I'd like to thank everybody for all the input. Its been an educational thread and I'd like to say that I have bought the house. The owner has accepted the offer, the final was a sale price of 222K and the owner is paying an additional 5K towards closing costs. I went back and forth and decided to go ahead and purchase. As many have mentioned that most likely prices will drop over the next two years, the problem is that I don't know how much more they are going to drop. My final thought process was that I'm buying this house at a discount from its pre-housing bubble appraised price so my assumption is that there will be downside but I don't think we will fall more than an additional 10% from the pre-bubble prices. So I'm assuming my downside risk is to about 200K and I think 7 - 10 yrs from now I should at least be able to re-sell for 222K or more. The actual year to year movement of the houses value doesn't mean anything because I'll be living there and the actual value of the house means nothing (because a house is not an ATM to me) until I decide to sell it where my thinking is that I should at least be able to sell it for what I paid. An earlier poster mentioned that what if the house drops to 175K, again if that is the case then I will simply stay in the house because it is in a neighborhood I like and the house has everything I need to stay there even if I have to live in it for 30 years. I was more certain about interest rates going much higher over the next two years than I was about how much more potential downside there is in prices so I decided to go ahead and lock in a low interest rate now. So I chose to speculate on interest rates over price depreciation, we'll see how it goes I think if I was planning to try a flip or had a much shorter time horizon for selling then I would wait for more price depreciation because I think in the case of flipping you are more concerned about price versus loan interest rate......but again I'm not a real estate guy so I just made a decision based on running some numbers on my own financial situation and what I can afford if this decision does end up to be bad. So finally all I can say is I am trying to help those existing home sale numbers to go up next month!!
If you bought the house to live in, enjoy living their, and don't view it as an investment, but a lifestyle choice... CONGRATULATIONS! I wish you many years of happy home ownership. Genuinely.
I think making the decision based on interest rates was wise. Please try to follow up on this thread in a year or so. It will be interesting to follow. SM
If you own then you will have paid a fortune in interest payments too. Rent is no more "dead money" than the interest on mortgage principal is "dead money". You need to compare total cost of ownership vs benefits. For renting, you pay the rent and that's about it. For owning, you pay mortgage interest, arrangement fees & refi fees, insurance, repairs, property taxes, and you gain or lose the P&L on the home at sale. If rents are low enough, renting can be cheaper so long as property values do not rise very much. If values fall then renting is almost always cheaper. Rental yield spreads over mortgage rates have to be very high for owning to make sense in a down market.
True. Also the AMORT. schedule on a 30 year fixed is set up to where the VAST majority of your payments for the first couple years go to interest.
That is true but with some creative financing you can usually reduce the amount of interest you pay on the loan. I'm a big fan of HELOCs and with the flexibility of having two places now with HELOCs will make moving money around much easier and obviously if you're a renter then you really don't need to do any creative financing......but I would be curious to see if there have been any studies done that shows the stats on rent vs. own in the last 50 years or so...