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Should I buy or rent given my financial situation?
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Mon Mar 10, 2014 6:44 pm GMT    Post subject: Reply with quote

No kidding. The current housing boom makes little sense to me. Home prices have risen while interest rates have risen. This can't be a sustainable trend. I guess we don't know how much income has changed but anecdotal evidence suggests, not much more than usual.

This isn't restricted to Boston btw - I'm seeing it here in Austin too. 50% increases in some neighborhoods. A friend of mine just posted his home for sale in Leander. It's 10 years old now and there's hoards of new construction there and like an hour from downtown. They got 3 offers. The Austin Redfin Realtor (which has apparently been operating here for only 2 years) told me yesterday that she's shocked at how much people are paying for trendy homes here. I'm seeing numbers like $900k for 2300sf 3-story town homes, in Austin! A trendy neighborhood close to but not in downtown, which is actually a bit cheaper! It's insane.
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mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Tue Mar 11, 2014 2:05 pm GMT    Post subject: Reply with quote

admin wrote:

mpr wrote:

People like @FormerArlingtonian have a generalized vague fear of interest rates 'returning to normal'. But why do you assume the current level is not the new normal ?


Maybe there is a "new normal," but why would the current level be it? That's at least as vague as an assumption that the historical average is normal, and it's probably more likely to be wrong thanks to recency bias. .

- admin


First I'm not asserting that a particular narrow interest rate band is the new normal. Rather I'm pushing back against the notion that interest rates are abnormally low now.

What @FormerArlingtonian, and to some extent you (admin) are missing is that the interest level and the health of the economy are not independent variables. Absent a supply shock, or the Fed screwing up in a big way interest rates will not outpace economic growth. So a rise in interest rates need not cause a fall in home prices.

This is exactly what balor is describing in the post above: interest rates went up and so did home prices.
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Former Arlingtonian



Joined: 23 Oct 2013
Posts: 141

PostPosted: Tue Mar 11, 2014 8:13 pm GMT    Post subject: Interest are moving up - but human behavior changes slowly Reply with quote

mpr,

I would argue that the enthusiasm wehave experienced in real estate is a direct result of the frenzy in real estate when 30 year mortgage entered the 3% range.

Look back at what happened in the 1980s - you hac interest rates and mortgage rates fall from historic highs, then real estate began to take off, and as rates rose people kept buying.

Then something happens and the realization that paying inflated prices whiles rates rise is a bad idea. People are emotional and buy becuase of emotion often. How many husbands are being told by wives they need to buy a house this year....we can raise our child in a rented home....it's our time to buy....everything will work out.
In the stock market you ahve 70% of the trading done by computer - as interest rates rise you immediately see big corrections in stock market equities.

Rent a copy of the MoneyPit from 1986, starring Tom Hanks, because it captures the spirit and craziness of real estate back then.

Same themes homes are hard to find, rent in the city is super expensive, and good real estate values are hard to find.

On a more realistic level Dr Robert Shiller captured the Boom and Bust of the 1980s in a research report.

http://www.nber.org/papers/w2794 - I'll bet $100 you won't read this.....
and the sames themes arose in the early 2000s when Dr Shiller did this research on "Is there a Bubble.. http://www.econ.yale.edu/~shiller/pubs/p1089.pdf

From 2003 report - what people were saying about real estate:
"The apparent attractiveness of housing as an investment is further
enhanced if the buyer perceives that the investment entails only very little
risk. As table 8 also shows, in all cities in both 1988 and 2003, only a
small percentage of buyers thought that housing involved a great deal of
risk"
"Many thought not only that now was
a good time to buy, but also that there was a risk that delay might mean
not being able to afford a home later.
The number who admitted to being influenced by "excitement" about
home prices was still high, close to 50 percent in Los Angeles, but lower
than in 1988.The amount of talk was nearly as high as in 1988,and talk is
an important indicator of a bubble, since word-of-mouth transmission of
the excitement is a hallmark.
We conclude that these general
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MR
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PostPosted: Fri Oct 03, 2014 9:16 pm GMT    Post subject: Reply with quote

I would recommend buying with your kind of financial situation.

To compare, my wife and I are both medical residents and we make just $60k each and have not even a third of your savings. And we're looking to buy. The problem for us is that we can't even afford tear downs or small 2 bdrm condos. The bidding wars, the inspections that revealed catastrophic damage, etc has really taken a toll on us. I think we might just give up and move out of the metro area once we finish residency. I have very little desire of the doing the same thing again once the kids are school-aged with million dollar houses.
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Sat Oct 04, 2014 1:54 am GMT    Post subject: Reply with quote

@MR:
With a HHI of $120k, you should at least be able to get a townhome in Newton or Arlington in the $400s. In your case, it's easy to be more aggressive since you know that your income will increase substantially soon. I know doctors make less in metro areas but unless you're both going into PCP you really have nothing to worry about. Even in that case you'd be looking at $250k - $300k HHI, which is enough for those million dollar homes.

It's not as bad as it seems b/c property taxes are almost negligible in MA, whereas I'm paying $1k/mo here in TX for comparison. The main reason you shouldn't be buying now is that you have little control over where you'll get your jobs so it makes little financial sense to buy (you need 7 years to recuperate fees), though perhaps the experience will save you money down the line (guilty here).

@Former Arlingtonian:
You bring up a very good point about risk. Despite the great recession, I think most buyers still consider housing to be a non-decreasing asset in Boston. The great declines were concentrated in small pockets around the country and Boston wasn't really one of those. People also forget quickly once they're swimming in money again.

I also got the "we must buy" fever from my wife. We shopped around in 2009 but in the end she couldn't find anything "that felt like a home" and I guess she tired. Later I learned that meant very Earthy traditional places (browns, dark reds, stone, etc), which you wouldn't really find even in Boston inside the 128 belt btw. Then we moved and I got the "I can't rent anymore" arguments. I've learned that it doesn't matter what you learn here. You can't rationalize with that kind of thinking and it's very frustration. Really, what does a child care what the address is on the checks you're mailing every month?
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MR
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PostPosted: Sun Oct 05, 2014 5:26 am GMT    Post subject: Reply with quote

Balor, thanks for the reply.

You don't pay state income taxes in Texas though! My wife and I thankfully don't like big houses, we like cozy ones, but need a little bit of yard. I just have a hard time spending $400k on a condo/townhouse, plus I need reliable parking for 2 cars and tons of basement storage (I like power tools). My ideal is a small SFH (1200 sq ft with a 0.2 acre yard) just under $400k. It's been rough finding anything like that that is in decent shape, not in a flood plain, with a dry basement and doesn't require another $30k just to be up to code.

I don't know, even when our incomes hit $400k+, the thought of buying a $1 million house that's really just a colonial in a good school district seems ridiculous to us. Maybe it's because we're both from Arkansas. The counter argument obviously is, what else am I going to do with the money? And maybe it's just because I'm not making that kind of money yet and don't have the perspective. But with saving for college for probably 3-4 kids and our own retirement, and also supporting our own parents, it's easy for the money to disappear. Add in a million dollar house and the costs that go along with that, it's living pretty close to the edge. Living on the edge is not exactly something I want to do when I make almost 1% income (and have the stress and workload that accompany that).
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MR
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PostPosted: Sun Oct 05, 2014 5:35 am GMT    Post subject: Reply with quote

Our incomes also would go up quite a bit if we leave the Boston area. There are still parts of the coastal New England where a million dollars feels like a million dollars (say Portland ME).

I guess if I were to splurge on a million dollar house, I'd rather do it in an updated 3000 sq ft compound with 2 acres of land and private beach rights overlooking the Atlantic in Cape Elizabeth just outside Portland than in a shabby Victorian on 0.16 acres in Newton. Schools are just as good.
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admin
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Joined: 14 Jul 2005
Posts: 1824
Location: Greater Boston

PostPosted: Sun Oct 05, 2014 1:31 pm GMT    Post subject: Reply with quote

MR wrote:
Our incomes also would go up quite a bit if we leave the Boston area. There are still parts of the coastal New England where a million dollars feels like a million dollars (say Portland ME).


Your incomes would be more in Portland, ME than Boston? I'm curious as to why? I don't know what you're in residency for, but wouldn't there be far more job opportunity in Boston, given the large number of hospitals, many of them world class? (Not that Portland hospitals aren't good - I just spent a week at Maine Medical and would recommend them.)

- admin
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Mon Oct 06, 2014 7:15 am GMT    Post subject: Reply with quote

@admin
Doctors make more the more rural they go, simply because most doctors want to live in cities. The difference can be as high as 3-4x, that is $200k vs $700k believe it or not!

@MR
I can see how that plan would appeal. I would caution, that you should try it out for a few years before making any committing decisions. It's easy to take an urban social life and city amenities for granted. I couldn't live in such isolation like that.

That's top .1% income I think btw. Yes I don't think you appreciate how little $1mil is going to be to you soon. I know the debts feel large but, really, $400k is a freaking lot of money. I suspect you'd feel you're living on the edge on a $1 home too. Living at the edge at your income is multi-million, vacation homes, memberships to exclusive clubs, angel investing, household help, etc.

Don't forget that you're really only paying for the carrying costs (taxes, opportunity costs) and downside risks minus savings relative to rent since at the end you're going to sell it. Even a worst case scenario from recent history makes a million dollar home look pretty cheap over a decent timeframe.

I'd venture that you could pay off all your debts, save for college, save for retirement (in that million dollar home), and setup your parents in 15 years. That's about $4mil post-tax. What you do with the remaining 10-15 years and a $400k income (or more), I have no idea. A friend of mine with parents outside NYC and that kind of income bought a million dollar vacation home. I'd retire early.
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Mon Oct 06, 2014 7:19 am GMT    Post subject: Reply with quote

I couldn't leave that post without mentioning the most expensive item of all: divorce. Don't buy one of those!
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MR
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PostPosted: Mon Nov 03, 2014 4:45 pm GMT    Post subject: Reply with quote

Ended up buying a low 300k house in Milton. 1300 sq ft, 3 bdrm 2 bath. Has some typical old house problems.

To Admin: those world class hospitals in Boston pay doctors in prestige rather than money. Often offering some of the lowest incomes in the entire country. Everything is supply and demand.
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PostPosted: Mon Nov 03, 2014 5:27 pm GMT    Post subject: Reply with quote

Met all my requirements. Under $400k, in a good school district for elementary school (Collicot), not too large, gas heat, no huge urgent repairs right away, and walkable to grocery and basic eateries.

You can still find some cheap houses, just need to lower expectations of a completely remodeled house. Most of the homes all have a lot of quirks.
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PostPosted: Sat Nov 15, 2014 12:52 am GMT    Post subject: Reply with quote

Anonymous wrote:
Met all my requirements. Under $400k, in a good school district for elementary school (Collicot), not too large, gas heat, no huge urgent repairs right away, and walkable to grocery and basic eateries.

You can still find some cheap houses, just need to lower expectations of a completely remodeled house. Most of the homes all have a lot of quirks.


Congrats.

I have very similar requirements minus the need for a good school (I'm single w/no kids). Needs to be in a safe area and commute to Boston and Watertown should be reasonable. Is this possible for under $275k?
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MR
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PostPosted: Sun Jan 03, 2016 4:37 am GMT    Post subject: Reply with quote

Update on my $330k SFH in Milton that I purchased last year. Paid about $9k for ice dam damages last winter (got a brand new roof with 100% ice barrier, new ceilings, insurance paid for all the interior damages), fixed some minor plumbing issues ($500) and refinished the floors ($1k), placed new hardwood flooring on some of the rooms that had carpeting ($4k), repainted all the interiors and cabinets ($1k). My mortgage including taxes is about $1800, adjusting for expenses incurred in first year that brings it up to about $3000/mo, but I'm in a 3 bedroom 2 bath house, now mostly updated to my taste and comforts, driveway for 3 cars, with easy access to Boston and the South Shore burbs. I expect maintenance costs to go way down this year.

Looking at my neighbors' recent sales, I'd wager the house has appreciated close to $100k. It's hard to find any acceptable SFH in a good school district within 20 min of downtown Boston for under $400k. I don't regret the decision to bite the bullet at all. A year ago I thought we were in a bubble, but somehow this bubble keeps getting bigger. With $15 minimum wage hitting all the liberal cities in America, it's only going to get worse.
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bsg61
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PostPosted: Thu Jan 07, 2016 9:44 pm GMT    Post subject: Fuhggedaboudit Reply with quote

Buy now or be priced out FOREVER!

http://www.boston.com/real-estate/news/2016/01/07/boston-will-get-more-expensive-over-the-next-years/iSfpyZt4yek0107iF14aCL/story.html?p1=feature_sec_hp#sthash.PYR8T9LA.kcvdEkzu.dpbs

http://www.bostonglobe.com/business/2016/01/07/think-boston-housing-expensive-now-wait-five-years/6qTjKdarDT2AdZkpqrJWaJ/story.html?

Note the first comment in the Globe article. Anyone seen "The Big Short" movie? I won't spoil it.
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