Viewing a single comment thread. View all comments

jennbo t1_iu5isrn wrote

When should I buy a house? I’ve got some money saved up, but real estate prices were scary in late 2020 and now mortgage rates are scary. First time home owner, 5 ppl, 2 kids, 3 adults w/ income.

8

Kindly_Boysenberry_7 OP t1_iu5nn62 wrote

According to an August 2022 article in Bankrate, the winter is the best time to buy a house.

https://www.bankrate.com/real-estate/best-time-of-year-to-buy/

That makes sense to me and tracks my experience, based on more "normal" markets, before we went into the white hot Covid market from June 2020-July 2022. Usually there are fewer people looking to buy in the winter, just because of the distraction of the holidays. There's also usually less inventory in the winter, but the people that are trying to sell are more likely to have to sell for a life reason - job transfer, death in the family, divorce, etc.

That all said, I feel like right now we are at the most volatile place we've been in the financing world in a long time. Are we at the height of the interest rate hikes? I don't know. Some people think there may be another rate hike, and then I've seen predictions that interest rates will come down into the high 5s by the end of 2023.

https://www.morningstar.com/articles/1106505/why-we-expect-the-fed-to-cut-interest-rates-in-2023

So I think it really comes down to what your family's specific needs are. If you don't buy are you going to need to renew your lease soon? If so how much will you be paying in rent? If you start paying a mortgage rather than rent, you are building wealth for yourself and your family. If you pay rent, you're building wealth for your landlord. An adjustable rate mortgage can also adjust down. And mortgages have no pre-payment penalties now, so if interest rates were to plummet, you could always refinance. That old "marry the house, date the rate."

Real estate generates wealth for you in three main ways - you build equity with your down payment + a piece of every monthly mortgage payment, you get appreciation, as the value of your home increases over time, and there is a tax benefit because the mortgage interest is tax deductible. [NOTE: With the increased personal deduction this is not a given anymore].

I think real estate is an amazing investment, and I've had success with real estate from well before I had any involvement in the real estate business, which is my second career. It's highly leveraged, meaning you can control an appreciating asset by only contributing a fraction - 3%-20% - of it's value in the purchase. It's forced savings. And you need somewhere to live. Why not own vs. rent?

But on your timing question, when should you buy, I wish I had a crystal ball. When you feel comfortable and confident doing so is probably the best answer.

15

thejynxed t1_iu7cdnp wrote

Fed already announced more rate hikes are incoming, how many is what the question is.

2

okcknight t1_iu5m70d wrote

If you plan on staying long term, but what you can afford. You may not be able to afford it later.

7

Kindly_Boysenberry_7 OP t1_iu5ortj wrote

I 100% agree with the advice buy what you can afford. Do not stretch for a house. Make sure you figure in all the additional costs (utilities, a "slush fund" for unexpected repairs, and then another cushion just to be safe, like for increases in your real estate taxes or homeowners' insurance premium). The general rule of thumb is you should not be spending more than 30% of your gross income on housing. But if you have huge student loans, or major childcare expenses, or love to take expensive vacations 2x a year, you may need to spend less than that 30% rule of thumb. Whatever you do, just make sure you are not going to be house poor. That's how things go off the rails.

11

ohihaveasubscription t1_iu632tj wrote

Is it 30% gross, not 30% net?

3

Kindly_Boysenberry_7 OP t1_iu66nwp wrote

I thought it was 30% of gross, but certainly 30% of net would be more conservative. It's really only a rule of thumb, so you have a rough way to measure. At the end of the day, what are you comfortable with?

2