Housing Market Dilemma: Buy or Wait?

[Irace86]

http://m.dailykos.com/story/2015/11/...etail=facebook

I'm at a place in my life where I could afford a home, but there is the old saying to buy low, sell high, and right now, everything is high--really high--so the answer would seem obvious (wait), except that the rental market is a nightmare.

Where I live there is a rental vacancy of 1.6%, and that fact is driving the cost to rent through the roof. They say rental prices have gone up 30% in three years, and they will continue to rise. Now some of this rise might be expected because home values typical rises over time and the crash took them low. Perhaps the home prices now are where they would have been if the crash hadn't occurred. Except what did happen because of the collapse was a huge reduction of new development, and that reduction, or in some case elimination, is leading to another housing bubble.

There was an idea to rent cheap to save for a home. That idea just doesn't exist. So the question is should I just buy something, anything, now, so I avoid cost hikes in rentals, or should I wait to buy, crossing my fingers for a collapse? Right now my yearly increase in rent is outpacing my step-salary increases in wages.

Just to give some reference numbers, I was living in a one bedroom 750 sq-ft apartment for $850 four years ago, then went to a 1300 sq-ft condo two years ago for $1350 that was 2 bed 2.5 bath 2 car garage and was a deal (most were $1600-1750). That same place would now average $2000-2200. Now I am in a 720 sq-ft one bedroom apartment with detached garage for $1500. The detached garage is $75 and the pet rent is $35, so the rental is $1390, so essential my cost went from $850-1390 in four years. What sucks is my rental agreement will expire in six months, and they have new units already listed at $1525 and that doesn't include the garage or pet rent.

I've gone through every emotion in the issue.

[Irace86]

Also, I don't want this to turn into a political discussion about how the local areas should introduce rent controls, or how the government needs to step in. Great stuff to discuss, just not here per the rules. I just want to advice from some of you econ, business, finance majors if they believe I should buy or wait it out.

[jawn]

Same boat as you, more or less. A mortgage on a comparable space would be a little more than what I pay in rent, but I'd get destroyed by property tax every year. If you need a tax shelter, a mortgage is nice, but for my current earnings it doesn't offset the hit from property tax. Factor in HOAs or condo fees, and it's a losing proposition for me to buy right now. That said, interest rates are low enough, and you would probably be accruing equity, barring a financial sector collapse. Buy in price-stable neighborhoods, and you can usually come out okay if worst comes to worst.

[jvincent]

My two cents, you are over analyzing.

If your mortgage + property taxes <= your rent then you should buy now. Assuming you aren't going to have to move, even if property values fall, you are still better off than paying rent.

If the numbers are close then you need to factor in other factors like income tax benefits, increase/decrease in commute costs, etc.

[Who8myrice]

Just buy the house and enjoy it.
You worry too much about housing market. If they go down they go down, if up that's good.
To be fair you missed out on great price about few years already. But market is still not back to where it was.

[GeorgeJFrick]

I'll just say a home is not an investment and any attempts to view them as such usually ends in tears. Taxes are a son-of-a. There is the whole "it's 2am, 15F outside and the furnace just died" thing. Or you know, squirrels in the attic. Go ahead, ask me how I know about all these horrible things. Before you know it you have Green Building Advisor and Building Science in your daily blog roll.

But F yeah I put speakers everywhere, cat6 everywhere, etc. When renting, and there is a squirrel in the attic; you can hurt yourself legally by doing something about it. So the problem goes both ways. When your landlord keeps rigging the furnace up on you; suddenly you are forced to start an apartment search...

But as mentioned; it is best to sit down and do the math. If you look at the numbers and think "I don't want to fix my own shit"; then rent. If the math makes you think "Fuck, I could build a theatre room!"; then go for it.

[mn_ca]

Worry? You have to, definitely don't want to be underwater!

Rent has gone up and is at an all time high. Houses are insanely high priced right now. Yet, people are buying them like hot cake. Why? Shortage of homes and they're panicking. I say rent, buy in a year or two when the market is back to normal.

This is coming from a real estate agent

[mn_ca]

Originally Posted by GeorgeJFrick

I'll just say a home is not an investment and any attempts to view them as such usually ends in tears. Taxes are a son-of-a. There is the whole "it's 2am, 15F outside and the furnace just died" thing. Or you know, squirrels in the attic. Go ahead, ask me how I know about all these horrible things. Before you know it you have Green Building Advisor and Building Science in your daily blog roll.

But F yeah I put speakers everywhere, cat6 everywhere, etc. When renting, and there is a squirrel in the attic; you can hurt yourself legally by doing something about it. So the problem goes both ways. When your landlord keeps rigging the furnace up on you; suddenly you are forced to start an apartment search...

But as mentioned; it is best to sit down and do the math. If you look at the numbers and think "I don't want to fix my own shit"; then rent. If the math makes you think "Fuck, I could build a theatre room!"; then go for it.

It is an investment when you buy cheap. I have a few properties I bought cheap and they'll be paid off soon. Those 3 are paying for my home and my cars

Property taxes, depends on property and area. I pay $2200 a year vs my neighbor who pays $1400.

Depends on where you look, as far as place goes. I lived in an apartment complex for a year before buying my home and starting my investments. It was nice. I paid $670 for a 2 bed and 2 garage spaces. It just got to the point where I didn't want to bring 15 bags of groceries up 3 flights of stairs lol. Plus, I also wanted my own garage space and yard to do my own things.

Biggest grip when it comes to buying a home: you have to fork out for closing costs. After that, you have to spend another 5k to get things for you home - doing upgrades, painting, etc.

[GeorgeJFrick]

Originally Posted by mn_ca

It is an investment when you buy cheap. I have a few properties I bought cheap and they'll be paid off soon. Those 3 are paying for my home and my cars

Property taxes, depends on property and area. I pay $2200 a year vs my neighbor who pays $1400.

Depends on where you look, as far as place goes. I lived in an apartment complex for a year before buying my home and starting my investments. It was nice. I paid $670 for a 2 bed and 2 garage spaces. It just got to the point where I didn't want to bring 15 bags of groceries up 3 flights of stairs lol. Plus, I also wanted my own garage space and yard to do my own things.

Biggest grip when it comes to buying a home: you have to fork out for closing costs. After that, you have to spend another 5k to get things for you home - doing upgrades, painting, etc.

Yes, you can buy properties as investments. But not a home, a person's home is not an investment. Your going to make this political; so I'll shut my yap here and leave this thread alone; because I have choice words for realtors who tell home buyers about their 'investment'.

[swarb]

California is the worst place to buy a house if you plan to live in it and pay it off asap. Move somewhere else, take a 20% pay cut and pay 50% or less for the same or more.

[mn_ca]

A home being an investment is subjective /

+ I don't EVER go into investment conversations with my clients when I consult with them, NO MATTER WHAT. It's strictly business on both sides. I have my partner in crime for that

[DAEMANO]

@Irace86

Do not buy in CA costal or large metro areas. We're talking 25%-30% inflated value from the inception of your mortgage. Buy that $600k home (that's really worth $430k) on a 30-40 year mtg and watch the value tank back to $380k when a 6.5-7.0 earthquake absolutely wrecks this investor inflated speculative market somewhere in the next 20 years. Seriously, in one of the major CA markets (norcal, socal) this is going to happen. The USGS agrees. The location is essentially a coin toss. Both SF and LA markets are desperately inflated. So the concern applies to both.

For you I'd say rent something as small and affordable as possible in CA if you're living here because you enjoy the weather, diversity, lifestyle, your family/friends, etc. Buy a second home in another market (or several) as cheap-ish investments. You can buy in guaranteed to improve areas (tourist, downtown/business, university suburbs) for next to nothing in many states where the values will ensure that they're cheap to get into and increase in equity very quickly. Rent and/use them as vacation homes when you want. Air BnB them out rest of the time. Renovate and flip them. Wash, rinse, repeat. There are so many better markets for the average investor than CA (where you need be flush with cash to get in). The days of buying a starter home in CA are gone until after the S.A. fault lets off some steam and pops this real estate bubble. Nothing else will as the money buying CA homes for cash and inflating the values is coming mostly from hedge funds and outside the country. That money will continue to come until local and state government act (as you alluded to in your second post). This is a conclusion that my line of work has lead me to. This isn't the only way to get ahead in CA. Just one way. Most importantly, recognize that Real Estate in CA is a new ballgame, and you can't bring a traditional strategy to win it.

[Irace86]

I appreciate all the advice. I wish I had the income I have now 2-4 years ago when prices were down, but I didn't, and I wasn't imagining prices would balloon up so fast.

Santa Rosa area is where I grew up, and Sonoma County is a great place to live, but because of the vineyards here we are seeing a lot of investors coming in, and they are buying property to turn into vineyards, or these rich guys are retiring here to buy some property and put up some vines. Then there are people just wanting to move out of the city to this area for the yuppie experience. Couple with that the fact that there are many immigrants still migrating to this county for work as field laborers, and there a lot of first generation families who are used to having 5-7 kids (at least that is what I see in the hospital where I work, and looking at the demographic changes at the schools), and this all makes for a huge housing shortage. I feel bad for them because my household makes around 100-120k, and we are finding it hard to buy, I don't know how these families are doing it. On top of that, this area doesn't have the geography for development unlike say Sacramento that is a huge flat valley, so real-estate is sparse. I've thought of moving out of the area, but that means either a long commute or trying to land another job, which isn't easy.

I guess I am over-analyzing it like jvincent said. At this point, renting is still slightly cheaper. Unfortunately as rent goes up it isn't getting closer to mortgage costs because home prices are also going up. They will either hit a max, or it may change to a point where rent is closer to the cost to own a home, so buying will make sense.

Does anyone understand the market enough to explain why investors aren't building? There isn't a huge amount of land to expand, but there is enough for them to build a little. Right now I only know of one spot out of town in Windsor where they are building. Next store they built low cost apartments, and the application line the news said was around the block, easy 100-150 camping out to apply. They county said they were shocked by the turn out. The city is taking up new legislation to put a 3% cap on raising rent, so they recognize the situation is bad, but again, maybe someone could explain why they aren't building. Couldn't the county build, or couldn't investors build and make a bunch of money considering the need?

[DAEMANO]

Originally Posted by Irace86

Does anyone understand the market enough to explain why investors aren't building? There isn't a huge amount of land to expand, but there is enough for them to build a little. Right now I only know of one spot out of town in Windsor where they are building. Next store they built low cost apartments, and the application line the news said was around the block, easy 100-150 camping out to apply. They county said they were shocked by the turn out. The city is taking up new legislation to put a 3% cap on raising rent, so they recognize the situation is bad, but again, maybe someone could explain why they aren't building. Couldn't the county build, or couldn't investors build and make a bunch of money considering the need?

As far as the non-U.S. investors go, mostly they're sole motivation is to preserve the value of the money they have currently earned. They park their money in U.S. real estate which is far safer than just about any holding in their own currency or country. The real estate they're buying (even undeveloped) will appreciate without any additional investment or risk. For this reason they have little motivation to build. When they buy, they don't even care to negotiate prices. They make all cash offers at full asking price. Sellers love it. This in turn drives up comps that help determine the value of all of the rest of the properties in the area. Thus even more inflated values. It's a perpetual motion machine right now.

Salaries will not be able to keep pace with this growing bubble (artificially inflated property values). Eventually that will lead to local governments intervening so that the people that actually work in the area can afford to live in them. Problem is, that kind of action is years away. In the meanwhile, living in some of these areas is going to require either renting a smaller place than you want/need. Or even more severe measures like multiple families per household, subletting rooms, and running businesses from homes that are not zoned for business. Heck, look at the whole "Tiny House" fad that is spreading so fast. The rent is indeed too damn high!