Pay off car or buy house?

[Mr. Now]

The following are facts are are not intended as advice per se.

When you borrow to purchase a wasting asset, you increase the total purchase price and thus spend MORE not less.
The 9% car loan interest is NOT deductible on income tax.
Paying off the 9% loan has the effect of creating a 9% yield on your money. This is because you are stopping the cos-of-money "leak" in your finances created by the the 9% non-deductible car loan.

Getting rid of the car loan also increases the amount that can be borrowed from the bank to purchase a home. (Banks generally lend 2.5X income less any debt).

The mortgage loan comes at lower interest cost, and is fully deductible.

[Groty]

Spot on...excellent advise. In many geographic regions, homes are staying on the market longer and asking prices are starting to come down. Also, just look at the chart of TOL, the biggest luxury homebuilder in the nation. Orders are slowing and inventories are rising. Ugly.

I definately agree sometime after September would be a good time to buy. We may disagree on the precise timing.

I personally feel that after 14 interest rate increases by the FED (and probably two more to come), oil persistently over $60, all those ARMs having to refinance at higher rates, recently legislated higher minimum payments on credit credit balances, and with consumers no longer able to use the equity in their home as an ATM, that the economy is going into recession next year...which will present an even better buying opportunity for housing...and financial assets.

[Mr. Now]

Housing is fairly illiquid. The so-called bubble may be the most pre-publicized in history. Everyone knows about it unless they dont have a TV-- and everyone does. Just about everyone that has owned a house for over 10 years is consdiering selling into this "price-peak" "bubble" "opportunity".

That kind of tone makes buyers wary about paying too much into a decline. That tends to make sales stall if sellers are casual, and price according to sales last week, last month, last year. Buyers after the summer will have very easy pickings as dejected sellers face reality (with their realtors) about missing the selling opportunity in 2005. Add to this the sub-prime lending market situation (weak hands) and you have a real possibility of some "piling-on" price reduction bargains in the 3Q/4Q 2006 timeframe. These will come from the desparate ones.

For buyers with a shopping plan, 4Q 2006 looks to be a potentially awesome time to execute.

Total return from an investment is largely dependent on what you pay. Play tight aggessive.

[JohnnyHumongous]

The thing that I don't get is, aren't people considering the house they are moving to when looking at this bubble? You're only profiting from the so-called bubble if you buy a significantly cheaper house than the one you're selling, i.e. reducing your exposure to an upcoming downswing. If your 100k home in 1993 is now worth 300k and you sell, you're not any better off if you just go and buy another 300k home... it presumably was also priced at 100k in 1993. It seems that you're no better off from where you were in 1993 unless you buy a cheaper house, rent for a few years until the market drops out, or you go to an area that has had less appreciation, where a house that cost 100k in 1993 is now only worth 200k.

Does this make sense?

[Mr. Now]

Selling your house to rent through the bubble "just because of the bubble" is a terrible idea.

The transaction costs for both legs of the transaction are prohibitive, as is the cost of inconvenience assuming you execute perfectly and have no glitches occur.

The inconvenience cost is massive is you misjudge anything and experience a less-then-perfect transition from A to B.

If you want to hedge bubble risk, purchase long-term put options on home builders or the Real Estate ETF, or short them.

Real Estate ETFs
http://finance.yahoo.com/etf/browser/op?c=etf_sr

Toll Brothers Hime Builders- Chart (ouch! that's a nasty head-and-shoulders)
http://tinyurl.com/cg7so

[snowbank]

Well, no, that's not the only reason. I want to put that amount down to have a low mortgage payment as well as a good interest rate along with improving my chances of even getting a mortgage.

I agree, that's a great idea to get a low interest rate, but not if it's costing you more for not paying off a higher interest rate on something else. You don't have to worry about your "chances of getting a mortgage." You can get a mortgage with your credit score no problem. Yes, some lenders want X amount of employment with X amount of so and so, but if you just have to find the one that's for you. You can get one, no problem, so that shouldn't factor into you decision, as with a little digging you can get a good loan with your score regardless of what you put down. Obviously the rate goes down the more money you put down, but I think opportunity costs of putting $25K down in your situation is a bad idea.

I'll probably speak with a professional before I make any final decisions.

I used to be a loan officer for a mortgage company. My advice to you is to be careful, because probably 90% of the people I encountered while in the business will not look out for your best interests. Whatever someone tells you, I would quadruple check it with a bunch of other people before you decide to do anything. I'll bet a good % of the time if you check what guy #1 says with guy #2, they will call his bluff.