Buying a home..

jazzy grille · #1 07-16-2008, 02:38 PM

Anyone else looking into getting a home here in the US while the market is down..

My finances are in line and I think that it might be a good idea seeing that the value of houses are getting cheaper. My brother just got a house built for around 600K and it would have been worth about 7 figures 4 years ago. He actually ended paying less for the house than expected because the value dropped before it was done. Mind you that this is a house for me to live in, not to make a profit... (Okay maybe later on... Down the road)

Robert B · #2 07-16-2008, 03:11 PM

Seems to me this would be a great time to buy for first time buyers. But for those of us who already own, it would be difficult to sell our current home to buy another. I'm not worried though, this will pass. And if I were you I'd go for it!

kasanovakarl · #3 07-17-2008, 10:47 AM

My wife and I thought about the same thing. We live in a very modest house, and could turn it fairly easily because many people are downsizing because they lived outside their means.

I think it is a great time to buy.

The problem is that the wife wants a big pool at the new place.

Dangle · #4 07-17-2008, 10:59 AM

My wife and I have been looking at houses for a couple months, but the companies we work for are prone to layoffs, so we have to survive the next round to feel even a bit safe about getting into that much debt.

Rich L · #5 07-17-2008, 10:35 PM

Really depends on what part of the country you're in. I'm a land developer in the Tampa Bay area and can safely say Florida is still at least a year or two from hitting bottom. Not a good time to buy right now, especially in Florida, Arizona or Cali.

Wife & I got lucky and sold at the top of the market and have been renting ever since, and have no plans on buying anytime soon.

bassman1185 · #6 07-18-2008, 07:36 AM

I just got married, so my wife and I will be looking for a house to move into once the lease on our apartment ends in November.

Mark Latimour · #7 07-18-2008, 08:00 AM

From another thread:

Quote:

Originally Posted by Mark Latimour

Its a good time to buy a property if you have the money to do so and get a good deal. Consider the situation where property prices might fall 20% over the the next two years.

If a price is asking $250,000 now and I buy it for the asking price then in two years it may only be worth $200,000. Assuming you borrowed the whole of the price (good luck trying to find a lender), then you owe more than your property is worth. Even if prices turn around and grow at 10% per annum for the next five years, it would take you 3 years before you back above the $250,000 (ie $220k the first year, $242k the second, $260+K the third). Then you are making money again, but you have been paying interest for 5 years and you are only up a little bit on your original price. If you had just stuck all that money in a bank even at 5% you would be better off.

However, if you can buy that property at say $200,000 (ie undervalue), then you might be okay if the market turns around. Further you may not care if you are going to hold the property for a long time and put as much money into it as equity, rather than interest. You have already accounted for the price drop in the purchase price therefore you borrowings are lower and the actual price at which you could sell it, even in the first two years, might be sufficient to cover the value. Once prices start to turn around, you start to make profit straight away.

In short, you need to do the math yourself and don't forget what the current and future price of money may be (ie interest) as if you are paying interest at a high rate and your property isn't growing in value, maybe its better to put your money in the bank and have the bank pay you interest?

This is really something to think about. At least in the UK, most loans in the first years you are only paying a tiny amount of principal, most of the repayment is interest. That means say you are paying $3000 per month off your home loan, you are probably paying $2900 in interest and $100 in principle. As a rule of thumb it is almost always cheaper to rent than it is to buy teh equivalent property. So you can rent a place in the same area you want to buy for less than the mortage repayments on the house. So maybe you can rent the house for $2000 per month. Sure, you are paying $2000 per month away in rent, but if you bought you were paying $2900 in interest. So you are actually $900 better off renting even if the value of the property remains static. If it goes down you are much worse off. Its only when the value of the property is increasing (prefably faster than inflation) that you are making money and thus making money off the interest you are paying. In any other situation, I would rather have that extra $1000 in the bank saving for a bigger deposit on a home and having the bank pay me interest, than have to pay interest to the bank. I'd wait until properties are pretty much at the bottom - or at least as close as you think its going to get or perhaps on the mild upswing - before buying in this environment (IMO), but that is what I am doing.

sevenorchids · #8 07-18-2008, 08:11 AM

Yes, but in the US, that $2900 per month (almost $35K per year) in interest can be used as a deduction on your Income Tax. Rent cannot.

All that being said, I wouldn't buy property in Florida anytime soon...

Mark Latimour · #9 07-18-2008, 08:12 AM

Quote:

Originally Posted by sevenorchids

Yes, but in the US, that $2900 in interest can be used as a deduction on your Income Tax. It's a really beautiful thing...

Even if you are an owner occupier? That's insane. Even if house prices were dropping, it would be worth looking at buying something to create tax deductions large enough to soak up all of your income tax and rent it out, that would just make good economic sense.

sevenorchids · #10 07-18-2008, 08:32 AM

Yep. It's called the Home Mortgage Interest deduction. Originally created to stimulate the ownership of homes, rather than renting. One of the last tax deductions left...

Mark Latimour · #11 07-18-2008, 08:36 AM

Quote:

Originally Posted by sevenorchids

Yep. It's called the Home Mortgage Interest deduction. Originally created to stimulate the ownership of homes, rather than renting. One of the last tax deductions left...

Now that is government fiscal insanity! There is no good economic reason why a person should get a tax deduction on interest on their own home it just makes it too easy to own / buy (or do you pay capital gains tax on the sale of your own home - which would then make sense?). The only country I had heard of where you could do that is Guernsey - that is awesome - I would be scrambling to buy in the US if I could deduct interest against my income tax.

MoD_Scotty · #12 07-18-2008, 08:42 AM

If you take a look at some properties on zillow.com, you'll see that the prices of houses in FL are still dropping. After the hurricanes, they really skyrocketed (because the cost of building materials went through the roof), but now they're slowly sinking back down.

Unless you find an amazing deal on a house in FL, I'd wait it out a little longer.

Relic · #13 07-18-2008, 08:43 AM

I'm currently in the market but here in New Jersey it's not necessarily the price of the houses that's the killer - they're getting better pricewise, it's damn property tax. Unbelievably high and it literally make the difference in what were able to afford. We have seen some wonderful houses that we completely can afford mortgage-wise, factor in the taxes and it shoots it right out of our price range.. the latest house we're looking at, it's relatively small, 4 bedrooms, full basement, 1/3 acre... taxes are almost $8000/year.

jazzy grille · #14 07-18-2008, 08:44 AM

Quote:

Originally Posted by Mark Latimour

From another thread:

This is really something to think about. At least in the UK, most loans in the first years you are only paying a tiny amount of principal, most of the repayment is interest. That means say you are paying $3000 per month off your home loan, you are probably paying $2900 in interest and $100 in principle. As a rule of thumb it is almost always cheaper to rent than it is to buy teh equivalent property. So you can rent a place in the same area you want to buy for less than the mortage repayments on the house. So maybe you can rent the house for $2000 per month. Sure, you are paying $2000 per month away in rent, but if you bought you were paying $2900 in interest. So you are actually $900 better off renting even if the value of the property remains static. If it goes down you are much worse off. Its only when the value of the property is increasing (prefably faster than inflation) that you are making money and thus making money off the interest you are paying. In any other situation, I would rather have that extra $1000 in the bank saving for a bigger deposit on a home and having the bank pay me interest, than have to pay interest to the bank. I'd wait until properties are pretty much at the bottom - or at least as close as you think its going to get or perhaps on the mild upswing - before buying in this environment (IMO), but that is what I am doing.

My main reason for buying a house is to settle down, not so much to turn it around (if the market goes up) and a make a profit. I have quite a bit saved up for a down payment (roughly 100K) due to an inheritance... Plus as sevenorchids said, interest is tax deductible.

I have heard from quite a few people that I should wait and I think I probably will, but houses are going for DIRT cheap here where I live. There is a very nice subdivision that is pretty isolated from the city (15min ride for groceries) and because of that the houses which "were" worth 300-400k are going for 200-250K and they are very nice. I just don't want to miss out on a good opportunity... UGH.. It's a hard decision.

jkritchey · #15 07-18-2008, 08:47 AM

Quote:

Originally Posted by Mark Latimour

Now that is government fiscal insanity! There is no good economic reason why a person should get a tax deduction on interest on their own home it just makes it too easy to own / buy (or do you pay capital gains tax on the sale of your own home - which would then make sense?). The only country I had heard of where you could do that is Guernsey - that is awesome - I would be scrambling to buy in the US if I could deduct interest against my income tax.

Yeah, the interest deduction is, IMHO a contributor to the housing bubble that has caused such a problem in the financial markets. Not only is mortgage interest deductible, but Home Equity Line of Credit (HELOC) second mortgage interest was probably being deducted by many people as well. Theoretically, I believe it's only correctly deductible when used for home capital improvements, but I believe a number of people find some 'wiggle room' there when doing there taxes...

The "American Dream" of home ownership is federally subsidized....

Edit: My ability to use 'There, their, and they're' correctly is malfunctioning. I'm currently awaiting an upgrade patch for my brain....

Jazz Ad · #16 07-18-2008, 09:24 AM

Quote:

Originally Posted by Mark Latimour

Now that is government fiscal insanity! There is no good economic reason why a person should get a tax deduction on interest on their own home it just makes it too easy to own / buy (or do you pay capital gains tax on the sale of your own home - which would then make sense?). The only country I had heard of where you could do that is Guernsey - that is awesome - I would be scrambling to buy in the US if I could deduct interest against my income tax.

Move to France. We have it here too. It also exists in Germany, Spain, pretty much all over Europe actually.
Economic reasons are very real. Homeowners work more and spend more than the rest of the population.

Mark Latimour · #17 07-18-2008, 09:25 AM

Quote:

Originally Posted by Jazz Ad

Move to France. We have it here too. It also exists in Germany, Spain, pretty much all over Europe actually.

Wow, I have been missing out. France is a possibility!

Relic · #18 07-18-2008, 10:30 AM

Quote:

Originally Posted by Mark Latimour

Wow, I have been missing out. France is a possibility!

You can be Morf's neighbor

Mark Latimour · #19 07-18-2008, 10:31 AM

Quote:

Originally Posted by Relic

You can be Morf's neighbor

He lives in the sticks. I think I will stick with Paris!

MoD_Scotty · #20 07-18-2008, 02:45 PM

Quote:

Originally Posted by Relic

I'm currently in the market but here in New Jersey it's not necessarily the price of the houses that's the killer - they're getting better pricewise, it's damn property tax. Unbelievably high and it literally make the difference in what were able to afford. We have seen some wonderful houses that we completely can afford mortgage-wise, factor in the taxes and it shoots it right out of our price range.. the latest house we're looking at, it's relatively small, 4 bedrooms, full basement, 1/3 acre... taxes are almost $8000/year.

The truth! The taxes on my aunt's house in Syosset, NY are more than the mortgage on my house in Augusta, GA! MADNESS.