My advice, is to buy only if you meet these 3 conditions:
1) Your income is stable throughout the upcoming recession. You know you will not be laid off in the downturn.
2) You have a mortgage you can afford so you can ride out the downturn. You won’t be forced into foreclosure when your ARM adjusts.
3) You don’t mind losing half of your home’s value. Prices will decline 35% – 50% from their summer 05 highs, and you don’t care about losing the equity.
I have 3 kids, and I rent. What’s the problem with renting a house?
In 2010, your Escondido house could be worth $280K. If you don’t care, go ahead and buy.
I don’t want to say anything harsh, as I admire your courage to come here and say you are buying a house. That takes guts. But I think it’s a crazy move. Unless you are a millionaire who doesn’t mind losing 200K, why in the world would you buy an asset whose value is pretty much guaranteed to shrink by half?
Your house purchase is like buying Lucent in May 2000. It had come down off its peak, and seemed like a good buy. You really wanted to start a 401(k) stock portfolio and get started with dollar cost averaging. That is your situation. Just like I watched my $5 LU stock go all the way down to $2.50, losing half my $2K investment, you will watch your house lose its value all the way down to $250K or thereabouts.
The best thing to do: put your cash in Treasury bills or FDIC insured bank rated A+ by Weiss ratings, and earn 5%. Rent a nice house for a fraction of the mortgage cost. For $2500/month you can rent a really nice house.
And if you have kids, think seriously about whether you want to be in the Escondido school district. I know some of the schools have good ratings, but very few. Think about the coast or Poway schools. Coast if you can afford it.
Oh, you want to go back to Denver. Then you will be selling at the bottom of the market, when 10% of the MLS will be foreclosures. So you are not in a position to ride out this downturn, since you plan to sell at the time we predict will be the bottom.
Wheew, if I reached you, then I can chalk up household saved.
One more thing – do you know how hard it is to work when you have a baby around? Even with a nanny to help out, baby will cry for mom. Your wife may not want to leave her baby in day care, and prefer to raise him herself. Then, your ties to the mortgage will not give you the flexibility to have mom at home. Your baby will be better off with mom at home, and he won’t know the difference between a yard owned by the bank or by the landlord. He really won’t. He will know it is his mom holding him in her arms as she rocks him to sleep, vs. being laid down in a cot inside a noisy day care room. Once your son is born, you will see what I mean. You don’t feel it yet, but you will.
So I vote for a rental, to support a flexible family lifestyle, and to give your young family a good financial start.
