Million Dollar Question - Buy or Wait? 2022 Edition (Austin, Kyle: for sale, mortgages)

[hiwot]

Originally Posted by Lorne

Maybe they eat a lot?

In all seriousness, it is a no brainer he can easily afford a million dollar home, assuming he has had that income for longer than 2 years. If it's volatile income, that is a different matter. My best advice is simply go see a FEE-ONLY financial advisor and get your financial habits in order (that you only have $100k saved on this supposed wage is shameful that's simply 3 months of earnings) but even despite that should be easy peesy to get into the home at that price range.

[Wile E. Coyote]

Originally Posted by chrisroane

I am working through the same thought process. Our budget is not that large but by selling our house we can put 20% down. I do think if you can have more equity right away, that does lower the risk a little bit.

But then part of me wonders if it would be better to just rent. But we aren't too fond of renting for a few years and "hoping" things come down.

From a person who is not strong in economics, I look at this by breaking down the two main risks:

1. You jump into the fire pit of the market now and get something that you can live with. But the real risk here is how secure is the income you are depending on to make that payment? if things go down, you are paying a high premium for getting the house now. But if it is a house you love in a location where you want to be, how big of a deal is this? I go back and forth, but for me, as long as it is a payment I can comfortably afford, I think I could live with that.

2. You hold off and continue to rent until the market corrects. Even if we aren't in a bubble, the market has got to correct at some point. Or maybe property taxes have to go down? I wouldn't bet on taxes going down though, lol.



At least from someone selling their house, I kind of think the best scenario is to sell while the market is hot, rent until things cool off and then buy something you can afford (while staying in the same school district). But then again that seems like a lot of work....

That's completely risky because you are trying to time the market. My friend did this (she got back to the high's before the last crash -- she got back to $800k plus $100k. Well, guess what? She was wrong and that house that she sold while she's been renting is up $500k (so, you cannot time the market).

[Wile E. Coyote]

Originally Posted by Lorne

Oh man... If you would have purchased a home or invested in the stock market in 2007, during the bubble and before the great recession, and kept it until now? You'll be sitting real pretty right now. As long as you buy quality assets and have time on your horizon, you can't lose in my opinion.

Oh, and Everything is exactly as it was?

[Wittgenstein's Ghost]

Originally Posted by hiwot

950k loan 20% down considering 8.4k home insurance, $30k prop tax, $3k hoa == ~$7200/month.

gross income == $30,833 per month after fed tax (3 dependents) == ~$22,706 net income.

$22,706 - $7200 == $15,506k income after house payment.

You're right, how can he possibly live off of $15,506 monthly to spare? Throw in the towel, nothing to see here.

** EDIT ** I just saw the "only 100k down payment" aspect. Many credit unions will do 90% LTV jumbo and assuming a higher interest rate @ 4.8%, the monthly PITI is $10,721.99.

$30,833 - $10,721.99 == $20,111. Still seems like a STRETCH right?

Not sure where you got the idea that I was saying someone couldn't live on such a salary. I was simply giving my opinion on what I think a comfortable margin is. The $10,721 PITI figure leaves about $11,900 in monthly income after the mortgage, and that's before other taxes like FICA. More importantly, it's before any amount of savings. Someone making over $300k per year should be saving at least $50-100k per year.

Lest you think that's a crazy amount to save, let's imagine the OP is 35 and wants to retire at 58. He socks away $50k annually and gets a 7% real return for the next 23 years. At the end, he's got $2.8MM. That sounds like a lot, but at a 4% drawdown, it's a little over $100k per year. It's a nice income in retirement (particularly since we are using real dollars), but it's not enough to spend like he has for the last 25 years. And that's with saving $50k per year and getting ~10% or so nominal return on his money.

I know plenty of people would love to end up with $11,900 monthly in take-home pay after their mortgage, but with four kids, that's a tighter margin than I personally like if one is saving properly. And we haven't even talked about college savings. That kind of income makes no sense if you never actually become wealthy because you spend everything you make.

I get why people stretch to buy $350,000 houses. I don't get why they stretch to buy $1MM houses.

Living like a middle class person who just has nicer things is a bad way to be a high earner.

[hiwot]

Originally Posted by Wittgenstein's Ghost

Not sure where you got the idea that I was saying someone couldn't live on such a salary.

yeah, you're right. Why would "$370k isn't enough income to support a $950k mortgage." ever give off that impression? I'm being rhetorical, you dont have to answer that.

[Wittgenstein's Ghost]

Originally Posted by hiwot

yeah, you're right. Why would "$370k isn't enough income to support a $950k mortgage." ever give off that impression? I'm being rhetorical, you dont have to answer that.

I think you're being intentionally obtuse. I wasn't saying the OP couldn't afford it. I was saying that I didn't think it was a wise financial decision.

I think a good rule of thumb, depending on current rates, is a max mortgage of 2x income. Multipliers like that aren't great, but it's more useful than the multipliers that only deal with purchase price rather than financed amount.

[numbersguy100]

Originally Posted by Wittgenstein's Ghost

Yes, I was wondering the same thing. If income is good, how is there only $50k for a down payment? If this level of income is not new (it could be....maybe a doc fresh out of fellowship/residency), and current rent is only $2k, the numbers just don't work to afford a $1MM property given their past savings rate. Then again, if this level of income is new, that's a totally different situation.

And that's a pretty significant effect on the property taxes. I didn't realize property taxes could only go up by 10% annually. Theoretically, the appraisal district is supposed to be hiking valuations at all times, not just after sales. But I'm sure that in practice you can probably fly under the radar with a house didn't just buy.

I do wonder how strong of a motivator that is for most people in whether they move or stay, though.

Not sure how there was any misunderstanding there given this is Texas where real estate taxes are so relevant to the cost of home ownership.

DCAD is not actually that good at valuing properties (by design, if you want my opinion) but it can access MLS listings so if you buy something that was listed, your taxable value is probably going to that level the following year without fail. If you've been in your house for 15 years, they'll probably raise your valuation, but there is not a ton of incentive to do so above the 10% cap with precision. So over time appraised value will lag market.

TC80 gave the example where if she sold today and just bought something new at the exact same market value, she would likely pay an extra $1200-1500 in monthly taxes to stay in a home of comparable value. Are you actually questioning whether people would think about this when deciding to sell or stay put? Of course they will.

[hiwot]

Originally Posted by numbersguy100

TC80 gave the example where if she sold today and just bought something new at the exact same market value, she would likely pay an extra $1200-1500 in monthly taxes to stay in a home of comparable value. Are you actually questioning whether people would think about this when deciding to sell or stay put? Of course they will.

And she also said it would catch up after 5 years right?

[san11]

Originally Posted by Wittgenstein's Ghost

Yes, I was wondering the same thing. If income is good, how is there only $50k for a down payment? If this level of income is not new (it could be....maybe a doc fresh out of fellowship/residency), and current rent is only $2k, the numbers just don't work to afford a $1MM property given their past savings rate. Then again, if this level of income is new, that's a totally different situation.

And that's a pretty significant effect on the property taxes. I didn't realize property taxes could only go up by 10% annually. Theoretically, the appraisal district is supposed to be hiking valuations at all times, not just after sales. But I'm sure that in practice you can probably fly under the radar with a house didn't just buy.

I do wonder how strong of a motivator that is for most people in whether they move or stay, though.

Homestead exemption for current owner limit the Property tax raise by max 10% annually.
So, appraisal district can not raise property tax more than 10 % annually for current homeowner , even if the house currently may be worth 10 times.

But, let say a person bought a new house, appraisal district in most cases will appraise it to current market and will support the new appraisal with other houses sold recently or can ask you to show proof that you bought the house for less.
So, in that case you will end up paying the property tax on new property for current evaluations.
Homestead exemption can be applied but only after initial appraisal set by city.

IMO , this is the main reason for low inventory.

In order for Inventory to increase the DFW housing has to crash by 15- 30 %. Or it has to remain stagnant for next few year. If these scenario happens, then this property tax equation will make sense and people will sell more houses, which would lead to more inventory.

[Wittgenstein's Ghost]

Originally Posted by numbersguy100

Not sure how there was any misunderstanding there given this is Texas where real estate taxes are so relevant to the cost of home ownership.

DCAD is not actually that good at valuing properties (by design, if you want my opinion) but it can access MLS listings so if you buy something that was listed, your taxable value is probably going to that level the following year without fail. If you've been in your house for 15 years, they'll probably raise your valuation, but there is not a ton of incentive to do so above the 10% cap with precision. So over time appraised value will lag market.

TC80 gave the example where if she sold today and just bought something new at the exact same market value, she would likely pay an extra $1200-1500 in monthly taxes to stay in a home of comparable value. Are you actually questioning whether people would think about this when deciding to sell or stay put? Of course they will.

1. 90% of this is just my post that you quoted, rephrased.

2. "Steep tax bill" is vague. I didn't know what you meant. Not sure why you are getting snarky.

3. TC80 lives in a house that is worth about 3x the average DFW house.

4. You're missing the forest for the trees here. The only question we are discussing is whether there will be some people who suddenly feel comfortable selling because they think they can buy again. Some people might do the calculations on their property taxes and realize it's not worth it. Plenty of people won't anticipate that sort of tax hike, and even if they do, they might be fine with it. You're debating a point here that seems obvious. Are people more likely to sell their house if they think they can buy another one? Yeah, I think so.