Advice from those who Bought in the Housing Bubble or Other Real Estate Mavens!

[sste]

We are finally ready to buy a house, have carefully followed the market in our area for three years and saved a large amount of money . . . and it feels to me like Bubble 2.0 in my area. I am def. willing to suck up higher prices if it meant a true national housing recovery that would lift the tides of Amercan households. But, this does not seem like a true recovery to me, it seems like a bubble. What I am seeing in my area is near-hysteria among prospective buyers, alot of investor activity and flipping, and tons of discussion of must.buy.now because interest rates are so low. Everything decent in the areas we are looking in is under contract in a few days or less, 3-5 offers, going for over list price. Many properties have increased in price by 10-15% in two years or less.

I am very concerned that once the interest rates go up, as the fed has made clear they must and will in another year or so, these houses are going to be worth substantially less. However, we are at a point where we really want to be settled down and it would have some benefits to the kids of yard/dog, and also less household stress as it is hard for 4 people to live in under 1000 sq feet!

My DH's view is that we are just going to need to suck up potentially losing alot of money because the situation is what it is and we need a house (and by alot I anticipate 70-100k or more). I am wondering if we should stick it out in our little apartment for a year and at the very least if we are going to overpay make sure the dam* house is as close to ideal as possible before we buy.

Views? Thoughts?

[AnnieW625]

We bought about 18 months before the bubble burst in our area. We paid $513K for an 1100 sq. ft 3 bed, 1 bath house. If we wanted 2 bathrooms and about 1400 sq. feet we would have had to raise our price up to $550K, but most of the houses that were that size and upwards of 2000 sq. feet were going for about $625k to $650k. Although I really regret buying when we did had we not bought the weekend we did in March, 2005 we would have easily gotten priced out of our area within the next couple of weeks and would not have been able to buy for another 3-5 yrs.

If I were you I would start looking for the smallest house (ie: something around 1500 sq. feet) on one of the best blocks you can find in your area. I would put as much down as humanly possible and maybe not even look at the house as a forever house, just something to get you through the next couple of years in case the interest rates do go high again and the houses you really want to live in do drop in value. IMHO if you buy smaller now you can always maybe afford to buy something bigger later esp. if Housing Bubble 2.0 doesn't last as long as the Housing Bubble 1.0 lasted and you have a good feeling that the housing prices in your area for the larger homes will drop more in the long run.

While it sucks royally sometimes a family of 4 living in a house that is about 1000 sq. feet is not the end of the world IMHO.

Hope that makes some sense, and good luck!

[arivecchi]

I think it is extremely hard to time the market. I also think that the economic crisis clearly taught us that one should not view home ownership strictly as a financial investment. I think one has to find a place one loves, works for the family and your future needs and a place where you plan to stay for a long time. The real estate market does seem to have bottomed out in a lot of areas though. I do not think that is necessarily indicative of another bubble. I think a lot of people stood on the sidelines while the market was bad and finally have the confidence now to sell and buy again.

We have no idea what the market will look like in a year, so I would just go by what your needs are today and buy what you can comfortably afford if you decide to do so.

All I can tell you is that after having been a similiar situation in housing that was not ideal, having a home we love and enjoy has been so great. We all feel settled and life is more enjoyable because of it.

[janine]

We are finally ready to buy a house, have carefully followed the market in our area for three years and saved a large amount of money . . . and it feels to me like Bubble 2.0 in my area. I am def. willing to suck up higher prices if it meant a true national housing recovery that would lift the tides of Amercan households. But, this does not seem like a true recovery to me, it seems like a bubble. What I am seeing in my area is near-hysteria among prospective buyers, alot of investor activity and flipping, and tons of discussion of must.buy.now because interest rates are so low. Everything decent in the areas we are looking in is under contract in a few days or less, 3-5 offers, going for over list price. Many properties have increased in price by 10-15% in two years or less.

I am very concerned that once the interest rates go up, as the fed has made clear they must and will in another year or so, these houses are going to be worth substantially less. However, we are at a point where we really want to be settled down and it would have some benefits to the kids of yard/dog, and also less household stress as it is hard for 4 people to live in under 1000 sq feet!

My DH's view is that we are just going to need to suck up potentially losing alot of money because the situation is what it is and we need a house (and by alot I anticipate 70-100k or more). I am wondering if we should stick it out in our little apartment for a year and at the very least if we are going to overpay make sure the dam* house is as close to ideal as possible before we buy.

Views? Thoughts?

IMO, if you are ready to buy a house to live long term, and have all the pieces in place (as it sounds you do) including knowing this is the town for you- then it's time to buy. No one will know if this is a bubble or true recovery and you can drive yourself crazy. Leave that up to the investors.

If you want me to go out on the limb though I think if you are in a town that has weathered the last few years pretty well, then there probably will always be demand and appreciation over time, so this is likely signs of a true recovery. The rates however won't be this low forever. Being in NJ though I worry more about taxes and increasing square footage with a move!

[AngB]

We bought in the bubble, the timing couldn't be helped, DH separated from the military and got a job and we had a dog and were tired of renting.
Our house is still not worth what we paid, but we live in a hot area (like on the top x cities to live, very regularly) that is almost out of land to build new homes on, with great schools and close access to hwys...so I do feel reasonably comfortable that we will get back up there eventually. When we bought our interest rate was 6.5% with excellent credit.. we have refinanced and it is now around 3 or 4. I don't know that the interest rates changing will pop the bubble that much, like I said, we bought when it was 6.5% which is significantly higher than the average rate these days...and that was when the market was really hot, they had 3 different offers on our house the day it went on the market.

[SnuggleBuggles]

I think it is extremely hard to time the market. I also think that the economic crisis clearly taught us that one should not view home ownership strictly as a financial investment. I think one has to find a place one loves, works for the family and your future needs and a place where you plan to stay for a long time. The real estate market does seem to have bottomed out in a lot of areas though. I do not think that is necessarily indicative of another bubble. I think a lot of people stood on the sidelines while the market was bad and finally have the confidence now to sell and buy again.

We have no idea what the market will look like in a year, so I would just go by what your needs are today and buy what you can comfortably afford if you decide to do so.

All I can tell you is that after having been a similiar situation in housing that was not ideal, having a home we love and enjoy has been so great. We all feel settled and life is more enjoyable because of it.

My thoughts too. If you want a house, buy a house. There;s no crystal ball and you can always find reasons not to do something.

[ezcc]

I am a former real estate agent, and I think timing the market is pretty darn hard. If you plan to be in this house for at least 5 years I would go ahead and start looking now. My guess is there is still a lot of pent up demand and prices will continue to go up for a while. Most houses appreciate over the very long term so you should be fine.

[Mommy_Mea]

we bought two years ago and we have seen similar trend in our area with prices. It is a little crazy to see a similar house to ours priced 10 to 15 percent higher!

I don't think the high prices are going to last but it may be sticky going back down the other way. So if you wait a year our two you may not save a lot and you still will be in your small space with 4 people.

if you think this is going to be a house you will be in long term, look for your forever house, buy, and don't look back. The losses will only be paper losses, and you will be enjoying your home.

I stressed so much two years ago about buying, and if the market would continue to fall. We had waited 6 years to buy, and with ds2 on the way, really needed more space than a 2 bedroom would allow. Even if our house had lost value in the past two years, it wouldn't matter to us. it is home, we are happy here, and have made so many memories.

If you are ready, and have the money for a down payment, and can comfortably afford a good house for your family, go for it! I never would have predicted this weird spike in home prices, so you never know what the future brings.

[egoldber]

I agree that if you are in a market that has historically done well, then you should go ahead and buy. We just built a house and sold a house. If we had waited to buy, we would have been priced out of lots for our build area by now. Our old house sold very quickly because inventory is very, very low in certain price ranges.

You can drive yourself crazy waiting for the "right" time. I think where a lot of people got in trouble was they bought a house they really couldn't afford. It's one thing to buy a house that doesn't hold it's value, but you can easily and affordable make payments and you have a financial cushion. It's quite another to buy a house that puts you one month out of work away from foreclosure. KWIM?

[Tenasparkl]

We have no idea what the market will look like in a year, so I would just go by what your needs are today and buy what you can comfortably afford if you decide to do so.


I agree with this.

If things are going quickly in your area then it might take you some time to find the right place. There's no harm in getting your bank approval and starting the search. We bought last year and it took a lot of looking and patience to find our house. Good luck!

[lovin2shop]

I've definitely noticed the bubble in our area, and we just totally lucked out in that we signed a contract for a new home back in July when prices were still kind of stagnant, but just sold our existing home this week. Our new home now lists at $70k more than we will pay when complete and they are offering no where near the incentives. The crazy thing is that our area escaped the bubble for the most part the first time around. The demand is being spurred by a dramatic lack of inventory coupled with the low rates. Inventory will probably even out in our area since new construction is rampant again, but it will take time. I live in the land of open space however, so new construction in an already developed area may not move the needle at all due to geographic constraints. As for rates, I've talked to the sales manager of our new neighborhood, as we've become friendly over the last few months, and she definitely thinks that their sales will come to a standstill if interest rates rise significantly. Hopefully, the Fed will allow rates to rise slowly over time rather than all at once, as that is probably better for everyone. But, there is really no way to predict unfortunately. So, all that to say, I think it is a crap shoot and you have to be prepared to accept the risk if you buy, and just try to make the best decision for your family. If your patience to wait it out is slim, then it could be worse if you wait 12 months and prices have only risen during this time. I think this was the trap many fell into with Bubble 1.0.

[sste]

Thanks everyone -- I am really quite clueless in the area of real estate purchasing! We are very conservative financially so we def. won't buy anything we can't afford. *But* we are being pushed to the upper edge of our price range. Basically my feeling is that we need to buy a nicer house for the long-term as the "move up" strategy in five years seems likely to end in financial loss and difficulty unloading house #1!

On timing, we don't have immediate plans to move but my DH and I both are recruited nationally on a pretty regular basis. If something great came up I would hate to be chained to a house that has lost alot of value. I don't have any aims to make money, I am actually fine with losing 20-30k, I start to flinch over losing more than that though.

I don't think there is nec. a national bubble but in my sub-area, a handful of highly desirable waterfront communities close into the city, it seems like madness to me. Cr*p is flying off the market above list price. I am not even sure I *can* buy a house because the inventory is so low and every single house I have been remotely interested in over the past three months has ended in a bidding war within a day or two of list.

Where I am it does not feel to me like the housing market coming back in a healthy way. It feels like 1 million has become the new 700k to families that are taking on a boatload of cheap debt . . . and to mom and pop flippers who are now regularly seen in the markets I am looking in. :(

[schrocat]

It's pretty bad in the greater Seattle area. There are lots of people who are relocated here and limited inventory. Lots of bidding wars. Thankfully we managed to buy a house that we love without having to go through a bidding war but we have friends who are looking for a house in the same market who are hoping to lowball the seller. That is not going to happen in this market. It's a case of how much over the asking price you're willing to go and whether you're willing to waive the inspection clause. Basically to get a nice/decent house in this market in my area you need to offer a significant amount over asking price and waive the inspection clause. Crazy but there are no lack of buyers all flush with cash.

It could be worse though. We have friends looking for a house in the Bay Area. It's alot more competitive there.

[egoldber]

DH and I both are recruited nationally on a pretty regular basis. If something great came up I would hate to be chained to a house that has lost alot of value.

In this scenario, I would not buy at all. I would plan a long term rental if those are at all available. But at some point, you probably will need to commit to an area.


a handful of highly desirable waterfront communities close into the city, it seems like madness to me. Cr*p is flying off the market above list price.

I think this is the case in communities that are perceived as being the really desirable ones in any economy.

[jjordan]

If there is a housing bubble, it doesn't really affect you unless you're planning on the house not being long-term OR you take out an adjustable rate mortgage. If it's a fixed-rate mortgage, you can comfortably afford the payment, and you're planning to be there long-term, then go for it.

ETA: Saw your update. It sounds like you are wise to be cautious. But still... at some point you have to do what is right for you now and not worry too much about what you'll do in 5 years. The difficulty is in drawing the line between what is reasonable caution and what is worrying "too much." Good luck!

[sste]

Egoldberg, we have valiantly looked for a rental house! It is just not doable given our commuting constraints -- based on what is available in our areas, it is either rental apartment or an owned home. Also because our area is largely historic housing the few rental houses that are available tend to be unsafe - - we had to move out of a rental that we discovered had lead paint hazard and asbestos. The way we think about it is that we are relatively unlikely to move because we need to find *two* highly specialized jobs. But we don't wish to foreclose the option in order to be chained to a depreciated house of all things.

Since I have followed this real estate market for three years, I can honestly say that cr*p was not flying off the market in the past five years. Our area never came to a complete crash the way other areas did though and I am not expecting a bargain. I am willing to pay a healthy sum over here and even take somewhat of a loss. But I understand what houses cost to repair and renovate and I am not sure all buyers do -- I see things flying off that are priced high to begin with and requires 100-200k worth of work. I am also not willing to waive inspection or financing. That seems very dangerous to me in an area of historic homes and again indicative of a short-term bubble. Though as my DH has reminded me, what is the point of being right but homeless?!?

[larig]

If I found my forever home I'd do it. If there's a chance you'd move in the next 1-5 years, no way.

[westwoodmom04]

I don't know where you are, but I'm willing to bet that prices will continue to go up. Housing cycles are typically five plus years, and the most recent down cycle is only a year or so over at most. Also, if you are in it for the medium to long term (and you shouldn't be buying if you are not), you should be fine as long as you buy only as much house as you can afford. We did buy a the top of the market, and while never underwater, we would have lost a sizable part of our down payment if we had to sell. But we didn't have to sell, and I'm hopeful when we eventually sell, whether it be in two years or twenty years, we will not have lost any money.

[crl]

I think it is extremely hard to time the market. I also think that the economic crisis clearly taught us that one should not view home ownership strictly as a financial investment. I think one has to find a place one loves, works for the family and your future needs and a place where you plan to stay for a long time. The real estate market does seem to have bottomed out in a lot of areas though. I do not think that is necessarily indicative of another bubble. I think a lot of people stood on the sidelines while the market was bad and finally have the confidence now to sell and buy again.

We have no idea what the market will look like in a year, so I would just go by what your needs are today and buy what you can comfortably afford if you decide to do so.

All I can tell you is that after having been a similiar situation in housing that was not ideal, having a home we love and enjoy has been so great. We all feel settled and life is more enjoyable because of it.

:yeahthat:

Catherine

[Momit]

I think it is extremely hard to time the market. I also think that the economic crisis clearly taught us that one should not view home ownership strictly as a financial investment. I think one has to find a place one loves, works for the family and your future needs and a place where you plan to stay for a long time. The real estate market does seem to have bottomed out in a lot of areas though. I do not think that is necessarily indicative of another bubble. I think a lot of people stood on the sidelines while the market was bad and finally have the confidence now to sell and buy again.

We have no idea what the market will look like in a year, so I would just go by what your needs are today and buy what you can comfortably afford if you decide to do so.

All I can tell you is that after having been a situation in housing that was not ideal, having a home we love and enjoy has been so great. We all feel settled and life is more enjoyable because of it.

:yeahthat: to the first part, except we haven't found a new house yet.

We have been keeping an eye on the real estate market in several areas as we plan our relocation. In many of them the situation is as you describe - houses list and sell the same day with multiple offers. People from out of town make offers sight unseen. It's crazy! We just read an article (maybe on USAToday.com?) about many areas in which demand outpaces supply and the lack of available homes is the limiting factor for why home sales are not increasing faster.

Buying a home for investment purposes or to make money is one thing. If it's a move you need to make for your family that's something different entirely.

[larig]

It's pretty bad in the greater Seattle area. There are lots of people who are relocated here and limited inventory. Lots of bidding wars. Thankfully we managed to buy a house that we love without having to go through a bidding war but we have friends who are looking for a house in the same market who are hoping to lowball the seller. That is not going to happen in this market. It's a case of how much over the asking price you're willing to go and whether you're willing to waive the inspection clause. Basically to get a nice/decent house in this market in my area you need to offer a significant amount over asking price and waive the inspection clause. Crazy but there are no lack of buyers all flush with cash.

It could be worse though. We have friends looking for a house in the Bay Area. It's alot more competitive there.

I've been following Seattle's market (we have a house there and are moving back this summer--I'd like a bigger house someday, so I watch with interest). It's crazy. In our neighborhood, which I think in some ways is less desirable than others because of commute and the affect of 99's construction, it's just nuts. Things sell in a couple of days, etc. It got bad starting in about November, and it's just getting worse.

[crl]

. I am also not willing to waive inspection or financing. That seems very dangerous to me in an area of historic homes and again indicative of a short-term bubble. Though as my DH has reminded me, what is the point of being right but homeless?!?

We did not and would never have waived the financing contingency. We did waive inspection. It is really common to do so here.

The routine here is that before the house goes on the market, the seller has it inspected. They make that report available to all prospective buyers. They set an offer date and don't consider any offers until that day. Then they generally accept the top offer--sometimes there's a little negotiation, but often none at all. The inspector on our house has a strong reputation for being picky. We paid a general contractor to walk the house with us prior to our offer to get an idea of cost for various work and to see if he spotted any more problems.

We were really surprised as how different real estate transactions are here compared to our previous experiences in the DC area. Thankfully we had a good real estate agent who explained the way it works to us and helped us find ways to be comfortable with the process (hire GC to look at place so we felt we could waive inspection, etc).

Catherine

[sste]

CRL, in my market the seller never provides an inspection report. So, if you waive your inspection, you are buying as is. I don't think waiving inspection is common yet in my area/price but I am starting to hear of it.

Waiving financing contingencies is becoming common in my area. I am not happy but I am willing to waive the contingency for the percentage interest rate range I will get on a loan. I know we qualify, I have a longtime relationship with an excellent mortgage broker who will lock for me right away. But, as part of waiving that financing contingency, many people are also waiving the appraisal. I am not even sure if they realize it but this means that if the house does not appraise out the buyer is going to need to bring tens or hundreds of thousands of dollars of additional cash to the table or face the risk of threat of lawsuit, having to give money as a settlement, etc.

I am discouraged over here . . . inventory is so low that buyers are going through all of this for houses that are really not so great.

[mom3boys]

We bought our house in Oct. 2004, so a bit before the height of the bubble. Two years later it was probably worth $100K+ more (but we were not planning to sell then), without us making any improvements.

And then in 2008, it was worth less than we paid for it. I will say, we bought the house, to some degree, for the "wrong" reasons. We had previously owned a 1 bedroom condo that sold for $110K more than we paid for it, 3 years after we bought it (we made few improvements). Stupidly, we thought "well, that investment worked out, let's make another one, this real-estate thing is gold" instead of thinking long-term about what we actually wanted. So we bought in an up-and-coming area thinking it would "come-up" and in a few years we'd be up $100K again. What happened is the price went up, but then the price went down, and since it went down in the more established areas, it went waay down in the up-and-coming, bordering sketchy neighborhoods, bad school district areas, where we were, with 2 kids and a third on the way and no yard and no parking and 1 bathroom.

So, we basically decided to suck it up and sell because we just really needed to get out of where we were. We did wait for the market to rebound a little, but we sold our house for $50K more than we paid for it, after making $80K+ in renovations, so all in all a loss. I figured we lived there for 8 years and still did better financially than if we had rented, and that is the best I could say about it. We sold and bought our most recent house in the fall of 2012 and we both felt that we could get more for our house in the spring (and our real estate agent confirms that, if we sold this spring, we could probably have sold for $50K more), but also that homes where we were planning to buy would be more in the spring (which seems to be the case, based on listings in our area). Also, we really loved the house we bought and we knew someone else would buy it if we didn't.

We planned our next house to be the house where we live until the kids go away to college. We purchased in a stable area with a good school district. Since we plan to live here for 17 years, we aren't as worried about return on investment. DH was very stressed about the whole thing and the whole time was worried we were making the wrong decision, and what was so wrong about living in a small house with no yard and street parking and bad schools etc. etc. Needless to say, we have lived in the new house for 4 months and everyone is much happier. DH said he doesn't miss the old house AT ALL. He loves the new house, he doesn't even mind his longer commute, as he gets to read and unwind (commuter train). Kids are in a better school and ride their bikes in the cul-de-sac every afternoon.

So I would think about the reasons you want to buy, and if those reasons are enough that your are OK with the house not necessarily being the best financial investment. In our case we were all right with that. If you are in a good public school district, I think the market would at least never go horribly downhill (this is true in the Northeast, anyway). The rest is just too unpredictable. Also if you could sell in the spring but buy in the fall (rent somewhere first)? That might help a bit with the "bubble craziness"--although you risk less inventory in the fall. We started looking in April-May last year, and prices were high. I felt they were better in August-September. We went under contract in October and closed December.

[westwoodmom04]

Two additional thoughts. If you or dh really had a terrific job opportunity that you were recruited for, you probably could negotiate for your future employer to make up some part of a housing loss as part of a relo package. Second, you mentioned the homes in your area were older. Be sure to budget spending at least one percent of your purchase price on yearly home maintenance. We live in a 1940's house that had been extensively renovated but we have spent at least that much a year on maintenance. That's what our very good home inspector told us is the rule of thumb though it sounded high at the time.

[brittone2]

It really is so complicated! Having dealt with an awful landlord while sitting out of the market few a few months, and still paying a pretty penny for rent, I still feel my blood pressure rise thinking about how powerless I felt in those months. It was extremely frustrating to figure out that we really couldn't legally obligate our LL to fix anything beyond bare bones habitability while still paying rent on a not-inexpensive home...it can be tremendously frustrating to find nice places to rent with a responsive LL. We were pretty careful in screening houses and LLs, but we still got hit hard in that experience! While I think renting can frequently be a wise financial decision with how frequently professionals move these days, etc. it can be very stressful to deal with renting a home and having certain things out of your control. I rapidly remembered why people buy when I was living the rental scenario, even though at times I do think renting is a better financial choice for many people today (frequent relocation, housing bubbles, etc.)

I don't think you can time the bottom of the market. I think buying in your affordable price range is the best most people can really do, and beyond that, you hope for there to be an upside to the market eventually.

The first thing that jumped out at me though when reading your post is your PPs about being recruited, considering whether you might relocate, etc. Egoldberg addressed that upthread, and I agree with her. If you think you'd seriously entertain the notion of moving in 1-5 years for a job that has the perfect mix to woo you, then I'd probably consider holding off, unless you are okay with *possibly* having to bring money to the table, losing money, etc. (eta: I do agree this could possibly be negotiated with a future employer).

At the same time, it is hard to live your life under a "what if..." scenario in perpetuity, and sometimes you have to just jump in as long as you have some cushion and are buying something comfortably affordable.

I'm no help at all, really ;)

I know your career trajectory has been really positive, and if you think you are on the cusp of possibly being recruited for what might be the perfect mix of geographic location, flexibility, incredibly desirable institution to teach at, etc. then I would hold off.

[schrocat]

The people who waive inspection contingencies in our area do pre-inspections.

[elektra]

Two additional thoughts. If you or dh really had a terrific job opportunity that you were recruited for, you probably could negotiate for your future employer to make up some part of a housing loss as part of a relo package. Second, you mentioned the homes in your area were older. Be sure to budget spending at least ten percent of your purchase price on yearly home maintenance. We live in a 1940's house that had been extensively renovated but we have spent at least that much a year on maintenance. That's what our very good home inspector told us is the rule of thumb though it sounded high at the time.

Do you mean 1%?? If not, DANG that is a lot of money on annual maintenance!
My home is a 50's house and we are closer to 1-2% of purchase price a year on maintenance.

[crl]

Do you mean 1%?? If not, DANG that is a lot of money on annual maintenance!
My home is a 50's house and we are closer to 1-2% of purchase price a year on maintenance.

Ten percent seems awfully high to me too. Maybe it depends on the purchase price? Because over $70k a year on annual maintenance is way than I anticipate spending. . . . . Even including some remodeling projects and the upcoming need for a new roof . . .

Catherine

[westwoodmom04]

Do you mean 1%?? If not, DANG that is a lot of money on annual maintenance!
My home is a 50's house and we are closer to 1-2% of purchase price a year on maintenance.

Sorry, yes it's one percent. Thanks for catching that. Went back to change it to avoid more confusion.