Is now a good time to buy or rent?

In My Humble Opinion (IMHO)
#1

I’m in SE Wisconsin if that matters (which I’m sure it does), and I’m trying to decide between buying a condo and renting an apartment. My main concern is trying to figure out which direction prices are likely to go, and if buying now makes sense, or if I’d be better off jumping on a 6 or 12 month lease to wait for a good deal.

I’m planning on moving from where I’m at ASAP, altough to be honest I could stretch it out a couple months if I needed to. I fully intend to be moved by the end of the year, hopefully much sooner. If I decide to rent, a September 1 move would be my goal. If I were to buy, I do have the luxury of being able to shop around a few months probably.

My job situation is good, and I think I’ll be here for a while, so having the flexibility to move which renting would afford me is not important to me. In fact, I’d rather not move more than I have to, which is one reason I’m thinking of buying now. If I do buy I could definitely see myself staying 3-5 years or more, although of course there are no guarantees.

The kind of condo I’d be willing to buy would probably stretch my budget pretty far, but wouldn’t cripple me, and I could afford it. I also would have access to financial help from my family if I got into a jam, although I would prefer not to go that route.

If I were to rent, I would have a little extra cash I think. Since places I’d be renting would be shorter term than buying a condo, I’d be willing to settle for something less nice but cheaper. If I buy the condo, it would be a little nicer because I’d be planning on staying there indefinitely.

I guess my question in a nutshell is: Will I get a better deal buying a condo now, or would I be better off waiting 6-18 months?

#2

I’m sure you’re right, and I have no idea what the market’s like there. But in many areas the market is quite soft just now, especially for condos. And I don’t think you’ll find a great many folks predicting a sharp rebound in the next 6 months to a year.

You might want to think about lining up several condos that look attractive to you and have been on the market for a while. Try making a seriously lowball offer and see what the reaction is. If you can find some that are owned by banks, that might be a sign they can be had cheap.

#3

Buying is always a better option. In the long term real estate always appreciates. I don’t think you can lose.

#4

Buying is NOT always a better option. Housing does not always appreciate (at least against inflation, figuring in ownership costs, and the marginal costs over renting). And, he most definitely can lose.

That’s the type of thinking that helped create the mess we’re in right now.

Quick question: how many times your current yearly salary is the price of the condo?

#5

If you have excellent credit and can put, at least. 20% down, it’s probably a good time to buy. Three to five years should give you some decent equity if you need to sell, but if you have to relocate in a year or two you’re likely going to lose a bit. As Xema suggests, I’d lowball the ones you like until you get a bite. The agent probably won’t like it, but they have a duty to present your offer, don’t let them buffalo you. If the seller is antsy they will accept or, more likely, counter offer. You can negotiate from there.
When I bought my current place, I got it through a three way property swap (tax advantage). It came w/ a small second mgtg. ($12,000). Shortly after the second mgtg. holder asked me if I could buy him out. I mulled it over for a couple of weeks and offered him $6,000, figuring I had nothing to lose. He took the deal w/o even trying to negotiate. So don’t be afraid of offering too little, you never know what might happen.
If you’ve never bought real estate before, hit the library and educate yourself a bit, and remember, that agent works for the seller, not for you, no matter how they try to spin it.

#6

IMO, now is a horrible time to buy. Since late 2006, 131 mortgage lenders have folded. Foreclosure rates are sky rocketing and will probably contine to rise as more and more ARM (adjustable rate mortgages) reset to higher rates In reaction, the lenders that are still solvent are severely tightening up their lending practices.

So, you say, I have good credit and my area hasn’t been too bubbly. Even if you have good credit, the tightening standards means there are a lot of people out there who can’t get loans. Which means fewer buyers and much lower housing demand. I think housing prices are due for a big bust nationwide, what was happening with housing was not sustainable. In addition, many housing related industries (construction, new home builders, mortage brokers, furniture store, hardware stores, etc.) are feeling a major crunches and laying people off. Higher rates on unemployment will also contribute to a housing bust. (and, IMO, lead to a recession) I don’t think we’re anywhere near the bottom yet.

Condos, the first to take off in a bubble, are also the first to lose value. Many, many markets are way overbuilt with condos because they were cheap and easy to build and popular with speculators since the didn’t require the maintainence of a single family house. The Florida market is so overbuilt with condos, some lenders are refusing to make any loans on condos purchases. That’s huge and will devastate the Florida condo market.

Right now, there are a lot of people with houses and condos that are having difiiculty selling and so are turning to rentals as a way to generate income. As a result, rents are dropping nationwide.

I don’t know your specific market. Maybe there haven’t been many new condos built in the last five years and a condo will hold it’s value. However, if you’re on the fence about buying, now is an excellent time to wait, accumulate your savings so you can have a bigger down payment and get a lower interest rate, and see what happens.

#7

I couldn’t disagree more. The OP has an opportunity to take advantage of the market right now or in the next 6 months I would do it. The people forclosing fall into a few categories, those who had terrible credit and went to a sub-prime lender and are now unable to pay with the interest increase or those who didn’t know what they were doing and went for adjustable rate mortgages and are now bending over.

My wife and I are taking advantage of this market right now and may be closing on a multi-family wit-in a few short months. The market is ripe right now for the right buyer. Good Credit, savvy with the process and smart about buying something that would be easy to sell in a few years.

I’d say go for it.

#8

I couldn’t disagree more. The OP has an opportunity to take advantage of the market right now or in the next 6 months I would do it. The people forclosing fall into a few categories, those who had terrible credit and went to a sub-prime lender and are now unable to pay with the interest increase or those who didn’t know what they were doing and went for adjustable rate mortgages and are now bending over.

I should probably read a little further before posting…I still think it is a good market right now to buy, but this advice is sound as well. So I’ll say make the smart decision and weigh the best options.

My wife and I are taking advantage of this market right now and may be closing on a multi-family wit-in a few short months. The market is ripe right now for the right buyer. Good Credit, savvy with the process and smart about buying something that would be easy to sell in a few years.

#9

Well, that’s definitely the big debate right now: are we at the bottom or not? I’ve noticed that everyone who says the market will recover in 2008 tends to be someone with a vital stake in having the market recover, i.e. realtors. When I look at what’s happening in the financial markets, the hedge funds that are collapsing, the tightening of the lending standards, the number of foreclosures with the ARMs only beginning to reset (many more are on the way, check out this really scary chart), the rampant fraud in the appraisal and lending businesses that artificially drove up prices, the number of buyers who obtained equity from their homes and “invested” in homes with the idea of making a quick buck, the lenders who haven’t cut prices on foreclosures yet because doing so will mean huge write-offs, I don’t see how the market won’t go down nationwide. I think we’ll see an over correction in the next three or so years and then prices will gradually rise.

Unless the fed interferes. Bail outs could prop prices up for a bit longer. Lowering the interest rates could lead to massive inflation so housing prices stay the same and everything else costs more. Painful for everyone and pretty much what happened in Japan after their housing/land bubble in the 90’s. Japan had 0% interest and it didin’t help. They’re only just now beginning to come out of it.

I think what happened is the mantra of “they’re not building any more land” and “housing always goes up” made housing seem like a sure thing. People burned by the dot com crash felt like housing was a safe investment. The CDOs seemed to remove a lot of the risk from mortgage lending (now obviously not true, witness the Bear Stearns debacle) and mortgage brokers were paid on commission and had real financial incentives to approve as many risky loans as possible. But land and housing has no inherent value beyond what you can use it for and housing demand is elastic. Housing gets too expensive, people move or they start doubling up. Speculators with cheap loans really drove up housing prices.

FWIW, I just bought in January. I like my house and I think I bought in an area that will hold it’s value (the area is gentrifying) but I’ve already seen this neighborhood start to level off. I’m pretty sure I’m feel I paid too much in a year or so although I’m here for the long-term and I think eventually it’ll catch back up.

Anyway, it’ll be interesting to see how this all plays out. Maybe I’m overly pessimistic.

#10

I don’t think you are being over pessimistic as much as you are being logical. And I agree with your first assertion, I think we’ll see an over correction and then a gradual rise. But that is the reason now is a great time to buy.

For instance my wife and I are looking at a duplex in an upity neighborhood, it started at $575,000 two years ago, today it’s $398,000 That is a basic appraisal for land and building. As barebones as it is likely to get. So we figure, buy now, take market rate on rent from two renters, and make a pretty penny [or pennies] in three years. The home needs no work, and has a tenant who want’s to continue renting, but doesn’t want to buy. Win, Win for us. We have a bid in, and we’ll see what happens when we are back from Milwaukee. :slight_smile:

#11

If you found a deal where you can make a profit at market rates (and you’ve researched real market rates, not just looked at the “wishing” rents on Craigslist) with that selling price and including the property taxes, insurance, costs of maintainence, etc., that’s awesome. I just don’t think you can count on making a profit by selling in three years. The housing run up has been for the past five years, two years ago we were firmly in the bubble. Traditional wisdom is that it takes at least five years to build up enough equity to recoup all the fees involved in selling a place and that’s in a normal market with average appreciation of about 3%. I think we’ve just started to see the correction and it has a long way (down) to go, you’re betting that we’re close to bottom and prices will rise.

This is all opinion, of course. Like I said, it’s gonna be an interesting ride.

#12

I’m not sure how they think it can recover. Housing prices were skyrocketing. People’s salaries were not. So who could afford to buy these overpriced homes?
With a standard fixed rate mortgage, nobody.
But lenders and realtors were so eager to keep the boom going they had to come up with creative ways to get people into these homes. Thus the creative predatory lending was born.

Now that everbody’s caught on, the whistles have been blown, and the shit hit the fan how is the market going to recover? Nobody’s salaries have suddenly shot up. Interest rates haven’t dropped down to 4% for a fixed 30-year.
And they think prices are going to go back up to where they were and people are going to be buying, buying, buying? Who are these people?

#13

They have a name for people who wait for the bottom of the real estate market and the top of the equities market: Losers
There are exceptions, they’re called cheaters, or lucky dogs, but they just prove the rule.
I think the RE market will be soft through the holidays and will slowly pick up next year. Three years from now this will be a dim memory, except for a few who were ignorant or greedy. Five to seven years and we’ll see another “boom”, and the cycle repeats itself.

#14

Thanks for the replies and the info so far, it is greatly appreciated.

A couple posters have suggested that I try to make a lowball offer and see if I can get a deal, which is one thing I had in mind as well. My next queston is: “What would be considered a lowball offer?” For example, one condo I’d been watching online was initally listed at $160K, and was recently reduced to $157K. I think its been on the market for about 3-4 months at least. If I were to offer, say $140K would that be ridiculous, or is that what we’re talking? Less?

Ballpark 3-4 times my salary now. But, I do have a part time job which I haven’t worked recently that I could pick up hours at to get it closer to 3X.

As far the rest of my financial situation, I’m completely debt free and I think I have very good credit. I don’t have a lot of savings, but I’d almost certainly be able to borrow from my family if I needed to (basically interest free with no repayment time frame), but I’d really prefer not to have to take advantage of that. Without borrowing from my family I’d have a small down payment if any, I could probably borrow the full 20% if I had to. I do know there are benefits to the 20% downpayment, but I’d be a first time homebuyer, and I’ve also heard there are programs which may be able to benefit me without a large downpayment too. Definitely something I’d need to research.

Thanks again to all for the advice.

#15

I’d agree with you if this run up hadn’t been quite so nuts. Check out this chart from the NYTimes. I just don’t see what’s changed about the world which would make values remain so far from historical values and I’ve seen a lot lately, that will make values drop.

You’re right tho’, it’s impossible to accurately time the market, the best you can hope for is a lucky guess. Still, I think the time to buy is when values have just started to rise, not when they’re obviously falling. It also doesn’t make sense to “stretch” yourself when you can’t be sure of housing appreciation.

But, the old fashioned advice is still good. If you’re buying for yourself, you find a place you can afford and that meets your needs, and you’re not planning to move in at least the next five years, you enjoy the satisfaction of owenign your own home, buying can be a good idea. You just need to go into with your eyes open. Housing doesn’t always go up. If you’re buying for the long-term, it won’t matter if you’re “underwater” for a few years but if you want to sell in a short time period, you’d have to bring money to the table.

One last comment, read a lot about buying condos before you buy and find out specifically about the condo you’re interested in. Make sure you know all about the HOA fees, how much they can go up a year, what the history of special assessments are, etc.

Blunt, if you don’t have a history of part-time employment for two years, that job can’t be counted towards your income when qualifying for a mortgage. 100% loans have pretty much disappeared, even for buyers with good credit. If you borrow a down payment from family, lenders usually want to see that the money is actually a gift and not a loan. The mortgage lending market is very different from just a few months ago and people who thought they had mortgages preapproved are finding their funding pulled at the last minutes. If you go to the mortgage forums at the Credit Boards, they have loan officers (no solicitation allowed) who will help you evaluate your GFE (Good Faith Offer) from your lender and tell you if it’s a good deal or now.

#16

In the curent credit crunch, you’re going to have a problem at three times you gross income, you might get it w/ a high credit score and the 20% down. There are programs, but I suspect most of them are going to concentrate on bailing out people who are in to deep, mainly due to ARM’s. Stay away from an ARM, unless you’re sure your income is going to rise dramatically in the near future.
It never hurts to look though. Again, I suggest you do some reading about real estae before you go any further. You can learn a lot in a short time, just avoid the “get rich quick” schemes.

#17

My husband and I bought our first home back in December. Now I’m kindof wishing we’d waited another year. Or even kept renting until we were ready to move back east, which we’re hoping to do in 3-4 years. The real estate market in Southern California is kindof scary, actually. Especially knowing how much we paid for the condo we bought ($412K) and knowing what our next-door neighbor is asking for theirs that went on the market just a few weeks ago ($390K - a smaller unit, but otherwise nearly identical).

I’m just hoping that our place will appreciate even a tiny bit by the time we want to leave, but I have a feeling we’re going to have to stick it out for a bit longer than we had originally intended to before selling. I sure hope things work out differently, though.

#18

I bought a house last summer… right at the peak. Man, do I have timing, or what?

Anyway, I’m moving out of the state at the end of the month. There’s no way in hell I can sell the house- there’re five houses on my street for sale right now, and the best price I can possibly hope for would still leave me owing over $50k. So, I’m trying to rent it out.

However, there’s a glut of rental houses in this town as well. I’m listing the house at $1100/month, now (after dropping the price twice), and I haven’t gotten more than a nibble. I’m going to be renting a place in the new town- for $1700/month. Yep, I’m going to be losing at least $600/month (which is more than the raise I’m getting at the new job), and that’s assuming I can even rent the place out.

I’m going to give it a month, and then I think I’ll just have to have the bank foreclose on the house. I can’t afford the $2400/month mortgage and pay the difference between the two rents. That’s gonna suck- I bought the place as an investment, and I did a lot of work on it in the year I’ve owned it… but I can’t afford to wait the year or two it’s going to take for the market to turn around. There’s an 18 month supply of houses already on the market, and the builders are still building new subdivisions. I’m screwed.

So… how bad is a foreclosure for your credit, anyway?

#19

I don’t know about your area, Blunt, but in mine, renting is definitively where it’s at. There are a zillion homes on the market here, lots of them are vacant and many are foreclosures. Sellers are still expecting inflated 2004 prices, but buyers just aren’t buying. Which means a stalemate, for now. We’re betting that with credit tightening up on top of this glut of homes for sale, prices will have no where else to go but down.

I’m in Arizona and I wouldn’t touch this market with a ten foot, cash back at closing, all expense paid trip to Cancun, wide screen TV included, 30 year fixed mortgage commitment.

#20

Buy.