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need advice on buying or waiting
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jc



Joined: 07 May 2007
Posts: 2

PostPosted: Mon May 07, 2007 3:44 pm GMT    Post subject: need advice on buying or waiting Reply with quote

Hi everyone!
I am new to Boston and the forum. We are in our 30s and looking to start a family soon so we just started looking into the housing market. We make about 100K a year and currently rent a 2bd for 1.2K/mo close to work. We are staying here for at least 5 more years. My questions are

1. Is the market stablizing or are we still not near the bottom ? There are some reports on condo sales stablizing recently.

2. I am thinking of $450K - $550K range. Would it be more risky to buy a single family home outside the city of a condo close/in the city?

3. Since we are not sure where we'll be in 5-6 years, is not better to wait for one more year and see how the market is going ?

Any advice is appreciated!
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Mon May 07, 2007 4:29 pm GMT    Post subject: Reply with quote

When you say "we" make about $100k, think about how much your wife makes and depending on how big of a family you want, deduct her salary out if necessary or at least cover for day care in your projections... If she makes the same as you, you won't be able to swing a $450-$500 mortgage on your own.

I don't know what your down payment ability is, but run the numbers, you shouldn't spend more than .28 of your gross household income on: mortgage, pmi (if needed), real estate taxes, and home insurance.
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JCK



Joined: 15 Feb 2007
Posts: 559

PostPosted: Mon May 07, 2007 6:46 pm GMT    Post subject: Reply with quote

Assuming you don't have a ton of money saved for a down payment, your monthly house payments are going to at least double if decide to buy a $500k place.

Run the numbers carefully, and don't forget to include taxes, insurance. Remember the taxes and interest are tax deductible, which can help somewhat.

Do the whole calculation before even starting to look. You may want to start saving aggressively for a larger down payment now to cut your monthly mortgage. (Doing so will also give you a good idea how the larger payment will "feel.")
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Hank



Joined: 27 Apr 2007
Posts: 37

PostPosted: Mon May 07, 2007 6:48 pm GMT    Post subject: Reply with quote

I pointed out in another thread the NYTimes Calculator, which is one of the better ones to play with (and the graph is just plain nice to visualize what is going on).

It should give you a few ideas on what you can, and can not afford.
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JCK



Joined: 15 Feb 2007
Posts: 559

PostPosted: Mon May 07, 2007 6:48 pm GMT    Post subject: Reply with quote

As always, john p's advice is good.

If you're buying for a family, consider school quality as well, and be sure any condo will provide enough space. Most condos big enough for a family in the city are pretty pricey.
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CJ
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PostPosted: Mon May 07, 2007 8:28 pm GMT    Post subject: Re: need advice on buying or waiting Reply with quote

jc wrote:
Hi everyone!
I am new to Boston and the forum. We are in our 30s and looking to start a family soon so we just started looking into the housing market. We make about 100K a year and currently rent a 2bd for 1.2K/mo close to work. We are staying here for at least 5 more years. My questions are

1. Is the market stablizing or are we still not near the bottom ? There are some reports on condo sales stablizing recently.

2. I am thinking of $450K - $550K range. Would it be more risky to buy a single family home outside the city of a condo close/in the city?

3. Since we are not sure where we'll be in 5-6 years, is not better to wait for one more year and see how the market is going ?

Any advice is appreciated!


I am probably in the similar situation.

1) No we still are not near the bottom. I guess if Fed does not raise the rate, it may hit the bottom around spring 2009 (after more subprime problems solved......).

2) $450K - $550K range?
Not sure about your down payment, but that's a lot of money for a couple. For that range, you will pay about $4700- 6000 for property tax a year (depends on what city you choose). A signle family house will cost you about $3000- $4000 utility cost (condo will be cheaper, since the size should be smaller). If you buy condo, the codo fee is about $2400- $4000 a year. More likely it will be close to 4K range, because you are buying an expensive condo.

Unless you have 30-35% down payment, $450K - $550K range is very risky for 100k income.

3) It's going south now. For example, city like Randolph got a sharp hit recent few month. Property could lost 10k value in one month. (Check zillow.com...) I am hunting a 10% below market house or I will wait at least until next spring.
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jc



Joined: 07 May 2007
Posts: 2

PostPosted: Tue May 08, 2007 1:33 am GMT    Post subject: Reply with quote

Thanks everyone!
Actually it's my husband who makes about 100K, I am in grad school and have about 30K /year from my fellowship money but it will run out when I graduate in a few years. We have been saving so we can afford 20% down.

I guess my main question is that if this summer is a good time to buy ? We certainly don't mind renting for another year or two if the market is still going down. Since we may or may not be here after 6 years, we dont' want to get in on a high price.



JCK wrote:
Assuming you don't have a ton of money saved for a down payment, your monthly house payments are going to at least double if decide to buy a $500k place.

Run the numbers carefully, and don't forget to include taxes, insurance. Remember the taxes and interest are tax deductible, which can help somewhat.

Do the whole calculation before even starting to look. You may want to start saving aggressively for a larger down payment now to cut your monthly mortgage. (Doing so will also give you a good idea how the larger payment will "feel.")
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Tue May 08, 2007 2:57 am GMT    Post subject: Reply with quote

Quote:
I guess my main question is that if this summer is a good time to buy ? We certainly don't mind renting for another year or two if the market is still going down. Since we may or may not be here after 6 years, we dont' want to get in on a high price.


For an unbiased forecast of where prices are heading, you might want to check out the futures market for the S&P/Case Shiller Index for Boston. There is a very nice graphing tool over at the Paper Money blog which lets you combine historical data, futures, and year over year changes. Last time I ran the numbers (on Thursday), the current pricing of the futures implied a 6.53% nominal decline between December 2006 and December 2007, which will obviously be greater once adjusted for inflation. I would also recommend reading this recent article by Rich Toscano on why the Case-Shiller index is a superior measure of housing prices.

- admin
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JCK



Joined: 15 Feb 2007
Posts: 559

PostPosted: Tue May 08, 2007 12:48 pm GMT    Post subject: Reply with quote

There's really no way to know what's going to happen with prices. The futures market is a good place to start, but it, like everything else, is only a guess.

That being said, I suspect most would agree there's a pretty good chance prices won't rise much over the next 12 months or so. I would suggest taking your time to look, run all of the numbers, and don't buy until you find something that you both like a lot and is a good deal.

There's little danger you're going get priced out by not buying now.
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Tue May 08, 2007 1:43 pm GMT    Post subject: Reply with quote

Quote:
The futures market is a good place to start, but it, like everything else, is only a guess.


Absolutely, it is just a guess. However, unlike most other guesses, there is a great deal of money involved which is tied directly to the accuracy. Things tend to be much more accurate when people are paid to be right. As an example of what happens when this isn't the case, witness the permanently sunny and frequently wrong "forecasts" of the National Association of Realtors, where the money is tied to compelling people to buy rather than being accurate. That said, I do agree that the price predicted by the futures market shouldn't be treated as if it were guaranteed - I would just treat it as much more unbiased than other guesses.

- admin
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JCK



Joined: 15 Feb 2007
Posts: 559

PostPosted: Tue May 08, 2007 3:02 pm GMT    Post subject: Reply with quote

Admin,

I agree that the future markets provide good guess, but they can also be wrong. I recall looking at what happened to futures values of "Republicans retain control of Congress" on one of these online futures sites. They were dead wrong. The futures markets are good, but even they cannot know the unknowable (e.g., where will interest rates be in 12-18 months and what will the Boston area job market look like in that time).

I would thus be hesitant to oversell their value.

And I agree that the futures markets are a better place to look for predictions than the NAR.

The bottom line is that purchasing a home you can actually afford minimizes your risk in any market (bear or bull) and, if you find a good deal on place you like, it can make sense to buy.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue May 08, 2007 3:55 pm GMT    Post subject: Reply with quote

If we're going down this road for a bit, here's something to think about: You can adjust your currency's value by adjusting the interest rate. If a family's mortgage is $2,000 and the rates drop significantly like they did a few years ago, that family could refinance and save about $500 or so. So that is $500 more dollars to spend at Arbys, Crystal's shoes, the Clam Box or the Beacon Hill Pub. Everybody got a raise, the FED flooded unearned US dollars into the economy. When the dollar was really strong, we got to buy lots of stuff overseas, but nobody could afford our stuff. We got a trade imbalance (trade deficit). The $1.36M condo only costs the european guy 1 million euros. Just like when you balance a chemical equation you have two sides, to understand why it seems like stagflation and salaries haven't risen, you need to see that the other side of the equation isn't within our borders entirely, a portion of the balance is overseas. Look at global products like oil, see how it rises. Look at a domestic product like eggs, not much change. I read in the Metro this morning that this South American city has a coke at $1.36 and the average rent at $225 or so. There are millions of cheap, cheap workers in several developing countries and these countries are all thirsty for oil. I don't know how the currencies will find equilibrium, taxes and tariffs will be managed,we control the pollution in developing countries and deal with the inevitable rouge countries that will appropriate US holdings in their countries and prosecute US citizens working abroad with their own legal systems. We're playing with fire. Our global economy in the 1970 and 1980's created situations like Iraq and Iran; we empowered some of the bad guys that are over there now. I'd feel better if we could get off oil somehow and advance manufacturing engineering and get some more manufacturing here. Sure there is money to be made overseas. Some people are getting it. Others are suffering so that they can. Lastly, this housing bubble is a global thing. Lots of countries are dealing with it now.
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BK- former owner
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PostPosted: Tue May 08, 2007 3:57 pm GMT    Post subject: Starting a family and Buying a Home Reply with quote

Dear JC,

In your question you state:

3. Since we are not sure where we'll be in 5-6 years, is not better to wait for one more year and see how the market is going ?

Buying with such a short time horizon is probably a mistake. You need to consider all the costs you will incurr when you buy and sell a home. If you leave Boston in 5 years and the market is soft - will you be under water? You still have to pay lawyers and Brokers to help with the transaction.

Don't let having children force you into buying a home.

We've been renting for my childs entire life - he is a happy and talented kid. He's barely aware that we are part of the dreaded 'Renting with children' crowd. He's probably not even aware that his parnets have lots of financial flexibility because we have chosen to be renters.

Our child does know that his parents have no yard work or home repairs on weekends - we spend ever weekend together as a family.

Contrary to popular belief - you can raise well adjusted children in a Rental home or Apartment.

This will be the hardest decision you make - to chose to be a Renter - perhaps one day you children will be proud on the unconventional route their parents took to be financial responsible.
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Tue May 08, 2007 4:58 pm GMT    Post subject: Reply with quote

Quote:


I recall looking at what happened to futures values of "Republicans retain control of Congress" on one of these online futures sites. They were dead wrong.



Ah, but were they? What was the implied expected value and what was the implied standard deviation? I don't know what the numbers were myself, but if the expected value was within one standard deviation of 50%, I wouldn't call it wrong. I would say that the prediction would have been "too close to call" in that case, even if a cursory look might imply that a value which isn't exactly 50% would give a prediction favoring one party.

Similarly, the 6.53% decline in Boston area housing predicted by the futures market should really be expanded one standard deviation in each direction if you want a good estimate. I don't know how to calculate the implied standard deviation or how big it is (though I'm guessing it is large, based on the low volume on the contracts). This is something I am interested in learning, though, and will probably look into in the future.

Yes, this can still be wrong. Even when you expand the range by one standard deviation, the prediction will only be right around 68% of the time (assuming a normal distribution). However, you can make it as accurate as you want by expanding some more. Two standard deviations should get you 95% accuracy and three standard deviations should get you 99.7% accuracy. So while there will always be some uncertainty, you can control how much.

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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue May 08, 2007 6:19 pm GMT    Post subject: Reply with quote

Thanks for getting us back on track... Yes, that was a very important point about the transaction costs. Once you buy the house, once you drive it off the lot it loses 5% of it's value because that is what it will cost in transaction costs to unload it. Further, you may have a period where you may have to pay a double mortgage if your next sale isn't seamless.

We bought July 28th last year (accepted offer). I was just stepping into a limo to go to the Bon Jovi concert when I heard the news that they accepted our offer. The conditions that we used as a basis to buy had to do with price strata, geography, economics, taste and timing.

Our house would cost $200k more two towns away. Our town hasn't been discovered and isn't on most's radar. Further, the cost of my land back when it was built in 1997 was like $60k or so. Most towns, you can't by an empty lot for under $250k. Because they just put a commuter rail stop in our town, it effectively became significantly closer to Boston.

The quality strata relative to price was unusual. We had one house sale fall through earlier that spring, thank God and later found that we could get the house we hoped we could move into 5 years later for another $28k. Fortunately, the interest rate dipped and it only added around $100 or so to the payment to get the much better house. We understood that the larger, younger home would appreciate more over time and if we stepped right into it we could avoid the transaction costs and get to live 5 more years in a house we loved. We negotiated in some items that would have been a cash outlay for us like washer, dryer, refrig., dog fence and we used the cash savings to cover the premium in mortgage for the first year or two.

Economically we felt insulated because we like the area and the home so much that we can camp out here for a long time and we can get through any dips along the way. I am a bit older and more established in my career than the typical younger first time buyer. Economically, I don't see a plunge in home prices unless we get much steeper interest rates or a recession. If you buy a house make sure you have an emergency fund in case you lose your job for 6 months or so. I wouldn't have bought in today's market without a decent emergency fund.

Regarding taste, if you have really specific taste and you only like 1 out of like 20 homes you go through you have to consider that if prices do correct the pick of the litter homes will get grabbed and sometimes you get the best selection when nobody is out looking. The worst part about this was getting into the car with my wife after walking through the place and she or I would say "I loved it" and the other would say "I hated it". You have to be able to laugh at that when it happens or it will make the process feel like you're licking a dirty shag carpet. I found my house by driving many of the neighborhoods of the towns in the surrounding area. It's better to get past the double click approach to seeing houses.

The last point, timing relates to macro and seasonal. If you have flexibility to wait, I'd wait a year or so to see what happens and save. Uncertainty is a bargaining chip and if things do stabilize there might not be as steep of discounts as what you can get today. If you can buy off the seasonal peaks, sellers will deal a bit more. If you can catch a town or neighborhood before it bubbles you can also avoid paying a premium. The too nice towns are like the tourist towns that you visit, something is missing, they don't seem real, the magic and essence seems lost. Kind of like how Greenwich Village isn't the place for artists anymore. If you cultivate the things that you find to be cool in your life, you might discover a cool place to live too.
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