2013 is the time to buy

November 20, 2012 · 25 comments

While I was driving the other day I started thinking about homeownership. I came to the conclusion that I will never be ready to buy a home. Just like I don’t expect to wake up one day and desperately want kids. I mean, deep down in my heart those are things that I want and am excited about, but they are such significant decisions it will be hard for me to ever pull the trigger.

Realizing I have serious commitment issues, I needed to do something bold. When Girl Ninja came home from work last week I told her “Girl Ninja, we are going to buy a house in 2013.” She was just as shocked as I was that those words came out of my mouth.

To be honest. I still don’t really want to own a home. Sure, it would be cool to paint our walls and have more than 600 sqft of living space, but the thought of committing to one place for more than a few months totally stresses me out (We’ve been on a month-to-month lease for a year now).

So if I don’t want to buy a house, why would I?

Math. 

The economy and our personal finances have aligned in such a way that the universe is practically begging us to buy a house. Emotions need to take a backseat when the numbers look this good.

Here are the facts as I see them….

  • By March 2013 we should reach our 100k savings goal.
  • Interest rates are expected to stay at near historic lows for most of 2013, possibly ticking up in the fourth quarter.
  • Our savings account pays less than 1% interest.
  • We, at some point in the future, want to buy a house.
  • We pay $975/month for rent.

Now let’s look at two different scenarios: 

We buy a $300k house Summer 2013 with an interest rate of 3.6%. We put $60k down to avoid paying PMI, leaving us with a mortgage of $240,000. This makes our monthly payment $1,091. About $370 goes to principal and $720 goes to interest.

Now let’s pretend we wait two years to buy a house, after interest rates have increased. 

We buy a $300k house in Summer 2015 with an interest rate of 5%. I put $60k down to avoid PMI, leaving us with a mortgage payment of $1,288. Of which, only $288 goes to principal (instead of $370) and $1,000 goes to interest (instead of $720).

Do you see what I see? If we want to buy a house anytime in the next five years, 2013 is the year to do itRates can’t stay low forever. They WILL start to go up, likely within the next 12-18 months.

The crappy economy is going to force this purchase a little sooner than we personally wanted, but when the stars (or in this case the numbers) align, you can’t ignore a great opportunity.

A depressed real estate market + Low Interest Rates + $$$ in Savings = Time To Buy A Home

 

{ 25 comments }

1 Kate

Oh, I hope I can find your conviction. We, too, are planning to buy (another) house. We have the money, we can get a good mortgage, and I can’t do it.

I can’t really give myself a deadline because I’m targetting a specific neighborhood, but I need to do something to push me in the right direction.

I think you will be happy once you get past the jump!

2 Emily @ evolvingPF

Honestly, I think that’s a great decision. I wish we were in a position to buy now/in the near future. But first we have to move to our dream city and make/save some money! Good for you for working against your weakness.

3 Chris

I just bought a house for many of the same reasons you are thinking about it.

Couple of things to keep in mind – you need to bake property taxes and homeowners insurance into that that monthly payment. So you’re $1000 pmt is really closer to 1500. My payment is an extra $333 for taxes and $90 for insurance.

Still think it’s a great idea but man that tax thing caught me off guard.

4 Ninja

Yeah I thought about including those in to the calculations, but then I realized the property tax and homeowners insurance would be the same for both scenarios so it would be a wash.

That is probably the biggest reason I have been yet to buy a house. $720 to mortgage interest. Another $300 to property tax and insurance each month equals $1,020. My rent is $975. So even when people say “you’re throwing your money away renting” they fail to realize I’d be throwing away $1,020 if I bought, since mortgage interest, taxes, and insurance ARE NOT investments.

5 Jacob @ iheartbudgets

But they ARE tax write-offs :)

6 Larry

There are also closing costs, possibly points, maintenance . . .

Still I think you’re right to do this relatively soon. Regardless of the length of the mortgage, inflation will help you by making your monthly payments less expensive down the road since you’re paying with cheaper dollars. My question would be whether it’s necessary to spend $300K; I know you’ve ruled out the condo thing but you might find something perfectly adequate for less. You can also consider buying a starter home that you plan to sell in a few years if you need more room for a family.

7 Phoebe @ http://allyouneedisenough.blogspot.com/

Even though we plan on buying our first house in cash, I applaud your decision! Your logic is really solid, and I agree that the stars are aligning for hte NInja household. Happy house hunting!!

8 Jennifer

You make good points about the timing! I’m on my 4th house and while I have moments of wishing I was a renter, overall I love having a home that is mine. I grew up in one house and it felt like home. Having a home I own feels like that, too. Renting can not do that for me (maybe it does for others, but not me).

Can’t wait to follow your process in the house hunt (assuming you share it).

Have a great Thanksgiving Ninjas!

9 savvyfinanciallatina

We are the same way. We don’t want to necessarily tie ourselves down with a home, but it’s financially savvy.
We will be looking for a house in the 4th quarter of 2013. By then we will have 20% down payment saved. We will be looking for a starter home in Texas between $130K and $150K.

10 Chris

Good idea. My plan is November of 2013 hopefully the interest rates stay low. I’ll have my 20% saved/investments mature/debt will be gone all in November (by design). Just like the above comment I am looking for a house in Eastern New Mexico (10 minutes from Texas :D) for about $120k – $150k. I’m definitely not going to stay here for long so I’m looking for an investment property that I can live in temporarily and rent/sell after a while.

11 krantcents

I think it is an opportunity vs. forced to buy. It is always a choice. ood luck.

12 StackingCash

Exciting! I love it when you spend money :P I am really looking forward to your posts on the house hunting process because we’ve been looking for the past 10 years for that “perfect” house. Good thing we waited till now, missing that housing bust in 2007. Unfortunately, it has caused us to be uber careful and picky in regards to upgrading to a nicer home. I think we found it though, but they don’t start construction until Spring of 2013. Wishing you guys and us luck for next year!

13 Lea

That’s exactly why we bought a house this past summer. I knew that in the long run, we were going to be paying more in interest even if we had that time to save up a larger down payment.

14 Jacob @ iheartbudgets

I think you’ve got a great plan, because rates are ridiculous right now (I just ReFi’d to 3.25%) and you’ll be avoiding PMI. And what’s the point of saving all that dough if you’re not going to use it for something you love. So not only does the math work in your favor, but you will enjoy it immensely as well! Good luck!

15 Jon

Although I agree that there is good financial reasoning to purchase a home in this market (and the near future, given interest rates and home prices), I would also recommend making sure other aspects of the purchase make sense, and to not just make it a numbers game. That is, that you plan to live there a while, that you buy a home you can grow into, particularly if you change your mind and decide to have kids, and that you are not limiting your career opportunities.

That last item is one reason why I am re-thinking home ownership in general. I am realizing that there is a potentially high opportunity cost of being tied down by a house, because it limits my job opportunities. The IT world is generally not one where you linger at a company for 10+ years, so mobility can be a great asset for your career and your overall, long-term finances.

Outside of the expenses of mortgage interest, property taxes, insurance, and higher utilities (more space, more money to heat/cool), as someone else has mentioned, maintenance costs can add up. Even if you are hands-on, there is a time and money issue from simple things like landscaping to complex things like replacing a furnace or water heater. And, of course, a 6% instant cost if you sell the house using a realtor.

So, I guess I’ve been a bit pessimistic in my view of home ownership, but I think it’s important to consider all of the expenses of home ownership and the fact that a home can quickly go from an asset to a liability, depending on the circumstances. The emotional part of home ownership cannot be refuted (you can renovate it how you like, personalize it, etc.), but from a purely financial standpoint, it isn’t always the best choice, which is something I was never really taught.

Quick background: I’m 30, married, own a home for 3.5 years, rent out my wife’s old condo, work as a Software Architect, and have worked for 4 companies in 8 years.

16 Shane

Seems to me your timing the market. You say your savings account gives 1% interest and rates are low.. So what when rates go up so will interest rates. Overall everything stays in lockstep and your judgement on rates now and they can’t stay low is just market timing.

17 Ninja

Taking advantage of a great time in the market. You can’t argue that mortgage interest rates are the lowest they’ve been in mine, or your, lifetime. Could they go down further, sure, but probably not much. Will they be going up again. You bet your bottom they will.

18 Adam Hathaway

I think you should make sure you buy a place that will be a great rental. I have a feeling you won’t be there for to long anyway. :)

19 Hannah

jeannette garrety svp of wells fargo did a presentation here in san diego earlier this year and said that rates should stay low into 2015. i freakin’ hope so! by 2015 i should have a pretty sizeable down payment. then again i loathe wells fargo and a 2+ year prediction is just that, a 2+ year prediction.

20 Slackerjo

Why is $300K a magic number for a house? Why not $150K or $250K. Is $300K what supply and demand gives you in your area?

21 Angela

In the Seattle area $150k might get you a vacant piece of property :) $250k is either TINY or a real fixer-upper. Bought my house last year for $281k and it’s only 1350sf and built in ’62. Wish we could have bought a liveable home for $150k!

22 Matt

You’re one smart dude.

23 Anon

This is what I thought 2 years ago. We moved to a bigger house a year or two sooner than necessary, (paying exactly $300K, interestingly enough), since we could afford it and rates were low. Now they’re even lower and we’re trying to refinance. It’s good to start looking though — you may find it takes you several months to find something that you really like, and in your situation, you have the luxury of waiting for quite a while to find the perfect home.

24 Deacon @ Well Kept Wallet

We are considering buying a house within the next couple of years as well. Have you ever thought about paying cash for a house? Sounds like you guys do well at saving money and $0/month in interest is a lot less than $720/month…Just food for thought.

25 Grayson @ Debt RoundUp

My wife and I are trying to sell our first home and buy a second one in a better neighborhood, once that we want to live in for a long time. We tried to get it ready to sell by the end of this year, but the money didn’t make sense. I have to wait a little longer for property values to go up. I know rates are going to go up, but I got my house at more than 5.5% 8 years ago, so if I can’t get it done by the end of 2013, then I still could win on the interest.

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