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  • Buy a home or wait out this insanity?

    By way of background, I am in my first year out of training, have one toddler and another baby on the way. I work just over half time for time with the kiddo and my own sanity, and my husband works full time (he's a professor - not in medicine). Currently my husband has been commuting between our mid-size city (where I work) and another slightly smaller city to his job, and the traffic is wearing on him. He works as a professor and currently has a tenure-track position and is happy at his college, so we plan for this to be his job for the long-haul. Given all this, we have been planning to move to the smaller city where he works, probably during my maternity leave this summer. There is a high likelihood that I can stay with my current large healthcare employer and change locations, and if that doesn't work out I plan to commute temporarily while I search for another role there or could also go into private practice there eventually (I'd like a few more years of employed experience).

    We have been actively looking for houses since January. Inventory is quite low so there have not been many options we liked. We have put in two offers and lost both of them to all cash offers, which we are not in a financial position to match. Now mortgage rates are absolutely shooting up on us (UGH) and our purchasing power is dropping I'm just not quite sure what to do. My husband's argument is that if we chose to rent, we're looking at significant inflation on rent prices over the next few years and are going to be in essence financially screwed. I'm worried that it feels like the market is a pressure cooker and I can't tell what the rising rates are going to do to it - blow it up and house prices tank? Or is demand so high still and supply so low that prices are jut going to keep rising (albeit slower) while interest rates do as well. I hate the idea of being locked into a higher percentage mortgage on a house already bought at an inflated price...

    The way I see it, below are our options. Regardless of which we choose we are trying to lock in a rate with a lender to buy ourselves some time, rocket mortgage says they can do this for $500 which would go towards the loan if we went with them once we were under contract. We started talking with them about this yesterday and they've gone up yet again today...

    - stretch our budget to still buy the kind of house we want in the neighborhood we want (good schools, close to the city which is very important to my husband) - I don't like this because I feel like it will force me into increasing my hours over time and I really prize my part time flexibility
    - try and buy a small house or real fixer-upper in the neighborhood we want - the trouble here is that supply is low and it seems like this is what everyone else is trying to do as well - the first house we lost out on was like this and went over asking all cash. And it also seems like finding contractors to do work is quite difficult right now and increasingly expensive.
    - buy in a cheaper neighborhood (with low quality public schools) and either plan to pay for private school or move again in a few years and potentially rent out the first house
    - try and buy something we can house-hack (eg a duplex) - this doesn't seem to be a frequent option in this city, and I'd need to learn a lot more about it - this kind of feels like adding over-whelm to over-whelm
    - rent - my husband doesn't like this option due to inflationary concerns, and he is also really ready for us to settle down/put down roots as we are in our mid 30s

    Any thoughts from you all? It's a very difficult time to be a first-time home buyer and this market seems unprecedented and we feel a bit panicked, which does not feel like the right frame of mind to buy a house in...

    Thanks!

  • #2
    Part of inflation is a pull forward demand regardless of cost because of fear of more inflation. But, the economic data has shown an increase in housing starts, a decrease in mortgage applications, decrease in existing home sales and decrease in new home sales. That points to an overall decreased demand for housing (at least at these price levels and mortgage rates). Mind you, this is the season when things should be picking up because of weather, good time to move because of school schedules, etc. (tradingeconomics.com-- you can just use the search to verify these numbers)

    So, you can try to time it and wait. But, given the growing family and counterparty pushing the move, you might be forced to pull the trigger. I wouldn't buy a home in a whatever neighborhood. I'd buy what you can get in the neighborhood zoned to good schools. The cosmetic stuff can be done over time.

    I'd probably wait, but real estate is local, so even if the broader real estate market falters, it might still not come back to a price that is reasonable or affordable to you.

    If it makes you feel any better, rates are still historically low. The fed also tends to take things too far and break things, so you might be able to refinance in the next year to a lower rate and give you more breathing room.


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    • #3
      It's remarkable how similar your story and anxiety over this housing market is to myself and my family's. You may be interested to read the responses to a thread I started in the personal finance sub-forum: Check my mortgage payment budgeting please! - The White Coat Investor Forum - Investing & Personal Finance for Doctors

      I was initially thinking we'd over-extend and be house poor for a few years until I make partner, but the responses to my thread snapped me out of that. We decided to target a small (move-in-5-years small) house in our preferred neighborhood that's in solid condition, but just "dated" enough to scare off the buyers looking for a turn-key home (which is apparently many of the millenials). We may be waiting longer to find a house like that, but I think it's superior to the options of (a) over-extending, (b) buying more house in a worse neighborhood, or (c) waiting for the housing market to cool down. No one knows what the housing market will do, but in our local market I think there are strong structural reasons to believe that housing will be in short supply and high demand for the foreseeable future.

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      • #4
        Or just wait and see what 2022 will bring. So far it had been a disaster of a year.
        People who dont have cash will xontinue to get screwed. Maybe even less will be bought by them as they are priced out as mortgage rates keep going up. Maybe we will hit 6 or 7% this year as they reign in inflation .
        Inventory will stay low.

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        • #5
          All things relative. We started our career with mortgage rates at 6-8%.

          Buy when you're ready and find the house the works since this appears to be a longer haul hold situation. The key uncertainty is you own job. Will a mortgage play a significant financial burden vs rent?

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          • #6
            F it. Pull the trigger.
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            Wow. Didn't know Jaime was so smart. Oh wait:
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            • #7
              Long post but not a lot of details. Care to share numbers? Are you in HCOL with a lot of student loan debt and looking at homes 4x your income? Keep renting.

              Otherwise, knowing your income, how much of it comes from you vs husband, type and amount of debt, savings for down payment/ e-fund, and price range of homes you are interested in would be very helpful.

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              • #8
                Agree, can't give advice without knowing what kind of position you're in. You realize already what stretching a budget will do to the ability to remain part time.

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                • #9
                  Thanks so much for the thoughtful responses. Brains428, I appreciate the point about only buying in the good school zone; that is what I would like to do if possible. And penumbra, appreciate your thoughts as well - we are in very similar situations except we make about half what you do But interestingly we had been looking at spending up to around 2200 monthly, which is just about half of your 4500, but I can tell we would be more comfortable keeping it under 2000.

                  Codfish, here are more details as requested:

                  We are not in a high cost of living area. Combined income with me working part-time is 263K annually, monthly gross 22K (13K from me, 9K from spouse). This could drop to 237K annually (20K monthly) if I drop my hours slightly for a year or two with second child which I would like to do. We are maxing out 401Ks and my husband gets a 10K match that's not included in my salary numbers above, so saving about 50K a year for retirement, or just under 20%
                  We have 100K in student loans for the two of us. We have no other debt. I had planned for us to pay off student loans in the coming 5 years once loans kick back in, but am realizing that too high of a mortgage payment could slow that down.
                  We have 50K saved up for down payment/closing costs and another 15K ear-marked for home projects this first year of ownership.
                  We have been looking at houses in the 325-400 range but now I am thinking 275-350 makes more sense with higher rates. It's just very few houses in this range in the neighborhoods we want exist with how much prices have gone up. So it's tempting to push the numbers or look elsewhere. But hopefully the right thing will show up if we are patient and rates don't keep sky-rocketing!

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                  • #10
                    Rates are historically low--yes, still. You seem very preoccupied with this aspect, but be careful not to let it drive the ship.

                    Regardless, a $350k mortgage on $237k gross should be a cake walk. I don't understand the trepidation there.

                    Either up your range to include something that works, or rent for a while.

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                    • #11
                      It might be insane or it might not. Hard to tell without a functioning crystal ball. If it is, then waiting is the right move. If it isn't, then buying now is the right move. Too hard to sort out, so my advice is to just buy when your personal and professional situation look to be stable for the next 5 years. No guarantee that will make it work out well for you, but it certainly will up the odds.
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                      • #12
                        If I read correctly there will be a move involved and maybe a new job for you? I'd be hesitant to buy under those circumstances regardless of the housing market. That said I also don't purchase in a seller's market because I'm not into over paying unless I'm getting exactly what I want which is unlikely in this market for those who are not in a position to make a cash offer. For me the biggest consideration right now is that the supply is so limited. In the 30 years I've been buying and selling real estate there have been multiple times when it was either considered a buyer's or seller's market largely based on the number of homes listed so regardless of if prices stay this high you will likely have more selection if you wait. If you or your spouse insist on buying now definitely buy in a good school district in a neighborhood of your choice as recommended above.

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                        • #13
                          Thanks for the extra info. I think you’re actually in a very reasonable financial position just one year out of training. Debt to income ratio 0.5 and looking at homes less than 2x your income. Saving about 20% for retirement. As long as you don’t have a goal of retiring ASAP you are on a good track.

                          Generally it makes more sense to buy a home in a better school district and use public schools instead of a cheaper neighborhood and private schools. I’d take the cheaper neighborhood homes off the list. I wouldn’t want to house hack and as you mention, stretching the budget will limit your ability to work less so be careful with spending too much.

                          I think the best option is to look for the cheapest house in your desired neighborhood, but of course this is the hardest given the supply and competition for that home. Renting is a reasonable idea for another year as well, though I understand the desire not to.

                          I would ignore the housing market noise. Nobody knows where it is going. Buy when you are ready to buy, not because you feel you have to buy. Good luck!

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                          • #14
                            Whatever you decide, I would recommend you don’t over reach with your budget. Having job flexibility with young kids and two working parents is more important than extra square footage or nicer finishes.

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                            • #15
                              To echo what others have said- even though I did present some data that could point to a cooling market. In reality, I have no idea what's going to happen, nor does anyone else. My story- we purchased a lot in Feb 2020. We got our house bid by April, closed on the construction loan in May. We pressed forward through all the chatter of economic uncertainty and lumber prices starting to rise. It had a chance of being a terrible mistake, but we were in a good place financially to take on the risk. We are still told by our builder that we are the last project that they were able to do with "normal" numbers.

                              TLDR- we don't know what's going to happen, and it sounds like you're not going for a house that will put all other goals out of reach. Good luck

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