Housing before an economic downturn? -

[Gar For Archer]

I know nothing about business. Is it a good idea or bad idea to buy a house right now if we’re anticipating an economic downturn in the next 2-3 years? Not as an investment property, but as an alternative to tossing money down the black hole that is rent. Is it better to buy before the economy sags/tanks? Wait til we’re in the slump to buy?

Any wisdom on the housing market and it’s relationship to the economy is also welcome.

 

[Chilson]

Depends on the type of economic downturn and where your planning to buy. The 2008 Recession was due to the housing crisis brought on by unsecured/irresponsible mortgage loans and housing prices crashed, meaning it was a good time to buy houses. However, that was more of an extraordinary circumstance. Housing is usually a very safe investment since land is always valuable and tends to always move upwards in value. For example, the recent crash did not have that much of an impact on the housing market as a whole, definitely fluctuation's in some regional markets but not on a national level.

You also have to think about mortgage rates and banks. if the economy is doing well, mortgage rates are high and banks are very willing to hand them out to just about anyone. If the economy is doing poorly then mortgage rates are low but banks are going to be far more choosy with who they give them out to.

If your genuinely thinking about buying a home, your anticipation of an economic downturn (which i say is unlikely given that there is an economic downturn every 7 or so years and we just had a downturn this year) should not factor highly in your decision. As the saying goes, Property investment is all about three things location, location, location. If your location is good, then you won't have to worry about the value of the property falling too badly no matter the conditions (barring global devastation, but who cares about house values then).

Frankly, look more at your job security, current savings and desired living situation if you want to decide to buy a house or not.

 

[contradiction of terns]

If you're capable of buying, start looking for a property. Every month you're renting is basically a month you're burning money.

If you have some solid reason for not buying, then by all means, continue to hold off, but don't keep wasting money on rent when you could be building equity if you're watching the markets. Outside of some very, very rare circumstances (like housing bubbles, or if you're playing the housing market in Cali or somewhere else where the market yo-yos) it's not really worth it.

Chilson covered this all extremely well, so I have very little to add beyond the obvious point that if things go really south you're WAY better off living in a place you can't be evicted from.

 

[BlueSpark]

as an alternative to tossing money down the black hole that is rent

You still have to pay property tax on the house, and it could be more than paying rent depending on what the taxes are like in your area. Although you could take on a lodger and charge them rent as a way of having money to pay property taxes and give you an income.

 

[NOT Sword Fighter Super]

You still have to pay property tax on the house, and it could be more than paying rent depending on what the taxes are like in your area. Although you could take on a lodger and charge them rent as a way of having money to pay property taxes and give you an income.

But I'd rather pay a little more to actually own the land I'm living on so I can basically do whatever I want.
Oh, but don't buy anything with an HOA, or a house protected by the National Trust for Historical Preservation.

 

[Chilson]

If you're capable of buying, start looking for a property. Every month you're renting is basically a month you're burning money.

If you have some solid reason for not buying, then by all means, continue to hold off, but don't keep wasting money on rent when you could be building equity if you're watching the markets. Outside of some very, very rare circumstances (like housing bubbles, or if you're playing the housing market in Cali or somewhere else where the market yo-yos) it's not really worth it.

Chilson covered this all extremely well, so I have very little to add beyond the obvious point that if things go really south you're WAY better off living in a place you can't be evicted from.

I don't entirely agree with this standpoint. mortgage payments + property tax + furnishing everything yourself (can be a really pricy upfront cost) + the oft forgotten maintenance can be murder on your finances. Rental properties are required by law to do maintenance for residents in most states. You will quickly realize when doing it yourself that it is not only time consuming, but can cost upwards of 2-5 grand a year in extra costs. That's just general maintenance though, if a disaster like your water heater explodes you looking at buying a replacement + dealing with water damages + not being able to live in your own place for a week or two. Rental properties can just move you to a different room while things are fixed, while you have to find out how to live in your own house. That is just one of the many disasters can happen to house owners.

You can also still be removed just like a tenant in a rental through the bank selling your house if you don't make mortgage payments. Honestly, I tend to encourage rentals because they offer far more freedom in options alone. With a house, your locked into that place until you can sell it unlike a rental. I only suggest people with lots of money (don't have to seek out a large mortgage and usually want to flip the home), are absolutely certain they will stay in that location, and or are starting a family to buy a house over renting.

 

[reptile baht spaniard rid]

Don’t buy unless you’re pretty sure you want to live there for 7+ years - as that’s about the time it takes to “overcome” the costs associated with selling a house.

Don’t buy the best house on the block. Save money. Make sure you visit the neighborhood multiple times over multiple days at different hours. Talk to neighbors.

economic crashes can take a long time to hit housing unless they’re caused by housing

 

[Overly Serious]

There are good times and bad times to buy your first home; but the bad times have to be pretty bad to be actually worse than not buying. General rule is to buy as early in life as you are able, but don't over-extend. Here are my thoughts to add to everyone else's:

1/ We are very likely to see a fall in house prices. That fall could last a while.
2/ That doesn't mean you shouldn't buy but beware it could mean greater negative equity. If the house price falls below what you paid for it and there isn't much movement in the market you can be trapped if your circumstances change. Unable to move elsewhere and difficulty meeting payments.
3/ It also means that if you waited a little you might be able to get the same house/flat for cheaper. Or a nicer place for the same.
4/ It means that you may be living there for a number of years. You'll be reluctant to sell if you're going to get less than you paid for it. It may take several years for prices to pick up again if they do fall.

All that said, I'd still be inclined to buy. Whilst prices will likely fall you're losing money every month with rent and that offsets it. Buying a house can be quite time consuming so don't think in terms of one months rent but four or five. Sooner started, sooner done.

You sound like you have your priorities right which is that you just want a home. If so then you'll be cushioned from the emotional gutpunch of seeing the home you paid £200,000 for now worth £170,000 because you know it'll go back up again. The value of your home falling doesn't make any material difference to you so long as you're just viewing it as a home. What it does impact is your risk if you were to lose your home / job / whatever.

As regards buying now or in a slump, it depends on how much of a mortgage you need as well. If you hypothetically had the money to buy outright then it would actually be worth it to wait because any fall in house values would be pure savings. But assuming you're an ordinary mortal like the rest of us, mortgages are going to offset that. Interest rates, mortgage offers - they all are adjusted to account for the current market and outlook. At the moment mortgage rates are artificially low because the governments (UK and USA, at least) are working hard to offset the economic impact of Covid-19. They can't sustain that forever.

Without knowing your circumstances and answering generally, my advice is you should buy if you can. Generally it works out so long as you're not an idiot and not greedy. If I could have bought a house earlier in life I'd be laughing right now. If buying a house cleans you out (and it will because there are so many costs you wont think of), try hard to save up enough savings for a few months without income if something happened. That safety blanket will be a big comfort even if you don't need it. You can stick it in something easy to get it back from if you need to like Premium Bonds or whatever is available in your country.

The biggest advantage you can have in buying a home, if you're lucky enough to have it, is a partner who understands long-term thinking and is willing to live a little below your means for the sake of your future together, than someone who insists on getting the maximum house you can afford and buying all the new furniture at once. I spent over two years furnishing my house after buying it. I don't regret it - it was nice to see myself slowly getting what really wanted and be able to afford it. A house is definitely a long-term plan. But usually well-worth it.

I'm also going to leave this here:

EDIT: I just wanted to add that a nice way to look at your mortgage repayments are that the interest payments are analoguous to your rent. The capital repayment part is like saving. So if your rent is £600 and your mortgage repayment is £1,000 then you're paying more out each month. But the if that repayment is £700 paying off the debt and £300 is interest, then what you're really seeing is that your "rent" -i.e. the money that goes 'down the drain' is now £300 less than it used to be. The £700 is like investing / buying equity.

 

[Gar For Archer]

Thanks for all of the responses.

Without going too in-depth into my situation, all I’ll say is that I’m still very young, have a good job with insane security and am just looking for a small condo/co-op I can live in for the next 5-10 years. Based on what you guys had to say it definitely seems like buying a house would be in my best interest.

 

[TheRedChair]

You still have to pay property tax on the house, and it could be more than paying rent depending on what the taxes are like in your area. Although you could take on a lodger and charge them rent as a way of having money to pay property taxes and give you an income.

Property Taxes can be written off. Mine are every year.

 

[TheRedChair]

Thanks for all of the responses.

Without going too in-depth into my situation, all I’ll say is that I’m still very young, have a good job with insane security and am just looking for a small condo/co-op I can live in for the next 5-10 years. Based on what you guys had to say it definitely seems like buying a house would be in my best interest.

Bought my first home at the age of 23, second at age 38 while keeping the first one.
Moral of the story, if you can do it do so and hold on to it for the long term.

 

[Made In China]

If you're capable of buying, start looking for a property. Every month you're renting is basically a month you're burning money.

If you have some solid reason for not buying, then by all means, continue to hold off, but don't keep wasting money on rent when you could be building equity if you're watching the markets. Outside of some very, very rare circumstances (like housing bubbles, or if you're playing the housing market in Cali or somewhere else where the market yo-yos) it's not really worth it.

Chilson covered this all extremely well, so I have very little to add beyond the obvious point that if things go really south you're WAY better off living in a place you can't be evicted from.

What about the property taxes? Your house value might stagnate while you burn money in property taxes.

 

[Ralph from Chicago]

People in this thread are giving general home buying advice but now is not the time to buy.
Prices will drop. Mortgage rates will decrease.
In the U.S most foreclosure forbearance is set to expire July 1st. In the commercial real estate sector, less than 2/3rds of businesses are able to pay rent right now. This week there are 1.5 million NEW unemployment claims. With nobody working there will be a tsunami of foreclosures next month.
Home ownership is a much better way to build wealth than renting. But if you want to maximize opportunity during the crisis, wait and scoop up a foreclosure with decent bones.

 

[Stoneheart]

. So if your rent is £600 and your mortgage repayment is £1,000 then you're paying more out each month. But the if that repayment is £700 paying off the debt and £300 is interest, then what you're really seeing is that your "rent" -i.e. the money that goes 'down the drain' is now £300 less than it used to be. The £700 is like investing / buying equity.

you also have to set aside money for fixing stuff and other costs.
and you could have invested the 400$ you have more every month.
you also have to look at the rent market, if rent is cheap compared to buying you better rent and invest the money in other ways.

 

[reptile baht spaniard rid]

Another thing to note is that despite all the “get rich quick” in real estate books - renting single-family homes is NOT actually that great a money maker when you take into account the amount of capital needed and the risks therein - which is why the main commercially owned properties you see are business or multi-family.

5-10 years would be right on the cusp for me in a rent/buy decision.

powertoollevel: I boughtduring the highs around 2004 - it took until 2014 or so before I was in a position I could refinance - during that time I had to eat the higher rates and really couldn’t sell. So something like that could happen again now - you need to be sure that being “stuck” in that town is something you’d not mind.

 

[Overly Serious]

you also have to set aside money for fixing stuff and other costs.
and you could have invested the 400$ you have more every month.
you also have to look at the rent market, if rent is cheap compared to buying you better rent and invest the money in other ways.

You're not German are you? Weird question, but that last part may work in principle but outside of Germany where renting is the norm as I understand it; I've never seen it be a common case. Obviously it can happen.

 

[Stoneheart]

You're not German are you? Weird question, but that last part may work in principle but outside of Germany where renting is the norm as I understand it; I've never seen it be a common case.

i am german, but renting is normal in alot of european cities... not many people wanna sell apartments in old houses but they also cant rent it out for a good price most of the time because the flats dont have alot of gadgets. buying is more normal in the subs and more rural areas, but even there buying the good stuff is next to impossible while renting it is no big problem.

 

[MirnaMinkoff]

I think buying a home is a good idea, except for homes in major cities.

I think the property bubbles in cities are going to decline sharply in the next few years. Nothing like a good old raging infectious disease to remind people why buying an expensive apartment, that your stuck or quarantined in, in a densely packed area has a pretty big downside. Only after WW2 did people stop associating cities with sickness and filth.

Back in early March more private jets than I had ever seen were parked for long term in Jackson Hole, WY. Many rich ppl were readying their urban residences for long term vacancy or having them packed up so they could be staged for sale in the near future. If there isn’t a covid-19 vaccine by spring (and there won’t be) there are going to be a lot of cheap city properties to buy.

(Not due to the super rich but the upper middle class, who are now living in their summer/second homes, and now want to buy a bigger home in those areas instead of paying big bucks for a city apartment they won’t be using again for years. The cities are going to have people too poor to move and the super rich who can handle the expense of a city property they may not use for several years.)

 

[NyQuilninja]

Me and my old bought house last year because the rental markets in are surrounding area has been exploding.
Rent was typically 600-800 for the a decent 2 bedroom apartment 3 years ago now it’s like 1200 to 2000 including additional rent hikes every year.
Even the ghetto apartment villages are $800- 900. Are mortgage is under $1000 and as it gets payed down the monthly payment will go down As a bonus we can rent the livable basement to a family member.

 

[Stasi]

Bit of necro but it seems people don't give a fuck about COVID or any potential economic downturn, at least in the UK, when it come to home buying. There is a house buying boom and July saw the highest ever monthly house price in the UK. archive.md/i3OWF

Seeing this first had somewhat. Been keeping an eye on listings where I live out of curiosity and prices are climbing up and houses are being sold at ridiculous rates. I've seen ads go up and those houses get sold within days. I can only assume that Arab and Chinese investors are coming in with bags of money and buying in cash to launder money invest in UK property.

Curious what its like in the US right now?