I cannot express how wary I would be about getting into any loan beyond a fixed rate vehicle at this point in time. WHile many espouse this is a lost decade and interest rates will be low for a long long time, there is not any doubt in my mind that when rates go up, they will go up very high very fast. This then push whatever appreciation that has been made into the tank quickly. This will also cause considerable stress to anyone who gets into any loans that are not fixed rates.
Now I do not really believe that this will happen soon. However could it happen within 5 years? Absolutely no doubt. I think that the timing for a shift in this sort of thing will be somewhat tied to elections. So I could see that sometime in the spring of 2012, no matter who is in office, there could be bigtime problems.
FLU made several good points as usual. I do not think there is a person I know who has made money on every stock purchase, or every home purchase, or every transaction they performed. The bottom line is that if you are going to buy a new home, but you are going to lay awake every night for the next 5 years hoping that there will be housing appreciation, DO NOT BUY A HOME. It is not worth the heartache and you will not enjoy the home at all. It will be a burden for you.
Whatever you do, make sure of the following:
1 – Use a fixed rate loan vehicle. Unless there is an imminent relocation and home sale it is just plain stupid not to.
2 – Don’t overextend yourself. If you are doing rental calculations make sure you include vacancy, repairs, and buffer your rental rate estimates buy 7% of what you see on Craigslist for your assumed rental rate.
Also, on the flip side rental homes are very helpful for you tax wise so that may be one consideration on keeping the home. You may want to talk to your accountant about the benefits there. So while you may be cash poor, come April you can do pretty well.
Again though, if you will stress out and extend yourselves, I would not do it. The future is at best very shaky and our kids will not enjoy the same life we did growing up here so make wise choices now.
