Is this a bad deal?

[marlon]

Yesterday my cousin bought a $515,000 new, 3 floor home, 2,600 sq. ft. home in Redmond downtown. He was excited because he got a 5% interest rate and his motivation is because he is concerned that interest rates can go higher.

He gave $120K (all his savings and money he got from other property) as a downpayment.

Do you think this is a risky deal in case house prices go down further?

[jon]

Buying a house presents one kind of risk, and not buying a house presents a different kind of risk. It is very risky if your cousin is thinking about selling in the near future, but if he is sure he wants to settle in, then the sale price is not really a risk.

The real risk he faces in that case is if his job is shifted to Vancouver or India. But if you don't buy then interest rates and rent can both go up.

People are worried about a new wave of foreclosures next year from alt-A mortgages, but according the graphic on the Fed website that someone linked to today, the alt-A and option-ARM impact is mostly in California (60%?).


Some will no doubt respond to say that your cousin should rent and spend lots of time finding the lowest possible prices buying visiting thriftshops and craigslist, but perhaps your cousin just wants to settle into a home and get better value by focusing on work and time with his family.

[perfectfire]

[jon]

[perfectfire]

[Mama]

[jon]

[Markor]

New construction isn't my cup of tea, but to each his own. Likely there will be a paper loss for a few years hence. I understand the motivation to get settled in though, esp. when kids are involved; the lock on a house/location is worth something. I agree that the interest rate thinking in the OP is not sound. New construction inventory is a drop in the bucket that is the total housing picture.

[rose-colored-coolaid]

jon, are you familiar with ? That's the primary risk run by buying today. Yes, you may find a home you can afford, but it definitely comes at the price of missing out on the cheaper better house which will be available next year or even next quarter.

[davidlosh@davidlosh.com]

Bad deal.

A half a million dollar purchase, in Redmond, and putting over $100K down payment on a new construction 5% loan is just wrong on all counts.

I personally, and it's just my opinion, think Redmond is over built with very little to support the values being charged there.

The area is surrounded by new construction of every type. What will be the future draw to that area? What will be the reasoning for all of those cheap housing units?

In my opinion a builder should be paying people to take the house if they agree to make some payments. I think builders should offer to make the first six months of payments to anyone agreeing to make at least six more months of payments. Hey, maybe a year from now the market will turn around and the buyer may want to keep the house.

Hey maybe in two years the market will turn around and the lender can sell the place at a foreclosure auction, then again, maybe not.

[ira s]

Marlon,
Yes, it's a risky deal. Not necessarily a bad thing to do, if he plans on staying for years, and his mortgage payments are not appreciably higher than his rent.
Bad deal, I don't know. Yes, there is new construction in Redmond that costs more, but we don't know how nicely appointed the house is, and if anything sets it apart from all the other new construction in Redmond that David just mentioned.
Bad deal? Maybe, maybe not. Risky deal? You betcha.

[mukoh]

[davidlosh@davidlosh.com]

Again, I reread your comment a couple of times and it makes no sense.

Where's the mortgage money in your comment?

You see kid you make no sense, never have. I cut you a lot of slack because this is a blog. You never know who you are talking to.

I get it that your are a big time builder developer who has made millions of dollars. I believe you. It just shows why the threshold of the Real Estate business is so low.

Any one can make money in Real Estate, any one. You are just another example.

[mukoh]

Thank you Dave. Love that. And definately anyone can make money in Real Estate and developing, you are correct.