What are the pros and cons of buying a house in this current market?

[fight4liberty]

A good friend of mine and his wife have told me they are thinking about buying a house in the LA market. They are first time buyers and so it is easy for them to qualify for a loan and they are excited about the “low” prices of housing currently.

On the one hand the bottom of the housing bubble hasn’t been reached yet and so any house they buy now will continue to lose value for at least another two to three years, isn’t that right? Say they bought a house that is currently selling for $500,000. How much would you estimate the house would lose in value in the next two years?

They said they were thinking of getting a four bedroom house and renting two of the rooms out. With unemployment rates being expected to continue to go up, what are the pros and cons of this strategy? Or are there any "pros"?

I have a friend that is in real estate (mostly loan modifications) and she thinks that now's a great time to buy and she and her husband are looking for a place to buy right now! In other words she's taking her own advice.

Then as if it isn’t bad enough that housing will continue to lose value for at least another two years, Ron Paul in a recent video said that he predicts that at the rate the Fed is printing money the currency will collapse in “one to two years”! My real estate friend says that if the currency fails then "everybody is screwed anyway so why worry". But wouldn't my friends be in even worse shape by having a mortgage to pay for or is my real estate friend right and it won't matter? If they would be in worse shape tell me how I can explain it to them.

My friends are not going to just accept my advice without some good reasons, so what should I tell them?

 

[enjerth]

Prices are still high. But I'm buying, regardless.

With low interest rates, the affordability of housing increases and draws more potential buyers into the market, driving up prices. The housing bubble was fueled by low rates, so in response to the bubble bursting, they lowered the rate some more. When rates rise again, the market will dry up and housing prices will fall dramatically as people will not be able to afford financing higher priced homes at higher interest rates.

That is if they get around to raising interest rates. The ailing economy may force our economic planners, who wish to avoid natural market correction, to hold interest rates low. This will inevitably result in uncontrollable inflation, making your high-priced purchase relatively inexpensive in the future.

If you don't believe in the productive capacity of the US to sustain itself, then we're already bankrupt, and there will never be a better time than now to purchase a piece of land to secure an independent future to feed yourself and your family for years to come. Don't even flirt with the idea of a house in the city, as you will wind up dependent on a system that has already failed us all.

Perhaps one of the biggest problems with a planned economy is the fact that you just don't know what direction the planners will take. They could raise interest rates, causing you to lose equity and potentially lose your job, or they could hold interest rates low, causing inflation and increasing your equity as well as make your current mortgage payments insignificant.

I'm betting on the inflation scenario, but either way I'll be better off with establishing a little bit of sustenance farming on the little 5 acres I'm trying to get.

 

[mczerone]

Inflation benefits debtors, and interest rates are likely to increase going into the future. Therefore, to beat both the interest rate market and the monetary supply market, now is the time to buy or refinance if you plan on carrying any debt for 10 or more years.

If you are really lucky and can pay for most of a new purchase (house, car, etc.) in cash, there is still time to wait to get the best value, as prices are still falling, and will continue to fall compared to the monetary base even as inflation sets in - prices in the big ticket items will fall faster than the value of the dollar which is still needed to purchase necessities.

 

[LibForestPaul]

Friends don't let friends buy in LA

 

[Zippyjuan]

Buy today and you can claim a limited time tax credit of up to $8000. Interest rates are still near historical lows= if they go up, then the costs of borrowing the same amount of money will be higher in the future thus it is cheaper to borrow to buy a home now than it probably will be in the future. If the economy heats up, the Fed will probably respond by raising their rates (overnight rates to banks) and if inflation heats up, that will push rates even higher.


Buy tomorrow- prices may continue to fall (but for how long and by how much nobody can say).

If you are going to buy a home to live in and stay there for several years and find one you like and can afford, this can be a very good time to buy.

 

[wirenut]

Well, if your really want to buy a house, I'd do it soon. The 30 year fixed mortgage is going up pretty quickly the past few weeks. I believe its around 5.65% http://www.bankrate.com/mortgage.aspx. Imo its only going to go higher. The fed has been trying to keep the rates in the mid 4's and seems to lose control now.

 

[idiom]

It might get shot to blazes in the war?

 

[tremendoustie]

I think now might be a decent time to buy, but not in LA -- LA is still way overpriced.