I live in the NW US. I've been considering buying a house for some time now. But the market value of a house has been on a downward trend for years. I thought that around October last year the market had turned (and dramatically) but that turned out to be a bump related to an expiring tax credit. Since then, the market in my area is on a downward trend (-6.8% YOY if I recall correctly).
Currently, I'm renting. So I'm trying to decide when is the right time to buy when the market is trending downward, but may start trending upward.
Here's my thought process that I'd like some feedback on.
- By renting, I'm losing money that I could be applying to the principal on a home.
- However, only a portion of the total house payment actually goes to principal. I think in the first year or two, this portion is quite small.
- House prices are currently dropping and don't appear to be hitting an inflection point.
Based on those points, it seems like there really is a sweet spot (?). Here's my thought process: since house prices are dropping, the total principal that you'd pay is also dropping, so at some point the amount of principal payment that you lose by renting will be greater than the amount of principal loss due to loss in market value of the property. The loss is increasing at the same time the value of the property is decreasing.
So the optimal time to buy is when prices are at or past an inflection point and the amount of money that I'm losing by renting is greater than the amount of value that the house is losing (per year for both).
This assumes that when prices start to increase they will continue to increase until they level off to a rate of increase that's roughly equal to inflation -- i.e. no treble-dip in house values.
I'm also factoring out a) psychological benefit of owning your own property (dubious) and b) costs associated with owning a home that aren't present in rent or are factored in already. I'm willing to just let those two cancel out for the sake of argument.
The big question: is this sensible? Am I missing something? Ideally I want to find a "Go" point for buying a property and avoid being upside down in said property a year later.