This question concerns the Phoenix-area, but feel free to answer it for your own local market — just tell us where you are.
Which would be more attractive? The 8 month market or the 14 month?
I’m literally on the CUSP of being able to buy and with kids already transferring schools, the sooner the better in order to get some stability.
I’ve seen new home builders drop their prices pretty heavily or offer deep incentives. One of them has a home for around the 300k mark in Gilbert that’d be PERFECT. While I could make the payment now, I have been married to a house and that’s the worst type of one-way relationship. I don’t plan on doing it again anytime soon. Additionally, they just reduced prices 50k and are ALSO offering 20k in upgrades or a FREE Car/Truck (a Ford financed for 30 years is anything but free).
So with having settled on the fact renting the larger home I need and finishing another 6 month lease around 3/1/08 would put me at a greater financial advantage to tackle the home I have my eyes on, I question whether it’d be worth the higher payments for a shorter lease (as it’s on a home not an apartment), or if the market will be depressed enough to go the long haul at 12 months and spend more time preparing and saving.
I figured I’d shake my magic 8-blog (see what I did there? It’s a clever Monday!) and ask away. If you were advising a client on the buying side of life on how long to hold out if holding out was all they could do – Would you suggest holding on 8 months or 14?
Part of me says throwing money away on renting an additional 6 months is wasteful, the other part says that it’d allow me to save up for the stuff I’ll need to make the house a home. At a savings of around 500-600/month, that adds up to a few extra grand after 6 months.
The mention of a 40 year loan got me thinking more about affordability and financing. Figured I’d ask the pros 🙂
Here’s a mild surprise: For the kind of house you’re interested in, average values were up almost one percent in April. But those same values are off 12.16% from the peak in December 2005. And while The Republic claims to see a light at the end of the tunnel, inventories on these homes — newer, suburban single-family residences — have been fairly constant for months. Right now, there is a 7.5 month supply of these homes on the market — not awful compared to other products, but nothing to drive prices up in a red-hot hurry.
The other end of this is the possibility that interest rates might go up significantly as time goes by. Lately the news is all pretty good, but no one knows when the market might turn.
If we had two or three months in a row of appreciation of at least half-a-percent, I would say jump and hold your breath. A single month is as likely to be an anomaly as it is a trend. And for all of Gilbert’s many strengths in sustaining home values, I see it as being particularly vulnerable to the negative effects of high gasoline prices.
All that said, I think the marginal risk of taking the shorter lease is probably worth it. The crushing disappointment of the bubbleheads is clearly on the horizon, and the shorter term is a reasonable trade-off on the risk of higher interest rates. If this advice turns out to be in error — I can’t guarantee anything, after all — the marginal cost should be relatively small.
Inlookers: What say you?
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Robert Kerr says:
Keep saving that $500 to $600 per month.
Property values in the area are stable or declining, inventory is stable or rising and given the Fed’s tough position between balancing inflation and staving off recession, interest rates should stay relatively stable for the foreseeable future.
If we fall into a recession within the next few quarters, as some are predicting, that will put even more downward pressure on prices.
There’s no hurry. Time is on your side.
Brian Brady wrote an excellent series on laying the financial groundwork for buying a home (http://tinyurl.com/yvta7e) with the best loan possible.
Now is a good time to read that series and start preparing for next year’s purchase.
May 14, 2007 — 10:57 pm
Eric says:
Robert, thanks for the link!
The fact that these guys not only reduced prices a couple months ago but are now “giving away a free CAR!” smells like someone has unsold inventory building up and needs to move fast.
I asked how built out they were and she said they still had plenty available. While I really liked the house, it was about 30k over what I want to try to afford, so I think that savings will help there.
Hopefully there’ll be another big cut soon. Looking at prices on the signs around town, I noticed many builders don’t update the prices on the signs, even 3-4 MONTHS after slashing them. I suppose it would behoove me to check out some others that were just out of my range to see if they’ve had a recent price reduction as well.
I like the master planned community it was in and am going to continue to check around.
May 15, 2007 — 12:21 pm
Edward Streightiff says:
You are not really looking for a home but are looking for security. It seems to me that you like saving around 600 a month and are content with where you live. You own the clock.
If interest rates move up a point, you can expect your monthly payment to increase around 10 %( really rough number). You can also expect the value of your target house to move down in price. A one point move should not bring the price down by 10%. Therefore you might be better buying now if you have a long term approach.
If I had your money and timeframe I might try and cover both ends of the spectrum. I would look to rent an existing house with the option to buy. In this market you might be able to rent your target house below cost and negotiate a good buy price a year or two away. You could also add in a 90 day demand clause to close at anytime with a 90 day notice. This would protect you if you think rates are going to spike.
If housing prices continue to drop you can drop your purchase option?
You are in a great position. You are not just buying a house you are solving someone else’s problem. Take advantage of your position.
My gut feeling? This should have no bearing on making a decision but take it for what it is worth. I think your market will see continued inventory pressure. I think prices will fall to 20% below the 2005 high by the end of the year. I think you may be able to pick something up 25% below the high if you are alert.
Good luck
May 16, 2007 — 2:38 am
Eric says:
I would look to rent an existing house with the option to buy. In this market you might be able to rent your target house below cost and negotiate a good buy price a year or two away.
You must have read my mind 🙂 I have this very opportunity and I think I’m going to speak more about it with that person. My child starts school soon (aug 8 ) and she’ll already be moving districts when she starts 1st grade. I’d prefer not to have to move her again, even if it means biting off a bit more up front.
I’m going out this weekend to learn more about the area and talk with a few folks who may be willing to facilitate a lease option/rent-to-own scenario. I’m hopeful that with enough research of the master planned community and it’s builders, that I can get a decent feeling on how much further prices may be inclined to drop or how deep incentives may be increased.
May 16, 2007 — 9:49 am