Wednesday, July 18, 2012

Time for something completely different: Buying a house

I've been thinking a lot about housing lately because we're considering buying our first home.  We've been looking for nearly a year so it's obviously a long ordeal for us. 

So what do you consider when buying a house:
* Location
* Number of rooms, layout, etc
* Yard
* Condition of home

And of course
* Cost

Cost.  How much will you pay for the house?  Do you put down every last cent you have available or save a little bit for unforseen repairs or an unexpected expense?  Then do you set it up to pay the most possible you can monthly or leave a little bit of wiggle room?

We seem to be on the conservative side.  People keep saying to us things that amount to "Buy the most house you possibly can." or "The house doesn't have to be perfect.  This can just be your starter home." and also, "Sure, you'll be poor for a few years but then you'll be fine.  Your income is only going to go up."  Is this true?

In a stable housing market where values were certainly going to go up, it'd make sense to buy a house that was the most we could afford.  It probably still does if we're going to be there for the rest of our lives.  (But the house had better be pretty good for our family if we're going to be there forever.)  Otherwise, we don't want to stretch ourselves too thin and be unable to send our kids to preschool, do enrichment activities, or save for retirement. 

What about the claim that our income is only going to go up?  Well, if we're lucky enough to stay employed (not something we all take for granted anymore), we can expect our income to be relatively stable.  We've both been in our careers for about a decade.  Our income may go up somewhat, but it's not like we're just starting out at entry level income.  If our income does go up more than cost of living, like if we get a bonus, we could maybe take our kids on a vacation. 

What about expenses?  We have 2 young kids.  Our expenses are only going to go up, from what I can see.  The oldest will start in preschool this year.  Preschool isn't cheap.  Then when she gets to elementary school, she may go to public school depending on where we end up buying a house or we might be paying for private school.  Big expense. In addition, there may be enrichment activities like ballet or piano or summer camp that she'll want to do.  Those things will add up quickly.

Sure, we could tell our kids they can't do those activities.  We could stop saving for retirement.  Many of our friends are not contributing to retirement now figuring they'll do that later.  Later when what happens?  When they're making more money or when expenses go down (like they've paid off their student loans, something I finished about 6 years ago).   This may be true for them, but if we're going to continue for the next 18 years with roughly the same standard of living, we can't spend much more on housing than we currently do.  (Of course, we're saving now so we can afford a little bit more but we need to factor in maintenance, taxes, etc.)

Perhaps we won't be paying for schooling in a few years and we won't indulge the kids in expensive hobbies.  Perhaps we'll get raises or change jobs such that we're making more.  Perhaps we'll lose jobs and be unemployed for a while, or choose to leave jobs to start our own businesses.  We don't know.  And of course we can never know what the future brings, but just assuming we will make more in the future seems foolish, for us at least. 

Now, if we were just starting out and had our initial salaries and no child-related expenses like when we got married 7 years ago, we could have bought our small starter home and lived frugally for a few years while we saved for a bigger home, moved up the ladder in our jobs, and then moved when we had kids and needed more room.  That's apparently what we were "supposed" to do.  But 7 years ago was 2005.  That was the peak of the housing bubble.  There were small condos going for well over a half million dollars and the value of homes in this area are now 60% of their 2005 cost.  Whether or not we had purchased then, I'm not sure we'd be in better shape now.  I assume we'd be getting different advice than "This is just your starter home" or "You'll be making more in a few years." 

I seem to be on an entirely different page than most people around us, so I just wanted to explain our thinking.  Maybe we're nuts, but at least we're conservatively nuts.  :)

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