This is where I'm at. I want very little more than to than to buy some permanent property that I can remodel to my taste at my leisure, but mortgage rates just keep going up. Why spend 3.6k+ a month on mortgage when I can spend 2.1k a month to stall. I really can't imagine going in on a house right now without at least a 20% down payment to skip out on PMI (and lowering the amount of the mortgage overall)
Presumably that £3.6K ish is repayment, not interest only.
Try working out how much you need to save over 30 years (while renting) to buy a home. Don't forget to account for inflation in any assumed investment return.
Because at the end of the year your assets line for home will be -$25,200. In the mortgage case it'd be -$36,000 for payments but probably like +$25,000 for home equity bought so if cash flow isn't a problem you're better off.
If your mortgage payment is $3100/mo let’s say that’s a $450k loan for 30yr at 7.5%, you are not looking at anywhere close to that much added equity after a year. Just about $4k after the first year. Less if the payment was to include taxes and insurance.
PMI IS a waste of money, but it's relatively negligible. if it helps you get your house years earlier, that could easily be worth it, not only financially but also happiness (if owning is emotionally important).
i paid 5% down on my house and my PMI is only 4% of my all in monthly payment (mortgage, PMI, prop tax, insurance). if i had to wait until i had saved 20% i'd probably still be saving & renting. instead i've already paid down another 5% of my mortgage plus getting the interest tax breaks each year.
The mortgage itself is a waste of money if you don't pay if off early. I wish people understood this better. There is almost no situation where owning a home makes sense if you don't pay it off before the term and we aren't in some wacky pandemic or financial bubble.
Depends... It would depend on the price to service the mortgage. I would do a quick model to see the timeline to "break even" on paying in full verses the total amount of interest paid to service the loan for duration of the term.
I'm in this situation with my car right now, I have the money to pay it off but why bother when I can make the monthly payment with savings account interest.
Iirc, there is a huge surge in the M2 and M3 around 2020 when they reclassified money market money, making a comparison pre and post pandemic problematic
Not quite yet. Lots of sad sellers holding out hope for a macro long gone. Supply is constrained, but mortgage rates + risk free rate means house prices will come back to mortgage payment/wage governed prices. Folks who can will stick it out, folks who can't (relo, death, divorce, etc) will set the comparables/comps in their market.
Prices have stopped sky-rocketing upward. Considering housing is ~40% of the inflation bucket - this trend (if it continues) should slow down inflation soon.
High cost of capital is high cost of capital-- whether you're borrowing or foregoing other returns on capital to use it for real estate.
(Not to mention the not fully internalized effects of interest rates on other buyers' and sellers' behaviors-- prices have not nearly moved as much as one would predict from interest rate changes).
Not in Redmond, WA. Haven't read TFA yet (getting to it), but the houses I see for sale are priced as if interest rates are still 2.5%, which is why they're sitting for over a month. Two houses down is for sale, and has been listed for (checks Zillow...) 46 days, and they've cut the price. Since I'm two doors down, I get to observe the dearth of traffic to that house. Zillow says "pending", but we'll see. Unless it's a cash sale, someone still has to get approved for a >$1MM mortgage at 7.5%.
At least in our area, if I had the cash then I'd let houses sit for six more months, let reality hit a few folks in the face, wait for those prices to drop.
Houses sitting on the market for months and slowly cutting prices is exactly the kind of market you want as a buyer with cash. The prospect of being able to close in days without bank approvals will get you a hefty discount. Sure waiting a bit longer might be a good decision, but now is still a good time.
The prospect of being able to close in days without bank approvals will get you a hefty discount.
Yes, but you're still getting a discount on an inflated price. You'll get that same discount six months from now, only on a much lower price when 8% interest rates start to really cut down on the buyer pool.
From my POV, what you suggest is going to buy a car 12 months ago, convincing the dealer to take off that "market adjustment surcharge, then bragging about how much of a deal you got by only paying MSRP. Versus the person 12 months later that started negotiations at MSRP, and not an artificial price.
(Disclaimer: I'm just a guy on the internet talking out his ass. The number of houses I've purchased can be counted on one hand.)
Who says it is an "inflated" price? Can you be certain housing prices will not be higher than they are today a year from now?
I have lost count of the number of people who were convinced that the housing bubble had peaked in 2018-2019, and were waiting for the crash despite having enough money to buy. None of them can afford to enter the market now.
> let reality hit a few folks in the face, wait for those prices to drop.
I don't think house prices will drop until there's a pressure on home owners to sell.
The two biggest reasons I can think are:
- People with ARMs unable to make payments
- People losing jobs
I remember well that, despite the many foreclosures in 2008, people that had no explicit reason to sell would hold on their homes for years until they were above water again. I distinctly remember houses going on sale, then going off market, over and over again until the owners could walk away at least without a loss.
As long as unemployment is low and not too many people got an ARM, I don't forsee this market undergoing a rapid correction.
I've been actively looking for about 6 months now, we are sell-then-buy approved, watching the inventory decline. I don't want to sell and have no where to go, so I need inventory to be a bit healthier.
The houses that sit are either: extremely expensive, or need updates. Anything of good value is gone in 1-2 days.
Not necessarily. Nominal prices may be down slightly but the opportunity cost is still high. With higher interest rates, you're foregoing a higher return in the bond/stock market in order to purchase a home.
If you can afford it and have a 5+ year horizon, probably. Look at your local market pre-2008 crash prices and how long they took to recover to get a rough timeline. Where I live took 10 years. I don’t think it’ll take as long to recover if there is a crash because there are a lot of millennial buyers.
Right now new construction can run better deals by paying down mortgage rates. But new construction has downsides too as the location may be less desirable or the lot size smaller etc…
Yeah I'm buying for the school district, so I plan to be there at least 12 years. It just feels bad leaving behind my current ~3% mortgage, but what can ya do!
There's new construction in the area I'm looking at, but it's well out of my price range unfortunately. There are empty plots of land that cost more than my current house..
In the 80s there were exotic (literally, that’s what they were called) deals such as leasing your current property with license to purchase, so you can keep the lower mortgage rate and charge a higher rate to the new buyer, which you can use to pay the mortgage on your new property
I don't think this is true. I have excellent credit, but I can't get sub-inflation rates right now, but I suppose it depends: what rate you're talking about specifically, and what inflation figure are you using?
Not necessarily. The returns from your all-cash purchase would be greater had you invested in treasuries. Rental yields and the 10 year recently flipped (after over a decade of rental income returns beating treasuries).
I think you should always be wary of statement like: It's a great time to buy if you have the cash!
It's the kind of thing a real estate agent says. Not that I think the original poster is one. The truth is that owning real estate, like owning most things and investments in particular is very situational. People make the decision too much based on what people around them are doing. It's much better-- good market or bad-- to be thinking things like: is this a good price? how long will I want this property? how much financial risk am I taking. etc. If that is your framework you don't really need to worry about the "good time / bad time" news cycle.
This. We really should be basing our decisions on whether it is good for us. We bought our house precisely because our landlord was getting silly with raising rent for what is currently the size of my garage ( with mortgage ending up being directly cheaper than rent in terms of direct cost ). From that perspective, the move simply made sense.
Good time to buy a house is basically when you are ready to deal with it. Good time. Bad time. If you are ready, you are ready.
( Yes, I know it is much harder now, but that is a separate conversation. )
edit: I just had this weird flashback to pre-2008 where a guy was trying to sell me condo after I just came to US. He knew I could not possibly afford $160k for a condo, but it did not matter. There was just soo much money floating in real estate and so many people speculating, I probably could have had a condo now that I purchased with zero chance ( at the time ) to pay it off. Wild times.
We are obviously not revisiting that scenario now.
Maybe? In the 1970s in the UK we had double-digit inflation. It turns out that was the best time to borrow because (wage) inflation eroded the cost of mortgages within just a few years, making a large mortgage in 1970, a very small one by 1980.
Whether inflation, right now, is coming back under control in Western economies is a matter of debate.
Typically there's an inverse relationship with borrowing rate and asset price.
Right now, we have both - high prices and high rates.
In the ~2012-2018 era, we had low-medium rates and average prices
In the Covid 2020-early 2022 era we had super-low rates and high prices.
Because the asset prices have not adjusted to the new rates yet, now is a [temporary] worst time to buy, regardless of whether you are borrowing or not.
Not really, prices have barely come down in most desirable areas. They may come down eventually, but it's usually a slow process unless there is a financial crisis (in which case the Fed will panic and cut)
The Fed went after inflation in all the wrong places. Would have been infinitely more effective to just ban corporations from owning single family homes.
I'm not suggesting that the Fed could do that. But the Fed isn't the only entity with tools to fight inflation. In fact, it has some of the worst because they take so long to take effect, it's brute force, and it almost always overcompensates.
They are trying to undo their mistake of their over participation in the mortgage markets.
Mortgage rates were too low for too long because the Fed was buying them up. Home prices went way up because payments were low and supply was somewhat constrained. Now, the Fed has pulled the rug out and is no longer buying mortgages. People with low rates are sitting still and you'll only see people selling who have to. So, supply is heavily restricted keeping prices higher even with the higher rates.
Only a large tick up in unemployment will create more forced selling and a maybe some downtrend in pricing.
The alternative (but much less likely scenario) is Congress eliminating some of the very generous tax incentives that exist for owning residential real estate as an investment. I wouldn't hold my breath waiting for this one.
BlackRock owns a tiny, _tiny_ minority of single-family homes, even with a generous intepretation of "own". Plus, taking homes out of the owner-occupier market and into the rental market ought to drive rents down and make it easier for households to save up for a housing deposit.
Doesn't matter how tiny you or the so-called experts think it is. They own enough to have a significant impact on prices, especially in the most overheated markets:
>According to Merkley’s office, last year we saw the fastest increase in hedge fund home purchases in the last 16 years.
As examples of the impact, Merkley said data shows large hedge fund investors bought 42.8 percent of homes for sale in the Atlanta metro area and 38.8 percent of homes in the Phoenix area in 2021.
All of these articles only matter if you want to live in places that people don't want to live in. That's why rents are so cheap. If you're in London, SF, New York, etc, it doesn't really matter. Also some of these cities have low averages (like New York given the size of the boroughs) but don't reflect the reality of where people want to live.
Rather unhelpfully, this Government decided to tax landlords on income not profit.
Previously landlords could rent at £1000 pcm, pay their buy-to-let mortgage at £900, and get taxed on the profit of £100, at 40%, that would be £40.
Now they get taxed on £1000 = £400, and get a tiny amount of tax relief on the mortgage cost.
So many landlords were paying much, much, more tax. So quite a lot of them exited the market.
Fewer properties, same number of people chasing places, has increased rents. On top of a stupidly hot property market in London, and it's the perfect storm really.
Slow applause for the UK government on this one. They were told this would happen when they made the change several years ago.
Mortgage interest costs have gone up, and rents have gone up alongside them. I live in a 1-bedroom flat in Zone 2; before Covid, we rented a 1-bed with garden for £1450; when we moved a year ago, cost went up to £1600. Now we're moving again, and it looks like prices have gone up to £1700-1800.
Thank you - I doubt it has much to do with interest costs though. 1450 before Covid to 1750 now pretty much matches CPI exactly, so in real terms rents have remained the same. Not that it makes paying it any easier, of course - rents and house prices are still outrageously high.
off topic, but I am stuck in a captcha loop where i fill it out correctly and its just giving me another one... have done 5 now and just give up. Anyone else or did i just do some "weird online behaviour"?
i just bought an apartment. it made sense for me for a few reasons...
1) i've been screwed over by too many landlords and have become so exhausted with renting (i was forced out of my last apartment for complaining about not having hot water. i know this is illegal, unfortunately there is nothing you can do about it.)
2) the apartment i found was _perfect_ for me. it had everything i wanted...quite rare
3) i was not thrilled about the idea of waiting for mortgage rates to drop, home prices to go up and then ensuing bidding wars bringing you far over asking, like what happened in the early covid days.
4) rates will drop eventually and i'll refinance
maybe it doesn't make all the financial sense in the world, but it worked out for me.
I think you made a reasonable decision and you should not get caught up in these cycle narratives. Prices go up and down. You could try to time the market but I think a better strategy is just get what makes sense for you, when it makes sense for you.
You absolutely made the right choice. You needed a place to live, and didn't want to continue setting your money on fire paying rent.
The best time to buy is as soon as you can. High, low, whatever, it makes no difference in the long run. In that long run, you've bought a house you chose, are not throwing away money, and will eventually make back any money you lost buying high.
I have a feeling all the people giving advice to not buy in climate X at any given time are only saying so to feel better that they currently can't.
We "made" $190k selling a home we bought as a foreclosure in 2009 in 2021. In reality we didn't make jack squat. We paid that much in interest alone over the course of those years. The blood, sweat equity, and money we spent on upkeep and upgrades is incalculable to double entry standard, but I can tell you it was an absolute shit ton. I didn't even do the math on our property taxes, refinance charges, and closing costs because it's maddening to think about.
Since we have been renting our accounts have gone parabolic. We are able to save my wife's entire check, every month. There is no money burning a hole in her pocket to redo the kitchen, or bathroom, or backyard. There is no money going toward a new garbage disposal or A/C unit. We have more money despite two teenagers that have gone parabolic fees for club sports, driving, clothes, and FOOD.
We could absolutely buy right now, but I have my foot firmly down as a HARD NO. I would rather buy her a new car to assuage the urge to buy a home. If I could wave a magic wand and remove the desire completely, I would in a heartbeat. A home, from a 100% economic POV, is a waste of time and money. It is only complicated because of emotions and "what everyone else" is doing. There is zero logic in a mortgage and what is worse is that you never truly own the dirt your home is sitting on, at least in the USA.
Edit: I feel like the people that encourage others to buy a mortgage are doing so out of ignorance and have never actually thought it through to the end of days. I see old people living in nursing homes every day. None of them tell me about the homes they lived in while we wait for transport to the ER. They all talk about experiences, places they have traveled, their families, and the parts of their working lives they loved and hated. Never had a person talk about their "mortgage", I mean "home" on their deathbed.
When we rented, anytime the market shifted, the landlords raised rents on us. It was hell. I was paying more than what a mortgage was.
When I bought, all that went away. We bought a nice house that didn't need immediate work done. My mortgage was below rental rates.
So my point is that it takes a little insight when buying a house, but if rents are expected to go up (which are expected almost always), then it's a wise decision long term. Yes, house maintenance needs to be factored in, but those costs are amortized over long-term.
Have you factored in property taxes, impact fees if any, landscaping, HOA fees if any, school district fees/changes/bonds, fire protection fees/bonds/changes, Home owners insurance, sewer or water treatment bonds/fees/changes, utility bonds/fees/changes, and more?
Have you factored in a terrible neighbor? A halfway house or care home next door?
Rent may be going up or down or sideways... you have the option to move if you don't like it. I could realistically move in less than a week and I have a full blown wood shop in my rental garage, two teenagers, wife and a dog. It would be messy, but we could do it with basically zero consequences.
If you care about your credit score, you are not going to just walk away from your mortgage. We can jam out of here if the wind blows a direction we don't care for.
With all three cars paid off, I truly have zero debt. A few of my friends tell me they have "zero debt except for the mortgage"... I am like that is a giant ball and chain around your neck broham... Nothing about that says "debt free" or "freedom."
>> I am like that is a giant ball and chain around your neck broham... Nothing about that says "debt free" or "freedom.
Mortgage debt is not a concern, houses can be sold on a market. If you feel that having no mortgage empowers you, then that's great for you! I don't think this "fear" applies to everyone. Debt can be used very strategically.
> Have you factored in property taxes, impact fees if any, landscaping, HOA fees if any, school district fees/changes/bonds, fire protection fees/bonds/changes, Home owners insurance, sewer or water treatment bonds/fees/changes, utility bonds/fees/changes, and more?
All this leads me to believe the situation is very different in America. I'm not even sure what any of that means. Here in Europe you buy a house, pay interest on the mortgage, and that's about it.
Maybe a difference in American made houses vs. European ones. I don't know, but generally when you buy a house here, it's not a money-pit.
I'm happy you're doing better renting, and I agree that experiences are far more important than "stuff", but I don't count a home as stuff. Unless you're doing something cool like nomading it, I see buying a house as just having one of your basics covered and out of the way, like buying shoes.
I'm paying a little under 3/4 of what I'd be (was) paying in rent, and whilst there's the interest to take into account, the maths easy: If the interest is less than what rent would be, then having interest is better than paying rent, since 100% of rent is up in smoke, whereas only the interest is up in smoke for a mortgage.
This feels like such a weird take to me. There's never been a time that I know I'm going to stay in the same city for more than four years...ever. Since graduating college, I've been to grad school, postdoc, employment, whatever but there are very few places I know I can stay for long enough to make a purchase worth it. in hindsight, I'm sure a short term buy would have made financial sense, but so did leaving assets in the S&P and I didn't have to worry about anything.
I wish it weren't such a default assumption that everyone has to buy a place given the massive friction this puts on relocation.
Yeah - perhaps the unique and unfortunate constraints of an academic track, where it's heavily penalized to not move locations for Phd, then postdoc, then professorship. Similar but not as severe for my wife in Medicine, where you have to move after MD to Residency, then fellowship, then physician job.
I meant all this for slightly more settled people, but since you bring it up, I still think it makes sense for people like you too.
I bought a house in a city about a year before I knew I was likely to leave for another country. When I was sure, and told people I was leaving, they presumed I meant some long term plan. They thought I was delusional when I said I meant in a couple of months. Everybody said it couldn't be done; what about this, what about that, it's not as easy as just packing up and going!
Yes, yes it is. I did as much prep as I needed to, packed my bags, and left. I rented the house out _whilst_ was in the other country, and eventually sold it for a nice profit when I'd had enough of that. It was incredibly easy, and I haven't even gone into the parts that should have been difficult given a particular situation I was in.
It depends. Do you expect mortgage rates to go down in 2+ years? Refinancing will lower those rates. Also, if rates do go down, house prices will jump up. How many people are waiting for houses right now? House prices will not stay the same, even if inventory increases, as demand will go up as well.
The 30 year mortgage already has future rate expectations priced in. You are not smarter than the bond market. If rates stay higher for longer home prices will stagnate
or go down, you can’t predict which will happen.
You think the bond market knows? I don't think they do otherwise rates would not be change dramatically.
My point is that housing prices have historically kept going up. I'm not referring to YoY trends, but median long-term. I think prices will continue to rise over decades, give or take a market correction, because demand is still strong.
Indeed, the math of buy vs rent does not take into account fixing your housing payment for 30 years and the fact that you can't be evicted unless you stop paying your mortgage. What financial arb you get with renting, you trade for no control over your housing situation.
Sometimes inverting a finding suggests its nuance. In this case, the inverse for a homeowner is it’s a good time to sell and rent.
Except the markets with heavy homeownership also have high rents. If you’re in Manhattan, sure, it might make sense to sell and lease back. But in a lot of the country, I don’t think the math works.
The inverse does not hold true at all. Homeowners have locked in 3% mortgages that they would surrender if they sold but buyers would have to take out a 8% mortgage to buy the same house. It’s both a bad time to buy and a bad time to sell because every transaction creates a huge deadweight loss that is economically negative for both parties.
> inverse does not hold true at all. Homeowners have locked in 3% mortgages that they would surrender if they sold but buyers would have to take out a 8% mortgage to buy the same house
We're comparing renting to buying. Renting doesn't require a mortgage.
Something is going to break. It will be prices or rates. My guess is prices will fall precipitously and it will happen soon. I further posit that prices will not be "sticky" as they typically are due to the extreme nature of the imbalance. Once the alarm sounds for the exits, it will be stampede verses an orderly departure.
Having sold a home (foreclosure we bought in 2009) in 2021, I am super happy to be renting again. Owning a home is pain in the ass and I say this a person that can remodel a bathroom, install flooring, and fix my own A/C if needed. Constantly on the hook for every problem that invariably crops up is giant time, energy and money drain.
My wife on the other hand, hates renting. She wants to paint the walls and decorate... and nest? We end up spending a crap ton of our time and money on the house. It's 100% emotional for her. I understand, but I don't share those emotions. We have had lots of time to talk about it and it will be different when we buy again. She will have a budget for house stuff and I will not be on the hook for every little thing. In short, she is going to step up for maintenance if she wants to buy a house again.
Homeowners aren't going to sell into a market with precipitously declining prices. The market will just freeze up. This is probably the primary reason house prices haven't adjusted. People who have low rates locked in aren't selling their houses to buy new houses, because they would be taking a huge loss to do so.
The only thing that's going to cause prices to drop are: rising interest rates + declining rental rates causing rental units to become unprofitable and go back on the market, or a wave of foreclosures, which seems unlikely given how many homes have very low rate mortgages right now. I don't think either of those are going to lead to a precipitous decline.
> Homeowners aren't going to sell into a market with precipitously declining prices.
If they "need" to move they will. Lose the ability to pay property taxes, baby boomer's departing earth, AirBnBust, raising insurance rates, job loss, and many other reasons...
The market is frozen right now. Mainstream media is lying to us, Realtors are manipulating the listings, Homebuilders are playing games with listings, accounting and land. The charade will not hold up for much longer.
If rates break, this problem will come back up again in the near future exactly as it is now or even worse. Inflation and everything else in the economy would create more uncertainty which causes even more problems for housing prices.
Agreed! I believe prices will break before rates, the FED has to break something to course correct. They know a loosening cycle would absolutely demolish what is left of the economy. Rates will be higher for longer.
It'll probably be neither. Prices will likely stay flat, rates will do whatever they want. What will change is people's expectations of how long it takes for a house to sell. It's not uncommon in non-big coastal urban areas for homes to sit for months, and until recently that wasn't uncommon. The anomaly has been the recent trend of "put on market, receive 5 offers before the end of the day".
Rents are stupidly high in my area and usually higher than paying a mortgage plus upkeep even at current rates (at least for single family homes). YMMV.
I think people forget you can't live inside an index fund. It's hard to value a higher predicted YoY return when you have to spend a month out of every year moving because rent went up again.
How many people can actually pay $2000/month just from their index fund returns without drawing on the principal?
Even if you assume 4% real return (beating inflation), you'd need to have at least 600k worth of index funds, and you won't be growing it. Even for HN users, that's a lot of money.
This strategy will never work for more than 1-2% of the population.
Another case of poor journalism discussing inflation in the abstract. What are the drivers? There are still buyers at the elevated prices even with 8+% mortgage rates. Despite wages being effectively negative against CPI and actual inflation.
If you want to own a house then the best time to own a house is right now.
Why does everything always have to about investments and speculation and all that crap? What about, you know, actually living your life? If you do everything "right", according to the financial experts, the richest you'll ever be is at the moment before you die.
The reason to own a house is you want to own a house. You want it to be yours. You want to do whatever you want to it. You want to accept the responsibility of its maintenance because the advantages of ownership outweigh the responsibilities.
If that's what you want to do then do it. Or you could get depressed listening to these bozos who live their life like it's a game that you're somehow losing despite living in a developed country, no needs unmet and sleeping peacefully every night.
Yes, of course, but I feel like these kind of articles only ever account for the financial benefits. It you want to own a house it doesn't matter if it costs more than renting. Usually getting what you want does cost something and it's truly bizarre that we think house ownership should be all benefit with no cost.
The system was never “worse” it’s been always bad, taking the power from people and gave it to the banks, who happens to be real owner, in fact, even if you are wealthy and bought it with the whole price upfront, the system still requires you to pay hefty taxes that if you don’t, the municipal can have a lien on your property and claim it, aka: they took your home.. the whole system is rigged, especially when money from bankers is theoretically unlimited since they can print more in any “crisis” to keep the system up while you, grind your whole life on something you never owned.
Isn't it normal for mortgage payments to be at least to some degree higher than rent if talking averages? Bought property tends to be much larger right? I tried to find normalizing factors like it talking about payment per square foot but didn't seem to find any. I assume WSJ wouldn't push out anything completely off so what am I missing? The difference has grown just much more than it should have?
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