Some time ago I posted a thread soliciting advice on buying a home. There was very interesting information that got me to thinking. Well, more legislation is being enacted that I thought added an interesting twist for myself and other potential first time homebuyers. Republican Sen. Johnny Isakson has reintroduced a bill that would give home buyers a tax credit worth 10% of the purchase price of a home up to $15,000. You may recall that he did this in the initial stimulus package but it got reduced. The interesting twist is that he wants to remove income limitations (currently it’s 75k for single and 150k for married). He also wants to extend this to ALL homebuyers and not just first time homebuyers. Moreover, there is also an effort to give a $3,000 tax credit for refinancing or "put equity in their home if they’re a little underwater."As far as putting equity, does this include granite countertops to build equity? :rolleyes:
Now what I am particularly interested in discussing is the possible deflationary impact this is going to have. The government seems to keep sweetening its deals so why should I buy now?
According to a website I read, there was talk (National Association of Realtors or Homebuilders and/or senators) of waiting until the deadline of the first (technically second since we had the $7500 0% loan first) on November 31 to push this through so people wait around for a better deal.
Now to further complicate matters for those who are looking at this from a more number oriented perspective, how do rising interest rates come into play? Over the past week according to bankrate.com a 30 year fixed rate mortgage has gone from 5.46% to 5.70%. How does rising interest rates affect your mortage payment?
For every 100k one borrows at 5.46%, the mortgage payment alone (excluding PMI, insurance, etc) would be $567.79. At 6.0% if I wanted the same mortgage payment, how much could I borrow? 95.5k for a monthly payment of $567.09. What about at 6.5%? 90.5k for a payment of $567.05.
So there are multiple things in play here:
Can I get a better deal from the government courtesy of the American taxpayer by waiting?
Are interest rates going to rise such that any tax credit is going to essentially be offset?
Who the heck knows where housing prices are going to go from here. Seem like once all this money goes flowing around it’s not all going into the buyer’s pocket. The sellers will adjust their prices once the market gets going to take a piece of the pie as well.
So there’s a lot of stuff to think about. Ultimately I suppose it comes down to whether one really wants to be a homeowner. Personally, I am leaning towards no. But this is certainly something for those who are ready to think about.
Buying a house should be an activity that feels somewhat different from playing the stock market. The scenarios you’ve sketched out look to me like various forms of market timing. Personally, I think it’s hopeless to go into homebuying with this kind of attitude. You can never know all the macroeconomic factors that will play in, and in any event, those factors might be dwarfed by the other things that can happen when you own a house – the meth lab that opens up next door, the water pipe that lets go when you’re on vacation, the raccoons that take up residence in your chimney, the local school that falls to the bottom quartile in its standardized testing, etc., etc. It’s all a gamble, and anybody would be hard pressed to say you should put your money in a house as opposed to some other kind of investment. Or the reverse.
Oh, yeah. We’ve been trying to buy for the last THREE years and I’ve been reading everything I can get my hands on about this stuff.
Probably. But as you note sellers will adjust their prices accordingly, so the government is basically just propping up the house price by $15k (or whatever).
Well, yes and no. Yes, interest rates will certainly rise (unless the government does even more harebrained things than it’s currently doing). But even though the immediate effect is for your cost to go up, the more long-term effect will have the effect of bringing house prices down, for two reasons: first, demand will go down because the cost of a mortgage will go up (you’re not the only one doing the math and realizing that increasing mortgage rates mean you can’t afford that house anymore unless the price goes down) and second, recasting adjustable-rate mortgages at the higher rates will fling more foreclosures onto the market. I actually WANT interest rates to go up before we buy. (The problem with this analysis, of course, is if you really want to buy in the short term, you don’t want interest rates to go up and get stuck in the region where you have to pay higher interest rates before the sellers see the light and lower their prices.)
I know. Down. (see #2, for example)
It may seem like market timing, but the whole debt-induced bubble has made it so that you have to think about this kind of stuff (whereas when my parents bought 30 years ago, the housing market was much more stable). Real estate is currently still so overvalued that I wouldn’t touch it unless you had a really good reason to buy. Heck, we HAVE a good reason to buy (we really need to move from our current apartment within the year, and we both really really hate to move, and if we don’t buy right now we’ll have to move more than once), and I’m resisting it.
I think this is true, and the fact that so many people forgot this is partly responsible for the mess we’re in now.
When I was looking for my first house two years ago, I ignored the stuff in the real estate books that said “you should think of this as an investment”. I was looking for a house like I would have looked for an apartment. I was looking for a house that I wanted to live in for many years and that I could get a mortgage on that wouldn’t be too expensive for my budget, just like I would look for an apartment that I would like living in and whose rent wasn’t too high for my budget.
I’ve been unemployed for a couple of stretches since we moved, but there was never any question of losing our house. I think knowing that it’s very unlikely that you will lose your house and be forced to move is a seriously underrated feeling. I certainly wouldn’t trade it for a house that was fancier and had gone up in value (ours has lost value, though only slightly).
Man, I read the title as “first-time homebrewers” and was three paragraphs in, wondering where you were going with this, before I re-read the thread title. Don’t mind me…
I just bought my house a couple of months ago. The decision to buy was driven by realizing that it is a buyer’s market, and by obtaining pre-approved financing. The first-time credit was a happy bonus for me, not a factor in the purchasing equation. That said, what the government giveth, the government can taketh away. I claimed the credit on my tax return, cashed the check, and paid most of it on my mortgage. With no pre-payment penalties, every extra payment I make goes directly to principal…and reduces the amount of interest that will accrue over the life of the loan. Maybe future buyers will get a better deal, maybe not. I’m satisfied with the deal I got.