Author Topic: Is it right time to buy house now?  (Read 688 times)

kerprof

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Is it right time to buy house now?
« on: June 28, 2020, 08:46:24 PM »

My wife and I along with our two kids relocated for my tenure/track job change in January 2020 and we were thinking to rent first and then think about buying house later. I am planning to submit my tenure package 2 years from now and possibly next year (if everything goes well). Due to COVID-19 and the issue of managing kids and our health while we are home 24x7, we started looking out for single family houses (SFH) in suburb (where my kids are going to elementary school) starting June 15. We also got preapproval for mortgage for up to $500K.

The housing market appears very tight in where we live. We put offers on three houses and due to multiple offers on each of those houses on very first or second day in the market, our offers were declined for one reason or other. Most of these houses, that we were interested are getting sold above the asking price. Rental market for condo/SFH/town homes are also very tight.

Considering the COVID-19 and economic (mortgage etc.,) issues related to it, is it worth trying to buy home now or should I wait for 6 to 12 months and try to rent condo/town home/SFH or other apartment?
 
Please advise...

polly_mer

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Re: Is it right time to buy house now?
« Reply #1 on: June 28, 2020, 08:58:05 PM »
Do you have a stable current housing situation?

Have you checked the finances of your institution?  Tenure doesn't protect you if the institution goes under or even just cuts your whole department.

Have you checked the tenure record at your institution?  Going up for tenure is no guarantee of receiving tenure.  Even if your case is solid, the institution can cancel contracts for people who are not yet tenured when finances are tight enough.

Last in, first out retrenchment was a reality in 2008 for too many TT folks.
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spork

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Re: Is it right time to buy house now?
« Reply #2 on: June 29, 2020, 04:55:51 AM »

[. . . ]
 
Please advise...

Well . . .  it depends. Factors in favor:

  • Wife has secure full-time employment.
  • Your employer is in good financial condition now and good prospects for the future.
  • Historically low interest rates.
  • You have enough cash for a 20% down payment with enough left over for an emergency fund.
  • You would be building equity (wealth) with a monthly mortgage payment that might be about the same as (or less than) monthly rent.

Factors not in favor:
  • Prices are high in your local market.
  • You just started a new job and don't have tenure.
  • Owning a home comes with the costs of taxes, maintenance, etc.
  • No one really knows what the next academic year or two is going to do to universities' finances.
  • Real estate price trends in your area suggest a bubble that will pop due to Covid-19 economic damage.

Puget

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Re: Is it right time to buy house now?
« Reply #3 on: June 29, 2020, 06:56:08 AM »
It's impossible to say without a detailed analysis of your financial situation, housing market, and risk tolerance. I guess my questions for you would be--

1. What would the total monthly cost (mortgage, taxes, increased utility payments for larger space) be for a house vs. your current rental?

2. Do you have at least 20% down payment?

3. What is the history of housing prices in your area and is that likely to continue? Is the area economically reliant on just a few major employers, or does it have a robust diversified economy? Is it an area with increasing or flat/decreasing population? Is the housing supply artificially tight or geographically tight (as in, no place left to build)?

4. What would happen if you had to sell in a couple of years? Would you at least break even?

5. Last but certainly not least, how much will living in your own house improve your quality of life, and what is that worth to you?

 I will say that I'm very, very grateful that I bought a house a year ago, and am not riding this out in a big apartment building. My quality of life is so much better having my own quiet house to work from home in, and a nice yard to garden and hang out in.

I'm also in an expensive housing market, both for buying but especially for renting, and financially it made no sense to keep renting long term here. My mortgage and property taxes on the house are a bit less than I was paying in rent for a 1 bedroom apartment. With increased heating costs, it is about break even, but of course I'm also building equity and the mortgage is a fixed rate, unlike rent which went up every year. It is also pretty low risk even though I'm pre-tenure, since the housing market here is so tight that I could already almost certainly sell the house for more than I paid for it on very short notice (without revealing too much geography, there is no place to build new housing here, and more people every year, so prices are unlikely to crash). I have no idea if your housing market is similar, but if so, buying now may make more sense than continuing to rent.

Tight housing markets are tough-- I really lucked into my house and got a good deal on it (which hear means about 5% over asking, but the house was priced to sell compared to most in the area)-- I did not expect my offer to be accepted, even my realtor was surprised! Turns out the owners valued their long-term neighbors and didn't want to sell to investors who would quickly flip it, even though they made all cash offers and I made a 20% down offer. So writing a nice note to the sellers about your family and how you will love there house and be a good neighbor to their neighbors can make a difference in some cases. Your realtor should be able to couch you through how to be more competitive in these multiple offer situations.

Good luck!
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kerprof

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Re: Is it right time to buy house now?
« Reply #4 on: June 29, 2020, 03:29:41 PM »
Do you have a stable current housing situation?

Have you checked the finances of your institution?  Tenure doesn't protect you if the institution goes under or even just cuts your whole department.

Have you checked the tenure record at your institution?  Going up for tenure is no guarantee of receiving tenure.  Even if your case is solid, the institution can cancel contracts for people who are not yet tenured when finances are tight enough.

Last in, first out retrenchment was a reality in 2008 for too many TT folks.

I am currently in Apartment.. It is becoming difficult to manage the kids and the neighbors/tenants in the downstairs
 are not happy with the noises. So my wife and I have decided to either rent to a desirable place (condo/town home/SFH) or purchase another place to live as soon as we can. If these do not work at least to another apartment. So regardless we have decided to move from the current apartment.

Finances of my institution appears to be fine relatively, but it is difficult to predict how it would be in a year or two considering COVID-19 situation.

I was tenured in my previous institution. I believe things are going OK for the last 6 months in my current institution so far. I have not checked the tenure record in my current  institution.


kerprof

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Re: Is it right time to buy house now?
« Reply #5 on: June 29, 2020, 03:30:16 PM »

[. . . ]
 
Please advise...

Well . . .  it depends. Factors in favor:

  • Wife has secure full-time employment.
  • Your employer is in good financial condition now and good prospects for the future.
  • Historically low interest rates.
  • You have enough cash for a 20% down payment with enough left over for an emergency fund.
  • You would be building equity (wealth) with a monthly mortgage payment that might be about the same as (or less than) monthly rent.

Factors not in favor:
  • Prices are high in your local market.
  • You just started a new job and don't have tenure.
  • Owning a home comes with the costs of taxes, maintenance, etc.
  • No one really knows what the next academic year or two is going to do to universities' finances.
  • Real estate price trends in your area suggest a bubble that will pop due to Covid-19 economic damage.

Thanks for nicely putting the positive and negative factors... It brings some clarity into the decision making...

kerprof

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Re: Is it right time to buy house now?
« Reply #6 on: June 29, 2020, 03:31:39 PM »
It's impossible to say without a detailed analysis of your financial situation, housing market, and risk tolerance. I guess my questions for you would be--

1. What would the total monthly cost (mortgage, taxes, increased utility payments for larger space) be for a house vs. your current rental?

2. Do you have at least 20% down payment?

3. What is the history of housing prices in your area and is that likely to continue? Is the area economically reliant on just a few major employers, or does it have a robust diversified economy? Is it an area with increasing or flat/decreasing population? Is the housing supply artificially tight or geographically tight (as in, no place left to build)?

4. What would happen if you had to sell in a couple of years? Would you at least break even?

5. Last but certainly not least, how much will living in your own house improve your quality of life, and what is that worth to you?

   

Here are my answers to the questions...

1. Total monthly cost (mortgage, taxes, increased utility payments for larger space) be for a house vs. my current rental would increase by out $500 per month...    Also monthly cost will be same or less if we try to rent the similar property (even condo or town home if not SFH) that we desire, which we miss currently.

2. Yes. I have at least 20% down payment?

3. Due to COVID-19 situation, I am not sure how the housing prices would look like say in 1 year or 2 years from now...

4. The metro area has a diversified economy but has flat/decreasing population. Also I do not think the housing supply is artificially or geographically tight.

5. If I sell in couple of years, I think as long as the house price do not fall below $10K to $20K from current prices, I should be able to break even..

6. Considering that we lived in single family house for 6 years before we came here and considering the COVID-19, living in  own house will
   definitely improve our quality of life, I think it is  worth to my family.

zuzu_

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Re: Is it right time to buy house now?
« Reply #7 on: June 29, 2020, 04:35:15 PM »
A bit of the exact topic, but I just refinanced my mortgage, and I strongly recommend Quicken Rocket Mortgage. I have refinanced with them twice in the past 3 years, and the process is SO EASY. Almost everything is online and super intuitive, and they send a notary to your home (or another location of your choice) to complete the closing.

I also have a family member who works there, and honestly I would think it was all too good to be true if I didn't trust this family member, who specifically sought to work at Quicken due to ethical treatment of customers. A huge part of their shtick is having a pleasant, painless process both in closing and in servicing the loan afterwards.

kerprof

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Re: Is it right time to buy house now?
« Reply #8 on: June 29, 2020, 04:58:40 PM »
A bit of the exact topic, but I just refinanced my mortgage, and I strongly recommend Quicken Rocket Mortgage. I have refinanced with them twice in the past 3 years, and the process is SO EASY. Almost everything is online and super intuitive, and they send a notary to your home (or another location of your choice) to complete the closing.

I also have a family member who works there, and honestly I would think it was all too good to be true if I didn't trust this family member, who specifically sought to work at Quicken due to ethical treatment of customers. A huge part of their shtick is having a pleasant, painless process both in closing and in servicing the loan afterwards.

Thank you... Actually the preapproval for the mortgage I got is from Quicken Rocket Mortgage...

Puget

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Re: Is it right time to buy house now?
« Reply #9 on: June 29, 2020, 06:12:28 PM »
It's impossible to say without a detailed analysis of your financial situation, housing market, and risk tolerance. I guess my questions for you would be--

1. What would the total monthly cost (mortgage, taxes, increased utility payments for larger space) be for a house vs. your current rental?

2. Do you have at least 20% down payment?

3. What is the history of housing prices in your area and is that likely to continue? Is the area economically reliant on just a few major employers, or does it have a robust diversified economy? Is it an area with increasing or flat/decreasing population? Is the housing supply artificially tight or geographically tight (as in, no place left to build)?

4. What would happen if you had to sell in a couple of years? Would you at least break even?

5. Last but certainly not least, how much will living in your own house improve your quality of life, and what is that worth to you?

   

Here are my answers to the questions...

1. Total monthly cost (mortgage, taxes, increased utility payments for larger space) be for a house vs. my current rental would increase by out $500 per month...    Also monthly cost will be same or less if we try to rent the similar property (even condo or town home if not SFH) that we desire, which we miss currently.

2. Yes. I have at least 20% down payment?

3. Due to COVID-19 situation, I am not sure how the housing prices would look like say in 1 year or 2 years from now...

4. The metro area has a diversified economy but has flat/decreasing population. Also I do not think the housing supply is artificially or geographically tight.

5. If I sell in couple of years, I think as long as the house price do not fall below $10K to $20K from current prices, I should be able to break even..

6. Considering that we lived in single family house for 6 years before we came here and considering the COVID-19, living in  own house will
   definitely improve our quality of life, I think it is  worth to my family.

Your answers to 4 and 5 would be concerning to me, given that it seems quite possible housing prices will fall that much, if the population is steady or dropping and their isn't a tight constraint on supply. I guess it then comes down to how certain you are that you'll be there more than a few years, how risk tolerant you are, and how much it improves your quality of life over renting a house instead.

The main reason I felt comfortable buying pre-tenure was that the housing market here shows no signs of slowing in the foreseeable future given the more people  every year and no place to put them all situation in this metro area. But I tend to be fairly risk-averse, and I'm not financial expert -- you may weigh risks differently.
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clean

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Re: Is it right time to buy house now?
« Reply #10 on: June 30, 2020, 07:52:12 AM »
If the market is tight, that would tend to support the rent option. Even if not by choice, as your post indicated that your first 3 offers were declined!

IF we have a "V" shaped economic recovery, that would be good for the university and your ability to buy.  IF, on the other hand, things do not progress rapidly towards recovery, then it is possible that being willing to rent (AND able to PAY!) will be good factors toward negotiating rents.  Buying before tenure is certainly greater risk than buying after tenure. 

However, sometimes you just have to do what makes the wife in the house happy.  (If mamma aint happy, no one is happy!)  If the wife of the house can be satisfied renting, it is certainly less risk.  IF the wife is at the end of her rented rope, then keep making offers!

One last caveat, though... Just because the BANK is WILLING to LEND you $500,000 does not mean that is the market you are in!  Remember that the BANK makes decisions to maximize the interest it collects.  You need to make a decision on what is best for you long term.  (And buying a more modestly priced house that will acceptably satisfy, but not exceed, your needs (not wants and desires) should be your goal now... and that is likely available for LESS than what the Bank is willing to Lend! 


Dont let the bank's willingness to lend drive your housing decision.  The less you have to pay in fixed expenses (like mortgage payments, taxes, insurance and maybe HOA fees), the more freedom and flexibility you will have. 

(When I bought my house here, I purchases a perfectly suitable house for 1/2 of what the bank was willing to lend me!  I live here still, and it has been paid off for some time now, giving me a lot of freedom to decide whether I want to work summers, and allowed me to save for retirement, allowing me the option to retire up to 7 years sooner than my 'social security full retirement age!  I may not retire early, but I will have that option!!)
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Diogenes

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Re: Is it right time to buy house now?
« Reply #11 on: June 30, 2020, 08:00:11 AM »
It's great that you have 20% for a down payment but that rule of thumb as a requirement as listed above is almost impossible for first time home buyers to do anymore without family wealth. And banks understand that. While you don't want to end up with a shady sub-prime mortgage, reputable places will loan modest mortgages with decent rates. I only had 7.5% down and still got a great rate from my local credit union. Yes I had to pay PMI, but that was the only way I could get into owning which ultimately cost the same per month as renting in my area.

Economizer

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Re: Is it right time to buy house now?
« Reply #12 on: June 30, 2020, 06:26:57 PM »
I am a single guy overly mature in years, with a fairly good and stable base income. Renting has worn through any appeal I have ever had for it. I WANT A DOG, A SMALL COURTYARD,, AND EVEN JUST A POSSIBILIY of HAVING NEIGHBORS WITH WHOM I MIGHT ESTABLISH A MUTUAL TRUST.. A VA loan will need to be the type financing for me. My educated opinion is that there is no predictable flux in either the renal or purchase markets yet. So, since I cannot afford to be a risque taker I will have to "hang tight"? I'm still dreamin' of ya FARFO... DAMN..WHAT'S THAT!
« Last Edit: June 30, 2020, 07:03:38 PM by Economizer »
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pgher

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Re: Is it right time to buy house now?
« Reply #13 on: June 30, 2020, 07:53:41 PM »
One last caveat, though... Just because the BANK is WILLING to LEND you $500,000 does not mean that is the market you are in!  Remember that the BANK makes decisions to maximize the interest it collects.  You need to make a decision on what is best for you long term.  (And buying a more modestly priced house that will acceptably satisfy, but not exceed, your needs (not wants and desires) should be your goal now... and that is likely available for LESS than what the Bank is willing to Lend! 


Dont let the bank's willingness to lend drive your housing decision.  The less you have to pay in fixed expenses (like mortgage payments, taxes, insurance and maybe HOA fees), the more freedom and flexibility you will have. 

I wish I had listened to that advice before buying my first house. The bank's limit is based on how much they are sure you will repay without going into foreclosure. There's a big gap between "not being foreclosed upon" and "financially comfortable." Similarly, realtors will want you to buy as much house as you possibly can, since that drives their commission.

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Re: Is it right time to buy house now?
« Reply #14 on: July 01, 2020, 09:23:46 PM »
I agree with clean and pgher. Do not buy a house for the amount the bank will approve. Don’t tell a realtor how much bank will approve. The bank and realtor both have incentive to sell you the most mortgage/house possible. Take a good luck at your monthly budget and decide an amount you can pay comfortably each month, then use an online calculator to figure how much that payment will buy you with a fifteen year and a thirty year mortgage. That gives you a price range for your house.

Your monthly payment should leave you money to save, to order pizza at least monthly, to pay for school field trips and dance classes. In my experience, that’s at least 10% less than the bank will lend you.
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