First Time Home Buyer
Little back story... I moved around quite a bit after undergrad, primarily for work. I've been in my current market for the last 3 years and it appears I will be here for at least another 3-5, so I've been looking into buying my first home for the last year or so. I'm in a HCOL market; Not SF/LA/NYC, but close in terms of cost of living. I really started looking in January of 2020, but then COVID hit, and with all the uncertainty I put the breaks on. I also sort of felt like a recession was looming and wanted to try to buy the dip. Started seriously looking again in early February of this year...
One of the things I am struggling with is the lack of rational that goes into making an offer on a home. I guess in a way it's analysis-paralysis, but here's an example:
Condo A is listed in March 2021 for $600k. Completely original, built in 1990
Comps for the Condo include two identical floorplans in the same building/community. They are both completely renovated and sold in Nov/Dec 2020, for $545-$565k. Renovations are likely about $50-70k right now, potentially more (Construction costs are ridiculous here, and typically 2-3 month lead time minimum)
Condo A just sold for $665k cash.
This has happened on nearly every place I've offered on. Another place just went for $120k over asking, no contingencies
I realize lots of boomers are downsizing now and getting out of their homes since they are sitting on a ton of equity, and debt is cheap, etc.... But that type of increase is insane to me. It makes me want to kick this can down the road and wait for a correction (again).
So let's say renting is $1,800-2,000/mo. Most of what I am looking at is a downgrade from what I currently rent. I'd be putting the minimum down, so at $600-700k purchase price; all in payment will be $3600-4200 depending on the HOA. SFRs here are listed at $800k minimum and rarely go for less than 15% over asking, so that is sort of out of the picture. I'll have a roommate paying me $1,200-1,400 a month depending on the circumstance, but am still having trouble laying out this much cash. Total cost to purchase is roughly 2-3% of price, so $18-21k. Plus non equity monthly fees such as insurance, HOA, PMI, etc; Is it worth it to just keep investing everything I can while continuing to rent and wait for a correction? I do have the option to invest directly in CRE due to my network... Which I have done before and am starting to strongly consider again with the funds I have set aside for this
In January of 2020, I thought the same thing and started to back off before COVID hit. Places I was looking at then are trading at 15-25% more right now. Really kicking myself and don't want to feel the same this time next year, but the prices I am seeing right now just don't make sense to me
If anyone here has been in this position before and can lend some insight I'd greatly appreciate it
In there strong markets, everything is going above ask, there is a huge supply imbalance right now.
In the same position as you right now - unfortunately no real advice to add, the market is just insane. Not only are winning offers coming in way over asking (and often all cash), but some are completely waiving inspections, and offering to make up any difference if the appraisal comes in light. Also debating on kicking the can down the road another year.
I hear ya. I have some friends in the SF Bay Area and was told that for the most part, realtors don't even include contingencies in the offers these days. Thankfully where I'm looking, it's not quite that bad, but it's definitely getting close to it
I bought my first home about a year ago. While I've enjoyed having much more space than when I was renting, I wouldn't buy it unless you really value the intangibles because the math is never that attractive, especially in a HCOL area. Personally, I would be reluctant to buy a house in this market if I didn't have a growing family. If my wife hadn't pushed for a house, I would've saved my down payment and invested that amount in the market instead. Here's a funny, but true, post on owning - https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investm…
You fell victim to what a lot of people fall victim to--attempting to rationally project how the market will behave during a recession or uncertain economic times. The problem with acting on rational projection is that it fails to take into account the endless variables that are difficult to foresee: 40% increase in the money supply, semi-permanent telework, low interest rates forcing investors out of bonds and into residential real estate, building supply shortages.
When you go to buy a personal residence for yourself, the right time to buy is when you're ready to buy. It's not supposed to be an investment; if it turns into a good investment then all the better.
we are in a bubble right now...if you can wait 2 years, then i suggest doing that...that's when prices will come back to earth.
prices are high because supply is low...it will take 1-2 years for supply to increase to = demand
also...transaction costs are VERY HIGH when you buy real estate....it generally takes ~ 6 years to breakeven buying vs renting...so if you are going to be moving within 5 years, don't buy....and ESPECIALLY don't buy at the top of the market like we have now....you will most likely take a loss in 5 years when you sell....PLUS those pesky transaction costs (~4% of purchase price goes to the realtor/broker...that's $24k on a 600k house)....so my advice is just continue to rent and don't overspend....save up for when prices come down and you have more certainty on the next 5-10 years of where you will be living.
think of it this way...on a 600k home, you will have a 500k mortgage
monthly payment = $2100
1250 interest
860 principal
$3/month will shift from interest to principle
after 3 years, 1170 vs 936 (i vs p)
avg $900/month to principle = $32k of principle paid off after 3 years (which you get back when you sell)
avg $1200/month interest = $36k of interest paid over 3 years
assuming you can rent a nice enough apt for $2k/month = $36k of rent over 3 years
assuming you can sell the property for same price you paid in 3 years....4% * 600k = $24,000 broker fee transaction cost (2 years of rent at $2k/month)
now you got to add property taxes (assume 10k/year = 30k over 3 years)...assuming you put $0 into home maintenance(unlikely) ...you will have saved $54k by renting vs buying for 3 years.
I don't disagree and this line of reasoning is exactly why I backed off back in January of 2020... Thinking that a correction would be coming in 1-2 years; then COVID hit and changed things a bit.
I live in a HCOL coastal market that is completely built out. There is next to no new construction anywhere nearby, and the little bit that does go up sells for seven figures. I mean, I could move out to the suburbs and get more house, but it's just not worth the trade off... So while I understand it's a supply issue, I just don't see it improving. If anything, it's getting worse. I've run the numbers and know exactly what you mean, but if prices continue to rise at 7-12% a year, wouldn't you have rather bought now than waiting 2-3 more years? It's nice to know I'm not the only one who thinks these numbers are crazy though
On the flip side, rental rates are not increasing nearly as fast... Plus I have a good relationship with my landlord and she's already told me she's only going to do $50-100 increases per year if we stay long term. So I can always just keep investing the difference and probably do fine with far less risk and a significantly more comfortable residence
also need to take into account the boomers...in 5-10 years they will start dying in large numbers, and that will flood the market with houses.
the boomers population bulge started in 1950 (5 years after ww2 ended)...they are now 71...their avg life expectancy is 78
the boomers children will inherit their houses...and large % will try to sell into a flooded market.
I'd hold off until things are more back to normal and settled. People are still moving around quite a bit and if you are don't really need a house to own right now, just wait. I really feel like you'll just overpay on anything you buy.
If you want to buy today, I recommend looking at something that has been on the market for a weirdly long period of time, despite having a reasonable price.
For example, my market is basically a permanent seller's market so even as things ebb and flow good product sells within 15-60 days, but if you find something that seems reasonable in price that has been on the market for, say, 90+ days, give it a look. There is probably some fundamental flaw with the place, but maybe it can be corrected. I purchased my condo in an extremely hot market in a hot building. The subject unit sat on the market for several months despite most units going in 2 weeks. Why? The layout was crap, the place remained virtually untouched since its construction in 2006 so it kept a mid-2000s cheap builder-grade vibe. So I bought it--at a lower price than ask in a hot seller's market. I renovated the interior, added some non-load-bearing walls to improve the layout and used the wasted square footage creatively. With $50k in renovations I got more than 100% of it back + I'll be able to sell in weeks rather than months.
So, if you want to buy in this bizarre market, get creative.
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