Buy or rent?

Question

I was talking to one of my relatives who is in the business of mortgages. I was telling him that I was interested in buying a house in Minnesota (where I live). He told me that I would be better off renting for a year because the market is doing so horribly and buy a house when the market starts to go back up.

I'm unsure if I should take his advice or not and would appreciate any feedback.

Answer 1

Investing 101

Buy when no one is buying.

Sell when everyone is buying.

Houses are down in value, sellers are desperate to sell, and you can basically name your own price to buy what you want. In a year, people will get over their fear and lots of people will start buying - giving you lots more competition and making you pay more for your house.

Also, if you buy now, you'll have the advantages of all the tax breaks on home ownership costs for an additional year - saving thousands of dollars in taxes to Uncle Sam you wouldn't have to pay.

I sold most of my properties in 2005. I am now aggressively buying properties now. If you are buying, now is the time.

Answer 2

It's virtually impossible to see the bottom of the market as it is happening.
It is clear that prices have fallen nationwide. If you don't have to sell first to get into a new home, then it's not a bad time to buy. You have the advantage of sellers who are motivated to sell and who would be open to all sorts of bells and whistles if you asked.
News analysts say that since the Fed has recently cut the prime interest rate in response to the housing drop, they MAY cut it a little more in the next 3-9 months. This would mean a better mortgage rate for you.
On the flip side, you can ask any Realtor and they will tell you that when prices drop too much, many sellers will pull their houses off the market and hunker down until prices start to rise.
So you can buy now while sellers are more nervous and potentially flexible about price and still get excellent mortgage rates, or you can gamble that rates will drop more and there will still be houses on the market like you want to buy. (Think I would take the bird in the hand.) Either way, given the volatility of the market, be prepared for more scrutiny into your finances from mortgage companies and DON'T take a variable rate mortgage under any circumstances.

Answer 3

I think what your relative meant was, the housing market is down right now because mortgage rates are up.

Buying now or waiting is a gamble. If you buy now, the price you pay for the house will be lower, because the market is down and some sellers will be desperate to unload a home they can no longer afford because their adjustable rate mortgage payment increased so much. At the same time, you will pay more interest over the life of your mortgage.

On the other hand, if you rent, the mortgage interest rates may come down, making the interest you will eventually pay less. At the same time, sellers won't haggle with you for a lower price because there are more buyers looking because of lower interest rates. In the mean time, you are sending rent money out the door (unless your rent is lower than the mortgage you would pay, and you can put the excess away to increase your down payment, lowering your overall interest cost...)

Interesting question. I wish I had time to run some present value/future value calculations, with varying interest rates, rent payments, purchase prices, etc. If you have a friend who is an accountant or financial adviser, you may be able to tweak their interest like you have mine. You know - fire up Excel, open a bottle of wine, build a few models, open another bottle, rinse and repeat....

Answer 4

Real estate is a LOCAL market so the "national" numbers will NOT help you make a desicion. There is never a perfect time to buy or a prefect time to sell. But if you are looking at buying a house then here are a few steps I would take to put you in the best position to see if this makes money for you or not.
First, study your local economics. Is the population going up or down and are jobs being created or eliminated? What is the avg. income level for workers in your neiborhood? This gives a hint to future demand for houses. Detroit is LOSING population and LOSING jobs so who is going to be buying the houses regardless of price? Housing is a supply and demand product. So then study the demand supply side. How many new houses are being built? How many houses are buying knocked down for highways, business projects, etc.
Which schools are in the highest demand? Which areas have the best appreciation rates? Where is the lowest crime levels? What are the taxs rates for the local areas?
From this information, you can then start looking at neighborhoods and see which ones fit your price range. Learn what houses have sold for in the past and what areas are currently selling and which areas are just sitting. Shop around for a true "realtor". By that I mean there are lots of people who have the name tag but do not have a clue as to what would make a good INVESTMENT. Find a realtor that OWNS investment property. IF a realtor says it would be a great buy because the walls are freshly painted; RUN do not walk out the door. But if the realtor says it is a foreclosure that you can buy at 57% of most recent sale, it will rent for positive cashflow, and is in an area which should be the first to turn around; then you have found a person who knows thier stuff.
The buy of a lifetime comes along every 2 weeks in real estate. To a person that knows what to look at ad how to put a deal together there are ALWAYS more deals then you have cash to do.
This wek I am buying a house in Las Vegas that sold Feb. 2006 for $300,000.00 and my TOTAL cost for house, repairs, and closing is $175,000.00. After repairs and painting and getting it rented out I will refinance ( paying cash for purchase) and get a 70% Loan to Value based on appraisel of $250,000.00 and have ZERO $ invested in a house that will put $2,000.00 a year in my pocket after taxs and will sell for a profit of over $100,000.00 in less then 5 years.
Can you find a deal like this where you live? Maybe; spend your time INVESTING in YOUR education and spend weekends talking to realtors. My deal puts about $22,000.00 in my pocket every year; renting will NEVER do that but buying for the right price in the right area at the right time will.
Do NOT: NOT: NOT think that tv shows like "Flip this house" will make you rich. That is TV and they leave out little things like,...closing costs, realtor fees, etc. GROSS profit is what they end the show telling you but gross is not reality; NET profit is what you need to be looking at but if they told you NET then it would not be a popular show.

Answer 5

Why would you want to buy when the market starts to go back up? That would mean that you would pay more for the house.
The market is bad now, so there are bargains no matter where you live. Check out the local area where you want to buy, and find a Realtor that has access to the MLS, so you can look at places and see how long they have been on the market, and if there have been any price reductions, etc.
Having a knowledgeable Realtor can save you thousands of dollars!
Good luck to you and happy house hunting.

Answer 6

That really makes no sense. You want to buy when the market is down. You will get a better deal on your purchase. Sellers are more willing to pay closing costs, lower the purchase price ect. The rates have also come back down. So now is a great time to buy.

Answer 7

Buying a home is a commitment that you're stuck with until you pay it off or a buyer takes it off your hands. If you have a good amount of money in your savings and a secure job with good prospects of renting out the house if necessary, then go ahead and buy the home. It's a good investment, not to mention the equity you build and the tax break.

Answer 8

It is defiantly a buyers market. If you have the means to purchase now....IE... good credit, down payment etc.. then I'd buy right now. Find your dream house....negotiate until you have bled the last dime out of the sellers and move in and just wait till this lull in the market is over... when it turns around you'll be sitting pretty. Good luck!

Answer 9

If the real estate market is low, now would actually be a good time to buy because if the market goes up, you will make money off your investment

Answer 10

Well I say buy when the maket is down, you get a better price, than when the market goes back up you can geta better price and your investment will be worth more.
If you buy a home when the maket is high you will pay more for it, and your investment will not be as worthy.
It is like a stock, buy low sell high, not buy high sell low!