Author Topic: Market Timing and First Time Home Buying  (Read 667 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.