Author Topic: Renting while I wait for house prices to go down  (Read 1835 times)

Ives

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Renting while I wait for house prices to go down
« on: October 15, 2019, 03:50:46 AM »
I've been thinking it's better to wait till the prices go down instead of buying at a high, but I did some calculating.  If I wait two years and hope the price will go down say $30,000, I will have spent $28,000 in rent in those two years.  So, my saving money by waiting for prices to go down really depends on how much they go down, right? So I could be waiting forever, and the more years it takes, the more I have to factor in what I've 'wasted' on rent compared to what I'm saving in a price drop?

Does this make sense? Is there something I'm missing?

By the way I'm saving and hope to pay at least half in cash, get a 10 or 15yr mortgage and pay it off as quickly as possible.  Looking to pay $200,000 or less.  Our rent is $1200.  The longer I wait, the longer I wait to own a house in cash....but I'm saving, but I'm also paying rent, I'm so confused.

Linea_Norway

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Re: Renting while I wait for house prices to go down
« Reply #1 on: October 15, 2019, 04:35:56 AM »
When you own a home, you also have yearly costs:
- utilities that are now included in your rent
- property taxes
- mortgage rent (optional)
- maintenance
- insurance
- not having the house money in the stock market (if you buy the house for cash)
- risk of buying a home at high price that later goes down (all money invested in one asset)

There are good rent-own calculators out there. Didn't the NYT have one? Fill it out for your situation.
Maybe this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
« Last Edit: October 15, 2019, 04:37:45 AM by Linea_Norway »

Malkynn

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Re: Renting while I wait for house prices to go down
« Reply #2 on: October 15, 2019, 05:40:17 AM »
What will have to happen for house prices to actually drop substantially where you live?

nancyfrank232

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Renting while I wait for house prices to go down
« Reply #3 on: October 15, 2019, 06:16:53 AM »
Itís possible that OPís strategy pans out. Itís just not probable

Malkynn

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Re: Renting while I wait for house prices to go down
« Reply #4 on: October 15, 2019, 06:23:08 AM »
Itís possible that OPís strategy pans out. Itís just not probable

Nor necessarily optimal.

zinnie

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Re: Renting while I wait for house prices to go down
« Reply #5 on: October 15, 2019, 06:52:17 AM »
How do you know prices are at a high? How do you know they will go down? There seems to be a lot of predicting the future in your thinking. Housing prices generally go up. Plan a housing situation based on what makes the most sense for you now, and if something else makes sense in a couple of years, adjust then.

Malkynn

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Re: Renting while I wait for house prices to go down
« Reply #6 on: October 17, 2019, 10:15:23 AM »
Oops, wrong thread
« Last Edit: October 17, 2019, 10:49:51 AM by Malkynn »

ysette9

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Re: Renting while I wait for house prices to go down
« Reply #7 on: October 17, 2019, 10:46:10 AM »
By the way I'm saving and hope to pay at least half in cash, get a 10 or 15yr mortgage and pay it off as quickly as possible.  Looking to pay $200,000 or less.  Our rent is $1200.  The longer I wait, the longer I wait to own a house in cash....but I'm saving, but I'm also paying rent, I'm so confused.

What are the reasons you want to do this? Is it an emotional need to feel secure or something? Because in terms of raw numbers this is probably not optimal unless you are talking about a high interest rate environment or you think your adjustable the mortgage is likely to rest to a much higher rate in the future.

As for your first question, my husband was sure prices were too high when we moved to this neighborhood in 2011. He wanted to save money and wait. In the five years we rented the house we rented went from something like $670k to over a million.

I donít know what your local real estate market is like. Maybe you can get a feel for whether it will go down in the future and maybe not. Here in California the outlying areas are much more vulnerable to price fluctuations whereas the core locations almost didnít experience a housing crash and great recession at all. Ike the advice of buying when it makes sense for you personally and financially. Buy when your job is stable, your home life is stable, and when you think you will be in that location for a good 5-10 years. If those factors donít line up, then keep renting.

NorCal

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Re: Renting while I wait for house prices to go down
« Reply #8 on: October 17, 2019, 11:12:39 AM »
How do you know that prices will go down and not up?  It might cost you more to buy the house in two years.

I'm not saying that I know they'll go up.

Heck, I know people with Phd's in economics that can't reliably predict the future of housing (or stock) prices.  Anyone who thinks they can predict prices is either a fool, a liar, or trying to sell you a newsletter.

Buy a house when it is the right decision for you.  Not based on what you think the market will do in the future.  Do you have a stable job, a good downpayment, and think you'll be in the same location for 5-10 years?  If so, buying might be for you. 

The only exception would be if you're confident the local economy is not going down the drain.  For example, a major local employer is shutting down operations, or there are major people outflows.  In this case, I wouldn't plan to buy ever.

affordablehousing

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Re: Renting while I wait for house prices to go down
« Reply #9 on: October 18, 2019, 10:39:56 AM »
I think others have said it already but buy a house when you want/need a house. If you have an aversion to debt, remember the more debt you take on (and preserve your cash for investing) the more money you make. I too feel like "prices have to drop" but on the other hand, every other person I know is sitting on a mountain of cash "waiting for prices to drop." So if everyone can afford it, how can prices fall? Unless you want to be a real estate professional, do what works for you and your life.

zoro

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Re: Renting while I wait for house prices to go down
« Reply #10 on: October 20, 2019, 07:00:48 AM »
I actually did this and it worked out. I bought my first house at age 22 in 1992 and was a home owner continuously with a house and two rentals all paid off until 2003 when the prices the houses were selling for went crazy relative to the rent. I sold the rentals in 2003 and 2004, and finally my house that i lived in  which i bought in 2001 for 81k i sold in Aug 2005 for 240k. I rented. (I own that same house again I bought it back as a rental in 2015 in a foreclosure auction for $66k.) I didn't own any property from 2005 to 2010.
At the moment i still own property, the rent / house price ratio isnt that far off in my area. This is the metric that i would study to make the call. I would do it again in a heartbeat if the prices outstrip the rental yield to the extent they did in 2003 to 2005. I don't think they are anywhere near that crazy in my area.

I should mention you have to also be psychologically wired to do this. 2006 was a very tough year watching prices continue to go up while i was not involved in any way. 

Seadog

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Re: Renting while I wait for house prices to go down
« Reply #11 on: October 21, 2019, 06:08:02 AM »
I've been thinking it's better to wait till the prices go down instead of buying at a high, but I did some calculating.  If I wait two years and hope the price will go down say $30,000, I will have spent $28,000 in rent in those two years.  So, my saving money by waiting for prices to go down really depends on how much they go down, right? So I could be waiting forever, and the more years it takes, the more I have to factor in what I've 'wasted' on rent compared to what I'm saving in a price drop?

Does this make sense? Is there something I'm missing?

By the way I'm saving and hope to pay at least half in cash, get a 10 or 15yr mortgage and pay it off as quickly as possible.  Looking to pay $200,000 or less.  Our rent is $1200.  The longer I wait, the longer I wait to own a house in cash....but I'm saving, but I'm also paying rent, I'm so confused.

Two issues, you don't need it to go down 30k, because you seem to be ignoring the opportunity cost of the money tied up in a home. A 50% down, you'd also be losing ~7k/year (expected) return.

The other is that 2 years is an incredibly short time frame in terms of housing which moves slooooooooow.

Take Canada where I am. A strong argument could have been made around 2008 when the US was falling apart that our housing was similarly overvalued. We never experienced quite the same crash as they did, and housing continued to balloon to the point that in some cities, it now takes more than 100% of the average after tax income to buy an average residence. If things could get so out of control here- and continue for more than a decade, why are you so certain that in two years things will return to normalcy?

Unfortunately, this puts the gov't in a bit of a catch 22. Price to rents, price to incomes, debt to income, and home ownership rates are among the highest ever in Canada. Everyone's jerking each other off over how brilliant they are at investing, but at the same time anyone who's not already in the market simply either can't afford to enter or if they're well off with a keen understanding of value and financial metrics, understand how risky it is, staying on the sidelines. Some things were enacted to try and reign in prices, but people reacted as you'd expect since they felt they're attacking their "investment". Meanwhile there's an election today, and it seems all parties want to tack on national debt to (in various roundabout ways) essentially give people money to buy houses. Given that people have already bought right up to the literal edge of affordability, I'm amazed people are so short sighted to think that by increasing affordability, the same thing won't play out more and put us in the exact same spot a year or two from now but a bit worse.

In short, $1200 to rent a $200k is probably a pretty fair ratio. You wouldn't make screaming cash as an investor, but you wouldn't be cashflow negative either. The bottom line is you simply can't predict where housing or stocks will go. I've certainly lost money because I refused to get into RE only to see it double in less than a decade (abetted by interest rates and gov't policy). But, the consolation is that the same thing happened to Warren Buffett when he refused to buy money losing internet stocks in 1999 that were exploding in value for years and years.

Malkynn

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Re: Renting while I wait for house prices to go down
« Reply #12 on: October 21, 2019, 07:04:23 AM »
^ to expand on the example of Canada

As mentioned, our country introduced "cooling measures" to try and calm down the insanely heated housing market.
It seemed very reasonable for people to assume that this would lower housing prices, as that's what it was intended to do. So a lot of very savvy people chose to wait before jumping into the over heated housing market.

My closest friend is a brilliant government economist and he was certain that house prices were set for a tumble. He was a renter and trying to time his entry perfectly.

Except...here's what actually happened.
The cooling measures started to work pretty much exactly as expected. A lot more people thought twice about upgrading to very expensive homes, and those sky high prices stopped rising so quickly since there were a lot less buyers at the top range.
Cool. The price escalation started calming down.

What this meant for first time home buyers though was that there was a huge drop in people leaving their entry level homes, so a drop in inventory, and an insane rise in demand for lower price properties. The price to enter the market actually shot up and this summer was one of the hottest sellers markets on record.

I just sold my townhouse for 30% above what it was worth last year. There was a rapid and heated bidding war and multiple offers without conditions. It was nuts, even the agents got emotional.

This was the exact time period that my economist friend thought he should wait for because he was certain he could time a first time buy with a huge price drop.

A LOT has to happen for home prices to drop substantially in a short period of time.

It's not only extremely difficult to predict, but you should also consider that if something happens that's big enough to topple prices, that you may not actually want to buy at that time, or may not want to buy in your area if it's just your local economy taking a severe beating. Sometimes a major drop isn't an opportunity, but instead a warning to GTFO.

The future is hard to predict, it's also hard to predict what your future self will want under different circumstances, especially if those circumstances are extreme.

That why, if present self is certain that you want to own, if the math makes sense to own instead of rent, and you can easily afford your housing costs in your area on your salary, then there's no rational reason not to buy.

There's ALWAYS a rational reason to keep renting, but if you stick to those reasons, then you will rent forever. There's nothing wrong with that, I always wanted to be a lifelong renter, but it's just so much cheaper for me to own the exact kind of place I would rent.

The math makes sense for me, I didn't really think beyond that or about what it might do. I actually just view my place as rent-controlled, not as an investment. Whether house prices rise or fall, I don't expect rents to drop, so the ratio will always work out in my favour.

The real estate market will be what it will be, and you might get lucky and make money off of it, or you might not.
Don't waste your energy trying to predict the future.

Wrenchturner

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Re: Renting while I wait for house prices to go down
« Reply #13 on: October 21, 2019, 08:50:41 AM »
House prices are also very regional, don't forget.   Prices here in Edmonton have been in a downtrend for ten years.  So I have the issue of catching a falling knife, but ultimately I'll buy when I'm ready and interested in doing so.

August26th

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Re: Renting while I wait for house prices to go down
« Reply #14 on: October 21, 2019, 01:50:34 PM »
I donít know what area you live in, but in my area, rent prices are higher than a mortgage would be for that same home (and I know Iím leaving out lots of ďcost to ownĒ calculations, but owning still comes out ahead in my region.)

If you KNOW youíll be a homeowner, I donít see a significant reason to wait.