New Grads & The Housing Market

[The Knife & Gun Club]

As a loyal follower of the White Coat Investor, etc be always heard you should target having a house that’s 1-2x your gross income as a physician. Live like a resident once you graduate, pay down the debt, etc.

So I’d like to as the wiser heads on this forum - when is the right time to buy a house?

It used to seem like a reasonable path: graduate residency —> pick job —> if job doesn’t suck in a year put down roots with a reasonably priced home.

But now housing prices are insane. In my hometown a small 2-3 bedroom house 30 minutes out in the ‘burbs used to cost $300,000, now it is well over $600,000 and tough to find even at that price. I’ve looked at most major southeastern metros and it seems similar.

In that case what do you do? Sack up and have more money go towards house rather than paying down debt? Or keep renting and not build value in a home for an extra 3-7 years until loans are paid?

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[thegenius]

Yup. With the exception of 2008-2012ish or so, housing values generally go up. Historically going back 100 years there are better ways to make money, but housing is not bad.

Look I think WCI is a little conservative on some things. The message is generally fine but he’s a little full of himself with the way he posts continually (at least in the past) about how much he’s worth.

I think there is some debt that is OK to have. If you make 400K/year and you end up buying an 800-1M house in a desirable location and you get a good 30 yr rate, and all other things considered, I would do it. You have to make a budget, you have to be careful, but housing debt is not necessarily bad debt.

The high level WCI stuff is spot on. Live frugally until you pay off your loans, be smart about general financial things. But I wouldn’t go buy a 4K beat down car like he did. There was nothing wrong with me buying a used 2012 Mazda 3 with 25K miles on it for like 12K when I became an attending.

If you have a stable job in an area you like I would buy a house. Rates are going up but still historically quite low.

 

[WilcoWorld]

Living within your means is probably the most important piece of financial advice, but having a diversity of investments is not far behind. While you shouldn't view your home as an investment, it is a financial asset. The difference between this asset and others is: you can live in your home.

So basically I agree with @thegenius - I mean, what's your money worth if you don't have somewhere nice to live?

That said - you DEFINITELY want to make sure you like your job before buying the house.

 

[GassYous]

I think that if you don't know that you're definitely going to stay in a place then don't get a house. I wish I bought years ago but that's after I know that housing prices would skyrocket. It could have gone the other way and I know that some people have lost six figures.

 

[PianoMedic]

The main thing to realize with a house purchase is that the buying costs are FAR lower than the selling costs. It’s usually on the order of 10% for the sellers fee to the real estate agent. If you can sell it yourself a lot of the rest of this won’t apply, but you have to be super careful and pay for an attorney to write up a purchase agreement that you feel you can trust. Doing it yourself selling a house is dicey and you can get screwed if you don’t do it right. So to make sure you have enough paid down on the mortgage (thinking a 30 year here) for it to actually be worthwhile to purchase, the minimum hold time is usually around 5 years. 7-10 is probably more realistic. That may not apply universally and not in every situation obviously, this isn’t financial advice, etc etc. A lot depends on the local housing and rental market as well. It isn’t as easy as looking at the mortgage vs rent costs, as the total cost of owning a home including things like the roof, furnace, water heater, etc have to be accounted for. Landlords do this with the “capital expenditures” portion of what they factor in when analyzing a deal. It isn’t the same when you’re going to live in it yourself, but it’s a useful framework to at least add 1-2% of the home value annually and convert to a monthly expense item that you add to your mortgage and escrow cost when comparing the rent vs buy decision. In my area, it was far more expensive to rent the type of house we were looking for. We rented year 1 of residency, then when I was almost certain id be signing in the area post residency, we bought between first and second year. Much larger place (still small really) that we could afford on a resident salary. We are holding for four to five years, had to do a refinance in there which paid for itself within 9 months. With the refi resetting the loan a bit, we may come out slightly ahead after transaction costs when we move to a bit larger place in a year or two. WCI wouldn’t have recommended we buy in residency, but it ended up being a decent decision for us. That said, the roof and or water heater may need replaced in which case we will lose money having bought, despite right around the recommended holding period. Unless someone gives us a lot over what I think it’s worth in our low COL area. Hope something in there was helpful.

 

[Mount Asclepius]

Don’t buy a home during residency.

Rent during your first attending job, work hard, live frugally, and aggressively save and/or pay off your loans. After 1-3 years, satisfaction with job, possible partnership, board certification, loans potentially paid off, and quickly increased net worth, then it’s worth buying.

Consider a shorter 10-15 year mortgage for a lower interest rate.

You can afford a home that’s 2-3x income. You can have anything you want, just not everything you want on an EP salary.

Don’t decide to buy or not buy a home by weighing whether or not the water heater needs replaced.