My post yesterday generated a number of posts along the lines of "What?! You're buying a house on the cusp of a double-dip recession? How do I get hold of some of the potent recreational pharmaceuticals that seem to be easily available in the Greater Washington DC Area?"
So I thought it was worth writing a post about how we thought about buying a house; if nothing else, it's a good way for you all to see how clearly I'm thinking about this whole financial crisis thingy.
Step One: Why buy a house?
I have spent enough time reporting on the financial crisis to have made very sure that the answer to this was not "Because renting is just throwing your money away!" All calculations, mental and otherwise, were based on an assumption of no house price appreciation. I actually expect that the house we're buying will probably appreciate in value, as it's on the border of one of DC's hottest "emerging" neighborhoods. But one never knows what is going to happen, and any house that is a stupid purchase unless the value is going to rise at a steady clip, is a stupid purchase. We figure that as long as the thing doesn't lose too much value, we're okay.
So if we're not looking at our home as a sort of get-rich-quick-scheme-with-attached garage, why would we want to tie ourselves down?
1. We're committed to Washington DC Both of us have moved around a bit, and we're pretty committed to both policy journalism, and doing it in this particular city. We're unlikely to take a major hit to our labor mobility by tying ourselves down to a house.
2. We're sick of moving I never used to have any interest in homeownership at all. Then I was evicted from my New York apartment so that the landlords could convert it to condos (one of the factors that spurred my move to Washington). No complaints here--the landlords had every right to do what they wanted with their property. But it drove home the fact that any rental is subject to the whims of someone else.
3. The DC rental market is extremely hot. We are in the unheard of position of taking on a combined mortgage + property taxes + insurance (aka PITI) that is substantially lower than our rent was. Even if we budget $300-400 a month, every month, for repairs, we'll come out ahead.
Now, to be sure, we are moving to a larger house in a neighborhood with fewer amenities. But the general pattern that both of us have experienced is that rental costs are rising by at least 4% a year.
Obviously, there's no guarantee this will continue. But we decided we wanted to stabilize our housing cost at a level we could afford, rather than risk having to move every few years as gentrification priced us out of wherever we happened to be living.
4. Terrible renovations The house we were living in was a flip house, with the pretty-but-poor quality renovations typical of much of the construction that has been done in the area over the last ten years by amateur developers who were mostly concerned about making it pretty enough to sell well. So, for example, we had to buy hundreds of dollars worth of additional kitchen islands, because our house had a wine fridge taking up the space where normally you would have had a place to cook. It also had two jacuzzis--and a hot water heater the size of a thimble. Plus, the plumbing and electric broke fairly regularly.
It is not that I expect a future of cheap, seamless, high-quality renovations. But at least I'll have some control over things like the size of the water heater. Moreover, I'll be able to have the things I actually want, like a powerful stove, rather than the things that developers think that a generic "homebuyer" would want, like plantation shutters. I am finally (well, eventually) going to have a kitchen where I can have decent shelving without worrying what it will do to my security deposit.
5. Paying down the house early Our dream is to pay off our mortgage in a decade in order to lower our operating costs. Given the uncertainties in our industry, this seems like a sensible way to buy some extra security (and yes, I'm aware that we'll--eeeeeeek!!!--lose the tax deduction.) You can't do this with a rental.
Of course, we could just sock extra money in a savings account--but since we're actually lowering our monthly nut, we wouldn't be socking very much. As a form of forced savings, this works pretty well.
6. Interest rates are low, and housing is in a post tax-credit doldrums. If you have the down payment, it's a pretty decent time to buy a house in DC.
7. A nearly perfect house became available. The house we're buying is on a street that I fell in love with the first time I saw it. It's located close to Big Bear Cafe, the neighborhood's single biggest draw. Many of our friends live nearby. The engineer said he loved the house. We can live in it immediately and renovate as we have the cash. And the price is in a range that we can afford.
Oh, sure, it could have a bigger yard that wasn't, say, covered in broken concrete, and an extra bedroom. But it's pretty close to perfect, and the price is right. Plus, I like projects.
How did we know the price was right? Without getting too specific, I'm hoping to write a post on this next.