It has been a while since I made a personal post. I promise I will not rant. I just got through crunching numbers on how waiting to buy a house for two years might work in my favor.
First, there is the matter of savings. I will be living rent free at my inlaws (of course I will contribute to other household expenses). If I follow Suze Orman's advice and "play house" (i.e., pretend to spend a set amount of money on a mortgage and other house payments above and beyond my current rent), I can put away $2200 a month in one of those super-sized 3% APR bank accounts or CD's. Nice and safe, just like me! With steady payments and my existing cashola squirreled there, my down payment goes from $100k to $180k in two years. This will help improve my purchasing ability.
Second, there is the issue of how much monthly nut I can afford. Currently, we are comfy with at most $2200 (see playing house issue above). Conservatively, barring my bold schemes of worldwide capitalistic dominance, I can safely assume a 4% raise in my current position, based on history. This brings my monthly bearable nut to $2400. With a larger down payment and more cash per month to burn, the picture looks better already.
Now comes the first negative -- interest rates. The current 6% average 30 year rate will likely creep up to 7% and hang around, based on all those wonderful pundits that myself and others post to our blogs. In the $400-$600k house range where I am looking, that alone would buy me 5.5% less house dollar for dollar, as I would have to lower my price range to make the same monthly payment.
Now the kicker for all you bubbleheads -- price drops. That 5.5% might just drop on the seller's side. Hey, if the housing bulls out there can claim that low interest rates have fueled the boom, it can work in reverse too. Depending on what other pundits are predicting, we could see 20% drops in the NYC metro area. Keep in mind, I am focused on the suburbs. I am done for now with a Brooklyn search and will let everyone else argue whether Brooklyn is an anomaly. Certainly established neighborhoods are less risky for downside -- the Slope, Carroll Gardens, Cobble Hilll, Brooklyn Heights, Fort Greene. But Kensington, Ditmas Park, Midwood, W'burg, Greenpoint, Red Hook, Greenwood Heights, Bed-Stuy, Clinton Hill, and Sunset Park are more at risk.
Anyway, by my math, my revised target price would go from $400k to $460k based on my increased down payment and monthly allocation. If a $460k price on a house was the result of a 20% price drop, the current value of that house would be $575k. For a 5.5% drop, the current price would be $490k.
Last, I am making a lifestyle change from the City to the burbs. What I suffer in commute and "culture", I hope to gain in price and a few other things (quiet, backyard, no alternative side of the street parking, etc.). Married and with kids, I don't really take advantage of the city enough anyway. I also have lived here most of my life and need to breath a little more. Plus, the way I see it, there are so many retail and restaurant chains in NYC, that it is beginning to blur the difference between city and suburb for me. Heck, at least outside of the city, parking at Target is easier.
Let's visualize what I could get now vs. what I could get in two years under this total scenario:
For $400k under our past search here in Brooklyn, our good friends at Crockoran can offer this
for my wife, two kids and I : a two bedroom, 1.5 bath, 900 sq foot condo in a sketchy but "developing " area. Thanks but no thanks. That's not going to cut it for me.
For $460k in two years, I could potentially get this great
place in Westchester: 3 BR, 2 Bath, 1600 Sq Ft, 2 car garage, fireplace, 1/3 acre lot, good schools, and only 15 minutes more on my commute.
So what do you think? Feedback welcome.
- Mr Squeeze