New and looking to buy a home

Miscellaneous Newbies
1

I am new here and unstudied, but what I have read on this website I have found to make more sense then what my Econ 101 teacher has taught, though I enjoy his class.

I am getting married March 28th and we were thinking about buying a small starter home somewhere near Idaho State Universities campus. People talk a lot here about how the housing market hasn’t been effected (or has been effected in a lot smaller degree) and that it is a good time to buy with the 10% or 8,000 (whichever is less) home credit you never have to pay back if you live in that house for 36 months. I was looking for some advice as to if I should rent or own. I went on bloomberg and I used the rent vs buy calculator and I tweaked all the settings to fit this area and this time and it said I would have to live there for 4 years to be a better deal then renting, but of course that didn’t take into account the $8,000. I am not a fan of socialist ideas and the government doing such things, but it also seems foolish to leave such things alone when they are being offered on the table.

Any help?

Oh about me, I am 23 years old, will be getting married Mar 23rd on spring break. I am attending ISU and this is my first semester. I am really drawn towards economics but don’t have any idea of what I would be able to do for work if I followed my love.

Orchard Tiger

2

The advice I give everybody is the same: right now buying a home is not an option. Rent. I have no idea how the home market is in your area but pretty much everywhere homeowners who bought houses “as an investment” are getting desperate for a quick buck. And the situation will only get worse for them as more and more people will start looking for buyers/renters.

Also keep in account that you have to fork out 8000 dollars right now and live there for at least four years: what if you find a good job opportunity requiring you to move? You’ll be pretty much stuck in an impossible market.

3

I hesitate to give advice when someone is making a life changing / altering descision.

If I was to throw my few bobs worth in though:

There is an over supply of houses. They (government) are trying to keep the bubble propped up. It will fail. Prices will tumble. And this “party” is just about to get started.

I don’t know about that area, so take all this with a grain of salt. But if there is a job opportunity available elsewhere, you should want to be flexible and mobile and not having to try sell your home, in a depression. lol. The market is still yet to go fully bust, or the dollar is still yet to tank.

Personally, I’d probably rent, whilst keeping track of the local prices.

All in all, keep studying REAL economics. i.e the Austrian School. Check out the free literature section, pdf’s (Entire Books) and Media (Audiobook and Lectures) on pretty much ANY given subject.

Learn, became autodidactic (self taught) and have the final say on your own investment decisions.

Welcome to the forums. [:)]

4

If you’re relying on the gov’t “starter home credit” 10% or $8000 as either a significant help or the actual means to be able to buy a house - that means you can’t afford it. Don’t buy it.

If your monthly housing expense - Mortgage payment + property tax + insurance adds up to more than 30% of your total gross monthly income then don’t buy. ie: you Gross $60k a year = $5k a month. Your monthly Mortgage + taxes + insurance should add up to less than $1500.

Don’t think of it as a way to have a tax break. You may think you can claim the property tax and mortgage interest against your income taxes and get reimbursed thousands of $ at the end of the year. The state gov’ts are broke. The Federal gov’t are broke. Those tax breaks will not last. They’re already modified / reduced in California. When financially deciding to buy a house I would not factor in these breaks anymore.

If you don’t have at least 10% saved up right now in the bank to go down as a down payment, you can’t afford the house. If you need any type of mortgage that is not a 20 or 25 year fixed interest rate mortgage that pays Principle and Interest then you can’t afford the house.

Don’t read any hype on housing market from any realestate agent or newspaper or people trying to sell houses. It’s all lies. Do your own independent research. Google “Mr. Mortgage” http://mrmortgage.ml-implode.com/ and subscribe to his email list.

Don’t listen to people’s investment advise with regard to buying a house. A house is not an investment. It is a consumer good that you must upkeep. It’s also a liability that if you loose your job you have to worry about foreclosure. When buying you must compare the cost of renting that same house to buying it. If you can buy it and pay monthly mortgage + taxes to equal that of renting the one next door then buying the house makes sense. However, if termites eat the walls or the roof leaks you have to foot the bill if you own it. If renting is cheaper then I would suggest renting and putting the extra money into a 401k. If your company matches the 401k then immediately you’re doing better.

These gov’t programs in act today to “stimulate” housing will only lead to a bigger housing fall down the road. In 2007 I had 20% down payment ready to buy a house and had placed a deposit on one. I had a couple months until escrow. Some friends smarter than me gave me some advise. I read some books and did some research and I backed out of the deal - best decision I ever made. Thouse I was buying is now going for $150k less than what I was buying it at. Houses are going at firesale prices, but they’re still going to be going down for the next couple years due to 3/27 or 2/28 option ARM resets up until 2012. The reason I’m not buying for a few years is not because of declining prices. It is because Obama stimulus package is intended to prop up housing prices - that means - making the houses remain overvalued. If prices were to fall to the proper level to clear the market then buying a house may make sense. As long as there’s gov’t in the picture trying to promote or pursuade house purchases by some “deal” then run the other way. The money incentive to use their “deal” may be attractive, but the problem is the underlying distortion that their program is creating to the entire housing market.

The Fundamentals of the economics behind the housing market has been bad for many years. The market is trying to correct for this distortion. Obama’s plans with cheap credit and home owner “deals” is only keeping the housing market fundamentals distorted. As a result, when the deals go away the housing market will have a tendency to go down once again - to a level desired by the free market without gov’t intervention.

Anyone that tells you that now is the time to buy and you will make money in the future… walk away from them or turn off your TV. Anyone that states that “this is a once in a life time opportunity - act now” is someone trying to sell you something and take your money. If the housing market was healthy then you would not make a lot of money in a short time.

Do your own research and listen to your own gut instincts on this.

5

If you’re not planning to live there for at least 4 years, you should probably rent. Almost all of your mortgage payments on a 20 or 30-year mortgage will be interest instead of principal.

6

Government doesn’t offer you money to do smart things. However, keep in mind a few things:

  1. Housing is not an investment, it’s consumption. That said, a part of this question is your comfort. On the one hand, some people like to own. On the other hand, as a student getting married, you’ll also need a job. It’s nice to have your walks shoveled, lawn taken care of, and so on without having to think about it. The owner deals with the headaches, you just enjoy the property.

  2. Sometimes, it’s not just about the economic factors.

  3. You plan to graduate, and then go do something. Do you want to be tied to a house?

  4. The calculator is static. What do you think will happen to home prices? I think they’ll fall. That’s a reason to rent.

7

108. Peter Schiff: You’re Better Off as a Renter

http://www.lewrockwell.com/podcast/download.php?filename=2009-03-23_108_youre_better_off_as_a_renter.mp3

8

Taking the house out of the equation, and not knowing your circumstances, but it sounds like you are already funding an education and next will be a wedding to fund with a future to follow. Any talk of kids?

If these commitments have you overextended already, do not buy, or at least I wouldn’t (but we’re all in different circumstances remember). Sure, the more credit you have the better it looks (so they say), but credit’s not going to feed you when someone takes it from you, which all credit is controlled at someone else’s whim. Savings are real. Maybe you’re on loans for school, so you’re not paying now, but you will, trust me. I have student loans, a mortgage, and am in a committed relationship which never required going into debt to validate our love and devotion - I obviously have enough of that already.

If you’re not working, get to it also. The sooner you start doing something, the sooner you have experience. That’s what employers want - experience. You can have pieces of paper all you want hanging on a wall, but until you can show that you can do something and not just in theory, you’re not helping yourself. Being out of school now I am sad to see so many lost students, floating through school, not applying themselves to the jobs that they’ll hate once they’re out of school - the crap, bottom-level jobs that you must do to do your time. Do your time now while you’re young - intern, volunteer, whatever, just go out and get active in the field you want to be in.

There’s nothing wrong with renting. What can be wrong with saving money, not paying taxes, and avoiding more responsibilities and burdens than are necessary to our survival in this world?

9

I think you should rent if there is a decent chance you will be moving within 5 years to a different area. If you are planning on staying in that house for probably 10 years, then buying is not as bad an option.

Right now the housing market is soft which could get you a good price, but you do not want a variable interest rate because of what the Federal Reserve and Federal Government are doing with our money supply. I think that interest rates will sky rocket within the next couple years, and right now the interest rates are low which means getting a fixed rate if you are determined to buy is ideal. It will take a long time to get interest rates under control unless Federal spending and policy change quickly, which means at least as soft if not softer housing market until people get used mentally to high interest rates.

10

Hello again, it has been a long time since I have been in the forums, but I do read the daily post on occasion. I often feel like the daily post assumes that you know a lot about the economic theory being presented here, so I sometimes feel left out but for the most part I really enjoy what I read.

Since my last post I have been married and currently work for the Fire Service of Idaho 16 hours a week while taking 14 credit hours at the university.

I really appreciated everyones comments. I did end up buying a house and we closed Jun 1st. We bought our house way below market level so we have $8,000 in equity already. (We didn’t use any realtors). It has been nice having our own place, we planted a garden and have been enjoying the food from it and the space is really big for two people. We payed 105,000 for a 4 bedroom 1 1/2 bath house that is 1,864 sq. feet. it has no garage and I believe the lot is 1/10th of an acre. It needs a little work but I don’t mind doing the work myself and rather enjoy it.

I have a question, let me preface it, we pay $560 which includes our property tax and home owner insurance an we pay about $90 in utilities each month. For renting a place, I believe it would be around $500 to $600 here but of course it would be smaller (and you couldn’t have a garden). We saved 11,000 (thank you wild land firefighting last summer) and borrowed 11,000 from my dad (which we are paying back at 3% interest) So our loan ended up being 84,000 thus meeting the 20% down payment requirement to avoid homeowners insurance. We have been paying an extra $45 a month on our house payment which is at a fixed rate of 4.75% for the next 30 years. I don’t know of any places the would give better interest to save that extra $45 but there may come a time when it would have been better to not put that money into the house. What would be the best way to go about this, or is this path the best for the time being? If my house truly does lose its value would it be better to save the money or to have put it into the house? I realize there are a few things to consider but I am not sure myself.

I am taking a macroeconomic class right now and our textbook was written by Paul Krugman. We are just in the introduction so he is mainly defining terms but he has already stated that when market failure takes place then government has a role in economics. I disagree with how big of a role our government plays with the “free market.” I was wondering though, if there was material that could help me understand the economic theories that Mises and others advanced and what their solution(s) would be to problems like pollution?

11

For the life of me I cannot understand how it is possible for someone working part-time and studying to buy a house.

12

Rent, wait, establish a secure income, and save. You will know what you can afford. Let the female in the relationship pick the house, but make sure you both can afford about an eight month income furlough before you buy. That’s my two cents.

Note: If you have a problem getting good work, try sending out resumes without your college degree on them. Recent graduates are acquiring the reputation of know it all know nothings right now. Play your cards close.

13

I am sad you did not read my updated post. We have bought already and I have a new question. please refer above. Renting and “owning” a home like ours is 50/50 and we plan on being here for 4 years so I can obtain my degree and perhaps longer if I get enrolled in the pharmacy program.