First Time Home Buyers In Midst of Tax Reform

[q-school]

i think this is an opportunity for original poster to stop and take a breath.

if you are this worried about buying a house, perhaps it is too early to buy the house.

i know there is a sense of light at the end of the tunnel after training, but just take a breath and read the advice that has been provided.

lots of physicians don't love their first job and have to move.  if you are worried about tax reform, that may make a house more difficult to sell in a short time period.  it is unlikely this house will be your last house, so don't feel pressure to find the perfect place to live.

physician stuff aside, there are many reasons to buy a house after living in an area for a while.  your needs may change over time.  kids are potentially an issue.  neighborhoods evolve.  budgets evolve.

having said that, yes my wife and i have always purchased a home right when we moved.   but that doesn't make it the right thing to do! we've moved numerous times, and sometimes we lost a bundle.  sometimes we made a bundle.  be smarter than me.

whatever you do, definitely don't build.  if by build you mean build a custom home.  if you are just buying a newly built home, that is less bad.  seriously, you have the whole rest of your life to buy a house.  save some money.  take a nice vacation if you need to blow some steam.   i don't know what "waited a really really really long time" means.  i did clinical training for nine years (residency and three fellowships) and my wife was ready to punch me in the important parts and we supported my parents and her parents while doing all that.  that seemed like a really really really long time.

 

 

[EMscout]

Your concerns may be warranted if you are purchasing into a local bubble environment, but supply and demand will continue to drive the real estate environment in most areas

[ENT Doc]

Two things. This article is based on proposed legislation that never made it into law (unfortunately). It is also inspired by what the national association of realtors says. What do you think their interest is, and do you honestly think their assessment isn't hopelessly biased?

[SwanSong]

The five of 8 year occupancy rule for capital gains is gone from the final bill. No reason to worry about that part.

[lej8k]

This is the article I read today that scared me

https://www.forbes.com/sites/kellyphillipserb/2017/12/01/realtors-predict-tax-bill-will-cause-housing-prices-to-drop-in-every-state/#3a0922db30fb

 

[ENT Doc]

I hardly think this is Big Short stuff. The maximal cash flow effects depend on the interest rate, and the marginal tax rate. If you assume a maximal loss of $250k in deductions then your cash losses on the home for 2018-2025 will be $250k x interest rate x marginal rate. Assuming a 4% interest rate and 50% marginal rate we're talking about a maximum loss of $5k for 8 years. This doesn't even equate to a 4% decline for a $1.2M home. The end is nigh.

[MPMD]

ENT Doc wrote:

Can you show me the math on how the housing market will decline by 10-20% this year by limiting interest deduction to $750k loans from $1M that reverts in 2026?

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I certainly don't predict with anything near that level of certainty or based on any legislation.

I do think we're kind of near the point like in the Big Short where it was obvious to many paying attention that things were about to get very bumpy.

[ENT Doc]

Can you show me the math on how the housing market will decline by 10-20% this year by limiting interest deduction to $750k loans from $1M that reverts in 2026?

[q-school]

what's this arrived stuff?  i've been working for decades and i'm still waiting to arrive. 

 

predictions are difficult.  especially about the future.

no way anyone can know if market will drop 20% next year.  but it is as close as we get to unanimous that you shouldn't buy a dream house when you start a job.  especially not your first job.

 

[Hank]

lej8k wrote:

We’ve waited a really really really long time.  It’s time to buy (or build) a house of our own.

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Not necessarily.  Almost half of new attendings leave their first job within two years.  You also state that you expect home prices to drop by as much as 20% in the next year.

This strongly suggests that you should wait a year or two, see if your husband likes his job and his employers like him, see how the commutes to work are for the two of you, get a better feel for school districts and recreational activities, etc.  Why not continue to live like a resident, pay down debt, build up a down payment, and let the price of housing drop if that's the direction you think things are headed?

[littlefish]

If you're buying for personal satisfaction and intend to stay for the long-term I wouldn't worry about the current real estate uncertainty. Mortgage rates are still low and the individual tax bill changes are temporary and will be readdressed in the coming years. If you're buying just to get out of the rental market and are unsure how long you will be in your future home, I'd be more hesitant.

[Cytogal]

We've been looking to buy for 2 years.  My first time owning. Finally found something in Nov and expecting to close early Jan.  I did not think the tax overhaul would pass, then after it did, I didn't think it would affect us that much.  The approximate math (live in high cost of living area):

state income tax 11k

first year mortgage interest 18k

property tax 8k (dropping to 6500 after residential exemption** see below)

So, before tax reform, we could have deducted 37k, with the new reform we deduct 26k (I think, if I did this right).  So, that is significant to me since I am still paying back student loans (at 2.9% thanks First Republic).

This is my first home buying experience, so there was some "on-the-job" training.  I did not realize how sellers can lie about the status of the roof (crap), the masonry (also crap).  I wish I had known how much leg work I would have to do on my own to confirm sellers' claims.  I've decided to get my real estate license when we sell this place, hopefully a long time from now.

If anyone more experienced can tell me any other way we can save money, please let me know!

Since rent in my city is ~3500/month, we still come out a little better by buying since the bf had a significant downpayment. Otherwise would not have been doable.

**I also did not realize that to qualify for residential exemption, you have to live in the property Jan 1 of the prior tax year which runs June-May.  WTF. So, we will not get that residential exemption for a while.

 

[East coast]

How do you guys know home prices will fall? I thought everyone here was against market-timing 

I wouldn't get to caught up on the doom's day scenarios portrayed by politicians (or people who had something to lose in the political realm - ie realtors warning of doom). If you're ready, you're ready.

[MPMD]

iradoc wrote:

 

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If I were in your position I would definitely let things shake out for another year before buying/building.  Lot of uncertainty right now in the housing market.

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I wouldn't do anything big right now from a personal finance standpoint. Certainly would not buy a house in 2018 if I could avoid it.

[ajagannathan]

lej8k wrote:

We’ve arrived.  The employment contract is about to be signed with my husband’s first attending job to start in Sept 2018.  Our rental lease will also be expiring.

We’ve waited a really really really long time.  It’s time to buy (or build) a house of our own.

But with home prices projected to fall 10-20% next year because of the tax reform, does this mean we should wait even longer?

Thanks Trump!

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If I were in your position I would definitely let things shake out for another year before buying/building.  Lot of uncertainty right now in the housing market.