Is it a good time to buy a house right now? (1 Viewer)

[Tom_Mack]

My wife and I have been looking to move into a single-family home from a townhome. We put a bid on a house, but it dosen't look like it is going to work out because the sellers want a quick settlement (which we can't afford to do) and will not budge much on the price.

I'm starting to think now about whether it really is a good time to buy a house. Interest rates are so low and our present home has appreciated in value a good deal over the past few years, but so have the homes we are looking at.

Do homes go down in value when interest rates go up?

For example, a home was worth $100,000 when you bought it and $200,000 now. Interest rates were at 9.5% then and 5.0% now. If the rates go back up to say around 8% does the value of the home go down to around $150,000?


Its going to be a huge purchase and I'm just worried about being burned down the road by not knowing all the facts!

 

[Angelo.M]

Tom: I'm no expert, but I'm a homeowner. Here's my take.

This is a good time to buy. Interest rates are low, which gives you significant buying power. Of course, the flip side of that is that home prices are higher. If you equate value with selling price then homes generally increase in value as interest rates go down.

But, in my experience, homes generally don't lose value the way you describe, they just don't gain it in as large a proportion. As an example: I purchased my first home in 1998, and sold it in 2002. Interest rates were lower when I sold, but my house sold for more (about 20% more) than I paid. I'd say that's a fine return on my investment, despite the fall in interest rates. Of course, regional market pressure will vary, and it is entirely possible to lose money in a home regardless of how interest rates move. In your area of PA, who knows?

In most situations nowadays, you might be far better off investing in a home than holding your money in a bank, or in the market. Pay close attention to what you're buying and even closer attention to where you're buying (the old saw about location, location, location is true). And, in the current climate, I would error on the side of buying something substantial; you'll kick yourself in 5 years if your house doesn't meet your needs and interest rates head north.

Good luck.

 

[Bryan X]

For example, a home was worth $100,000 when you bought it and $200,000 now. Interest rates were at 9.5% then and 5.0% now. If the rates go back up to say around 8% does the value of the home go down to around $150,000?

It won't work like that. Generally you're not going to see home prices decrease -- even when interest rates go up. There are too many factors pushing prices up on a regular basis for that to happen. Yes, home prices can fall, but many times it's due to home prices that had skyrocketed beyond reason and were due to burst.

Good luck in your search.

 

[DaveF]

Interest rates are low, which gives you significant buying power. Of course, the flip side of that is that home prices are higher

That's what I'm seeing as I look for my first house. Interest rates are low, making it a good time to buy. But because everyone believes that, many people are buying and prices are being driven up, making it more of a sellers market.

I'm finding it frustrating because houses are being sold the day they are listed making it difficult to look around and think about this really big decision. There is pressure in the current market to make snap decisions about spending huge sums of money. A little scary for me, a new buyer.

 

[Tom_Mack]

Yes, home prices can fall, but many times it's due to home prices that had skyrocketed beyond reason and were due to burst.

I guess that I'm worried that the prices in the area have skyrocketed beyond reason. I'm not sure.... Houses in our area have increased in price by 60-90% in the last 3-5 years! Some houses in the development I am looking in are actually being offered at double what they paid for it 5 years ago.

 

[Patrick Larkin]

We just bought a new house. We chose new construction for various reasons but some of them are the inflated prices on preowned houses and the short amount of time to make a decision.

Interest rates are great but the home prices are high. But, if you are selling a house, chances are you will also make more money on your sale to put toward the bloated price on the new house. It all evens out.

It seems to me that people are selling in droves to buy something new or better. One small house down from me was sold at a really high price. The day that SOLD sign went out, the neighbor put a FOR SALE sign out. People are shocked to see that their $100,000 house can sell for $150,000 now - but you must remember that you'll be paying a higher price on the other end. (This may be made up by the really low interest rates, however - I'm no accountant. )

We bought new construction in April and the base price has gone UP $25,000 since then to buyers of the same model house now. Insanity. That being said, if you buy a $300,000 house, I'd be very surprised to see it depreciate greatly even if interest rates go way up. The more likely scenario is that home prices keep going up up up...

 

[Matthew Todd]

Have you considered maybe building a new home? We're just finishing up construction on our first home, and it cost signficantly less to build than the "appraised" value. This way we've been able to get just what we want, at a lower price, although we've had to wait for it (6 1/2 months).

Matt

 

[Michael Reuben]

The best advice I ever got about house-buying (or, in my case, apartment-buying) was not to think of it as an investment but as the place you want to call home. It's almost impossible to predict the future of the housing market. The most you can do is concentrate on good locations that are desireable now and can be expected to remain desireable in the future; that's your best hedge against future changes in the economy.

M.

 

[Eric_L]

First advice:

Don't buy a home because you expect it to make money. Buy it because you want to live there.

That is first and foremost why to buy any given home, because it is the home you want in the place you desire. Just like if you were renting it.

Never buy a home just because you think you can turn a quick buck.

Now, interest rates, as I explained in the 'economy' thread are related to the strength of the economy. Not 100%, but close. Therfor if rates go UP it means the economy is good and therefore more people are making enough money to buy homes!

The primary factor in the value of a home is the cost of the land and the cost of building a comparable home. "Interest rates" rank down somewhere around the same level as "living next door to someone who bakes pie".

When a home loses value it is often mostly related to the lad value and not the replacement construction costs.

Therefore, yes, if your life circumstances allow for it, now IS the time to buy. Just remember, it is where you will live - raise children, celebrate holidays, watch Home Theater, relax after work - future profits be damned.

Typically, you should NOT buy a home if you forsee yourself moving within 3 years, growing your family beyond the # of bedrooms, or changeing employment. Otherwise, get the bigest home in the best location you can afford.

For some townhouses are the place to be. No yardwork, well kept common areas, ammeneties, etc. Many others prefer the privacy and freedom found in freestanding homes.

Freestanding homes tend to appreciate more, but that is secondary to your living needs.

Live where you will be most comfotable.

 

[LDfan]

The housing market in the DC area is totally out-of-control. A new, good-sized townhouse with a 2 car garage will cost 300-400k. Right down the street there are some fairly new single family homes that just 3 years ago sold brand new for the low 400's. Now they are selling in the 700's.
My wife and I bought our small townhouse back in 1999 for 142k. We just refinanced and it was appraised for 255k! I just don't see how people can afford huge mortgages. Makes you wonder if the housing market will bust soon.

Jeff

 

[David Preston]

If you do buy I don't know if anyone has suggested it but I would go with a 15 years instead of a 30 year. If I not mistaken you gain more equity a lot faster and the payment is not that much more. I had a 30 at first then refinanced to a 15 and payment went up about $60. With a 30 you can pay extra on a house and pay it off quicker but you don't always do it because you don't have to. With a 15 you have to pay that little extra every month. Maybe someone can add to this or correct me if I'm wrong.

 

[DaveF]

I would go with a 15 years [mortgage] instead of a 30 year.

I want to use a 15 yr mortgage when I buy my house. The benefits are a lower interest rate (by about 0.5%) and much less total interest paid. I think this would be a good hedge against a possible downturn in the housing market.

The downside to a 15 year mortgage is that it greatly reduces the amount of money you can spend on a house. For a given monthly payment, you can borrow about 40% more money with a 30 year mortgage compared to a 15 year one -- a $210,000 house versus a $150,000 house.

 

[Erik_C]

It's a great time to buy. I bought a place in DC 2 months ago, and a couple weeks ago, one just like it, in the same neighborhood, sold for $75k more than I bought mine for. The housing market in DC is crazy. I was told to expect my place to double in value every 5-7 years. From first walking through the door with my realtor to signing the papers to buy the place took me about 4 hours. It just so happens that I love living in the place, and it's a great investment. Best of both worlds.
-Erik

 

[GordonL]

The downside to a 15 year mortgage is that it greatly reduces the amount of money you can spend on a house.

What you could do is take a 30 yr mortgage to get the low monthly payments but make extra payments when you are able to do so. If you do it regularly enough the total interest payout is not much more than if you had started out with the 15 yr. www.bankrate.com has a pretty good mortgage calculator that allows you do what-if scenarios. Just plug in your pre-payment amounts and it computes the total interest paid (assuming you pre-paid regularly) over the life of the loan. When I refi'ed, I did a 30yr but I plan on making pre-payments regularly. It really helps when you're going thru periods of unemployment. :frowning:

 

[David W Johnson]

My wife and I just purchased our very first home. We managed to get a 30 year loan with an interest rate of 5.5%.

 

[Bryan X]

What you could do is take a 30 yr mortgage to get the low monthly payments but make extra payments when you are able to do so. If you do it regularly enough the total interest payout is not much more than if you had started out with the 15 yr.

This is a very good way to get the benefits of a 15 year mortgage while still having the ability to fall back to your lower payments in an emergency. The key is to have the discipline to add the extra amount to your monthly payment or making that additional lump sum each year.

 

[DaveF]

What you could do is take a 30 yr mortgage to get the low monthly payments but make extra payments when you are able to do so

I've been thinking about that -- pay an extra 0.5% on the interest rate and get a healthy buffer in case of financial catastrophe.

 

[Philip_G]

I'm looking at a townhome here locally. The problem is even a townhome runs 180k + so I doubt I can get financing :frowning:

 

[Tom_Mack]

Thanks for all the replies. Its given me a lot to think about.

Don't buy a home because you expect it to make money. Buy it because you want to live there.

This one line gave me the most to think about. I'm not buying a home to make money, BUT I am worried about the potential to lose money if I would be forced to sell in the future. Plus, the town I am looking at expects to double in size by 2010, so there is a great potential for skyrocketing taxes.

As for new homes, if I find a new development in our area, I may consider it. I have heard that new homes have higher taxes that older homes, even if the are appraised for the same value. They said that this is because the town will need to add water and sewer and other utilities to the area. Is this true or completely false?

Again thanks for all the replies. Keep it up! Its giving me a lot to think about during this very stressful decision!!!!

 

[nolesrule]

New homes have higher taxes over similarly appraised existing properties because in most areas the annual tax increase on existing property is limited by county ordinance and/or state law. This limit is usually a smaller percentage than the actual annual rise in property values.