Buy now or hold off

[novadoc82]

Hi. I am a long-time reader, first time poster hoping to get some advice on whether to purchase a home now or hold off and see what happens with the housing market. We currently own a home in a HCOL area but due to a recent addition to our family we really need to upgrade to a larger home. Our current home is worth around $850,000 and has an outstanding mortgage of $195,000. We are looking at homes around $1,100,000. Counting the equity in our current home we would plan to put around $750,000 for a down payment. We are settled in this area, my job is solid, the kids and wife love their friends/school so moving to a cheaper area unfortunately is not an option. I save close to 30% of my gross into retirement and the mortgage on this new house would be ~1x yearly income so financially it all seems to be a fine decision.

For context our current home is 1,250 sq feet and the new one would likely be around 1,700. The extra square feet would give everyone (mainly teen daughter) a little more privacy. The sticking point for me is that now just seems to be an awful time to buy a house, our current mortgage interest rate is 2.25% and the new rate would likely be 4.5% or higher. My question then is should we just hold off until the market becomes less insane or realize that no one can time the market and if we need a house we should buy a house.

Thanks for any advice.

[FIREshrink]

I'd start shopping but definitely not rush. Housing market has likely neared if not reached its peak. Of course rates are higher too but since you don't plan to borrow much that paradoxically helps you by putting a lid on demand and prices. If you don't find the perfect house till later this fall I think you will be ok maybe even find a plethora of homes to choose from.

[JBME]

Go for it. Totally affordable to you. The first question I have is do you have plans to further expand the family? If so, consider that and maybe you'd want more than 1700 sqft. Totally up to you.

As for current mortgage rates, of course things could change but if anything the Fed plans to continue to raise rates, so a mortgage rate today of 4.5% is probably a good deal compared to what it'll be in a year. As for it being an awful time to buy a house due to huge demand and the current runup in prices, two things to think about. First, at best in the future you can expect housing prices to continue to increase anyway in the future, but at a decreasing rate of increase. So it's still more likely to be expensive in the future. Second, at least it's not your first home and you have all your current home equity that is yours, likely all tax-free, thanks to the run up in prices.

[novadoc82]

Thanks for the replies and advice. No further plans to expand the family so a 1700 sq ft house should be more than adequate.

Plan for now is to continue to search but hold off until the perfect house for us comes on the market.

[The White Coat Investor]

Do you really think random people on the internet have a crystal ball that is any clearer than yours on future directions of the stock market, interest rates, or housing prices?

Buy when your personal and professional situation are stable. Sometimes you will win and sometimes you will lose, but you'll at least be avoiding a catastrophe.

With a 1X mortgage, just do it.

[Tim]

"The extra square feet would give everyone (mainly teen daughter) a little more privacy."
The only question is how long are you planning to live in it? You should ignore the market for stocks and housing. You can afford your plan. I would be able to afford a little more if that is your eventual plan. If not, just do it on your family's needs.

[Hoopoe]

Your mortgage rate is likely much lower and your property taxes are as well. Any change will have an unrecoverable increased carrying cost of the new home (mortgage interest and property taxes). You can afford it but this is a much more expensive time to move and a luxury. Up to you if you want to do so. Can always consider a paid for addition on the current home as a middle ground.

[uksho]

Your mortgage rate is likely much lower and your property taxes are as well. Any change will have an unrecoverable increased carrying cost of the new home (mortgage interest and property taxes). You can afford it but this is a much more expensive time to move and a luxury. Up to you if you want to do so. Can always consider a paid for addition on the current home as a middle ground.

OP just wants a 1700 sq feet house , would only have 350 K mortgage , saves 30 percent for retirement .
OP can easily afford it . Having said that in our area, every new house listed has dropped prices in the last 2 weeks , much different from the last 2 years , no one can predict the future . If I knew, I would make a wise decision too.
In summary , OP should be able to afford it . Whether to buy or not is a different decision . He/she has to live life too.

[medicoFIRE]

Only buy if you need a house. Not because of FOMO and not if you’ll only be there for less than 5 years. Otherwise have at it. Market could dip but if you’re a longterm homeowner it wont matter

[uksho]

Does anyone think If stock market falls further and stays there , it would have an effect on housing market?

I assume when people stop feeling rich , they will
spend less.

[VentAlarm]

It seems like you have earned the right to make financially nonoptimal decisions. Moving up in interest rate may sting a little (probably more psychologically then economically), but should be more than offset by the improved living.

You’re doing well and making a slight increase from a tiny home to a slightly less tiny home with a growing family.

Enjoy your new house.

[altadoc]

With the relatively low amount you are borrowing and your high savings rate, have you considered looking at a ten-year ARM? A few of my partners have obtained rates in the 3.5% range.

I recognize an adjustable rate feels scary now that 30-year rates are increasing. It may be worth considering, given the fact pattern you described.

[GIMD]

What are you waiting for? How much longer do you have with your daughter before she goes off to college? You can totally afford it.

[Tim]

What are you waiting for? How much longer do you have with your daughter before she goes off to college? You can totally afford it.

This is the best reason to buy a house. If your daughter is a teen, you are on a 5 year timeline. Your goal is to provide for yourself, your wife and your family.
This is not an extravagant purchase.
If you wait 5 years, your daughter will return and feel like a visitor, not coming home to her space. Do it.

[novadoc82]

Thanks to everyone for the advice. We have an offer out on a house so hopefully it all goes through. We live pretty modestly in most other ways so splurging on a better home that the family can enjoy made sense.

We actually did end up going with a 10 year ARM. The rate was significantly better and the plan will be to have the house paid off before the rate adjusts so I'm not worried about it.