Wednesday, November 3, 2010

Are you waiting too long to buy a house?

I had a radical thought the other day. Are people waiting too long to buy a house with increasing housing prices and (theoretical) lower income? I say theoretical because I'm talking about inflation. Lets take my old house for instance.

The facts:

Purchased for - $80,000 (in 1998)
Sold for - $170,000 (in 2010)
Increase In Value - 212.5%
Increase In Value(Yearly) - 17.7%
Increase In Value(Monthly) - 1.475%

So say you have the 10% ($8,000) for the down payment and you decided you want to save up some more. Say $200 a month every month. But the house increases in value 1.475% every month so you're theoretically losing 1.475% a month while saving more up. So that $200 the first month becomes $199.05 the second month and $198.10 the third and so on. So you saved up $2400 by the end of the year but actually you saved $2000. You just lost 2 months worth of work because you waited. Now inflation comes into play. Say you want to save up for 2 years. That is $4000($4800 actual) but now with inflation of your income is anywhere from 3-5% less then it was last year. so say your boss was nice and gave you a 1% (my one job called this the "I can't live anymore raise") increase in your pay for the next year but inflation is 3%. Meaning you lost 2% of your $2000 which is $1960. So now you think you saved up $4800 but in reality you only saved up $3960. A whole $860 lost because you waited! That could of bought you a nice couch and coffee table in your new home, but no you waited.
I'm not saying saving more up is a bad thing. Just be aware about all of this when you're working your ass off attempting to buy a house. Now I leave you with some home buying tips I like.

  • Have anywhere from 10%-20% of the total value of the house as a down payment.
  • Wait for higher interests rates. I'd rather pay $140,000 for a house with 16.6% interest then $180,000 for a house with 8.2% interest so I could refinance and still have a lower price AND interest rate.
  • Don't buy too much house. If you are single, don't buy a 4 bedroom house. Seriously, how many offices do you need?
  • Stay where you live for at least 5 years. Because by then your house probably will have appreciated enough where you would make a profit from selling it as apposed to taking a hit. 


  1. very very informative, thank u

  2. again, thank you for the information..useful as always!

  3. crap. i've waited too long to buy a house!