I Wish We Could Buy a House
Not a day goes by that I fail to read a blog post or hear a story that references the incredibly low mortgage interest rates available for people with good credit. I am super jealous of people able to borrow at those rates for a reasonable long-term investment! I admit I’ve even been making occasional visits to zillow.com and trulia.com to check out home prices in San Diego.
Why I Want a House (and Mortgage)
Incredibly Low Interest Rates
As far as I can tell, mortgage interest rates are the lowest in most people’s living memory! We want to own a house eventually and I know we will have to take out a mortgage for it, so I hate to fail to capitalize on the historically low rates available right now. Imagine being able to lock in 3% for 30 years!
Rent Isn’t Waste, But Owning Long-Term Is Cheaper
On one of my visits to zillow.com, I looked up the price of the townhouse that Kyle and I recently moved into. I guess the realization that people willing to buy can (most of the time) make money off people who decide to rent really came home to roost when we moved from a large apartment complex run by a company to a private home owned by an individual. Our rent easily covers the estimated mortgage and insurance payments and the HOA dues for the townhouse. I realize that not all the costs of home ownership are collected in those figures, but darn if it isn’t tempting!
Future Passive Income from Rental Properties
I don’t have a definite goal in this vein, but I would like to eventually own at least one rental property. My parents did this with their starter home when I was growing up so it’s a familiar concept for me. Real estate is so cheap in Durham in comparison with San Diego that saving for a down payment here seems trivial vs. there. I have heard, though I have not deeply investigated, that the laws and home price/rent spread in CA is prohibitive for many real estate investors.
Why I Don’t Want a House
Leaving the Area in a Couple Years
The biggest reason keeping us from buying in Durham is that we’re leaving soon. “Soon” when we started grad school was 5 years, and it’s now stretching out a bit, but still it’s a small number of years left. If we bought now we would risk selling not only without any appreciation but without any savings over renting after factoring in closing costs and such. If we didn’t sell the house (like the owner of our townhouse didn’t when she finished school) we would be stuck long-distance landlording or working with a property management company.
No Down Payment
A very practical deterrent to buying right now is that we don’t have a down payment/closing fund. We would have to raid our Roth IRAs or our student loan payoff money to come up with the cash, and I don’t like de-allocating money.
Lifestyle Inflation
Because we rent, I don’t mind that most of our furniture is from craigslist. I have observed incredible lifestyle inflation when most people become first-time homeowners in terms of furnishing and decorating their nice new homes, and I am just not interested in doing that at this moment!
Don’t Want Responsibility
Kyle and I are not handy. We have a small emergency fund. We are not prepared to be responsible for a whole entire house!
Yeah, renting is pretty perfect for us right now. Really, the only reason to get a home is that I want to borrow money at low rates to invest at marginal rates – which sounds like a pretty silly reason. I just hope the superlow interest rates are still around in a few years when we’re finally financially and geographically prepared for home ownership.
If you aren’t a homeowner, do you wish you were at this moment in interest rate history? If you are a homeowner, are you more psyched about it now than you were a few years ago? Why do you want or not want to be a homeowner?
photo from Free Digital Photos
Filed under: debt, housing · Tags: buying, home ownership, renting
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I’m always amazed at how low the rates are in the US. I live in Australia and have seen our interest rates on our mortgage start at 7%, move up past 9%, fall down to 4.5% and now sit at about 5.75%.
I would love to see it down around 2-3%, but I can’t see it happening until way after we have paid off our house.
Glen @ Monster Piggy Bank recently posted..Has Christmas Become too Commercial?
Honestly though, I think a major component of feeling good about your financial situation is to do well in comparison with your local peers. Every location has different benefits and challenges.
I totally agree with all of your reasons for renting, and I am a bit amazed (and confused) by the grad students I know who bought property when they moved here. (All condos, since full houses in our city are not in first-time-homebuyer price ranges.) A couple good friends who moved out west for a 5 year postdoc also bought a house. I sometimes wonder if people who bought places intending to move in 5-6 years will wind up profiting in the end, or if that is even the metric they would use to evaluate their decision.
I think it would be extremely unlucky for buying to not beat out renting over 5-6 years. Like buying in 2007 (when Kyle moved to Durham) unlucky – another reason I’m glad we didn’t. Even if the house loses some value and you have to pay closing costs and such, renting is still very expensive! If I had the capital to tie up I think it would be a reasonable choice at the start of grad school. Most people I know in my area who own homes rent out to 1 or 2 roommates and defray a good chunk of their costs just from that.
Fair enough. Honestly, I was not even able to hypothetically consider buying, since I only had a few thousand in savings when I started grad school! I think it’s only the sort of thing you can do if you’ve had a few years of work at a solid salary (or rich parents!).
I’m actually about to transition from homeowner to renter, and not particularly excited about it. But with HOA’s, you are always going to be a renter anyway. (Of course, the Libertarians say the same thing about property taxes and government, and I do see their point). So we are going to wait a bit and next time get a house with it’s own land and no HOA.
Edward Antrobus recently posted..Bad Behaviors at a Company Holiday Party
Yep, you’ll always have bills due with taxes, insurance, and HOAs! I think our starter property will be a townhouse or maybe condo so we won’t largely escape from those monthly expenses into a house for quite some time. I don’t really know how common it is for neighborhoods with single family homes to have HOAs though – probably a lot of them do.
It depends on the area. Within the city limits of Fort Collins, but outside of Old Town, I don’t know of a single home that isn’t covered by an HOA. Out here, the HOAs even own most of the streets!
Edward Antrobus recently posted..Bad Behaviors at a Company Holiday Party
I am glad we’re homeowners, though I wish that we would’ve waited a bit longer to save up for a bigger down payment. My wife is from San Diego and we lived there when we were first married and buying a house was WAY out of the question as it’s just so expensive there. Since you’re moving in a few years, you’re making a wise decision not to buy.
John S @ Frugal Rules recently posted..A Frugal Person’s View on Holiday Tipping
Why do you wish you had had a bigger down payment – equity to refinance, PMI, peace of mind…? What did you put down and what do you wish you had?
I agree with everything you’ve said! I would love to buy a house, but I also understand that I have no idea where I’ll be living in the next 2-5 years (other than probably not where I am currently). I think this uncertainty also comes up in a lot of posts where people are looking at goals on a 5 year scale. The best we can do sometimes is to plan for flexibility! 🙂
Nice to see you again!
Sometimes uncertainty can be crippling for home buying, saving for other goals, choosing where to live, making decisions in relationships… I think at some point you have to say (for instance), OK, I’m giving a 75% probability to this outcome, and that’s good enough to make a decision on today.
I would probably buy a house if I had no plans to leave the area within the next 5 years – meaning that we probably won’t buy a house in Kyle’s postdoc city because we’re hoping the postdoc will be 5 years or less (gosh, I hope 3!), unless we have long-term plans of owning there (i.e. in California). But it’s not the worst thing to make a decision that turns out to be non-optimal if you think through the contingencies.
I have a case of lifestyle inflation as well. We already want a second house (and sell the one we currently live in). The market is great and interest rates are low.
Michelle recently posted..Our Vacation Plans for the Next 12 Months
I don’t know your whole picture but it seems like your income has really picked up as of late. Why would you prefer to sell the house you’re currently in? If you stay in the same town you could have renters and generate even more cash flow. Your sister could be your property manager. 🙂
We pay pretty little for our current apartment because of where we live (< $500/mo for 875 sq ft), so I'm not itching to think about home buying. However, when I begin to consider what our next-life-stage-residence might be like (someplace with another bedroom, maybe around 1000 sq ft) and I see the rent is up over $1000/mo, that's when I find myself considering buying a home. I'm crossing the line into the "wanting to invest that money into something that will last" mode.
The threshold for this thinking might increase if our income increases, and the will to rent vs own might change if we find ourselves in a more permanent living situation. But for now, because our job-situation in two years is uncertain and because we're accustomed to living in a small place paying a very reasonable rent, even low interest rates don't tempt me. 🙂
Hi again!
That is a nice price! I read another blogger who pays very little in rent (far below what their income allows for) who has been a renting advocate for some time, but the low prices and interest rates have finally spurred him to start house-hunting.
It’s funny how we can put up with things while we rent (like smaller square footage) that we wouldn’t if we were to buy. I would be fine with a smaller place but Kyle needs more personal space than I do – he has had a bedroom essentially all to himself for our entire marriage!
Have you started saving for a down payment for after you move?
Honestly, those are all good reasons to stay put, Emily. The last thing you need to do is try to resell a home with little equity when you are finally ready to move out of your area. Eventually you will be a homeowner and the wait will be worth it!~
Holly@ClubThrifty recently posted..Guarding Your Personal Information from Corporate Interests
Yeah, it’s really not an option for us right now. It would be awful to be stuck without money to pay off a loan/close when you have to move!
We’re homeowners but like John I also wish we had saved for a larger downpayment…live and learn though. We’re young so that helps. I won’t buy our second home until we can afford at least 20% down which shouldn’t be an issue since we don’t plan on moving for probably 4-5 years and will have a few years equity to use. If I wasn’t permanently staying where we were I probably wouldn’t buy, there’s nothing wrong with renting.
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It sounds like you learned some lessons from the first time around! As long as you don’t feel stuck it’s not a bad situation.
Well, Ben Bernanke just announced that interest rates are going to stay low until unemployment hits 6.5%… so I guess you could hope unemployment doesn’t drop for a while? Wait – that’s an unkind thing to wish on others…
But the guidance says that they’re not expected to go much higher before 2015 – which is a ways off. So you’ve got time.
Mrs. Pop @ Planting Our Pennies recently posted..What Am I Gonna Do With A Gun Rack?
Yeah, I keep saying I want interest rates to stay low but I know that means terrible things for people who depend on interest income for their living expenses! Even with the rates being low until 2015 probably the housing market will recover more (another thing I’m wishing against, only sort of) so housing prices won’t be as low as now. And I don’t think we’ll be ready to buy by 2015 because my husband’s postdoc will likely go until 2016 and we’ll probably have to save for a while after that… Wow that’s really a long time from now!!
I’m ready to own, even though I’m getting the down payment as a gift from my parents (which I know you wouldn’t be comfortable with!). But I’m in Portland, now. For good.
Kathleen @ Frugal Portland recently posted..Did I save half my income?
Sounds like you’re capitalizing on the opportunity!
I was so excited to be a homeowner, and I still am, but after Hurricane Sandy and all the damage we had to pay for I’m a little less naive about the costs involved with being a home owner. I don’t regret our decision and like you we want to have an income property someday.
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It would be really scary if you depleted all your cash to get through closing a house and then had a major breakdown/accident/disaster with no cash savings left. There are always costs you can’t anticipate well in cost or timing and to have it hit when you’re most vulnerable and inexperienced would be terrible. I’m glad you’ve recovered OK from Sandy!
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I’m definitely pro house buying now as well. The house I bought almost 10 years ago has created more wealth, much more easily than anything else.
That said, there will ALWAYS be a house that comes around. Get your income/jobs in order first, and you’ll have even more fun house hunting!
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We wouldn’t do it in the reverse order, even if the banks were to let us. 🙂
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