Do I buy a home now?

[Salaryman]

Need your advice and feedback on this one.
We've been lucky in living below our means and side stepping the real estate market up until now. Our kids are growing and will need to attend a better school district than where we are now (6, 3 & 1).

Realizing that this decision is mostly personal as well as based on geographical location, I can provide the following info:

-NY, Nassau County, Great Neck school district
-dual income in different industries, outlook stable; early 40's
-'worst case' projection of losing one income still covers the household costs
-retirement savings 600k, other investments 200k+
-no debt, spotless credit

It's a big move for us and the scary economic/job market environment has spooked us somewhat. That said, the prices have come down and we will need to move eventually. Just not sure we're too early to buy or not.
Would love to hear your comments and suggestions.

 

[Rambler]

Salaryman, I think now is a great time to buy. I'm looking to pick up something myself, maybe a condo near my kids university, so we can all have a place to gather when we visit.

Just a few considerations: 1) if you move, what does that do to the commute (for both of you)? 2) childcare considerations? 3) one or the other of you have to change jobs? 4) could you pay the mortgage and living expenses in target location on the lowest of the two salaries...just in case? 5) Can you sell your current home? If not can you rent it out (assuming here that you already own...)?

R

 

[chinaco]

If you are financially stable and your job is dependable... now is probably the best time to buy a house. It is a buyer's market.

If and when you decide to buy.. be careful of buying more house than you need.

Buying too much is a trap many fall into... which causes them to spend more on the home than needed. Even if it looks like a great deal... you will wind up spending to furnish it, maintain it, pay taxes, insurance, etc.

 

[deepc]

The painful part of home ownership is that now, at least by us, the fiscally prudent move is renting.

Add up the realistic total costs of home ownership. Maintenance on our house averages $500/month (for ex: new roof just done, amortized over 30 years, no further work on it (HA!) is 33$ a month). Taxes on Long Island appear pretty high, utilities are going up, and spot costs (like that roof) can hit you in the 5 digit range on occasion (we've had two--plumbing and roof--hit us in ten years, plus appliances (tend to be 4 digit hits), and such. Even with the downslide in the market, the housing prices have not sunk down to where you couldn't rent a nicer house for about the same money.

One philosophy that has worked for us, is to never buy a house as an "investment". Many of the folks in trouble today did not follow that philosophy, and you hear how they're under water in the house and can no longer afford the mortgage, or that it's not worth paying the mortgage. Huh? If you could afford it in the first place, and you wanted the house for more than an ATM machine, then you'd pay it (and perhaps be ticked at your poor timing, but realize that prices will come up eventually.) You get in trouble when you say, "I'll only be here a couple years, so give me some of that ARM."

Hey, my opinion only. Stand by for the folks to chime in on how much they made over two years on their houses, paying interest only. You got to do what's comfortable for you.

 

[dex]

I like deepc's thoughts on the buy vs rent issue.

If you must buy I'd wait a few more months. Although people are getting laid off they haven't been forced to sell yet - prices should come down a bit more.

But, do the math on rent vs buy - the cost of home ownership in your area is very high.

 

[Midpack]

I am assuming you don't currently own a home and my comments below reflect that. But you didn't say and it's a significant factor. It's a good time to buy even if you already own, but it's probably a screaming good time to buy if you don't own already.

I agree with Rambler and Chinaco that it's a good time to buy if you've found exactly what you want, where you want on the terms you want - you should seriously consider it. However, renting in the interim is not throwing away your money like some would have you believe, especially in this housing market.

However, I don't think the buying opportunity window is going to close soon either, so I wouldn't be in a hurry. The Fed/Treasury is talking about forcing mortgage rates down to 4.5% right now. And I don't think home prices are going to increase anytime soon, they could even fall further - but you have to research your specific area to know that. It's a good time to be actively looking (and you should with your situation), but I think getting exactly what you want should drive your timing above all right now. Don't settle for something because you think you're catching the bottom, there's no way to know that but you are certainly not buying at the top which puts you ahead of the game to start with...

 

[honobob]

Over the last 18 years the AVERAGE annual appreciation for real estate for all of New York is 7.07%. For Great Neck Estates, NY it is 12.45% over the same 18 years and 15.38% over the last 10 years that you missed out on. Great Neck Plaza has had 19% average annual appreciation over the last 18 years.

That's what you give up when you try to compare renting vs. buying and don't factor appreciation. Real estate is an investment. Some people have bastardized LBYM to exclude themselves from smart investing. Sure their initial costs and monthly outgo is less than if they had done their research and invested in the higher appreciating areas. "Yea! I'm saving $200 a month because I bought on the wrong side of the tracks!" "Oops, I'm losing $3,000 a month in appreciation!" See the poll on "the REAL real estate appreciation rate. Most here say they are only getting 4%. $300,000 at 4% gets you $12,000 per year. $300,000 at 15% gets you $45,000 per year. Penny wise, pound foolish?

With that being said, don't buy unless you can make a 5 year commitment to keeping the property and the financing.

 

[Midpack]

Wasn't there something about a housing bubble in the news lately? Thought there was and that the northeast was one of the hardest hit areas.

 

[honobob]

Wasn't there something about a housing bubble in the news lately? Thought there was and that the northeast was one of the hardest hit areas.

Midpack, where are you getting your information, TwaddleDoom.com ?
Maybe you haven't read this mornings paper yet.

Local housing shows 5-year net value growth

Federal Housing Finance Agency reports 273 out of 292 metro markets showing positive net home values over the previous 5 years as of the third quarter.

Syracuse, NY 29.9% appreciation over the last 5 years!

"Unlike stocks, where your asset values can go from peak to zero in a matter of weeks, house values tend to be far slower-moving, and can be more durable over extended periods. Buy a house and hold on to it for five to 10 years in all but the most severely depressed local economies, and you'll probably see growth in its value, even if a rough patch of price deflation intervenes."

4% appreciation my *ss!

 

[FIRE'd@51]

I see this much the way Honobob does. Great Neck is a desirable location and will probably outperform other less desirable parts of Nassau County. IF you find the house you want, I would go ahead and put in a bid now. Even if prices go lower, you may not be able to find a house you like as much at that time.

 

[Midpack]

Midpack, where are you getting your information, TwaddleDoom.com ?
Maybe you haven't read this mornings paper yet.

Local housing shows 5-year net value growth

Federal Housing Finance Agency reports 273 out of 292 metro markets showing positive net home values over the previous 5 years as of the third quarter.

Syracuse, NY 29.9% appreciation over the last 5 years!

"Unlike stocks, where your asset values can go from peak to zero in a matter of weeks, house values tend to be far slower-moving, and can be more durable over extended periods. Buy a house and hold on to it for five to 10 years in all but the most severely depressed local economies, and you'll probably see growth in its value, even if a rough patch of price deflation intervenes."

4% appreciation my *ss!

Fair enough. What I was getting at was I doubt he's risking losing out on appreciation short term - in support of my earlier post that he should get exactly what he wants and not feel like he had to act as fast as possible...

 

[Frugality_of_Apathy]

I'd wait until 2011 before buying a home if I didn't already have one. Banks were still passing out those 5:1 ARMs like candy well into 2006 so people and then it most people don't default and declare bankruptcy until months after they should have when the cost of their home becomes unaffordable.

I think prices are going to be stagnant or decline until the bulk of people that are going to default get out fo the market.

 

[Moemg]

Depending on where you are looking now is a great time to buy . Most of Florida is a blue light special and my sister just sold her house in Long Island after several years on the market . I'd just be ready to negotiate a good discount from the asking price .

 

[Bestwifeever]

Why not think about buying this summer? You can be in before school starts for your now-6-year-old, and prices may even be a little lower than they are today. I'm reading your comment in the OP that you've sidestepped the real estate market so far as meaning you don't have a property to sell, so you will be soooo golden to the realtors.

And then, once you buy, you can enjoy participating in the pay off the mortgage or not threads!

 

[Urchina]

If you can foresee moving in the next couple of years, start looking now.

It's possible that prices will go down some more; it's also possible that they won't change much. Who knows? I think that if you find the right house for you in a price range you can afford it matters little if it fluctuates in price a bit in the next five years. Since you're planning on buying your family home (presumably where your kids will grow up), goodness of fit is more important than cheapest price. Nobody wants to get taken to the cleaners, but if you're looking at 15+ years in the house odds are good you'll see some appreciation, and you'll have the benefit of an enjoyable and functional home for your family.

So I'm with the folks who say get your ducks in a row and start looking. You've got time and the market on your side -- that's the best time to be looking for a house.

Good luck!

 

[Salaryman]

Wow, a cornucopia of responses! Thanks everyone for all the feed back.

Here are my replies to the comments:

Rambler
-our commutes won't change considerably with the move
-childcare is all set between me (8 to 5), wife (night shift), live in nanny + family on both side living near by
-switching jobs isn't what we want, but if needed the chances of finding them in the NY Metro area are better than other places
-lower of the two salaries will barely cover the expenses, so I agree with your concern
-we live in a low priced coop, selling will not be too difficult nor painful should we need to take a haircut in order to move it quickly; we already have rental properties other than the place we currently live in, it will be cleaner to just sell it

Chiano
-these are not normal times and no job is safe these days; that said, the upcoming annual review and the upcoming couple of quarters should provide a better indication on whether our jobs are secure

deepc
-my calculation shows that at current prices, buying the home in the area that we want equals what we'd pay in rental not including the benefit of mortgage tax deduction and not having to pay for private schooling
-we don't view housing (or cars too) as investments but as necessary consumer items, if we gain utility from using it then it more than satisfies our requirement. We don't think the primary home is an investment/ATM.

dex/Midpack to Urchina
-we agree with everyone's assessment that prices may decrease from here so we're not in a blind rush to buy, we can afford to be picky and patient
-kids' schools are ok for now, in two years time the need to move will be much greater so that'll be the timeframe for our research and ultimate purchase
-Great Neck South HS has always been great, was just listed as 49th top High School in the country
-our search has narrowed to an area within the GreatNeck South HS zone which is in the NYC property area, Nassau county homes are taxed 10k+ while Queens NYC homes are taxed 3k+
-the homes in the area that we're focusing on is more moderate than other flashier areas in Long Island, we're likely to buy something that is just large enough to fit our family (at least 2 bathrooms finally!)
-knowing exactly what we want, we plan to bid on home that match our criterium to see if anything shakes out
-we know that the highly desirable real estate areas deviate from the general market and that we missed out on some great gains in the Great Neck market, but we were not ready to make the move back then and it was the right thing for us so we're ok with missing out on all the fun
-our family situation calls for us to buy a home soon but not immediately; our feeling is that between the crappy economic condition, current and pending layoffs & foreclosures we'll get a shot at something we want at a great price....have to be patient and lucky

Lastly, the prospect of buying a large home and taking on the responsibility of the barely conforming mortgage is daunting to say the least. It will be the culminating event after years of working and planning in anticipation....kinda like the fulfillment of our American dream, I think. Hopefully we will be able to buy our house on the hill and do our bit to contribute to the economy, which I think is a patriotic act.

God bless America!
Happy holidays, everyone.

 

[randyman65]

"our feeling is that between the crappy economic condition, current and pending layoffs & foreclosures we'll get a shot at something we want at a great price....have to be patient and lucky"

NYC is anticipated to lose about 120,000 jobs - I don't think we've seen everything shake out quite yet. And the North Shore of LI is a funny place - people tend to overestimate their house's value longer than many other areas. I think you have some time before pressure comes to bear after the latest bloodbath on Wall Street.

I'm also on the North Shore, a bit further out, and can attest that being able to afford expenses on one salary brings about peace of mind which those who rely two incomes can ever imagine.

 

[Salaryman]

Randeman, you're so right on about the sellers' attitudes in the area. But hopefully the dire current situation will bring the prices in line with reality.

If things continue the way they are going, the real estate prices will soften due to;

-increasing job losses
-increasing rate of foreclosures
-panic selling by owner that realize that the high water mark prices of their homes will not come back for years to come
-coming resets of the option arm mortgages
-increasing property taxes that Albany and Bloomberg will need to inflict in order to make up for the tax revenue shortfall

At least that's the way we're seeing it.

We could move to a lot of other neighborhoods right now with just one salary but Great Neck school district has been on top of our with list & now the price is coming into our budget finally.

After personally experiencing a single income situation sometime back, we'd never ever imaging getting in over our heads where we'd need both income to cover our basic needs. It's a hellof a way to live & having three kids is already stressful enough.

Regards,

Salaryman

 

[brewer12345]

Salaryman, just a picky local area question: if you can buy a house that lets you trade Nassau RE taxes for NYC RE taxes, wouldn't you also get whacked with NYC resident income taxes? If so, I could easily see you possibly coming out behind on the deal.

The choice we made was to buy where we wanted to live in an area that was lower priced and had iffy schools. The money we saved on the purchase price and RE taxes will easily pay for Catholic school for both kids. YMMV, of course.

 

[Salaryman]

Salaryman, just a picky local area question: if you can buy a house that lets you trade Nassau RE taxes for NYC RE taxes, wouldn't you also get whacked with NYC resident income taxes? If so, I could easily see you possibly coming out behind on the deal.

The choice we made was to buy where we wanted to live in an area that was lower priced and had iffy schools. The money we saved on the purchase price and RE taxes will easily pay for Catholic school for both kids. YMMV, of course.

I hear ya. But the DW really has her heart set on the area so I'm inclined to lose the battle in order to win the war. At the end of the day, we'll be looking at a whole bunch of new and painful taxes. Welcome to home ownership, I guess.

 

[liveitup]

I did a search on Realtor.com and from what I see you're looking at a $550,000 minimum for a 3/2 home.Assuming you put 20% and get the 4.5% rate that's being hyped,you're looking at $2229.42 per month for a 30 yr fixed plus taxes and insurance.Go to this site Karl's Mortgage Calculator and add the T&I to determine your costs.

Personally,80% of my net worth is attributed to gains in RE.I was fortunate enough to get in early,live below my means and pay off most of what I own.It's the best investment that I ever made,in spite of the recent downturn.

It looks like a great opportunity to get in,but you must weigh the risks.Should you encounter tough times due to a job loss for example,you do have plenty of resources to fall back on,unlike many that bought at the peak of the cycle.

One good thing about RE is the fed has your back.They're going to do everything possible to stop the bleeding.

DON'T FIGHT THE FED!

 

[Salaryman]

I did a search on Realtor.com and from what I see you're looking at a $550,000 minimum for a 3/2 home.Assuming you put 20% and get the 4.5% rate that's being hyped,you're looking at $2229.42 per month for a 30 yr fixed plus taxes and insurance.Go to this site Karl's Mortgage Calculator and add the T&I to determine your costs.

Personally,80% of my net worth is attributed to gains in RE.I was fortunate enough to get in early,live below my means and pay off most of what I own.It's the best investment that I ever made,in spite of the recent downturn.

It looks like a great opportunity to get in,but you must weigh the risks.Should you encounter tough times due to a job loss for example,you do have plenty of resources to fall back on,unlike many that bought at the peak of the cycle.

One good thing about RE is the fed has your back.They're going to do everything possible to stop the bleeding.

DON'T FIGHT THE FED!

You're not too far off the mark there. We just saw a house today that was 575k with 6k taxes which work out to about 100k down and 3k for mortgage/tax/utilities. Would have loved to buy it on the spot but the specter of a possible job loss is really cooling our enthusiasm.
NYC is in the center of a financial industry meltdown & we'll seeing the effects all over the place....except in the prices of the houses

Most likely, we'll follow the advise of the other posters and closely monitor the market as we try to get a better feel for the stability of our jobs.

This is really tough.

 

[deepc]

I think you're underestimating the cost of your 575k home.

P&I on 475k at 5 pct is about 2.5k a month. Will you get favorable terms with less than 20 pct down?

On a 1,200 sf house, our experience indicates about $200 mo utilities (no a/c either) and that's probably going to get adjusted up by $100 given electric/water/fuel oil costs this year). Then you've got insurance $100-200 month, and you're at your 3k without taxes.

As for taxes, don't know how you're getting off so cheap but another LI town I just looked at showed not only county but town taxes to the tune of about $20k on a similar cost home. But let's say it's $500 monthly.

Maintenance will be a big hit. Again, our small 10 square roof cost 12k for tear off, shingle, and gutters; slate or wood shingle would have been double. And the furnace bubba is due any minute for an annual check up that may go $200. Other costs are similarly cheerful. We figure $500 monthly for maintenance.

So realistically your costs may be nearly 4k a month, not 3.

 

[Salaryman]

I think you're underestimating the cost of your 575k home.

P&I on 475k at 5 pct is about 2.5k a month. Will you get favorable terms with less than 20 pct down?

On a 1,200 sf house, our experience indicates about $200 mo utilities (no a/c either) and that's probably going to get adjusted up by $100 given electric/water/fuel oil costs this year). Then you've got insurance $100-200 month, and you're at your 3k without taxes.

As for taxes, don't know how you're getting off so cheap but another LI town I just looked at showed not only county but town taxes to the tune of about $20k on a similar cost home. But let's say it's $500 monthly.

Maintenance will be a big hit. Again, our small 10 square roof cost 12k for tear off, shingle, and gutters; slate or wood shingle would have been double. And the furnace bubba is due any minute for an annual check up that may go $200. Other costs are similarly cheerful. We figure $500 monthly for maintenance.

So realistically your costs may be nearly 4k a month, not 3.

Thanks for the the reality check, that's exactly what I needed to hear.
I've skimped on a few details which would change the situation quite a bit. We have on hand 20% downpayment & then there's the bank of Mom & Dad that we can turn to for as much as we need. But the monthly nut seems like it'll be 4k like you said.

 

[tryan]

Salaryman,

Yes, today is a great time to buy. Look at REOs. Here's a link to the largest holder of REO's (Countrywide). 1 Great Neck property sitting at 500k. NEVER hurts to lowball a bank on an REO!

Good luck!

Countrywide Foreclosures / REO Property Listings - New York