>> I bought a house recently so I'm theoretically on the losing side of any drop in home prices resulting from this
There are situations where this doesn't matter. Obviously if you bought with a lot of borrowed money, and home prices drop significantly, and you try to sell while still owing money you may be in trouble.
But if you pay it off (or didn't borrow) you will own the home free and clear. When you own one home free and clear, the price is almost irrelevant. If you measure your net worth in houses as opposed to dollars, you have 1. If you move you'll sell one and buy one at whatever the going rate is - unless you're looking to upsize or downsize the price is not relevant.
What if I held off buying until prices drop?!?! Well, if you borrow nearly the full amount, it makes little difference. Housing as a percent of income has remained unchanged for 50 years (I saw something recently confirming this). In other words, your monthly payments are determined first and then the bank tells you how much house you can buy - which is exactly why prices vary inversely with interest rates.
In the situations above, the biggest problems stem from rate changes during the course of a low equity housing loan that is paid off early. IMHO we need to get back to 10-15 year terms as the norm.
Still, IMHO it is a bad time to buy. Also IMHO interest rates need to be a LOT higher to fix our economic problems, which would mean big drops in home prices still ahead.
> When you own one home free and clear, the price is almost irrelevant
This ignores opportunity cost. Moreover, depending on your community's funding model, your quality of life could be impacted by over-leveraged neighbors defaulting on their property taxes and/or being foreclosed on.
> When you own one home free and clear, the price is almost irrelevant.
What does this look like in a state like California for property taxes? My understanding is, due to prop 13, your property taxes are a function of the initial price you paid and increase slowly (much slower than housing inflation in recent decades).
That suggests paying a lower price later could have long term impact on cost of ownership beyond just mortgage payments.
Apparently there is a prop 8 that allows the property tax to be reduced if the house value goes down. I wonder if this has actually been applied in practice (2008 crisis?), but the process seems to be a lot more bureaucratic (annual revision of home value) so I wonder if it's even feasible to do this in a down market.
EDIT: This [0] seems to be a concise explanation with an example. Essentially, if you pay P, that's the base value for property tax. On year k you will pay property tax as if the house was worth min(assessed_value, P * (1.02 ^ k)).
If housing prices go down, you may temporarily pay lower property taxes, but in the long term, if house prices keep increasing faster than 2% a year, your property tax will be tied to the P you paid initially.
Yep. The temporary tax reduction is a thing. Back during the 2008 crisis we got the reduction... Had to fight for it as the city wasn't so keen on just handing it out... But got it until prices rebounded.
There are situations where this doesn't matter. Obviously if you bought with a lot of borrowed money, and home prices drop significantly, and you try to sell while still owing money you may be in trouble.
But if you pay it off (or didn't borrow) you will own the home free and clear. When you own one home free and clear, the price is almost irrelevant. If you measure your net worth in houses as opposed to dollars, you have 1. If you move you'll sell one and buy one at whatever the going rate is - unless you're looking to upsize or downsize the price is not relevant.
What if I held off buying until prices drop?!?! Well, if you borrow nearly the full amount, it makes little difference. Housing as a percent of income has remained unchanged for 50 years (I saw something recently confirming this). In other words, your monthly payments are determined first and then the bank tells you how much house you can buy - which is exactly why prices vary inversely with interest rates.
In the situations above, the biggest problems stem from rate changes during the course of a low equity housing loan that is paid off early. IMHO we need to get back to 10-15 year terms as the norm.
Still, IMHO it is a bad time to buy. Also IMHO interest rates need to be a LOT higher to fix our economic problems, which would mean big drops in home prices still ahead.
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