The Expert Podcast

So we've talked many times about buying a home at the $200,000 level and this traditionally is geared towards people who may be renting right now and wanting to get into the home buyers market and we're going to talk in a minute about whether or not the market's going to go up or down and why it doesn't matter if you buy a $200,000 house if the market goes up or down it really is not going to make a difference to your finances it'll be good either way but there's a great article that came out today in Motley Fool about something we've been talking about for years.

Is buying now better than renting? In the past we've made the argument that sometimes renting is better because it's cheaper but in this current environment where landlords and property owners are jacking up prices demand for rentals is soaring and landlords are hiking up cost according to this article and you may want to lock in a housing amount so that it's not going to go up in the future and ask the question should you buy a home.

Really once you do all the math what's the right call boils down to do you really want to own a home and if you want to own a home then any time is the right time to buy even in the housing crash of 2008 in the long run most people made out okay if you kept your house it wasn't a matter of the house value going down certainly some house values went down on highly speculative markets in highly leveraged markets markets where people had no down payment and they had teaser rates on adjustable mortgages or home equity loans in markets where there wasn't as much speculation and the house price was low in the long run there wasn't much loss most people got their money back in a few years.

So what about a $200,000 house? Well the way we look at it is whether or not the market goes up or very unlikely goes down you're going to be fine with a $200,000 house obviously if the market goes up you'll benefit in the market appreciation even a 20% increase over five years is going to give you about $260,000 or $270,000 of home value with compounding in that amount of time.

What if the market goes down? Well first of all it's very unlikely the market will go down this time because there's not much leverage in the market and mortgage approvals are being done very judiciously the mortgage companies aren't just handing out home loans like candy like they did in 2004, 2005 and 2006 it's much more difficult to get a home loan you have to have good credit and the property has to have at least some kind of down payment.

But what if the market goes down? Well it's very unlikely that a $200,000 house is going to go down that much because it's at the entry level of the market where many people want to be and even if it does go down over the course of a few years net let's say 5% that's $10,000 you will very likely save at least $10,000 on rent over that period of time if you buy a $200,000 house.

We've talked before where the mortgage payment even with taxes and insurance on a $200,000 house is about $1,200 in most markets you're very likely going to pay closer to $2,000 for rent of even a two-bedroom apartment in most markets so you're gonna save $500 or $600 a month in a couple years that's gonna equal $10,000 of savings not counting tax credits tax advantages that kind of thing.

So we always like to look at well does this help you if the market goes up or even if it doesn't does this help you in any scenario and almost always it does unless you are in a position where you're going to move around a lot in the next five years then maybe it might not be a good idea to jump in but you got to remember landlords right now are jacking up rents and there's no end in sight for that to happen for that to stop happening some markets are seeing rents go up $500 or $600 every six months some apartment complexes are repricing their units every quarter $300-$400.

So if you don't lock in some kind of a housing payment by buying a house you're subject to that going up with no limits most markets don't have any kind of rent controls and if they do they usually only apply to older homes or properties manufactured or built constructed before a certain year so buying a house can lock it in now certainly insurance can go up and taxes can go up and those are variables but in most markets they're tied to the values of homes so the only way your insurance could go up is if your house value went up which would benefit you or the same thing with property taxes.

So this was a really good article we'll post a link to it in the description from Motley Fool where is it time to consider buying and it makes some good arguments for and against but it does describe that if you are looking to lock in a housing cost every month then buying right now would be a good move.

Now if the only reason you're not buying is because you can't find a home in your price range that you like well either change your price range or change what you like at least if you get into a home even if it's not exactly what you want right now if it's $200,000 or $210,000 or $220,000 at least you're in a home and you can fix that up as you see fit you can go to Home Depot and spend $80 on some paint you can you know a couple months later you can spend $150 on some molding you can fix things up over time to make it how you want where your landlord's not gonna have any say in how you want your property to be.