Someone asked my motivation for buying right now. I clearly don't think this is the bottom in home prices. There clearly is a lot of distressed inventory on the sidelines yet to come on market. So why buy?
I promised myself a couple years into this (I started house hunting in late 2005) that I wouldn't try to time the ultimate bottom. I would just pick some parameters (area, age of home, square feet, etc) and when those parameters were met relative to a rent / debt service ratio and debt service amount I had selected that I would buy. Mortgage rates hitting 4% helped the debt service side of the equation and ultimately a seller accepted my offer during a slow time of year where most transactions that are being made are because of seller compromising on price.
There were personal financial factors that also led me into thinking that this wouldn't be a horrible spot to fix costs in time. Also knowing that I would be in this house for a long time helped sway the decision. I'm well aware that the mortgage interest deduction is on the firing line but I am betting that it's repeal will apply to loans above the conforming loan limit. That is if it gets passed at all. I've also planned on it being appealed completely but that would make the purchase decision less favorable over renting but not so much that I couldn't handle the difference.
My view of the economy has gotten much less bearish and in some ways bullish and that helps the purchase go/no go decision. We clearly have a lot of things to get through as a country but the fight now is really how much inflation are we going to have as opposed to an inflation/deflation argument in which taking on long term debt is a much dicier proposition. Growth is happening, and whether that growth is organic or only happening because of the Fed printing money is irrelevant. In the former scenario we are in a true recovery and in the latter scenario I don't see the Fed stopping printing if they think the recovery would falter.
I'm of course not thrilled with the price I paid for the house but the low mortgage rate takes the sting out a bit. Rates have spiked 75bps since I locked and that would mean the same house would be $200-300 more a month. That would be almost the same as getting the same house today for $50,000 cheaper (property tax drops so it isn't 100% the same).
When prices fall in the future some may ask if I am pleased or displeased with my purchase. Financially, it would come down to what is going on with rents and interest rates. There are scenarios where I would still come out ahead by buying now. The numbers were close enough that if you erred on the side of inflation it looks like all the numbers work (I'm talking 1 to 2% not any rampant inflation scenario which makes taking on long term debt a trivial proposition).
Renting during the boom turned out to be a good decision. I don't expect that the buying decision will compare as clearly favorably that renting did during the boom/bust but I don't expect it to be a huge mistake either but it could be a small/medium mistake. Only time will tell.
If you have any other questions please post in the comments.