bostonbubble.com

[FieldGrass]

Ladies and gentlemen,

It is been an enlightening experience reading the discussions in this forum, and reliefing to know that I am in the same boat with so many talented minds.

The discussion has been mainly theory (expect brian c.'s recent case). Here is another real case which I would like to bring up, in the hope of both getting your insights for my own purpose and bringing the community another reference case.

We have been watching a couple of immune towns for over two years now. Here is a real situation.

We finally found a house that is resonablly priced. It is not our dream house but we realize that everything in life is eventually some kind of balance. We liked the town, the school district, the location, the design of the house. We do not love but can live with the yard. The house is 50+ year old and need to be modernized a bit in kitchens and bathroom. Otherwise, it is very nicely maintained.

The current asking price is 3% above town assessment.

Our situations are,

1. 30%+ saving on down-payment, with about 2% return now, which are not invested in the best way because we prepare to put it in downpayment anytime (that anytime being nearly 2 years now )
2. Renting at about 0.375% of the purchase price, current rental is a SFH but are smaller.
3. Fed income tax bracket is 28%.
4. Not-experieced in maintaining a house.
5. Supreme credit
6. If we only finance 70%, one salary should be able to handle it, although both of our jobs are fairly secure (all in relative terms nowadays).
7. We have two kids, one in school and one baby.

Here are the questions that I can think of,

1. If we put all our savings down, the tax adjusted monthly morgage + property tax + insurance should be roughly the same as our rent. Should we go for it? Anything else that need to factor in as a finantial decision?

2. The listing agent is very experienced, and is creating a price competition. The asking price is below town average. He is holding off presenting offer until a week after the house is listed, including one open house. Our question is, should we offer the asking price, below, or above it? What is the best way to bid?

3. What are other risks, in addition to a). further decline of the house price; b). both of us losing our job; c). selling in short term due to unpredictable reasons?

I appreciate your attention and thoughts. Just writing this post has already bring me to some peace. I have not had a single penny of debt in my life. Borrowing such a large amount, not matter how affordable by other standards, is really nerve breaking.

[balor123]

[balor123]

One more thing, you didn't mention which income. You need to make sure that all of your expenses could be entirely paid off of either income. You can do without savings for a bit but you don't want to pass on life or disability insurance. Remember that you also have to factor in ammortized costs like cars. Another significant risk factor is the price of gas. If your immune town is Newton you're ok but if it's Sudbury maybe not.

[balor123]

And please post more details about the house after the deal has gone through, whichever way it goes. We really do rely too much on macroeconomics here and it would be nice to get some case studies in. It'd be especially nice if you could get to know your competition somehow (open houses?) so we can get an idea of what kind of buyers there are in these towns and what their state of mind is.

[GenXer]

You are rightly wondering about the mountain of debt which we assume every time we buy a house. This leverage has the potential to bury us financially, which is happening even to people who thought that they were immune and who could afford their houses hands down before the recent turmoil hit them.

Every situation is different, and unless all of your numbers are on the table, it is impossible to say whether you are doing the right thing. Some people get lucky simply because they get lucky. But if you do not want to depend on luck, it is always better to have a good financial plan. Without it, you are just gambling. If you had a plan, you wouldn't be asking for an opinion of a bunch of people who only see partial information you post here. A good plan involves
1) Long term financial goals and how you are going to reach them
2) A study of planned events such as college for kids, etc.
3) A study of unforeseen events and how to deal with them (i.e. finances in case certain events occur)
4) Investment plan
5) Everything in between, such as a budget, tax planning, estate planning (if necessary)

The question is, not whether you can afford to buy a house (and what someone can 'afford' can vary wildly depending on whom you ask), but whether you are prepared to buy it.. Affordability can change instantly, and if you are not prepared to handle most thing that come your way, whether planned or unplanned, you will not get a good answer to your question.

[Hard Rain]

"We have been watching a couple of immune towns for over two years now"

No such animal...

" What are other risks, in addition to a). further decline of the house price; b). both of us losing our job; c). selling in short term due to unpredictable reasons? "

That's not enough risk for you? BTW, Further decline is not a risk it's a given.


"The current asking price is 3% above town assessment"

Couple questions:

Do you understand assessments are based on prior year sales?

What has happened to home prices over the last year?

[john p]

You have quite a chunk of money available for a down payment, where is it currently parked? Depending on where that money is, the delta in the value of the down payment amount may be greater than any delta of house price fluxuations. I would think about what you think will kick in first, house prices or certain types of investments. If you feel comfortable that stocks will go up in value before house prices because it is typically a delayed reaction, perhaps wait until you get a jump on the down payment and then when your down payment grows from a 30% to a 40% amount, then that house kind of got a little cheaper. I have a feeling that with a bit of pent up demand, if stocks move upward, it is a sign that the economy is doing better and more people will feel more comfortable in buying, so those open houses will be more crowded.

I would say that if you are comfortable in buying and most aren't and most sellers are very motivated, you should low ball so much that it reduces your fears. Try to evaluate what price you'd feel comfortable paying today without a crystal ball. If you would have no apprehensions paying 15% off of asking, offer 17% off of asking. It's like falling off an edge. If someone said that you'd fall 20 feet, you'd be really afraid, but if they said it was only a 6" drop you'd be more confident. Successful people in business are able to evaluate their comfort zone and operate within it. You can set the height, you're in control. What do you have to lose?

[FieldGrass]

Thanks for all the advises. First a self-correction. Another real case is reported by brain c, who deserve all appraises for his detail information.

[FieldGrass]

Answers to some questions,

balor123 > One more thing, you didn't mention which income.

It is either income that will cover the 70% morgage.

Hard Rain > No such animal as immune towns... That's not enough risk for you? BTW, Further decline is not a risk it's a given.

As balor123 pointed out, we have a micro vs macro economics here. I will post some more details/updates below. But please look for an article in March 2009 Boston Journal, and notice the red spots. To mention a few YOY increase,

Cambridge, +15.55%
Lexington, +1.23%
Manchester-by-the-sea, +12.96%
Wellesley +5.37%
Weston: +2.55%

There is also a supply and demand factor among everything else. Statistics means very little to individual cases. In these towns, sales volume is way down, but reasonabbly priced house sell very fast.

Hard Rain > Do you understand assessments are based on prior year sales? What has happened to home prices over the last year?

The seller has owned this house for 30+ years. This town is in the category of price increased in the past year. In the houses we followed, there are indeed a few entry-level houses in $500K +- 5% range (yeah, $500K is considered entry level ) which are baught and sold again in the past few years with about 5-10% increase in price.

john p > You have quite a chunk of money available for a down payment, where is it currently parked?

It is in a non-panelty CD, with 2% return. Investing in stock is not an option because house buying is identified as our #1 priority (and it has been in the past 2 years ).

Now some updates.

The open house is scheduled in this weekend. I will report the turn out, but based on my experiences, it will be crowded.

The asking price is $560K, assessed at $542.

A similar house in the same district just closed today. Asking $557, assessed $557, sold $520. The open house for that one is flooded with visitors. That house's condition is worse than this one, which is not modernized but in move-in condition.

We have tried a few low-ball game on houses that are less favorable, with mixed results.

(All in K)
Asking, $679, offered $610, declined. Told that an $645 offer is also turned down. Still on the market. The old couple is downsizing, and is not in a hurry. On the market for 60 days.
Asking $679 after 90 days, dropped to a$599, offered $560, declined. Pending.
Asking $560, pending in 3 days, we consider less favorable comparing to the current one in discussion.
Asking $590, pending in 10 days
Asking $639, offered $590, declined. Pending in 3 days. Told that two other offers are all within a couple of thousand $s within asking price.

I truely do not believe 15% will happen in this case.

Interest rate jumped to 5.5% today, from 4.75% just a few days ago.

I think it is a good buy in today's market, and would like to hear objections.

Can you also suggest the right offer price based on these new info.?

Stay tuned.

[FieldGrass]

Addtionally ...

we have emotionally calmed down from right after seeing the house, and are okay to walk away and wait until winter. The house does need at least about $20K to modernize, it does not have a back yard, and a little close (about 100ft) to one of the town's busiest street (but not right next to it).

[FieldGrass]

Correction -

It does not have a NICE backyard.

[balor123]

Mortgage rates are a huge risk factor to the housing market. I wouldn't want to buy as long as the government is actively meddling with it. I don't think the Fed is funded to continue buying MBS past 2009 if that is any help.

[Hard Rain]

"Asking $557, assessed $557, sold $520"

And you're considering paying 3% over assessment, how does that make sense ?

[Guest]

"To mention a few YOY increase" where are you getting this data? median or average?


The median sales price for homes in Cambridge MA for Feb 09 to Apr 09 was $405,000. This represents an increase of 0.9%, or $3,750, compared to the prior quarter and a decrease of 27.7% compared to the prior year. Sales prices have depreciated 5.6% over the last 5 years in Cambridge.

[WestCoastXPlant]

You sound like you're in good shape -- and I agree with the previous advice -- I err much more on the side of reserves (as opposed to larger downpayment) these days. Same thing for "which salary" though 10% should be able to hold you though 6 mo of job loss...

Balor, here was our experience last week (house in a "steady" area, well priced homes still moving well)

Asking 475K, DOM 133 (small house, great location, largish yard)
Us 410, counter at 470.
Us scratching heads, counter at 420. Them:Counter at 468.
Us -- have a nice day, see ya in the fall

Re the rates increase, I'm not so worried about that -- we're already pricing a 1% increase while looking. What bothers me is reports that loans now take forever to close -- I've been in BoAs queue for a month now...