How are people affording these crazy home prices?

[Broomd]

You’re giving the government way too much credit, they’re not that smart. They see one step ahead and that’s it. No long term planning here - this is not China…

Next step as I see it is inflation forces the Fed to end QE and then start to raise interest rates in late 22. They won’t get far. A couple of raises and the stock market will buckle. Once it’s down 20-30%, the Fed panics and reverses course yet again. Problem is, now inflation is still running hot and they’re unwilling to fight it. Now we are really off to the races with inflation - stocks, gold and houses go way up. A few years after some ham-handed attempts at government price controls, the economy is in recession, gas is $20/gallon and week’s groceries is $1k. Wages probably don’t move much.

The upside is government debt to GDP ends up far, far smaller than it is today as inflation eats the debt. US still has world’s largest gold reserve and can re-back the dollar with gold anytime - makes perfect sense after the debt inflation devaluation is complete.

The one outcome that’s totally politically intolerable is allowing housing to slump 20%+ with interest rates rising. There would be so many underwater, unemployed home ”owners” out there mad as hell and desperate for a bailout. That’s why deflation cannot happen. We’re running out of runway and there’s no good options for dealing with this. Historically, every government eventually ends up turning to the printing press though…

Welcome to the 'slide...

 

[Middleofnowhere]

My wife and I downsized houses this year, 2021. We sold our paid off house and bought a cheaper house out further in the sticks. We decided to use my VA benefit and financed the new house with a 2.5% interest rate.

I purchased my first house in 1993. I financed that house at a little over 10% interest rate. My new house cost almost twice as much as my very first house 28 years ago, but my current payment is about $15 a month Difference from my very first house purchase.

With today’s interest rates, houses are still historically affordable imo. With rising inflation, interest rates have to go up soon. Real estate prices will have to come down or there will be no buyers.

 

[Glory]

The problem here is that overall, people don’t learn from history. They act like it will be different this time. It doesn’t work that way.

The question is when. People have been calling a crash for the last 8 years. Both in housing and the market. Lots of missed gains.

 

[mwebs]

In 2 and 1/2 years my house is worth 300,000 more than what I bought it for would love to sell but would have nothing to buy unless I moved.

 

[sasquatch]

I was told by someone ‘in the know’ that all the cash home purchases was from all the marijuana money that is legal in many states


They can’t put the money in the bank since it’s considered drug money at the federal level.

Dunno - but it does make sense

Cash purchases are almost never that. (Cash)

I’ve bought 3, nome we’re with cold hard cash.

They always want cashiers checks, which would require the money to enter the bank to start with.

I’d like to see someone hand over a suitcase at a hose closing full of 100s. Maybe somewhere it happens but I’ve never seen anything like it


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[sasquatch]

The work from home trend will level out, when more and more companies start setting your salary off of the economy where you live!

A lot of these people with high salaries, moving to remote cheaper places to work from home will end up with a pay check gut check.

Look at google for an example.


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[sasquatch]

Unless I am misunderstanding, I either don't get or couldn't disagree more with everything you said.. 30 year mortgages are key to home ownership which is a key part of man people's financial future/retirement. There is no relationship between the financing rate and the value of a given home. In these inflationary times, low 30 year rates makes for essentially free money while home values are increasing at an unprecedented rate which equals more equity.

The mortgages drives prices up. It’s that simple. Exactly like student loan debt. Make them compete for what people can pay and prices fall, virtually guarantee a loan to people and all of a sudden the demand passes up the supply.

Loans extending out payments remove incentive to compete and lower cost.

People are so bad off financially educated they care about nothing more than (can I afford the note)
And never look at the big picture.

Look at car notes for example. They (cars) get so expensive ppl can’t afford them and walla 7 year loans. That makes it mostly affordable but more costly all at the same time.

On mortgage wrote offs as mentioned before. With interest rates so low your wrote off is now almost nothing. What’s this equal? You paying more taxes to the government, and very little cost offset on a house.


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[sasquatch]

Exactly....

Long term appreciation rate on housing in most areas is roughly 3.5-5%
Long term inflation rate is roughly 3.5%

If you're paying 2.5-3% on a mortgage you eventually end up with a free house. Factor in the opportunity cost of what your money can make in the market (8%+) and it's suddenly a no brainer.

I'm a dyed on the wool debt hating machine...and even I can't get excited about flopping down spare cash to pay down 3% money.

People have forgotten (as they always do when the market is going up) that real estate is a long term play.

You get to hold your money while getting the house yes. However that house cost a whole lot more than it use to.

If the house only appreciates at the same rate of the interest it’s not that big of of a win. That’s staying flat. What your gaining per year you are giving away also.


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[MattB]

The mortgages drives prices up. It’s that simple. Exactly like student loan debt. Make them compete for what people can pay and prices fall, virtually guarantee a loan to people and all of a sudden the demand passes up the supply.

Loans extending out payments remove incentive to compete and lower cost.

People are so bad off financially educated they care about nothing more than (can I afford the note)
And never look at the big picture.

Look at car notes for example. They (cars) get so expensive ppl can’t afford them and walla 7 year loans. That makes it mostly affordable but more costly all at the same time.

On mortgage wrote offs as mentioned before. With interest rates so low your wrote off is now almost nothing. What’s this equal? You paying more taxes to the government, and very little cost offset on a house.


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In our local market many deals are all cash and prices are $1,000+/sf for single family homes, so I don’t think your theory holds water.

The standard deduction is higher than virtually any average person can exceed by itemizing, so it in fact the opposite of what you claim despite not being able to itemize mortgage interest. So, people are not paying more taxes as you claim.

 

[CoStick]

The work from home trend will level out, when more and more companies start setting your salary off of the economy where you live!

A lot of these people with high salaries, moving to remote cheaper places to work from home will end up with a pay check gut check.

Look at google for an example.


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Assuming there isn’t a labor shortage.

 

[hodgeman]

You get to hold your money while getting the house yes. However that house cost a whole lot more than it use to.

If the house only appreciates at the same rate of the interest it’s not that big of of a win. That’s staying flat. What your gaining per year you are giving away also.


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It depends on your local market. If you got a mortgage in the last couple of years you're probably paying 2.5-3%. Long term inflation is 3.5% and short term is even higher this year.

For round numbers, assume you're paying 3% interest and appreciating at 3.5%... you're "making" 0.5% per year on a house. Not shabby in considering housing has to cost something.

Now invest the money you'd be sticking into a principal payment and make 8%... roll that out for 20 or 30 years and the difference is staggering.

 

[svivian]

Cash purchases are almost never that. (Cash)

I’ve bought 3, nome we’re with cold hard cash.

They always want cashiers checks, which would require the money to enter the bank to start with.

I’d like to see someone hand over a suitcase at a hose closing full of 100s. Maybe somewhere it happens but I’ve never seen anything like it


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I never thought anyone would think a cash offer is actually cash brought to closing. I guess those cashiers checks I use are something else…

 

[sasquatch]

I never thought anyone would think a cash offer is actually cash brought to closing. I guess those cashiers checks I use are something else…

It is if you going to reference it as a cash buy, to hide money from the bank

To then cash out refi, and launder the money!

Show me how to hide money from the bank by depositing it first.

Maybe read the whole context to what I responded to


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[sasquatch]

In out local market many deals are all cash and prices are $1,000+/sf for single family homes, so I don’t think your theory holds water.

The standard deduction is higher than virtually any average person can exceed by itemizing, so it in fact the opposite of what you claim despite not being able to itemize mortgage interest. So, people are not paying more taxes as you claim.

That may be (your area) however it’s far far from the average

The average citizen will never have interest to pass 12k standard deduction


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[sasquatch]

It depends on your local market. If you got a mortgage in the last couple of years you're probably paying 2.5-3%. Long term inflation is 3.5% and short term is even higher this year.

For round numbers, assume you're paying 3% interest and appreciating at 3.5%... you're "making" 0.5% per year on a house. Not shabby in considering housing has to cost something.

Now invest the money you'd be sticking into a principal payment and make 8%... roll that out for 20 or 30 years and the difference is staggering.

Again, thats half the story! Without mortgages houses would not COST SO MUCH TO START!

Everything that has an easy government supported loan process to buy is more expensive to buy

Case in point, house values as soon as interest rates fell.

Yayyyyy, we got 3% loan yet the house cost 30% more. What a win

Just like vehicle loans went to 7yr loan to support the prices, I bet we are nearing 40year mortgages to keep the can rolling.

Wait People can’t afford it? So the economy gonna slow?? Oh the hell with that, let’s make it affordable by adding 10 more years of interest to it.

It’s such a good deal. Maybe we can have 100yr mortgages like Japan one day.


Now let’s do some math like you said money in house vs market. Buying a house allows free cash flow.

So. Let’s use an easy 100k for example.

We buy the house cash. We down to 0. But now we saving 800 a month to invest.

The house appreciates at 3%. The house in 30 years is worth 242k

We take the 800 per month and invest. (The free money now from no note) it grows at 8%. In 30 yrs we have 1.1m plus the 242k house. So let’s say 1.3m

Vs

We mortgage the house. Put 20k down. House appreciates the same time 242 so that’s easy. Except now we’ve paid 280k for it after 30 years. So what we paid is the same as what it’s worth.

In doing so, we took the 80k remaining after down payment and invested it but now have no other monthly money to invest because of the house note.. It grows at 8% to 805k. 805 plus 242 is just over 1m

So, you come up short.

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[MattB]

If you were to compare a graph of home prices in many major US markets against mortgage rates, you would see that mortgage rates have less influence on home prices than you believe. The US home market is international and there was a lot of undeployed capital on the sidelines coming into the market prior to COVID and the related mortgage rate reductions.

 

[Mule3006Elk]

The question is how many can afford these homes and still have enough liquid cash to enjoy their life.
I live way below my means for this reason. There's no fun in having stuff which financially straps you.
I'm not a needy guy nor do I need the latest greatest but it's nice to buy something every now and then and not be stressed about the funds.
BUT...To each their own.

 

[MattB]

Again, thats half the story! Without mortgages houses would not COST SO MUCH TO START!

Everything that has an easy government supported loan process to buy is more expensive to buy

Case in point, house values as soon as interest rates fell.

Yayyyyy, we got 3% loan yet the house cost 30% more. What a win

Just like vehicle loans went to 7yr loan to support the prices, I bet we are nearing 40year mortgages to keep the can rolling.

Wait People can’t afford it? So the economy gonna slow?? Oh the hell with that, let’s make it affordable by adding 10 more years of interest to it.

It’s such a good deal. Maybe we can have 100yr mortgages like Japan one day.


Now let’s do some math like you said money in house vs market. Buying a house allows free cash flow.

So. Let’s use an easy 100k for example.

We buy the house cash. We down to 0. But now we saving 800 a month to invest.

The house appreciates at 3%. The house in 30 years is worth 242k

We take the 800 per month and invest. (The free money now from no note) it grows at 8%. In 30 yrs we have 1.1m plus the 242k house. So let’s say 1.3m

Vs

We mortgage the house. Put 20k down. House appreciates the same time 242 so that’s easy. Except now we’ve paid 280k for it after 30 years. So what we paid is the same as what it’s worth.

In doing so, we took the 80k remaining after down payment and invested it but now have no other monthly money to invest because of the house note.. It grows at 8% to 805k. 805 plus 242 is just over 1m

So, you come up short.

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The monthly payment (P+I) for an $80K mortgage at prevailing rates (3.25%) is ~$350/month. Interest paid over the life of the loan is ~$50K. Total P+I is ~$130K. My sense is if you used real numbers and not those grabbed out of thin air and only assumed an investment of that $350/mo. instead of $800, the mortgage scenario would look a lot more favorable.

 

[MattB]

More than 30% of US sales were all cash from Jan. ‘21-April ‘21.

Share of Homes Bought With All Cash Hits 30% for First Time Since 2014

Cash is on the rise as affluent Americans benefit from a surging stock market and the flexibility to move to more affordable parts of the country.

www.redfin.com

 

[Zappaman]

Same old game… it will correct and 2008 was 14 years ago. Read your history folks.

That said, I divested early over the last 30 years… every time. I got out way too early in 2004 and 2012. But I made money and so I am glad I have the home I do today. Now, if I could get my TAXES down!