bostonbubble.com

[Guest]

We have two kids and like a house in Natick. This house could be sold in about $630000, we just did the appraisal and the appraisal price is $750000. Is that a good deal? Should we buy now or wait for a year or two?

We both have stable jobs and our rent right now is about $3000, since we rent a big luxury apartment.

Anxiously waiting for your opinion.

[melonrightcoast]

Have you done the math? Can you afford the mortgage/ins/taxes/maint. AND additional utility costs? Have both you and your husband been preapproved for a loan? Do you have a 20% down payment? Do you have an emergency savings fund for six months or more of your expenses in CASH?

A lot of these questions have recently been gone over in the thread I started (asking a similar question) titled "Buy now or wait? Opinions wanted!"
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melonrightcoast ... are you?

[Guest]

Answers to your questions are all yes.

Thanks!

[Rental Lease]

It sounds like you're spending only a small fraction in your rental property that you would if you bought that house you like. Now IS a great time to buy, but you might consider finding a house with a payment that's similar to what you're paying now, for a starter home. Otherwise, I'd just renew your rental agreement, and keep spending what you know you can afford.
Best of luck,

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Junior
Editor's Note: Signature links removed. Please avoid overly commercial linking.

[GenXer]

Don't forget my other conditions for affordability of a house which costs 630k:
1) How much do I have saved for retirement?
2) What happens if one of us loses a job?
3) How certain am I that I'll stay in the house for the next 5 years?

If the answer is still, yes, we can afford it with EITHER one of us losing a job, AND we have saved at LEAST as much as the house is worth (if you are >50 - you probably need MORE saved than that), and we are not worried that we'd have to sell this house with $100k loss in 5 years (just an example) then we may be ok.

I do not think that anybody without retirement savings should buy a house, because essentially you would be putting all of your eggs in one basket. A luxury apartment for $3000 - this must be the most expensive 3 bedroom I've heard of. You can get a rental in Waltham/Lexington/Newton for way under that, and for $3000 it will be a 3 bedroom. A house like that will cost a lot more than $3000 a month.

It is much cheaper to rent, but if you plan to buy and blow some cash in the process, at least have all of your bases covered.

[Guest]

Thanks for the reply. My situation is we are in the early 30s and if one of us lose job, we still can afford the house. Our monthly pay for the house incluing tax and insurance is around $3300. We both earned more than 100K. We have been saving 401K. And we do have 6 months cash cushion.

The apartment we rent is a 4 bedroom luxury in Newton. The house we are buying is 3000 squrefeet new house with views. We love it. It's a short sale.

In this case, should we buy?

[JCK]

Your finances sound pretty good so here's my main warning: Homes are money pits.

Don't underestimate the cost of repairs/maintenance, which is something you don't have to deal with when you rent (and most people don't account for when purchasing). Friends of ours recently bought a place, and they've been putting tens of thousands of dollars into various projects, most of which are pretty routine. Painting the exterior of a small home shingled, for example, can cost over $10k easy. Make sure you're not going to need a new roof, etc. any time soon, or that, if you are, you're taking such an expense into account.

If you think you have good deal and you can afford (like it sounds as though you can), I think you're well positioned to buy. But make sure your time frame is 5+ years for moving again.

[GenXer]

Guest: There is still a lot of information missing here. A house like that can set you back significantly. A 6-month supply of money in this economy should probably become a 2 year supply. Without having more information about your particular situation it is impossible for me to tell you whether you should buy or not. Send me an email and I may be able to help you make a decision, as this is probably the most expensive purchase you are going to make in the near future, and if you don't want to get this one wrong.

[john p]

I think that running the numbers for affordability is important. A 6 month cushion is ok, but in these times, it wouldn't hurt to have a little more.

What is also important once you get the green light from the affordability exercise is to look at it from an investment perspective. I know the knee jerk reaction is "A house isn't an investment", but in light of the way things are timing the market is a smart thing. If you figure that you can afford to buy, and you put $350k out there, you might get more for that $350k in a couple of years.

Why experts are having trouble with this is that the current administration has turned on the money printing machine and no one knows how to model out the scenarios. Obama has put a lot of chips on the table and he's doubling down so many who adhere to industrious values and build wealth little by gradual are having a hard time getting their mind around this approach. I mean it was the immediate gratification folks that caused this problem.

[GenXer]

john p: Exactly what you said. To turn it around a bit, a house bought for 700k may be worth only 350k in a few years, because we do not know how the market will behave in the future. It may even be worth less. So one has to be ready for circumstances like these, to avoid the fate of millions who made the wrong bet simply because everybody around was doing the same.

[Guest]

How can a house worth $700k turns to $350k? If that's the case, what's the value for old houses? My house is new and 3000+ square foot. If that happen, I think 90% of houses will be foreclosures, USA will be abandoned or WWIII already started?!

[GenXer]

Guest: The point is, nobody knows what will happen to housing prices. We are speculating here based on 'evidence' we think will help us predict the future. But what consolation will this be to you, if you run with the assumption that everything will be rosy, and everything turns out just rotten? Dont forget, this is not just the housing prices. This could happen in the following scenario. One of you loses a job, you can't afford the house anymore, you have to move, the house is worth say $500k, but you are trying to sell and there are no buyers. If you are bleeding cash, you may not have too many choices left. Do you want to test the possible outcomes? Just because you can afford it NOW doesn't mean you will be able to afford it in the future. No job is safe. And NOW is not the time to gamble with your future. What you need is a study of your financial situation which will examining different scenarios and possible ways to achieve your financial goals with different assumptions. Sometimes we don't see the mistakes we are making with our finances, and it is always good to have another set of eyes and brains to help you make the right decision. Most people make emotional decisions to buy a house, but I think a better way is to find a good financial planner who can help you make this decision. Worst case - you'll get to hear somebody else's perspective on what they think you'll be able to do.

[melonrightcoast]

[balor123]

[melonrightcoast]