If you're renting now and want to buy, don't worry!

A friend at work chatted with me earlier this week about a early-twenty-something couple he knew that were renting and really wanted to buy a house so that they could start a family. It sounded like the couple was letting the housing market “put their lives on hold” because they didn't want to raise their child in an apartment. The home prices around here are still very high from a run-up over the past few years, even though they're starting to go down a little bit. The husband works and is in school finishing up a degree, which will likely enable him to ask for a raise or seek a higher-paying job.

This may be a pretty common feeling among people a little younger than myself (I'm in my mid 30s) — the feeling that homes will never be affordable. That's a reasonable observation if we look at home prices over the past few years. Honestly, I could barely afford the house I'm in now because of the appreciation that's happened since I bought in 2001. I know that some lenders would have been happy to let me borrow the amount for the house I have now even after it had appreciated, but that doesn't mean that I could have afforded it.

And that's part of the reason why home prices are so high. Because money was loose, it was easy to get financing. This might have led this guy in his early twenties and still going to school to think that he could buy a house. It just seems to be a little young for a salaried guy to be looking for a house. Maybe if he were a businessman making huge money with tiny little classified ads or something, then he could. 😉

Anyway, I don't think that, a few years from now, he'll still regret being locked out of the market now. My friend told me that this might be easy to say because I already have a house. And that might be true. But I still think that this housing slump is just getting underway and that there will be much better opportunities to buy later. As it is, some subdivisions around here have a good fraction of their houses up for sale. In the meantime, lending will get tighter among the wave of losses reported once Level 3 assets are written off in earnest and potential buyers will thin out at a given price level. Eventually sellers will lower their prices if they need to sell. Mix in more foreclosures due to resetting ARMs, recession, rising energy prices, and other economic frictional drag to taste, and there's plenty more room to go down.

Seriously, if you want to buy now and are priced out of your market, don't worry! Hang in there, save up some cash, let the dirty laundry be aired, and buy when no one wants to. There will be plenty of choice later. Housing inventory is on the rise and every one of those unsold houses is costing someone or some company a lot of money each and every day.

8 thoughts on “If you’re renting now and want to buy, don’t worry!”

My wife and I just finished building our house in the woods (brought utilities in, dug a well, etc). It's been a huge challenge on a single salary, and wouldn't have been possible if we didn't already own the land.

The key is to focus on what *you can do,* not the factors *outside of your control.*

If the guy is already working and going to school, his plate is full (I've done that too). However, once he graduates he and his wife should really buckle down and save till it hurts.

They might not like their options, but the are lots of things they can do. Find a smaller apartment, part-time jobs, etc. Every few months, they can sit back and evaluate if they're happy with their progress. Perhaps house prices will continue to drop. If not, they can always move to a more affordable market with a hefty down-payment.

Can't you rent houses? We can over here in the UK. In any case, a small baby certainly won't notice living in an apartment.

If house prices drop significantly in the next couple of years, they'll be all set. If they don't, a couple of years of saving should improve their position.

Aaron: Yes. The key is that down payment. Lenders will be looking for those more and more.

Plonkee: Yes, we can rent houses. Under $1 per square foot (something like 5 pounds per square meter).

Having that much patience can be difficult but if they can hold off for five years they should be better off. Over a lifetime though, timing isn't that critical. They are probably holding off on the child to qualify on two incomes and minimal expenses which will change once they do.

My rent is about $24k per year. If I wait another year that's another 24K I could have put toward paying off a mortgage. If I wait 4 years for the market to bottom out that would mean that housing prices would have to fall more than 100k for me to break even, no? That would be about a 25% correction, does that seem realistic?

with house prices on the up…borrowing money will steadily increase…getting expensive planning for your future!

I am currently living with my parents for the low, low price of $350 a month. I was planning on moving out but the prices are still dropping. I want to stay as long as i can before getting a place because it seems like I could get a better deal later.

The question is, how long should a person wait? This would be my first place.