Is it time to buy a house?

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switters's picture
switters
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Is it time to buy a house?

Chris's latest post indicates that he has answered that question in the affirmative for his own family.  It was a timely post because this same question has recently come to the forefront for my wife and I.  I'm still uncertain about whether it makes sense for us to buy when all of our circumstances are considered.  I've been going back and forth on it over the past several months, and at this point I feel I could use some outside input.

Here's our situation.  My wife and I are in our mid-30s.  We have no credit card debt, about $55k in cash and PMs, $15k student loan, and some land in Canada that is worth about $30k that we're trying to sell.  We've had a few offers but nothing solid yet, and my sense is that it could take a while.

We live in the SF Bay Area in a semi-urban area (Berkeley, for those of you familiar with the area).  We've both lived here for years and have an incredible community of friends, including a group that has been meeting to talk about and address the Three Es for almost a year now.  Once a month we get together for a work party at one of our houses, and do projects to help each other prepare for the coming challenges (things like building chicken coops, planting gardens, etc.)

It has long been a dream of ours to live in a co-housing situation with some of these friends.  About a week ago, three couples from this group found two duplexes right next door to each other for sale (total of four units).  They have a shared yard with quite a lot of space for a garden, greywater system, chicken coop, and possibly even goats.  It's a great location and the price is very reasonable for this area (about $250k per unit).

Originally my wife and I planned to continue renting for a couple more years, for three main reasons.  One is that I was pretty convinced the real estate market would continue to deteriorate.  The second is that we are both nervous about committing to stay in Berkeley, which, while it isn't as densely populated as NYC, is still quite urban.  The third is that I don't want to have all of my available capital tied up in a down-payment for a house.

I'm no longer concerned about the first reason.  I agree with Chris that now is a good time to begin to begin transferring cash or cash equivalents into hard assets like land or a home that can support us over the long term.  Sure, it's possible or even likely that the value of my home would go down for a few years after I bought it, but that doesn't really matter if I don't intend to sell during that time.

The second reason is still very much alive for us.  Ideally, we'd like to live in a small town or in a location outside of a small town that is surrounded by arable farmland, has access to clean water, and isn't too close to a major metropolitan area.  On the other hand, I believe that being part of a strong community is probably the single most important factor in determining how we will weather the coming years.  

While Berkeley is far from being a small town surrounded by arable hinterland, my wife and I have a strong community here and the opportunity to live in close proximity to three other couples who share our awareness of what's happening and our vision for adapting.  If we stayed and bought into that co-housing community, we'd benefit from everything from shared childcare to a communal garden with chickens, goats and rabbits to possibly shared solar and greywater systems.

If we moved away to our "ideal" small town, we would be starting over completely.  We don't have any friends or family living in such a place, so we'd be on our own - at least to begin with.  Admittedly, this is intimidating at our age.  We've found that it's more difficult to meet people and develop close relationships as we get older and busier.  We're also trying to get pregnant at the moment, and we'll have our hands full if we're successful, which also makes the idea of a move less appealing.

My third objection is also still very much alive.  I really don't like the idea of putting our $50k down on a house and not having anything left over for investments in sustainability like solar panels, greywater systems, etc.  I've looked into an FHA loan, which I would qualify for, but the problem there is that the monthly payments are significantly more expensive because of the lower down-payment, the initial 1.75 points, and the mandatory monthly mortgage insurance.  This reduces the mortgage amount that I would quality for and effectively prices me out of this co-housing deal, and out of the SF Bay Area market in general.

From a purely financial perspective, it may make more sense for us to continue renting.  But as everyone here knows, it can take years to build the systems that will contribute to long-term sustainability.  Like Chris, I feel that the importance of this is starting to outweigh the purely financial considerations.  But I would love to hear your thoughts.

With gratitude,

 

ao's picture
ao
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Re: Is it time to buy a house?

First, get out of Berkeley.

http://www.americanthinker.com/2009/06/why_do_liberals_bleed.html

Second, it's not that hard to move into a totally new area in your thirties not knowing anyone.  We did it at that age and it was the best move we ever made.

Third, you should stop trying to get pregnant and concentrate on your wife.  She has better chance of success.

 

Forgive me, I couldn't help myself.;-)

 

plato1965's picture
plato1965
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Re: Is it time to buy a house?

"concentrate on your wife.  She has better chance of success."

 lmao..  . good one.. :-)

 

Thomas Hedin's picture
Thomas Hedin
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Re: Is it time to buy a house?

The power that the banking system has to manipulate the system is beyond most people's comprehension, but what I can say is that if we don't seriously address the debt (and very soon) things in this country are going to get very difficult.

JAG's picture
JAG
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Re: Is it time to buy a house?

Zazen.

earthwise's picture
earthwise
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Re: Is it time to buy a house?

 

Switters says:

But I would love to hear your thoughts

Here's my take on your thoughts:

You write:

 

I'm no longer concerned about the first reason.  I agree with Chris that now is a good time to begin to begin transferring cash or cash equivalents into hard assets like land or a home that can support us over the long term.

I understood Chris' comments to be directed more so that it's time to get out of the dollar and into other assets, tangible assets, land being the leading candidate. My opinion is a rural property is far (far, far, far----think I feel strongly 'bout this?) superior to a city plot. You get more land for your money and the ground is the best investment there is IMO. That's what will support you over the long term by enabling you to grow your own food.

Ideally, we'd like to live in a small town or in a location outside of a small town that is surrounded by arable farmland, has access to clean water, and isn't too close to a major metropolitan area.

Go with that--big time--I dont' think you will ever regret it. (that sounds like heaven to me, but that's just me). BUT I would advise to wait until you can buy it CASH if at all possible. Own it free and clear. A mortgage can possibly be like a knife at your throat if things got really bad, and there's a chance they will. If this isn't possible then rent a farm somewhere. That would solve your third issue in regards to plunking down all your cash at once. I think time is on your side as far as exploiting this buyers market. In the mean time, choose some other hard assets for your dollar denominated assets and start a new life out of the city. Heck, maybe your city friends might see your wisdom and want to join you in your new country life.

docmims's picture
docmims
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Re: Is it time to buy a house?

The economics of home buying are as good as I think they are going to get.  While you will be sagging probably 20 percent in home value over the next few years, I think fixed interest rates(the ONLY WAY to finance that this advice would be appropriate for) and starting their rise to the 8 or 9 percent level, so the money saved by lower interest payments will way overshadow any equity loss, especially if you are buying for the long term.

 

The social/safety aspect of buying in the bay area is suspect to me, just due to the social upheaval that I see happening there.  A good way to turn friends into enemies is to share a mortgage, expenses and gardening chores with them, but maybe it will work out.  I would suggest renting the duplex with them for a year or two, before signing a mortgage.Smile

 

joemanc's picture
joemanc
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Re: Is it time to buy a house?

Yes, it's time to buy. I'm in your age range too and I have no problem moving (in my case at least) to an unfamiliar area and starting over. Since you have friends in Berkley that are on board with the 3 E's, any chance they could move out with you and then do some type of co-housing in a more rural area?

Is it possible for you to buy some good land now in a rural area, keep renting for now and saving money and then building a home say in a few years? In the meantime, you can always plant some fruit trees and/or crops on that land.

This was a great statement by docmims:

Quote:

The economics of home buying are as good as I think they are going to get.  While you will be sagging probably 20 percent in home value over the next few years, I think fixed interest rates(the ONLY WAY to finance that this advice would be appropriate for) and starting their rise to the 8 or 9 percent level, so the money saved by lower interest payments will way overshadow any equity loss, especially if you are buying for the long term.

One other thing to think about, if you buy a home with good land, and as Chris pointed out in the last Report about where money could flood into in the future, then I would imagine the value of your home will rise as opposed to the more urban areas.

I'm going to sound like a realtor, but NOW is the time buy.

joemanc's picture
joemanc
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Re: Is it time to buy a house?
Quote:

I really don't like the idea of putting our $50k down on a house and not having anything left over for investments in sustainability like solar panels, greywater systems, etc.

One thing you might want to look at with solar panels is leasing them:

http://www.cbsnews.com/stories/2009/10/18/eveningnews/main5394814.shtml

switters's picture
switters
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Re: Is it time to buy a house?

While buying some land in a rural area, building a house, installing solar panels and a greywater system, and growing 100% of your own food is may be feasible for some, this vision is completely out of reach for the vast majority of people (myself included, at least presently).  All of that takes capital and time, and quite a bit of both, which an increasingly large number of people simply don't (and won't) have.

Even if I could scrape the money together to buy land in a very rural area in the Midwest (the only place I could afford a decent chunk of land) and build some kind of simple dwelling or put up a yurt, what would I do once I got there to make money?  I'm a health-care provider (acupuncturist and herbalist), so I need to live next to people in order to practice my profession.  Sure, right now I could probably drive my car 45 minutes to the nearest town and have a practice there, but what happens when gas is $15/gallon?  

For that reason I'm not convinced that rural homesteading will be the answer for many, and the fact is it won't even be an option for most.  Sharon Astyk wrote about this a few months ago:

A while back I wrote an essay arguing that while many people will lose their homes and have to move in with family or into rentals in the coming crisis, still more will end up trapped where they are, unable to sell their homes, unable to get credit to buy another, or even to find rental housing due to credit rating losses, and with other family dependent on the only stable home available to them.  That is, the flip side of disruption and movement is that many people are going to be adapting in place – only often with more people in the place than they thought.

 It seems that all of these things are probably roughly coming true.  There has been a substantial increase in the number of people combining housing, although it is hard to measure how much, because there are often prohibitions against such things.  More people are leaving homes and looking for rental housing, although many of them have a hard time finding it, because credit ratings are still important.  Meanwhile, the migration rate – the rate of people moving, has dropped like a stone.

“During the 1950s and 1960s, Frey said, as many as 20 percent of Americans moved in any given year. Mobility rates slowed to 15 percent to 16 percent during the 1990s. But in 2008, only 11.9 percent of Americans moved, he said.”

Meanwhile, some people are Adapting in Place without the amenities of utilities, as reports come in that more foreclosed houses are being squatted in by the original owners. 

Many of us, I think will go into these tough times not where we want to be, but where we are. Others will be the “brother in law on the couch” – moving in with family as needed (I’ve got a post in the works on being the BIL on the Couch, btw, for those who have requested it).  It won’t always be the best prepared person who ends up staying in their home, nor will it always be the best home – it may be the person who keeps their job longest or whose mortgage is smallest, or who happens to live in a place where there is still work. 

And while some folks already have the superinsulated straw bale house, the solar panels and everything else, most of us, well, we don’t.  We’re trying to cobble together our infrastructure, hoping desperately for a few more paychecks and discovering what exactly people mean by “red clay” “R-value negligible” or “fixer-upper” in world where there isn’t as much money, time or energy as we’d like. 

My belief is that in most places, for most people, the process of dealing with our collective crisis is going to be messy.  It will not be as graceful, elegant or smooth as we’d like.  It will involve making the best of what we’ve got, and it will probably involve extensive cursing of how we used our last great burst of wealth and energy.

The good news is that there really is a great deal you can do while you curse (far be it from me to suggest people stop cursing – I try not to advise anything I’m not willing to do ;-) ).  Did you always secretly want to be MacGyver, escaping from dangerous agents with baling twine and toilet paper (I’ve never actually seen this show, so I can’t tell if this is an accurate description, but I gather from pop culture references that it was something of the sort)?  Well, think what happens if you manage to survive peak oil, climate change and economic collapse with nothing but 1960s split level ranch, the stuff you can dumpster dive and your paycheck.  It may not be elegant, but you’ve got to admit, it is interesting.

Anyway, there’s no need to despair if you didn’t yet get the money to buy land, if the eco-village turned you down because you still use regular toilet paper, or if your present version of community mostly involves the local brewpub.  There’s probably land that’s underused around you, toilet paper can presumably be used for some MacGyver-like purpose, and beer remains the universal solvent to resistance to forming useful community groups.  Use what you have.  Adapt in place.

Sharon

See also "Adapting in Place - And When Not To".

 

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