Living in a hot housing market; do I buy now?? Help!

[gasdoc86]

I live in an area of the country where the housing market seems to be rising at a rapid rate due to population expansion and multiple new businesses opening up in the area. I just got married a month ago and my wife and I are concerned that if we don't buy now (or at least soon) mortgage interest rates will rise along with prices and we'll wind up paying a lot more than we would now if we wait. The area we want to live is already expensive and we're concerned it will only get more so, with most houses we're looking at being around the 500K mark currently.

Here's my financial situation. I'm 31 years old, I'll be done with my fellowship in June 2018 and staying on at my current institution for my first attending job.

Liquid cash in checking accounts- $42K

Student loans - $44K at 6.8%

Retirement accounts - $50K

Combined income 150K, should double or more next year when I get my attending position.

No other debt.

I don't want to rush into buying a house; it makes me feel uncomfortable, especially at these prices of $500K or more. The more I read about buying a house the more concern I feel since there are so many expenses that we don't pay right now since we rent. Once we buy a house we'll have to furnish it, maintain it, buy insurance and pay property taxes, etc. I know my debt isn't terrible but I'd like to get rid of it then concentrate on housing. What do you guys think? Am I too conservative? Should I look into buying now?

 

[Decapolis]

"I don’t want to rush into buying a house; it makes me feel uncomfortable, especially at these prices of $500K or more. The more I read about buying a house the more concern I feel since there are so many expenses that we don’t pay right now since we rent. Once we buy a house we’ll have to furnish it, maintain it, buy insurance and pay property taxes, etc. I know my debt isn’t terrible but I’d like to get rid of it then concentrate on housing."

 

You answered your own question! Seriously...don't buy a house...don't. Lots of things can happen in the next 6 months before you start making attending money. Start that job in July, fund EF, max out any tax advantaged retirement savings, knock out that small student loan(congrats), make sure you like your job and get a 20% down payment. Seriously, you've already won the game with minimal student loan debt, don't mess it up with a half million dollar house BEFORE you even start the job.

[Ryan]

Are you just looking for affirmation? Do not buy a house. You're still in training, you can't make a 20% downpayment, and your reason for buying is that you want to get a bargain on it. 1. There's a solid likelihood you won't stay at your job, and houses that look like a great location now will have a terrible commute to your next one. Buying a house locks you in. 2. You have loans. Those are great targets for investments. 3. You can't predict interest rates and future home prices with very good certainty. So don''t base major decisions on uncertain predictions. 4. Asset prices fall when interest rates rise, which help cushion mortgage rate increases.

[wideopenspaces]

I'd also wait. Finish fellowship, see how the new job goes. Enjoy married life without the stress of home ownership. Then reassess in 2 years when loans are paid off and you have a nice downpayment.

[StarTrekDoc]

#1 -  if you don't sleep well at night because of the financial decision -- probably not the right one.

You have to weigh the pro/cons of the decision.  Straight financial in isolation it may make sense, but as you mentioned, a lot of different factors outside the house asset.   Your income will soon allow more options.  3 years from now 500k; even 700k is going to be just fine for a home.

IMHO, give yourself options -- lease for a year.

[EJ at Dads Dollars and Debts]

Could not agree more. My wife says I was always stressed about the expensive home (> $1 mil) that we owned. She says since it burned out that one burden has been lifted...though a lot of other PITA things to deal with.

Wait to buy. No rush. No real benefit. The likelihood of coming out ahead is low with home ownership in short term.

[billy]

Agree with everyone above, but if youre in fellowship now, and only have 44 k in student loans, why not refinance them to a lower rate? with your savings and retirement accounts you should be able to get a better rate at earnest, sofi, etc now, and you can always re- refinance once you get your first attending contract.  Going by your username, if you are in an anesthesia fellowship you should be able to pay that 44 k off in 6-12 months once you start as an attending (you should more than double your combined income next year).  Wait until after you've started your attending job before buying anything- there will be a lot that you may not have seen or noticed as a resident or fellow, and if your job doesnt work out you do not want a house holding you back from leaving.

[Dicast]

Try to think about the upside and downside on buying a house early. Upside, you buy and save 10k-20k. Downside, you decide to leave after only one year and lose 10% on the turnaround on 500k which is 50k...I think you are positioned well. if you wait 1-2 years, want to stay put then it won't matter. 20-30 years from know the house price change won't matter much.

[VagabondMD]

Buy the house when you need it and are ready to buy it, not when you feel pressured by the “hot market”. Hot housing markets cool, and you will feel like a chump if you own the house too early, especially if you do not need it or you find yourself relocating.

22 years into home ownership, I am completely jaded and look forward to the day that my third job is not fixing things, thinking/worrying about fixing things, convincing my wife that things do not need to be fixed or changed, losing arguments and meeting work people to fix/change things, etc.

[Hatton]

The consensus on this forum is to not buy in school/residency/fellowship or even at a brand new job.  Lots of threads of this topic.  Work on a down payment, paying off your loan, and retirement accounts.  You can afford to treat yourself with a nice vacation now instead of a house that you might regret. You are well ahead of most fellows who post here.  Congrats.

[Peds]

FOMO.

[Dont_know_mind]

I must offer a completely divergent view to the others here which may be wrong for you or right, only you can decide what is right for you after weighing up the pro's and cons of your situation.

Congrats on getting married. The first thing i did when I got married was I bought a house with my wife. I too had just finished training. My wife and I each had properties we owned before we married. I bought a house when I finished internship and so did she. I think a house is a great way to build wealth and if you choose a reasonable area, it may have prospects for appreciating.

Even at your current wage combined 150k/year, a 500k house is only 3.5X income and when you are an attending it may only be 1-2X yearly income.

If you intend to or can keep the house for over 5 years, it is more likely to have reasonable capital appreciation and be at a profit level when you sell.

You are probably a good tennant so renting to yourself (owning your own house) has benefits.

Yes, you do have to deal with one or 2 issues with maintenance when you own a house, but that's life.

If you don't buy a house and you and your wife are not happy renting forever, then you are short 1 house and you are right, if you are in a hot housing market, it can go up faster than you can save, even on your higher income and this is depressing if it occurs. I bought an investment property in a hot area for 1.2m 18 months ago and sold it last week for 1.5m. That wasn't even such a hot market. Things can definitely move 15-20% for consecutive years in the late stages of a property cycle. So if you don't buy, and you are short 1 house, you may do better waiting if things go down or don't go up by more than the net holding cost of the house over the next year or 2. Or you might lose if house prices in the area you are interested in go up by more than the net holding cost. Like stocks and other risk assets, houses do have a general tendency to appreciate in most (but not all) areas over time. So being short 1 house, if it is an appreciating asset over time, may not be such a great thing for too long. The real problem occurs if things go up 15% in the year you wait and you become paralysed by this and do not buy the 500k house for 600k in 1 years time and wait for it to fall back and in 2 year's time it is 750k. And if you then buy in 3 years time at 850k or something, that is a bit depressing. I guess if you have a plan that you have discussed with your wife and enact that plan, it may help.

I think if you were a medical student, I would not buy a house as you may not have a stable job on top of your studying. But after internship, you have reasonably secure employment so you should be able to make repayments even as a resident. And at your level, you should be able to buy a house quite comfortably. I bought my first house when I was 26 for 300k and sold it 5 years later for 500k. I bought my second house when I was 31 for 600k and sold it 5 years later for 900k. I then bought other properties. Maybe I was just lucky, but housing has been good to me. Other people may have different stories. I guess if you buy a property for 200k and spend 500k on building a house, you may end up with little appreciation on the combined value (700k) for a while. But that is a problem with overcapitalization and there are as many ways you can hash up a housing investment as you can hash up other investments.

The leverage (80%) really helps with equity growth in the first decade, if you select something that appreciated in value. You have to select workplaces where you can commute to from your house. If you are careful with not having non-compete agreements that are too onerous, you may be able to work around moving workplaces even if the first employment situation as an attending doesn't persist for more than a year or 2. I moved around a bit in my first 5 years but had no problem with staying in the same house.

 

 

[StarTrekDoc]

Dont_know_mind wrote:

I must offer a completely divergent view to the others here which may be wrong for you or right, only you can decide what is right for you after weighing up the pro’s and cons of your situation.

...I moved around a bit in my first 5 years but had no problem with staying in the same house.

 

 

Click to expand...

Totally agree that leveraged real estate investment is a great way to build wealth.  Half of our portfolio is real estate and early on we used that leverage to grow nicely during the real estate bust.

The question is more -- is it the right time to buy for the OP.  If the job situation is truly a locked hard commitment, then a 3 year timeframe in a hot market is a viable situation; otherwise one is gambling on a very large portion of net worth that can directly impact the earnings

In your own case, the home ownership was an anchor to your job opportunities.  It worked out okay over those 5 years and good house appreciation garnered; but you may have had a good opportunity across the county or elsewhere that you passed entirely because of that fixed asset.

Ownership and investing (two very different things) in real estate is great IMHO.  But it's very much an added dimension that should be viewed as an equivalent of having triplets.

[Dont_know_mind]

Yes, that is quite true StarTrekDoc. Also, the first year as an attending is stressful enough and you probably don't need extra stress.

In theory he may be better off waiting for a year but in practice, in a hot housing market he may find it more difficult biting the bullet for a house at 600k in a years time which he could have bought today for 500k. That is just psychology, but can really trip you up.

The longer you wait to buy your first house, the harder it may be to bite the bullet in a hot housing market. It is just hard to buy your first house in a hot housing market full stop. You have to compete with all these other buyers and things can get a bit crazy. And the amount of debt and cost seems so large compared to what you are used to and this also makes it is harder to bite the bullet.

You will tend to wait until a pullback and this unfortunately may not occur until the peak. I think the psychological factors tend to move you to buy at the peak, and then later you will think, "I wonder why I bought so close to the top in that cycle?".

So you could leave it a year, but you would have to have a very clear plan about how to enter and you would need to try to reduce exeution risk, because it is very possible if it is a hot housing market, that what you want to buy will be up next year.

[fasteddie911]

What's your rental situation like now?  How's the overall rental market?  I think renting is fine and you can buy when you feel ready, if ever.  However, it's tough to make a suggestion without knowing your current living situation.