How are people affording these crazy home prices?

[Bubblehide]

Lot of homes here being bought cash…interest rates won’t bother those folks!


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No the interest rate wont. But they have been buying because of the market increase rate, i.e., by the time it closed (yes even on a case sale) they already made significant profit (on paper). That is disappearing, as are those cash buyers, as real-estate is becoming a volatile investment. Once the cash buyers are out of the picture, prices will be dropping, how much, who knows.

 

[cuerro viejo]

No the interest rate wont. But they have been buying because of the market increase rate, i.e., by the time it closed (yes even on a case sale) they already made significant profit (on paper). That is disappearing, as are those cash buyers, as real-estate is becoming a volatile investment. Once the cash buyers are out of the picture, prices will be dropping, how much, who knows.

Lots of corporate investments. You have capital groups and Inc’s going in and buying whole neighborhoods and only renting those houses out. Don’t be supprised if demand stays high even with higher rates

 

[Goatboy22]

I've paid cash for my last two homes. While I haven't read through all the comments, if I was buying now with cash I would sure as hell wait until home prices drop, as predicted, before I would buy again. Maybe some of these folks with cash are actually smart as opposed to lucky?

 

[swampthing]

I am up in BC and excepted a job transfer a few months ago to get back to my home town. I didnt realize what I was going to have to pay for a home with an acreage in the new city! Definitely messed with my future retirement as I will never be able to pay it off! Will have to sell and downsize again in the future!

 

[CorbLand]

We just purchase a place about a month ago, luckily still got a good interest rate. Craziest issue ever dealing with the lender! Not getting into that train wreck!!!

We were out bid on 5 houses and we bid 50k over asking on one. Looked at two or three dumps that were all over 400k

I would have never bought at this time, but we moved across the country recently and were renting due to the wife going to school for two years and not where we wanted to live long term. Problem is we were paying as much or a little more in rent than we are on our mortgage and all expense now anyway, so waiting for the market to slow or drop made no sense, especially with the rates now!

Got hosed on the 08 crash and looks like a possibility I will get hosed in this market again? Issue here is there is still low inventory on available houses.

Hopefully the market wont tank so bad this time, but with my prior real estate experience(luck) it probably will.

We did the same as you but we closed a week ago. So no worries, your not the only one.

As interest rates go up, housing will have to come down but the question is will it tank or only come down to offset interest rates?

Supply is already low and as interest rates have increased, builders are looking to build less. People won’t be able to afford to move from existing homes and will opt to stay and remodel over build. This will most likely hold supply low, which regardless of interest rates will keep housing higher. This is one theory.

Also, if 08 happened today pricing would fall back to 2017-2019. Many people (not on here) have been saying it’s going to crash since then. Hell half of us would kill a puppy for 2007 pricing all over again. Buying at the top always sucks but if history repeats itself, in 10-15 years you will be wishing you bought two.

 

[NDGuy]

Buying at the top always sucks but if history repeats itself, in 10-15 years you will be wishing you bought two.

Yep, buy the cheapest house in the nicest neighborhood you can that fits your needs. All the houses being built near my neighborhood are 20-30% more expensive than mine. My home shouldn't lose much value over the long run.

 

[Deaver25btb]

Cash buyers mostly

 

[NDGuy]

Cash buyers mostly

Not anymore

 

[lacofdfireman]

We just purchase a place about a month ago, luckily still got a good interest rate. Craziest issue ever dealing with the lender! Not getting into that train wreck!!!

We were out bid on 5 houses and we bid 50k over asking on one. Looked at two or three dumps that were all over 400k

I would have never bought at this time, but we moved across the country recently and were renting due to the wife going to school for two years and not where we wanted to live long term. Problem is we were paying as much or a little more in rent than we are on our mortgage and all expense now anyway, so waiting for the market to slow or drop made no sense, especially with the rates now!

Got hosed on the 08 crash and looks like a possibility I will get hosed in this market again? Issue here is there is still low inventory on available houses.

Hopefully the market wont tank so bad this time, but with my prior real estate experience(luck) it probably will.

I can’t even fathom anyone wanting to buy in this market. You’ve got some balls for sure. But unfortunately I’m betting against ya. Guess time will tell but I think it’s gonna get ugly. Doesn’t happen over night but it’s all coming down. That’s where my money is and when I’ll jump. No way I’d buy at the top.


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[lacofdfireman]

We just purchase a place about a month ago, luckily still got a good interest rate. Craziest issue ever dealing with the lender! Not getting into that train wreck!!!

We were out bid on 5 houses and we bid 50k over asking on one. Looked at two or three dumps that were all over 400k

I would have never bought at this time, but we moved across the country recently and were renting due to the wife going to school for two years and not where we wanted to live long term. Problem is we were paying as much or a little more in rent than we are on our mortgage and all expense now anyway, so waiting for the market to slow or drop made no sense, especially with the rates now!

Got hosed on the 08 crash and looks like a possibility I will get hosed in this market again? Issue here is there is still low inventory on available houses.

Hopefully the market wont tank so bad this time, but with my prior real estate experience(luck) it probably will.

I can’t even fathom anyone wanting to buy in this market. You’ve got some balls for sure. But unfortunately I’m betting against ya. Guess time will tell but I think it’s gonna get ugly. Doesn’t happen over night but it’s all coming down. That’s where my money is and when I’ll jump. No way I’d buy at the top.


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[lacofdfireman]

Corporations and investment trusts are building entire SFR subdivisions for rentals here now. People with plenty of cash will make money, as they so often do. The rest of us will suffer, as we mostly always do.

You’ll see those big companies go bankrupt is what you’ll see. Know way Black Rock is walking away from this on unscathed. Guaranteed. They have already Defaulted on a massive Apt building in New York.

Tishman, BlackRock Default on NYC's Stuyvesant Town

New York apartment complex falls into limbo as venture misses full payment on $16 million in senior debt.

www.wsj.com

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[CorbLand]

I can’t even fathom anyone wanting to buy in this market. You’ve got some balls for sure. But unfortunately I’m betting against ya. Guess time will tell but I think it’s gonna get ugly. Doesn’t happen over night but it’s all coming down. That’s where my money is and when I’ll jump. No way I’d buy at the top.


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The question is where is the top?

A lot of people have been saying we are at the top for 5 years and it has only gone up from there. Buying at the top always sucks but all of us would buy ten house at the top in 2007 if we could go back.

Time will tell but a recession doesnt mean that pricing will drop. The 70/80s is a great example.

 

[william schmaltz]

I thought this was well done. I prefer to see data backup someone's opinion. I also prefer to see both sides of the argument. So please, if anyone has some hard data in opposition to what Dave thinks, post it up!

The one part I don't fully agree with and feel like it's not as simple as he states it is with is the interest rate statement. In 1984 when interest rates were 14%, the average cost of a home was $65,000. Adjusted for today, that's $187,000. The average price of a home today is $380,000 and wages have not made the same adjustment.

 

[realunlucky]

The question is where is the top?

A lot of people have been saying we are at the top for 5 years and it has only gone up from there. Buying at the top always sucks but all of us would buy ten house at the top in 2007 if we could go back.

Time will tell but a recession doesnt mean that pricing will drop. The 70/80s is a great example.

Investment groups like zillow are artificially influencing the housing market to drive up profits on houses they bought at a lower price point. I'm doubtful these property values will hold up over the long term.

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[z987k]

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

There have been a few cases of police robbing people trying to do just that in the last few years. With completely legal, documented money.
Cash isn't safe if the government finds it, regardless of how you got it.

 

[hodgeman]

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I thought this was well done. I prefer to see data backup someone's opinion. I also prefer to see both sides of the argument. So please, if anyone has some hard data in opposition to what Dave thinks, post it up!

The one part I don't fully agree with and feel like it's not as simple as he states it is with is the interest rate statement. In 1984 when interest rates were 14%, the average cost of a home was $65,000. Adjusted for today, that's $187,000. The average price of a home today is $380,000 and wages have not made the same adjustment.

My biggest beef with Dave's analysis is that half of his net worth is tied up in real estate, he may be right...but he isn't impartial.

I do remember back in 2008, everyone said there wouldn't be a crash, prices weren't coming down, and hoping for a downturn was stupid. That is, right up until the crash happened.

I'm actually in the market right now. I'm waiting. I figure that the worst can happen is 6% interest rates soak in and slows the roll to at least a point I get a better buying opportunity even at current prices. Best case, I buy a house at 2017 prices in cash money. Frankly, anything in between those extremes is good to me.

 

[TreeWalking]

You likely won't even need it to get that high to see the direct impact on prices. Even an extra 1% adds so much in interest costs to the "average price" that the vast majority of buyers "should" get priced out pretty soon. Only market response then (really) is to lower prices. But, let's just see if 100% financing and no doc loans makes a big time comeback across the board. That'll be the lever they likely pull to allow the SFR market to wallow along with higher interest rates--all the while setting us up for another potential collapse.

We need to have the pain inflicted stat, endure the pain, and not jump right back on the merry go round to repeat the past mistakes. It'll never happen tho.

Here is the flip side. Or, flip sides.

Rents are going up in most markets. If a young family or recently divorced or widowed person are paying $X monthly rent and want to put down roots locally then the buying decision is a bit more complex than timing the housing market. Those people will not always wait for the best moment to buy but rather a moment to buy.

If you own a home though yet are willing to pull up roots to move for retirement or career or to be nearer ailing parents then you might be able to sell where are and pay 100% cash at your destination even if have some amount of mortgage currently. Interest rates will not matter if all cash or a nominal mortgage is needed to buy. with expectations will pay off is a few years rather than 15 or 30. Rising household income or inheritance has a way of erasing mortgages faster than would expect.

I graduated high school in 1979 and needed a reliable 1/4 ton truck for my job. I needed a loan and was a 24 month loan at 12% if I recall correctly. No penalty to pay off ahead of time and I did side hustles and went without to pay that loan off several months ahead of time. My first home loan was years later and was 6% or so and that was what it was and really can't recall if was increasing or falling or steady. I felt a home was a good decision, had some money for down payment and opted for fixed rather than adjustable since wanted the comfort of knowing my monthly was capped for all 360 months. Sold that home 4 years later and moved to an older home on some land and I think was within 1% of the prior loan and did the 30 year fixed again. Paid that home off in 10 years or so. No mortgage then bought a vacation home then paid that off in 7 years, also fixed but a 15 year loan.

Interest rates are a growing factor now, especially for someone who needs to put most of their net worth and rainy day cash fund into the down payment. Is scary and creates a tight rope if lack the safety net of family to turn to if lose a job or have some medical bills arise or the roof goes bad or you go with an adjustable that resets quarterly to be a few $100 more monthly each time.

I don't see housing sales crashing in volume nor values, though. A 10% reset would be a lot the next 24 months. There may be some areas that crash but they are the areas that tend to roller-coaster (i.e. Southern California or the Bay area) or is a region that is de-populatiing (almost no where in America) the next couple of years.

I do see consumer debt growing and if housing prices are steady then recent homebuyers will lack home equity to tap so foreclosures will climb and that puts pressure on home values but historically 3% is typical for the default of single-family home loans and we are still below that mostly due to "free" money beginning June 2020 and rising home values. Post-2008 stress on income and falling housing pricing pushed the default rate to around 10% briefly. I don't see that on the horizon this time but 4% could be reached by end of 2023 when I expect the recession to officially end.

Just my musings. No dog in the fight in the near future though will sell a home in 30 months when retire then either invest the proceeds since have another home now or buy another home. Interest rates will impact my willingness to take on a mortgage at that point.

 

[kybuck1]

Areas such as ours are seeing a huge influx of people from wealthy states and new businesses coming as well. Land and housing has really gotten crazy and people are paying it. Call me crazy but we bought some land last year and getting ready to build. Lumber has finally come down a bit but interest rates are creeping up. I really don't think it's gonna crash like most people think it is. My educated guess is a stabilization of prices around where they are now.

 

[CorbLand]

Investment groups like zillow are artificially influencing the housing market to drive up profits on houses they bought at a lower price point. I'm doubtful these property values will hold up over the long term.

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Maybe, time will tell but cheap ass interest rates and builders not building have done a lot too.

 

[grossklw]

A lot of primary home buyers don't realize the amount of cash still out there, and I'm not just talking instutional investors but mom and pop rental investors that have seen their net worth triple in the last 10 years that bought at the last crash.

I'm heavy into real estate with my net worth, just my .02 but I could certainly see the market settle down and take a bit of a step back but I would be very surprised if we see another 08. I have already noticed some houses that were hoping for insane prices have to do price reductions and things are sitting longer...However in the last several months I bowed out of several bidding wars for duplexes in different areas of WI that ended up going 10-15% over asking all cash offers in the double digits.

I personally am at a point where I'm likely going to stack cash for the next few months and re-evaluate what the market is doing this winter and decide if I want to keep adding or just be happy with what I have for a while.