDCRob, but just wanted to clarify for potential readers.

[WDCRob]

Re: Time to buy a home is now?

I actually went back and realized after I posted that the cash flow for a place I actually looked at this past weekend is almost $700/month higher than the cost of owning (for 10 years - my minimum time horizon if I buy).

Which begs the question (for me)... should you look at cash flow or average monthly expense of owning as a comparison to the rental rate?

To worry about a return on the money you've got tied up wouldn't you have to assume a return greater than the cost of the loan you've got on the house? If my loan rate is 6% I can either lock in a 'return' of 6% by putting more money down on the house, or try to get a better return elsewhere. 6% guaranteed seems pretty reasonable these days, no?

[LargoWinch]

Re: Time to buy a home is now?

I actually went back and realized after I posted that the cash flow for a place I actually looked at this past weekend is almost $700/month higher than the cost of owning (for 10 years - my minimum time horizon if I buy).

Which begs the question (for me)... should you look at cash flow or average monthly expense of owning as a comparison to the rental rate?

To worry about a return on the money you've got tied up wouldn't you have to assume a return greater than the cost of the loan you've got on the house? If my loan rate is 6% I can either lock in a 'return' of 6% by putting more money down on the house, or try to get a better return elsewhere. 6% guaranteed seems pretty reasonable these days, no?

What about your house-related expenses, taxes, agent fees when you sell etc.?

More importantly, even if you are cash flow positive, what about if your house goes down in value? One thing for certain, your "6% return" will be gone and then some.

You might have missed this basic tool I posted earlier, which may be usefull to you:
http://www.nytimes.com/2007/04/10/bu...et&oref=slogin#

In my book, the ever more dire economic situation and the typical leverage required to buy a house are more than enough for me to stay away from buying at this time. Real estate is one of these "investment" that "cannot" go down, since your leverage will make you feel sorry pretty quickly...

[jtabeb]

Re: Time to buy a home is now?

Of course, everybody's situation is different, so different strategies apply . . . .
I'm retired, and I'm just trying to preserve what I've got so I don't have to go to work in Walmart :eek:

In trying to prepare for most possible future scenarios, my approach as follows:

I'm about 20% gold, 45% TIPS (paying 2.3% + CPI rate), 30% RE and 5% shorts (gambling money). Plus a self-sufficient level of chickens, goats, sheep, cows and crops.

The gold and TIPS are subject to the dangers of government intervention and hyperinflation, respectively. But the gold won't go to zero, and I figure with that and the RE I'll at least have something "real" and safe from hyperinflation. I will probably lose money on the RE as housing prices continue down, but we bought recently and got some good deals. The good part is that rents will always be paid in the "coin of the realm", whatever that turns out to be.

I'm assume assuming that whatever happens, I'm going to lose some money . . . but I'm trying to minimize the amount with this three-prong strategy.

For your parents' rural homestead, make sure the roof and fencing is in good condition, and that you have enough seed, tools and salt.

Let's hope it doesn't come to that . . . .

Based on the lack of information about the actual future direction of anything (damn I should have spent the cash for that crystal ball when I had the chance) I too have come to the conclusion that

Cash
Homestead
Gold

are the triad that provides the most flexibility and best chance of success.

I have no homestead being in the military so I have persued the risky strategy of buying a cheap rental house that I can afford to lose money on JUST in case, that hyper-infaltion situation develops. But I am trying to have enough cash to offset that liability. The rest is burried in the back yard under a pile of manure (but thankfully AU doesn't corrode).

But in a more general sense, your strategy is the best one I can find. Trying to get there myself.

[LargoWinch]

Re: Time to buy a home is now?

But in a more general sense, your strategy is the best one I can find.

However, in a SHTF scenario (possible in the event of hyperinflation ala Argentina), being in a rural and therefore remote area could be potentially deadly.

The best would be to live in a rural community.

Don't take my word for it however, read it from this guy (posted by Ed./Fred earlier):
http://ferfal.blogspot.com/

[WDCRob]

Re: Time to buy a home is now?

Thanks Largo... I'd forgotten add the back-end sales costs into this version. Also realized that I'd left the standard tax deduction out of my calcs - which meant I was overstating the savings from tax-sheltered interest.

Together about a $500/month difference.

And rents in my area are only covering about 80-90% of the monthly cash flow of owning right now.

[Jeff]

Re: Time to buy a home is now?

I sold WorldCom stock in 1998 to buy 5 acres of oceanfront in South Florida for $700,000.

My friends called me an idiot for getting out of WorldCom.

You know what happened.

I sold it in the summer of 2006 for $4,400,000.

My friends called me an idiot for getting out of real estate.

You know what happened.

Being friend with Eric for 20 years? Priceless.

[blazespinnaker]

Re: Time to buy a home is now?

What if there is hyperinflation? Treasury bills and cash will be wiped out.

What if some sort of draconian government penalties or confiscation were enacted that would decimate gold profits?

What if the hyperinflation scenario is worldwide as all economies print more fiat? Off-shoring of assets would be a total loss.

How can you preserve wealth?

RE . . . . . . . IMHO

Well said Raja. Who do you think the Government is going to protect? Gold bugs or Home owners.

Seriously, now.

[powersown]

Re: Time to buy a home is now?

However, in a SHTF scenario (possible in the event of hyperinflation ala Argentina), being in a rural and therefore remote area could be potentially deadly.

The best would be to live in a rural community.

Don't take my word for it however, read it from this guy (posted by Ed./Fred earlier):
http://ferfal.blogspot.com/

I read the blog from Argentina. Sounds very rough there. Those living in the rural area, working for the sugar plantation and buying all needs from the local store are in serious trouble.
On the other hand, living in a rural area on a homestead, as suggested by jtabeb, raja and ash, involves having the ability to provide for much of your own basic needs (ie: shelter, food and water). Hence the mention of

... a self-sufficient level of chickens, goats, sheep, cows and crops.

To that I would add stored food staples and water. Good idea to also have some means of protecting everything and everybody. I agree with the importance of having community. We need to work together with others.
That taken care of, I am trying to figure out how to preserve and hopefully grow what assets my family has also been blessed with. That's why I am here.
I appreciate all of your thoughts and ideas.

[LargoWinch]

Re: Time to buy a home is now?

What ferfal explained in its blog, is that in a SHTF scenario the best place to live is (best to worst):

#1 Rural community (group of dwellings close to each others working together)

#2 Dense urban area (for relative security)

#3 Alone in a rural area

Alone in a rural area is last due to the unspeakable acts gangs can and will perform on these poor defenseless souls... (Again, we are speaking about a SHTF scenario - nothing of which I envision).

[cbr]

Re: Time to buy a home is now?

now that is a good post Jeff... care to have a beer soon? LOL

[BigLandbaron]

Re: Time to buy a home is now?

Well, if you believe in ka-POOM, then now might be an opportunity to get a fixed interest mortgage at a very low rate, and pick up a house at a pre-bubble price, even if you're not buying at the bottom. Then you have POOM to inflate away your mortgage debt... it worked for (my) daddy in the 70's and early 80's. Home prices will likely continue to fall during POOM (because of job losses, overshoot, and the fact that interest rates will be headed up), but this latter point means that the interest rates will be sky-high to match inflation, so someone who needs credit might not be able to buy when prices actually hit bottom. I wouldn't buy now, but it's not the dumbest idea ever (which, I suppose, would have been buying in like 2007 with an exotic mortgage). I myself am on the patented GRG55 "don't try to time the leading edge but instead wait for the time after POOM when low-interest loans are available again, but house prices haven't recovered from the massacre" plan. Of course, depending upon how fast land prices fall -- and how well my inflation hedges do -- I might also buy with cash in the middle of POOM. (And, you know, if POOM doesn't happen but I stay employed, then I might also get to buy when prices actually hit bottom.)

I've been struggling with this issue for a few months. After waiting for prices to come down for 4 years, I want to build my dream home in 2009. I own the lot, I'm virtually debt free, have the cash in hand to build it, but that will leave me less liquid than I'd like to be going into 2009 and beyond. Life is short, it's time for me to build this house one way or another. With last week's talk of 4.5% rates for home purchases in 2009, I think it will be wise for me to drink deeply from this well of cheap money, to save my cash so I can take advantage of future situations as opportunities arise. I'm 49, currently 5% phys gold, 25% cash and 70% semi-illiquid RE. I'd like to be way lighter in RE if I had a choice, but this is my hand.

I don't expect noticeable inflation in 2009, I do expect a stream of deflationary events with a leveling off later in 2009), but I'm inclined to believe we will see inflations effects before 2011. If I wait 5 years or more before I pay off this new house, I should be paying back dollars with 50% or less purchasing power compared to today's dollar. In the meantime ... I'd hope my use of cash to hedge against inflation pays off.

Timing is key, to secure an incredibly low rate mortgage before rates rise in response to inflation. I think there is a window of opportunity to do this over the next 6-9 months while Congress, the FED and Obama crank up the presses for the first $1T taxpayer funded mortgage extravaganza after he takes office.

The Dems and Obama want the market to accellerate buying up the overhang of homes and will take unprecidented moves to make this happen; to try to re-inflate home prices such that they will at least stop deflating any further. There is a whole lot of stimulation going on, I'd like to get some benefit from it since I'm unwillingly funding it as a US taxpayer. I think taking a mortgage vs using cash is a minimal risk no-brainer in light of current events, or am I missing some other risk (other than the probability of home prices going some % lower before they stabilize)?

[skurla2000]

Re: Time to buy a home is now?

The buys in Miami are going to be grand. Miami Herald have been putting out silly articles about how there are few condos on the market downtown Miami etc. Well this one site I go to looked into who bought these condos. Seems the bank "sells" many units to another arm of their business. A lot of that is going on for one reason or another.

As for the east side of Broward like Sailboat Bend, Progresso Village, Flagler Village, Rio vista, Victoria park and a few others, I don't see those places doing so well...

I lived in Poinsettia Heights just south of Wilton Manors during the last of my 10 years in South Florida, but sold in 2005 at the peak and moved my family to the outskirts of Tampa. I miss the ocean, canals, water-taxi, tourist traps and destination restaurants.

I have to say, for all the problems that Fort Lauderdale has and will have, I believe there is value to a town with such a leisure infrastructure.

I also underestimated how much I'd miss salt-air... Funny.

[aa]

Re: Time to buy a home is now?

In my book, the ever more dire economic situation and the typical leverage required to buy a house are more than enough for me to stay away from buying at this time.

I just don't get this renting is better argument...

Let us say you are 30 years old. For the next 30 years you can pay rent and when you are 60, you will have.. umm... nothing.

Or, you can buy a house you can afford and pay the mortgage for 30 years. When you are sixty, you will own a house.

Even if you pay more by owning, you still end up owning a house as opposed to nothing. More than likely, inflation over 30 years will make owning a house a much better outcome than paying 30 years of rent and owning nothing.

The faster you pay the debt down, the more you will save compared to renting.

The key is buying a house/mortgage you can afford.

Real estate as an investment is a completely different equation than real estate as a place to live.