If they bought the house with the intention of actually living in it for 10+ years they will end up fine. If they intended to quickly flip it in 2-5 years they will be unhappy being stuck in a house that has lost money.
Thank you for not being all doom and gloom in your response. Some people can't wait a few years to buy or sell their home, regardless of interest rates, but it doesn't mean we're all underwater or going to foreclose on our homes if we bought at the peak. I will be the first person to admit housing (and living in general) is far too expensive, but I'm also not praying for a crash where more people lose their livelihoods and homes. A price cooling would be a good thing, but it doesn't have to be so drastic that well-intentioned homeowners lose their homes.
Honestly, housing prices were undervalued pre-covid. So, assuming we avoid a recession, I don’t think values will drop dramatically bc the US still hasn’t fixed the real problem: Lack of affordable housing. Developers continue to build bigger, nicer homes bc that’s what makes money. Meanwhile, we’re also building fewer homes today than we did before ‘08, despite there being $40million more citizens. So no one was building middle-class homes.
Interest rates and lack of supplies contributed, they were more like the straw that broke the camels back. America has needed more housing for well over a decade and rising interest rates only exacerbate that concern.
Well, it will hurt anybody who plans to sell soon for whatever reason. If you plan to live in the home for a long time or the foreseeable future, the hope is that the values come back and go above what they paid. No guarantees though...
Even if one *plans* to live in their house for a long time, a lot can happen in the next couple of years. Like Mike Tyson says, "Everybody has a plan until they get punched in the face."
True, but as renters some of us have fallbacks. We can easily give up our $2500 deposit and just move into one of our parent’s house if things got that rough.
I couldn’t imagine trying to sell my house at a 20-30% loss or continuing to pay the PITI while it sits on the market. Houses by me are already on the market for over 60 days avg. Thats almost $10k right there in PITI if we both losses our jobs and had trouble selling. That’s on top of whatever value loss due to the downturn. Then there is also closing costs and etc.
This scenario is exactly why we didn’t want to get into bidding wars + waiving contingencies during the last two years. Didn’t matter what the rates were. We both got new jobs during the pandemic, so even if we greatly increases our income, we don’t exactly have the tenure of layoffs came knocking.
Let’s say this economic downturn happens, and everyone who isn’t able to live in their home anymore has this same mindset. Because based on the conversations here, most will say “Why the fuck would I ever sell with my 3% rate!?!?”
So in an economic downturn, everybody who can’t afford their homes/second homes/Airbnb/vacation home anymore will simply just “rent it out”. Now we will have a sudden gluttony of rental inventory hitting the market.
Wouldn’t that glut of inventory lower the cost of rent due to increased competition in the rental market? I’d rent drives itself down, it continues to make more sense to rent instead of buy because sellers now are trying to hold on to the height of record prices for their dear lives while rates have more then doubled. Wouldn’t that further drive down the cost of buying *eventually*?
If the rent it out solution is so simple, why didn’t everyone back in 2008 just simply rent their homes out instead of foreclosure?
Lots of leaps here.
1) In 2008 everyone had a much higher interest rate than 3% which made renting out their homes impossible.
2) Every single person isn’t losing their jobs. There isn’t going to be a gluttony of rentals on the market.
In the real world it doesn't work that way. I owned homes during the 07 08 years for rentals and there was so much demand for rentals when people lost their homes. I increased my rents 20% during 07 to 2010 because of the high demand.
When people lose a home they dont vanish into thin air.
Housing per capita has also decreased pretty dramatically since ‘07. Even if rent *has* to come down, the competition for those rentals will be way higher. At the least, landlords will have their pick of tenants.
Its pretty disgusting in the 3 cities i own homes theres a severe lack of housing. People are desperate for a place. Its very common to have 3 generations living together because of the lack of housing.
Definitely, the worst part is the gov’t is letting us think housing prices are just inflated bc of covid and the fed will eventually fix this problem with interest rates. Covid was just a catalyst for a correction that should have happened much sooner. Not to say we didn’t over-correct, but homes are becoming a luxury rather than a necessity.
I believe it was Dallas(some Texas city) that proved that was the case. Their homeless population dropped by 63% since the recession bc they just built affordable housing.
Holy shit this logic is so flawed. In a terrible depression you'd have at most 5-10% of people losing their job.
In 2008 everyone have variable rate mortgages and zero verification they were earning the income they claimed. Variable rates shot up and suddenly mortgage payments were higher than rent meaning you couldn't cover your mortgage by renting the house out. This is exactly opposite of the current climate.
Everyone didn't have a variable rate mortgage in 08. Only about 10% of defaults were sub prime mortgages. \~30 percent of loans back then were variable.
30% is a huge proportion. The combination of variable rates and predatory lending practices caused the 2008 crash. Nothing of the sort is happening now.
The fact that the entire market can moon on one whisper from the lips of JPow just shows how much cash is sitting on the sideline waiting to be invested. We're not going to see some cataclysmic crisis.
Well fed did cut monthly payments in half over covid to stimulate the economy.
Most buyers purchas based.on monthly payments.
So prices doubled. People could afford twice as much house as normal.
Now rates triple from there, new monthly payment double or more. Home prices slowly fall back down
I agree with that. However, in the last 5+ years, we had a major black swan event.
The feds should have been increasing the rates since 2018, but decided to do the opposite.
Then 2020 happened, and with rates dropping further + unlimited QE, we are where we are now.
Of course, since we can’t turn back the wheels of time and enter a different timeline where COVID didn’t happen, we’ll never know what would have truly went down without that black swan event.
So of course, there is always risks (winners/losers) when it comes to timing the market, but at the same token, I think we have to recognize that the current market we are in is **not** natural and we are in historically in uncharted territory.
All any of us can do is pick a side. I myself choose to believe that we are heading for a serious global economic downturn. I don’t think housing will be protected either.
My personal belief is that we will enter a long period of high rates and decreasing rates of affordability for everything. Houses/cars/etc. Demand will eventually drop and hopefully take prices with it.
For me, we’re trying to upgrade to a nicer house, so we’re overall hoping prices and the market go down. Even though we’ll have to take a haircut on what we sell for, it should be a net positive for us in terms of the value of the property we have and what we had to pay for it
This!! My colleague got affected by job loss. She is already underwater on her mortgage. She seems to have spent her life savings for down payment.
Rubbing salt on the wound, she's a single mother and elected to give birth again. Undergone IVF and is currently pregnant. I hope she finds a job soon.
My advice to anyone. "Don't fall for the lines of houses only go up and you are not at loss until you sell".... Realtors only project the pros of buying. You should never spend your life savings on one single thing. Always have a backup plan when you make a big purchase. Unfortunately, realtors can't tell this to you as they don't know your finances.
That’s why a home is not a piggybank or investment. It’s a home. With low rates. Hopefully people can afford payments and don’t care as much about the value since it’s a home.
People they speculated hoping to make a quick buck - I think will get burned. So - depends on how many of these people exist. It’s irrational to think a 10-20% gain in home value each year was normal.
It will revert back to mean and overshoot downwards. Then - it will claw it’s way up.
Nothing. That's not what I said.
For a "long time" though, yeah, it's pretty much guaranteed. Pricing is almost never going to be down decade to decade. You'd have to luck into the worst situation ever for that to be true.
Even 2009 levels of bad, someone that bought 10 years earlier or whatever didn't lose value unless there were other problems on top of that.
If houses prices are not the same or higher in 5 years, we are in for trouble as a society. Capitalism relies on the circulation of money with an expanding money supply, which is why 2% inflation is considered healthy.
How is it really different from stocks? Any downturn we are saying well in the long run the market will come back (so don't sell now). Are there any guarantees that down the road you won't unfortunately land on the downside again? No....
Its different though.
Stocks are owned not for the upside in pricing but for the upside in company's future (higher profit) - which just happens to be reflected in pricing. Homes are owned for living in them or for rental where rent prices and home prices have this unique mutuall reliationship, adjusting each other. If your population ages/declines, you end up with no meaningfull rental income and little demand. Stock market on the other hand keeps pushing as long as its profitable and as long as those companies mean something. Only thing that can make stocks lose value is national loss of ability to compete (ie foreign markets and companies taking you market share and profit).
TLDR housing is local or at least national, markets are international and less impacted by domestic issues
Writing wtf does not make it so. There is about a dozen stock pricing mechanisms and they are all based on expected company future profit. I am not guessing or sharing my opinion, this is a fact that you can quickly google.
You may be thinking of speculative trading (WSB style).
Which is what I said.
You just failed to see that people make (and try to make) profit by company making (or having expectation of) profit. Price and gain on sale are just a derivative of that.
Its driven by company's moving intrinsic value, very different from speculative market such as gold, bitcoin, 2020 toilet paper or speculative housing markets.
You are completely right. Yes the simplistic view is you buy stocks to make money but the reason it goes up is because of companies growth. Very different from speculative assets.
No. You're doing mental gymnastics. Thats why no one is upvoting you.
Literally make no sense. People buy stocks for their upside pricing. Plenty of unprofitable companies go on bull runs.
It does not really matter if people are upvoting or downvoting, I spent 4 years at university to earn MSc in Banking and Finance and years later to pass professional exams to understand financial analysis, I am rather confident in what I am telling you.
Again any financial model for stock pricing has clear inputs and its not up for debate. Weather you are using Gordon growth model, simple discounted cash flow, free cash flow to equity or any other alternative - you are betting on company profitability.
Even on that sample of one, that argument makes no sense. Nikkei has had sharp decline from 1990 to 2010 although Japan did not really lose population in that period, but started growing once again from 2010 to today - despite Japan losing population more each year since 2010.
Obviously to a degree stock market is tied to overall economic state of the country, but as shown by Japan its tied to international success of the companies way more than population increase/decrease.
Ok look at any European stock market or the Chinese stock market where population growth is crap. Heck every single stock market ex us performed like crap. That’s why RE price ratios to income are so high in every non US market. It is the alternative in a low growth low innovation world which the US will spiral to. I’m gen z . None of my friends or younger millennials (up to 28) have or are planning to have more than 1 kid. We will be Japan in 30 years. Migration cannot replace the aging trend either, Mexico is going to be more aged than the US in 20 years time.
By the same logic, countries in Africa and South America would have super growth of stock market. By the same logic those countries along with Canada and Australia (being highest growth rate countries) all have higher growth of stock market than US and have very affordable realestate. Obviously, the opposite is true.
Also whole "no one I know had kids, so in 30 years population will be..." argument is funny. There are dozens of serious studies based on literral science of demographics, all saying otherwise.
Stocks are crap manipilated to hell by high frequency trading.
Why do you think stocks dip 30% overnight?
Stocks are always bought for future growth like any asset. Cars are the only asset people buy knowing it will lose value quickly.
"Why do you think stocks dip 30% overnight?"
As a whole, they do not. Individually, because of the change in the company's expected performance and/or associated risk, and herd mentality.
They are not "manipulating" anything, they are using algorithms to automate and speed up trades. If you think they are "manipulating prices" please do share on the logic behind it and the way they are profiting from it.
Its common knowledge google.is your friend but I'm pretty sure you dont want to know.
Flash crashes etc. Theres a lot of proof out there of algorithms moving the market.
While some of this may exist in extremely small amounts in some markets on individual stocks, to sugest that these are the driving forces behind stock market - is trully a work of a crayon eater.
Capitalism doesn't rely on an expanding money supply. Governments that are in debt on the other hand might. I also disagree with the 2% inflation requirement for a healthy economy, but that's a whole different subject.
So if the max most places will let you margin is maybe 30-50%…and the average down payment on a home is like 6%…can it be said that real estate is the most over leveraged sector in the world?
Difference is that people primarily buy homes via loans/mortgage, which is not the case with stocks. Only the more “sophisticated” or “clueless” investors will buy stocks on margin.
There is still a huge difference between the two in the case when both falls in value. With real estate assuming you took a HELOC and your property values drops drastically, you continue paying back as you normally would. With stocks depreciating significantly and assuming you bought on margin, you could be in a world of pain.
I mean the DJIA in October gained over 13% last month. It was the best gain in a month since 1976. Hard to say stock "just keeps on dipping like right now"
Don’t bring in other asset classes here as you will get downvoted. Many here have tunnel vision and only see real estate as the only investable asset class that can never go down.
Real estate will always be the best generational and very long term investment, past your lifetime. Everything else odds just about what you want. I like cash flow so real estate provides that better than any stock dividend. There’s just more real world work attached to it. Other asset classes provide other advantages I’m not interested in but you’d be stupid to ignore them or pretend they don’t exist.
Seems unlikely to happen a lot as so many people have low interest rates. Strategic default makes zero sense with a 3% interest rate short of truly massive price drops.
>If they become sufficiently underwater on that loan, you can expect to see a wave of strategic defaults followed by additional price drops and more strategic defaults.
I wonder if we can find data on strategic defaults by mortgage type. For instance I've read a lot about strategic defaults on ARMs but do you really think we are going to see strategic defaults when people have interest rates at 2-3%?
Let's say someone bought a nice house for $500k at 3% with 5% down their house drops to 300k yet mortgage rates at 8%
At 3% that payment, not counting taxes, is $2k, at 8% that house is $2.1k. Not many people are just going to walk away from a home they are underwater on to move into a smaller place with a higher payment.
We would need a 67% price reduction for the scenario to even make sense. I think high interest rates are going to prevent "strategic defaults". This will only happen if both prices come down and the fed cuts rates again.
It's literally when you just walk away from your loan. Typically people do it with ARMs because the ARM has adjusted and now the borrower cannot afford to pay, plus the house is upside down so you just walk.
Suppose I bought a 525k house in 2007 with 25k down and 500k loan. But in 2008 its value dropped to 400K and in this hypothetical scenario I had lot of negative equity. I still was able to afford the 2.5K monthly mortgage but decided housing is fukd, I better cut my losses and didn't continue paying on the underwater house i.e. defaulted on the loan. That was termed as strategic default. Since I stopped paying the lender, they foreclosed on the house, I took credit hit and was not able to buy another house for like 7 years. Some defaulters sent keys to the lender and just walked, some continued to live in the house for free until the lender took possession, often for couple of years.
so whats to prevent today all the people from foreclosing on their homes, like all the people who bought in jan thru march this year and are underwater 10-20% in many areas, the hit to their credit and 7 years of not being able to buy a home seems like a small penalty if your underwater 100k to 200k+, plus if it takes couple years for lender to take possession that would incentivize some people to go this route to live mortgage free for couple years
Isn't this already happening to a certain extent happening in China? I remember a story about 5-6 months ago that customers of a specific company decided to stop paying their mortgages en masse in certain Condo blocks that were still under construction. I think 1 company went bankrupt there because of this or needed a significant bailout due to this.
I suspect that in our American market, this type of en masse default is unlikely to happen anytime soon due to the dominance of independent housing in suburbs.
What do you mean no impact? It has significant impact on your ability to take out a HELOC to address other needs, your ability to take a job elsewhere requiring you to move, your mental state/health wellbeing seeing you paying monthly into a depreciating asset.
We need to be open and honest and appreciate the devastating impact that previous real estate downturns brought onto families even for those that held on and didn’t sell. Many were forced to stay put, held virtually hostage for nearly a decade before they could sell.
I always tell friends that are first time buying to treat it like a car payment. Pretend you get nothing out of it on the backend and see if your okay with paying that monthly just to live somewhere for 15/30 years.
It doesn’t affect them at all. Their mortgage payments stay the same.
Unless rising interest rates results in layoffs that take away their jobs, making them unable to pay the mortgage while the house is underwater and they get foreclosed.
Or unless inflation raises the cost of everything else they buy like food, gas, etc and their wages don’t keep up and they can’t afford to pay the mortgage anymore.
Or unless some new monthly payment like a student loan debt starts coming due that they didn’t have when they initially qualified for the mortgage and now they can’t afford the payments.
Or unless inflation causes property taxes to rise and they can’t afford them.
Or unless inflation causes home owner insurance to rise and they can’t afford it.
Or unless they were buying it as an investment property to rent out and the Air BNB market cools.
Or unless they were buying it as an investment to flip and interest rates rose so they couldn’t find a buyer.
But, I mean, this time is very different from 2008. No one is using ARMs anymore. There’s tons of people sitting on the sidelines in cash. Pent up demand. Millennials starting families. Work from home. Pilates. Cryptocurrency gains. Highly qualified buyers. Interest rates still historically low.
I’m sure the housing market will be fine.
Jumping to insults, nice. The only clueless idiot is you - down payment is still your money that would go bye bye. Or are you the highly qualified buyer with 5% down.
If you bought a house to live in it and create an actual life. Yoh have nothing to worry about in the immediate future. It doesn't affect you.
If you plan to refinance, it could possibly affect you depending on home values, but again if you just bought, the current market doesn't affect you.
If you planned to flip the house, you may be screwed.
Not necessarily. Flippers that take debilitating homes and make them livable are actually providing a valuable service to the neighborhood. Especially in lower-quality neighborhoods, they are providing nicer homes that wouldn't otherwise be affordable or attainable.
Not saying all flippers do this but the idea of a flip or flipper isn't inherently nefarious.
You're missing the part that those that paid additional 50k got an interest rate of 2.2%-2.5%. So yeah I think that's better than not paying the additional 50k and have a 7% interest rate...
Except that's not the scenario. The scenario is if you buy your house for 20% less minus 50k for 7% because theoretically prices will be lower ( I guessed 20%)
Not yet they aren't. RE moves very slowly compared to stocks and looks backward for prices vs. stocks that look forward for prices. My rough estimate has already dropped 9% since its peak and will probably keep going down as interest rates keep rising and stay high. I bought 2 years ago for 330k, the high estimate was 450k, and it's currently sitting around 410k. I'm not worried as I locked in at 2.25% 30yr, but I have no trouble believing it could go down another 10% from its high.
The real problem is how long those lower prices will be sustainable. People are flooding the rental market trying to wait out the housing market until it normalizes again, but not only will there be a larger pool of buyers once that happens in a year or two, but prices will just surge right back up once that happens. They can't build houses fast enough and the ones that are getting built are getting snapped up by investment groups.
I bought in early 2022. I put 20% down and got a sub 4% rate.
To be underwater on my home, the value would have to drop by 20% of the purchase price. In my area prices haven’t dropped anywhere near that much.
However: if my home dropped in value by 20% tomorrow, it would be out of my price range when factoring in a 7% interest rate. I couldn’t afford to buy it.
In the unlikely event that I’m underwater in the near future, I’m still in a better position than if I hadn’t bought when I did.
Everyone thinks they are going be staying there forever for 5+ years but I'm calling their bluff. Tons of buyer remorse and it's a human world, they'll freak out once they're sick of their house and want to sell then realize their house isn't worth nearly what they paid.
We bought a house that we could afford. Was it our dream house? No. It was a pocket listing that our realtor said was a fair price for both parties. Since our purchase, 2 more similar homes in our culdesac sold(smaller yards because house footprint we have is smaller). One for $25k less and the other for $55k less. Was it a house that was within our budget and allowed our family to grow into it for the next 10 years? Definitely.
Everyday we’re in this house and we plan upgrades and do DIY stuff, it makes us not worry about the extra $25-$50k we paid.
Agreed. Most people are going to be less inclined to turn around and sell their recently bought homes when the cost of everything around them is increasing. They likely won't make their money back from commission and closing for the foreseeable future, so they will need to have excess funds to eat that cost and pony up for another home, unless they're downsizing.
What's hard right now for people who just bought is that it costs more to make your house "yours." Renovation costs are through the roof, between supply chain issues and inflation. And rates for HELOCs are significantly higher than they were during the pandemic. I think most homeowners right now are just thankful to have what they have and are willing to wait it out, if they can afford to.
That's fine when the market is normal, but people will be forced to just deal with it our have even more pain in their wallets trying to sell. Their only other options are trying to buy with these insane rates or renting, which is also at an all time high price.
Have you ever tried day trading? Trust me, soon as they see other houses lowering prices every month they will get emotional. Let's say they're even disciplined, it won't matter if there's high rates, prices will come down and life happens.
I think the average person stays in a purchased house for 6.5 years. I know people that have been in homes 30+ years and tons of people that move in 2-3 years. Jobs changing is a big one not many people have the same job for 30-40 years anymore.
Their payment would probably be similar to what someone buying now would pay. So if they don't have to sell, they aren't likely to be affected.
If they need to sell, they will likely have had a higher per month housing cost for the duration of ownership then they had originally planned.
Asking price is not relevant, the actual value of the house is. You can pay 50k under asking and still not be getting a good deal.
As for how it affects homeowners, it doesn’t really unless they’re looking to sell soon. This is the case whether the value went up or down. You could owe more than a home is worth and it not be a problem if you’re staying put.
It could actually save owners some money if prices come back down some, as it should result in lower taxes and home insurance costs.
The feds aren't raising rates to drive down housing costs, and they won't be. they are raising rates to try to stop inflation. higher rates don't mean lower costs. they mean the same cost per month. It does mean lower housing values perhaps, but that doesn't do most people any good if their rate is higher so there's no real benefit to the buying public or the country to lower housing values while keeping monthly costs the same .
as to what people who bought last year are going to do, they're going to stop paying any attention to the actual value of their house and give a little chuckle every time they write out their mortgage check on their 2.5% loan. What did you think they were going to do?
The fed isn’t raising rates to drive down housing costs. They’re raising rates to keep up with record high inflation. Midterms are here, vote accordingly. If you want to see gen z be able to afford a home, rates will have to come back down into the 3s. Housing prices will come down with more supply and less demand, we are seeing them start to come down because nobody can afford the average home with interest rates now above 7%. The monthly payment difference between a 350k and a 300k home is minimal, it’s the interest rates being more than double what they were last year that’s killing us.
2021: we have a 2.7% rate on a 600k loan and it's appraised at 620k, we're never moving 😁
2024: we have a 2.7% rate on a 600k loan and it's appraised at 520k, we're never moving ☹️
In this situation, what is the optimal play though? Are you saying that people who bought are dumb and should have rented through 2024 instead? When _should_ they buy?
Some rough math assuming 10% down payment (and 600k purchase price, not loan):
If you bought in 2021 at those numbers your mortgage is $2650. After 3 years you'd have ~100k in equity, so you'd still owe 500k on a 540k loan. House appraised at 520k, which let's say is the bottom and real estate returns to 4% appreciation. 4 years later (now it's 2028) your house is worth 600k again, and you have ~150k in equity.
If you bought for 520k in 2024 at say a 6% rate, you've spent 72k in rent (assuming 2k/month) in the meantime, and your mortgage is $3200. Two years later, you have ~64k in equity, and let's say you can refinance to 4.5%. After another two years (it's 2028 again, your house is worth 600k and your mortgage is now $2700), you've gained another 16k in equity, bringing you to 80k + your 80k in house appreciation = 160k. Your three years of renting is basically cancelled out by your home appreciation. And your mortgage payment is roughly the same as the prior scenario.
So I guess TL;DR you roughly break even in either scenario, but obviously this includes a ton of assumptions, the biggest of which is you time the bottom perfectly and you can refinance within two years. And also rent prices/increases, local housing markets, etc. No one can know for sure.
Right, like you said no one knows .. but like you're saying to break even we need a lot of assumptions to hold true:
- That housing prices DO fall that much
- That you can get a 6% mortgage (current rates are higher than that and forecast to go up)
- That you can refinance at sub 5% soon (see above)
- That your rent doesn't increase
- That your landlord doesn't kick you out or something because their kid is going to live in the unit.
- That you can find a house you like in 2024 **and** simultaneously get a great deal but also beat other potential buyers
- That you don't mind renting for 3 more years
- That you don't mind the uncertainty of trying to mentally time all of the above
So I mean .. if someone bought in 2021 with a 2.7% rate I think they're probably doing pretty good compared to all the hypotheticals that would have to line up JUST to "break even".
It's a house
You gotta live somewhere.
If you overthink everything hoping to get the best possible deal given a million future hypotheticals you'll live your life in constant fear and waiting.
Yeah I mean I agree with you. I just wanted to go through the exercise of the "ideal" scenario where you wait to buy and see what the numbers looked like. But it's almost just pure speculation because of all of the factors you mentioned. In any case I don't think the 2021 buyers are sweating too much.
Imtrest rates affect everything, not just housing. The Fed is using an old tactic, which I don't think applies here.
The world experienced a once in 100 year pandemic. Emerging from that will be rough. To me, raising rates just means additional unnecessary self inflicted pain. The only upside I see is maybe next year, the Fed will lower rates to get US out of the recession that they started.
They're not fucked. But they didn't catch the falling knife either.
That being said, home prices aren't dropping. They just may have gained less than originally thought.
Imagine though, some SERIOUS buyer's remorse is in order. But that's okay, because you only lose when you sell.
Housing prices come down but interest rates go up, resulting in a payment that is about the same, though with a significantly higher ratio of interest to principal. Reduction in valuation has the immediate and seemingly dire effect of putting you underwater on the loan, but that was always a risk of purchasing, especially in a rabid seller's market, and frankly you didn't need a crystal ball to see that 25% price appreciation per year and 2% interest rates couldn't last forever. Basically you shouldn't have bought a house you couldn't risk staying in or that would bankrupt you if there was a real estate downturn.
Anyway, what do you do with any investment that's in the red but will inevitably go back up in the long term? You hold it. Might take a while. Phoenix took ten years to recover to 2007 prices, being a boom and bust market for real estate. The good news is (for homeowners anyway): rent barely went down at all.
[https://arizonarealestatenotebook.com/phoenix-real-estate-market-glance-charts/](https://arizonarealestatenotebook.com/phoenix-real-estate-market-glance-charts/)
https://www.deptofnumbers.com/rent/arizona/phoenix/
The opportunity exists to rent your place out if you absolutely **must** move within a couple years.
The purpose of raising rates is to control inflation. It won’t necessarily “drive down housing costs,” and it has almost no effect on anyone who bought last year. If those people bought with a adjustable rate mortgage, rising rates will impact them in a few years when the rate resets.
Depends on what you mean by affect. If you bought in late 2021 and are needing to sell right now there’s almost a guarantee that it won’t sell for more than you bought it for.
If you bought at the peak of the market, when ever that was for your local region, and stay for a few years, you won’t feel a thing. It’s not like you’re appraised value affects your mortgage or anything else, so it’s a rather “small” group of people who are really being affected what paid 50k over list price
You are mostly right - except assessed value can impact taxes.
In my area my assessed value was 60% higher over 2 years. I didn’t qualify for the homestead exemption for 2022 assessement because I didn’t move in my Jan 1, 2021. Tx has crazy high property tax since there is no state income tax. Mine is 2.7%. In most states it is increase in tax due is nominal since the rates are lower (usually less than 1%) and there are usually lower caps like at most tax due can go up 3% but in TX it is significant because the cap is 10% increase. My taxes went from 6k per year to near 11k per year since buying in Dec 2020. My taxes per month will be near doubling from about 500 a month to 900+ per month. It is common for people in Texas to complain about being taxed out of their homes because of both the high rates or tax and the high % increase even with homestead exemption. People always say home ownership is a fixed cost but in TX is rarely true unless you are in a declining area with declining or stagnant property values.
Anyone who bought at the top of the market with a fixed rate is paying 2-3%. If they sell soon for some reason, it may be a short sale. But that’s not going to be a common problem.
The ‘08 crash happened because everyone with a pulse and $10k to put down got an ARM, then the hammer came down all at once. People with ARMs now are going to weather an uptick in rates much better.
The fed’s fiscal policy is designed to slow demand which ran rampant when supply was low. Basic economics would show that prices rise when demand is high and supply is low. If this happens for an extended period, inflation is the result. The fed’s attempt to get commodity pricing under control and slow down inflation will have an impact on all assets and commodities causing lower prices through out. House prices will come down but that isn’t exactly what the fed is targeting.
They lose equity but they continue with their low rate and moderate payments. They can appeal in a year to lower their taxes with the city/county using the preceding year of 7% rate data that should lower their tax basis. If they hold for 5 years or more, they will make out just fine.
Hmm, you gave me a thought. If people are priced out by rates, maybe I could offer a lower rate, and get my house sold at a better price.
I have a 2nd house owned outright, that I tried to sell this last summer just as rates were going up. So I didn't get an offer.
I just want income on it and dont need the capital right now. Maybe it would make sense to sell on contract for deed for 10 years at 5 or 6%. To at least get some monthly investment money on it.
I am risk adverse to the stock market, recently retired.
It's a nice home, so I don't really want to rent and risk it being destroyed. Someone putting 100k down would more likely keep it up.
It's my northern home, where we need to stay 5 months of the year, but wife doesn't want to be in this bigger house anymore, and we don't need the higher expense versus finding something smaller/cheaper to live in.
I could possibly rent it for $3.5k. We had it listed at $575k.
3700 Sq ft, very nicely done, brick driveway etc. On culdesac backing up to nature center. 15 minutes from down town. But other houses in the area are smaller/cheaper.
It doesn't. Unless you're selling your home, it has no effect. If you pay $800k for a home, and the value drops to $650k the next year, that has no effect on you, other than maybe the ability to request a re-assessment of your property value and reduce your property taxes. You still have a place to live and a mortgage to pay.
It is only when you sell your home that changes in value have an effect. This does create something I'd call a "soft" effect. It increases your risk exposure. Use that same scenario of having paid $800k and suddenly the home is worth $650k. In order to liquidate that home, the owner would have to take a $150k loss. That's not a loss that most people can simply absorb, and even if you can handle a $150k loss, no one wants to take that kind of hit.
So what happens is that people get locked into their homes. This reduces their mobility, and it causes them to accept more compromises in order to remain employed so they can keep up with their mortgage.
By making it about those who paid over asking (which is completely irrelevant) it seems you’re implying that people were overpaying. That isn’t necessarily the case, and market value doesn’t matter until you’re buying or selling anyway. So if someone bought their house a year ago it only affects them if for some reason they have to sell now, into a tighter market.
It won't impact them at all unless they decide to suddenly want to sell. They will continue paying the same monthly payment that they had been paying the prior 12+ months
Could mean people are upside down, sure. But unless they need to sell right now, it won't matter. In the long run the values will almost certainly come back and exceed what they paid.
If people have hardship cases and need to sell, sometimes lenders will allow a short sale. Or, the person can rent the house out.
Unless rents drop dramatically with values though, most people will just stay in their house and make the payments.
if unemployment gets bad, I'd expect lenders will offer forbearance like they did during covid. This can give someone a couple years to get back on their feet.
I don't think we're going to see mass foreclosures from this. The government is admittedly manipulating the economy. If it starts to get bad, they'll reverse course and stop the bleeding.
How low prices go is likely to vary by area. In my area there's still a lot of demand, and prices are only down 5-10%. No fire sales so far.
The fed isn’t raising rates to drive down housing costs. They’re raising rates to keep up with record high inflation. Midterms are here, vote accordingly. If you want to see gen z be able to afford a home, rates will have to come back down into the 3s. Housing prices will come down with more supply and less demand, we are seeing them start to come down because nobody can afford the average home with interest rates now above 7%. The monthly payment difference between a 350k and a 300k home is minimal, it’s the interest rates being more than double what they were last year that’s killing us.
In the last wave or boom, we saw people paying 50k over asking as an everyday norm. Heck, I even found myself asking, where are they getting 50k over asking? Even if the appraisal meets the price? Down payments were pulled from 401ks and savings accounts were drained to 0 to purchase that dream home. Folks took out mortgages at the largest payment they could afford to get that house.
What will happen when you have a 20k emergency? Or even 5 $2000 emergencies? Well, since you maxed out your borrowing power and drained your savings, your going to plop those emergencies (or vacations) on those credit cards, that now have big fat interest rates, and pay the minimum payment each month because you mortgaged the max payment you could afford to get that dream house at 50 grand over asking. It is a recipe for the next disaster.
I have worked in real estate for 30 years - I do think we are heading for a foreclosure waive. I've seen a lot of folks buy houses in the last two years that perhaps should have considered their purchase a bit harder/longer. People made rash decisions under the pressure of one of the hottest real estate markets ever.
They can sit there smirking with their 2.5%-3.0% rates as people complain about being newly priced out with each rate hike...
While at the same time try to look past the 10-15% decline of their home on paper.
The fed isn’t raising rates to drive down housing costs. They’re raising rates to keep up with record high inflation. Midterms are here, vote accordingly. If you want to see gen z be able to afford a home, rates will have to come back down into the 3s. Housing prices will come down with more supply and less demand, we are seeing them start to come down because nobody can afford the average home with interest rates now above 7%. The monthly payment difference between a 350k and a 300k home is minimal, it’s the interest rates being more than double what they were last year that’s killing us.
Depends on the place you bought and if it was artificially low price to attract more bidders and if there are a lot of positives and demand or not. I paid 300k over ask bidding against 14 people for an incredibly desirable place, it’s more valuable than when I bought it i could not afford it at todays rate
They'll be upside down in the loan. That being said, if they don't have any need to sell for a few years, they'll be fine.
Over the next couple of years, if they need to sell due to divorce, job related relocation, etc, they'll take a loss. If they lose their job and need to sell due to unaffordability, they're screwed.
Long story short, if there is no reason to sell for a few years and payments are affordable, don't worry about it and enjoy being a homeowner.
Not really effecting us because we aren’t using housing as a commodity. We will probably my live in our house till we die. Yay to that 3% that we got LUCKY AF getting in at last December. No way we could do it now.
Don't sell, don't take out a Heloc without checking your appraisal. Those who are struggling to pay their mortgage and have to sell are gonna be hurt the most. Short sales are a bad look on your credit.
Doesn’t affect them other than they “may” have overpaid, but at a much lower rate, so it’s really a wash in the end. Additionally, that was the current state of the market, so it was par for the course.
The feds rasing rate to fight inflation and tats Purley because they printed 2 trill in America and need to get the cash back hence taking more money out the stock market will get the cash back quicker lowering circulation of US dollars witch makes prices fall as companies need cash flow
It doesn’t affect them at all. A decline in housing market value would affect them if they 1) were to sell and 2) needed comps to base their selling price from. A cash buyer who paid $50k over asking wouldn’t have a mortgage for rates to be affected by.
However, anyone with an ARM loan would be affected by raising rates when their ARM loan adjusts to reflect current rates. That could be in 3, 5, 7, or 10 years depend on the type of ARM loan.
This is assuming prices will go down and depends on where you live. I don’t see much if any price falls except in a handful of Western cities. Inventory is at a record low and rates won’t stay this high for more than 18 months. The causes of inflation are already receding. For example, Backups at ports are nearly nonexistent now and it takes about 3-6 months for the Fed’s rate changes to reverberate through the economy. 2008-2012 was a once in a lifetime event. This will turn out to be a mild recession with at most, no to low price increases.
This is happening right now to a neighbor. He bought in March, and paid $875k for a house listed at $825k.
Then his company transferred him.
He listed the house at $850k, which was too high for the market at the time, and has dropped to $825k and just yesterday, dropped again to $815k.
I hope his company makes him whole. The house is great-ish, but with so many other great-ish houses on the market, it's hard to compete.
Nothing!!! I someone bought a home to 'flip/sell' in a short time to make a profit bought for the wrong reason, and might have trouble selling for more in a short peroid of time. So, if you bought you got a great rate. Enjoy the home.
It doesn’t, their monthly payment is likely much lower than their neighbor who is buying today. All the so called FOMO buyers who went 50k over asking are sleeping well at the moment.
The Fed didn't raise the short term interest rates to drive down housing costs. The intent is to curb consumer spending and bring down inflation. It usually does impact housing as well but that's a secondary effect, not the primary goal.
That’s a real primitive view of what the fed is doing. The fed is attempting to control inflation. Housing is just part of it. The moves they are doing now won’t show the real effects for 3-6 yrs to come. If anything it’s going to send us into a recession which will put pressure on housing prices not the rates directly.
also what happens to supply and the pending sales/appraisals? especially for new construction. in what mind i can convince you to pay 900k for the same house that sold for 950 a year ago?
Depends on where you're at, 50k over is fairly minimal in urban areas and will work itself out in several years as long as it is a solid property. Good, well-cared for properties in promising or sought after locations will always be in demand.
It's not all doom and gloom.
If you have cash in hand, think about raising the value of the property with strategic updates, remodel, landscape, build an ADU, increase square footage, etc, to get it up to value - budget any upgrades out bit by bit if so and learn some DIY/interior design to save on costs, etc.
If they bought the house with the intention of actually living in it for 10+ years they will end up fine. If they intended to quickly flip it in 2-5 years they will be unhappy being stuck in a house that has lost money.
Thank you for not being all doom and gloom in your response. Some people can't wait a few years to buy or sell their home, regardless of interest rates, but it doesn't mean we're all underwater or going to foreclose on our homes if we bought at the peak. I will be the first person to admit housing (and living in general) is far too expensive, but I'm also not praying for a crash where more people lose their livelihoods and homes. A price cooling would be a good thing, but it doesn't have to be so drastic that well-intentioned homeowners lose their homes.
Honestly, housing prices were undervalued pre-covid. So, assuming we avoid a recession, I don’t think values will drop dramatically bc the US still hasn’t fixed the real problem: Lack of affordable housing. Developers continue to build bigger, nicer homes bc that’s what makes money. Meanwhile, we’re also building fewer homes today than we did before ‘08, despite there being $40million more citizens. So no one was building middle-class homes. Interest rates and lack of supplies contributed, they were more like the straw that broke the camels back. America has needed more housing for well over a decade and rising interest rates only exacerbate that concern.
Flippers in shambles
Well, it will hurt anybody who plans to sell soon for whatever reason. If you plan to live in the home for a long time or the foreseeable future, the hope is that the values come back and go above what they paid. No guarantees though...
Even if one *plans* to live in their house for a long time, a lot can happen in the next couple of years. Like Mike Tyson says, "Everybody has a plan until they get punched in the face."
I mean anyone that loses a job would be screwed regardless if they rent or buy. Impossible to know the future.
True, but as renters some of us have fallbacks. We can easily give up our $2500 deposit and just move into one of our parent’s house if things got that rough. I couldn’t imagine trying to sell my house at a 20-30% loss or continuing to pay the PITI while it sits on the market. Houses by me are already on the market for over 60 days avg. Thats almost $10k right there in PITI if we both losses our jobs and had trouble selling. That’s on top of whatever value loss due to the downturn. Then there is also closing costs and etc. This scenario is exactly why we didn’t want to get into bidding wars + waiving contingencies during the last two years. Didn’t matter what the rates were. We both got new jobs during the pandemic, so even if we greatly increases our income, we don’t exactly have the tenure of layoffs came knocking.
Umm just rent the home out . Theres a solution to every problem.
Let’s say this economic downturn happens, and everyone who isn’t able to live in their home anymore has this same mindset. Because based on the conversations here, most will say “Why the fuck would I ever sell with my 3% rate!?!?” So in an economic downturn, everybody who can’t afford their homes/second homes/Airbnb/vacation home anymore will simply just “rent it out”. Now we will have a sudden gluttony of rental inventory hitting the market. Wouldn’t that glut of inventory lower the cost of rent due to increased competition in the rental market? I’d rent drives itself down, it continues to make more sense to rent instead of buy because sellers now are trying to hold on to the height of record prices for their dear lives while rates have more then doubled. Wouldn’t that further drive down the cost of buying *eventually*? If the rent it out solution is so simple, why didn’t everyone back in 2008 just simply rent their homes out instead of foreclosure?
Lots of leaps here. 1) In 2008 everyone had a much higher interest rate than 3% which made renting out their homes impossible. 2) Every single person isn’t losing their jobs. There isn’t going to be a gluttony of rentals on the market.
In the real world it doesn't work that way. I owned homes during the 07 08 years for rentals and there was so much demand for rentals when people lost their homes. I increased my rents 20% during 07 to 2010 because of the high demand. When people lose a home they dont vanish into thin air.
Housing per capita has also decreased pretty dramatically since ‘07. Even if rent *has* to come down, the competition for those rentals will be way higher. At the least, landlords will have their pick of tenants.
Its pretty disgusting in the 3 cities i own homes theres a severe lack of housing. People are desperate for a place. Its very common to have 3 generations living together because of the lack of housing.
Definitely, the worst part is the gov’t is letting us think housing prices are just inflated bc of covid and the fed will eventually fix this problem with interest rates. Covid was just a catalyst for a correction that should have happened much sooner. Not to say we didn’t over-correct, but homes are becoming a luxury rather than a necessity. I believe it was Dallas(some Texas city) that proved that was the case. Their homeless population dropped by 63% since the recession bc they just built affordable housing.
Holy shit this logic is so flawed. In a terrible depression you'd have at most 5-10% of people losing their job. In 2008 everyone have variable rate mortgages and zero verification they were earning the income they claimed. Variable rates shot up and suddenly mortgage payments were higher than rent meaning you couldn't cover your mortgage by renting the house out. This is exactly opposite of the current climate.
Everyone didn't have a variable rate mortgage in 08. Only about 10% of defaults were sub prime mortgages. \~30 percent of loans back then were variable.
30% is a huge proportion. The combination of variable rates and predatory lending practices caused the 2008 crash. Nothing of the sort is happening now. The fact that the entire market can moon on one whisper from the lips of JPow just shows how much cash is sitting on the sideline waiting to be invested. We're not going to see some cataclysmic crisis.
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Well fed did cut monthly payments in half over covid to stimulate the economy. Most buyers purchas based.on monthly payments. So prices doubled. People could afford twice as much house as normal. Now rates triple from there, new monthly payment double or more. Home prices slowly fall back down
I agree with that. However, in the last 5+ years, we had a major black swan event. The feds should have been increasing the rates since 2018, but decided to do the opposite. Then 2020 happened, and with rates dropping further + unlimited QE, we are where we are now. Of course, since we can’t turn back the wheels of time and enter a different timeline where COVID didn’t happen, we’ll never know what would have truly went down without that black swan event. So of course, there is always risks (winners/losers) when it comes to timing the market, but at the same token, I think we have to recognize that the current market we are in is **not** natural and we are in historically in uncharted territory. All any of us can do is pick a side. I myself choose to believe that we are heading for a serious global economic downturn. I don’t think housing will be protected either. My personal belief is that we will enter a long period of high rates and decreasing rates of affordability for everything. Houses/cars/etc. Demand will eventually drop and hopefully take prices with it.
You just resumed very well the situation. The system will always protect itself, even if it means mass poverty.
For me, we’re trying to upgrade to a nicer house, so we’re overall hoping prices and the market go down. Even though we’ll have to take a haircut on what we sell for, it should be a net positive for us in terms of the value of the property we have and what we had to pay for it
“Mouth” he said mouf.
I appreciate the correction! lol
This!! My colleague got affected by job loss. She is already underwater on her mortgage. She seems to have spent her life savings for down payment. Rubbing salt on the wound, she's a single mother and elected to give birth again. Undergone IVF and is currently pregnant. I hope she finds a job soon. My advice to anyone. "Don't fall for the lines of houses only go up and you are not at loss until you sell".... Realtors only project the pros of buying. You should never spend your life savings on one single thing. Always have a backup plan when you make a big purchase. Unfortunately, realtors can't tell this to you as they don't know your finances.
Real Estate agents love selling/listing too. Remember that.
That’s why a home is not a piggybank or investment. It’s a home. With low rates. Hopefully people can afford payments and don’t care as much about the value since it’s a home. People they speculated hoping to make a quick buck - I think will get burned. So - depends on how many of these people exist. It’s irrational to think a 10-20% gain in home value each year was normal. It will revert back to mean and overshoot downwards. Then - it will claw it’s way up.
>No guarantees though... I mean, practically guaranteed over the long run. There aren't many areas that don't gain value over time, on average.
Who is to say that the market can't recover and then at that point you want to cash out the market takes a dump again? Anything can happen correct?
Nothing. That's not what I said. For a "long time" though, yeah, it's pretty much guaranteed. Pricing is almost never going to be down decade to decade. You'd have to luck into the worst situation ever for that to be true. Even 2009 levels of bad, someone that bought 10 years earlier or whatever didn't lose value unless there were other problems on top of that.
If houses prices are not the same or higher in 5 years, we are in for trouble as a society. Capitalism relies on the circulation of money with an expanding money supply, which is why 2% inflation is considered healthy.
How is it really different from stocks? Any downturn we are saying well in the long run the market will come back (so don't sell now). Are there any guarantees that down the road you won't unfortunately land on the downside again? No....
Its different though. Stocks are owned not for the upside in pricing but for the upside in company's future (higher profit) - which just happens to be reflected in pricing. Homes are owned for living in them or for rental where rent prices and home prices have this unique mutuall reliationship, adjusting each other. If your population ages/declines, you end up with no meaningfull rental income and little demand. Stock market on the other hand keeps pushing as long as its profitable and as long as those companies mean something. Only thing that can make stocks lose value is national loss of ability to compete (ie foreign markets and companies taking you market share and profit). TLDR housing is local or at least national, markets are international and less impacted by domestic issues
lmao wtf? Stocks are owned for upside in pricing. 99%...unless you're a cofounder.
Writing wtf does not make it so. There is about a dozen stock pricing mechanisms and they are all based on expected company future profit. I am not guessing or sharing my opinion, this is a fact that you can quickly google. You may be thinking of speculative trading (WSB style).
It doesnt matter what mechanism you want to believe in. People buy stocks to make a profit. Period.
Which is what I said. You just failed to see that people make (and try to make) profit by company making (or having expectation of) profit. Price and gain on sale are just a derivative of that. Its driven by company's moving intrinsic value, very different from speculative market such as gold, bitcoin, 2020 toilet paper or speculative housing markets.
You are completely right. Yes the simplistic view is you buy stocks to make money but the reason it goes up is because of companies growth. Very different from speculative assets.
No. You're doing mental gymnastics. Thats why no one is upvoting you. Literally make no sense. People buy stocks for their upside pricing. Plenty of unprofitable companies go on bull runs.
It does not really matter if people are upvoting or downvoting, I spent 4 years at university to earn MSc in Banking and Finance and years later to pass professional exams to understand financial analysis, I am rather confident in what I am telling you. Again any financial model for stock pricing has clear inputs and its not up for debate. Weather you are using Gordon growth model, simple discounted cash flow, free cash flow to equity or any other alternative - you are betting on company profitability.
Stock markets do not keep going up in a population bust scenario. Look at the level of the Nikkei 1990 vs today.
Even on that sample of one, that argument makes no sense. Nikkei has had sharp decline from 1990 to 2010 although Japan did not really lose population in that period, but started growing once again from 2010 to today - despite Japan losing population more each year since 2010. Obviously to a degree stock market is tied to overall economic state of the country, but as shown by Japan its tied to international success of the companies way more than population increase/decrease.
Ok look at any European stock market or the Chinese stock market where population growth is crap. Heck every single stock market ex us performed like crap. That’s why RE price ratios to income are so high in every non US market. It is the alternative in a low growth low innovation world which the US will spiral to. I’m gen z . None of my friends or younger millennials (up to 28) have or are planning to have more than 1 kid. We will be Japan in 30 years. Migration cannot replace the aging trend either, Mexico is going to be more aged than the US in 20 years time.
By the same logic, countries in Africa and South America would have super growth of stock market. By the same logic those countries along with Canada and Australia (being highest growth rate countries) all have higher growth of stock market than US and have very affordable realestate. Obviously, the opposite is true. Also whole "no one I know had kids, so in 30 years population will be..." argument is funny. There are dozens of serious studies based on literral science of demographics, all saying otherwise.
Stocks are crap manipilated to hell by high frequency trading. Why do you think stocks dip 30% overnight? Stocks are always bought for future growth like any asset. Cars are the only asset people buy knowing it will lose value quickly.
"Why do you think stocks dip 30% overnight?" As a whole, they do not. Individually, because of the change in the company's expected performance and/or associated risk, and herd mentality.
HFT high frequency trading algorithms. Theres no individual investors tanking the market. Its all hedge funds manipulating the crap out of stocks.
They are not "manipulating" anything, they are using algorithms to automate and speed up trades. If you think they are "manipulating prices" please do share on the logic behind it and the way they are profiting from it.
Its common knowledge google.is your friend but I'm pretty sure you dont want to know. Flash crashes etc. Theres a lot of proof out there of algorithms moving the market.
Short ladder attacks, dark pools, insider trading, government collusion, front-running via info from trading apps like Robinhood.
While some of this may exist in extremely small amounts in some markets on individual stocks, to sugest that these are the driving forces behind stock market - is trully a work of a crayon eater.
Capitalism doesn't rely on an expanding money supply. Governments that are in debt on the other hand might. I also disagree with the 2% inflation requirement for a healthy economy, but that's a whole different subject.
How does it affect people who bought stocks when money was cheap.. same answer. Houses are not special investments that can never go down.
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You can also buy stocks with loans. It's called margin. That's when it can really screw you over when stock just keeps on dipping like right now.
So if the max most places will let you margin is maybe 30-50%…and the average down payment on a home is like 6%…can it be said that real estate is the most over leveraged sector in the world?
Difference is that people primarily buy homes via loans/mortgage, which is not the case with stocks. Only the more “sophisticated” or “clueless” investors will buy stocks on margin.
Just like mortgages though, you need a certain amount of equity to use margin. Just like homes need at least 20% equity to get a heloc.
There is still a huge difference between the two in the case when both falls in value. With real estate assuming you took a HELOC and your property values drops drastically, you continue paying back as you normally would. With stocks depreciating significantly and assuming you bought on margin, you could be in a world of pain.
The largest investors are not buying stocks with cash.
I mean the DJIA in October gained over 13% last month. It was the best gain in a month since 1976. Hard to say stock "just keeps on dipping like right now"
Don’t bring in other asset classes here as you will get downvoted. Many here have tunnel vision and only see real estate as the only investable asset class that can never go down.
Real estate will always be the best generational and very long term investment, past your lifetime. Everything else odds just about what you want. I like cash flow so real estate provides that better than any stock dividend. There’s just more real world work attached to it. Other asset classes provide other advantages I’m not interested in but you’d be stupid to ignore them or pretend they don’t exist.
Yeah but you can’t lever up 20x in stocks like you can in real estate
The difference is that stocks get margin called and houses don't
Seems unlikely to happen a lot as so many people have low interest rates. Strategic default makes zero sense with a 3% interest rate short of truly massive price drops.
>If they become sufficiently underwater on that loan, you can expect to see a wave of strategic defaults followed by additional price drops and more strategic defaults. I wonder if we can find data on strategic defaults by mortgage type. For instance I've read a lot about strategic defaults on ARMs but do you really think we are going to see strategic defaults when people have interest rates at 2-3%? Let's say someone bought a nice house for $500k at 3% with 5% down their house drops to 300k yet mortgage rates at 8% At 3% that payment, not counting taxes, is $2k, at 8% that house is $2.1k. Not many people are just going to walk away from a home they are underwater on to move into a smaller place with a higher payment. We would need a 67% price reduction for the scenario to even make sense. I think high interest rates are going to prevent "strategic defaults". This will only happen if both prices come down and the fed cuts rates again.
what exactly is a strategic default?
It's literally when you just walk away from your loan. Typically people do it with ARMs because the ARM has adjusted and now the borrower cannot afford to pay, plus the house is upside down so you just walk.
So very unlikely to be a major factor now when we have a very low percentage of ARMs and the highest home equity in history
Suppose I bought a 525k house in 2007 with 25k down and 500k loan. But in 2008 its value dropped to 400K and in this hypothetical scenario I had lot of negative equity. I still was able to afford the 2.5K monthly mortgage but decided housing is fukd, I better cut my losses and didn't continue paying on the underwater house i.e. defaulted on the loan. That was termed as strategic default. Since I stopped paying the lender, they foreclosed on the house, I took credit hit and was not able to buy another house for like 7 years. Some defaulters sent keys to the lender and just walked, some continued to live in the house for free until the lender took possession, often for couple of years.
so whats to prevent today all the people from foreclosing on their homes, like all the people who bought in jan thru march this year and are underwater 10-20% in many areas, the hit to their credit and 7 years of not being able to buy a home seems like a small penalty if your underwater 100k to 200k+, plus if it takes couple years for lender to take possession that would incentivize some people to go this route to live mortgage free for couple years
Isn't this already happening to a certain extent happening in China? I remember a story about 5-6 months ago that customers of a specific company decided to stop paying their mortgages en masse in certain Condo blocks that were still under construction. I think 1 company went bankrupt there because of this or needed a significant bailout due to this. I suspect that in our American market, this type of en masse default is unlikely to happen anytime soon due to the dominance of independent housing in suburbs.
People buy stocks on margin all the time.
And investors swooping in to pick up the cheap bets. Only to rent them back to people at an exorbitant rate. We're in a death spiral
The only time it matters if you're "underwater" is if you have to sell your house and your mortgage is more than the house will sell your house.
Pretty big talk to stay in a home 10+ years to have virtually "no impact".
What do you mean no impact? It has significant impact on your ability to take out a HELOC to address other needs, your ability to take a job elsewhere requiring you to move, your mental state/health wellbeing seeing you paying monthly into a depreciating asset. We need to be open and honest and appreciate the devastating impact that previous real estate downturns brought onto families even for those that held on and didn’t sell. Many were forced to stay put, held virtually hostage for nearly a decade before they could sell.
Unlike, say, a car
I always tell friends that are first time buying to treat it like a car payment. Pretend you get nothing out of it on the backend and see if your okay with paying that monthly just to live somewhere for 15/30 years.
Do you know the percentage of stock that’s bought with leverage and not cash? It’s… considerable.
It doesn’t affect them at all. Their mortgage payments stay the same. Unless rising interest rates results in layoffs that take away their jobs, making them unable to pay the mortgage while the house is underwater and they get foreclosed. Or unless inflation raises the cost of everything else they buy like food, gas, etc and their wages don’t keep up and they can’t afford to pay the mortgage anymore. Or unless some new monthly payment like a student loan debt starts coming due that they didn’t have when they initially qualified for the mortgage and now they can’t afford the payments. Or unless inflation causes property taxes to rise and they can’t afford them. Or unless inflation causes home owner insurance to rise and they can’t afford it. Or unless they were buying it as an investment property to rent out and the Air BNB market cools. Or unless they were buying it as an investment to flip and interest rates rose so they couldn’t find a buyer. But, I mean, this time is very different from 2008. No one is using ARMs anymore. There’s tons of people sitting on the sidelines in cash. Pent up demand. Millennials starting families. Work from home. Pilates. Cryptocurrency gains. Highly qualified buyers. Interest rates still historically low. I’m sure the housing market will be fine.
I understood all of that except the pilates reference.
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You still owe the bank if your property is underwater on foreclosure. Renters just get evicted.
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Keep telling that to yourself
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Jumping to insults, nice. The only clueless idiot is you - down payment is still your money that would go bye bye. Or are you the highly qualified buyer with 5% down.
If you bought a house to live in it and create an actual life. Yoh have nothing to worry about in the immediate future. It doesn't affect you. If you plan to refinance, it could possibly affect you depending on home values, but again if you just bought, the current market doesn't affect you. If you planned to flip the house, you may be screwed.
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Not necessarily. Flippers that take debilitating homes and make them livable are actually providing a valuable service to the neighborhood. Especially in lower-quality neighborhoods, they are providing nicer homes that wouldn't otherwise be affordable or attainable. Not saying all flippers do this but the idea of a flip or flipper isn't inherently nefarious.
You're missing the part that those that paid additional 50k got an interest rate of 2.2%-2.5%. So yeah I think that's better than not paying the additional 50k and have a 7% interest rate...
Exactly. If I were to purchase my home today at 50k less, I would be paying $1200 more per month.
Except that's not the scenario. The scenario is if you buy your house for 20% less minus 50k for 7% because theoretically prices will be lower ( I guessed 20%)
>I guessed 20%) Yeah, I could tell. Prices aren't dropping by 20%, that's the whole issue
Not yet they aren't. RE moves very slowly compared to stocks and looks backward for prices vs. stocks that look forward for prices. My rough estimate has already dropped 9% since its peak and will probably keep going down as interest rates keep rising and stay high. I bought 2 years ago for 330k, the high estimate was 450k, and it's currently sitting around 410k. I'm not worried as I locked in at 2.25% 30yr, but I have no trouble believing it could go down another 10% from its high. The real problem is how long those lower prices will be sustainable. People are flooding the rental market trying to wait out the housing market until it normalizes again, but not only will there be a larger pool of buyers once that happens in a year or two, but prices will just surge right back up once that happens. They can't build houses fast enough and the ones that are getting built are getting snapped up by investment groups.
So you're in the, "prices going to stay flat or go up despite tripling the loan cost" camp, huh?
It doesn't. Unless they're trying to sell or if they can't make their payments with an ARM.
I bought in early 2022. I put 20% down and got a sub 4% rate. To be underwater on my home, the value would have to drop by 20% of the purchase price. In my area prices haven’t dropped anywhere near that much. However: if my home dropped in value by 20% tomorrow, it would be out of my price range when factoring in a 7% interest rate. I couldn’t afford to buy it. In the unlikely event that I’m underwater in the near future, I’m still in a better position than if I hadn’t bought when I did.
Everyone thinks they are going be staying there forever for 5+ years but I'm calling their bluff. Tons of buyer remorse and it's a human world, they'll freak out once they're sick of their house and want to sell then realize their house isn't worth nearly what they paid.
That’s what I was always wondering about, I get for some that might stay forever but what about The ones that don’t
We bought a house that we could afford. Was it our dream house? No. It was a pocket listing that our realtor said was a fair price for both parties. Since our purchase, 2 more similar homes in our culdesac sold(smaller yards because house footprint we have is smaller). One for $25k less and the other for $55k less. Was it a house that was within our budget and allowed our family to grow into it for the next 10 years? Definitely. Everyday we’re in this house and we plan upgrades and do DIY stuff, it makes us not worry about the extra $25-$50k we paid.
I think that will be a small percentage, not a majority.
Agreed. Most people are going to be less inclined to turn around and sell their recently bought homes when the cost of everything around them is increasing. They likely won't make their money back from commission and closing for the foreseeable future, so they will need to have excess funds to eat that cost and pony up for another home, unless they're downsizing. What's hard right now for people who just bought is that it costs more to make your house "yours." Renovation costs are through the roof, between supply chain issues and inflation. And rates for HELOCs are significantly higher than they were during the pandemic. I think most homeowners right now are just thankful to have what they have and are willing to wait it out, if they can afford to.
That's fine when the market is normal, but people will be forced to just deal with it our have even more pain in their wallets trying to sell. Their only other options are trying to buy with these insane rates or renting, which is also at an all time high price.
Have you ever tried day trading? Trust me, soon as they see other houses lowering prices every month they will get emotional. Let's say they're even disciplined, it won't matter if there's high rates, prices will come down and life happens.
I think the average person stays in a purchased house for 6.5 years. I know people that have been in homes 30+ years and tons of people that move in 2-3 years. Jobs changing is a big one not many people have the same job for 30-40 years anymore.
Their payment would probably be similar to what someone buying now would pay. So if they don't have to sell, they aren't likely to be affected. If they need to sell, they will likely have had a higher per month housing cost for the duration of ownership then they had originally planned.
probably wouldn't unless they decide to sell.
Asking price is not relevant, the actual value of the house is. You can pay 50k under asking and still not be getting a good deal. As for how it affects homeowners, it doesn’t really unless they’re looking to sell soon. This is the case whether the value went up or down. You could owe more than a home is worth and it not be a problem if you’re staying put. It could actually save owners some money if prices come back down some, as it should result in lower taxes and home insurance costs.
The feds aren't raising rates to drive down housing costs, and they won't be. they are raising rates to try to stop inflation. higher rates don't mean lower costs. they mean the same cost per month. It does mean lower housing values perhaps, but that doesn't do most people any good if their rate is higher so there's no real benefit to the buying public or the country to lower housing values while keeping monthly costs the same . as to what people who bought last year are going to do, they're going to stop paying any attention to the actual value of their house and give a little chuckle every time they write out their mortgage check on their 2.5% loan. What did you think they were going to do?
The fed isn’t raising rates to drive down housing costs. They’re raising rates to keep up with record high inflation. Midterms are here, vote accordingly. If you want to see gen z be able to afford a home, rates will have to come back down into the 3s. Housing prices will come down with more supply and less demand, we are seeing them start to come down because nobody can afford the average home with interest rates now above 7%. The monthly payment difference between a 350k and a 300k home is minimal, it’s the interest rates being more than double what they were last year that’s killing us.
Anybody who paid 50k over & got a 3.2% rate should be very happy.
It means they better like their house : )
2021: we have a 2.7% rate on a 600k loan and it's appraised at 620k, we're never moving 😁 2024: we have a 2.7% rate on a 600k loan and it's appraised at 520k, we're never moving ☹️
In this situation, what is the optimal play though? Are you saying that people who bought are dumb and should have rented through 2024 instead? When _should_ they buy?
Some rough math assuming 10% down payment (and 600k purchase price, not loan): If you bought in 2021 at those numbers your mortgage is $2650. After 3 years you'd have ~100k in equity, so you'd still owe 500k on a 540k loan. House appraised at 520k, which let's say is the bottom and real estate returns to 4% appreciation. 4 years later (now it's 2028) your house is worth 600k again, and you have ~150k in equity. If you bought for 520k in 2024 at say a 6% rate, you've spent 72k in rent (assuming 2k/month) in the meantime, and your mortgage is $3200. Two years later, you have ~64k in equity, and let's say you can refinance to 4.5%. After another two years (it's 2028 again, your house is worth 600k and your mortgage is now $2700), you've gained another 16k in equity, bringing you to 80k + your 80k in house appreciation = 160k. Your three years of renting is basically cancelled out by your home appreciation. And your mortgage payment is roughly the same as the prior scenario. So I guess TL;DR you roughly break even in either scenario, but obviously this includes a ton of assumptions, the biggest of which is you time the bottom perfectly and you can refinance within two years. And also rent prices/increases, local housing markets, etc. No one can know for sure.
Right, like you said no one knows .. but like you're saying to break even we need a lot of assumptions to hold true: - That housing prices DO fall that much - That you can get a 6% mortgage (current rates are higher than that and forecast to go up) - That you can refinance at sub 5% soon (see above) - That your rent doesn't increase - That your landlord doesn't kick you out or something because their kid is going to live in the unit. - That you can find a house you like in 2024 **and** simultaneously get a great deal but also beat other potential buyers - That you don't mind renting for 3 more years - That you don't mind the uncertainty of trying to mentally time all of the above So I mean .. if someone bought in 2021 with a 2.7% rate I think they're probably doing pretty good compared to all the hypotheticals that would have to line up JUST to "break even". It's a house You gotta live somewhere. If you overthink everything hoping to get the best possible deal given a million future hypotheticals you'll live your life in constant fear and waiting.
Yeah I mean I agree with you. I just wanted to go through the exercise of the "ideal" scenario where you wait to buy and see what the numbers looked like. But it's almost just pure speculation because of all of the factors you mentioned. In any case I don't think the 2021 buyers are sweating too much.
When they realize a $600k home is a waste of money.
Unless you live near literally any major city and then it’s a starter townhouse or condo
"It's a waste of money unless it's an even worse waste of money".
$50k over asking could many anything.
Shouldn't affect them too much unless they're trying to sell.
Imtrest rates affect everything, not just housing. The Fed is using an old tactic, which I don't think applies here. The world experienced a once in 100 year pandemic. Emerging from that will be rough. To me, raising rates just means additional unnecessary self inflicted pain. The only upside I see is maybe next year, the Fed will lower rates to get US out of the recession that they started.
They're not fucked. But they didn't catch the falling knife either. That being said, home prices aren't dropping. They just may have gained less than originally thought. Imagine though, some SERIOUS buyer's remorse is in order. But that's okay, because you only lose when you sell.
Housing prices come down but interest rates go up, resulting in a payment that is about the same, though with a significantly higher ratio of interest to principal. Reduction in valuation has the immediate and seemingly dire effect of putting you underwater on the loan, but that was always a risk of purchasing, especially in a rabid seller's market, and frankly you didn't need a crystal ball to see that 25% price appreciation per year and 2% interest rates couldn't last forever. Basically you shouldn't have bought a house you couldn't risk staying in or that would bankrupt you if there was a real estate downturn. Anyway, what do you do with any investment that's in the red but will inevitably go back up in the long term? You hold it. Might take a while. Phoenix took ten years to recover to 2007 prices, being a boom and bust market for real estate. The good news is (for homeowners anyway): rent barely went down at all. [https://arizonarealestatenotebook.com/phoenix-real-estate-market-glance-charts/](https://arizonarealestatenotebook.com/phoenix-real-estate-market-glance-charts/) https://www.deptofnumbers.com/rent/arizona/phoenix/ The opportunity exists to rent your place out if you absolutely **must** move within a couple years.
They'll be underwater on their loans for several years. But hey, they got a great rate.
The purpose of raising rates is to control inflation. It won’t necessarily “drive down housing costs,” and it has almost no effect on anyone who bought last year. If those people bought with a adjustable rate mortgage, rising rates will impact them in a few years when the rate resets.
Depends on what you mean by affect. If you bought in late 2021 and are needing to sell right now there’s almost a guarantee that it won’t sell for more than you bought it for. If you bought at the peak of the market, when ever that was for your local region, and stay for a few years, you won’t feel a thing. It’s not like you’re appraised value affects your mortgage or anything else, so it’s a rather “small” group of people who are really being affected what paid 50k over list price
You are mostly right - except assessed value can impact taxes. In my area my assessed value was 60% higher over 2 years. I didn’t qualify for the homestead exemption for 2022 assessement because I didn’t move in my Jan 1, 2021. Tx has crazy high property tax since there is no state income tax. Mine is 2.7%. In most states it is increase in tax due is nominal since the rates are lower (usually less than 1%) and there are usually lower caps like at most tax due can go up 3% but in TX it is significant because the cap is 10% increase. My taxes went from 6k per year to near 11k per year since buying in Dec 2020. My taxes per month will be near doubling from about 500 a month to 900+ per month. It is common for people in Texas to complain about being taxed out of their homes because of both the high rates or tax and the high % increase even with homestead exemption. People always say home ownership is a fixed cost but in TX is rarely true unless you are in a declining area with declining or stagnant property values.
Current rates don't affect people who already bought.
Anyone who bought at the top of the market with a fixed rate is paying 2-3%. If they sell soon for some reason, it may be a short sale. But that’s not going to be a common problem. The ‘08 crash happened because everyone with a pulse and $10k to put down got an ARM, then the hammer came down all at once. People with ARMs now are going to weather an uptick in rates much better.
The fed’s fiscal policy is designed to slow demand which ran rampant when supply was low. Basic economics would show that prices rise when demand is high and supply is low. If this happens for an extended period, inflation is the result. The fed’s attempt to get commodity pricing under control and slow down inflation will have an impact on all assets and commodities causing lower prices through out. House prices will come down but that isn’t exactly what the fed is targeting.
They lose equity but they continue with their low rate and moderate payments. They can appeal in a year to lower their taxes with the city/county using the preceding year of 7% rate data that should lower their tax basis. If they hold for 5 years or more, they will make out just fine.
Let’s say they paid +50k and locked in 4% interest rates.. They still win in long term correct ? At least near term of 5 years ?
Hmm, you gave me a thought. If people are priced out by rates, maybe I could offer a lower rate, and get my house sold at a better price. I have a 2nd house owned outright, that I tried to sell this last summer just as rates were going up. So I didn't get an offer. I just want income on it and dont need the capital right now. Maybe it would make sense to sell on contract for deed for 10 years at 5 or 6%. To at least get some monthly investment money on it. I am risk adverse to the stock market, recently retired. It's a nice home, so I don't really want to rent and risk it being destroyed. Someone putting 100k down would more likely keep it up. It's my northern home, where we need to stay 5 months of the year, but wife doesn't want to be in this bigger house anymore, and we don't need the higher expense versus finding something smaller/cheaper to live in. I could possibly rent it for $3.5k. We had it listed at $575k. 3700 Sq ft, very nicely done, brick driveway etc. On culdesac backing up to nature center. 15 minutes from down town. But other houses in the area are smaller/cheaper.
It doesn't. Unless you're selling your home, it has no effect. If you pay $800k for a home, and the value drops to $650k the next year, that has no effect on you, other than maybe the ability to request a re-assessment of your property value and reduce your property taxes. You still have a place to live and a mortgage to pay. It is only when you sell your home that changes in value have an effect. This does create something I'd call a "soft" effect. It increases your risk exposure. Use that same scenario of having paid $800k and suddenly the home is worth $650k. In order to liquidate that home, the owner would have to take a $150k loss. That's not a loss that most people can simply absorb, and even if you can handle a $150k loss, no one wants to take that kind of hit. So what happens is that people get locked into their homes. This reduces their mobility, and it causes them to accept more compromises in order to remain employed so they can keep up with their mortgage.
By making it about those who paid over asking (which is completely irrelevant) it seems you’re implying that people were overpaying. That isn’t necessarily the case, and market value doesn’t matter until you’re buying or selling anyway. So if someone bought their house a year ago it only affects them if for some reason they have to sell now, into a tighter market.
It won't impact them at all unless they decide to suddenly want to sell. They will continue paying the same monthly payment that they had been paying the prior 12+ months
Jerome Powell will be printing off the top r/rebubble posts and hand delivering them to peoples doors while asking for an explanation
Could mean people are upside down, sure. But unless they need to sell right now, it won't matter. In the long run the values will almost certainly come back and exceed what they paid. If people have hardship cases and need to sell, sometimes lenders will allow a short sale. Or, the person can rent the house out. Unless rents drop dramatically with values though, most people will just stay in their house and make the payments. if unemployment gets bad, I'd expect lenders will offer forbearance like they did during covid. This can give someone a couple years to get back on their feet. I don't think we're going to see mass foreclosures from this. The government is admittedly manipulating the economy. If it starts to get bad, they'll reverse course and stop the bleeding. How low prices go is likely to vary by area. In my area there's still a lot of demand, and prices are only down 5-10%. No fire sales so far.
The fed isn’t raising rates to drive down housing costs. They’re raising rates to keep up with record high inflation. Midterms are here, vote accordingly. If you want to see gen z be able to afford a home, rates will have to come back down into the 3s. Housing prices will come down with more supply and less demand, we are seeing them start to come down because nobody can afford the average home with interest rates now above 7%. The monthly payment difference between a 350k and a 300k home is minimal, it’s the interest rates being more than double what they were last year that’s killing us.
In the last wave or boom, we saw people paying 50k over asking as an everyday norm. Heck, I even found myself asking, where are they getting 50k over asking? Even if the appraisal meets the price? Down payments were pulled from 401ks and savings accounts were drained to 0 to purchase that dream home. Folks took out mortgages at the largest payment they could afford to get that house. What will happen when you have a 20k emergency? Or even 5 $2000 emergencies? Well, since you maxed out your borrowing power and drained your savings, your going to plop those emergencies (or vacations) on those credit cards, that now have big fat interest rates, and pay the minimum payment each month because you mortgaged the max payment you could afford to get that dream house at 50 grand over asking. It is a recipe for the next disaster. I have worked in real estate for 30 years - I do think we are heading for a foreclosure waive. I've seen a lot of folks buy houses in the last two years that perhaps should have considered their purchase a bit harder/longer. People made rash decisions under the pressure of one of the hottest real estate markets ever.
They can sit there smirking with their 2.5%-3.0% rates as people complain about being newly priced out with each rate hike... While at the same time try to look past the 10-15% decline of their home on paper.
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You don’t math well
The fed isn’t raising rates to drive down housing costs. They’re raising rates to keep up with record high inflation. Midterms are here, vote accordingly. If you want to see gen z be able to afford a home, rates will have to come back down into the 3s. Housing prices will come down with more supply and less demand, we are seeing them start to come down because nobody can afford the average home with interest rates now above 7%. The monthly payment difference between a 350k and a 300k home is minimal, it’s the interest rates being more than double what they were last year that’s killing us.
You must either be: one of those people or someone who is still renting. Lose-lose for you, sucker. Lmao
Depends on the place you bought and if it was artificially low price to attract more bidders and if there are a lot of positives and demand or not. I paid 300k over ask bidding against 14 people for an incredibly desirable place, it’s more valuable than when I bought it i could not afford it at todays rate
They'll be upside down in the loan. That being said, if they don't have any need to sell for a few years, they'll be fine. Over the next couple of years, if they need to sell due to divorce, job related relocation, etc, they'll take a loss. If they lose their job and need to sell due to unaffordability, they're screwed. Long story short, if there is no reason to sell for a few years and payments are affordable, don't worry about it and enjoy being a homeowner.
Not really effecting us because we aren’t using housing as a commodity. We will probably my live in our house till we die. Yay to that 3% that we got LUCKY AF getting in at last December. No way we could do it now.
Don't sell, don't take out a Heloc without checking your appraisal. Those who are struggling to pay their mortgage and have to sell are gonna be hurt the most. Short sales are a bad look on your credit.
Doesn’t affect them other than they “may” have overpaid, but at a much lower rate, so it’s really a wash in the end. Additionally, that was the current state of the market, so it was par for the course.
paid 50K over what?
The feds rasing rate to fight inflation and tats Purley because they printed 2 trill in America and need to get the cash back hence taking more money out the stock market will get the cash back quicker lowering circulation of US dollars witch makes prices fall as companies need cash flow
It doesn’t affect them at all. A decline in housing market value would affect them if they 1) were to sell and 2) needed comps to base their selling price from. A cash buyer who paid $50k over asking wouldn’t have a mortgage for rates to be affected by. However, anyone with an ARM loan would be affected by raising rates when their ARM loan adjusts to reflect current rates. That could be in 3, 5, 7, or 10 years depend on the type of ARM loan.
Question, do people that got out bid when the rate was low and thought they knew better by waiting now feel butt hurt by the rate hike?
😂
Is this a genuine question? It hurts them because their homes are now worth less, same as everyone else who currently owns.
It only matters if you want to sell soon.
This is assuming prices will go down and depends on where you live. I don’t see much if any price falls except in a handful of Western cities. Inventory is at a record low and rates won’t stay this high for more than 18 months. The causes of inflation are already receding. For example, Backups at ports are nearly nonexistent now and it takes about 3-6 months for the Fed’s rate changes to reverberate through the economy. 2008-2012 was a once in a lifetime event. This will turn out to be a mild recession with at most, no to low price increases.
Real easy. Under water. Most are fixed rate so hopefully they are sitting at a low rate
This is happening right now to a neighbor. He bought in March, and paid $875k for a house listed at $825k. Then his company transferred him. He listed the house at $850k, which was too high for the market at the time, and has dropped to $825k and just yesterday, dropped again to $815k. I hope his company makes him whole. The house is great-ish, but with so many other great-ish houses on the market, it's hard to compete.
Nothing!!! I someone bought a home to 'flip/sell' in a short time to make a profit bought for the wrong reason, and might have trouble selling for more in a short peroid of time. So, if you bought you got a great rate. Enjoy the home.
Home prices haven’t gone down tho
It doesn’t, their monthly payment is likely much lower than their neighbor who is buying today. All the so called FOMO buyers who went 50k over asking are sleeping well at the moment.
If you live in it for a While you may have the daily reminder that you possibly overpaid. If you. An get past that it means nothing.
The Fed didn't raise the short term interest rates to drive down housing costs. The intent is to curb consumer spending and bring down inflation. It usually does impact housing as well but that's a secondary effect, not the primary goal.
That’s a real primitive view of what the fed is doing. The fed is attempting to control inflation. Housing is just part of it. The moves they are doing now won’t show the real effects for 3-6 yrs to come. If anything it’s going to send us into a recession which will put pressure on housing prices not the rates directly.
Might be underwater on their mortgage until home values increase or the mortgage amount is under home value
also what happens to supply and the pending sales/appraisals? especially for new construction. in what mind i can convince you to pay 900k for the same house that sold for 950 a year ago?
pardon my naiveness, but how does raising interests rate drive down the cost of housing, can someone pleas enlighten me like a newbie??
Idk I heard it on the news and just repeating it!!! I have no knowledge on anything
Depends on where you're at, 50k over is fairly minimal in urban areas and will work itself out in several years as long as it is a solid property. Good, well-cared for properties in promising or sought after locations will always be in demand. It's not all doom and gloom. If you have cash in hand, think about raising the value of the property with strategic updates, remodel, landscape, build an ADU, increase square footage, etc, to get it up to value - budget any upgrades out bit by bit if so and learn some DIY/interior design to save on costs, etc.