February 12th, 2009Requirements For Buying A House – Don’t Lose Money
For first time home buyers, or for anyone considering the purchase of a new home, the list of requirements below may just save you from what could be a very costly mistake. The list below is quite different than one from the perspective of the realtors or bankers, but rest assured it is the right list to follow if you don’t want to lose money!
- There are no current national or large bank mortgage foreclosure moratoriums in place. These temporary measures do nothing but skew the statistics in a futile attempt to artificially raise the market prices of homes.
- The total monthly cost of ownership must be a maximum of 5% larger than the cost of renting a near equivalent place. Regardless of what financing and down payment is actually used, the monthly cost of ownership should be calculated separately assuming a ZERO DOWN loan, with a 30 year fixed MARKET interest rate (NOT TEASER). Include principal and interest payments, real estate taxes, insurance, association dues, and special charges (i.e. flood insurance) in the monthly cost of ownership. Also see the Geldpress Rent vs Buy calculator.
- The Case Shiller index in your area must show a flat or positive trend from the latest available data point to that of 3 months prior. Case Shiller housing price data are the only ones worth viewing, because it is OBJECTIVE. Any data coming from the MLS or NAR is subjective and biased! As of today, Case Shiller data is available through November 2008. To consider buying a home in the Seattle area, compare the November data point for Seattle (166.23) with that of the August data point for Seattle (175.24). The trend is still negative, so it is not the time to buy in Seattle (or most parts of the country).
Not in the Requirements to Buy a Home:
- Inventory numbers showing a flat or negative trend. While it is interesting to look at the trend in “months of supply” data, there is to much manipulation to trust the data. Developers are intentionally de-listing properties to keep the supply numbers low. Banks are intentionally holding back REO properties so as not to flood the market. Delinquent home “owners” are not being foreclosed on in a timely fashion. Stick with the 3 requirements above and you will be fine when purchasing a home under these conditions. Note, however, that MAS and I disagree on using inventories when trying to pick a bottom in real estate.
February 12th, 2009 at 3:20 pm
We agree that there is a lot of shadow inventory out there that is skewing inventory numbers to look far lower than they really are. What would happen if the MLS inventory fell to 6 months? Banks would start releasing more shadow inventory onto the MLS. By the time it got down as low as 4 months, I would guess most of the shadow inventory would have been slipped into the market.
Inventory numbers are not honest now, but they will be closer to the bottom. Still a valuable metric, just not the most important one.
February 17th, 2009 at 12:32 am
MAS is obviously a real estate agent or developer.
February 17th, 2009 at 1:05 am
Nope. MAS is a stock “investor” (or should we call him the short selling “devestor”) and wants nothing to do with owning or developing real estate as long as the bubble persists.
February 17th, 2009 at 10:34 am
1 disagreement I have : the Case Shiller index should be close to 100; flattening at 130 or so will be temporary
February 17th, 2009 at 10:54 am
We may actually get to a 100 Case Shiller before it flattens anyway. But if all 3 requirements are in place as is, buyers should be in good shape to buy a home. Right now the cost of ownership vs cost of renting is so far out of whack in many cities that it is still worth waiting. The funny thing about that is every week there are real estate ads in the newspaper that say “Buy Now For Less Than Rent!”. But the fine print of those numbers is so ridiculous, nobody but an idiotic risk management CFO or CEO would be so stupid as to fall for it.
February 19th, 2009 at 7:08 am
Why should we have our real estate and investment values destroyed by the Washington/Wall Street elites while they get a bailout and we
have to pay for their mistakes and greed. If you’ve had enough, join the Campaign to Cancel the Washington National Debt By Constitutional Amendment.
See the following URL for more information: http://www.facebook.com/group.php?gid=67594690498&ref=ts
February 19th, 2009 at 9:14 am
It sounds good in theory, but repudiating the U.S. national debt would likely spark World War 3. Poor nations get away with repudiating their debt all the time, either by themselves or with the help of IMF funded bailouts. The U.S. debt is largely owned by foreigners, but its also owned by our own citizens. The U.S. debt is one of the safest investments in the world right now, despite its monstrous size. We need to pay it down, but repudiating it is going a little extreme.
As for destroying real estate and stock market values, they were destroyed 10 years ago by the FALSE appreciation. The smart people were already in treasuries or other less risky investments prior to the spark that brought the asset values back to earth.
February 24th, 2009 at 12:12 pm
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