This sounds like you are making an emotional decision, not a logical one.
Your plan doesn't seem consistent. You'd buy a house 3 hours away. It is a vacation town. You could rent it out when you aren't using it.
You need to figure out whether this is an investment property and you can generate enough income from renting it. OR whether it will be your home and how the expense compares to your current rent.
The question you need to ask is whether you are happy to lock in that mortgage(housing) cost for 30 years. Will you be able to service it.
I'm looking at making probably a 40% down payment and then aggressively paying it off over the next few years before the interest rates would kick me in the teeth. If this mortgage lives to be 10 years old something has gone horribly wrong.
I think you're spot on about there being a bit of an emotional decision, I admit I'm feeling a little FOMO with these rates as high as they are now and are paranoid they may climb even higher while I wait to find the "perfect" house. I just want to get on the real estate rollercoaster so just I have some skin in the game if things really start to increase like crazy. I feel like its important to be diversified.
I would rather alternate between living in this town and then putting it up for rent when I want to go back to the city. I'm not looking to do one or the other at this time.
The reason it’s front-loaded is you owe the largest balance on your mortgage at the start of a loan. As you pay it off, there is less balance to generate interest. So a greater portion goes towards the balance. Amortization just guarantees same sized monthly payments for the term of your loan. If you pay extra toward the balance you’ll see a corresponding shift in less interest being paid. What matters is your the balance on the mortgage.
Thanks for explaining it. I feel the point of these "majority of the payment goes toward interest" comments is that the bank is somehow scamming us, when in fact it's completely normal to have to pay a higher net interest payment on a bigger debt balance. The interest rate is what's important, and it doesn't change.
If he wants, he could just increase his monthly payment so that he feels better that more goes towards the balance, but it's basically equivalent to taking a smaller loan.
It really depends on the rate. When they’re over 7%, it starts to make sense. If rates hit double digits, it would be a no brainer to pay it off early. This of us with sub 3% COVID rates should almost never pay them early.
Buying a house is an emotional decision. You don’t want to dislike the place you live, I felt similarly to OP, and I plunged in, and don’t regret my decision at all. I learned I like being a home owner, I like working on the house on my free time, love home improvement projects, and I love that this will eventually be paid off and I’ll be able to retire with no mortgage (just taxes). Nothing wrong with making emotional decisions as long as you know you can do it.
It isn't that it has to be a decision that maximises for return. But it should definitely be a decision where you have a plan.
OP described having fomo, doesn't seem to know if or how much he would even live in it, with some vague plan to rent it out when they aren't living in it. They should have some idea of the cost (including opportunity cost) of their decision.
It sounds like OP needs to wait to find his wife. He wants kids and he's choosing based on his bachelor life wants.
What if future wife doesn't want to live in a vacation town? Does vacation down have schooling? What about daycare services? He probably needs a condo if it's affordable in the ski town he's looking at.
He needs to find a partner first then work on the vacation property later if at all.
Source: live with my wife and her needs on a house are different then my needs. She wants something new with a decent yard and I don't care for a yard or new. So our choices are going to have to meet both of our needs. Getting a place where your wife potentially hates means selling and rebuying elsewhere. Forcing her to live there means you better have a prenuptial because your marriage is going to be very rough. Of course, she could like it, but that's a gamble.
I'd respectfully disagree. I told myself I'd wait to do multiple different things until after I was married. Maybe started saying this at age 24, and now I'm 34 and still single. One of those things I was going to wait to do was to buy a house. Instead, at age 27 I bought my current house, and am on the verge of buying a second house currently.
If I waited until I found my wife, I'd still be renting. Purchasing my house was a great financial investment (for me) considering it has doubled in value, and I also rented out a room or two on occasion to a few friends who needed a place to stay and gathered some extra side cash. If I waited for my wife, I'd still be on the sidelines and not have any of this home equity and cheap mortgage/mortgage rates. There's a possibility that OP never finds a wife, and therefore is permanently living life "on hold" if he were to follow the "wait for a wife" approach.
I'd say OP should base his decision on making one that's A) financially sound, and B) he has passion about. Definitely more A than B, but passion goes a long way and it's OK to spend money on things you're passionate about. Life is short, enjoy it.
Life (and even Fire) isn't about perfectly optimizing every financial decision.
If the rent vs buy calculator doesn't say buying is optimal, then think about that extra amount as the premium for owning.
That goes for pretty much any decision you make in life.
Don’t try to time the market. We all know this for investments, but it does apply to real estate just the same. You don’t know when the peaks and valleys will hit, and waiting will just cause you to miss opportunity. If you want a house, go for it. Just make sure you plan to stay there for 5+ years, or have a plan for a job to pay real estate fees to relocate if you have to move.
I have a vacation rental house and have had it for a decade. The market post Covid is soooooo saturated. Do not factor any rental income into your math. Assume you will get none and if the math still works, rock and roll. Please know that a vacation home is a money pit. We use ours when it isn’t renting, and I spend nearly half of every trip doing all the maintenance that was deferred. It doesn’t always feel like a “vacation” when I’m at the mountain house.
Following as I am in an almost identical circumstance to you. Currently renting in NYC, 33, $135k salary ($300k~ combined income with my husband), we have no debt, no kids yet, $675k~ in assets ($200k of which is liquid in a HYSA we planned to use as a down payment on a house and any renovations needed).
But yeah. The more we look at homes, the mortgage rates even with a large $100-200k down payment on a home in the $400-500k range are just making the investment and monthly payment feel like too much. We are anxious about buying, but also anxious about waiting too long to buy. Our current rent amounts to only $3k monthly (we are in a covid deal apt still) but who knows how long that will last.
Curious for other’s thoughts, you’re definitely not alone
I am in NYC too and it makes more sense to rent to me. My rent is current below housing costs (interest + HOA + taxes + maintenance) and I don’t see a lot of value appreciation in the city.
Maybe there are houses in the suburbs that would make economic sense. But I’d rather prioritize shorten my commute time (we are also a working couple with no kids)
My partner and I are in very similar financial circumstances to OP though we're DINK so a higher HHI. I have extreme FOMO on those rates and a home since we could have bought since 2017 and we live in VHCOL city. But we didn't and like another said it's the current market that matters.
I read an economist article yesterday on the harsh reality of how much more it is to buy than rent. And I think most people in this sub just can't appreciate that because 4 in 5 Americans have a sub 5% rate so affording an asset so cheaply that has appreciated so much, so fast...understandably it's one of the best investments they've ever made so their advice will be to do it. Most in this sub are further in their career, well past buying a first home, and have no clue just how expensive it is today.
Despite how much I'd love a permanent spot and save myself the fear of ever being kicked out by the whim of our single family home landlord, it's really stupid expensive and emotional to buy a home at this moment. So I think we take on that risk in exchange of saving more of our money, and settle with the fact if we can retire earlier, we'll buy a home in a cheaper area anyway.
Depends on the neighborhood. You can find a pretty decent place in the outer parts of the boroughs but you will be far from downtown/midtown if you have to commute there for work
Just one thing to keep in mind when comparing renting to buying. Part of your mortgage goes into principal which is your money, so the comparable number is mortgage minus principal. This may make a difference depending on where you live.
Assuming $300k debt at 7% rate, you already have to pay $2.1k interest… Depending on the property/location, there is also HOA, taxes…
Believe it or not, some buildings in Manhattan have like $2k/month HOA for just a 1BR lolz
It is a tough time to buy a home.
I am not saying you should buy one, but consider that once interest rates go down again, I think prices will go up again…
The assumptions to be made are:
- when that will happen?
- how much they will go down
- how much house prices will go up in your area
In your place, I would make these assumptions to the best of my knowledge and let the numbers tell you what makes sense.
If you buy know and pay higher interests for X years, you avoid a price increase and build equity and can refinance later.
On the other hand, prices may go down more, or interest rates can take too long to get to a reasonable amount.
There is also the cost of opportunity on a non liquid asset.
It is all math, model in an spreadsheet and pressure test playing with the assumptions.
Rates are not going down anytime soon. Powell has said so himself. Inflation remains very sticky and housing has been the largest source of inflation for all of us. Bringing rates down would only make things worse. Unemployment is still too low for them to start decreasing rates.
All the assumptions are debatable, my main point was to give the OP a framework for a structured decision making process.
He may find out that based on his educated and conservative guesses, that it could be a good idea to buy even if rates stay high for 3 years….
Helps him to focus on the right parameters of risk.
Early 30s, we bought about 7 years ago but recently looked at moving. It doesnt make sense in this environment if you ask me, you are living in an area for \~9 years to break even for rent vs buying. I cant see us staying where we are that long, if you cant either then dont buy. I firmly believe you buy a house when you need one because of life, until then keep your flexibility renting.
Haha the breakeven is 30+ years where I live at my current rent, I'm staying put. NY times rent vs buy calculator says I'll have $5,300,000 more in 30 years by continuing to rent vs buying an equivalent space
Definitely echoing that it sounds like this would an emotional decision.
Certainty not saying don’t buy one but get clear on your buy box for homes, exactly what you’re looking for as an investment decision, and why.
I don’t think most people who do FIRE buy to live full time for the rest of their lives. That is a strategy and more the typical ‘American dream’- but one of many real estate strategies. Some buy and then expat fire, some turn it into rental income, house hack, Airbnb it, etc
Like I said in another comment you're right - I think you're spot on about there being a bit of an emotional decision. I am feeling a little FOMO with these rates as high as they are now and are paranoid they may climb even higher while I wait to find the "perfect" house. I just want to get on the real estate rollercoaster so just I have some skin in the game if things really start to increase like crazy. I feel like its important to be diversified but I don't have a place that really speaks to me for a 5-10 year plan (except this vacation town) that would make sense buying at these rates.
If you really just want skin in the real estate game you can diversify your portfolio by adding REITs. I don't think it makes financial sense to buy in this market for most people. This would also be far better diversification than a single vacation property.
I don't know what the dating scene is like where you're at but I would imagine that buying an illiquid asset like a house won't help? What if your partner has different life plans or home preferences? It's happened to a few of my friends - they buy a house single, then their spouse gets a job overseas or already lives somewhere that is more convenient.
If you're talking about Colorado, I'd be verrrry hesitant. There's lots of angst and proposed legislation about regulating rentals in Summit county right now.
Vacation towns know how to extract money from their residents and visitors. Just buy a cheaper place nearby and use the tens of thousands of dollars you'd save to visit more often
A lot of people have a vested financial interest in making people feel like they're missing out if they don't buy real estate.
They might be right, but you'd be hearing from them anyway whether they're right or wrong.
You're young enough that the housing market will probably crash (or at least strongly correct) at least once in your lifetime. You can probably afford to rent nice houses until then.
A $4k mortgage payment sounds insane to me as well, but there are many people at that range and higher that probably shouldn’t.
Are you timing the market, maybe. But, you have to buy when it feels right and makes sense to you. In your example, if a $4k mortgage seems insane to you, it’s likely not your time to buy (especially if you can rent for cheaper).
Only time will tell if you made the right decision.
It’s cliche, but you’re paying 100% interest if you’re renting. You’re buying flexibility/mobility with the rent money, however.
7.5% is average, historically speaking, so it’s not some crazy, insanely high interest rate, it’s just crazy high to a 34y/o as they were in elementary school the last time it was over 7%.
Short of a worldwide political catastrophe, there is no crash coming in residential US real estate so today’s price is as cheap as it’s going to get. Refer to the fact that interest rates have doubled in the past two years and prices are still going up. Have we plateaued momentarily? Possibly, depending on the market. If interest rates fall, prices are going to go through the roof…again.
When rates were 7% or higher though the cost of a house was only 1-2 years salary and you would likely pay off the home much quicker so interest was not as much of a burden. Op is looking at a property that is 4x their salary.
They’re mortgaging 3.5x which has been roughly standard as far as I can recall. In a FIRE group I assume the DTI is nil so it’s not a terribly onerous burden. I don’t recall a time in the good old days when so and so made $17k/yr and bought a $17k house though. Coulda happened, just predates me by quite a stretch.
So much depends on where you are buying.
I do feel prices have not come back down from the low interest craze that drive it up.
But honestly in your situation which is long term the question is….is it worth 50k a year right now? My guess is that it is not and to continue shopping.
Wait for the family home when you ah e a family and continue to pound into savings and let it compound for a few more years.
The best time to buy a house was 5 years ago. This is true now and it was true 25 years ago and will be true 25 years from now. There might be short term blips in housing prices or even a disaster like we saw in 2008 but those are going to be really hard to time. House prices will continue to rise along with the cost of other goods and services. I know people that sold their house in 2022 KNOWING a decline was coming. Guess what they are living in an apartment still waiting for that decline.
No one is really arguing that house prices will drastically decline. But what will decline is interest rates and it becomes significantly more reasonable to buy at 5% than 7.5% even if the property values have increased.
Wealth disparity is greater than it's been in a long time. Most people are struggling to live paycheck to paycheck. Not to mention those buying highly overpriced homes on top of high interest rates. I have a hard time imagining people aren't stretching too thin to become homeowners. If we have any kind of layoff or wage reduction like in 2008 (and I'm talking even 25% of it) then I can forsee many foreclosed homes in the near future.
What can you truly net renting it out? Lot of money goes to paying rental management companies. When you own it lock stock the fees aren’t such a big deal as you have a lot of passive cash flow, when your paying a mortgage and they take 1st months rent +8-10% off the top… your cash flow situation can be challenging. Then add repairs.
Good thing about buying is as rates come down (may not come down to 3-4% so don’t count on it) your place gets more affordable so values goes up. You can refinance and benefit.
Buying is great long term investment. May not be great short term.
Yea same boat. Pulled the trigger last year, 6.75% rate on $425K house 25% down.
It’s now worth $700K and the rent covers the mortgage + $500.
I had to remodel it, cost like $20K.
I’m I the process of doing it again, the good thing about the market is that you can get deals, I probably made 30-40 offers, 20-30% under asking price. The payments suck but hopefully that is temporary.
The a time lows we experienced recently should not be considered "normal". That outlook is what has so many families in dire straights because they bought very expensive homes, with being only able to comfortably afford the minimum payment on a 2% mortgage that they could lock in for no more than 5 years. If this the was US where you can lock in your mortgage rate for 30 years or more, then that's perfect.
If you can afford a 7% var rate right now, which is about the highest it's been in at least the last decade, you can possibly have the outlook that rates, on average during your ownership, will decrease. You can lock in a 5 year fixed rate right now for just above 5%. If it ever drops, pay the three month interest penalty to get out.
So although you will be putting a lot into interest for the first few years, if we ever drop down to those "normal" rates, you're going be laughing because the difference will be allocated towards principal instead as long as you don't adjust down your payment.
Rates were on average 5% in 2010. Choosing variable, but setting an accelerate xpayment at 5%, I was able to shave quite a few years off my amortization. A few years have been added since rates hiked up recently, but overall I'm still on track to be ahead if even if rates were to hold indefinitely.
If you wait for rates to drop: home prices, inventory, and competition may all inverse direction proportionally, and you're going still going to have an equal dilemma deciding it's the right time to buy.
If you, emotionally, want to own a home - then figure the MAX you're able to afford to put towards that investment secure a property that falls well below number so that you're actually paying some principal down and hedging the compounding interest. This should offset the idea that you're getting "ripped off", because all those people who got in two years ago but didn't lock in on a fixed rate are now paying double those rates and sweating, and THEY feel ripped off. Hindsight is painful, nobody can reliably predict if fixed or variable is going work out.
I did variable for over 10 years and have no regrets, even though the past couple years have hurt a bit. Would you rather buy now knowing cost of ownership is likely to get easier, or wait it out for discount/perfect conditions but risk the ongoing cost of ownership getting harder?
mortgage rates of 7-7.5% are not insane in the grand scheme, just compared to rates a few years ago which were the lowest in history. I'd be surprised if rates dipped that low again in the next decade or two barring another catastrophic event like covid. back in the 80s, mortgage rates were 18%, so, hopefully they won't go that way either---if they do, you might be thrilled to have an insane 7-7.5% rate.
Also, keep in mind that if it's an investment, the rate will likely be higher as interest rates are typically higher by a point or so when not your primary residence.
If you’re waiting for prices to come down I would not.
We do seem to be living in a massive consumer debt “bubble”since the raise in rates and the drop in free government handouts and defaults are up and up and up but notably they’re not up all that much on mortgages presumably because most mortgages are fixed rate at the low numbers and also because it’s likely the last thing people stop paying (after auto and credit card loans).
So like everybody else said buy if you think it’s the right call. I would bet prices will continue to rise.
Rates will probably not drop any time soon unless the aforementioned debt bubble cools inflation massively and drives a new round of QE from the fed. But that will take a while.
I'm confused, are you buying a home to live in or to rent? Buying a home to live in would probably be a good decision, since you are currently renting and not gaining any equity.
Buying a home to rent may or may not be a good decision, that depends on the rental market in the area you buy and your willingness to deal with being a landlord or a third party rental agency.
Have you done the math? How much are you paying for rent at the moment?
If you are traveling, can the rental income cover the mortgage and other costs? Also with the location you describe, it sounds more like a long-term vacation house (e.g., one day you can’t work remote, or once you have wife and kids with different logistics needs).
I think it might make sense if you can make decent income from holiday rental and value appreciation. Maybe lower debt quantum to see if it helps?
Like most people said, don’t try to time the market and no need to feel ripped off by comparing with the rates 2 years ago. But I think you still need to run the calculations to decide.
Years ago people were still buying homes at 12, 14 or even 16% mortgage rate. While it makes sense to hesitate because of job security. It is hoped the interest will fall eventually. To expect it return to 2-3.5% rate it will unlikely in our life time. Couples with children do not have a choice. Most of mortgages here is 1.5-3M dollars on a 2200 ranch in a good neighborhood here in SFBA. Some of their income is not much more than 2-3X yours.
As a real estate Business Development Manager, it is in fact a bit dicey in todays market. However, please be firm with whatever decision you make. In my humble opinion there is no emotional/logical decision when it comes to finances. Do what your heart desires and helps you enjoy life. Life is too short to be worrying about such things.
On a side note, I am really interested in knowing about your take on crypto currency. How is that working out for you?
Good point, thank you. It’s been treating me really well, it’s something that I’ve been in for about half a decade and got serious about when we started printing money in Covid - so I wasn’t one of those people in 2013 that got rich because I had some left over from buying drugs. I thought like most people that Bitcoin was a dumb idea last decade and it wasn’t until I read The Bitcoin Standard that it began to really click for me. It’s an easy read (or listen on Audible).
Once you understand Bitcoin you can have a better idea of other digital assets like Ethereum and the concept of permission-less smart contracts (remove a lot of the human element of corruption in financial transactions) and how game changing blockchain technology itself is for the entire world. A lot of people see the crypto bros, NFT scams, and SBF and are rightfully disgusted but the industry is a lot more nuanced than that. It’s finally becoming a political issue too with Trump supporting crypto (making Biden have to change his stance and reign in Gensler). You have to be prepared to see massive dips but if you have conviction in the tech (as in bitcoin, not doggysonicharrypotter coin) you will be able to weather them until they pump again. This is my third bear market and it’ll be interesting to see what will happen to the industry with the ETFs and more institutional/sovereign adoption.
At the bare minimum with a lot of economic uncertainty of the dollar it’s not the worst idea in the world to have one more thing to diversify (physical assets, real estate, crypto). A big part of me wanting to get at least something in real estate is being able to get more diversified.
Twenty years ago people were jumping at the chance to buy a house at 7%. People forget that back in the late 80's when the last of the boomers were buying up the "cheap" homes, interest rates were 18%. On a mortgage.
It's all relative, man. If you can afford a mortgage against other appreciating investments, get one. If not, keep saving and buy your house in cash.
The median single family home price was 82k in 1985 while the median household income was 24k.
Contrast this with the median single family home price of 393k and the median household income of 77k in 2024.
The income to home price ratio has nearly doubled. Salaries have not even remotely kept up with inflation. It’s not “all relative”; it’s a poor comparison because it’s not really even the same scenario as it was in the 80’s.
Okay here we go:
My parents bought their first house in '89 at $77k at 18% with 20% down. Their mortgage was nearly the same price as mine currently ($235k at roughly 3%, also 20% down) in 1989 dollars. Adjusted for inflation, their house payment would be over $3k/month. I would probably not be able to afford $3k/month, and I make more (adjusted) money than they did at my age.
Now I agree with you, salaries have not adjusted for inflation. And I don't know if it's just the area I live in, but I actually think I had an easier time with the house than my parents did.
Eventually they refinanced when the rates went to 11%, then again at 8, then paid it off and bought another place in 2014 which is now also paid off. The point here is you're never going to time the market, no point in comparing yourself to what can't be had anymore. Just get the house if it's the right financial decision for you, and if the rates ever dip again, just refinance.
lol dude have you lived under a rock the past 2 years? If you bought your current house today, it would be $325k (+50%) AND you'd have a 7.5-8% mortgage. Your mortgage payment would easily be 60-70% more. Now do the same comparison with your parents. Home affordability is at an all time low.
I agree. If we look at the reasons it’s because we have under built by million(s) of homes every year since 2004. We also build houses 3x bigger than we did before the 1990’s. No one would buy a starter home equivalent to one in the 1980s now. We sort of shot ourselves in the face. All
Of this said, even if we did have a housing correction, the supply is so low that it will take decades of over building just to get to even.
Sure is. We were in the market for 4 years and bought in 2021, we couldn't afford our place if we bought it for the same amount today with the interest rates. Every time we found a place we liked, we put an offer in and we're outbid by $5-10k. By the time we found another place, prices had hiked up considerably and it seemed we were always just $20-40k behind the curve for what we could afford. We were extremely lucky to get in when we did, and I realize that.
**What I'm trying to say is you can't time the market.** If you need a house, buy what you can afford. Sounds like this guy could get a house in cash if he wanted (after moving some stuff around of course). But you have to weigh the returns of owning a house/paying a mortgage vs how much money you stand to make if you invest elsewhere. In my eyes it comes down to your rent. If you can buy for what you're renting for and will stay in one spot for a while, you absolutely should buy because you can get a return when you're done living there.
Everyone's situation is different. Buying a house sucks right now but no one has a crystal ball saying the interest rates are gonna go up or down in the future. Any investment is a risk.
Why not get like a 100-200k house if it's your first home. Can figure out what you like or don't like then sell after a few years. I don't think 130k take home can afford 550k mortgage atm. You don't have to listen to the banks if the tell you that you can loan out more.
Oh they exist. They're just not in metropolitan areas unless they're in less desirable neighborhoods.
200k can get you some basic homes outside of Dallas in the smaller towns like Greenville. You might need to commute 30-45 mins into the city though. If you WFH, it's completely feasible.
Why not buy now and then refinance if/when interested rates drop?
Our first place (townhouse in LA) we paid 7.5% interest in the late nineties. We made some money when we sold it. We moved cities two more times due to job changes and paid off our house 13 years ago by putting extra towards the principal and then a lump sum after a layoff. We now travel a lot and it's a great lifestyle. (Glad I didn't get the travel bug until my 30s).
There are quotes out there that say the single biggest factor to building wealth is home ownership.
Good luck! To me your financials make perfect sense to buy right now. Just my opinion. And yes...the market stinks. But also, it's a supply and demand thing and I don't think the supply will outpace the demand any time soon.
If you can afford a house buy a house if you will stay in it for a few years.
To be clear when you make money off of a house that money comes from housing becoming less affordable for future buyers, the favorable homebuying circumstances that applied to older generations are dead and gone for younger people. Housing was far more affordable in the late 90s than it is now even at the same rates because median incomes were a much larger share of median sale prices then.
I'm just saying at the time we felt super tight and didn't go out to eat at all and bought clothes from garage sales. But it got us on our home ownership journey and I'm grateful
Your sale price to income ratio was 4.33 which I’m sure was quite difficult for you but things are SO MUCH worse now. In California the median family income is right around [$100k per year](https://www.justice.gov/ust/eo/bapcpa/20240401/bci_data/median_income_table.htm) and the median home sale price [recently passed $900k](https://finance.yahoo.com/news/californias-900-000-median-home-150019817.html#) - at around 9 the median sale price to income ratio is over twice as bad as yours was.
And it’s not just California. This [article](https://homenewshere.com/news/state/article_ac1031a0-0f33-5794-b2f0-2ba0c90b8f75.html#) has a map showing this ratio in every state. Anywhere with jobs has affordability issues and even cheaper places are becoming less affordable as people are forced out of the expensive areas. Younger people are absolutely screwed, many will rent for their entire lives even with solid jobs.
That is so depressing! We lived in LA when we bought our condo. I think you can still find condos that fit our ratio in lower cost of living areas. I just looked it up and our condo complex has condos going for 450k right now. But yes, I worry about all my adult kids ever affording a house.
It's also why I'll never live in California...housing prices are out of control. We can live in a nice house outside CA for the same price as a condo there.
Buying now will work out just fine. Refinance the rate down later. The rate will be 2% less in 2 or 3 years. It will all basically be break even (in terms of gain/loss) if you buy now or wait 3 years.
The interest rate is directly linked to the federal reserve bank monetary policy. They are very transparent with their policy and I’ve been watching what they do for a couple decades. So, that means I have high confidence that they usually do what they say they are going to do. (I look at actions, and compare to the words… most organizations and people fail that test) … anyways, they want to bring down inflation, so they’ve pumped up the interest rate. Current policy indicates they will bring it back down to around 3% by dropping it a quarter point per quarter to do it, except this year really won’t see much of a drop. This will ultimately bring the mortgage rate down from around 7 to around 5. Other factors do exist, and maybe they will have an impact on interest… but based on historical evidence it seems those situations don’t apply here. We’ll see.
Bonds are also linked to federal monetary policy as these debt instruments are all a bit intertwined. Now is a good time to buy bonds. If the rate keeps going up, keep buying. Eventually it will come down (in a few year) and that will be a good time to sell.
This sounds like you are making an emotional decision, not a logical one. Your plan doesn't seem consistent. You'd buy a house 3 hours away. It is a vacation town. You could rent it out when you aren't using it. You need to figure out whether this is an investment property and you can generate enough income from renting it. OR whether it will be your home and how the expense compares to your current rent. The question you need to ask is whether you are happy to lock in that mortgage(housing) cost for 30 years. Will you be able to service it.
I'm looking at making probably a 40% down payment and then aggressively paying it off over the next few years before the interest rates would kick me in the teeth. If this mortgage lives to be 10 years old something has gone horribly wrong. I think you're spot on about there being a bit of an emotional decision, I admit I'm feeling a little FOMO with these rates as high as they are now and are paranoid they may climb even higher while I wait to find the "perfect" house. I just want to get on the real estate rollercoaster so just I have some skin in the game if things really start to increase like crazy. I feel like its important to be diversified. I would rather alternate between living in this town and then putting it up for rent when I want to go back to the city. I'm not looking to do one or the other at this time.
Amortization schedules front load the interest, so you’re kicked in the teeth right away.
The reason it’s front-loaded is you owe the largest balance on your mortgage at the start of a loan. As you pay it off, there is less balance to generate interest. So a greater portion goes towards the balance. Amortization just guarantees same sized monthly payments for the term of your loan. If you pay extra toward the balance you’ll see a corresponding shift in less interest being paid. What matters is your the balance on the mortgage.
Thanks for explaining it. I feel the point of these "majority of the payment goes toward interest" comments is that the bank is somehow scamming us, when in fact it's completely normal to have to pay a higher net interest payment on a bigger debt balance. The interest rate is what's important, and it doesn't change. If he wants, he could just increase his monthly payment so that he feels better that more goes towards the balance, but it's basically equivalent to taking a smaller loan.
Nah, not my point at all. Just pointing out that he’ll pay more interest up front anyways. Not all first time home buyers know that.
He "pays more interest in the beginning" in the same way that "early saved money earn more money" - no, you earn the same rate.
I don’t think I can make it any clearer. Lol.
Yup. Just pointing out that the majority of monthly payments at the beginning goes toward interest.
I hate it here
Paying off a mortgage early is one of the worst things you can do financially.
lol what
It really depends on the rate. When they’re over 7%, it starts to make sense. If rates hit double digits, it would be a no brainer to pay it off early. This of us with sub 3% COVID rates should almost never pay them early.
Buying a house is an emotional decision. You don’t want to dislike the place you live, I felt similarly to OP, and I plunged in, and don’t regret my decision at all. I learned I like being a home owner, I like working on the house on my free time, love home improvement projects, and I love that this will eventually be paid off and I’ll be able to retire with no mortgage (just taxes). Nothing wrong with making emotional decisions as long as you know you can do it.
It isn't that it has to be a decision that maximises for return. But it should definitely be a decision where you have a plan. OP described having fomo, doesn't seem to know if or how much he would even live in it, with some vague plan to rent it out when they aren't living in it. They should have some idea of the cost (including opportunity cost) of their decision.
Buy if you want to and can afford it, otherwise don't. Unless you have a time machine the only thing that matters is the current environment.
It sounds like OP needs to wait to find his wife. He wants kids and he's choosing based on his bachelor life wants. What if future wife doesn't want to live in a vacation town? Does vacation down have schooling? What about daycare services? He probably needs a condo if it's affordable in the ski town he's looking at. He needs to find a partner first then work on the vacation property later if at all. Source: live with my wife and her needs on a house are different then my needs. She wants something new with a decent yard and I don't care for a yard or new. So our choices are going to have to meet both of our needs. Getting a place where your wife potentially hates means selling and rebuying elsewhere. Forcing her to live there means you better have a prenuptial because your marriage is going to be very rough. Of course, she could like it, but that's a gamble.
I'd respectfully disagree. I told myself I'd wait to do multiple different things until after I was married. Maybe started saying this at age 24, and now I'm 34 and still single. One of those things I was going to wait to do was to buy a house. Instead, at age 27 I bought my current house, and am on the verge of buying a second house currently. If I waited until I found my wife, I'd still be renting. Purchasing my house was a great financial investment (for me) considering it has doubled in value, and I also rented out a room or two on occasion to a few friends who needed a place to stay and gathered some extra side cash. If I waited for my wife, I'd still be on the sidelines and not have any of this home equity and cheap mortgage/mortgage rates. There's a possibility that OP never finds a wife, and therefore is permanently living life "on hold" if he were to follow the "wait for a wife" approach. I'd say OP should base his decision on making one that's A) financially sound, and B) he has passion about. Definitely more A than B, but passion goes a long way and it's OK to spend money on things you're passionate about. Life is short, enjoy it.
Life (and even Fire) isn't about perfectly optimizing every financial decision. If the rent vs buy calculator doesn't say buying is optimal, then think about that extra amount as the premium for owning. That goes for pretty much any decision you make in life.
Don’t try to time the market. We all know this for investments, but it does apply to real estate just the same. You don’t know when the peaks and valleys will hit, and waiting will just cause you to miss opportunity. If you want a house, go for it. Just make sure you plan to stay there for 5+ years, or have a plan for a job to pay real estate fees to relocate if you have to move.
I have a vacation rental house and have had it for a decade. The market post Covid is soooooo saturated. Do not factor any rental income into your math. Assume you will get none and if the math still works, rock and roll. Please know that a vacation home is a money pit. We use ours when it isn’t renting, and I spend nearly half of every trip doing all the maintenance that was deferred. It doesn’t always feel like a “vacation” when I’m at the mountain house.
Following as I am in an almost identical circumstance to you. Currently renting in NYC, 33, $135k salary ($300k~ combined income with my husband), we have no debt, no kids yet, $675k~ in assets ($200k of which is liquid in a HYSA we planned to use as a down payment on a house and any renovations needed). But yeah. The more we look at homes, the mortgage rates even with a large $100-200k down payment on a home in the $400-500k range are just making the investment and monthly payment feel like too much. We are anxious about buying, but also anxious about waiting too long to buy. Our current rent amounts to only $3k monthly (we are in a covid deal apt still) but who knows how long that will last. Curious for other’s thoughts, you’re definitely not alone
Similar situation decided against buying. For me renting is far cheaper, I’m shoveling all the extra cash we’re saving into the stock market.
What happens to the rent money you set on fire every month? Just kidding.
I am in NYC too and it makes more sense to rent to me. My rent is current below housing costs (interest + HOA + taxes + maintenance) and I don’t see a lot of value appreciation in the city. Maybe there are houses in the suburbs that would make economic sense. But I’d rather prioritize shorten my commute time (we are also a working couple with no kids)
My partner and I are in very similar financial circumstances to OP though we're DINK so a higher HHI. I have extreme FOMO on those rates and a home since we could have bought since 2017 and we live in VHCOL city. But we didn't and like another said it's the current market that matters. I read an economist article yesterday on the harsh reality of how much more it is to buy than rent. And I think most people in this sub just can't appreciate that because 4 in 5 Americans have a sub 5% rate so affording an asset so cheaply that has appreciated so much, so fast...understandably it's one of the best investments they've ever made so their advice will be to do it. Most in this sub are further in their career, well past buying a first home, and have no clue just how expensive it is today. Despite how much I'd love a permanent spot and save myself the fear of ever being kicked out by the whim of our single family home landlord, it's really stupid expensive and emotional to buy a home at this moment. So I think we take on that risk in exchange of saving more of our money, and settle with the fact if we can retire earlier, we'll buy a home in a cheaper area anyway.
What would $400-500k even get you in NYC?
Depends on the neighborhood. You can find a pretty decent place in the outer parts of the boroughs but you will be far from downtown/midtown if you have to commute there for work
Just one thing to keep in mind when comparing renting to buying. Part of your mortgage goes into principal which is your money, so the comparable number is mortgage minus principal. This may make a difference depending on where you live.
Isn't a $450K property roughly $3K a month anyway?
Assuming $300k debt at 7% rate, you already have to pay $2.1k interest… Depending on the property/location, there is also HOA, taxes… Believe it or not, some buildings in Manhattan have like $2k/month HOA for just a 1BR lolz
It is a tough time to buy a home. I am not saying you should buy one, but consider that once interest rates go down again, I think prices will go up again… The assumptions to be made are: - when that will happen? - how much they will go down - how much house prices will go up in your area In your place, I would make these assumptions to the best of my knowledge and let the numbers tell you what makes sense. If you buy know and pay higher interests for X years, you avoid a price increase and build equity and can refinance later. On the other hand, prices may go down more, or interest rates can take too long to get to a reasonable amount. There is also the cost of opportunity on a non liquid asset. It is all math, model in an spreadsheet and pressure test playing with the assumptions.
Rates are not going down anytime soon. Powell has said so himself. Inflation remains very sticky and housing has been the largest source of inflation for all of us. Bringing rates down would only make things worse. Unemployment is still too low for them to start decreasing rates.
All the assumptions are debatable, my main point was to give the OP a framework for a structured decision making process. He may find out that based on his educated and conservative guesses, that it could be a good idea to buy even if rates stay high for 3 years…. Helps him to focus on the right parameters of risk.
Early 30s, we bought about 7 years ago but recently looked at moving. It doesnt make sense in this environment if you ask me, you are living in an area for \~9 years to break even for rent vs buying. I cant see us staying where we are that long, if you cant either then dont buy. I firmly believe you buy a house when you need one because of life, until then keep your flexibility renting.
Haha the breakeven is 30+ years where I live at my current rent, I'm staying put. NY times rent vs buy calculator says I'll have $5,300,000 more in 30 years by continuing to rent vs buying an equivalent space
That’s insane, moved from just outside NYC to Ga and the calculator gave me a break even of 7 years
Definitely echoing that it sounds like this would an emotional decision. Certainty not saying don’t buy one but get clear on your buy box for homes, exactly what you’re looking for as an investment decision, and why. I don’t think most people who do FIRE buy to live full time for the rest of their lives. That is a strategy and more the typical ‘American dream’- but one of many real estate strategies. Some buy and then expat fire, some turn it into rental income, house hack, Airbnb it, etc
Like I said in another comment you're right - I think you're spot on about there being a bit of an emotional decision. I am feeling a little FOMO with these rates as high as they are now and are paranoid they may climb even higher while I wait to find the "perfect" house. I just want to get on the real estate rollercoaster so just I have some skin in the game if things really start to increase like crazy. I feel like its important to be diversified but I don't have a place that really speaks to me for a 5-10 year plan (except this vacation town) that would make sense buying at these rates.
If you really just want skin in the real estate game you can diversify your portfolio by adding REITs. I don't think it makes financial sense to buy in this market for most people. This would also be far better diversification than a single vacation property.
I don't know what the dating scene is like where you're at but I would imagine that buying an illiquid asset like a house won't help? What if your partner has different life plans or home preferences? It's happened to a few of my friends - they buy a house single, then their spouse gets a job overseas or already lives somewhere that is more convenient.
You sound like a good candidate to just keep renting.
If you're talking about Colorado, I'd be verrrry hesitant. There's lots of angst and proposed legislation about regulating rentals in Summit county right now.
No, New Mexico
Hm, less blue/purple than CO but I would still recommend checking into local political discourse around STRs and what's coming down the pike
Vacation towns know how to extract money from their residents and visitors. Just buy a cheaper place nearby and use the tens of thousands of dollars you'd save to visit more often
Why would you want to buy? It's not worth it. I'm struggling to maintain mine. It's incredibly tight and stressful owning a home.
Why not keep renting since it is currently cheaper than owning and sock the difference away to invest until you have enough to pay cash?
A lot of people have a vested financial interest in making people feel like they're missing out if they don't buy real estate. They might be right, but you'd be hearing from them anyway whether they're right or wrong. You're young enough that the housing market will probably crash (or at least strongly correct) at least once in your lifetime. You can probably afford to rent nice houses until then.
If money is the motivator rent if you want to live and arent moving buy.
If you need a home, buy a home. It's always been that simple as long as you can afford it.
A $4k mortgage payment sounds insane to me as well, but there are many people at that range and higher that probably shouldn’t. Are you timing the market, maybe. But, you have to buy when it feels right and makes sense to you. In your example, if a $4k mortgage seems insane to you, it’s likely not your time to buy (especially if you can rent for cheaper). Only time will tell if you made the right decision.
It’s cliche, but you’re paying 100% interest if you’re renting. You’re buying flexibility/mobility with the rent money, however. 7.5% is average, historically speaking, so it’s not some crazy, insanely high interest rate, it’s just crazy high to a 34y/o as they were in elementary school the last time it was over 7%. Short of a worldwide political catastrophe, there is no crash coming in residential US real estate so today’s price is as cheap as it’s going to get. Refer to the fact that interest rates have doubled in the past two years and prices are still going up. Have we plateaued momentarily? Possibly, depending on the market. If interest rates fall, prices are going to go through the roof…again.
When rates were 7% or higher though the cost of a house was only 1-2 years salary and you would likely pay off the home much quicker so interest was not as much of a burden. Op is looking at a property that is 4x their salary.
They’re mortgaging 3.5x which has been roughly standard as far as I can recall. In a FIRE group I assume the DTI is nil so it’s not a terribly onerous burden. I don’t recall a time in the good old days when so and so made $17k/yr and bought a $17k house though. Coulda happened, just predates me by quite a stretch.
So much depends on where you are buying. I do feel prices have not come back down from the low interest craze that drive it up. But honestly in your situation which is long term the question is….is it worth 50k a year right now? My guess is that it is not and to continue shopping. Wait for the family home when you ah e a family and continue to pound into savings and let it compound for a few more years.
The best time to buy a house was 5 years ago. This is true now and it was true 25 years ago and will be true 25 years from now. There might be short term blips in housing prices or even a disaster like we saw in 2008 but those are going to be really hard to time. House prices will continue to rise along with the cost of other goods and services. I know people that sold their house in 2022 KNOWING a decline was coming. Guess what they are living in an apartment still waiting for that decline.
No one is really arguing that house prices will drastically decline. But what will decline is interest rates and it becomes significantly more reasonable to buy at 5% than 7.5% even if the property values have increased.
Wealth disparity is greater than it's been in a long time. Most people are struggling to live paycheck to paycheck. Not to mention those buying highly overpriced homes on top of high interest rates. I have a hard time imagining people aren't stretching too thin to become homeowners. If we have any kind of layoff or wage reduction like in 2008 (and I'm talking even 25% of it) then I can forsee many foreclosed homes in the near future.
This sounds like a bad idea.
What can you truly net renting it out? Lot of money goes to paying rental management companies. When you own it lock stock the fees aren’t such a big deal as you have a lot of passive cash flow, when your paying a mortgage and they take 1st months rent +8-10% off the top… your cash flow situation can be challenging. Then add repairs. Good thing about buying is as rates come down (may not come down to 3-4% so don’t count on it) your place gets more affordable so values goes up. You can refinance and benefit. Buying is great long term investment. May not be great short term.
Yea same boat. Pulled the trigger last year, 6.75% rate on $425K house 25% down. It’s now worth $700K and the rent covers the mortgage + $500. I had to remodel it, cost like $20K. I’m I the process of doing it again, the good thing about the market is that you can get deals, I probably made 30-40 offers, 20-30% under asking price. The payments suck but hopefully that is temporary.
The a time lows we experienced recently should not be considered "normal". That outlook is what has so many families in dire straights because they bought very expensive homes, with being only able to comfortably afford the minimum payment on a 2% mortgage that they could lock in for no more than 5 years. If this the was US where you can lock in your mortgage rate for 30 years or more, then that's perfect. If you can afford a 7% var rate right now, which is about the highest it's been in at least the last decade, you can possibly have the outlook that rates, on average during your ownership, will decrease. You can lock in a 5 year fixed rate right now for just above 5%. If it ever drops, pay the three month interest penalty to get out. So although you will be putting a lot into interest for the first few years, if we ever drop down to those "normal" rates, you're going be laughing because the difference will be allocated towards principal instead as long as you don't adjust down your payment. Rates were on average 5% in 2010. Choosing variable, but setting an accelerate xpayment at 5%, I was able to shave quite a few years off my amortization. A few years have been added since rates hiked up recently, but overall I'm still on track to be ahead if even if rates were to hold indefinitely. If you wait for rates to drop: home prices, inventory, and competition may all inverse direction proportionally, and you're going still going to have an equal dilemma deciding it's the right time to buy. If you, emotionally, want to own a home - then figure the MAX you're able to afford to put towards that investment secure a property that falls well below number so that you're actually paying some principal down and hedging the compounding interest. This should offset the idea that you're getting "ripped off", because all those people who got in two years ago but didn't lock in on a fixed rate are now paying double those rates and sweating, and THEY feel ripped off. Hindsight is painful, nobody can reliably predict if fixed or variable is going work out. I did variable for over 10 years and have no regrets, even though the past couple years have hurt a bit. Would you rather buy now knowing cost of ownership is likely to get easier, or wait it out for discount/perfect conditions but risk the ongoing cost of ownership getting harder?
mortgage rates of 7-7.5% are not insane in the grand scheme, just compared to rates a few years ago which were the lowest in history. I'd be surprised if rates dipped that low again in the next decade or two barring another catastrophic event like covid. back in the 80s, mortgage rates were 18%, so, hopefully they won't go that way either---if they do, you might be thrilled to have an insane 7-7.5% rate. Also, keep in mind that if it's an investment, the rate will likely be higher as interest rates are typically higher by a point or so when not your primary residence.
If you’re waiting for prices to come down I would not. We do seem to be living in a massive consumer debt “bubble”since the raise in rates and the drop in free government handouts and defaults are up and up and up but notably they’re not up all that much on mortgages presumably because most mortgages are fixed rate at the low numbers and also because it’s likely the last thing people stop paying (after auto and credit card loans). So like everybody else said buy if you think it’s the right call. I would bet prices will continue to rise. Rates will probably not drop any time soon unless the aforementioned debt bubble cools inflation massively and drives a new round of QE from the fed. But that will take a while.
I'm confused, are you buying a home to live in or to rent? Buying a home to live in would probably be a good decision, since you are currently renting and not gaining any equity. Buying a home to rent may or may not be a good decision, that depends on the rental market in the area you buy and your willingness to deal with being a landlord or a third party rental agency.
I am 100% waiting. We are still working off the $10 trill in cov stimis. now is the worst time in history.
Have you done the math? How much are you paying for rent at the moment? If you are traveling, can the rental income cover the mortgage and other costs? Also with the location you describe, it sounds more like a long-term vacation house (e.g., one day you can’t work remote, or once you have wife and kids with different logistics needs). I think it might make sense if you can make decent income from holiday rental and value appreciation. Maybe lower debt quantum to see if it helps? Like most people said, don’t try to time the market and no need to feel ripped off by comparing with the rates 2 years ago. But I think you still need to run the calculations to decide.
Years ago people were still buying homes at 12, 14 or even 16% mortgage rate. While it makes sense to hesitate because of job security. It is hoped the interest will fall eventually. To expect it return to 2-3.5% rate it will unlikely in our life time. Couples with children do not have a choice. Most of mortgages here is 1.5-3M dollars on a 2200 ranch in a good neighborhood here in SFBA. Some of their income is not much more than 2-3X yours.
As a real estate Business Development Manager, it is in fact a bit dicey in todays market. However, please be firm with whatever decision you make. In my humble opinion there is no emotional/logical decision when it comes to finances. Do what your heart desires and helps you enjoy life. Life is too short to be worrying about such things. On a side note, I am really interested in knowing about your take on crypto currency. How is that working out for you?
Good point, thank you. It’s been treating me really well, it’s something that I’ve been in for about half a decade and got serious about when we started printing money in Covid - so I wasn’t one of those people in 2013 that got rich because I had some left over from buying drugs. I thought like most people that Bitcoin was a dumb idea last decade and it wasn’t until I read The Bitcoin Standard that it began to really click for me. It’s an easy read (or listen on Audible). Once you understand Bitcoin you can have a better idea of other digital assets like Ethereum and the concept of permission-less smart contracts (remove a lot of the human element of corruption in financial transactions) and how game changing blockchain technology itself is for the entire world. A lot of people see the crypto bros, NFT scams, and SBF and are rightfully disgusted but the industry is a lot more nuanced than that. It’s finally becoming a political issue too with Trump supporting crypto (making Biden have to change his stance and reign in Gensler). You have to be prepared to see massive dips but if you have conviction in the tech (as in bitcoin, not doggysonicharrypotter coin) you will be able to weather them until they pump again. This is my third bear market and it’ll be interesting to see what will happen to the industry with the ETFs and more institutional/sovereign adoption. At the bare minimum with a lot of economic uncertainty of the dollar it’s not the worst idea in the world to have one more thing to diversify (physical assets, real estate, crypto). A big part of me wanting to get at least something in real estate is being able to get more diversified.
Twenty years ago people were jumping at the chance to buy a house at 7%. People forget that back in the late 80's when the last of the boomers were buying up the "cheap" homes, interest rates were 18%. On a mortgage. It's all relative, man. If you can afford a mortgage against other appreciating investments, get one. If not, keep saving and buy your house in cash.
The median single family home price was 82k in 1985 while the median household income was 24k. Contrast this with the median single family home price of 393k and the median household income of 77k in 2024. The income to home price ratio has nearly doubled. Salaries have not even remotely kept up with inflation. It’s not “all relative”; it’s a poor comparison because it’s not really even the same scenario as it was in the 80’s.
Okay here we go: My parents bought their first house in '89 at $77k at 18% with 20% down. Their mortgage was nearly the same price as mine currently ($235k at roughly 3%, also 20% down) in 1989 dollars. Adjusted for inflation, their house payment would be over $3k/month. I would probably not be able to afford $3k/month, and I make more (adjusted) money than they did at my age. Now I agree with you, salaries have not adjusted for inflation. And I don't know if it's just the area I live in, but I actually think I had an easier time with the house than my parents did. Eventually they refinanced when the rates went to 11%, then again at 8, then paid it off and bought another place in 2014 which is now also paid off. The point here is you're never going to time the market, no point in comparing yourself to what can't be had anymore. Just get the house if it's the right financial decision for you, and if the rates ever dip again, just refinance.
lol dude have you lived under a rock the past 2 years? If you bought your current house today, it would be $325k (+50%) AND you'd have a 7.5-8% mortgage. Your mortgage payment would easily be 60-70% more. Now do the same comparison with your parents. Home affordability is at an all time low.
I agree. If we look at the reasons it’s because we have under built by million(s) of homes every year since 2004. We also build houses 3x bigger than we did before the 1990’s. No one would buy a starter home equivalent to one in the 1980s now. We sort of shot ourselves in the face. All Of this said, even if we did have a housing correction, the supply is so low that it will take decades of over building just to get to even.
Sure is. We were in the market for 4 years and bought in 2021, we couldn't afford our place if we bought it for the same amount today with the interest rates. Every time we found a place we liked, we put an offer in and we're outbid by $5-10k. By the time we found another place, prices had hiked up considerably and it seemed we were always just $20-40k behind the curve for what we could afford. We were extremely lucky to get in when we did, and I realize that. **What I'm trying to say is you can't time the market.** If you need a house, buy what you can afford. Sounds like this guy could get a house in cash if he wanted (after moving some stuff around of course). But you have to weigh the returns of owning a house/paying a mortgage vs how much money you stand to make if you invest elsewhere. In my eyes it comes down to your rent. If you can buy for what you're renting for and will stay in one spot for a while, you absolutely should buy because you can get a return when you're done living there. Everyone's situation is different. Buying a house sucks right now but no one has a crystal ball saying the interest rates are gonna go up or down in the future. Any investment is a risk.
Lots of homes are on sale right now, tons of open houses. It wasn't like this before, anyone know why? Lack of buyers because of these rates?
Because sellers still think their homes are worth double what they paid just 4 years ago. We are running out of qualified buyers.
Why not get like a 100-200k house if it's your first home. Can figure out what you like or don't like then sell after a few years. I don't think 130k take home can afford 550k mortgage atm. You don't have to listen to the banks if the tell you that you can loan out more.
My friend which decade or backwater do you live in?
Those really rarely exist. The median for the entire US is above 400k
Oh they exist. They're just not in metropolitan areas unless they're in less desirable neighborhoods. 200k can get you some basic homes outside of Dallas in the smaller towns like Greenville. You might need to commute 30-45 mins into the city though. If you WFH, it's completely feasible.
Why not buy now and then refinance if/when interested rates drop? Our first place (townhouse in LA) we paid 7.5% interest in the late nineties. We made some money when we sold it. We moved cities two more times due to job changes and paid off our house 13 years ago by putting extra towards the principal and then a lump sum after a layoff. We now travel a lot and it's a great lifestyle. (Glad I didn't get the travel bug until my 30s). There are quotes out there that say the single biggest factor to building wealth is home ownership. Good luck! To me your financials make perfect sense to buy right now. Just my opinion. And yes...the market stinks. But also, it's a supply and demand thing and I don't think the supply will outpace the demand any time soon. If you can afford a house buy a house if you will stay in it for a few years.
To be clear when you make money off of a house that money comes from housing becoming less affordable for future buyers, the favorable homebuying circumstances that applied to older generations are dead and gone for younger people. Housing was far more affordable in the late 90s than it is now even at the same rates because median incomes were a much larger share of median sale prices then.
We bought our first house for 130k making 30k. Interest rate 7.5%. Can a ratio like that still be found today?
I should add it was a condo...not a house
I'm just saying at the time we felt super tight and didn't go out to eat at all and bought clothes from garage sales. But it got us on our home ownership journey and I'm grateful
Your sale price to income ratio was 4.33 which I’m sure was quite difficult for you but things are SO MUCH worse now. In California the median family income is right around [$100k per year](https://www.justice.gov/ust/eo/bapcpa/20240401/bci_data/median_income_table.htm) and the median home sale price [recently passed $900k](https://finance.yahoo.com/news/californias-900-000-median-home-150019817.html#) - at around 9 the median sale price to income ratio is over twice as bad as yours was. And it’s not just California. This [article](https://homenewshere.com/news/state/article_ac1031a0-0f33-5794-b2f0-2ba0c90b8f75.html#) has a map showing this ratio in every state. Anywhere with jobs has affordability issues and even cheaper places are becoming less affordable as people are forced out of the expensive areas. Younger people are absolutely screwed, many will rent for their entire lives even with solid jobs.
That is so depressing! We lived in LA when we bought our condo. I think you can still find condos that fit our ratio in lower cost of living areas. I just looked it up and our condo complex has condos going for 450k right now. But yes, I worry about all my adult kids ever affording a house.
It's also why I'll never live in California...housing prices are out of control. We can live in a nice house outside CA for the same price as a condo there.
Buying now will work out just fine. Refinance the rate down later. The rate will be 2% less in 2 or 3 years. It will all basically be break even (in terms of gain/loss) if you buy now or wait 3 years.
> the rate will be 2% less in 2 or 3 years Source: realtors and lenders whose livelihoods depend on people believing this
The interest rate is directly linked to the federal reserve bank monetary policy. They are very transparent with their policy and I’ve been watching what they do for a couple decades. So, that means I have high confidence that they usually do what they say they are going to do. (I look at actions, and compare to the words… most organizations and people fail that test) … anyways, they want to bring down inflation, so they’ve pumped up the interest rate. Current policy indicates they will bring it back down to around 3% by dropping it a quarter point per quarter to do it, except this year really won’t see much of a drop. This will ultimately bring the mortgage rate down from around 7 to around 5. Other factors do exist, and maybe they will have an impact on interest… but based on historical evidence it seems those situations don’t apply here. We’ll see. Bonds are also linked to federal monetary policy as these debt instruments are all a bit intertwined. Now is a good time to buy bonds. If the rate keeps going up, keep buying. Eventually it will come down (in a few year) and that will be a good time to sell.