How are people affording these crazy home prices?

[Trap]

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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Truth I don’t think a house closing has ever been done with suitcases of money. If it was alarm bells and sirens would go off !! Lol there are very specific reporting requirements for all financial institutions to report large sums of actual cash and a house closing is the same. Cashiers check or wired funds is a “cash” offer not a bunch of marijuana 100 dollar bills

 

[sasquatch]

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.

It’s convincing to me. All you have to do is talk to people, they only care about the monthly affordability when buying. Which interest rates make lower.

And also in dollar for dollar comparison with 350 per month. Yea after 30 years your net worth will be roughly 700k compared to 1m if used a mortgage.

However that 30 year net worth is reliant on risk and market timing.

Out right owning your house comes with a lot of positives that can make one sleep well at night. Having a place to stay at the cost of just property taxes, and the ability to be more flexible with insurance coverages/cost without the bank in your business.

Last market crash put a lot of people out in the streets. It’s just the reality’s that will happen and people leveraged to the max will be the losers.

If we wanted to only worry about total net worth there are a lot of cases to be made with renting coming out way ahead too.


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[sasquatch]

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

This is a tactic people use, including myself at times.

They almost always mortgage it (delayed financing) after and use the cash buy for bidding power. Especially in this market where stuff goes for over asking. The people with some money saved can use the cash offers to maybe lock in a lower total purchase price

This who can anyway.


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[LookinforDirt]

Having just gone through this, we sold in a market that was exploding, Austin, TX, and moved into a market that is doing the same, Nashville area. We sold for $280k more than we paid in just over 4 years of ownership. But it took nearly every bit of that profit to buy a new place. Where we really benefitted is the substantially lower property tax rate in TN vs. TX. But that’s another subject.

As far as people buying in at these high prices and potentially losing their butts when/if prices fall, I’m not to worried. If my house drops 30% of its value it won’t be in just my market where prices are falling. It will be nationwide. Some markets more than others but a housing market collapse won’t affect a few specific locations (barring the anomalies that always exist). If I’m selling at a loss, I’ll be buying someone else‘s loss. That is exactly what happen when I sold and bought during the 2008 collapse. We lost, we bought someone else’s loss, and sold 7 years later at a nice gain. And used that entire gain to buy our next home. And I was lucky to buy in low 4 years ago (which certainly didn’t feel low at the time) before this current surge in home prices. I really didn’t make as much money as the numbers imply. I did buy at a lower price per sq ft in Nashville vs Austin so we ended up with a larger home by 1100 sq ft for not much more than we are sold for in Austin.

I think the moral of the story is home prices are a two way street. If in the same market, speed limit is the same on both sides.

 

[ShortMountain91]

Where we really benefitted is the substantially lower property tax rate in TN vs. TX. But that’s another subject.

This guy's crazy. Tennessee = high property tax, mean people, smog, dirty. You really don't want to live here. Ok maybe as long as you stay in Nashville it's alright

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[LookinforDirt]

This guy's crazy. Tennessee = high property tax, mean people, smog, dirty. You really don't want to live here. Ok maybe as long as you stay in Nashville it's alright

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Lol. True, true. Now that I’m here I realize that. Please no one else move here.

 

[Poser]

Lol. True, true. Now that I’m here I realize that. Please no one else move here.

Well, there is the extraordinarily high sales tax to consider in TN.

 

[paninip]

Hoping this post is still active as I am certainly interested in any advice on this topic. My boyfriend and I are both 25 and live in Charlotte, NC. We are dual income ($210-235,000/year) with no kids. We contribute 10-11% to roth 401ks, have savings, and try to keep costs to a minimum but we are renters. We do not have combined finances other than mutual bills and he is working to pay off student loans and a car payment, I am debt free.

We would love to move west, particularly to the Las Vegas area (or Utah) for all the hiking, camping, dirt biking, and shooting that we love. Prices for homes in the good areas are typically starting at $400,000. I truly never thought that we would ever pay that much for our first home but it is looking more like we would need to pay $450-550,000 (insane). We have no desire to be house poor. Also, in LV, you are LITERALLY on top of your neighbor and looking inside the homes of your neighbors - no land whatsoever in those subdivisions.

We are so torn between purchasing a new home build, purchasing an existing home, or not purchasing at all and continuing to rent just because of how expensive it is. I’m leaning more toward the side of not purchasing to continue building up savings for a larger down payment but my concern is rising inflation and that home prices might be even more expensive and never come down. Also, like so many others who have pointed this out, we would never be able to compete with the folks coming from places like California with tons of cash/equity roll over from a previous home sale which is why we thought building in a new neighborhood would be our best option for purchasing.

thank you so much in advance!

 

[ColoradoV]

Numbers on a piece of paper that’s all it is…. Glad we paid ours off awhile back.. Going to build (once we save not going into debt) on our spare lot then rent the house we live in.

Yea they say our house has doubled in value in the past 5 years. Same w the short term rental, building lots, and commercial property we own. Same w my parents, brother, mother in law, and sister in law property = who all live here. Over time we could purchase these due to having no debt and staying centered on community and family.

Staying centered for 4 generations has allowed this lifestyle as in 1930 these little mountain ski towns were a lot cheaper!

My advice is live within your means for a generation or 3, help build a community, and earn your spot but most folks just want instant gratification and that my friend will in my area start at about 1 million and go up up up from there…

 

[Nickofthewoods]

Wow! Rokslide is getting so popular that people are joining just for the financial advice.

 

[PNW bow hunter]

It might be a good idea to rent for a year if you uprooting and moving to a whole new part of the country to make sure that’s where you want to live. That would let you get to know the town or city your going to.

If you are buying a home where you KNOW you want to be long term, home value fluctuations won’t affect you since you aren’t selling.

If you buy a home, then figure out you don’t like that part of town or that city you are stuck if home values drop, unless you want to take a loss. Even if home value just had normal appreciation it would probably take 2-3 years to cover sales fees and original loan closing costs.

If you are sure you guys would be there 10 years from now, I would just buy. No one knows of house prices will have any Downward correction. We do know mortgage interest rates will rise if the FED does what they announced the will do to curb inflation. I refinanced the two mortgages I have to 15 year loans @2.6 percent interest last summer.

2 or 3 years from now house values could be the same or higher, and rates could be significantly higher.

Where I live rent has seemed to always be similar to what a 30 mortgage would be with 20 percent down payment, so your not saving any money going the rent route.

 

[paninip]

Wow! Rokslide is getting so popular that people are joining just for the financial advice.

I googled “how are people purchasing such expensive homes right now” and this thread was the second option. Appreciated the thoughtfulness on many of the responses so it seemed like a great place to ask. I have actually never heard of this site before today.

 

[paninip]

It might be a good idea to rent for a year if you uprooting and moving to a whole new part of the country to make sure that’s where you want to live. That would let you get to know the town or city your going to.

If you are buying a home where you KNOW you want to be long term, home value fluctuations won’t affect you since you aren’t selling.

If you buy a home, then figure out you don’t like that part of town or that city you are stuck if home values drop, unless you want to take a loss. Even if home value just had normal appreciation it would probably take 2-3 years to cover sales fees and original loan closing costs.

If you are sure you guys would be there 10 years from now, I would just buy. No one knows of house prices will have any Downward correction. We do know mortgage interest rates will rise if the FED does what they announced the will do to curb inflation. I refinanced the two mortgages I have to 15 year loans @2.6 percent interest last summer.

2 or 3 years from now house values could be the same or higher, and rates could be significantly higher.

Where I live rent has seemed to always be similar to what a 30 mortgage would be with 20 percent down payment, so your not saving any money going the rent route.

Totally agree with you! It seems like the right thing to do too. We did spend the summer of 2021 living in the area so we have an idea of what it was like to be there but a year is better than a couple months.

I think the 3-4 rate hikes predicted by the FED this year will definitely help us understand how the market in those areas are affected also. We don’t have 20% for a 30 year, $450,000+ home (new or existing) so we can take advantage of the time to put away for that before we did pull the trigger. We would have an advantage of at least 10% (although would need to factor in PMI to total cost) and potentially a new home buyer program although we could be considered not eligible based on income.

Thank you so much for your thoughts and appreciate the insight!

 

[Pony Soldier]

If you aren't ready for the nursing home yet I think you have to price your home for it's replacement as opposed to it's value. I told the wife the other day that the ranch was worth $12 M and if someone offered that the price goes to $15M. I'm not moving.

 

[2531usmc]

With the appearance of 7% inflation and the Fed telegraphing prolonged interest rate hikes, I’m guessing the housing bubble and the stock market bubble will be pricked. Housing prices will come back to earth albeit with higher mortgage interest rates.

and those people that bought speculative homes at greatly inflated prices will be SOL

 

[BroncoAZ]

Hoping this post is still active as I am certainly interested in any advice on this topic. My boyfriend and I are both 25 and live in Charlotte, NC. We are dual income ($210-235,000/year) with no kids. We contribute 10-11% to roth 401ks, have savings, and try to keep costs to a minimum but we are renters. We do not have combined finances other than mutual bills and he is working to pay off student loans and a car payment, I am debt free.

We would love to move west, particularly to the Las Vegas area (or Utah) for all the hiking, camping, dirt biking, and shooting that we love. Prices for homes in the good areas are typically starting at $400,000. I truly never thought that we would ever pay that much for our first home but it is looking more like we would need to pay $450-550,000 (insane). We have no desire to be house poor. Also, in LV, you are LITERALLY on top of your neighbor and looking inside the homes of your neighbors - no land whatsoever in those subdivisions.

We are so torn between purchasing a new home build, purchasing an existing home, or not purchasing at all and continuing to rent just because of how expensive it is. I’m leaning more toward the side of not purchasing to continue building up savings for a larger down payment but my concern is rising inflation and that home prices might be even more expensive and never come down. Also, like so many others who have pointed this out, we would never be able to compete with the folks coming from places like California with tons of cash/equity roll over from a previous home sale which is why we thought building in a new neighborhood would be our best option for purchasing.

Any advice is greatly appreciated so thank you in advance! Also, if you know of jobs/companies in the financial industry that need people in those locations, let me know too - lol!

There is a lot to unpack from your post, but it’s clear you’ve got a good head on your shoulders. Sounds like you are doing very well at 25 with that much income and limited debt as a couple. The quick summary: buy a house and start building equity for yourself rather than your landlord. Increase your Roth 401K to the max contribution ($20,500 each for 2022) as soon as you have enough saved for your 20% down payment. Don’t move to Las Vegas

First off, Las Vegas is not a place I would ever choose to move to. I used to spend 8+ weeks per year there for work and it always feels “dirty” to me. The strip is glitzy but very fake, just off the strip is dirty and unsafe, and the outlying areas like Summerlin and Henderson are homogenized masses of track housing as you described. The mountains surrounding LV are not pretty like the mountains in Tucson or Albuquerque. Utah is nice from what others have told me. My wife went to SLC for work and remarked how pleasant and clean the city was. A buddy lives north of SLC and is happy raising his family there. I have lived all over AZ and spent significant time in Albuquerque/Santa Fe. Most of these cities are being overrun with Californians fleeing their failing state. Phoenix has significant opportunities for jobs and recreation, great firearms scene and plenty of outdoor opportunities, but I’d rather live in Tucson as it’s a smaller city with decent opportunities but lower costs. Something else to be cognizant of is the sustainability of water resources over time. Las Vegas gets all its water from the Colorado River, which is over allocated to the states it passes through with Nevada only getting .30 million acre/ft annually of the exaggerated 16.5 million acre/ft annual flow estimate. Significant drought could cause major problems for Las Vegas and other cities in the west.

I would advise you to purchase a home ASAP while interest rates are low if you believe the market will keep growing or staying steady. Rents are only increasing as more people can’t swing buying a home. We may see a significant dip in home prices if there is a recession, but as interest rates rise mortgages will become more expensive even if the price drops. We are well past the normal 8 year cycle for correction, but it seems like the powers that be are focused on propping up the house of cards. Certain areas will be hit harder than others if there is a dip, Las Vegas did very poorly 2008-2011. Over the long term, inflation and increased demand will mean that regardless of dip any home will be up. I would advise you only buy something you have the 20% down on, PMI isn’t easy to get rid of like it was when I purchased my first home in 2003 with 5% down. I heavily advocate for a 15 year mortgage to build equity faster and pay less interest over time. My current home on a 30 year 4% mortgage was $265K in interest, the 15 year 2.25% refi a year later drops that interest to $62K and I’m building equity much faster. With the inflation that is happening I can see the argument for the 30 year mortgage and paying it off with cheaper dollars later as the currency devalues. Personally I hate all debt, so 15 year makes me feel better.

We sold our starter home in Tucson for a decent profit in 2006 just before the recession, then we rented for 12 years and missed buying in the dip. I was shopping for the right house in Phoenix from 2011 to 2015 but couldn’t seem to have a deal go through. What I could’ve purchased in 2011 for $200K was $400K by the time we moved to Flagstaff in 2016, so we paid $150K in rent with nothing to show for it. We purchased in Flagstaff for $465K in 2017, it was worth $560K when we moved to MA a year ago, now it’s worth $850K. Fortunately we kept it as a rental and didn’t lose out on all that growth. I like Flagstaff and the investment, but where we want to buy in MA the starter homes are $700K+ and something nice is 7 figures. If we sold now we would walk with $450K in capital gains free profit, making a 7 figure home purchase possible. We are saving, but currently can only swing the down payment on $700K. If we keep the Flagstaff home it’ll be a great income producing property once it’s paid off, right now we are breaking even but gaining equity.

Look for an older home without an HOA. Being packed in like sardines with an overbearing HOA writing you tickets for a weed on your sidewalk or parking with a tire off the concrete is no way to live. Single family homes with an actual yard are always in demand. You may be able to find a place more in the urban center with a shorter daily commute, it may cost a little more and need some work, but it’s worth the price of admission. Most anything built after 1986 or so seems to have HOA’s and their bullshit.

There is more I could type, but the basics are here. Stop building equity for someone else by renting. Buy something ASAP before rates go up, put 20% down, go 15 year if you can swing it. Don’t move to Las Vegas.

 

[UtahJimmy]

Hoping this post is still active as I am certainly interested in any advice on this topic. My boyfriend and I are both 25 and live in Charlotte, NC. We are dual income ($210-235,000/year) with no kids. We contribute 10-11% to roth 401ks, have savings, and try to keep costs to a minimum but we are renters. We do not have combined finances other than mutual bills and he is working to pay off student loans and a car payment, I am debt free.

We would love to move west, particularly to the Las Vegas area (or Utah) for all the hiking, camping, dirt biking, and shooting that we love. Prices for homes in the good areas are typically starting at $400,000. I truly never thought that we would ever pay that much for our first home but it is looking more like we would need to pay $450-550,000 (insane). We have no desire to be house poor. Also, in LV, you are LITERALLY on top of your neighbor and looking inside the homes of your neighbors - no land whatsoever in those subdivisions.

We are so torn between purchasing a new home build, purchasing an existing home, or not purchasing at all and continuing to rent just because of how expensive it is. I’m leaning more toward the side of not purchasing to continue building up savings for a larger down payment but my concern is rising inflation and that home prices might be even more expensive and never come down. Also, like so many others who have pointed this out, we would never be able to compete with the folks coming from places like California with tons of cash/equity roll over from a previous home sale which is why we thought building in a new neighborhood would be our best option for purchasing.

thank you so much in advance!

Here's my advice: figure out where the hell all your money is going (aka create a budget)!

I'm going to make some generalizations here, so tweak as it applies: You two make 210K+ and contribute 10% to Roth 401k. Let's call that -30K for simple math sake + cost of other benefits = 180K*0.7 (30% marginal tax) = $126K take-home. Even at a silly amount of monthly expenses for rent +bills+food (I assume $5K is silly for necessities) you'd still have $66K. That's $5.5K per month. Cut down on excessive spending and save save save. You'll have plenty of time to buy stuff when you're more comfortable in a few years.

Second piece of advice: have your bf sell his car that he couldn't afford and buy one that he can (outright, no financing)

Third piece of advice: change 401k contributions to traditional and bank the tax savings for the down payment.

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[BroncoAZ]

Here's my advice: figure out where the hell all your money is going (aka create a budget)!

I'm going to make some generalizations here, so tweak as it applies: You two make 210K+ and contribute 10% to Roth 401k. Let's call that -30K for simple math sake + cost of other benefits = 180K*0.7 (30% marginal tax) = $126K take-home. Even at a silly amount of monthly expenses for rent +bills+food (I assume $5K is silly for necessities) you'd still have $66K. That's $5.5K per month. Cut down on excessive spending and save save save. You'll have plenty of time to buy stuff when you're more comfortable in a few years.

Second piece of advice: have your bf sell his car that he couldn't afford and buy one that he can (outright, no financing)

Third piece of advice: change 401k contributions to traditional and bank the tax savings for the down payment.

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Very good points made here. I was amazed at how much money I pissed away on Starbucks or buying lunch/dinner out daily and other dumb shit when I was younger. Now in my mid 40’s my wife cooks all of our meals and I brown bag my lunch daily. Sure I might buy lunch a couple days per month, but I see my employees who make $45K-65K spending $15-20 daily on lunch and Dunkin. Keep an eye out for those monthly charges like Netflix, gym memberships, etc. that may be underutilized.

Selling his car and buying something else may be counterproductive in the short term, tying up resources that could go for downpayment. I recently purchased a new truck for $47K, I could’ve easily written the check, but instead put $10K down and financed the rest at 1.99% for 60 months. We are looking for another home and need the capital for down payment. Realistically I should’ve financed the entire truck with no down to preserve capital. If he spent $75K on a Raptor or something then maybe downgrading car would be appropriate, but if he’s in a $35K SUV I’d let it ride.

I disagree with the third piece of advise regarding converting to traditional 401K contributions. With the way things are going politically it seems like we are going to move farther towards socialism and eventually higher tax rates over time as the gov’t pushes more people to be dependent on Uncle Sugar. I’m making the gamble that income taxes will continue to rise between now and when I want to retire in 20-25 years and that tax free growth will net me more money later. It all goes out the window if/when the government takes action to federalize (confiscate) the 401K’s to keep social security solvent for those who didn’t save.

 

[Zappaman]

Can't control the future of markets or politics... can control consumption.

At a very successful company 25 years ago, my buddy and I (in our late 20s) started the "CCAW" club (Cut Consumption Accumulate Wealth). We talked our associates, admins and everyone into MAXING out the 401k and NOT selling their stock to buy new cars while instead waiting. Most of those people (who listened) could buy SEVERAL houses for cash two years later.

For a few years... I'd PLAN it all out and save a down payment ASAP so you can buy wherever you decide to go live in life (for a while, as others have said here- otherwise you lose buying and moving/selling a lot).

If you need the cash for the down on a new house, consider borrowing from your own retirement portfolios at some point too. You pay interest to yourself and it's your bank Vs. someone else's. But I'd ONLY do that for a 100% sure move where you are buying the house you want to be in for 5-10 years.

Max both the 401k and IRA (*and maybe go Roth in the IRA when income goes up a bit). Drive older cars (*and don't buy new cars the year you want to buy the house in any case). CUT consumption on a plan for a few years and keep costs down (give up the high dollar wine and dining- but do it AT home or with friends Vs. at the restaurant). You'll be amazed at how fast you can save a down payment and it's fun to to together... when you both know the prize you'll have in the end is the freedom to do what you want (and it can change... so roll with it and have fun). You're making three-four times what a couple did when I started out and nice houses were $70-80k (and interest was 6%).

Save, save, save... today. Then tomorrow will be VERY fun

 

[Lowndes]

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

As others says this can be misleading. We did this when we bought our most recent house but it was just an unsecured loan so we would be considered an all cash buyer. We put a mortgage on the house a couple weeks later.