Are we crazy to buy in at the peak of the housing market?

I was a basically happy renter for many years and came into just enough money to buy a small house a few years ago when the market was low. At first the extra expenses and the extra work made me think it wasn't worth it, but now after six years I really appreciate the stability and knowledge that I never have to move or deal with a landlord again. It is just an overall better feeling of security that makes it worth it.

No current experience, but a historical observation.  I bought my first house in 1985 as a single man.  I was sure I was stupid buying a house at the height of the market at the time.  175K for a small 3-BR/1-BA in 1000 Oaks?  Ridiculous.  I wish I could have been as "dumb" in all my investments.  If you can afford it now, do it.  I don't think anyone knows what Trump and the GOP control of Congress is going to do, but I have to believe that they are not stupid enough to make home ownership unattainable. 

We bought about 1 year ago with the same concerns, the market has slowed a little but is still going up. Unless you are lucky and buy while prices are low in a place that becomes wildly popular, lots of houses don't really appreciate in selling price beyond inflation over time (http://www.forbes.com/sites/jamiehopkins/2014/09/25/why-housing-is-a-ba…). However, the sense of home, and the reduction in monthly costs once you own the home if you stay a long time, could be valuable. If you are staying around here for a long haul, to me it makes sense to lock in a mortgage you can handle and plan for mildly yearly increases in property tax and insurance, assuming you've got the down payment needed to secure a home here. I suppose that Trump's policies that will likely make the mortgage interest rate tax deduction moot are also food for thought, and that could cost home prices to take a small dive. Best of luck! I'll be interested to see what others with more experience think about it.

We bought in July 2016, so it's still hard to tell if it was worth it, but the pricing should be somewhat similar to what's out there now. We also didn't have a great deal on rent and we have a baby so we wanted a yard. These were our main motivations for buying. It seems like everyone I talked to said that the bay area housing market will boom and bust, but if you are in it for the long haul you'll break even or come out ahead. We bought a fixer-upper, which has been painful, but we think will be worth it in the end and it definitely helped with the price. It is also a duplex, so we're hoping that when the lower unit is fixed up that we can attract a nice tenant and that rent will help pay our mortgage. I would say that I'm glad that we bought a house, despite the pain of fixing it up and the possibility that the market will downturn. Hopefully i'll still be saying that in 20 to 30 years! I don't think we've given up anything and we've gained the hope that after the tenant, the mortgage will be less than our rent was, plus a nice house with what will be a nice yard after we fix it up. Good luck! If you buy a fixer-upper, I'd be happy to give you tips!

We are in a similar situation! I would buy if you know you'll stay in the house for 10+ years. Buying at top of market isn't ideal but if you're in for the long haul it's a good (maybe not great or best) investment. I'm not an expert but that's my opinion, interested in others chiming in too!

Hi! It has been the peak of the market for like 5 years now...ha ha. We bought 3 years ago, & i was really nervous & dragging my feet. I felt if we waited we would get a better deal: I was wrong. So glad we moved then and didn't wait. We bid alot of $ in an area of Berkeley that did not have comparative home sales so we had to take a loan for a bit less than we offered. But we are here for the long haul, also with school age kids. If you were thinking of selling in the next 5 years, hmmm, maybe you could lose value, maybe not. But if u are here for 10+ years, I would do it in a heartbeat. For one thing, your rent money is just flying out the window each month. But with a home, you will get credit for the interest, and each payment builds your equity. Also, as rents get higher, we are getting closer & closer to being equal or less than renting. But don't forget the hefty taxes you will need to pay- we pay $13,000 a year for taxes on top of our mortgage. And also calculate in upkeep costs: if you don't keep fixing stuff, your value will really suffer. For instance, our "good roof" sprung 4 leaks in the storms: $18,000 to replace. As a renter, you don't have to worry about that. Good luck to you- go meet with the best, most honest and experienced realtor you can find & they will help you decide what to do by looking at your whole situation.

Hi. We bought our home in west Contra Costa County 3 1/2 years ago and have been very happy living here, but it has been more expensive than we anticipated and the expenses have been pretty much constant. What we did not realize until we started looking at houses is that because of the white-hot market, even 'turn-key ready' places are likely to need a lot of work done within the first few years.

Because my husband works in tech and we had very few living expenses before buying, we were able to put down a large down payment (20%) so our mortgage is not much more than the rent we were paying in our pre-boom Oakland apartment (roughly $1600/month, plus 6K/year property tax). But we have probably sunk the better part of $50K in cash into our house since moving in. Our home inspector was frank with us: within the first couple years, he advised us to plan for a new roof, new windows, new HVAC ducting, seismic bolting work, and significant renovations on both bathrooms. Our house also has aluminum wiring (not uncommon in the early 70s), which we would like to have replaced with copper but are waiting on as that will be hugely disruptive in addition to being pricey. I remember the sticker shock when we sat down with the home inspector and he ticked off all the "flaws"; when I asked whether we ought to look elsewhere, our realtor gave us that Look and said "There are 14 other offers for this house. If you don't want it, someone else will take it in a second." 

Honestly, my advice would be to talk to a realtor (I can heartily recommend Declan Spring at Red Oak Realty!) and lay out your situation. Depending on how much seed money you have, it might be worth setting some aside to start a home improvement fund, even if it means a smaller down payment.

good luck!

I can tell you our story, take from it what you will. We bought a house in the DC area at the height of the market in 2005, thanks to a small inheritance that gave us a down payment. It cost $300,000 at the time. I had my doubts, but we figured - let's just "get on the map", things can bounce back quickly if they tank, real estate is usually a good investment. Then in 2006 things started to tank. By 2008 we had multiple foreclosures on our block. We discussed whether to abandon ship (i.e., go into default on the mortgage), and decided against it so as not to ruin our credit. We decided to settle in, and used a HELOC that we had opened in 2005 for some minor remodels and repairs. Meanwhile, our house and the houses nearby that were similar were valued at about $150k, and the foreclosed homes mostly went up on short sales. So a lot of new people moved in having paid half what we did. We remained underwater on our mortgage, kept paying on time and kept our heads down. Several of the short sales were investors who then rented the homes, in most cases the renters were not good neighbors. We persisted.  We refinanced our mortgage in 2009 for a lower APR. We had an opportunity to move out here in 2014, and we took it, knowing that the real estate market in CA in general is nuts (we're in San Diego - hubby's job is based out of SFO), and that if we could buy something here, we'd be on the upswing.  But we were still underwater on the house back East. We decided to become landlords and rented out our old house, and used everything we had to put a down payment on a house in SD.  Our renters started out fine, but after about a year neighbors let us know that things were not going well. Turned out our renters were drug addicts/dealers/jailbirds. I had to go personally to kick them out (laws back East are way more landlord-friendly). We decided it would be best to rid ourselves of that burden, and we saw that housing prices were rebounding slightly in that area. In 2016 we sold it for $240,000. All in we probably had about $370k invested in that house. At the sale, we just about broke even, having just enough to pay closing costs (because buyers don't pay that anymore, although we did), pay off the remaining mortgage, and walk away. We were grateful that it appraised at the sale amount. Here in CA, we're doing much better, and our home has increased in value by more than $200k just since 2014. I don't think things would tank in the Bay Area if there's not a major disaster. But I'm not psychic. I can say that our stock market investments don't do so well either, so I think bottom line, real estate is always the better option. I do believe had we decided to stay in the DC area a few more years, we might have been able to sell our old house at a small profit, I check Zillow now and again and see that prices in the area are rising, albeit slowly, again. So that's my story. Hope it helps. Good luck.

Sure, why not use your inheritance to stabliize your living situation for the next 10 or so years? If you continue to save for retirement out of your salaries, and can afford a mortgage at the price point of houses you're looking at using your inheritance for the down payment (or however you're arranging it), it seems like a perfectly reasonable use of your money. Nobody can predict the future or if prices will continue to rise or crash, but if you have a mortgage you know what you're paying and aren't at a landlord's whim. One main downside of owning is the CONSTANT home maintenance, which my husband - who is even handy and enjoyed fixing up our rental - has been hating the past 7 years as a homeowner. A project every weekend, and our house wasn't billed as a fixer, it's just a crummy low-quality 1950 house that's not aging well. But it has 4 bedrooms, one-story, and that by itself probably makes it our forever house (ugh), so give that some thought when you are looking. You're not going to want to get in the market again here!

I look forward to the responses. We are also trying to buy in this crazy market. We come close each time... but buyers are paying IN CASH. Like $1.135 mil. Not many of us can compete with that. It is hard not to get discouraged or take it personally. We have bid on 5 houses in the past 6 months just to give you an idea. Best of luck!

A co-worker and wife waited for the Bay Area real estate market to slow down (about 20 years ago). 

They were looking for a deal in a less crazy market. 

When they finally purchased their home, it was a smaller fixer-upper home. 

Our friend's opinion was:  they should've purchased earlier and passed on homes in their area that would've worked but they were too picky. 

When we decided we were ready to buy, it was what we *thought* was a high market, but it continued to go up. My boss at the time gave me what I think was a relatively good piece of advice-that the interest rate of the loan is ultimately more important than the cost of the home as long as you plan to keep it for at least 10 years. At about the same time, I got a book called "Retire on the house," which was encouraging and we decided to buy a house in the Bushrod neighborhood. At the time, it was just outside the really booming neighborhoods, but now it is the hottest real estate market.

We bought the last house on our block that we could have afforded in 2003 as the prices went up. They did go down for a while a few years later. I think the biggest question is are you sure you can sustain payments and repairs? We are in a similar situation in that we don't have huge incomes and pretty much everything we own is in our house. We save money to do work on it and really don't do much as far as vacationing or spending money, in general. That isn't really a sacrifice for us because we have a small child and old dogs, although I think we would like to travel more eventually.

The first couple of years felt financially stressful and we felt overwhelmed by all the work that our house needed. But honestly, we are still doing some of that work as we save for it that we knew it needed 13 years ago. We have also had a period with some terrible crime and awful tenants in the house next door. We just developed a sort of zen philosophy that we could wait out anything and it has worked. Our block has been stable and wonderful for a while. We are close with many of our neighbors and our kids play in the streets together. Although I think we did get lucky, we do see the same thing on some other nearby blocks, so I know it is not just us. 

That being said, I think one of the worst things about it is that most of my friends could afford to move to my block now. It isn't like the block is composed completely with rich people, but the people that aren't rich (or at least have two substantial incomes) bought long before we did, have inherited their homes or are tenants. 

I've heard that right now it is easier (relative to how it has been historically) to buy in hills neighborhoods, but harder to buy in the flats and "convenience" and walkable neighborhoods. Some friends that thought they were priced out ended up buying in the hills or in East Oakland, so it may depend on what type of house or neighborhood that you are looking for or willing to consider. 

I am so not a real estate expert, but you did ask if anyone had bought at a spike in the market and I think we did, in the fall of 2006.  The market calmed down a bit after that and we knew we bought "high," but then, as you well know, it went crazy again.  We've since had another kid and the house is much too small, but even with our equity we can't really afford to upgrade.  Luckily our tiny house is on an upscale street in a desirable neighborhood, so things could be worse.  I certainly can't advise you, but if you buy a house you like, in a neighborhood you like, even if the market crashes, you still have that nice little house (even if your payments are large).  So that's my story...no regrets for buying at a "spike."

Take a look at this simplified market chart for the past 30 years.  http://www.paragon-re.com/3_Recessions_2_Bubbles_and_a_Baby

What I read from this are three things.  First, prices in the past 30 years have gone up for 7 years twice before, gaining 100% during each run.  So this market might be able to go up for a few more years and it wouldn't be an anomaly.  Second, dips during the past 30 years lasted up to four years.  Third, during the worst financial crisis since the depression, the market basically recovered in a couple of years from the bottom.

Now two caveats.  One, past performance does not guaranty future performance.  Two, these charts are for the bay area, each town, neighborhood, home, can and will be unique.

I think as long as the tech industry keeps hiring lots of highly paid people AND interest rates don't go up too far prices will continue to rise.