43% of home purchases are all cash
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Anonymous
You have a right to be skeptical about my credentials. You are mistaken though. I am an applied micro-theorist. For the most part, this means I do contract theory (game theoretic at that) and industrial organization. I post here somewhat irregularly depending on how my research is going. Sometimes I simply need a break from whatever I'm working on, which is the case this afternoon. (I'm about to disappear shortly as I need to read some papers.) My PhD is from a top-20 (worldwide) program. I have taught econometrics at the university-level too, though I no longer teach. As for your terminology: I suspect I was taking issue less with you and more with the "QE3" guy. If that's not you as well, then I've certainly slandered your good name. I would take almost no solace in correctly predicting the last crisis. You essentially got completely lucky. (Now, to be fair, that's far better than most of us.) My friends in senior positions (at Lehman, no less) swear to me they had no idea. (They got incredibly lucky as two of them switched firms in the month leading up to the implosion. That means Goldman and Morgan Stanley bought out all of their soon-to-be worthless Lehman shares and guaranteed their half-million dollar bonuses for three years (at exactly the time discretionary bonuses were being eliminated as the crisis took hold).) The tech bubble was, frankly, kind of obvious and many people foresaw it coming. The difference is that some of these people thought they could time the burst much better than they did. Essentially, they bet they wouldn't be the one holding the bag despite knowing that their portfolios were loaded with pumpkins. |
Anonymous
Trust an economist to digest complicated arguments (in many fields) and to understand the use and limitations of statistical reasoning, but I wouldn't take their advice for much. The people sitting next to me in planes invariably ask three questions: 1) What's going to happen to the price of oil (less so these days)? 2) What's going to happen to the price of my home? 3) What should I be investing in? When I assure them that I have no particularly useful advice on these matters, they always look disappointed. Then they make a joke about what economists are taught. Then I awkwardly explain to them what a research economist does and that the top programs train students to be research economists. And that this usually involves really deep knowledge on a really narrow topic, a topic that is often so narrow as to be uninteresting to anyone else. And that the tools we use are more abstract. Then we both go back to reading SkyMall. |
Anonymous
Hmm, I think you are right, there is another poster a bit frantic about QE3 and "money printing"; my basic thesis is that the Fed stimulus is not having the desired effect of job creation but is instead being pored in to assets like housing and stocks, and there's a lot of investor 'hot money' chasing yield b/c nothing safe like Treasuries is yielding anything. I think the Fed was trying to spur lending from bank to businesses, especially small businesses? To be honest, I didn't predict the scale of the last crisis; I only knew there was a housing bubble from moving around alot and having my ears to the ground. As to the scale of what the banks were up to with the weird derivatives and the fallout to the broader economy; I think I had read about that and believed it, but I definitely didn't see that scope of things. I am skeptical though that many people at the banks weren't aware what was going on; I think they just assumed they would be bailed out like LTCM et al and it would never get that bad. Sounds like you have a pretty cool job; all the game theorists I know are in academia, and setting up experiments is laborious. You basically do it every day with contract negotiations? |
Anonymous
Actually, the biggest problem with economist is the silos everyone goes into. I think the new breed of behavior economics may help open its perspective, but I think like most experts they get pigeon-holed and everything looks like a nail to their hammer. |
Anonymous
ultimately we'd like to move closer to family (in another part of the country). If we stay - schools are good thru middle school and we are only in Kindergarten so we would want to move before HS. if the economy tanks - we will make do in this house and school |
Anonymous
| Would you reccommend purchasing a home or continuing to rent? I am a single mother looking to purchase for @500k, (college is taken care of by ex husband). I wanted to put at least 20% down. Currently paying 3k a month in rent. Thanks for any input. |
Anonymous
Assuming your job is stable, you have cash cushion for emergencies, and don't plan to move anytime soon - sure |
Anonymous
Really? Why did you do that? I am asking because we are in the process of looking for a house and while we the money to put down more or even pay for it all depending on the price of the house of course, our financial advisor told us to put only 20%. I didn't really asked why because we just began talking and she told that to my husband. I would much rather have a smaller to non existent mortgage though… Just wondering why you decided to put 60% down. |
Anonymous
Because they aren't financially savvy enough to realize they would get a better return on their money elsewhere. Your financial advisor is right, if you've locked in at a low rate and you are taking the mortgage deduction, best to keep your investment money diversified in investments that yield better (and more predictable) returns than housing. |
Anonymous
I'm not sure whom you're asking. I'm the poster from 5/9 @13:50, @14:11, and @14:18. I am hesitant to give advice, since I don't believe I'm well-suited for the task at hand. It is not just a matter of details -- though you have not provided nearly enough to make an informed suggestion; it is also a problem that, even with all desired details, I believe there are other people better equipped to guide your decision. That said, at the risk of other people lacking such concerns and chiming in anyway, here are some things to think about. Your rent suggests a good income. Is it stable? Are you currently comfortable paying 3k per month, or are you looking to reduce your payments by buying? There are multiple reasons for home ownership. Common ones are to lower your monthly payments, begin building equity, or leverage the tax advantages. Seeing how a 400k mortgage @4.5% would result in an after-tax monthly expense around $2,000 and a 500k mortgage @4.5% would be around $2,500, I'm guessing your binding constraint will be the down payment. (Monthly mortgage expenses include principal, interest, taxes and insurance. Your monthly principal and interest on a 400k mortgage at 4.5% would be $2,027. Taxes and insurance are on top of that. You'd likely get all of your taxes and insurance back on tax day, however. So, while you'd pay around $2,400 each month, you'd get a refund equivalent to $400 per month so that your after-tax payments would be around $2,000.) Putting 20% down is a sound strategy. It enables you to avoid paying for private mortgage insurance (PMI), which is costly. Putting down more than 20% is not a good investment strategy. Period. Leverage is your friend here. Make sure you maintain sufficient reserves. You'll probably face around 5k-10k in expenses/repairs almost immediately. Aim to keep 6 months of expenses in the bank after closing. That's probably something like 25k+. You'll need to bring something like 20k to the table at closing. (This varies, widely, by location, so this is very, very rough.) How certain are you that your ex will cover college? Is this money being deposited into an account that cannot be touched? What I'm asking is whether you need to be prudent and save, just in case, too. Finally, what's your time horizon? If you're planning to stay in the area for less than 5 years, I'd say keep renting. If more than 7, it's probably wise to buy. Note that the areas experiencing greater growth in home values are not necessarily desirable for a single mother. You'll likely be prioritizing other things, like schools, safety, neighborhood amenities and peer effects, so you should not expect double-digit appreciation each year. A home purchase can still make for a great savings vehicle, but the upside will not mirror that of other potential asset purchases (like broad-based index funds, for example). |
Anonymous
I generally agree with what you said here with one exception: your comment that "leverage is your friend." I would say that leverage "might be your friend." When you take on debt, you take on risk, and when you take on a lot of debt, you take on a lot of risk. Depending on how the rest of your portfolio is set up, what your tax situation is, what your cash flow situation is, etc., it can make sense to put down a lot more than 20 percent, just as it can make a lot of sense for certain people - especially the super rich - to take out interest-only loans with as little down as possible.
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Anonymous
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Sorry, with real estate, there are few cases where it is advantageous to put more money down. The interest is tax deductible. So if you have the cash but worry about cash flow, simply trickle in your savings over time but still take your maximum deduction. Whether you put the money into the house or keep it in cash, you are still betting the house will retain its value. And in some jurisdictions (not in DMV though), with non-recourse loans, you can walk away from mortgage if housing values tank, and lender can't come after you for the remainder. The house is truly the collateral.
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