Le Petit Ange – I was troubled reading your posts. More information is needed to properly advise on your situation.
First, what are your plans for your severely underwater 4s townhouse purchased in 2007? If you paid 450K, it’s probably worth 330K today. If you paid 350K, it’s worth 220K. Rents will scale accordingly. My guess is you’re looking at $300-$500 minimum negative cash flow before factoring in maintenance costs and vacancy rates. Hopefully you have a fixed rate loan since you can’t refi without plopping down significant cash. You can’t get a loan mod because you’re not distressed, and a short sale will hurt your credit eliminating the option to buy another house without a co-signor, at least for a few years. Basically, you are stuck with your townhouse and will have to carry this burden going forward.
Second, having kids starting in a few years will put a severe dent in your cashflow, and continue to do so until they are out of college. If you both continue to work, you will have to pay for childcare, or if you stay home, you lose your income. I don’t know how you can afford a 600K home assuming you put down most of your money in the townhouse. To save 120K liquid in 3 years is possible, if your combined income exceeds 130K while living an extremely frugal lifestyle. However, you should have 170K cash on hand, 120K for downpayment and 50K in reserves.
Based on the limited information provided, my recommendation is not to purchase another home unless you can dump your 4s townhouse relatively unscathed. If you are able to sell the townhouse, buy a SFH, not another townhouse. Condo/townhouse appreciation are parasitic in nature riding on the coattails of adjacent prime SFH property.
Regarding the double dip in prices, I don’t see it happening in good SD locations, especially at this price point and location. Don’t worry about rates either. They won’t be allowed to increase until consumer confidence is nearly reestablished in the housing market. When that happens, the rest of the sideline money will come out further fueling demand/greed and countering any effects from incremental rate increases. That’s why home prices can sometimes increase with increasing rates.
