First Time Buyer Big Red Flag = “I plan to sell in 2 to 3 years”.
Many people are out buying homes right now because of the $8,000 1st time homebuyer credit. Unless the credit is extended, these people have until mid to late October to find a a house and get into escrow, so they can close by the deadline of November 30, 2009 (“before December 1”). My best guess is there will be a 2010 homebuyer credit, but it will be a new one with different parameters, and not merely an extension of the current one. But all we know for sure at the moment, is the homebuyer credit we have at present will expire, if you don’t close by the end of November.
The credit is not the ONLY reason people are out buying homes. The fact that you can more readily buy a “starter home” for $350,000 or less in many areas, is likely a larger part of the reason people are buying. The linked post will show you that in the current market you are almost EIGHT times more likely to find a starter home for $350,000 or less in Kirkland, Bellevue or Redmond, than you were in 2007. In Bothell and Kenmore, homes selling for $350,000 or less represent more than a full third of all homes being sold.
This market is a blessing in disguise…lots of sadness for sellers, but an opportunity for some young families to get into a starter home for less.
My caution is this: I don’t want to hear “I will probably sell it in….”. In the data sample I used in the link above I did not include any homes with less than three bedrooms or less than 1.5 bathrooms. I’m not saying you can’t or shouldn’t move in less than 5 years, I am saying don’t buy a house that you can’t stay in for more than 5 years. When choosing a home, you should have the option to stay in the home, as many people who are suffering today and must sell their homes, are doing so because they have grown out of them.
The moment I hear someone say “this will hold us for a couple of years”, that is a big red flag! The home below was purchased by one of my clients who already had a small baby. It was purchased in a great school district in Kirkland for about $310,000 and it is not likely they will “grow out of it”…well, maybe ever.
Moral of the story: If you can’t see yourself living in the house five years from now…don’t buy it.
Hi ARDELL – I am trying to get this message across as well to buyers in every range. Great post and a good reminder:)
FHA 203k streamline is a great way to make some minor improvements (up to $35k) to a starter home with minimum down and the rehab costs financed into one FHA mortgage.
I cringe when I hear someone say, “we’re only going to live here 2-3 years”…
This is a great post Ardell. I enjoyed reading it.
As a reminder, the NY Times still has that nice “rent vs. buy” calculator that takes into account things like tax write-offs, closing costs, etc.:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=2
I’d definitely recommend that potential buyers who thing it makes sense to “buy for a 2-3 years” use something like this to determine if they are making a smart decision. Of course a realtor I ran into recently in West Seattle was telling me “don’t be so rational, buying a home is an emotional decision like falling in love.” Maybe I should have asked him if I could get a “prenup” for the sale in case it didn’t work out…
Gene
Great post, Ardell. These days I advise my clients to only buy it because you want to live in it, if the cost seems reasonable to you. Do not assume you can flip it in two years, and do not assume it will give you a big return on your investment. It may, in the longer term, but we don’t know yet whether we will have inflation of deflation over the next 5 to 10 years. And the stock market is not a great weather vane for real estate. This is a great time to buy for young families who want a home with a yard rather than a condo. Take advantage of it.
Thanks everyone for the comments. I have to say it’s really fun to be helping people find “a home” again and working with people who act responsibly and pay attention to every detail of the home and the transactions. I feel like we’re out of the woods for the most part with homes being “an impulse” buy. Buying a home is serious business.
Ardell- Great article! JG
Further thoughts now that I’m near Durango, CO enroute Santa Fe with working internet. The other night we stayed with friends in Baker City, OR where $350M was top of the market unlike our Mercer Island where it’s the absolute bottom. I like the thought that smaller homes are worth cherishing. A great essay Ardell!
Great article Ardell. I have been mainly working with first time home buyers. Coupled with low interest rates, $8K refund, good prices, no home to sell, I have found them a pleasure to work with. What is everyones prediction on what the 2010 homebuyer credit to look like?
Hi Harold,
I’m not seeing any credible evidence or firm predictions regarding a 2010 homebuyer credit. This is mainly because the proposed credit is being proposed by the same person whose credit proposal for 2009 failed in that version. Seems if he didn’t get “his plan” through the first time around…his is not the one to watch this time around either.
My guess is if there is going to be a 2010 version, and that’s a big IF with the DOW and other indicators looking better than when the current credit was proposed, it will likely look like the one we have, but may include more than 1st time buyers or people who haven’t owned in 3 years. If they want to push up on the leg of the market in the second and higher tiers, price-wise, as those markets are still failing by and large, they may broaden the credit beyond 1st time buyers.
But as of now, no hard predictions are available…just dust in the wind at present.
Hi Harold,
I’m not seeing any credible evidence or firm predictions regarding a 2010 homebuyer credit. This is mainly because the proposed credit is being proposed by the same person whose credit proposal for 2009 failed in that version. Seems if he didn’t get “his plan” through the first time around…his is not the one to watch this time around either.
My guess is if there is going to be a 2010 version, and that’s a big IF with the DOW and other indicators looking better than when the current credit was proposed, it will likely look like the one we have, but may include more than 1st time buyers or people who haven’t owned in 3 years. If they want to push up on the leg of the market in the second and higher tiers, price-wise, as those markets are still failing by and large, they may broaden the credit beyond 1st time buyers.
But as of now, no hard predictions are available…just dust in the wind at present.
In today’s world the concept of living in the same house for a period of 5 years is not realistic. For many in the corporate world, the philosophy is “Up or Out” ie: either I am willing to move where the corporate office wants me to go & therefore move up the ladder or I decide that I’m staying put & thereby moving out – off the corporate ladder. The concept that I grew up with of a “Home” may not fit in tomorrow’s world.
I think an extension of the $8000 tax credit would be a mistake. It’s this kind of thinking that got us in the place we are in now ie: making home ownership available to those that might not be able to afford it in the 1st place. Secondly, it would seem to me that we are setting ourselves up for failure in that those 1st time home buyers that would have been in the marketplace 12 to 18 months down the road are making their purchases today because of the tax credit & thereby leaving a void of Buyers in the future.
Rich,
I am not seeing it play out that way here in Seattle. If you are helping people buy homes they can’t afford, because of the $8,000 credit…well, stop doing that right now. 🙂
Don’t mean to be contrary but I recently attended a conference at WWU which hosted PhD Vernon L Smith, recipient of the Nobel Memorial Prize in Economic Sciences in 2002. Professor Smith absolutely felt that the $8000.00 Tax Credit was more of the same fantasy financing that has gotten us into the mess we are currently in. I happen to agree with him.
Rich,
Doesn’t matter what anyone says…it’s water under the bridge anyway you slice it. I believe the people elected get to make decisions, and deserve the respect of the office. Not my place to agree or disagree. I voted him in and I stand by his decisions. So far I can’t find one person who voted for him that stands around the water cooler doing the backseat driver routine. It’s either someone who didn’t vote for him or…in one case…someone who didn’t vote at all.
It’s like talking about how the batter could have hit the ball differently after the game…some people enjoy chatting about that. I’m not one of them and I think it does a whole lot more harm than good to do that.