Would you buy your first house in 2021, if you had to start over?

[anni]

Hi friends. I'm back with another advice-collecting brain dump thread! It's not a specific Real Estate/Landlording question, I'm more asking about emotions and life advice, but mods feel free to move to the RE investment section if you want to.

Like many others last year, I was kind of obsessed with the idea of homeownership and I still kind of am. I'm only 25 and I've only ever rented. But I've had seven homes in the last seven years, and I know that pretty soon, I want to "stay still" and start putting down some kind of roots and create an actual home for myself.

I'm under no illusion that housing is a better investment than anything else, and I've rented enough dilapidated places to understand that it usually costs more than the price of rent to keep a house in good shape. I am a little worried that my ideal destination cities are soon going to price me (and maybe even my friends and family) out of them. But I am a child of the Great Recession. When I see those exponential growth lines on these houses I'm browsing on Zillow, I can't help but raise an eyebrow and wonder if it means I should be waiting a few more years for the other shoe to drop in the housing market.

I have friends in their 30s who bought houses around my age with 3% or 5% down in hip places like Denver, CO and Richmond, VA in 2015-2017, that are huge advocates of buying as soon as you feel like you can. They say PMI is a temporary and necessary evil to get ahead of skyrocketing housing costs, and they generally were able to refinance within a year or two anyway because they were right and their houses quickly appreciated 20% or more, so no more PMI. In some ways those two cities seem randomly lucky, but at the same time I can see that easily happening to the other cities I'm interested in settling in because they check all the same lifestyle boxes that are so desirable to my generation. I don't want to get stuck in a leftover McMansion from the generation before me. So I am constantly tempted to just call up an agent from across the country and try my luck with an offer on these nice little houses on decent pieces of land. Mass housing hysteria.

But like I said, the housing market is really scary in 2021, even to a well-off yuppy like me. Great Recession trauma, et cetera. I have seen enough "where's the crash?!" threads to know that no one knows if or when prices might decrease again. So what I'm wondering instead, friends, is this:

Homeowners: If you had to buy your first house over again in 2021 at the price it's "worth" today, would you do it?

Super interested in the homeowners' perspectives on this. Again, I know that the value of homeownership is not always financial. But if you have to put a dollar value on what the emotional benefits of homeownership are worth, I think this is an interesting exercise. It's easy to give advice when you got lucky, on the winning side of history. But what if you were just getting started today? What would you do?

[maisymouser]

29 here, not by any means any more old and wisened, but have been through 2 house purchases, one in '16 (husband bought) and one in '19 (jointly bought). Both intended as primary residences.

If I had to 'start over' in 2021 I would almost certainly not buy and would look at all renting options available to me. But that takes into account a lot of personal variables (salary, family situation, etc). I have a young child and don't want to be kicked out by a landlord upon a lease terminating, and we like to have projects we wouldn't otherwise be able to pursue if we rented. That's why we bought a 'starter home' for our family in 2019 when the market was (we thought) very hot; we put a fairly high value on home ownership for personal reasons. We are kind of in the same boat now that we want to find our long-term home in the area if we stay for our little dude's schooling, but I have come to the conclusion that based on how $$$ things are, it's not in the cards anytime soon. So I get the emotional and sentimental reasoning behind wanting to put down roots.

Given the price of lumber and the supply-demand equation in housing right now due to COVID, I can't help but think that houses are really overpriced for what you get. I also think 25 is a really young age to tie oneself down to the massive debt required to buy a house in today's market without planning on a contingency plan should you decide to move. I know that for myself, I am wholly not tied emotionally to the house we live in now and would be totally fine with selling it should the need arise, even if that came at a moderate loss. We only bought this house because of a new job that I didn't want to commute 1h each way to, and the renting options and costs in the area worked out to be about even- not for any reason involving emotional attachment to the house. For something as massive as a house, I think it's best to generally leave emotions at the door, as hard as that is.

Despite that advice, I too have dreams of 'settling down' and moving into my forever home ASAP. I know though that it's just too early in my life and career to plan for that, and if I did I would likely find myself strapped down or disappointed when those plans didn't work out. I don't know if the 'other shoe' will drop in the housing market or if things will just slow down a lot- but in either of those cases many people are likely to benefit by waiting it out.

I would certainly advise against calling up an agent from the other side of the US just to buy a house that you think might be a good deal. That is a recipe for disaster. Not only is the grass greener whenever you are looking from afar, but those houses that you think might be decently priced are likely not good deals or anything for one reason or another. It's also strange that you would want to jump a plane to live somewhere else just to have a house, not knowing if the lifestyle you would live there would meet your needs or if you would be able to make friends there, or if career opportunities would be available.... There was another thread on the forum about exactly this, where a family was considering a move to rural LCOL area from a HCOL city since it was cheaper, but many pointed out that it might have made them miserable. The OP on that thread realized that they hadn't really thought the lifestyle part of the equation through (in addition to other things, I think) and decided not to pursue.

I have seen some of your other posts and yeah, it's OK to be obsessed about beautiful old homes and whatnot, but tread lightly. It's far too easy to buy an old cheap fixer-upper and not be able to keep pace with the various pieces that are all simultaneously falling apart. That's the choice that my parents made- I grew up in a 'fixer-upper' old house, but I can't tell you how painful it is to watch as my parents can't improve the house. It has, to put it lightly, derailed their retirement. Is there any way you can dip your toes into what it takes to own and maintain a home? Anyone you can shadow on various projects and/or side job work where you can scratch some of that home improvement itch you might be feeling?

Bottom line, if this is your life passion, then the answer you are looking for is: Home ownership may be priceless to you and worth the extra possible costs of buying in 2021. An analogous situation is whether or not one wants to have kids. For me, I recognized that having a child could easily cause Financial Ruin when analyzed through a purely FIRE lens, but in the end I decided I didn't care if it cost me another 10 years plus of working. Life is full of give and take.

[ChpBstrd]

When I imagine myself waking up in the body of a 29 year old renter instead of a 40+ y/o serial homeowner, my first question related to living arrangements - which would come long after a series of other questions in that scenario - would be "where do I want to live?"

This question, in turn, relates to where my highest-earning work is available. For most people this is a wash, but some specialties like hedge fund manager, federal bureaucrat, oil field worker, or rocket scientist are geographically constrained . It also relates to the difference in renting vs. owning in various places, the cost of living vs. salary in various places, and my likelihood for needing to stay geographically mobile in my particular career. Presumably, since I just woke up in someone else's body, the locations of family and friends are of minimal importance to me and I'm OK with permanently losing touch with everyone.

So I would make a long list of metro areas where my specialty is in good demand if that matters, use salary.com to find the salaries in those areas, and then use an online cost-of-living comparison tool like https://www.nerdwallet.com/cost-of-living-calculator to determine which areas are the best deals in terms of low cost / good salary. I would not end up somewhere with expenses so high that saving 50-75% of my income was off the table. Presumably, I'd still be me, so getting rich and retiring young would still be priorities.

It's likely I would end up with something like Memphis, Cleveland, Rochester, or Kansas City (guess who's done the exercise already) or maybe one of the hundreds of smaller cities with an even lower COL. If I got a job lined up and decided to move to one of those places, I'd grab myself one of their $150k houses, finance it for 15 years at 2.6%, and get to work building a local social life. If housing prices crash, it would be a paper loss for me, and unless the Great Depression reoccurs, my payments would remain lower than rent on a 1BR apartment. If I got extra money-hungry I'd have an extra bedroom for a roommate.

If, however, I decided to chase the big money in New York City, Seattle, California, or other places where bedrooms cost a quarter-million apiece, I would say "hail no!" and rent something small and dumpy forever. I'd capitalize on my mobility and snipe for promotions in other cities every other year. I'd spend a lot more time hustling and a lot less time mowing grass, wandering Home Depot, shopping for furniture, or installing faucets.

Either path leads to FIRE, but the second is riskier. If I don't get that promo, it's more time spent chugging along under the weight of high costs. If I do, however, I zip into six-figure land and soon become one of those case studies that always riles people up on this forum: "can I retire with only $3.5M?". Additionally, if I grow roots in a HCOL area, the costs may grow faster than I can grow my portfolio, and so it's OMY forever.

Here's the funny thing about "hip" cities. ALL cities have funky bars, concerts, activities, and interesting cultural aspects. Some just cost 5X as much as others and have bigger crowds. The people who pay 5X as much are convinced they are getting their money's worth, because imagine if things were 5X worse, so they are glad not to be in places that haven't yet caught the media's attention for being "hip". Also, at age 29, you won't be even halfway through a 15 year mortgage before your priorities change from doing the things people in their 20's do to doing other things. You probably hopefully won't be the 40 year old singing at the piano bar or dancing at the nightclub. But if you live in a popular place, you still have to pay for it! Something to keep in mind.

[SunnyDays]

Well, I bought my first house (and the one I still live in) in 1993 for 65K when I was earning 48K.  Would I buy it now, when it's worth 250K if I was still earning 48K?  Absolutely not.  The thought of that much mortgage would give me cold sweats.  However, I do love the house lifestyle, so would have rented a cheapish house.  But if I had been earning the 80K I was when I retired and my house was worth the approximately 220K then, I might have.

But for you, at only 25, when you don't know where you really want to live for any reason but buying a house, and don't have job or family ties to that location, I think it would be foolish to just purchase anything, anywhere for the sake of not being priced out.  Especially knowing that you want an old fixer-upper, where you could lose your shirt.  BUT.  If you want a house that badly, settle down in a location where you could see yourself for at least 5 years, buy a small, low cost home and work your way up over time.  It might take 10 or 20 years, but eventually, you might be able to take on that diamond in the rough and turn it into a beauty.  Right now?  No.

[seemsright]

No. I would not buy the house we own outright in 2021 It is way two big, the yard is effort to take care of (and I should be mowing my lawn instead I am drinking tea and replying to this thread)

Owning a house is stupid expensive. Things always need to be repaired, fixed, or taken care of. There is always a to do list 20 miles long.

We bought back in '02 as young 20 somethings who had no idea what we were doing, decided on a Sat it was time to buy a house, and we found one, had a mortgage and all of the problems of said house all without a realtor. Back then it was no big deal then we played the whole housing bubble game and got it paid off in 13 years.

We now have a 10 year old and it is important to me that she is in the same house she came home to from the hospital. We will change houses once she is on her own. I was forced to move every 6 months when my parents skipped out on rent.

The only reason to own a house is you can do what you want with the paint, you can change the things you do not like. If you can find a house that you want to make roots, that fits your budget and you have a 'oh shit' fund then go for it. But be prepared for when the roof and furnace both have to be replaced at the same time in the middle of a ice storm. Or when all of the glass in the house has failed and has to be replaced, or when the kitchen rains. Or when the tree takes out the neighbors fence, I can go on and on.

You have options. 



 

[anni]

Thank you friends. I think my perspective has been pretty skewed by this past year's remote world, too. I've had the privilege to keep earning my HCOL city salary while living in other parts of the country. But a few specific cities near friends and family that I already had my eye on pre-pandemic keep calling me back. I'm not really asking advice on the wisdom of buying at 25, everyone's journey is different and my friends and I are all kinda weird. And I know you can't time the market. But I'm super curious how folks would feel if they were trying to buy a house for the first time this year, with no equity or anything to buffer the hot market. I only know people who bought a few years back, young like I am, and have had it pay off extremely well for them, so it seems like an unfairly lucky sample of friends to be looking up to.

Oh yeah, @maisymouser I definitely won't actually call up an agent to make an offer. (Probably.) I'm just trying to put that feeling of almost-desperation into words. It sounds like even with all the emotional reasons you've explained for wanting to own, you would still opt to rent right now if you didn't already own, seeing what the market looks like today.

@ChpBstrd The last year has definitely shifted my perspective on location and I'm really hoping that I get lucky and just get to keep my HCOL city salary at my now-remote job, but the cities I've had my eye on would allow me to stay in my industry regardless. I'm not on the grind-to-get-a-raise train, I'm happy with what I earn right now and what my timeline to FIRE looks like currently. I want that other thing you mentioned - "building a social life." Clubs (and piano bars??) aren't my beat (although the piano bars sound intriguing???), so it's not really the 5X expensive cities that I'm concerned with, it's the 2X expensive cities that may be growing to 3X or 4X as more people in my generation come of age and look to buy (I think of what's happening in Denver and Asheville and Richmond). I wonder if people who bought in those cities 3-5 years ago would do so all over again if they had to enter at today's prices.

[Morning Glory]

Funny story. I was visiting my mom last year and noticed that my first house was for sale for 40K.  I paid 45K for it in 2002 and sold it for 62K in 2007.  I am guessing the condition leaves something to be desired, plus I don't have any desire to live in that area again, so I would not buy it.

Your location matters more than your age. In some areas it is so much cheaper to buy than to rent. I was 20 when I bought that house and my mortgage payment was less than $300/month.  My classmates were paying more for half a dorm room. In other areas, renting wins out.

[mozar]

I think so. All you can do is buy when you're ready. The price is whatever it is whenever you want to buy. If you have an HCOL salary in a LCOL area you are already a "winner" at life so it doesn't really matter when you buy.

Your question is hard because I can't "un-know" what i know now. I would definitely be interested in buying where I live now if I had to buy right now because it's a co-op and those are my values. I think you should focus on your values and what you are looking for and narrow that down. For a few months there was literally nothing for sale in my neighborhood, so I would've had to wait until a few days ago to buy in here.

You say your friends have done "very well" with real estate. Unless they are selling they haven't realized any gains.
My mustachian advice is to buy a house below your means, when you are reasonably sure you don't want to move for a few years, and then you don't have to worry about what's going on in society.

[Laura33]

If I were buying my first house now, I would have in 2020, because that's when my dream house went on the market.  ;-)  It would have been a remarkably stupid financial decision, because it was a 9,000' shingle-style mansion on 2-3 acres that needed a new [slate] roof.  But oooohhhhh boy did I want it, and if I didn't already own a home, I'd have done it anyway.

If I were you, though, I would absolutely not buy a house now.  I did buy my first place at 25, because I am a nester and wanted to put down roots in my hometown.  You, OTOH, have lived in 7 places in 7 years, don't know which city you want to be in, and seem to be thinking of buying now because of FOMO.

Don't put the cart before the horse.  Figure out what city you want to live in -- and rent there for a while to find neighborhoods you like.  For you, I'd say rent for at least a couple of years to see if you even like being in one place for an extended period (and/or if your job even allows it).  Think about whether you want a partner and/or kids, because those kinds of major life changes have a tendency to change your priorities (or at a minimum give you someone else's needs to consider).

FWIW, as much of a nester as I am, my first purchase was a total mistake.  3 yrs later I took a different job and left myself with a 1.5-hr commute by car/train/subway instead of a 20-minute walk.  2 years after that I got married and moved to a townhouse to improve both my commute and his -- had to rent out the condo for a loss for years, because it was a crappy market to sell, and we ultimately sold it for a loss just to stop the bleeding.  2 years after that, we had to move out of state due to his job loss; 3 yrs later, rinse, repeat (and sell for another loss); then another 3 years later, I finally made it back where I started. 

What I can tell you:  buying a house made zero financial sense until this house.*  The moving and transaction costs from buying and selling just eat up any profit; we were really lucky to have some of those covered on several of the moves, but with that kind of churn you just can't ever get ahead.  In this house we've finally seen the financial benefit to staying put -- the mortgage has stayed the same, even though our income has shot up, and after more than 10 years it feels like we're just rolling in extra cash.  And we're only a few years out from paying the whole thing off, which is almost unfathomable to me.

Finally:  at 25, I too bemoaned how I'd ever be able to afford a home, because they were just so expensive and they seemed completely out of reach.  And my friends were buying in NY and SF, and I couldn't figure out how anyone could ever afford those prices.  This was in 1991, btw.  You may laugh now. 

tl;dr:  buy a house when you're ready -- job-wise, emotionally, financially -- to buy a house.  Not before.  No matter how pretty and cheap things look like online.  If owning a home is a priority for you, you will find a way to make it happen when you are ready to.


*In reality, this house made zero financial sense, because it is 130 years old and we've put more into renovating it than we'll ever get back out.  But since I am finally at a place where I can afford to never sell even if we lose our jobs, I really don't care, because I plan to leave here feet-first. 

[maisymouser]

And I know you can't time the market. But I'm super curious how folks would feel if they were trying to buy a house for the first time this year, with no equity or anything to buffer the hot market. I only know people who bought a few years back, young like I am, and have had it pay off extremely well for them, so it seems like an unfairly lucky sample of friends to be looking up to.

Oh yeah, @maisymouser I definitely won't actually call up an agent to make an offer. (Probably.) I'm just trying to put that feeling of almost-desperation into words. It sounds like even with all the emotional reasons you've explained for wanting to own, you would still opt to rent right now if you didn't already own, seeing what the market looks like today.

Ok ok, I can answer what you are really asking: I would feel like sh!t, for sure! Not a fun time to be looking to buy. But you know, if I were in those shoes, I would try and focus my emotional efforts elsewhere. Maybe enjoying the time I could renting and being (relatively) responsibility-free. Easier said than done.

Yeah, my salary:home value ratio is different now than it was in 2019 when I bought our house (salary has gone up a little, home value has gone up a moderate amount more). That change is probably significantly enough to push my decision in the rent direction if I had to do it over. Also I am in a different place with my life than I was in 2019- a testament to how much can change in just a few years when we are in our 20's. That said, it's working out just fine for now and I have no regrets!

Kudos for pointing out that you're not into the bar scene. As a fellow young(ish) person, I can attest to the fact that not all 25-year-olds enjoy being around others in bar/club-like social settings. I'm more of the "is there a trail nearby to walk with my friend" socialite.

[NotJen]

I'm your opposite - I've been a homeowner for 15 years, and spent the last few obsessed with being a renter again!

I just sold my first house - purchased in 2006 for $166k, sold last week for $255k.  I live in a LCOL area, and purchased a new build - I had the advantage of 15 years with no significant repairs or updates, and I think that worked out well.

At the time of purchase, I was 26 y.o., married, and our combined income was $120k.  We put 20% down, making the mortgage 1.1x our annual income (easily affordable even on one salary), and the rate was 6%!  If my life situation were the same as when I bought the house, yes, I would probably buy the house at the current price.  Obviously, I lived there for 15 years, which is enough time to ride out lots of changes in the housing market.  I had lived in this city for a few years already, knew the location was decent, and knew I wanted to stay long-term.  The price would be more of a stretch initially, but with lower interest rates and salary inflation, I'm assuming it would have still been well within our budget.

But my life situation now - single - I would not purchase at that price.  The house was too big, and I found it really annoying to be responsible for everything.  For me, living alone in a big house just doesn't make sense.  I moved to an apartment last week, and the second time I used the garbage disposal, it clogged - I called maintenance, and they dealt with it -- HEAVEN!  I know I'll probably get annoyed with aspects of apartment living (and it can also be quite expensive), but I'm happy to swing this direction for a while.

I would consider home ownership again in the future once I know where I want to stay for a while, but god-willing, will never have 2000 sf and 3 bathrooms again! 

[nessness]

I bought my first house in 2013 in Denver for $265k, at about your age. According to Zillow, it is now worth $570k. Would I buy it today for $570k? Well, not if I made the same salary as I made then, just adjusted for inflation - I wouldn't be able to afford it. But if I found something I could afford, and I wanted to be a homeowner, then I would probably buy today. I don't see the market continuing to go up at the same pace it has been, but I don't see it going down either (though I won't pretend to be an expert). 

[jmechanical]

I bought my first house (an end unit townhouse) in September 2020 (not that long ago). I would probably still buy it again today.

In your situation, I'd probably not buy, not because of the market conditions, but because of your life situation.

My motivation was, I've lived in this same apartment for five years, I like the city I am in, plenty of other companies in my area, I don't want to leave, I can buy a townhouse and the interest, taxes, HOA, insurance is less than my rent AND I get two extra bedrooms, a loft and garage.

I'm 32 years old, I'm about 10 years away from FI, or like 2-3 more jobs if I do 3-5 year stays. I know I don't want to leave this city or this house. I only put 5% down. Even if the market tanks I can afford the payments and if I get really desperate, I can get a roommate.

Based on your post and the replies (which I admittedly skimmed) my takeaway is your motivation is FOMO, which in my opinion, is not a good reason to buy.

[Villanelle]

If I felt highly confident that I would remain employed and in the same area for the long term (7-10 years, at least) and wouldn't do something like marry or have kids that would have a high likelihood of changing the situation, then yes, I would buy.  But I would have had at least 10% down, if not more.  Without that, I would have continued to rent and save, save, save. 

It seems like mostly you are trying to time the market.  You aren't looking to buy for any real reason other than "but what if it costs more later".  In that case, skip it, rent, and save the difference. 

[mozar]

Ok ok, I can answer what you are really asking: I would feel like sh!t, for sure! Not a fun time to be looking to buy.

When I bought 8 years ago it felt like sh!t. Everyone was telling me that real estate will never recover. I was crazy for buying, taking too big of a risk etc...then at the same time being out bid by cash offers for everything in my hcol area, but it wasn't in the news back then.

I lived in the downtown of a major city for 13 years and I would get so much crap for living in the city, I was so crazy with living with all the crime and sex workers. Then I moved to the suburbs and everyone said it was so crazy to not live in the "hip" city anymore, what was I going to dooooo???

I remember from MMM's blog an article about living an anti-cyclical life. Don't follow the crowd. Do what's best for you and you'll come out ahead.

[Rdy2Fire]

In my 20's I wanted nothing but to own a home by the time I bought mine I was 29 the market was not at the peak but it was high. If I could go back I would NOT and I plan to sell and never buy again.

[ChpBstrd]

+1 to the anti-cyclical lifestyle and avoiding, rather than following the crowd.

The difference between now and 20-30 years ago is that house prices have gone waaaaay beyond what the prevailing wages can support in so many more areas. Thus you have people putting 5% down in a desperate attempt not to miss out on the next round of price increases, instead of the traditional 20%, which is still a low down payment by international standards. The traditional advice is that one's home payment shouldn't exceed 28% of income. What made that advice obsolete?

Ask yourself:

If wages in [insert HCOL area here] continue growing at 2-3% per year, can housing prices double again in the next 10 years or 20? Can mortgage rates drop another 5% like they did in the past 20 years?
Can they go any lower at all?
If mortgage rates went back up to 5 or 6%, how far would a house's price have to fall for the payment to stay the same as when rates were 3%?

Finally, some notes on FOMO:

I regret not putting my life savings into Gamestop in December 2020. Does that mean I should do it now? What if housing is the same way?
I regret not putting my life savings into 3x leveraged ETFs like TQQQ this time last year. Should I do it now?

[secondcor521]

Posting to follow.

My son will be a FTHB soon, and I struggle with how to advise him.  Rents are high, home prices are higher and going up fast.  Is it a temporary COVID thing?  In his RE market, I think it may be.  But since his market is one of the up and coming cool places, I doubt prices will actually drop to any significant degree that makes it worth waiting to pounce.

On the other hand, I don't think he should be driven by FOMO.  I think my advice to him will be to pick a small place that meets his criteria, put 20% down with a boring fixed rate mortgage at 3% or whatever it might be later this year.  Basically, buy when one is ready, which includes having the down payment, closing costs, emergency fund all lined up, an understanding of home maintenance, and relative certainty of living in that area for at least three years and preferably five.  It's all old boring advice, but it works.

We stretched once to get into a house.  Financially it worked out well, because we leveraged to 90% and the market went up when we owned it.  And it was an absolutely lovely home.  But I was stressed paying two mortgages, and we had always had financial disagreements.  We sold that house during our divorce.  Others divorcing at the same time were hit by a market pullback and had to stay living together because they couldn't afford to bring a check to the closing table to get out of the marital home.

Is there any way you can figure out if any of the non-trendy / non-cool cities actually have what you want?  In other words, you could be a trend leader instead of a trend follower.  The former might be profitable and the latter is sometimes costly.

[haflander]

Great question. I'm much closer to your situation so I'm mostly PTF, but I'll add some thoughts. I'm 30 and looking to buy in a matter of months.

FWIW, I would echo the consensus. Don't buy, moreso for your personal reasons. Where do you want to settle for 5-10 years (and why), is marriage and/or kids a possibility, etc.

As for the price, all anyone mentions is how crazy the market is and how high prices are. I'm starting to feel like that's roughly 25% of the equation. I think there are 5 major factors; each can be thought of as a) the situation now, and b) forecasting the future, which is obviously impossible or difficult at best. Rating them here in order of importance...looking forward to others destroying this :)
I've added my thoughts for each. Change for your own situation and what your crystal ball tells you.

1. Life situation, as described above. Personally, I'm sharing a 1-bed apt with the fiancee and dog. Lease is up in late August. I'm working from home...forever, not just now. We need more space and are going insane. All of the family also lives in the area. We are getting married this year and want to have kid #1 in a few. We see this as being our long-term area to live. We are fine with working on repairs ourself, and will probably look for a fixer-upper.
2. Savings. We have 10% down payment easily. 15% if we go with the cheaper houses in our range. This is in addition to extra EF savings for catastrophe. In another year, we could get to 20%. But...not if prices are still rising. How much will interest rates rise in that time (no one can know)? Will a 20% down payment save us more than the rising interest rates AND (probable) rising home prices will cost us in the long run? I'd need a statistician or economist to help me out with the math on that one...way too advanced for me.
3. Buy/rent comparison. For a 3/2 mortgage in the suburbs for houses we like, we could rent a crappy 2-bed house in a bad area for the same price. Renting a 3/2 would be much more than a mortgage. Honestly, Idk how to forecast this one, maybe someone can help. It feels like this is totally dependent on COL and your specific geographic region.
4. House prices. Crazy market now, but how to forecast? The general consensus is that prices will keep rising. Also, there could be a recession at any time that may OR MAY NOT affect home prices.
5. Interest rates. This is less important than home prices, because you can always refi. Rates are pretty low historically, but slowly on the way up again. Also, there could be a recession at any time that would more than likely raise rates. 

Looking at these 4 for myself, it's led me to believe that buying this year is the right choice for us.

[anni]

Ok ok, I can answer what you are really asking: I would feel like sh!t, for sure! Not a fun time to be looking to buy.

When I bought 8 years ago it felt like sh!t. Everyone was telling me that real estate will never recover. I was crazy for buying, taking too big of a risk etc...then at the same time being out bid by cash offers for everything in my hcol area, but it wasn't in the news back then.

I lived in the downtown of a major city for 13 years and I would get so much crap for living in the city, I was so crazy with living with all the crime and sex workers. Then I moved to the suburbs and everyone said it was so crazy to not live in the "hip" city anymore, what was I going to dooooo???

I remember from MMM's blog an article about living an anti-cyclical life. Don't follow the crowd. Do what's best for you and you'll come out ahead.

Thank you! I was really interested in this perspective of a right-after-the-recession buyer. I wonder if anyone here bought in the year leading right up to the crash? I don't think I have too much FOMO, I don't hate renting. I just want to nest, as one commenter put it, and I pretty much know the tri-city area I want to do it. I'm equally as scared of a crash as I am of a continued exponential boom which is why I'm interested in other people's emotional perspectives rather than just their financial ones. I'll look for that MMM article and post it here if I find it.

You say your friends have done "very well" with real estate. Unless they are selling they haven't realized any gains.
My mustachian advice is to buy a house below your means, when you are reasonably sure you don't want to move for a few years, and then you don't have to worry about what's going on in society.

I suppose it could be temporary success, but by "they've done very well" I mean rents have well outpaced their mortgages and they've been able to house-hack for profit as their cities have taken off. I'm not super into house hacking or worried about paying higher rents over the years, I was just trying to explain that I think my friends see home ownership through relatively rose-colored lenses due to their good luck. They've had all the benefits you could imagine with few or no setbacks (so far) but we're all pretty young still and the housing market seems freaky right now. But maybe it always seems freaky because houses are huge, emotional assets? That's the lesson I think I'm learning from this thread so far!

[Dicey]

I didn't buy my first house until I was 30. Now I own 4. IIRC, I've bought and/or sold 9 houses so far.

We've been looking for our next flip project since August, 2019. The market in our area is bat-shit crazy. We are still looking constantly, but the numbers just don't make sense. My advice to all, unless they've been through a down cycle successfully, is to wait. When inventories and/or interest rise, the laws of supply and demand will do what they always do. Keep saving, keep your powder dry and, as they sing in Hamilton, "Wait For It".

During the Great Recession when home prices tanked and people were underwater on their homes, I kept hearing, "Why were they so stupid to buy at the top of the market?" Well, you don't know where the top is until it isn't the top any more.

My brother's home shopping in a crazily inflating market. He's been through it before, even getting a HARP loan at one point. He knows what can happen and has both time and money to ride out another downturn without having a meltdown or losing the property. Most first time home buyers don't have that resilience born of fire.

[Laura33]

I wonder if anyone here bought in the year leading right up to the crash?

We bought our current place in 2004.  Even in our un-hip neck of the woods, people were offering over asking price and waiving every possible contingency.  The market crashed right as we were doing a six-figure remodel -- the bank even cut our HELOC mid-remodel.  I wasn't particularly happy, but since I wasn't planning on going anywhere, it was merely an academic exercise.  Now the house is probably worth 30% more than we paid.

I've also bought during a boom and then had to sell during a bust because the job went away (funny, all the jobs disappearing somehow leads to a bunch of people selling and not very many people buying).  That was far and away the most stressful time of my life -- baby on the way, main breadwinner just got laid off, having to move states, carrying two mortgages for over a year because we stupidly bought before selling.  We watched $75K in value evaporate as we chased the market down.  Now that house is worth almost twice what we bought it for. 

Thus my advice.  Like they say about investing, it's about time in the market, not timing the market. 

[anni]

I didn't buy my first house until I was 30. Now I own 4. IIRC, I've bought and/or sold 9 houses so far.

We've been looking for our next flip project since August, 2019. The market in our area is bat-shit crazy. We are still looking constantly, but the numbers just don't make sense. My advice to all, unless they've been through a down cycle successfully, is to wait. When inventories and/or interest rise, the laws of supply and demand will do what they always do. Keep saving, keep your powder dry and, as they sing in Hamilton, "Wait For It".

During the Great Recession when home prices tanked and people were underwater on their homes, I kept hearing, "Why were they so stupid to buy at the top of the market?" Well, you don't know where the top is until it isn't the top any more.

My brother's home shopping in a crazily inflating market. He's been through it before, even getting a HARP loan at one point. He knows what can happen and has both time and money to ride out another downturn without having a meltdown or losing the property. Most first time home buyers don't have that resilience born of fire.

Woah, I just had to look up what a HARP loan was. Freaky. "Wait for it" still sounds like trying to time the market though, no? Or maybe just build up really cushy reserves to lessen the blow of any potential crash? I like to think that witnessing firsthand the housing crash and the mass layoffs of 2008-2009 has made me resilient, but maybe it's actually just made me so anxious that I turn to internet strangers for major life advice 😬 For the first few years of my career, I was sure I'd be laid off any minute - that's probably the main reason I stayed so mustachian! Not smarts, but fear! LOL. Maybe with time (and a second economic recovery), big financial decisions will come with a more optimistic lens for my generation.

[anni]

I wonder if anyone here bought in the year leading right up to the crash?

We bought our current place in 2004.  Even in our un-hip neck of the woods, people were offering over asking price and waiving every possible contingency.  The market crashed right as we were doing a six-figure remodel -- the bank even cut our HELOC mid-remodel.  I wasn't particularly happy, but since I wasn't planning on going anywhere, it was merely an academic exercise.  Now the house is probably worth 30% more than we paid.

I've also bought during a boom and then had to sell during a bust because the job went away (funny, all the jobs disappearing somehow leads to a bunch of people selling and not very many people buying).  That was far and away the most stressful time of my life -- baby on the way, main breadwinner just got laid off, having to move states, carrying two mortgages for over a year because we stupidly bought before selling.  We watched $75K in value evaporate as we chased the market down.  Now that house is worth almost twice what we bought it for. 

Thus my advice.  Like they say about investing, it's about time in the market, not timing the market.

That sucks. I'm sorry that happened to you.

[ChpBstrd]

Posting to follow.

My son will be a FTHB soon, and I struggle with how to advise him.  Rents are high, home prices are higher and going up fast.  Is it a temporary COVID thing?  In his RE market, I think it may be.  But since his market is one of the up and coming cool places, I doubt prices will actually drop to any significant degree that makes it worth waiting to pounce.

According to the futures market for lumber, the current price spike is expected to pass by January 2022. This is no mirror ball into the future, but it reflects the consensus of all the smartest players in the industry who are adding up the planned output from lumber mills and matching it to orders.

https://www.cmegroup.com/trading/agricultural/lumber-and-pulp/random-length-lumber.html

Meanwhile, the half-percent increase in mortgage interest rates could be a blip, but it could also be the bottom. If we return to 2019 rates in the 4.5% range, there won't be as many people able to stretch to buy a house when the payment has gone up 17%.

https://fred.stlouisfed.org/series/MORTGAGE30US

So there's two data-backed reasons to expect home prices to cool off.

[secondcor521]

I'm equally as scared of a crash as I am of a continued exponential boom which is why I'm interested in other people's emotional perspectives rather than just their financial ones.

[...]

But maybe it always seems freaky because houses are huge, emotional assets? That's the lesson I think I'm learning from this thread so far!

I think you're learning the wrong lesson, and I think you're trying to justify doing so.

You write like you want to make a financial and lifestyle decision based on emotions instead of facts and finances.  See the above quotes plus what you have written throughout this thread.

Don't.  Don't do it.  Don't.  Stop.

Make financial and lifestyle decisions based on financial and lifestyle considerations.  Not emotions.  Especially not fear.

[mozar]

I wonder if anyone here bought in the year leading right up to the crash?

In my neighborhood, yes.

House A: The house I bought. The previous owners bought for 190k in 2006. They decided to move in 2013 because they wanted to put a cement dog kennel in the yard and the co-op decided against them. They sold to me for 118k. They were 30k underwater which their parents paid for. To me that's an odd reason to sell a house but it's none of my business.

House B: Two doors down bought for 160k in 2006 and my neighbor sold it for 160k in 2019. He got married in 2018 and his much wealthier wife wanted a bigger place.

My neighborhood was very trendy in 2006 so a lot of people lost their shirts. They were following trends though. If you do whatever everyone else is doing and have no savings you could lose money. But they all survived. They're fine. Sometimes we make mistakes. I bet your friends have made mistakes in some areas in their lives. People just don't tend to talk about it. You're going to be fine.

When I was looking I focused on a few neighborhoods in one particular county that was commuting distance to the biggest nearby city. My criteria was walking distance to a grocery store, walking distance to a park, established neighborhood with mature trees. I recommend getting specific.

[ChpBstrd]

Really any lifestyle that is culturally popular for long enough eventually becomes too burdensome to continue.

Boomers loved cars and single-family suburban ranch houses. Now, a barebones car from an iffy brand starts at half a year's salary for a young person, and suburban houses in many areas are nearly half a million. Insurance and taxes wipe out whatever's left. The Boomer experience of buying a new car and a house within a couple years of graduating high school and getting one's first union job is now financially impossible for most.

As a result, Millennials learned to love their cell phones and social media - vices which could be had more cheaply than cars and houses. Boomers were astonished to see 16 year olds who are indifferent about getting drivers licenses, and in no hurry to move out, but given the run-up costs of those things who can blame them? They were watching their friends who tried to live the Boomer lifestyle going broke and missing out on opportunities. Ironically, it was the massive demand from the boomers who made those things so oversized, expensive, and difficult to live with.

Go back another generation. The self-appointed "greatest" generation were shocked when the Boomers didn't flock to recruiting centers to go serve their country in Vietnam. They were even more shocked by the long hair, weird clothes, and drug use. But the Boomers were watching their friends who shared the greatest generation's patriotism getting slaughtered in an unwindable war, and had an interest in disqualifying themselves for service. Who could blame them for choosing a more rewarding alternative lifestyle?

The cycle goes back to when the "greatest generation" children first informed their parents they had no plans to continue running the family farm like everyone else was doing, because the opportunities were better in the city.

Maybe real estate enthusiasm has reached its peak as well, and the children being born today to parents saddled with housing debt in the mid-six-figures and on the way to divorce / breakup / substance abuse / suicide will desire to live in hotel rooms converted to Asian-style mini-apartments. Yet they will have some vice of their own - $20,000 cell phones or clothes made of fabrics with videos playing on them perhaps?   

[roomtempmayo]

I know that pretty soon, I want to "stay still" and start putting down some kind of roots and create an actual home for myself.

Don't.  At 25, your greatest advantage in the job market is flexibility and the ability to move to new opportunities.  Wait until you're at least 30 to do anything other than be on the hunt for the next opportunity anywhere in the country or world.

Between the ages of 22 and 35, I had 11 addresses.  That movement was the best career decision I made, by a mile.

[Kris]

It really depends. Would I buy now, today, if my goal was to stay in the house for five years, sell at a profit, and upgrade? No.

But would I buy now if my goal was to stay in the house for at least twenty years instead of paying rent to someone else, as it was when I bought my current place at the top the market in 2006, right before the crash of 2008?

Probably.

I haven’t built a ton of equity in my place. But I have had a good place to live, and I have paid off my mortgage. It is worth it for me. Do I wish I had bought at a low point and seen the value of my house skyrocket? Sure. But that’s not what happened.

You’ll have to evaluate what your goals are.

[Dicey]

I didn't buy my first house until I was 30. Now I own 4. IIRC, I've bought and/or sold 9 houses so far.

We've been looking for our next flip project since August, 2019. The market in our area is bat-shit crazy. We are still looking constantly, but the numbers just don't make sense. My advice to all, unless they've been through a down cycle successfully, is to wait. When inventories and/or interest rise, the laws of supply and demand will do what they always do. Keep saving, keep your powder dry and, as they sing in Hamilton, "Wait For It".

During the Great Recession when home prices tanked and people were underwater on their homes, I kept hearing, "Why were they so stupid to buy at the top of the market?" Well, you don't know where the top is until it isn't the top any more.

My brother's home shopping in a crazily inflating market. He's been through it before, even getting a HARP loan at one point. He knows what can happen and has both time and money to ride out another downturn without having a meltdown or losing the property. Most first time home buyers don't have that resilience born of fire.

Woah, I just had to look up what a HARP loan was. Freaky. "Wait for it" still sounds like trying to time the market though, no? Or maybe just build up really cushy reserves to lessen the blow of any potential crash? I like to think that witnessing firsthand the housing crash and the mass layoffs of 2008-2009 has made me resilient, but maybe it's actually just made me so anxious that I turn to internet strangers for major life advice 😬 For the first few years of my career, I was sure I'd be laid off any minute - that's probably the main reason I stayed so mustachian! Not smarts, but fear! LOL. Maybe with time (and a second economic recovery), big financial decisions will come with a more optimistic lens for my generation.

"Wait For It" means wait until the time is right; don't jump the gun, don't get ahead of yourself. Not at all the same as timing the market, which typically refers to the stock market.

[Metalcat]

Ugh, barf, owning sucks.

Okay, so you have this urge to "nest", but what does that really mean? What does "owning a home" mean to you in tangible, real, life impacting ways???

You say you want to nest, but you seem to have no idea where exactly you want to live, what your life will look like when you live there, or any of the other factors that influence buying a house.

I despise owning, there's virtually no benefit for me because there are few benefits to owning, and none of them apply to me. I don't garden, I hate renovations, and I like to be able to move if/when opportunities arise.

So why do I own?
Well, I own because although I like to be able to move, my DH is tethered to his career for the next 10+ years, and it is geographically here, so that settles my location for a long time. I also LOVE this particular neighbourhood, I've loved it for years, I know exactly which pockets are nicer to live in than others, I know which grocery stores I want to live close to, I know precisely where I'm willing to lock into location wise. Lastly, renting here is crazy expensive and owning the type of place I want (a high-rise apartment with a gorgeous view and an indoor pool), is dirt cheap.

So I decided to own because it works for all of the factors that I ALREADY know about my very settled life. Our apartment suits our established career needs, our established location preference, and our established lifestyle.

If you don't have any of your major life factors settled, then how can you possibly make an informed decision about what kind of home will facilitate you living your best life??? And why would you commit to a particular dwelling for YEARS by buying without being informed about what you actually need???

It makes NO SENSE.

So you feel the need to "nest". Is it possible that what you really feel is the need for a more settled and established life, and the vision of owning a lovely home is acting as the psychological stand in for that craved stability? That makes sense to me, but you can't buy that life, it doesn't work that way. That's like putting a deposit down on a wedding venue because your single and want to find someone to marry.

You ask what premium I would put on home ownership and I say $0. Actually, I put a negative value on it, because owning in and of itself SUCKS BALLS. The benefit of ownership comes when owning provides you advantages that suit your ideal lifestyle that you can't get from renting.

So, me being able to affordably live in my prefered location is a huge bonus for me, so I love owning this particular property. For my brother, his wife is a herbalist, and having an extensive garden is critical to her happiness, so for them, they just weren't happy until they were able to settle down and own their own plot of land for her plants (the house barely matters). For my architectural friends, being able to build their own custom home was their dream.

So what would owning provide you? And how can you possibly know what you need from a house until you know what your life will look like???

At this point, it sounds to me like owning would really detract from your ability to build your best life. If you were my siblings, I would literally yell at you not to, the same way I did with my little brother when he was 25 and convinced that owning a home was his dream, before he had even figured out what he wanted his life to even look like.

A house serves its purpose best when it compelments your life.

[anni]

I'm equally as scared of a crash as I am of a continued exponential boom which is why I'm interested in other people's emotional perspectives rather than just their financial ones.

[...]

But maybe it always seems freaky because houses are huge, emotional assets? That's the lesson I think I'm learning from this thread so far!

I think you're learning the wrong lesson, and I think you're trying to justify doing so.

You write like you want to make a financial and lifestyle decision based on emotions instead of facts and finances.  See the above quotes plus what you have written throughout this thread.

Don't.  Don't do it.  Don't.  Stop.

Make financial and lifestyle decisions based on financial and lifestyle considerations.  Not emotions.  Especially not fear.

You might be right. I'm scared now that if I sound defensive it'll just make me look even sillier! But let me rephrase the lesson I'm getting less flippantly: "It doesn't matter if it turns out to be the top of the housing market or the bottom of a crash or anywhere in between, you should only buy a house if you know it is time for you and if the house is well within your means, and if you do that you will probably be fine no matter the market."

So far I think I have made really good Big Decisions in life based on facts, finances, and gut feelings, and also luck, but this is an arena where I just don't trust my gut feeling and don't believe in luck, so it's... freaky. I first read this article fix or six years ago and I think it has actually served me well as I've moved between rental units, not home purchases. But it is much much easier to remove emotions from the equation when you know that, ultimately, you are making a decision that's pretty easy to recover from because you can just move to a new rental. Here is a quote from the article:

Repeat after me: “I am not buying a flowery pillowcase of emotions or a future of warm memories. I am conducting a business transaction to purchase a piece of land and an assembled collection of construction materials.”

@secondcor521 have you had the chance to read this one, or share it with your son? Obviously I can't give y'all any good advice, except maybe that renting has always felt like an OK deal to me, and your logic is all good.

I know that pretty soon, I want to "stay still" and start putting down some kind of roots and create an actual home for myself.

Don't.  At 25, your greatest advantage in the job market is flexibility and the ability to move to new opportunities.  Wait until you're at least 30 to do anything other than be on the hunt for the next opportunity anywhere in the country or world.

Between the ages of 22 and 35, I had 11 addresses.  That movement was the best career decision I made, by a mile.

Just my personal preference, but I really don't like feeling like a transient, and that just becomes clearer to me every time I move. It helps that I do a lot of job hunting at home and abroad just to stay in practice in case of a layoff, but so far as I can tell I've won the career lottery, and I'm honestly content with it. I'm even interviewing right now for another job in another city, but it would probably take more than they're going to offer to get me to leave my current situation. Fingers crossed, I really hope nothing takes my current job away from me, but I can't fully control that whether I'm 25 or 45. I've only had six addresses since grad school.... but dang am I tired of moving already. Buying a house shouldn't be an emotional decision, but just deciding to stay put definitely is (for me); I guess the two are entangled in my brain.

[Fishindude]

Homeowners: If you had to buy your first house over again in 2021 at the price it's "worth" today, would you do it?

My first home 35 years ago cost $25,000 and I was making approx. $28,000
I'm not in a HCOL area and that same house may be worth $100k today and if I was doing the same job I was doing then I might be making $60-70k today.   If that house was the best deal I could find at the time and met my needs, YES I would buy it again.

I think your friends putting minimum down payments on crazy expensive homes, paying PMI and assuming the housing prices are going to continue to skyrocket is a fools errand.   I would not buy something I couldn't put at least 20% down on, and keep my loan to 20 years or less.   Being financially strapped to a home is ridiculous and no fun at all.   Buy something that is easily affordable, or don't buy, or move somewhere you can afford to buy.

There are always housing "deals" out there if you know what to look for.   In crazy markets such as mentioned, buying a beat up place in a decent location, and fixing it up pay as you go would probably be a wise investment.

[anni]

So you feel the need to "nest". Is it possible that what you really feel is the need for a more settled and established life, and the vision of owning a lovely home is acting as the psychological stand in for that craved stability? That makes sense to me, but you can't buy that life, it doesn't work that way. That's like putting a deposit down on a wedding venue because you're single and want to find someone to marry.

Woah, I love this haha. I think this is pretty spot on. Also, dang it! ^{I thought there was a chance money really could buy happiness!}

[FLBiker]

44, bought my (our) first house in 2010 (at age 33, if my math is right).  Just sold it last year and bought a house sight unseen in Nova Scotia (from Tampa).  Moved last July.

I don't really like homeownership in terms of the maintenance responsibilities and (if I'm honest) low-level anxiety re: things going wrong.  At the same time, I really like our new house.  It cost a little less than what we sold our old one for, which was nice, but it's ~30 years newer.  And we back up to a ravine, which is really nice, plus we can walk to town.  And, on our small street (~30 houses) 2 of our friends who are renters are having their homes sold out from under them, so that really makes me appreciate home ownership a bit differently.

Personally, if I were single, or married w/o planning to have kids right away, I wouldn't own a home.  There's just no reason to.  With a kid (we have a 6 year old) it's really nice to have the space and the backyard.  Plus, working from home (which we both do) would be really hard in an apartment with a kid.  We also have set up our basement with a spin bike and TRX which, again, would be tricky in an apartment.  I also like to sing, which is more permitted in a home than an apartment.  Finally, I really like growing food, and a yard makes that possible.

At the same time, if we were childless, I think we'd travel a lot more, so owning a home would become more of a burden.  I do think it's possible to get priced out of certain markets, but I wouldn't worry about getting priced out of home ownership.  Where we are (small town Nova Scotia) folks are selling their houses capitalizing on new money coming in from Ontario.  But it's still VERY affordable -- we bought a very nice 1700 sqft home with a beautiful shed, attached garage (with loft) and insulated but unfinished basement for ~$200K USD last year.  It may have gone up a little since then, but it's nothing like the cities.  And, personally, I suspect some of these cities might come down a bit as things shift to WFH more permanently.  I've been wrong about lots of market predictions in the past, though, so who knows?

I don't consider our home an investment, or as part of our net worth.

There are a million different paths to a contented, satisfying life.  Some involve home ownership, some don't.  I'd let my life circumstances steer me rather than placing importance on the bare fact of home ownership.

[Metalcat]

So you feel the need to "nest". Is it possible that what you really feel is the need for a more settled and established life, and the vision of owning a lovely home is acting as the psychological stand in for that craved stability? That makes sense to me, but you can't buy that life, it doesn't work that way. That's like putting a deposit down on a wedding venue because you're single and want to find someone to marry.

Woah, I love this haha. I think this is pretty spot on. Also, dang it! ^{I thought there was a chance money really could buy happiness!}

It's pretty simple, what most people think they want is almost a always a stand in for some underlying unmet need.

One of the most powerful things I ever learned is that only unmet needs are motivating. So whenever you feel motivated to do something, take some time to really dig into what actual need isn't being met, because the default solution your brain is floating to solve it often isn't the best way to meet that need.

Those are solutions that society has conditioned you to seek out to meet your needs, not solutions you have independently customized for yourself.

That's perfectly evidenced by your case. The unmet need is stability, but buying a house in a city you don't know is about the worst way to try and accomplish that. It's just a societal image that society has that settled people own lovely homes. Meanwhile, the owning of a home is a symptom of being settled, not a cause.

It will be the right time for you to buy when your life settles, not the other way around.

[secondcor521]

I'm equally as scared of a crash as I am of a continued exponential boom which is why I'm interested in other people's emotional perspectives rather than just their financial ones.

[...]

But maybe it always seems freaky because houses are huge, emotional assets? That's the lesson I think I'm learning from this thread so far!

I think you're learning the wrong lesson, and I think you're trying to justify doing so.

You write like you want to make a financial and lifestyle decision based on emotions instead of facts and finances.  See the above quotes plus what you have written throughout this thread.

Don't.  Don't do it.  Don't.  Stop.

Make financial and lifestyle decisions based on financial and lifestyle considerations.  Not emotions.  Especially not fear.

You might be right. I'm scared now that if I sound defensive it'll just make me look even sillier! But let me rephrase the lesson I'm getting less flippantly: "It doesn't matter if it turns out to be the top of the housing market or the bottom of a crash or anywhere in between, you should only buy a house if you know it is time for you and if the house is well within your means, and if you do that you will probably be fine no matter the market."

So far I think I have made really good Big Decisions in life based on facts, finances, and gut feelings, and also luck, but this is an arena where I just don't trust my gut feeling and don't believe in luck, so it's... freaky. I first read this article fix or six years ago and I think it has actually served me well as I've moved between rental units, not home purchases. But it is much much easier to remove emotions from the equation when you know that, ultimately, you are making a decision that's pretty easy to recover from because you can just move to a new rental. Here is a quote from the article:

Repeat after me: “I am not buying a flowery pillowcase of emotions or a future of warm memories. I am conducting a business transaction to purchase a piece of land and an assembled collection of construction materials.”

@secondcor521 have you had the chance to read this one, or share it with your son? Obviously I can't give y'all any good advice, except maybe that renting has always felt like an OK deal to me, and your logic is all good.

I know that pretty soon, I want to "stay still" and start putting down some kind of roots and create an actual home for myself.

Don't.  At 25, your greatest advantage in the job market is flexibility and the ability to move to new opportunities.  Wait until you're at least 30 to do anything other than be on the hunt for the next opportunity anywhere in the country or world.

Between the ages of 22 and 35, I had 11 addresses.  That movement was the best career decision I made, by a mile.

Just my personal preference, but I really don't like feeling like a transient, and that just becomes clearer to me every time I move. It helps that I do a lot of job hunting at home and abroad just to stay in practice in case of a layoff, but so far as I can tell I've won the career lottery, and I'm honestly content with it. I'm even interviewing right now for another job in another city, but it would probably take more than they're going to offer to get me to leave my current situation. Fingers crossed, I really hope nothing takes my current job away from me, but I can't fully control that whether I'm 25 or 45. I've only had six addresses since grad school.... but dang am I tired of moving already. Buying a house shouldn't be an emotional decision, but just deciding to stay put definitely is (for me); I guess the two are entangled in my brain.

The way you use "emotional" in the last line of your post is something that I would tend to describe as falling under "lifestyle" - you want to stay put and not have to move.  So we're probably not as far apart in our opinions as I thought we might be.  Although @Malcat's post immediately above is absolute gold (as they often are).

I have read all of MMM's blog posts and reread the one you linked to.  I pretty much agree with everything he said there, and will include it in the packet of advice I give to my son.

The way you've rephrased the lesson at the top of your post is I think pretty much correct.  I guess I would add the modifier that MMM mentions in his blog post that regardless of the top or bottom of the market, it's good to know the market because you can sway the odds in your favor by being a smart buyer all the time.

Without boring everyone with all of my son's details, since this is your thread not his - housing is $250 to $300 a square foot to buy in his target area, and about $2 per square foot per month to rent.  By mutual agreement, he's living at home and saving about 99% of his good income either in his 401(k), ESOP, Roth, and/or house down payment account.  At some point (probably when he has 20% plus six months' emergency fund and otherwise is ready) he'll hit the crossover point and buy.  That point is probably sometime this fall.  If either of us can't deal with it that long, then he'll get an apartment and rent.  But living at home vs. paying rent accelerates hitting that buy point by somewhere between three and five years, so well worth it in our case.

[Paper Chaser]

We bought in a rural area about 30 minutes outside of a LCOL Midwestern city in 2016. It was close to "home" and we had stable career prospects even if we switched jobs somewhat frequently. In other words, we felt good about building a future in this location. The house itself gave us "room to grow" as we were planning a family and also provided the ability to "age in place" if we need to care for aging parents in the medium term, or if we choose to stay in this house forever. So it was purchased with an eye toward our short term, medium term, and long term future.

It wasn't a financial stretch at the time, but we did end up spending more than I really wanted to. It felt like a lot back then. Now it's seeming like a bargain. According to most real estate sites, our home is now worth 50-65% more than it was when we purchased it 6 years ago (and they short us 1.5acres of land so it might theoretically sell for more). I don't think there's any way that I'd buy the same place for what it's current estimated value is. Even with higher incomes and lower interest rates now, we'd have to devote a larger percentage of our income to the house than we want and there's some emotional sticker shock with the current value estimates. There are a handful of people in our neighborhood with 20-30year old kids living with them still to save for home purchases. Some of the kids sold their starter homes and can't find what they want while others are still trying to leave the nest for the first time. Without a situation like that artificially keeping living expenses low, I'm not sure how a normal person can keep their downpayment savings outpacing home values. And again this is a pretty rural LCOL.

[anni]

[...] Without a situation like that artificially keeping living expenses low, I'm not sure how a normal person can keep their downpayment savings outpacing home values. And again this is a pretty rural LCOL.

Valid point, I really don't know the stats for my generation's home ownership outlook but I do know that I have it better than most and as you can tell from my posts it still feels kinda grim. I have heard some extreme doom and gloom soundbites, but I think the market has to get better eventually, or average incomes have to start catching up.... maybe? @ChpBstrd is genuinely onto something with the Japanese pod life thing, this is already the reality for many in the LA area lol. It's not inherently a bad model but it's also, regrettably (?), not really scaleable yet.

My limited personal experience: My homeowner friends make good livings, but still they just put down 3-5% and banked on refinancing the PMI away, for the reason you say. They would have had to move to the outskirts of their cities (or perhaps buy condos instead of houses) if they'd spent 3+ more years saving up a bigger down payment. Again, that's not inherently a bad thing, but it really wasn't what they wanted.

Financially, I think my anxiety is pretty straightforward and reasonable. I want to try to meet the 20% DP (+ EF + closing costs + moving costs etc) conventional wisdom to mitigate the risk of getting underwater, but in my research, that's already coming out to $65K+ in cash savings for a modest house that costs a third less than the national median price & needs few immediate renovations. So here's hoping that things do indeed cool off, or that high yield savings become a thing again very soon (LOL). Because if I do just wait, let's say two years, at a continued 10% increase in home costs per year, that $65K I currently plan to need suddenly turns into $80K+ for the same house, which is another $700 in extra savings per month that needs to materialize somehow starting *right now*. Or I could plan to spend all my time hunting down a deal. Or, I could just buy whenever I wanted to with a low down payment. That feels like a more nebulous risk vs. reward question that I will have to keep asking myself, because I'm maxxing out my savings rate and my income both pretty hard already.

Comparison is the thief of joy, so I try not to think much about it, but the only younger people I personally know who were able to buy homes in their 20s with more normal 20%+ DPs could only do so through some combination of no student debt, large assistance from parents/grandparents, living at home, or having their parents pay their rent as an adult (yikes).

[secondcor521]

You've mentioned a couple of times about your friends with 3% to 5% down payments and how it has worked out for them.  The implication is it might work out for you.  I can understand and sympathize, and have the same temptations on behalf of my son.

You should at least take a look at the math of what would happen to you if you put down such a small amount and then the market drops 10% and you want to move for whatever reason (spouse or career change are the most likely).  How large of a check would you have to bring to closing to sell?

Let's say $300K house.  So that's a $15K down payment at 5%.  House price drops to $270K.  You want to sell.  Your $15K down payment is gone.  Plus you're $15K underwater on the mortgage.  Plus 6% realtor so another $18K.  Plus some closing costs.

So you either (a) find a way (either with your new spouse or from your new job) to write a ~$35K check, (b) become a reluctant landlord (perhaps from a distance), or (c) declare bankruptcy.

I'm glad you are thinking about sticking with the 20% down payment idea for the most part.

[anni]

You've mentioned a couple of times about your friends with 3% to 5% down payments and how it has worked out for them.  The implication is it might work out for you.  I can understand and sympathize, and have the same temptations on behalf of my son.

You should at least take a look at the math of what would happen to you if you put down such a small amount and then the market drops 10% and you want to move for whatever reason (spouse or career change are the most likely).  How large of a check would you have to bring to closing to sell?

Let's say $300K house.  So that's a $15K down payment at 5%.  House price drops to $270K.  You want to sell.  Your $15K down payment is gone.  Plus you're $15K underwater on the mortgage.  Plus 6% realtor so another $18K.  Plus some closing costs.

So you either (a) find a way (either with your new spouse or from your new job) to write a ~$35K check, (b) become a reluctant landlord (perhaps from a distance), or (c) declare bankruptcy.

I'm glad you are thinking about sticking with the 20% down payment idea for the most part.

Yeah that sounds pretty bad! I hope waiting works out for me and your son both. I wish I had something more constructive to say, but I don't know which end of the spectrum is more probable, and both sound pretty bad. Everything is probably going to be okay. Your son is lucky to have you in his corner!

[mozar]

I wouldn't count on high yield savings coming back or super trendy cities like DC, LA, Seattle, SF, Denver cooling down.

Living in certain areas is expensive and has been for a long time. I remember a friend who bought a house in the bay area in 2000 and everyone thought she was crazy because it was so expensive. If you want to buy in a trendy area, you have to pay for it, and I don't see that changing. It's either worth it to you or it isn't. There isn't a magic way to get around that unfortunately. It's not fair, and the problem is systematic (not enough construction, sfh zoning laws) but it is what it is.

If you only put down 3% on a house because that's the only money you have, yes, that's risky. But if you put down 3% AND you have enough cash to cover if you need to sell in a price drop, that's less risky.
If the down payment goes up to 80k from 65k over two years that shouldn't be that big a deal for someone like you who has savings, stable career etc. It is a big deal for the average US citizen for whom coming up with an extra 15k over two years is probably not going to happen.

So you either (a) find a way (either with your new spouse or from your new job) to write a ~$35K check, (b) become a reluctant landlord (perhaps from a distance), or (c) declare bankruptcy.

For the average MMMer It's not that big a deal to lose 35k if you bought at the top and had to sell had the bottom.  This is why we have savings. I'm not saying you should lose money but it happens, even to people in this forum. That's why it's called a risk. You can choose to be risk averse and never buy. But buying a house will always come with downside risk.

Anyways, you should do a case study and people will tell you how they feel about you buying a house.

[Metalcat]

The thing is, the main reason for you to wait isn't the stupid market, it's the fact that your life phase doesn't make sense to buy.

Even if the market was nice and cool right now, I would still be advising you NOT TO BUY at this time. You have absolutely no rational reason to buy, it just sounds to you like an option that might feel good.

Well, I can firmly tell you that being tied to a property that isn't right for your does not feel good. Unless you buy the right property for your needs, it won't feel like home.

I didn't buy my last place, I moved into DH's place that he had just refinanced and somehow ended up underwater on his mortgage, because it was *not* worth that much when I moved in a year later. The place was fine, it was in our preferred neighbourhood, although not my preferred area of the neighborhood, and it was more space than we needed, and more than nice enough to suit our needs, but it wasn't what I've always wanted, and I was constantly dreaming of selling it and moving.

It never had that settled, homey feel because it wasn't really ideal for our needs. The market jumped, and we relocated to an ideal place just 5 minutes down the road. The place we're in now felt like home the very first night we moved in, because it's exactly what we want and exactly *where* we want. But we needed to live in this area for awhile, with established careers to know what location made the most sense for getting to work and getting the most out of living in this city.

I moved to Montreal years ago, and I remember looking on a map at where the hospital was that I would be commuting to and picked an apartment just, like 4 miles away, thinking it was a short distance, it would be no big deal. Well, *sigh*, it was a big deal. I trapped myself into a 45 minute drive each way because of the specific location and traffic flow. The next year I moved out of the way of traffic, so it was an easy commute. Also, I picked the first neighbourhood because it seemed nice and urban, but it was more of a touristy area, the second neighbourhood seemed dark and industrial, but turned out to be vibrant and artsy.

The first place was in a very wealthy neighbourhood, but it was right by a subway station, so that particular one block stretch was very loud at night, and a lot of drunk people pissed in the street. One street over would have been much quieter, but I didn't know that. I saw the place in summer and moved in that fall. What I missed was that every spring the buildings in that area were famous for bugs in spring, especially house centipedes, which I despise. Apparently everyone in the city knows that the beautiful old buildings with character down by the water get taken over by centipedes in spring...but I didn't know that.

Basically, had I bought my stunning, spacious, historical place, *which I fell in love with when I first saw it*, with tons of character in the beautiful urban core of my cool new city, I would have been miserable and trapped due to sunken cost and the enormous cost of selling. Just one year of renting gave me enough experience and insight into my new city to know where I wanted to live, which was an area I NEVER would have picked as a newcomer.

I honestly thought that first place was PERFECT. You can't know what you need until you know what your needs are.

[FINate]

Woah, I just had to look up what a HARP loan was. Freaky. "Wait for it" still sounds like trying to time the market though, no? Or maybe just build up really cushy reserves to lessen the blow of any potential crash? I like to think that witnessing firsthand the housing crash and the mass layoffs of 2008-2009 has made me resilient, but maybe it's actually just made me so anxious that I turn to internet strangers for major life advice 😬 For the first few years of my career, I was sure I'd be laid off any minute - that's probably the main reason I stayed so mustachian! Not smarts, but fear! LOL. Maybe with time (and a second economic recovery), big financial decisions will come with a more optimistic lens for my generation.

I want to address the "time the market" comments as I see this bandied about in the forums. It's absolutely true that you cannot time the overall stock market. But we're discussing an individual house here, not the market. Entirely different beasts. Buying a house is more analogous (though still very different) to buying an individual stock. You SHOULD evaluate the fundamentals of an individual stock or house. No one has a crystal ball to see what prices will do in the future, so only buy if you're reasonably sure you'll stay put for 10+ years. And don't buy a house if you determine it's overpriced and/or will be a financial hardship. Sometimes the best option is to do nothing.

And to answer your main question: No, I would not buy our current house for what it's worth now. And we bought just a year ago, that's how crazy the market is. Normally this would get me thinking about cashing out but we want to be here long-term, have to live somewhere, and there are no deals to be had anywhere within ~1 hr. I don't envy those looking for housing right now :(

[Paper Chaser]

[...] Without a situation like that artificially keeping living expenses low, I'm not sure how a normal person can keep their downpayment savings outpacing home values. And again this is a pretty rural LCOL.

My limited personal experience: My homeowner friends make good livings, but still they just put down 3-5% and banked on refinancing the PMI away, for the reason you say. They would have had to move to the outskirts of their cities (or perhaps buy condos instead of houses) if they'd spent 3+ more years saving up a bigger down payment. Again, that's not inherently a bad thing, but it really wasn't what they wanted.

As mozar said, it costs money to live in popular places. Having it all takes a lot of money. If they prioritize a given location over another and are willing to pay a premium that's their prerogative. For some it will work out. For others, it probably won't. If your situation or priorities are different, then absolutely do what fits for you.

Upon rereading, I came off a little more pessimistic than intended. I wouldn't have bought my house for what it's now worth, but I still would've bought a house. We probably would've stuck to a similar budget and it looks like that budget in the current market gets us a smaller, more basic house on a smaller lot. The house diagonal from us recently sold for 2% more than we paid for ours, and the one directly across the street just sold for 4% less than we paid. Both are 30-50% smaller, with fewer beds & baths and smaller lots with more neighbors. They definitely don't feel like the same value/$ as our place, but we would've been fine in either one of them.

I think my larger point is that we would've been fine because our lives were stable and we were planning a long term future in this area. If you find a place where you want to build a life and spend a couple of decades, then I think buying makes a lot more sense. But as Malcat brought up, if you don't have a reasonably clear idea of what the next couple of decades of your life might entail, and you're just looking to buy to fill an emotional need for stability, or because some of your peers might be buying, then I think you should lay low. Buying near the peak isn't the end of the world with a long enough horizon (assuming you're not over leveraged). But buying now and counting on appreciation over a short time frame to make the numbers work is much more of a gamble. You seem smart enough and pragmatic enough to avoid those pitfalls. Keep the faith. Your 20s are when you lay the foundation for your life. Focus on building a solid foundation for the life that you want.

[Metalcat]

[...] Without a situation like that artificially keeping living expenses low, I'm not sure how a normal person can keep their downpayment savings outpacing home values. And again this is a pretty rural LCOL.

My limited personal experience: My homeowner friends make good livings, but still they just put down 3-5% and banked on refinancing the PMI away, for the reason you say. They would have had to move to the outskirts of their cities (or perhaps buy condos instead of houses) if they'd spent 3+ more years saving up a bigger down payment. Again, that's not inherently a bad thing, but it really wasn't what they wanted.

As mozar said, it costs money to live in popular places. Having it all takes a lot of money. If they prioritize a given location over another and are willing to pay a premium that's their prerogative. For some it will work out. For others, it probably won't. If your situation or priorities are different, then absolutely do what fits for you.

Upon rereading, I came off a little more pessimistic than intended. I wouldn't have bought my house for what it's now worth, but I still would've bought a house. We probably would've stuck to a similar budget and it looks like that budget in the current market gets us a smaller, more basic house on a smaller lot. The house diagonal from us recently sold for 2% more than we paid for ours, and the one directly across the street just sold for 4% less than we paid. Both are 30-50% smaller, with fewer beds & baths and smaller lots with more neighbors. They definitely don't feel like the same value/$ as our place, but we would've been fine in either one of them.

I think my larger point is that we would've been fine because our lives were stable and we were planning a long term future in this area. If you find a place where you want to build a life and spend a couple of decades, then I think buying makes a lot more sense. But as Malcat brought up, if you don't have a reasonably clear idea of what the next couple of decades of your life might entail, and you're just looking to buy to fill an emotional need for stability, or because some of your peers might be buying, then I think you should lay low. Buying near the peak isn't the end of the world with a long enough horizon (assuming you're not over leveraged). But buying now and counting on appreciation over a short time frame to make the numbers work is much more of a gamble. You seem smart enough and pragmatic enough to avoid those pitfalls. Keep the faith. Your 20s are when you lay the foundation for your life. Focus on building a solid foundation for the life that you want.

I wouldn't even go so far as to say the next few decades, but at least the next 5-10 years.

It's not so much to me about the house value so much as how difficult it is to be nimble when figuring out what life you want to settle into. Getting to know a new city, getting to know a job routine, etc.

Once you buy, it can make it particularly difficult to take advantage of job opportunities that aren't conveniently located. To me, that's the biggest downside of buying before you're settled. Early in your career, you want as much flexibility as possible.

[Paper Chaser]

[...] Without a situation like that artificially keeping living expenses low, I'm not sure how a normal person can keep their downpayment savings outpacing home values. And again this is a pretty rural LCOL.

My limited personal experience: My homeowner friends make good livings, but still they just put down 3-5% and banked on refinancing the PMI away, for the reason you say. They would have had to move to the outskirts of their cities (or perhaps buy condos instead of houses) if they'd spent 3+ more years saving up a bigger down payment. Again, that's not inherently a bad thing, but it really wasn't what they wanted.

As mozar said, it costs money to live in popular places. Having it all takes a lot of money. If they prioritize a given location over another and are willing to pay a premium that's their prerogative. For some it will work out. For others, it probably won't. If your situation or priorities are different, then absolutely do what fits for you.

Upon rereading, I came off a little more pessimistic than intended. I wouldn't have bought my house for what it's now worth, but I still would've bought a house. We probably would've stuck to a similar budget and it looks like that budget in the current market gets us a smaller, more basic house on a smaller lot. The house diagonal from us recently sold for 2% more than we paid for ours, and the one directly across the street just sold for 4% less than we paid. Both are 30-50% smaller, with fewer beds & baths and smaller lots with more neighbors. They definitely don't feel like the same value/$ as our place, but we would've been fine in either one of them.

I think my larger point is that we would've been fine because our lives were stable and we were planning a long term future in this area. If you find a place where you want to build a life and spend a couple of decades, then I think buying makes a lot more sense. But as Malcat brought up, if you don't have a reasonably clear idea of what the next couple of decades of your life might entail, and you're just looking to buy to fill an emotional need for stability, or because some of your peers might be buying, then I think you should lay low. Buying near the peak isn't the end of the world with a long enough horizon (assuming you're not over leveraged). But buying now and counting on appreciation over a short time frame to make the numbers work is much more of a gamble. You seem smart enough and pragmatic enough to avoid those pitfalls. Keep the faith. Your 20s are when you lay the foundation for your life. Focus on building a solid foundation for the life that you want.

I wouldn't even go so far as to say the next few decades, but at least the next 5-10 years.

It's not so much to me about the house value so much as how difficult it is to be nimble when figuring out what life you want to settle into. Getting to know a new city, getting to know a job routine, etc.

Once you buy, it can make it particularly difficult to take advantage of job opportunities that aren't conveniently located. To me, that's the biggest downside of buying before you're settled. Early in your career, you want as much flexibility as possible.

Agreed on the value of flexibility, but perhaps for different reasons. OP has indicated a remote work position, so I'm not sure how relevant job location is in their field now or moving forward.  OP seems content with the current gig and doesn't seem particularly motivated to chase the highest salary all around the globe. I'd guess that for this case, life events may be more likely to change the fit of a house than a job location. With the right skills (which OP seems to have since she's doing well and fully remote) you can find a job anywhere. But what happens to the house if a significant other comes into the picture, or a family, or even something as simple as a dog? I'm sure that a lot of things could impact what seems like the perfect house when you're 25 to make it seem like a poor fit by age 35. That's the area where I think OP might want to try and envision their future and lay the foundation for that life rather than having to make a bunch of changes down the line that aren't ideal. With remote work, OP has more freedom to choose where and how they want to live than somebody that's tied to a given location due to a job. I'd suggest figuring that part out before buying anywhere.

[ender]

We bought our house in March of last year.

Two major assumptions from when we bought this house changed, so we definitely would not buy the same house again today.

However given the last year I am quite happy we did have this house as the extra space was nice when I was suddenly WFH for a year.

[ChpBstrd]

As mozar said, it costs money to live in popular places. Having it all takes a lot of money. If they prioritize a given location over another and are willing to pay a premium that's their prerogative. For some it will work out. For others, it probably won't. If your situation or priorities are different, then absolutely do what fits for you.

This is one example of the bigger lesson. If you want to have "the best" of anything, the tradeoff is to not have some amount of money, freedom, or peace of mind that you could have had by settling for "good enough" things. This is true for housing locations, the physical house, cars, electronics, clothes, furniture, leisure products/services, and the list goes on forever. Various people will have their priorities / vices where they buy the best of something, but each such decision is usually a financial setback.

Paying over $250k for a small family home, or even a condo, has been normalized in many areas. It is justified by "great schools" where the students are mostly from high earning families, lower crime rates, the "culture" of being among high earning people, and the belief that these are the only locations within commuting distance of good paying jobs because there are only high earning people in the HCOL area.

But the truth is, if you're paying that much, you are buying in a fancy neighborhood (fancy enough to justify the price in other people's opinions at least). There are alternative all over the country, where houses can be bought for less than their construction cost, or less than the cost of an empty lot alone. These alternatives are dismissed because they are not fancy, and it is exactly the same conversation one might have with the buyer of a brand new BMW: "but other options aren't as good as what I got, which is The Best!".

Another way of looking at it is the number of very nice places to live has expanded, and fancy neighborhoods have popped up everywhere, sometimes swallowing up once-affordable areas - entire metro areas and states even. Crime is down compared to previous decades. Services are up. Culture is flourishing. These are all good things making most neighborhoods fancier than they once were. Additionally, more and more people are earning a shitton of money, which is also a good thing. But all these good things come with a bad thing - reduced housing affordability in trendy areas.

There is an arbitrage opportunity here for Mustachians: Live somewhere like Ohio, Alabama, or Nebraska where the cost of living remains low. Drive hand-me-down economy cars. Don't be fashionable. Keep using your computers for 6-10 years and your phones for 4-5. Then take advantage of the massive opportunities to earn lots of dough which are, in fact, plentiful even in those places and crank up the savings rate to 50%, 60%, 70%... Retire a millionaire after 10 years of work instead of serving a life sentence in the rat race.

Yes, the proportion of good restaurants to chain restaurants will be lower. Yes, you'll possibly have to travel to see your annual Broadway play. Yes, your child will be exposed to the children of poor families at school unless you pay extra. There will probably be potholes and abhorrent politicians. BUT... you won't live like some kind of transient mercenary, constantly stressed about money and chasing work all over the country. The big lesson is the conflict between having the best things and having the best life.

A few months ago, I opened Mint.com and saw that our net worth had exceeded $1,000,000. This occurred despite going without one of our incomes in 2020. I looked around me at my small fixer-upper house in a decidedly not-fancy metro area, the 12 year old computer, the yard sale office chair, the folding plastic table desk, and my clothes that I've owned for a decade. It really connected. These decisions led to that number.

Freedom = Willpower + Independent Thought.