Author Topic: Market Timing and First Time Home Buying  (Read 1516 times)

thow

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Market Timing and First Time Home Buying
« on: June 05, 2018, 02:32:58 PM »
My wife and I are considering purchasing a home for the first time. To prevent this thread from being all about our particular numbers, assume that we've crossed off all the checkboxes that the ER / FI gurus recommend.

> We have saved 20% of a down payment.
> We have a lot of cash left aside for e-fund, home repairs, etc.
> We plan to live in this area for the forseeable future.
> We both work, and our jobs are more stable than average.
> Monthly housing expenses will not exceed 30% of our take-home pay.
> We are looking at a 30 year fixed with no 401(k) loans or other sketchy financing options.

The tricky thing is that prices in our Southern California town has, on average, increased about 10% in the past year. We can't help but feel like we are buying at the top of the market.

We have two little kids, but we are not desperate to move out of our 2 BR, 2 BA apartment. The rent is cheap and the location is good for us. We have gotten pretty good at the minimalist lifestyle. We would eventually want a little more space, but we could hang on for another couple years.

Our main concern with doing this is that we might wait two more years and see houses have kept going up. The data I have seen from housing market corrections is that prices level off and only start to decline after a year or more. You don't see the precipitous drops like you do with stocks and other assets. Housing could start to "crash" tomorrow and the prices might look similar two years out.

If our main concern is about market timing, are there any general rules of thumb about whether to buy or stay put?

matchewed

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Re: Market Timing and First Time Home Buying
« Reply #1 on: June 06, 2018, 07:43:07 AM »
Afford that which costs you least but meets your needs.

In short if renting is cheaper than owning then rent. If buying is cheaper than renting then buy. This goes for any particular moment in time and can be reevaluated on some interval of your choosing so you know what is best for your needs.

Hirondelle

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Re: Market Timing and First Time Home Buying
« Reply #2 on: June 06, 2018, 09:13:18 AM »
Check out some rent vs. buy calculators if you are in a good spot now and don't expect any crazy increases in rent in the foreseeable future.

The housing market does seem to be in a "top of the market" position but nobody can predict when it will drop - ask the Australians about how long it can take ;)

Grogounet

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Re: Market Timing and First Time Home Buying
« Reply #3 on: June 12, 2018, 01:40:45 AM »
The answer to your question is time, not timing.
By doing timing, you are just guessing the future
By staying the longest time possible, you are decreasing every year you spend there your risk

As long as you can afford without trouble and you plan to stay in a while (10Y+), then purchase will do ok. Because you're mustachian and you will try to pay it down asap :-))


Lmoot

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Re: Market Timing and First Time Home Buying
« Reply #4 on: June 12, 2018, 03:46:53 AM »
Ask yourself this: if you are staying for the unforeseeable future, then why do you care if the value goes down after purchase? It will likely come back up again before you sell.

Let’s say you’re right, and values are near peak...unless something inordinate happens, value decreases will likely be very gradual and minimal (and interest rates may continue to increase); and that won’t happen until a few more years of increases probably. THEN, you have to wait for the decrease to fall to or below today’s value, because “decrease” only refers to an action, not a result. If values are $300k today, then increase to $390k, then decrease to $325k, that’s still a decrease, but not lower than today’s value, which is unhelpful to you. And it could take 10 years for all of this to happen.

I was a FTHB during the recession, and I can tell you that the abnormally deflated values messes with the head and expectations of even the most logical person. We probably won’t see that much negative change in real estate for a long long time even though there are many people (yes, I’m one
of them), who still hope otherwise.

 When it comes to buying a personal residence, just stick to buying what you can afford, and bump the market. If you want to wait in order to save more money that is fine also. But remember the longer you wait, even if values go down a bit, other housing related costs will likely continue to go up. Things such as taxes, insurance, utilities, RENT, and other house-related services and materials.

Your better bet is to focus on finding deals at street level, instead of waiting for something catastrophic enough to affect the market on the whole, which is less likely to happen. There are always foreclosures, and people wanting to sell quickly, and fixer uppers which you can earn sweat equity on.
« Last Edit: June 12, 2018, 03:50:27 AM by Lmoot »

2Cent

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Re: Market Timing and First Time Home Buying
« Reply #5 on: June 12, 2018, 05:23:47 AM »
Like Lmoot said, you can afford to wait, so use that to your advantage. If you start looking at houses now you will start learning what is out there and what you want. Much better to buy when you're not in urgent need and can afford to say no. Deciding where you live for the next 10+ years is a really big deal especially with kids.

I would not fix the interest rate for 30 years. Low as they are, you'll still be paying a premium for 30 years for a risk that you can easily afford to take. You may not even live there for 30 years. Or you might pay off your mortgage earlier.

marty998

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Re: Market Timing and First Time Home Buying
« Reply #6 on: June 27, 2018, 03:03:24 AM »

The tricky thing is that prices in our Southern California town has, on average, increased about 10% in the past year. We can't help but feel like we are buying at the top of the market.


10% increase in a year is neither here nor there in the grand scheme of things.

If debt is manageable, incomes are high and population is growing in your area then a simple supply and demand analysis will show prices probably will not crash and burn. What if it goes up 20% this year?

You can't control the market, but you can buy the home you want. Just do it.

AccountingForLife

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Re: Market Timing and First Time Home Buying
« Reply #7 on: June 27, 2018, 03:13:59 PM »
The only problem I see here is the 30 year fixed. You'll want a 15 year fixed rate mortgage at the max.

If you're going to stay for a while, then you can likely weather a crash. The only thing is getting into a mortgage in which you can afford.

You also didn't say if you have any household debt. I'd rent and pay that off while saving up enough to get into a 15 year mortgage at no more than 30% of your takehome pay. This might mean looking at different locations, smaller houses, or saving up a larger down payment.
« Last Edit: June 27, 2018, 03:15:44 PM by AccountingForLife »

Dicey

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Re: Market Timing and First Time Home Buying
« Reply #8 on: June 29, 2018, 07:45:49 AM »
Because you're mustachian and you will try to pay it down asap :-))

The only problem I see here is the 30 year fixed. You'll want a 15 year fixed rate mortgage at the max.
Neither of these statements is true in all circumstances. Some would say both are false :-))  A good number of mustachians understand and gleefully partake in the principle of using a mortgage to create wealth and get to FIRE faster and more efficiently. Lots of useful information on the subject here:

https://forum.mrmoneymustache.com/investor-alley/investment-order/

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

So far the advice that resonates most with this FIRE SoCal native and multiple property owner is this:

Afford that which costs you least but meets your needs.

In short if renting is cheaper than owning then rent. If buying is cheaper than renting then buy. This goes for any particular moment in time and can be reevaluated on some interval of your choosing so you know what is best for your needs.





englishteacheralex

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Re: Market Timing and First Time Home Buying
« Reply #9 on: June 29, 2018, 09:07:15 AM »
Listen to Dicey.

Additionally:

We live in Honolulu, a place where housing is bananas and has been appreciating a lot lately. We experienced a lot of the same misgivings about timing the market when we bought in 2015.

In the end, I decided it was best to not see our primary residence as an investment but more as a hybrid--a consumer purchase that happens to be capable of potentially appreciating in value. Housing is an unavoidable expense, like transportation and food. How can you optimize that expense, regardless of what the market might do?

When we ran the numbers, buying a place well within our means was a more optimized way to solve this expense than being long term renters. This was true in almost all scenarios, regardless of the market gains or losses over time.

I don't really see our residence as an investment. In our circumstances, it's just the least expensive way to meet our housing needs.

And...we've been converted to the "don't payoff your mortgage early" club. It took a long time and a lot of reading, though. We invest our extra money.

AccountingForLife

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Re: Market Timing and First Time Home Buying
« Reply #10 on: July 01, 2018, 01:23:32 PM »
Because you're mustachian and you will try to pay it down asap :-))

The only problem I see here is the 30 year fixed. You'll want a 15 year fixed rate mortgage at the max.
Neither of these statements is true in all circumstances. Some would say both are false :-))  A good number of mustachians understand and gleefully partake in the principle of using a mortgage to create wealth and get to FIRE faster and more efficiently. Lots of useful information on the subject here:

https://forum.mrmoneymustache.com/investor-alley/investment-order/

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

So far the advice that resonates most with this FIRE SoCal native and multiple property owner is this:

Afford that which costs you least but meets your needs.

In short if renting is cheaper than owning then rent. If buying is cheaper than renting then buy. This goes for any particular moment in time and can be reevaluated on some interval of your choosing so you know what is best for your needs.

Paying 2x the interest is not a good way to build wealth.

Lmoot

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Re: Market Timing and First Time Home Buying
« Reply #11 on: July 01, 2018, 02:00:58 PM »
Because you're mustachian and you will try to pay it down asap :-))

The only problem I see here is the 30 year fixed. You'll want a 15 year fixed rate mortgage at the max.
Neither of these statements is true in all circumstances. Some would say both are false :-))  A good number of mustachians understand and gleefully partake in the principle of using a mortgage to create wealth and get to FIRE faster and more efficiently. Lots of useful information on the subject here:

https://forum.mrmoneymustache.com/investor-alley/investment-order/

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

So far the advice that resonates most with this FIRE SoCal native and multiple property owner is this:

Afford that which costs you least but meets your needs.

In short if renting is cheaper than owning then rent. If buying is cheaper than renting then buy. This goes for any particular moment in time and can be reevaluated on some interval of your choosing so you know what is best for your needs.

Paying 2x the interest is not a good way to build wealth.

 You’re only looking at the spend part of the equation. There are a lot of benefits of choosing a 30 year mortgage over 15 year mortgage. You could invest in better earning investments, having a lower house payment will also let you weather the storm and make more of a range of financial decisions. Who wants to spend that much of their income on one thing, even for 15 years… Especially for 15 years. With most loans you can choose to pay it off early, so why voluntarily put yourself on the wire with a 15 year loan?

Telecaster

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Re: Market Timing and First Time Home Buying
« Reply #12 on: July 01, 2018, 02:16:09 PM »

Paying 2x the interest is not a good way to build wealth.

The question is "what is the best use of funds?"  If you spend a few minutes with a calculator, you can see that wealth builds much faster with 30-year mortgage that you never pay off.  Plenty of threads on this topic.

To the OP:  The proper way to look at housing is an expense, and it is a good idea to minimize expenses.  If it is cheaper to rent, then continue renting.  One advantage about buying is that mortgage stays the same, not even increasing with inflation (taxes and insurance obviously do).  If you plan on staying for while, that advantage is worth considering.  Also keep in mind the transaction costs for selling are high, so including those in your calculation as well.

Dicey

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Re: Market Timing and First Time Home Buying
« Reply #13 on: July 01, 2018, 11:34:38 PM »
Listen to Dicey.

[Snip]

And...we've been converted to the "don't payoff your mortgage early" club. It took a long time and a lot of reading, though. We invest our extra money.
Ooh, @englishteacheralex, look how you took your own advice! I am so excited for you! I know you struggled with this decision. You made the effort to understand the math and take on your inner debt killer. Keep socking it away. One day, shockingly soon, your investment accounts will have grown enough that you could pay that sucker off in one fell swoop. You probably will choose not to, but it is a great, great feeling to know you could. Hooray!