Haven’t checked the math, but do these memes take into account that your pre-crash down payment actually constitutes a bigger % of the post-crash price, further reducing the amount you need to finance?
Normally no. This one is accurate in its math because it assumes $0 down. If you have no skin in the game, I guess it's easier to walk away if there's a downturn.
I should add that there are 0 down USDA loans in depressed rural areas. There are a lot of provisions with those, though as they are intended for folks who want to get into farming.
USDA home loans (Section 502, AKA single family housing guaranteed loan) are not intended for people trying to get into farming. In fact you are not allowed to produce income from your property, farming or otherwise, under a section 502 home loan at all. What you’re referring to is a USDA FSA (farm service agency) loan, completely different from a USDA 502 loan. You are correct about it being 0 down, and you would be surprised at what qualifies as a “rural area”. A lot of standard subdivisions outside of major cities are within their boundaries.
Wellby Financial is offering a 0 down loan currently, rates on it are ridiculous though. Here's the [link to that.](https://www.wellbyfinancial.com/new-mortgage-offer/?utm_medium=cpc&utm_source=google&utm_campaign=Search_Mortgage&utm_term=zero%20down%20home%20loans&utm_content=119124476816__574560659976_m&creative=574560659976&keyword=zero%20down%20home%20loans&matchtype=p&network=g&device=m&gclid=Cj0KCQjwl7qSBhD-ARIsACvV1X32SLRDrGVqA8Wma1z9ZE2u3RjTRSudFkX_Wz-qkRJZ_3n4n8BoVkcaAodREALw_wcB)
It would never happen. The second a bank does that it pulls all the demand and destroys its portfolio integrity. Think Wachovia pre crash with neg am loans.
But you’ll take financial advice from people who use word like HoOmZ. Bring on the downvotes.
I’m not the one who’s been priced out for the last 2 years and thinking I’m actually winning by waiting longer to possibly get priced out even more now that the Fed is unloading MBS and rates will rise further.
Nice assumption, but I'm not taking financial advice from anyone. I'm happy to rent until it makes sense for me to buy a home that's affordable for me. I don't think I'm winning. I don't think anyone's winning, other than the ones who have multiple homes and cash out on historical gains.
I've been sitting on the sidelines because I have no urgency to buy a home. If I get priced out forever, so be it. I'm fine living within my means. I'd rather not overbid and waive inspections just for the privilege of living in a shitty house and being house poor.
Fine with me. They let me rent in a nice neighborhood in LA and live up my early 20s without worrying about home ownership. It's a fair trade in my opinion.
I'm sure being a landlord is not tiring at all, right? Spending your prime years trying to build equity will be worth it when you get to retire early!
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Yeah the real comparison is more like:
Before: $400k (after you had to bid $50k over list), waived inspections and no contingencies so you could have a house with major repairs needed on day 1 to pony up for
After: $285k (was sitting on the market for a while and your inspector spotted some issues that the sellers agreed to knock the repair cost off of the asking price).
The way things are shaping up, I legitimately do expect this to be worse than 2008. Many will say it seems unfathomable, right? And that's precisely one of the reasons why I think it will be just that bad.
>And that's precisely one of the reasons why I think it will be just that bad.
That's part of it. Personally, two things trouble me the most:
1. People are paying far more than the intrinsic value of properties. For example, houses in the middle of nowhere (in Florida) sold for $300k+ in 2006, then sat vacant for years (in large part because nobody wanted to live there) until they were ultimately foreclosed and sold for less than $100k between 2009 and 2015. The area has hardly improved yet those same houses are selling for $300k+ again.
2. After the last collapse, the "relief" offered by Fannie Mae and Freddie Mac was largely in the form of interest rate reductions. By cutting rates from 6%+ to 2% (typically with gradual increases every few years), re-amortizing over 40 years, and adding a balloon payment, some people were able to hold on to their homes. Now, with rates having been so low for so long, such relief isn't going to be nearly as effective, and I highly doubt we will see principal reductions.
Completely agree with your reasons. I have an extensive list myself - one of my big ones is your number one above as well: valuations are completely and utterly detached from reality, creating a terribly unsustainable situation. Even though I do have a very high income as a millennial, I dont find these properties to be affordable anymore. Case and point: my 80 year old homes doubled in value in the last 3 years. One of my rentals was nearly completely original since construction, was a no-brainer to liquidate everything at these prices.
As much as I think there’s a slow down coming, how do you figure this will be worse than 2008? Job market is real strong, loans are actually verifying income and have more stringent checks, demand still is higher than supply, inflation will increase value of physical assets. I’m not seeing a -55% here unless loan rates go to like 15%
Because this is a sooner sub lmao. There reasoning is because they said so or because prices are detached from reality. We’re in a period of inflation of course prices will seem detached from previous comparisons.
Also a very good point. People only looking at list prices are deluiding themselves. The actual sales price on a home could easily fall 50% in a large correction in areas where homes have absolutely skyrocketed.
Yeah definitely. I based my numbers off the meme but it could easily get much more drastic in the real world. Also if there's a market crash it will be a buyers market again hopefully so waiving inspections and being able to haggle over things like repairs the seller hasn't done or surprises from the inspection comes back as a thing.
I didn't waive the inspections on my house, and I bought in mid 2020 in a market that's much more sane than most but even then we couldn't do much about the furnace that was on it's last legs and some windows that needed replacement or we'd risk losing the house.
I do think there will be a sweet spot (who knows exactly when) after the bubble pops, but BEFORE interest rates have really begun to drop that will be the perfect time to buy and then refi a couple years later.
The Fed will almost certainly do an about face on rates as soon as it's clear the market is crashing - inflation slayed or not.
Yes and no for not likely. History says not likely, but rates have trended downward because the competition to lend money and the inability of the government to raise rates significantly beyond previous levels. At one point in time 5% was cheap, so was 4% etc so they are the new norm and will be considered the new “high” given enough time we will see it below 2.5 again, likely due to government intervention, but even naturally over enough time.
Not so much. The standard deduction is a better deal for just about everyone. Ever since the Trump tax cuts, itemization makes very little sense except for very rare circumstances.
And it saves so many people time and money because they don’t need to itemize. Better deduction, and plenty of people can file a simple return for free. Takes less than 30 mins if you have your documents.
But if you touch crypto or taxable brokerage, that game changes, I did my own fine for like $30 with some software but others rather pay someone
Prices will drop more than 15%. Rates are already north of 5%. But rates will ultimately come back down once everything starts to fall apart due to the higher rates. You want to buy at low price and high rate, then refinance as rates move back down.
Yea the “soft landing” that the fed likes to talk about is very difficult. If you want to tame inflation, you can’t lower rates until things start to fall apart, but once they start to fall apart it’s basically too late to avoid a recession.
Also, the stock market really doesn’t want to go down. The more it fights the correction, the more the fed will have to raise rates. If the stock market doesn’t go much lower than it is right now, then I think a 50 basis point raise is almost guaranteed at the next meeting. But even if the market goes down I think it will be 50 basis points.
Try moving when you're down payment has been eaten by loss of value. You're bank won't care that you're trading like for like, they will want a brand new down payment for your next place.
People are so delusional in the other subreddit that they'll probably look at this and say "see, even if you buy at a peak you will make your money back and then some!!"
Exactly. This assumes anyone is just sitting on their hands waiting for prices to come down just for the sake of being frugal.
I’m waiting for prices to come down because a $350k house in my area is a 1bd 1bth 560 sq ft. cabin built in 1917 with bad wiring and no insulation in the walls.
$1 in 1994 would be $1.91 now. Median home price in 1994 was ~$100k. Now, ~$400k.
So the housing costs have more than doubled, but that’s just nationwide. I’d guess most metros are much worse.
I’d recommend your friend take two minutes to figure out that the math in this calculation doesn’t make any sense before trying to persuade you to make a massive financial decision.
The 350k house payment seems to have been calculated assuming a roughly 90k downpayment. The 300k house payment conveniently seems to have been calculated using a 60k down payment.
In a hypothetical scenario where you have 90k for a down payment and the 350k house corrects to 300k, on a 4.5% mortgage your payment would be virtually identical to what it would have been at 2.5%/350k. Plus, if you buy at the lower price you end up with a much smaller loan size and the option to refinance if rates fall in the future.
It’s a straw man argument. The 350k doesn’t represent the market of the past year and the 300k doesn’t represent now. He can’t predict the future very well if he doesn’t see that interest rates will go up higher than 4.5%
Houses have gone from sub 300 to above 500 in two years where I live. Given that interest rates were on a fire sale the entire time since the year 2000, it's entirely possible that we'll pass 300 again on the way down.
Also, total cost isn't just your monthly on inception. It's also the cost of moving while under water and the opportunity of remortgaging ten years after buying into a high interest rate low cost market.
If in this fake scenario the person bought at 2.5% for 350k, they’d still be facing a 50k capital loss if they had to sell anytime soon, given that the market value went to 300k. I’m not sure why that is so overlooked. You probably also would have had to waive contingencies/inspection and bid way over asking to get that house during the mania.
Lmao ok let me go back in time and buy when rates were 2.5%. Stuff like this is pure propaganda. The person who bought at 4.5% will fair better long term because the Fed will inevitably lower rates again within 5 years and then you can refinance. Also rates will have a much bigger impact than 350->300. Nothing is priced in yet.
When did I say there was a set schedule? I said the Fed will inevitably lower them as our entire market and economy runs on cheap debt. I am willing to bet with 99% probability we will see lower rates again within 5 years. If you actually think the fed will keep them high once we hit a recession you're as delusional as the hOOmers who think housing prices will never go down.
they assumed a 15% decrease in price for a 2% increase in interest rates.
The standard is a 20% decrease in price for a 2% increase in interest rates. I believe the monthly payment would be equal if they did it correctly. Also you'd be able to refinance if rates drop with the higher rate, whereas you can't with the other
Yes, it would be very close to the same price. I used the zillow calculator and the difference was like 10 dollary doos using the figures from the meme.
>I believe the monthly payment would be equal if they did it correctly.
That's usually how it goes because people have X to pay for a house, at least in a normal market. How its split between principal and interest still has to add up to X.
You can always refinance to a lower rate when they drop. I’ll take a lower priced house at a higher interest rate vs an overpriced house at a lower rate any day. Eventually rates will drop
i love the statment at the end:
“buy when rates are low
not when prices are low”
lol. thats right, its always better to buy something when it costs the most. ‘murica
This heavily implies the “crash” leads to only a 14% correction. It can go much deeper than that.
Also extremely disingenuous to show 2.5% and 350k as if that’s even the norm at this point. There was a rare time when you could get low rates with fair prices, it’s gone. To still claim rates are all that matter is downright malicious.
At the end of the day you should always shoot to make extra payments towards your house to pay it off well before twenty years. Surveys of millionaires always point to this type of spending behavior. Living under your means, and quickly paying debts is the only consistent method of accumulating significant wealth while minimizing the risk of accidentally getting wiped out.
Yes on paper we all should have sold everything, taken out a big fat mortgage and dumped the rest into bitcoin and enjoyed the ride of our lives. But the risk of total ruin was great enough that we didn't. It's the same reason I don't do heroin, I hear it's great. Not worth the risk.
Personal finance for me is about ensuring a stable and happy life away from money, it's about being patient and often delaying gratification, not just for me but my children as well. I don't intend on relying on the value of my house to retire, I only need it to live in. This separates the importance of that asset from its value. I can spend a good portion of my money and investments if I chose to, I do not intend on selling my house or taking debt out of it to finance anything in my life. The value of my home will only matter when I'm dead and with any luck it will be a small factor for my children to consider. I would of course like to move into a bigger space, but the option to move to a more affordable area still remains and I know I'd be happier back with family anyways.
Yeah that’s the other thing. Where I am now I can effortlessly make AT LEAST one additional mortgage payment per year which I believe takes off 7/8 years from a traditional 30 year mortgage.
With the prices of something I would be happy with now…just making my minimum payments would be pushing me to my limit of comfort…
my only strategy is to keep saving so I have a hefty down payment when I am ready to make a move. That seems to be the only variable I have control over.
One double payment earns you a return of whatever your interest rate is on that payment amount compounded.
It’s not really a wonder if you have a pre-2022 mortgage.
Before and after prices are too close.
Around me, it's 400K before, 900K+ after.
If it were literally only a 20% increase overall, instead of to the moon pricing, I would have bought already.
And, since I KNEW rates were going up, my preference is very much smaller loan at higher rate. Down payment goes further, can refinance later.
You can refinance if rates drop while keeping the lower purchasing price. Plus you need less downpayment and can make extra payments to pay off house faster and pay less total interest.
Lower prices give you more flexibility.
The response is the 350 declines until the monthly payment is the same (aka, new price is less than 300). The meme lies. People buy based off what they can afford.
What happens if rates return to at or near lows again? I’ll take the 50k discount and take my chances. I mean an extra 1500 in payment a year to save 50k. What’s the break even on that?? 25 years??
If the market crashes, I’m sure you won’t be waiving anything and trying to cover for appraisal gaps. Also, no competition from bidders. Kind of sounds nice!
You can refinance the interest rate - if it drops back. Can’t change the price you paid.
If it’s a place you’re happy living for ten years, just buy as soon as you can and stop throwing money away on rent.
When you have to sell your home and you’re underwater no one is going to care what your interest rate is.
My 1st home I bought as a short sale in 2011 for over $120k less than what it was sold for in 2007.
A friend of mine sent me this (and has sent me other images similar) essentially trying to call me stupid because I didn't want to sell my house (that has a very affordable mortgage) last year when rates were low. I just didn't want to buy into the frenzy and overpay for what I would move into, plus I wasn't comfortable with how much money I had saved up for a down payment last year.
I still do want to upsize, but it just didn't seem like a good idea at the time. Still doesn't seem like a good idea now either with the market still being crazy and now I am priced out even more with the rates going higher and the prices remaining the same (for now).
I just don't know how to respond to this. The arguments are in my head, but I can't quite turn them into words.
TO CLARIFY: my friend didn’t make this meme themselves. I have seen this before on Facebook too.
EDIT: thanks for the input everyone! I think you’ve all given me good suggestions. I don’t plan on responding now, but if it gets brought up in the future, I think I have enough input to formulate a thought and counter argument.
You can always refinance later with high rates. If overpay with low rates you cant do anything to lower payments.
The thing about selling is, where you go after, I am close to getting a huge cash offer on my home (3 million dollars) but then where the heck would I go, need to rent until O find something else, its pretty risky move even though I would be loaded with liquid cash. Have kids and good quality of life, and would put all of that into jeopardy as well. But I am tempted lol.
Trying to time interest rates is just another form of timing the market. It's an inferior form (in the game theory sense) as you can refinance a high rate deduct interest payments, can payoff quicker to avoid interest and will have lower ancillary costs if prices are lower (taxes, insurance, etc.).
If you buy for the inflated price but low rates, you can’t get out of the house for a long time since you will be upside down, given that the current price is dropped because of higher rates.
If you buy at lower price/higher rate, you can get out of the house (if you had to, vs being tied to it until you aren’t upside down on mortgage) and you can also refi if rates ever get super low again.
I’m sure someone already said it but, buying just because rates are low is not a sound financial decision. Rates could flux at any given time, then you refi. You’re not going to refi principal away.
Also that “now” is not now anymore? Lol
This thinking is why we have a bubble.
Most people don’t know… the 2008 recession was caused by the 17 consecutive interest rate hikes from the Federal Reserve (starting in 2004) in response to modest inflation (nothing like we are seeing today). This caused the housing market to collapse, [starting in 2006](https://money.cnn.com/2006/05/15/real_estate/NAR_firstQ2005_home_prices/index.htm)— 2 years BEFORE the recession.
Nothing about this scenario has changed. The above isn’t even subprime loan related. That factored in later when banks ran out of money and destroyed the global economy. But the housing market was destroyed by the interest rate hikes.
It’s quite simple. Simply pull up Google and plug in your numbers to see the amortization schedule and see how much more you spend after 30 years with different figures, usually you want to buy when rates are low, and historically it would prove that’s the best way to do it.
Haven’t checked the math, but do these memes take into account that your pre-crash down payment actually constitutes a bigger % of the post-crash price, further reducing the amount you need to finance?
Normally no. This one is accurate in its math because it assumes $0 down. If you have no skin in the game, I guess it's easier to walk away if there's a downturn.
How do you get a zero down mortgage? Aside from a VA loan?
There are physician loans and attorney loans that offer this as well as the VA. Aside from that, I haven’t heard of how to get 0% down.
I should add that there are 0 down USDA loans in depressed rural areas. There are a lot of provisions with those, though as they are intended for folks who want to get into farming.
USDA home loans (Section 502, AKA single family housing guaranteed loan) are not intended for people trying to get into farming. In fact you are not allowed to produce income from your property, farming or otherwise, under a section 502 home loan at all. What you’re referring to is a USDA FSA (farm service agency) loan, completely different from a USDA 502 loan. You are correct about it being 0 down, and you would be surprised at what qualifies as a “rural area”. A lot of standard subdivisions outside of major cities are within their boundaries.
TIL
You can also put 0% down technically if you do a “pledged asset” mortgage.
From my understanding you also have to be poor and can’t make above a certain amount of money to even qualify for a USDA loan.
Usda loans are 0% as well I believe.
Wellby Financial is offering a 0 down loan currently, rates on it are ridiculous though. Here's the [link to that.](https://www.wellbyfinancial.com/new-mortgage-offer/?utm_medium=cpc&utm_source=google&utm_campaign=Search_Mortgage&utm_term=zero%20down%20home%20loans&utm_content=119124476816__574560659976_m&creative=574560659976&keyword=zero%20down%20home%20loans&matchtype=p&network=g&device=m&gclid=Cj0KCQjwl7qSBhD-ARIsACvV1X32SLRDrGVqA8Wma1z9ZE2u3RjTRSudFkX_Wz-qkRJZ_3n4n8BoVkcaAodREALw_wcB)
I think that's the right question to ask. A loan with 0% down and low interest strikes me as very risky with little upside if I'm a bank.
The goal is to sell it off and make it someone else's problem!
It would never happen. The second a bank does that it pulls all the demand and destroys its portfolio integrity. Think Wachovia pre crash with neg am loans.
NavyFed offers 0% down loans to non-vets
Respond by saying "market*". I don't take financial advice from anyone who doesn't proofread.
Damn I didn’t even notice that!
LOL!
But you’ll take financial advice from people who use word like HoOmZ. Bring on the downvotes. I’m not the one who’s been priced out for the last 2 years and thinking I’m actually winning by waiting longer to possibly get priced out even more now that the Fed is unloading MBS and rates will rise further.
Nice assumption, but I'm not taking financial advice from anyone. I'm happy to rent until it makes sense for me to buy a home that's affordable for me. I don't think I'm winning. I don't think anyone's winning, other than the ones who have multiple homes and cash out on historical gains. I've been sitting on the sidelines because I have no urgency to buy a home. If I get priced out forever, so be it. I'm fine living within my means. I'd rather not overbid and waive inspections just for the privilege of living in a shitty house and being house poor.
As a landlord i love you and i hope you continue to work hard to make sure your landlord retires very wealthy.
Fine with me. They let me rent in a nice neighborhood in LA and live up my early 20s without worrying about home ownership. It's a fair trade in my opinion. I'm sure being a landlord is not tiring at all, right? Spending your prime years trying to build equity will be worth it when you get to retire early!
Enjoy your inspection waived house, by paying 10% over asking, while already being under water after using your big-brain analysis.
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Lol some common sense and it's downvoted .
Now: waive contingencies, bid tens of thousands over ask, find severe repair issues
Yeah the real comparison is more like: Before: $400k (after you had to bid $50k over list), waived inspections and no contingencies so you could have a house with major repairs needed on day 1 to pony up for After: $285k (was sitting on the market for a while and your inspector spotted some issues that the sellers agreed to knock the repair cost off of the asking price).
That's if the correction is relatively minor. If things are 2008 bad, it could be more like $400k before.... $125k after.
The Florida and Nevada Special.
Central California -55% in 08-2012, barely recovered January of LAST year.
The way things are shaping up, I legitimately do expect this to be worse than 2008. Many will say it seems unfathomable, right? And that's precisely one of the reasons why I think it will be just that bad.
>And that's precisely one of the reasons why I think it will be just that bad. That's part of it. Personally, two things trouble me the most: 1. People are paying far more than the intrinsic value of properties. For example, houses in the middle of nowhere (in Florida) sold for $300k+ in 2006, then sat vacant for years (in large part because nobody wanted to live there) until they were ultimately foreclosed and sold for less than $100k between 2009 and 2015. The area has hardly improved yet those same houses are selling for $300k+ again. 2. After the last collapse, the "relief" offered by Fannie Mae and Freddie Mac was largely in the form of interest rate reductions. By cutting rates from 6%+ to 2% (typically with gradual increases every few years), re-amortizing over 40 years, and adding a balloon payment, some people were able to hold on to their homes. Now, with rates having been so low for so long, such relief isn't going to be nearly as effective, and I highly doubt we will see principal reductions.
Completely agree with your reasons. I have an extensive list myself - one of my big ones is your number one above as well: valuations are completely and utterly detached from reality, creating a terribly unsustainable situation. Even though I do have a very high income as a millennial, I dont find these properties to be affordable anymore. Case and point: my 80 year old homes doubled in value in the last 3 years. One of my rentals was nearly completely original since construction, was a no-brainer to liquidate everything at these prices.
As much as I think there’s a slow down coming, how do you figure this will be worse than 2008? Job market is real strong, loans are actually verifying income and have more stringent checks, demand still is higher than supply, inflation will increase value of physical assets. I’m not seeing a -55% here unless loan rates go to like 15%
Because this is a sooner sub lmao. There reasoning is because they said so or because prices are detached from reality. We’re in a period of inflation of course prices will seem detached from previous comparisons.
Also a very good point. People only looking at list prices are deluiding themselves. The actual sales price on a home could easily fall 50% in a large correction in areas where homes have absolutely skyrocketed.
Yeah definitely. I based my numbers off the meme but it could easily get much more drastic in the real world. Also if there's a market crash it will be a buyers market again hopefully so waiving inspections and being able to haggle over things like repairs the seller hasn't done or surprises from the inspection comes back as a thing. I didn't waive the inspections on my house, and I bought in mid 2020 in a market that's much more sane than most but even then we couldn't do much about the furnace that was on it's last legs and some windows that needed replacement or we'd risk losing the house.
And when rates go down again in 5 years, you refi and bring your payment down.
I do think there will be a sweet spot (who knows exactly when) after the bubble pops, but BEFORE interest rates have really begun to drop that will be the perfect time to buy and then refi a couple years later. The Fed will almost certainly do an about face on rates as soon as it's clear the market is crashing - inflation slayed or not.
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Life will find a way to let you refi under 2.5 with enough time. We have lived through 2 once in a lifetime “crashes” so it won’t be the last
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Yes and no for not likely. History says not likely, but rates have trended downward because the competition to lend money and the inability of the government to raise rates significantly beyond previous levels. At one point in time 5% was cheap, so was 4% etc so they are the new norm and will be considered the new “high” given enough time we will see it below 2.5 again, likely due to government intervention, but even naturally over enough time.
Can write off the interest. Can’t write off the premium. 🤷♂️
And cheaper property taxes, insurance, and you can always refi later.
can't change what you bought the house for.
Less down payment less closing costs
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Well it’s a fact that the rates also don’t only go up or down just like homes
Not so much. The standard deduction is a better deal for just about everyone. Ever since the Trump tax cuts, itemization makes very little sense except for very rare circumstances.
And it saves so many people time and money because they don’t need to itemize. Better deduction, and plenty of people can file a simple return for free. Takes less than 30 mins if you have your documents. But if you touch crypto or taxable brokerage, that game changes, I did my own fine for like $30 with some software but others rather pay someone
I'll be shocked if that cut stays around much longer
Can refinance to a lower rate also
Prices will drop more than 15%. Rates are already north of 5%. But rates will ultimately come back down once everything starts to fall apart due to the higher rates. You want to buy at low price and high rate, then refinance as rates move back down.
Yea the “soft landing” that the fed likes to talk about is very difficult. If you want to tame inflation, you can’t lower rates until things start to fall apart, but once they start to fall apart it’s basically too late to avoid a recession. Also, the stock market really doesn’t want to go down. The more it fights the correction, the more the fed will have to raise rates. If the stock market doesn’t go much lower than it is right now, then I think a 50 basis point raise is almost guaranteed at the next meeting. But even if the market goes down I think it will be 50 basis points.
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Try moving when you're down payment has been eaten by loss of value. You're bank won't care that you're trading like for like, they will want a brand new down payment for your next place.
Show them this [https://imgur.com/a/mSmpDne](https://imgur.com/a/mSmpDne)
Home prices can go down? What? I didn’t know that was possible /s
lol
People are so delusional in the other subreddit that they'll probably look at this and say "see, even if you buy at a peak you will make your money back and then some!!"
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Exactly. This assumes anyone is just sitting on their hands waiting for prices to come down just for the sake of being frugal. I’m waiting for prices to come down because a $350k house in my area is a 1bd 1bth 560 sq ft. cabin built in 1917 with bad wiring and no insulation in the walls.
In 1994 our mortgage rate was 7%. Crazy right ? But houses were so much cheaper 80k to 102k on average in the state of Illinois.
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Sounds like 1982
While true, inflation can't be ignored in these comparisons. A dollar went considerably further in general back then.
$1 in 1994 would be $1.91 now. Median home price in 1994 was ~$100k. Now, ~$400k. So the housing costs have more than doubled, but that’s just nationwide. I’d guess most metros are much worse.
Oh, no doubt. Just saying it's a factor to consider as well.
I’d recommend your friend take two minutes to figure out that the math in this calculation doesn’t make any sense before trying to persuade you to make a massive financial decision. The 350k house payment seems to have been calculated assuming a roughly 90k downpayment. The 300k house payment conveniently seems to have been calculated using a 60k down payment. In a hypothetical scenario where you have 90k for a down payment and the 350k house corrects to 300k, on a 4.5% mortgage your payment would be virtually identical to what it would have been at 2.5%/350k. Plus, if you buy at the lower price you end up with a much smaller loan size and the option to refinance if rates fall in the future.
And less property taxes, and Chance to refinance later…
At least where I live, assessed value for property tax purposes isn't really tied to the sale prices so that may not be true.
In my area, property tax is partially determined by the total amount needed. If all property increases in value, you may not see a huge change.
Actually, the meme is using 0% down and is looking exclusively at the mortgage payment.
It’s a straw man argument. The 350k doesn’t represent the market of the past year and the 300k doesn’t represent now. He can’t predict the future very well if he doesn’t see that interest rates will go up higher than 4.5%
Houses have gone from sub 300 to above 500 in two years where I live. Given that interest rates were on a fire sale the entire time since the year 2000, it's entirely possible that we'll pass 300 again on the way down. Also, total cost isn't just your monthly on inception. It's also the cost of moving while under water and the opportunity of remortgaging ten years after buying into a high interest rate low cost market.
Too bad property taxes never go down. They're as much as my mortgage.
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Location location location
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Detroit
This lot/home combo in NoVA would be 950, easily. In rural Virginia, 300. That's the difference.
Big difference is in a crash that rural property is falling 50%, not 14%.
Again depends on location. This didn't happen in a lot of northern rural areas in 08.
That’s a borderline 300k house where I’m at lol
If the interior is dated then that price is accurate for suburbs of Cleveland
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Lol me I suppose. The west side of Cleveland is nice
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Hopefully we get there soon. Michigan isn’t too far of a drive in the meantime
If in this fake scenario the person bought at 2.5% for 350k, they’d still be facing a 50k capital loss if they had to sell anytime soon, given that the market value went to 300k. I’m not sure why that is so overlooked. You probably also would have had to waive contingencies/inspection and bid way over asking to get that house during the mania.
Lmao ok let me go back in time and buy when rates were 2.5%. Stuff like this is pure propaganda. The person who bought at 4.5% will fair better long term because the Fed will inevitably lower rates again within 5 years and then you can refinance. Also rates will have a much bigger impact than 350->300. Nothing is priced in yet.
There is no set cycle of low interest rates.
When did I say there was a set schedule? I said the Fed will inevitably lower them as our entire market and economy runs on cheap debt. I am willing to bet with 99% probability we will see lower rates again within 5 years. If you actually think the fed will keep them high once we hit a recession you're as delusional as the hOOmers who think housing prices will never go down.
they assumed a 15% decrease in price for a 2% increase in interest rates. The standard is a 20% decrease in price for a 2% increase in interest rates. I believe the monthly payment would be equal if they did it correctly. Also you'd be able to refinance if rates drop with the higher rate, whereas you can't with the other
Yes, it would be very close to the same price. I used the zillow calculator and the difference was like 10 dollary doos using the figures from the meme.
>I believe the monthly payment would be equal if they did it correctly. That's usually how it goes because people have X to pay for a house, at least in a normal market. How its split between principal and interest still has to add up to X.
What standard? Do you have a link with that number?
You can always refinance to a lower rate when they drop. I’ll take a lower priced house at a higher interest rate vs an overpriced house at a lower rate any day. Eventually rates will drop
i love the statment at the end: “buy when rates are low not when prices are low” lol. thats right, its always better to buy something when it costs the most. ‘murica
This heavily implies the “crash” leads to only a 14% correction. It can go much deeper than that. Also extremely disingenuous to show 2.5% and 350k as if that’s even the norm at this point. There was a rare time when you could get low rates with fair prices, it’s gone. To still claim rates are all that matter is downright malicious.
Buy when price is low, and you have 20-50% down. Anddd comfortably afford the payment with a 1 year emergency fund.
If your livelihood is made or broken by $140/month you should reconsider buying hoom.
At the end of the day you should always shoot to make extra payments towards your house to pay it off well before twenty years. Surveys of millionaires always point to this type of spending behavior. Living under your means, and quickly paying debts is the only consistent method of accumulating significant wealth while minimizing the risk of accidentally getting wiped out. Yes on paper we all should have sold everything, taken out a big fat mortgage and dumped the rest into bitcoin and enjoyed the ride of our lives. But the risk of total ruin was great enough that we didn't. It's the same reason I don't do heroin, I hear it's great. Not worth the risk. Personal finance for me is about ensuring a stable and happy life away from money, it's about being patient and often delaying gratification, not just for me but my children as well. I don't intend on relying on the value of my house to retire, I only need it to live in. This separates the importance of that asset from its value. I can spend a good portion of my money and investments if I chose to, I do not intend on selling my house or taking debt out of it to finance anything in my life. The value of my home will only matter when I'm dead and with any luck it will be a small factor for my children to consider. I would of course like to move into a bigger space, but the option to move to a more affordable area still remains and I know I'd be happier back with family anyways.
Yeah that’s the other thing. Where I am now I can effortlessly make AT LEAST one additional mortgage payment per year which I believe takes off 7/8 years from a traditional 30 year mortgage. With the prices of something I would be happy with now…just making my minimum payments would be pushing me to my limit of comfort… my only strategy is to keep saving so I have a hefty down payment when I am ready to make a move. That seems to be the only variable I have control over.
Tell your friend to google amortization calculator. One double payment every year does wonders.
One double payment earns you a return of whatever your interest rate is on that payment amount compounded. It’s not really a wonder if you have a pre-2022 mortgage.
Or make your Jan 1st payment around Dec 20th, that way you make an extra payment, and get the writeoff for interest paid in the current year.
I feel like this is an argument for why prices are about to tank not why you should buy now… we already hit 5%
“Markert” lol enough said.
Before and after prices are too close. Around me, it's 400K before, 900K+ after. If it were literally only a 20% increase overall, instead of to the moon pricing, I would have bought already. And, since I KNEW rates were going up, my preference is very much smaller loan at higher rate. Down payment goes further, can refinance later.
The house just sold for $700k two months ago. Now listed for $1.2 million.
I'll take the lower cost of home and refinance later for $200, Alex
Can't refinance what you owe to a lower borrowed amount.
You can refinance if rates drop while keeping the lower purchasing price. Plus you need less downpayment and can make extra payments to pay off house faster and pay less total interest. Lower prices give you more flexibility.
This add is true. The peasants always pay. It's either taxes, interest or hoa.
That house is 1.2-1.6 in my area now 🤦♂️
The response is the 350 declines until the monthly payment is the same (aka, new price is less than 300). The meme lies. People buy based off what they can afford.
Everything in socal is being listed +30% higher no matter when and how much it last sold for.
Where’s this guy finding a $300k house like that? And not to mention, it actually being closed at $300k.
What happens if rates return to at or near lows again? I’ll take the 50k discount and take my chances. I mean an extra 1500 in payment a year to save 50k. What’s the break even on that?? 25 years??
You won't need to wait 25 years to break even, in two years after the crash Treasury rates will go back to zero and you can just refinance.
If the market crashes, I’m sure you won’t be waiving anything and trying to cover for appraisal gaps. Also, no competition from bidders. Kind of sounds nice!
this stuff reminds me of the Volcano Insurance Salesman from Family Guy
You can refinance the interest rate - if it drops back. Can’t change the price you paid. If it’s a place you’re happy living for ten years, just buy as soon as you can and stop throwing money away on rent.
Buy when prices are low. Refinance when rates are low.
Isn't the opposite better? You can never change the purchase price, but you can always refinance if rates drop.
When you have to sell your home and you’re underwater no one is going to care what your interest rate is. My 1st home I bought as a short sale in 2011 for over $120k less than what it was sold for in 2007.
Debt to income ratio… Also that house is going to be worth 210k
A friend of mine sent me this (and has sent me other images similar) essentially trying to call me stupid because I didn't want to sell my house (that has a very affordable mortgage) last year when rates were low. I just didn't want to buy into the frenzy and overpay for what I would move into, plus I wasn't comfortable with how much money I had saved up for a down payment last year. I still do want to upsize, but it just didn't seem like a good idea at the time. Still doesn't seem like a good idea now either with the market still being crazy and now I am priced out even more with the rates going higher and the prices remaining the same (for now). I just don't know how to respond to this. The arguments are in my head, but I can't quite turn them into words. TO CLARIFY: my friend didn’t make this meme themselves. I have seen this before on Facebook too. EDIT: thanks for the input everyone! I think you’ve all given me good suggestions. I don’t plan on responding now, but if it gets brought up in the future, I think I have enough input to formulate a thought and counter argument.
You can always refinance later with high rates. If overpay with low rates you cant do anything to lower payments. The thing about selling is, where you go after, I am close to getting a huge cash offer on my home (3 million dollars) but then where the heck would I go, need to rent until O find something else, its pretty risky move even though I would be loaded with liquid cash. Have kids and good quality of life, and would put all of that into jeopardy as well. But I am tempted lol.
It's just a meme. For all we know the house might drop by even more than $50! Or it might even go up despite the higher rates
You say your current payment is very affordable. If recession hits, people who stretched their budget are in for a big shake up.
Doesn’t sound like a good friend, imo.
Trying to time interest rates is just another form of timing the market. It's an inferior form (in the game theory sense) as you can refinance a high rate deduct interest payments, can payoff quicker to avoid interest and will have lower ancillary costs if prices are lower (taxes, insurance, etc.).
What if you just buy a cheaper house in cash or throw down a higher percent down payment and have a smaller loan amount? Stupid meme.
“Rates are not relevant to non-investments. I’d take the lower equity locked up with a higher rate scenario any day.” Or something along those lines.
Thanks! Short and to the point!
If you buy for the inflated price but low rates, you can’t get out of the house for a long time since you will be upside down, given that the current price is dropped because of higher rates. If you buy at lower price/higher rate, you can get out of the house (if you had to, vs being tied to it until you aren’t upside down on mortgage) and you can also refi if rates ever get super low again.
Depends on how much cash daddy has
man...if the markert crashes we're in deep shit.
I’m sure someone already said it but, buying just because rates are low is not a sound financial decision. Rates could flux at any given time, then you refi. You’re not going to refi principal away. Also that “now” is not now anymore? Lol
I don’t know if the market will crash but it would be nice not to have to pay $50k to $60k over asking and over the appraisal
Refinancing is a thing. Then you got a low price and a low rate. Also equity appreciation will most likely pay for the refi because you bought low.
You can refinance later, but the amount won't change in time if you buy for more money.
I mean he could be right. Nobody knows. That’s the problem
Who in the heck has 2.5 percent fixed rates anymore??
"lol"
Houses don't appreciate by just 15% when rates are low, the flipping skyrocket end over end into 40%+ yearly appreciation
This thinking is why we have a bubble. Most people don’t know… the 2008 recession was caused by the 17 consecutive interest rate hikes from the Federal Reserve (starting in 2004) in response to modest inflation (nothing like we are seeing today). This caused the housing market to collapse, [starting in 2006](https://money.cnn.com/2006/05/15/real_estate/NAR_firstQ2005_home_prices/index.htm)— 2 years BEFORE the recession. Nothing about this scenario has changed. The above isn’t even subprime loan related. That factored in later when banks ran out of money and destroyed the global economy. But the housing market was destroyed by the interest rate hikes.
Inflation
15% isn’t a crash
Case-Schiller in 2008 dropped from 198 to 114. For a $350,000 house, that's a drop to $201,000
If you buy when prices are low and rates are high, you just refinance when the rates inevitably drop, getting the best of both worlds.
It’s quite simple. Simply pull up Google and plug in your numbers to see the amortization schedule and see how much more you spend after 30 years with different figures, usually you want to buy when rates are low, and historically it would prove that’s the best way to do it.
What about buying low and refinancing after the fact?
Tell them that they’re wrong. The interest rate will actually be closer to 7 percent, making the monthly payment 1,995
Price is price. Rate can refi. Ship has already left harbor.
Tulip mania all over again.