Let's play "Should I buy...or wait"
On one of the threads today, an anonymous poster asked me a question about whether they should buy a house or wait. I will paste part of our conversation below...and then give my answer.
So are you saying to wait until 2007?
I am about to put 40k down (10%) on a detached house in a good neighborhood in La Mesa (San Diego). 800 sf house w/ 2-car garage on 7200 square foot lot. This is a house we could raise 2 kids in for ten+ years.
I am doing a 30-year fixed 6.5%... Payment with PITI is 30% gross income... FICO is probably 650-675, can I do better on the rate?
If I wait 2 years I can easily put 80k down or more... but I have already waited a long time.
I pay 1450 in rent, larger, nicer place in a better location.The most striking thing to me, is that you would be willing to take your family of 4 (I assume 2 parents and the 2 kids you mentioned) into an 800sqft house in a WORSE neighborhood, and pay more money to do it!
It is just a place to live!! I'm not telling you what to do, I would just hate to see a family buy at or near the top of an 8 year real estate bull market, and be stuck there for the time to come. Do NOT look at the past performance of the market and assume it will continue.
IF you do decide to buy, I would keep your 40k in your pocket, and do an 80/20. Yes, the payment will be a bit higher, but at least you keep the 40k in savings for a rainy day. You might end up upside down on the property, but at least you would have savings and a steady job and be able to keep making the payments.
What happens if I am right?!?!? What happens if you keep saving money, and prices decline? How would you like to buy a bigger house in a nicer neighborhood to raise your kids for the next 10 years. 800 sqft cannot be anything bigger than a small 2 bedroom. That is not very much space to raise a family of 4. I live in a 1000 sqft condo and I cannot imagine 3 other people here with me.
I hope this helps some. I look forward to the feedback...