Advising my son on first house purchase
My 32 yr old son is getting married next month and they have started looking at houses in Denver suburbs. I just sent him Chris’ Hell to Pay blog and asked him to read it because it because I thought it was the best summaries of the current state of the economy that I’ve read. I also told him their lives will be infinitely better if they are not having to sweat making a big mortgage payment in a crashing environment and instead are able to buy when everyone else is selling. However, I’ve told him that I only want him to be aware of the risks and that I won’t try to talk him out of it if they decide it’s best to buy.
So, my question is what other things provide him (if he asks) to help guide him through this decision? Since his only real awareness about real-estate is very limited seeing only rapidly rising rent and sales prices for the past few years, I feel like factual data of what a crashing market looks and feels like would be helpful. Also providing a tool which helps him assess the benefit / risk under realistic scenarios that he chooses would be great
that's a tough one. to someone who's grown up in an era where real estate is pretty much always getting higher, it's difficult to convince them that buying a house might not be something to jump into right now.
your best bet might be to compare present day housing valuations to where they were before the 2008 crash, and explain that he might be better off waiting for the next correction in prices before buying, and in the mean time, rent and save up.
a chart of average house prices versus average income might help, here is one:
click on the "price to income" tab up top. maybe seeing that the average person has to work for 120 months (10 years) straight and saving 100% of their income to afford to pay for the house, or 30 years straight saving 33% of their income (and that doesn't even count interest), may be a sobering reminder of how expensive houses are right now.
Any update? I am in a similar situation here in St. Louis, my wife, unborn child and I currently rent. It is a struggle because we are running out of room in our current apt.
I have a few talking points with her.. 1) We have a friend couple that bought a home this summer, they fear they bought at the peak and are fairly vocal to us about it. It is true housing has definitely cooled from the very hot summer seller’s market, at least in St. Louis.
Another thing is that interest rates have dropped in the few short months since they bought.
Lastly, if your son read “Hell to Pay” he may have taken away a very important point. Uncertainty. The current events in Syria create even more.
These have all helped me buy a little time with my wife, and that’s all I was asking for from the beginning… just a few (6) short months.
Side note, I told my wife we will only buy if we can put down 20%, comfortably. It is super smart given that if your son doesn’t/can’t he could be subject to PMI (Private Mortgage Insurance). I have friends that didn’t put down 20% and they hate seeing $100-200 a month going to insurance and not principle and interest.
My son got married a year ago in September. He was paying 1240 per month in rent. I helped him look for a place and he settled on a townhome with a very low monthly fee. He took a standard 30 year mortgage and his payment is know about 500 dollars less. I told him to bank the difference and in five years sell where he is and move out to a more rural area and get some land to have an orchard, garden, livestock, etc. So far the plan is working o.k. but he doesn't live in CA or NY. We are in flyover country and the prices aren't to awfully escalated here.