Trying to buy first house (1 Viewer)

[Mark Sherman]

Andrew we dont mind Yankee Fans its just the Yankees we hate. Living in Red Sox Nation is Just Bliss along with the Three Time in four years SuperBowl Champs The NE Patriots. And If all goes well we can Chalk up the Celts.


If you like Somerville then you would love the south shore.

Hinhgam, Hanover, Norwell, Rockland, Hull, Nantasket.

Its all good. Im only 15 minutes from the beach.

 

[Andrew Pezzo]

I went to my first game at Fenway last season and loved it, great atmosphere. Probably the most fun I have had at a game in some time. Not saying its better than Yankee Stadium, just different. And I dont fit in with the stereotypical Yankee fan (arrogant etc.) so I wouldnt get beat up to bad. Even I know they cant win every year and I do believe its good for baseball for other teams to win it all.

My wife would love to move up there but I dont see real estate being any cheaper unfortunately. We more or less came to the conclusion it would be better to wait a few years, should be able to save at least $30K by then and will have some extra funds available for mortgage as credit card will be paid off. And I think I am going to bite the bullet and sell some of AV stuff to help the cause. Anyone looking for some Rotel equipment?

 

[Jim Sentry]

Andrew

I am a Mortgage Broker and Real Estate Agent so my comments are obviously skewed but anyway:

have you or your tax person run the numbers to see what your tax savings would be if you bought a home

is it possible to restructure your debt so your payments can decrease or be delayed until you get closer to your higher earning capacity

if home prices are rising steadily in your area investigate interest only mortgages

finally Freddie Mac and I think Fannie Mae have recently introduced new first time buyer programs

 

[Greg Morse]

Bah to your South Shore . North Shore is the only way to go. On the water (great striper fishing up here), easy access to 95, 495, 1, 1A and commuter rail. None of the city traffic (takes me less time to get to the city driving than when I lived in Salem). 10 minutes from tax free New Hampshire and very easy access to ski country. Much more reasonable real estate prices as well up here than south shore in my opinion. I was able to find a 1000 sf condo with parking spot and period detail for under 200k 2 years ago.

Anything north of Lynn and south of Salsbury would be my choices.

 

[Andrew Pezzo]

Just wanted to give an update. The search for a house is currently on hold as my wife and I both found out we are losing jobs (I have till the middle of May and she the end of June). Not the best news to begin our marriage. And we were almost ready to put an offer on a condo, good thing we didnt.

Luckily I have a new job lined up starting the end of May so that takes off some of the pressure. If there is an upside to this its that it opens up more areas for us to look at once my wife lands a job. The crazy thing is I graduated college in 1999 and we be going on job number 6. At least it was due to companies closing/downsizing/moving and not performance related.

Someone once told me if it werent for bad luck I would have no luck at all.

 

[Jeff Ulmer]

You need to look at this latest development as an opportunity, not as something negative.

 

[Colton]

Look into repo homes. Might need a few fixes, but you can get a great deal!

- Colton

 

[AjayM]

Down here by the time us "regular" citizens get to the repo homes all of the good stuff has been bought already and the junk/scraps left behind, typically the type of place will need to be gutted and rebuilt (the investors make good with the bankers and get first dibs).

As to the real estate market, this little comparison chart should serve as a wake-up call;



As Phillip mentioned, if you want to buy for the real long term (15-20+ years) then that's a different story, and quite a few financial guru's don't see huge drops in the real estate markets, the days of 30+% increases every year are going to go away very soon, so don't buy something hoping you're going to flip it in a couple of years for double the money. And of course in some markets there is a risk that the market will collapse/deflate and losing 10-15-20% of value wouldn't be out of the question, if you though being upside down on a car is bad, see how you feel when you have a $300k mortgage on a $240k house

Andrew

 

[Dennis Nicholls]

And with the wisdom of hindsight.....

The winners and the losers. The envelope please (cue drum roll).....

case-shiller-feb2008.png (image)

 

[Philip Hamm]

Wow. Nice. I need to get a job prognosticating.

 

[Dennis Nicholls]

Oops, there's something wrong with the link I posted. It doesn't show any "winners".

 

[Brandon_T]

The winners are the ones that lose the least, about as good as it gets.

 

[Eric_L]

YAY gravedigging!

AjayM's post #68 reaffirms my quote - "It's never different this time". I liked the quote "you make all your money in bear markets, but you don't realize it at the time." There is another "Bear markets are when stocks return to their rightful owners".

 

[DaveF]

Dennis, what's this table telling us?


It's interesting seeing these older discussions. I'm always curious what happened with the original poster...anyone know? Did he get his house? (Ah, I see the thread ended when he had an unexpected job loss. :frowning

I'm one of the those folks that bought a house at the peak of the bubble (2004). I remember being torn between thinking it was a bubble and would pop in due course, but also wondering if the record low interest rate made it a wash. Emotion won over reason and I bought a house. Fortunately, I bought a house I can afford in an area with sensible house prices.

The original poster's story gives me mixed empathy and frustration. I see a social problem not often discussed: kids paying for very expensive college educations, that ultimately are boat anchors on their financial futures.

If a kid is going to school to be a teacher or engineer or other normal middle-class job, and must pay their whole way, they need to be told not to go to a $40k a year, near-Ivy school. (or whatever it is that leaves you with $1000 montly payments for 20 years, plus credit card debt.) It just doesn't make sense. But when you're 18, you don't know that.

 

[Dennis Nicholls]

The Case-Schiller house price index is purportedly the most accurate measure of average house sales price, especially when compared to "median" prices which may be tilted by the "mix" of cheap versus expensive houses. IIRC Robert Schiller is an econ prof at Yale.

Standard & Poor's - S&P/Case-Shiller® Home Price Indices

For example, the table linked above says that the average house in San Diego peaked in value in November 2005 and has since fallen 24% in value ($154,972). It will continue to fall until estimated 2010, falling a total of 38.6% in value ($249,866).

 

[Todd Hochard]

I'm in the same (sinking) boat. I bought a house at the end of 2004 in Northern VA, one of the overheated markets. I really fretted over the whole thing, but was concerned that if prices didn't correct, I'd be effectively locked out for life. Prices continued to rise like mad for another year, but have since come back to slightly less than I paid for the place. I did put a sizeable amount down, but it doesn't make me feel any better.

Interesting point about the expensive college education. I've oft wondered this myself. Fortunately for me, the 12 credit hours I bought & earned at community college in the 80s have had a massive ROI. Seriously, if I were paying $100k+ for an education, I would *need* to know that it would payoff several times over. For doctors and lawyers, this is usually the case, but for engineers and such? I don't know.

Todd

 

[DaveF]

Dennis, thanks for the clarificaiton. I'll look at that more closely.

Todd, even with the correction, people are still priced out of homes in many places -- perhaps in the coming years you'll still have come out alright.

A friend took a job in Pasadena, CA about five years ago. After the first year or two, she decided not to buy a place because it was just too expensive. Three years following that, she's only fallen farther away from being able to afford a home -- or even a condo -- because of rising prices. I dare say, the correction would need to take prices back to pre-2002 pricing for her to afford a place. And she makes a good living as a lead engineer for a small firm. So, without a crazy, interest-only, 50 year mortgage, she may forever be in apartments.

But maybe, seeing Dennis's post, this large of a correction could happen.

I've idly considered moving to CA just to buy a house on the cheap. Any loss of my house here would be grossly over-compensated by the decrease on a CA house. But then I remember that I don't want to live in CA

 

[Eric_L]

Hmm, Dave - your post inspired me to finally do some math I've been putting off. It is pretty grim. I used some round/gross numbers because this is, afterall, speculative prognostication (guessing). I'm pretty much thinking as I'm going here;

I looked up the median hhld income in 1997, which was around $42k/yr. In 06 it was around $48 - so rounding off we can say income has grown around 15%.

Housing has grown about 200% in the same period; $80k to $170k median.

The relationship between housing and income is important, because in order for housing values to be maintained the average income must be able to afford the average home...

Currently, the average house is consuming 45% more of the household budget than 10 years ago. (not to be confused with 45% OF the budget) That would insinuate that current housing values are 45% overvalued - at least by 1997 budgets.

Projecting forward, in 10 years the average income - at 15% growth, would be $55k and the average median price (still by 1997 budget proportions) would be $106k.

From that I could extrapolate several possible outcomes;

1) Median housing values will continue to decline another 30% over the next 10 years to reach parity with median income.
2) Median income growth will accelerate - likely a relationship with inflation.
3) The median housing budget expressed in 1997 may have been historically below trend, so future household budgets may accommodate a larger share for housing, resulting in a faster absorption of the overvalue presently expressed.
My guess is a combination of all three, but particularly inflation. Pulling a number from thin air - Id say five more years to go...

An additional consideration is that the growth rate of the top 50% of income earners is faster than the bottom 50%. That can have a two-fold impact on this projection;
1) More affluent homes may recover their values faster
2) Lower cost homes may stagnate longer - since lower income households might take longer to afford them. It is worth noting here that current tax code disinsents higher income people from investing as landlords in rental property, nullifying any beneficial absorption of lower priced homes for rent / investment.

Once ancillary concern is the loss of real estate equity as a retirement savings vehicle. For many people the equity in their home has served to compliment (or often as their only) retirement savings. Without this I fear that retirees in the next decade or two will need to take more initiative in their retirement less they end up entirely dependent on social security (social security being yet another concern) I won't even bother discussing medical costs for retirees...

I would say that this next 10-20 years will be one of the more historically dangerous time for people to defer responsibility for their retirement...

I only wish there was a way to force everyone to listen and invest suitably - it takes so little effort for most people to address this - yet they don't and they overspend foolishly... Hell - the average tab at Hooter's would be enough to fund most peoples retirement if invested monthly...

 

[DaveF]

Eric,
I generally agree with you're going for, but one hole in your (quick) analysis is the disparity in pricing around the country, particularly the Coastal Megapolis vs. Flyover states; see Dennis' chart linked a few posts back.

LA's peak price, for this average, was $600k and projected to bottom out at $340k. Even though that's a huge decline -- as you'd expect -- that's still a very expensive house and in no way indicative of a "median" income. Worse, it's going to be a small, old house very likely an hour or two from the owner's work.

And this will remain the case because LA is a huge, important city, that everyone wants to live in. Likewise for DC, Boston, San Fran, NYC, etc.

In contrast, here in Rochester, you can buy a 2000 sq ft new construction for $200k. And you can buy a 1920s fixer-upper for $90k. But no one wants to live in these regions.

What needs to happen along with the housing correction, is a redistribution of jobs. There's plenty of affordable, quality homes nationally; but they aren't where the jobs are or where people think they want to live.

 

[Dennis Nicholls]