Rationalizing The House That Got Away

My wife and I just went through one of those roller coaster weeks in our house hunting search. We had a house on our radar screen that was out of our price range, but got drastically reduced. It was just what we had dreamed about living in although even at its drastically reduced price I hesitated about the price tag. We still don't "need" a home for another 6 months (till we get back from our assignment).

After an in-depth discussion about how it was everything we ever wanted and how we could stretch to pay for it we agreed to make an offer. Mentally we were ready to reach an agreement at the asking price - after all it was dramatically reduced. By the time we called our realtor to make the offer, the sellers accepted another offer. What a downer! It was a rare opportunity for us to grab a beautiful property on the top edge of our price range and it had everything we were looking for - by far the best value we have seen.

Looking past the frustration of missing out on something we had already mentally made the leap to living in - I recall:

As a rule a thumb I have to believe its better to minimize our living expenses (ie read smaller house) rather than maximize them (read big house that just got away).

Where there is one opportunity found lies more opportunities yet uncovered.

I like to believe that we will end up in a house less expensive than this one that slipped through our fingers. While this house may have been a great value and decent investment, I believe that we will be ultimately better off if the delta we save will be invested in something that that works for us like an equity investment or a rental property.

My wife now thinks we have to hurry and find another house. Her concern over rising interest rates is a valid one. However I am less concerned over interest rates and more concerned over the price we pay. We can always refinance if rates drop, and paying a higher interest rate means that the option to prepay our mortgage may have a higher return when compared to other risk free investment options. I am just hope housing prices will drop -- at least in our area, Raleigh, NC, there is little sign of a dramatic slowdown. My fear is we end up with a lesser house at a higher price tag than the one that just got away.

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Comments (5)

I agree w/you on the smaller house idea. When I first read your other post about wanting a 2200-3000 s.f. house, I was baffled. Why would a couple need that much space?! The average house sold in my state (MA) is only 1600 s.f., and that's generally big enough for a family of 4. In the end, if you buy a big house, you will regret having to pay for all the maintenance as it gets older and also as utility costs continue to rise, you will be paying more to heat/cool space that you're not even using. We too were looking at 2400 s.f. homes at first, but reality struck and we ended up in a 1600 s.f. ranch that we'll be happy in for years to come.

Posted by Mike | July 14, 2008 3:19 PM

I wouldn't worry about the lost home opportunity. As interest rates rise, this can only exacerbate the current downtrend in house prices as affordability worsens.

Interest rates come and go, but once you've settled for a certain loan amount, you're stuck with that loan for the rest of its duration. So definitely better to get a good value home on high interest (which can be refianced later) than a bubbly priced one with low interest.

Posted by Muzie | July 14, 2008 10:10 PM

2million,

I've learned of a very real job opportunity in Cary. They want to fly me out for an interview shortly. Are you aware of any "hidden costs" to living in the Raleigh NC area (compared with, say, Des Moines IA?). I am aware that property taxes are about 1/2 what they are here in Iowa.

My other "opportunity", same company, is in Colorado Springs. I've read on CNN Money that all these locations (Raleigh, Colo Springs, Cary) have been in the top 5 places to live in the US within the past 3 years. So I guess they are all good choices ...

I appreciate your blog, and any "insider" info you have on Raleigh.

Posted by Jonathan Crandall | July 15, 2008 9:30 AM

I was also told in the past that when purchasing a house, you should always negotiate the price to whatever you feel comfortable with and not worry about interest rates since you can always refinance interest rates but you can never change the price that you paid for the house! That is why it is so disingenuous for realtors to go to their clients and try to persuade them to hurry up and buy because interest rates are rising. They are just using scare tactics to complete the sale.

Posted by Frank | July 15, 2008 9:30 PM

The thinking known as "oh but look at the price it used to be" is better known in behavioral finance as Framing (...I think...).

Meaning, the price is in the context of a higher price, and thus looks like such a good price, but if the price was on it's own, you never would have looked at it twice.

Retailers are infamous for this (posting one price, and then below it a "sale" price).

That probably doesn't make you feel any better, but hey now you have a name for it (and almost everyone * Frames* at some point).

Posted by finance girl | July 16, 2008 11:43 PM