Moving in 5 years, Would you buy a house?

[Anonymous]

Depends on how sure you are about moving. My DH and I were moving "next year" for five years before we actually did it.

[Anonymous]

Anonymous wrote:Yes. Prices probably won't get this low again. Five years is a long time. And if you don't want to sell you can use it as a rental/investment property. The rental market here is very good.

Is the rental market still "very good" around here? It seems like there are for rent signs in lots of neighborhoods.

[Anonymous]

I am going to disagree and give you some numbers to play with.....
Assumption - you purchase a house for $500,000
You put $100,000 down
You get a 30 year loan at 5% so your monthly payment (mortgage only) is $2,147

Additional assumptions - your federal tax rate is 25%

An estimate of mortgage interest is $19,000 / year over 5 years
The tax benefit of this each year is $4,750

Equity - over 5 years of mortgage payments you will have built up $35,000 of equity.
Assumption: Historically, housing has appreciated 4% a year - using this figure, your $500,000 home would appreciate to $585,000 in 5 years

So:
In 5 years you will have had -
$23,750 tax benefit from mortgage
$35,000 equity
$85,000 appreciation

And it will cost you
$15,000 in closing costs to buy (3% of 500,000 note: in this mkt you may be able to negotiate some of these)
$43,900 in closing costs to sell (7.5% of 585,000)

In addition - if you took the $100,000 that you put down for a deposit, you could have earned $$ on this - but that is another more complicated evaluation.

BUT - I think it is worth looking into

[Anonymous]

Anonymous wrote:I am going to disagree and give you some numbers to play with.....
Assumption - you purchase a house for $500,000
You put $100,000 down
You get a 30 year loan at 5% so your monthly payment (mortgage only) is $2,147

Additional assumptions - your federal tax rate is 25%

An estimate of mortgage interest is $19,000 / year over 5 years
The tax benefit of this each year is $4,750

Equity - over 5 years of mortgage payments you will have built up $35,000 of equity.
Assumption: Historically, housing has appreciated 4% a year - using this figure, your $500,000 home would appreciate to $585,000 in 5 years

So:
In 5 years you will have had -
$23,750 tax benefit from mortgage
$35,000 equity
$85,000 appreciation

And it will cost you
$15,000 in closing costs to buy (3% of 500,000 note: in this mkt you may be able to negotiate some of these)
$43,900 in closing costs to sell (7.5% of 585,000)

In addition - if you took the $100,000 that you put down for a deposit, you could have earned $$ on this - but that is another more complicated evaluation.

BUT - I think it is worth looking into

Also need to compare what you would pay over the same period in rent. You might be able to rent the same house for less (not sure if this is as true now as it was in the last couple of years.

[Anonymous]

Anonymous wrote:

Also need to compare what you would pay over the same period in rent. You might be able to rent the same house for less (not sure if this is as true now as it was in the last couple of years.

Yes, plus she needs to factor in the interest she could write off if she owns vs. the out of pocket cash of renting.

[Anonymous]

Anonymous wrote:I am going to disagree and give you some numbers to play with.....
Assumption - you purchase a house for $500,000
You put $100,000 down
You get a 30 year loan at 5% so your monthly payment (mortgage only) is $2,147

Additional assumptions - your federal tax rate is 25%

An estimate of mortgage interest is $19,000 / year over 5 years
The tax benefit of this each year is $4,750

Equity - over 5 years of mortgage payments you will have built up $35,000 of equity.
Assumption: Historically, housing has appreciated 4% a year - using this figure, your $500,000 home would appreciate to $585,000 in 5 years

So:
In 5 years you will have had -
$23,750 tax benefit from mortgage
$35,000 equity
$85,000 appreciation

And it will cost you
$15,000 in closing costs to buy (3% of 500,000 note: in this mkt you may be able to negotiate some of these)
$43,900 in closing costs to sell (7.5% of 585,000)

In addition - if you took the $100,000 that you put down for a deposit, you could have earned $$ on this - but that is another more complicated evaluation.

BUT - I think it is worth looking into

This sounds like a best-case scenario, and frankly, this doesn't seem the time to expect it to play out that way. A 5% interest rate sounds a little optimistic to me-- that dip below 5% we had in March/April was probably a one-time thing. I haven't heard any forecasters expect rates to drop like that again. (I'd love to be wrong, since we missed the window to refinance.)

And thought historically homes appreciate at 4%, I think it's entirely likely that home prices will continue to drop for another year at least. There are still shoes that haven't dropped. Alt-A mortgage interest rates will be resetting largely in the coming year, so those haven't haven't been flushed through the system yet. And the moratorium on foreclosures that the Obama administration imposed has also just temporarily staunched a glut that have yet to work through the system as well.

Again, I'd love to be wrong.

[Anonymous]

Anonymous wrote:I am going to disagree and give you some numbers to play with.....
Assumption - you purchase a house for $500,000
You put $100,000 down
You get a 30 year loan at 5% so your monthly payment (mortgage only) is $2,147

Additional assumptions - your federal tax rate is 25%

An estimate of mortgage interest is $19,000 / year over 5 years
The tax benefit of this each year is $4,750

Equity - over 5 years of mortgage payments you will have built up $35,000 of equity.
Assumption: Historically, housing has appreciated 4% a year - using this figure, your $500,000 home would appreciate to $585,000 in 5 years

So:
In 5 years you will have had -
$23,750 tax benefit from mortgage
$35,000 equity
$85,000 appreciation

And it will cost you
$15,000 in closing costs to buy (3% of 500,000 note: in this mkt you may be able to negotiate some of these)
$43,900 in closing costs to sell (7.5% of 585,000)

In addition - if you took the $100,000 that you put down for a deposit, you could have earned $$ on this - but that is another more complicated evaluation.

BUT - I think it is worth looking into

The assumption of 4 percent appreciation per year is clearly unrealistic in current circumstances. Given that this is the biggest housing bubble that the US has seen, I would be very hesitant to make the choice of buying a house now and selling it in five years. The same $100k could be invested in the stock market - IMO, the chances that you see an appreciation there is higher than in the housing market.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I've been in my house for only 3 years, but its gone up in value by about $200k...but I live in the District. I think where you live would have a lot do with it. I know plenty of people who have purchased condos or townhouses in NoVa with the intent to move on to a bigger house in a few years. A condo may be easier to rent if you don't want to sell at the end of 5 years also.

I don't know where you live in the District, but I doubt that your house has actually gone up in value by $200K in the last 3 years. Where are you getting that valuation? I posted on the appraisal thread yesterday that an appraiser just appraised my house at half-a-mill more than we bought it for 2 years ago, which is clearly BS. Even Zillow overvalues the home by a hundred grand or so in this market. I think anyone who thinks their house has risen that dramatically in value in the last 3 years is being overly optimistic. Three years ago you bought at the high-to-just-starting-to-decline-slightly end of the market -- since then the market has gone down in even the best neighborhoods in DC.

I can attest to the $200K appreciation. We bought our house for 2.65 MM ~4 years ago and it's appraised at 2.9MM for 2009. This also is in the District.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I've been in my house for only 3 years, but its gone up in value by about $200k...but I live in the District. I think where you live would have a lot do with it. I know plenty of people who have purchased condos or townhouses in NoVa with the intent to move on to a bigger house in a few years. A condo may be easier to rent if you don't want to sell at the end of 5 years also.

I don't know where you live in the District, but I doubt that your house has actually gone up in value by $200K in the last 3 years. Where are you getting that valuation? I posted on the appraisal thread yesterday that an appraiser just appraised my house at half-a-mill more than we bought it for 2 years ago, which is clearly BS. Even Zillow overvalues the home by a hundred grand or so in this market. I think anyone who thinks their house has risen that dramatically in value in the last 3 years is being overly optimistic. Three years ago you bought at the high-to-just-starting-to-decline-slightly end of the market -- since then the market has gone down in even the best neighborhoods in DC.

I can attest to the $200K appreciation. We bought our house for 2.65 MM ~4 years ago and it's appraised at 2.9MM for 2009. This also is in the District.

It appraised for that, but could it sell for that? I think that's the point pp was making.

[Anonymous]

and no disrepect meant, but most of us aren't dealing in 2.65m houses!

[Anonymous]

I can attest to the $200K appreciation. We bought our house for 2.65 MM ~4 years ago and it's appraised at 2.9MM for 2009. This also is in the District.

But appraisals are WORLDS different than selling prices these days. There was a post yesterday about this---many of us have been recently appraised for hundreds of thousands more than neighboring houses are currently selling for. I'd base nothing on an appraisal these days.

Case in point--our house, bought for $980K in early 2008. Just reappraised by a reputable appraiser for 1.1 million. Refinancing went through. Wow, we acheived 100K in equity in a single year while the market around us crumbled!!
Yeah, I really don't believe that appraisal for a minute but we took the refinancing and ran.

[Anonymous]

The numbers poster also forgot to include property tax cost and a reasonable amount spent on home upkeep. Two costs you don't have if you rent.

The NYTimes has a great little applet that does this calculation and will include things like tax, upkeep, increases in rent, tax rate, investment rate of return, etc.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

[Anonymous]

Anonymous wrote:The numbers poster also forgot to include property tax cost and a reasonable amount spent on home upkeep. Two costs you don't have if you rent.

The NYTimes has a great little applet that does this calculation and will include things like tax, upkeep, increases in rent, tax rate, investment rate of return, etc.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

Yep - and don't forget HO Insurance as well.

I'm the PP that said "hell no!". I have a house in Ohio (which I understand is a worse real estate market, but let me make my point...) that I have been trying to sell for nearly 4 years now. It's now listed at 15% less than what we paid for it 7 years ago. We just dropped the price today by another 4%. So the PP's that made the point about what houses appraise for vs. what they sell - here's a perfect example. The county has it appraised for 6% higher than what we now have it listed at by the way. I never thought I'd be a long-distance landlord for four years. It's so not worth the gamble.

Anyone want a very good deal on a beautful Victorian house in Lakewood Ohio, by the way? The price is really great!

[Anonymous]

I don't think 4%/year appreciation is realistic at this juncture.
I commend this article by Robert Shiller:

http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=297701&version=1&template_id=46&parent_id=26

Plus the costs of home ownership can be immense. structural damage caused by termites, a new roof, etc etc can set you back many thousands and cause a big headache. Renting is much more low stress.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I've been in my house for only 3 years, but its gone up in value by about $200k...but I live in the District. I think where you live would have a lot do with it. I know plenty of people who have purchased condos or townhouses in NoVa with the intent to move on to a bigger house in a few years. A condo may be easier to rent if you don't want to sell at the end of 5 years also.

I don't know where you live in the District, but I doubt that your house has actually gone up in value by $200K in the last 3 years. Where are you getting that valuation? I posted on the appraisal thread yesterday that an appraiser just appraised my house at half-a-mill more than we bought it for 2 years ago, which is clearly BS. Even Zillow overvalues the home by a hundred grand or so in this market. I think anyone who thinks their house has risen that dramatically in value in the last 3 years is being overly optimistic. Three years ago you bought at the high-to-just-starting-to-decline-slightly end of the market -- since then the market has gone down in even the best neighborhoods in DC.

I can attest to the $200K appreciation. We bought our house for 2.65 MM ~4 years ago and it's appraised at 2.9MM for 2009. This also is in the District.

It appraised for that, but could it sell for that? I think that's the point pp was making.

Yes, I'm that PP and that's exactly the point I was making. Appraisals are fairly worthless in this market. As I explicitly stated in my last post, DC $2.65 MM home-owner, my home was also just appraised at half-a-mill more than what we bought it for two years ago. But we know it couldn't possibly sell for that. So if the DC PPs are basing their homes value on an appraisal, you are in for a rude awakening if/when you actually go to sell the house and look at real estate comps, a much more realistic tool to assess what the market will bear for your home. I don't know where these appraisers are pulling their numbers from. I am quite confident that my $1.5 mill home could NOT sell for $2 mill today, contrary to that appraiser's very rosy outlook.