How are people affording these crazy home prices?

[Bailer]

If/when the fed starts cracking down on inflation we’re in for some rough times.

 

[Fatcamp]

Gonna have to rethink selling our home when the kids leave. Such a strange time. Our homes value has increased a stupid amount, more than I would pay for it.

 

[mdp22]

We could currently sell our house in NM for about 30-40K more than when we bought it and we have 7 years equity in it. It's in a nice neighborhood but it's a little big since the kids are out of the house. This summer we purchased a house in South Dakota for 75K and 1800 sq feet on a half acre lot in a small town an hour away from my hometown. It's only an hour from Sioux Falls and the airport. I love my job and we like NM but we figured our SoDak home is for vacations, hunting trips and visiting relatives. It's our future retirement home and we paid in cash. Hope to move back before I'm 55.

Now my sister in law just sold their home in Sioux Falls that was almost paid off to move to Golden, CO. Can't figure it out, they can't find a house and are paying over 2K a month renting an apartment. Basically starting over because whatever they made is paying for their rent and just draining their home purchasing power. It's funny but their views are 180 degree out from mine and my wife's so Golden, CO is prolly a good fit for them.

 

[Silveroddo]

It does seem crazy right now. I work in real estate and am seeing some weird stuff going on. I recently had a property for sale and the Realtor who worked with the buyer was representing her son. The house sold for 50k over asking price. The appraisal came back $10k short of the purchase price. Instead of renegotiating the price with the sellers, the Realtor (again, who is representing her son) convinced the appraiser to raise the appraisal value so they wouldn't lose the house! Just seems wrong to me...

I've been seeing that happen for a long time, appraisals here are more about what it takes to get financed than what the actual value is. Buddy bought a 2 bedroom house on 5 acres with a loft, at the same time I was refinancing, same appraiser did both of ours. My place with 17 acres, a heated shop, pole barn and 2x the square footage on an ICF basement appraised 20k higher than his, but his appraised for the exact amount he needed to borrow..........


I've been looking at what stuff is bringing in the hot spots out west v.s here in MN and then looking at the available jobs out there and it makes me feel fortunate, I'd hate to be in the middle class out there trying to get started.

 

[Beendare]

30 year mortgages. The single worst financial thing that has probably happened to the middle and lower classes In the last 30 years.

What?
Locking in a 3% mortgage will be one of the best things a person can do and going forward it will look like a no brainer.

In many cases, folks that mortgage a house will be effectively paying less than if renting due to the writeoff.

Folks with a 30yr mortgage can always add a little to the payment to pay it off sooner…but if they get in a situation where they need the cash flow they can opt for the lower payment.

Mortgages have helped many folks leverage and build massive amounts of assets (wealth) due to inflation of RE prices.


Debt is only bad if you are 1)over leveraged or 2) are paying high interest and not reaping the benefits. Credit card interest would be an example of this.

it’s ridiculous to say a guy that mortgaged a home 30 yrs ago for $425,000 that is now worth almost $3,000,000 made a bad choice getting a mortgage.
.

.

 

[MattB]

Ha! You should see Flagstaff, AZ! Insane!!

If you don’t have cash here, you don’t have a chance. California buyers are out bidding everyone with cash. $50K+ over asking, all cash. No way to compete with that.

Something has to give.

The same thing is happening here in CA (San Jose) which cascades down in other places. Lots of liquidity chasing what little inventory is available is pushing up already very high prices. A house on our street recently listed for $1.55M (Zillow suggests it is worth $1.7M). What is insane is this house is 1,250 sf, was built in 1960, is on a 6,550 sf lot, and has not been significantly updated. Crazy times.

Quite a few folks in my neighborhood have sold recently and then taken their money to more affordable markets - in turn making those markets less affordable. They can by 2x the home for 1/2 their selling price and still be mortgage-free. Pretty easy to offer $50K over asking with that sort of coin in their pockets.

I do not envy first time buyers trying to navigate the current housing market. On the flip side, being able to lock in cheap financing long term is a great way to build wealth over time.

 

[MattB]

30 year mortgages. The single worst financial thing that has probably happened to the middle and lower classes In the last 30 years. Not knocking you if you have one but this has made what wasn’t affordable, affordable. Meanwhile, the surplus of buyers this creates has put upward pressure on home prices.
The cost of capital for these mortgages basically costs you almost double what the home is worth = Less equity in the home.

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.

 

[thinhorn_AK]

I just got a nice place for 350k. But about 1/3rd down with an interest rate of 2.12% on a 15 year note. I feel like we scored.

 

[gtg13]

I’m that guy that was an idiot and sold my house in 2019 when the market was at an all time high where I live in Southern Utah and had decided that it was a good time to sell. We had a 4900sq/ft custom built home and our 2 oldest had just moved out so it left us with 1 kid at home. I talked my wife into selling because it seemed like we were due for a correction in my mind since it had been over 10 years since the last dip and we never planned on retiring in this home. Also with only 1 son at hike we didn’t need a hike the size of what we were living in. We had planned on buying property after we rented for a year or so and building our next home that would take us into retirement and live in until we die. So we ended up selling for $570k which at that time seemed like a ton since we had bought it 9 years earlier for $350k. Used some of the equity to pay off all our debt so we were debt free and kept a nice chunk of money in the bank. Now we have literally priced ourselves out of the market where we live and this is we’re we want to retire. Our house would have easily sold for a million right now. That’s over $400k that we have lost by selling. I’m so sick about how this has all worked out and not even sure what to think or do anymore. I make a great 6 figure salary but can’t imagine what people do to afford these $700k + mortgages. Are people in serious debt or is the rest of the country just making more money than I can even imagine. Talking to the realtors around here they are saying that many of the people buying the homes where we live in St. George are buying them as second homes and many paying cash. That’s just crazy. Also they say these are well qualified loans and have income to pay the mortgages unlike the 2008 housing crisis where they gave anyone a loan even without income verification.

What’s the end game here. Are these high prices here to stay (new normal) or is something catastrophic gonna happen or will there just be a small dip in real estate? I don’t know what or who to believe anymore. All I know is I’m always second guessing myself for selling but on the other hand happy I’m 100% debt free. My biggest concern is I had planned on retiring in 5 years. (Age 55). Now not owning a home I know that’s most likely a pipe dream and not gonna happen. I can’t go into retirement with a $3k a month mortgage. What are your thoughts. Should I buy now or wait it out at this point? My next home will be my forever home more than likely.


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Realtor here in ND, I've sold 4 homes in the past 3 months via facetime, every one of my buyers were fleeing their state to come back home to where they grew up.

 

[ozyclint]

It's the same here in Australia. 'Work from home' and 'The city is shitty during a lockdown' city dwellers are selling up and moving regional and banking the difference in property value but then complain about the services not being as good as in the city. Welcome to the bush!

Record low interest rates is one thing fueling the fire. When they go up it will be interesting........
My parents generation still remembers 18-19% mortgage rates in the late 80's through to early 90's.

 

[ryjack70ss]

It’s horrible in Bozeman area. People just buying then having them as AirBnB and charging freaking insane prices to stay and there seems to be no shortage of people that can pay those prices and the absurd home prices while statewide we are in a rental shortage with lots of folks leaving because they can’t afford to stay. Hell even our mediocre hotels in town were going for 900 a room. You could go stay at the ritz , st Regis or 4 seasons for less than that. I’m just a dumbass chef that’s debt free with a solid salary but what in hell do these people do to afford this kind of lifestyle?

I have been asking this for about 10 years. How does everyone my age have a house with at least 1000 sf more than me and a brand new f150 in their 3 car garage? And I am a surgeon! My guess is dual income family and living on credit. But what do I know?


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[hodgeman]

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.

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.

 

[Broomd]

Our local CDA, Spokane, Sandpoint, Post Falls, etc. area now has the highest increase in housing values, resale, rental costs in the entire country.

All one needs to do is go on FB and look at a listings there and the locals are revolting--completely pissed off at what has happened. They can't afford to rent or buy anything anymore. Every ad is spammed and mocked, (which is wrong IMHO, but whatever.)
It's hard for them to compete with the Californians selling their deceased parents modest $26,000 1960's home for $1.4 million and buying a 15y/o 1700# rancher on 1 acre here for $650,000 (cash.)
Or the same folks peel out $2,500 a month rent without hesitation.

 

[MattB]

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

That doesn't make much sense at all. The purchase funds have to get into the banking system at some point to complete a purchase. The source of those funds generally needs to be validated by a bank via a proof of funds letter. And even if the transaction was done outside of the traditional title company process, the seller would have a very difficult time getting the money into the banking system, Not to mention, they could be found complicit in money laundering by accepting those funds. Not sure how many folks would be willing to take on that sort of liability - certainly not "all".

There are lots of other well-demonstrated explanations for much of the cash purchases that have been common in more recent years.

 

[DangerRanger]

I’m not really sure. I live in a suburb outside of Raleigh and I’m under the impression ours is even worse than some places. We have Amazon that just moved in, and apple is moving in now too. This place is popping.A few Other people around my age that I work with are buying houses and we’re able to at least get the listed price, but the prices themselves have skyrocketed.

I bought my house(3 bed, 2 bath on 1acre) in 18’ for 290k and open door wants to give me over 450 for it. It’s tempting, but I have a nice house on a nice little lot and most importantly we can comfortably afford it. I’m not sure if I would be ahead to sell because then I need to find something in this ludicrous situation.

Idk, I don’t understand it. People are buying cars at an incredible rate too it seems.

 

[hodgeman]

I bought my house(3 bed, 2 bath on 1acre) in 18’ for 290k and open door wants to give me over 450 for it. It’s tempting, but I have a nice house on a nice little lot and most importantly we can comfortably afford it. I’m not sure if I would be ahead to sell because then I need to find something in this ludicrous situation.

A lot of people are in that boat. I bought my place in the winter of 2019 and got a decent deal on it. Fast forward to summer of 2021 and I can make a fast 25%.

Except, everyone is making a fast 25% too. The only way that would work is for me to leave the area entirely for a greener pasture...and there's not many of them left.

 

[Reburn]

That doesn't make much sense at all. The purchase funds have to get into the banking system at some point to complete a purchase. The source of those funds generally needs to be validated by a bank via a proof of funds letter. And even if the transaction was done outside of the traditional title company process, the seller would have a very difficult time getting the money into the banking system, Not to mention, they could be found complicit in money laundering by accepting those funds. Not sure how many folks would be willing to take on that sort of liability - certainly not "all".

There are lots of other well-demonstrated explanations for much of the cash purchases that have been common in more recent years.

Yep spot on. They "fixed" being able to launder money through property in the cocaine 80's.

 

[cb122]

- I think you have individuals with high paying jobs/property in high cost of living cities (San Fran, DC, NYC, Silicon Valley etc..) that can work from home so they have decided to use geographical arbitrage into middle and lower cost of living cities. Quality of life decision.

- Realizing gains on stocks, real estate, RSU's vesting, etc. to scale up in housing. SP500 has hit 51 all time highs in 2021. Why not take advantage of low interest rates if you have the money to do so. Pretty much a bull market the last decade. More money to play with and offer well over asking price.

- People over extending themselves. Putting all their eggs in one basket. Lowering retirement saving contributions if they were even saving in the first place. 56% of Americans have less than $5,000 in savings.

 

[HuntingIndian]

- I think you have individuals with high paying jobs/property in high cost of living cities (San Fran, DC, NYC, Silicon Valley etc..) that can work from home so they have decided to use geographical arbitrage into middle and lower cost of living cities. Quality of life decision.

- Realizing gains on stocks, real estate, RSU's vesting, etc. to scale up in housing. SP500 has hit 51 all time highs in 2021. Why not take advantage of low interest rates if you have the money to do so. Pretty much a bull market the last decade. More money to play with and offer well over asking price.

- People over extending themselves. Putting all their eggs in one basket. Lowering retirement saving contributions if they were even saving in the first place. 56% of Americans have less than $5,000 in savings.

- Supply and demand due to low interest rates.

Guilty as charged.

Former city dweller here. Hesitant to post as with all the negativity towards city dwellers here, ha.

During early pandemic days, i saw a zillow listing, liked what i saw, called the agent and offered 20k more than asking price without setting foot on the property. sold my city home and moved into sticks.

Old house (Sold over asking price) - Close to NYC, Worked from office - 1350 sq ft - 0.15 acres - 3800 monthly mortgage (5% rate) - (congested area, suburban, unfriendly neighbors, list goes on)

New House - In the Sticks, Work from Home - 2400 sq ft - 9 acres - 1800 monthly mortgage (2.75% rate) - hunting, skiing, hiking, 50 yard range, good neighbors etc etc. House is backed to 3000 acres of public land hunting grounds, no one can build anything.

PS: I am NOT mr. money bags, i was broke and living out of car with bag of clothes 8 years ago. Simply made better life choices.

 

[Maki35]

I think the market will level off eventually. But who's to say when.
On the NE and the West coast homes are expensive. And property taxes are ridiculous. Some areas, renting is higher than a mortgage. My cousin pays $4k/mth for an apt in the city. These people are use to paying $600k-800k for a small home on a small lot. We're not talking acres. When you have folks from these areas move to your neck of the woods, buying a big house for $700-900k is a steal to them. Meanwhile you think it's insane.
Demand vs. supply. Folks are having bidding wars over homes for sale around here.
The market will eventually clam down and when it does, those that paid top dollar may have a hard time recouping their money.
A neighbor brought during a previous housing boom. They over paid. And he complains about it all the time. But in today's market they would profit if they sell. But the problem is where to buy without over paying again.