8 ms·

Slightly off topic but... as someone that is moving out of the city and even a few states over does anyone have any advice on home buying? Would it be better to

Slightly off topic but... as someone that is moving out of the city and even a few states over does anyone have any advice on home buying? Would it be better to buy now or rent for a bit and then buy? Is that like asking what stocks to invest in or is it more predictable than that? I have zero experience with this sort of thing.

ghaff 6y ago
A few questions I would ask: - Do you have confidence that you'll be able to continue working from wherever you move to? - Are you looking at a house or a condo? (It's generally easier to rent an apartment than a house.) - What are your motivations to buy? There's plenty out there on the financial side. Some of it is even reasonably accurate. However, IMO you should probably be thinking more about whether you want stability and the ability to customize a home or are you wanting to maintain a degree of flexibility if you decide to move somewhere else in a few years? - Do you know the area(s) you're thinking of moving to? If not, it may make sense to rent for a while while you decide if that's where you really want to be.
- jpm_sd 6y ago
  It's enough of a seller's market that OP will almost certainly have to rent at/near their destination while house hunting. Last time I moved, it was 6 months of rental while going to open houses every weekend.
- freeone3000 6y ago
  Even with regards to maintaining a degree of flexibility, it might be worth considering if you actually do lose money on closing costs + taxes + value loss than you will on rent, even for a short term. Half or more of every mortgage payment is invested in an asset, 0% of every rent payment is.
  - ghaff 6y ago
    On the other hand you're foregoing any further returns on the money you take out of savings to pay the down payment and closing costs. It's definitely not as simple as rent is throwing money away compared to buying.
    - freeone3000 6y ago
      For a $200,000 down payment on a $2500 a month mortgage (with 50% going to principal) versus $2000 a month rent, you'd need ten months to get past the $10,000 closing costs even assuming 10% return on next-best option and that the value of your home remains flat. Owning the place you live is probably the best investment you can make.
      - FireBeyond 6y ago
        The median household income was $68K in 2019, the highest it's ever been. That's $55K a year after tax. Now you're paying $2,000 in rent. Even if you don't spend a single cent of income on anything else besides a house, you'd still be looking at seven years to come up with that downpayment. Realistically, more like 15 years with expenses, at a minimum. i.e. "Don't buy a house until you're about 40 years old". > The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income. So for the median family, $140K-$170K. I'm not sure where the median family lives that they're buying $170K homes that they were previously renting for $2K/month, but it sure ain't anywhere near here. Not to mention appraisal discrepancies, which require you to have the funds for the downpayment, for the closing, and to cover the appraisal discrepancy dollar for dollar. But generally, I'm just trying to figure out how we come to the conclusion that the average family is putting anything close to a fraction of $200K to a downpayment.
        freeone3000 6y ago
        Usually inheritance and gifts from wealthy relatives. If you don't have that, you won't be buying a house and will forever be renting save the rare outliers with $200k/year jobs. It still doesn't make renting a good idea.
jpm_sd 6y ago
> Is that like asking what stocks to invest in Yes, pretty much. We are definitely in an asset price bubble but "the [housing] market can remain irrational longer than you can remain solvent" (with apologies to Keynes). The strategy I have successfully pursued in two cross-USA moves: find a not-too-expensive house in a neighborhood that has some kind of long term value, whatever that means (good schools? close to nature? cultural opportunities?). Remote work is great, but try to be within commutable distance of non remote opportunities in your field as a hedge against future change. That way, even if the market plunges in absolute terms by the time you need to move again, relative value should hold up? Hopefully?
hirundo 6y ago
> Is that like asking what stocks to invest Yes it is. Watch "The Big Short" if you think the housing market might be less crazy. So take my advice with the appropriate skepticism: With the lock downs and rise in remote work there has been upward pressure on rural and low density housing prices, same as toilet paper and weightlifting equipment. That makes it a seller's market. I have rural neighbors moving forward their plans to sell for that reason. As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean. This advice is brought to you by someone who managed to buy at the very top of the real estate market. I think the crash happened when I signed my purchase agreement.
- mjh2539 6y ago
  > As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean. The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future.
  - gruez 6y ago
    >The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future. It's low for you, but also low for everyone else. Low interest rates push purchase prices higher because people care about monthly payments, not the final price. Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment.
    - dcolkitt 6y ago
      Nearly half of home sales are to cash buyers, who at least theoretically aren’t sensitive to mortgage rates. https://www.appraisalinstitute.org/Nearly50PercentofHomeSalesareAllcashDeals/ https://www.appraisalinstitute.org/Nearly50PercentofHomeSale...
      - hirundo 6y ago
        The half that are sensitive to mortgage rates bid up prices for both halves when rates are low.
k3oni 6y ago
With the market prices being as high as they are now and low inventory I would recommend you rent for now and get to know the new area/city first. It's a seller's market right now and there's a higher chance of you over-paying for a property right now. I keep telling friends that i would rather buy a home with a lower price but higher rate/apr than vice-versa. You can always refinance, but you'll never be able to change the price you've paid. Edit: Also worth noting that real estate markets are more local, so there exists the chance that you might still be able to find some affordable houses but depends on the area.
- majormajor 6y ago
  > I keep telling friends that i would rather buy a home with a lower price but higher rate/apr than vice-versa. You can always refinance, but you'll never be able to change the price you've paid. This is true, but assumes that prices drop significantly rather than merely stop rising like crazy and also doesn't include that if you're renting, you never get that rent back from the period of time you were waiting.
  - k3oni 6y ago
    That specific point was more related to the market i'm in right now, so it's pretty much market/area depended and yes as you point out your mileage might vary as i've never taken rent into consideration for this use case.
topkai22 6y ago
So we just bought a house in the same zip code we currently own in. You are right, it is a bit like picking stocks, but there are some general rules you can follow that might help. House prices are ballooning for two reasons right now- COVID and interest rates. COVID means you are going to pay premium regardless rightn now, interest rates are more interesting. Interest rates are up a bit from their bottom at the beginning of 2021, but are still historically low. Because so much of a house price is financed, if your time frame is long enough paying a premium on a house right now might be worth it now if you expect interest rates to rise. Using some VERY bad financial math, a $500,000 house financed at 3% for 30 years is "cheaper" than a $400,000 house financed at 5% on a cash flow basis. Transaction costs for houses are high- expect to pay 8-10% of the price of the house to get is sold (this goes to real estate agents fees, taxes, prep work, etc.) If you aren't sure you are going to stay in the area for a long time than definitely don't buy- think of it as your house immediately depreciating by 10% when you buy it. Traditionally, housing prices has also been considered a good inflation hedge, if you want to factor that into your calculations. However, that has been way less true post 2000 (where there hasn't been much inflation and housing prices have been way over the map.) Finally though, housing isn't just a investment, it is also a consumption good. In my case that was probably the deciding factor for us- we choose to increase the amount of money we are spending on housing because that is what we wanted to buy. Some more insight into our thought process: 1) We knew we wanted to buy a house in one of three neighborhoods and had always planned to move within within the 2022-2024 timeframe. We moved up our time frame by the year, but this was always happening for us. 3) We are already bought into the area, so we had already benefited from the overheated market. 4) We timed our interest rate lock just about perfectly- interest rates are now 0.5% higher. 5) The house that came on the market is across the street from friends of ours, we were willing to pay a premium to be near our social circle. In the end, we bought a house I fully believe will be worth less next year than today, but will be OK (althought not great) as an investment in 20 years (which is our time horizon.) In your case, if you aren't super familiar with the area or aren't sure you have a 10+ year time horizon you might want to rent just to give you time to understand the new city your are moving to- the type of mistakes you can make in buying a primary residence aren't just that you lose money on the asset, but that you don't like where you live for years.
- 6y ago
starclerk 6y ago
Time in the market > timing the market. As long as you don't put more than ~30% of your money into a single asset (e.g. a house), then you're pretty certain to always make money in the long-term.
- bsurmanski 6y ago
  heh, good luck finding a house worth less than 30% of your net worth.
  - brianwawok 6y ago
    Very very easy in much of the midwest, with a tech job.
  - starclerk 6y ago
    (late reply) That wasn't what I was referring to. Net worth is (assets - debts), so the money for a down payment is largely the only part of a house that contributes to net worth at purchase time. In other words, your down payment should be less than 30% of your net worth. Still hard to do in many places.
- boring_twenties 6y ago
  How many people are buying a house with anything less than 100% of their money? Everyone I know who "owns" a home first had to save up for a 3-20% down payment, which translates to having 500-3,300% of their money in the asset. Biggest outlier I know personally put 50% down, so 200%. Obviously I know that cash buyers exist too but that's not most people, unless I'm woefully wrong.
xbmcuser 6y ago
In the next few years inflation is expected to be high ie dollar value is going to go down so house prices could go up as well as interest rates are also expected to go up. So if you are interested in buying in the current situation I would advise buying as soon as you can and if going to mortgage lock down a lower interest rate.
Bhilai 6y ago
Depends a lot on the city where you want to buy but more generally I think the current frenzy will ease out a bit once covid restrictions are done with, interest rates go slightly higher and there is more inventory in the market. I dont have any data suggesting this but I feel a lot of home owners are not selling at the moment because they would too need to pay a much higher price for their next home. But there is some contrary evidence too where some owners who want to downsize or move away from an urban area are looking to cash out big.
- datavirtue 6y ago
  First time home buyers are completely boxed out right now. There are people sitting on down payments waiting this out.
dcolkitt 6y ago
One thing, I’d at least consider, is buying vacant land and building. Normally you pay a premium for a new build relative to an existing house. But in this market houses are regularly getting bid 20% over list. To be fair, materials costs and certain subcontractor labor costs are also up, but the overall price tag, nowhere near as much. This is probably one of the few times when building new is cheaper than buying old. New builds with modern finishes are more likely to hold value if/when there’s a downturn.
- lotsofpulp 6y ago
  Unless you know people in the construction industry, and/or are familiar with construction yourself and evaluating whether or not the job is being done right, I would not recommend building yourself, especially in hot markets. If you're small fry, you're not going to be able to secure the best workers, and you can easily get taken advantage of because you have no idea what shortcuts people are taking if you're not checking up on things. Also, materials costs are insane right now, if you can even get them in a timely fashion. I know someone who took out a construction loan early 2020 based on estimates pre pandemic. They started building recently, and blew threw their budget on lumber alone and had to draw from retirement accounts to keep going. It is a great learning exercise, but not one many can afford on their primary residence.
  - datavirtue 6y ago
    This. Don't build unless you you already know what you are doing. I know what I'm doing and it is an absolute bitch and I am finding I have to do most of my own work.
  - matwood 6y ago
    > if you can even get them in a timely fashion This. Not just materials but parts because of supply chain backups. Oh, and general worker rates. I just had to replace a hot water heater. Big box stores had prices listed (~$1300 but no stock). Plumber wanted to charge $4k for the equipment and installation. Luckily I knew someone who had wholesale accounts, called all over the state, and found one. Then I did the install in ~2 hours. Dealing with that for an entire house, sounds like a terrible experience.
jccalhoun 6y ago
I would say if you can afford a good down payment then buy now. Otherwise, rent and save more for a down payment.
datavirtue 6y ago
Don't do it unless you have to.
matwood 6y ago
I would rent for a bit just to get your bearings in the new place. It's hard to know what part of town you really want to live in, until you experience it for a bit.
yardie 6y ago
We moved countries, France -> US. Rented for a year and used that time to search for something we liked. Avoided a lot of pigs with lipstick as home flippers in a hot market tend to slap on new paint and do shoddy, minimal repairs. I personally wouldn't buy until I'm absolutely ready to. And yes, we did miss a few opportunities since we weren't ready. Unlike my experience buying in France, the US does not do bridge loans. You are a) lucky and close as a seller and buyer, b) take on 2 mortgages hoping the old house sells, c) are temporarily homeless, d) or temporarily renting. Housing is super emotional and I hate having to make emotional decisions. You have to make a lifelong decision based on a 30 minute tour. And buying in a hot market just makes everything more stressful. I'm not surprised people are making lightning quick decisions because hesitating is not an option.

ghaff 6y ago

A few questions I would ask: - Do you have confidence that you'll be able to continue working from wherever you move to? - Are you looking at a house or a condo? (It's generally easier to rent an apartment than a house.) - What are your motivations to buy? There's plenty out there on the financial side. Some of it is even reasonably accurate. However, IMO you should probably be thinking more about whether you want stability and the ability to customize a home or are you wanting to maintain a degree of flexibility if you decide to move somewhere else in a few years? - Do you know the area(s) you're thinking of moving to? If not, it may make sense to rent for a while while you decide if that's where you really want to be.

jpm_sd 6y ago
It's enough of a seller's market that OP will almost certainly have to rent at/near their destination while house hunting. Last time I moved, it was 6 months of rental while going to open houses every weekend.
freeone3000 6y ago
Even with regards to maintaining a degree of flexibility, it might be worth considering if you actually do lose money on closing costs + taxes + value loss than you will on rent, even for a short term. Half or more of every mortgage payment is invested in an asset, 0% of every rent payment is.
- ghaff 6y ago
  On the other hand you're foregoing any further returns on the money you take out of savings to pay the down payment and closing costs. It's definitely not as simple as rent is throwing money away compared to buying.
  - freeone3000 6y ago
    For a $200,000 down payment on a $2500 a month mortgage (with 50% going to principal) versus $2000 a month rent, you'd need ten months to get past the $10,000 closing costs even assuming 10% return on next-best option and that the value of your home remains flat. Owning the place you live is probably the best investment you can make.
    - FireBeyond 6y ago
      The median household income was $68K in 2019, the highest it's ever been. That's $55K a year after tax. Now you're paying $2,000 in rent. Even if you don't spend a single cent of income on anything else besides a house, you'd still be looking at seven years to come up with that downpayment. Realistically, more like 15 years with expenses, at a minimum. i.e. "Don't buy a house until you're about 40 years old". > The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income. So for the median family, $140K-$170K. I'm not sure where the median family lives that they're buying $170K homes that they were previously renting for $2K/month, but it sure ain't anywhere near here. Not to mention appraisal discrepancies, which require you to have the funds for the downpayment, for the closing, and to cover the appraisal discrepancy dollar for dollar. But generally, I'm just trying to figure out how we come to the conclusion that the average family is putting anything close to a fraction of $200K to a downpayment.
      - freeone3000 6y ago
        Usually inheritance and gifts from wealthy relatives. If you don't have that, you won't be buying a house and will forever be renting save the rare outliers with $200k/year jobs. It still doesn't make renting a good idea.

jpm_sd 6y ago

> Is that like asking what stocks to invest in Yes, pretty much. We are definitely in an asset price bubble but "the [housing] market can remain irrational longer than you can remain solvent" (with apologies to Keynes). The strategy I have successfully pursued in two cross-USA moves: find a not-too-expensive house in a neighborhood that has some kind of long term value, whatever that means (good schools? close to nature? cultural opportunities?). Remote work is great, but try to be within commutable distance of non remote opportunities in your field as a hedge against future change. That way, even if the market plunges in absolute terms by the time you need to move again, relative value should hold up? Hopefully?

hirundo 6y ago

> Is that like asking what stocks to invest Yes it is. Watch "The Big Short" if you think the housing market might be less crazy. So take my advice with the appropriate skepticism: With the lock downs and rise in remote work there has been upward pressure on rural and low density housing prices, same as toilet paper and weightlifting equipment. That makes it a seller's market. I have rural neighbors moving forward their plans to sell for that reason. As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean. This advice is brought to you by someone who managed to buy at the very top of the real estate market. I think the crash happened when I signed my purchase agreement.

mjh2539 6y ago
> As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean. The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future.
- gruez 6y ago
  >The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future. It's low for you, but also low for everyone else. Low interest rates push purchase prices higher because people care about monthly payments, not the final price. Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment.
  - dcolkitt 6y ago
    Nearly half of home sales are to cash buyers, who at least theoretically aren’t sensitive to mortgage rates. https://www.appraisalinstitute.org/Nearly50PercentofHomeSalesareAllcashDeals/ https://www.appraisalinstitute.org/Nearly50PercentofHomeSale...
    - hirundo 6y ago
      The half that are sensitive to mortgage rates bid up prices for both halves when rates are low.

k3oni 6y ago

With the market prices being as high as they are now and low inventory I would recommend you rent for now and get to know the new area/city first. It's a seller's market right now and there's a higher chance of you over-paying for a property right now. I keep telling friends that i would rather buy a home with a lower price but higher rate/apr than vice-versa. You can always refinance, but you'll never be able to change the price you've paid. Edit: Also worth noting that real estate markets are more local, so there exists the chance that you might still be able to find some affordable houses but depends on the area.

majormajor 6y ago
> I keep telling friends that i would rather buy a home with a lower price but higher rate/apr than vice-versa. You can always refinance, but you'll never be able to change the price you've paid. This is true, but assumes that prices drop significantly rather than merely stop rising like crazy and also doesn't include that if you're renting, you never get that rent back from the period of time you were waiting.
- k3oni 6y ago
  That specific point was more related to the market i'm in right now, so it's pretty much market/area depended and yes as you point out your mileage might vary as i've never taken rent into consideration for this use case.

topkai22 6y ago

So we just bought a house in the same zip code we currently own in. You are right, it is a bit like picking stocks, but there are some general rules you can follow that might help. House prices are ballooning for two reasons right now- COVID and interest rates. COVID means you are going to pay premium regardless rightn now, interest rates are more interesting. Interest rates are up a bit from their bottom at the beginning of 2021, but are still historically low. Because so much of a house price is financed, if your time frame is long enough paying a premium on a house right now might be worth it now if you expect interest rates to rise. Using some VERY bad financial math, a $500,000 house financed at 3% for 30 years is "cheaper" than a $400,000 house financed at 5% on a cash flow basis. Transaction costs for houses are high- expect to pay 8-10% of the price of the house to get is sold (this goes to real estate agents fees, taxes, prep work, etc.) If you aren't sure you are going to stay in the area for a long time than definitely don't buy- think of it as your house immediately depreciating by 10% when you buy it. Traditionally, housing prices has also been considered a good inflation hedge, if you want to factor that into your calculations. However, that has been way less true post 2000 (where there hasn't been much inflation and housing prices have been way over the map.) Finally though, housing isn't just a investment, it is also a consumption good. In my case that was probably the deciding factor for us- we choose to increase the amount of money we are spending on housing because that is what we wanted to buy. Some more insight into our thought process: 1) We knew we wanted to buy a house in one of three neighborhoods and had always planned to move within within the 2022-2024 timeframe. We moved up our time frame by the year, but this was always happening for us. 3) We are already bought into the area, so we had already benefited from the overheated market. 4) We timed our interest rate lock just about perfectly- interest rates are now 0.5% higher. 5) The house that came on the market is across the street from friends of ours, we were willing to pay a premium to be near our social circle. In the end, we bought a house I fully believe will be worth less next year than today, but will be OK (althought not great) as an investment in 20 years (which is our time horizon.) In your case, if you aren't super familiar with the area or aren't sure you have a 10+ year time horizon you might want to rent just to give you time to understand the new city your are moving to- the type of mistakes you can make in buying a primary residence aren't just that you lose money on the asset, but that you don't like where you live for years.

6y ago

starclerk 6y ago

Time in the market > timing the market. As long as you don't put more than ~30% of your money into a single asset (e.g. a house), then you're pretty certain to always make money in the long-term.

bsurmanski 6y ago
heh, good luck finding a house worth less than 30% of your net worth.
- brianwawok 6y ago
  Very very easy in much of the midwest, with a tech job.
- starclerk 6y ago
  (late reply) That wasn't what I was referring to. Net worth is (assets - debts), so the money for a down payment is largely the only part of a house that contributes to net worth at purchase time. In other words, your down payment should be less than 30% of your net worth. Still hard to do in many places.
boring_twenties 6y ago
How many people are buying a house with anything less than 100% of their money? Everyone I know who "owns" a home first had to save up for a 3-20% down payment, which translates to having 500-3,300% of their money in the asset. Biggest outlier I know personally put 50% down, so 200%. Obviously I know that cash buyers exist too but that's not most people, unless I'm woefully wrong.

xbmcuser 6y ago

In the next few years inflation is expected to be high ie dollar value is going to go down so house prices could go up as well as interest rates are also expected to go up. So if you are interested in buying in the current situation I would advise buying as soon as you can and if going to mortgage lock down a lower interest rate.

Bhilai 6y ago

Depends a lot on the city where you want to buy but more generally I think the current frenzy will ease out a bit once covid restrictions are done with, interest rates go slightly higher and there is more inventory in the market. I dont have any data suggesting this but I feel a lot of home owners are not selling at the moment because they would too need to pay a much higher price for their next home. But there is some contrary evidence too where some owners who want to downsize or move away from an urban area are looking to cash out big.

datavirtue 6y ago
First time home buyers are completely boxed out right now. There are people sitting on down payments waiting this out.

dcolkitt 6y ago

One thing, I’d at least consider, is buying vacant land and building. Normally you pay a premium for a new build relative to an existing house. But in this market houses are regularly getting bid 20% over list. To be fair, materials costs and certain subcontractor labor costs are also up, but the overall price tag, nowhere near as much. This is probably one of the few times when building new is cheaper than buying old. New builds with modern finishes are more likely to hold value if/when there’s a downturn.

lotsofpulp 6y ago
Unless you know people in the construction industry, and/or are familiar with construction yourself and evaluating whether or not the job is being done right, I would not recommend building yourself, especially in hot markets. If you're small fry, you're not going to be able to secure the best workers, and you can easily get taken advantage of because you have no idea what shortcuts people are taking if you're not checking up on things. Also, materials costs are insane right now, if you can even get them in a timely fashion. I know someone who took out a construction loan early 2020 based on estimates pre pandemic. They started building recently, and blew threw their budget on lumber alone and had to draw from retirement accounts to keep going. It is a great learning exercise, but not one many can afford on their primary residence.
- datavirtue 6y ago
  This. Don't build unless you you already know what you are doing. I know what I'm doing and it is an absolute bitch and I am finding I have to do most of my own work.
- matwood 6y ago
  > if you can even get them in a timely fashion This. Not just materials but parts because of supply chain backups. Oh, and general worker rates. I just had to replace a hot water heater. Big box stores had prices listed (~$1300 but no stock). Plumber wanted to charge $4k for the equipment and installation. Luckily I knew someone who had wholesale accounts, called all over the state, and found one. Then I did the install in ~2 hours. Dealing with that for an entire house, sounds like a terrible experience.

jccalhoun 6y ago

I would say if you can afford a good down payment then buy now. Otherwise, rent and save more for a down payment.

datavirtue 6y ago

Don't do it unless you have to.

matwood 6y ago

I would rent for a bit just to get your bearings in the new place. It's hard to know what part of town you really want to live in, until you experience it for a bit.

yardie 6y ago

We moved countries, France -> US. Rented for a year and used that time to search for something we liked. Avoided a lot of pigs with lipstick as home flippers in a hot market tend to slap on new paint and do shoddy, minimal repairs. I personally wouldn't buy until I'm absolutely ready to. And yes, we did miss a few opportunities since we weren't ready. Unlike my experience buying in France, the US does not do bridge loans. You are a) lucky and close as a seller and buyer, b) take on 2 mortgages hoping the old house sells, c) are temporarily homeless, d) or temporarily renting. Housing is super emotional and I hate having to make emotional decisions. You have to make a lifelong decision based on a 30 minute tour. And buying in a hot market just makes everything more stressful. I'm not surprised people are making lightning quick decisions because hesitating is not an option.