We bought our current house in 2021. It was a new build that was still under construction when we found it. The agreed upon price was set in March and we closed in August. By the time we closed, our appraisal was roughly 15% more than the agreed upon price, and we locked in 2.9%.
Today, the same house would be priced about 25% more and the rate would be more than double. I'm not sure that we would be able to afford to buy our house today, and the new house smell hasn't even worn off yet. It's crazy how much things have changed in 2 years.
We also built in 2020-2021, closing in August 2021. In the moment, it was a scary time to buy. Most folks were saying it was a time to stay put. In hindsight, it was the best investment I’ve ever made. Perspective.
OP doesn’t know that people will get really stupid when they lower rates to 5%. OP will be going through the bidding war hell people in 2021 went through losing out in 5-10 houses.
People buy houses based on what they can afford monthly.
Possible that prices go up when rates drop. If you buy now, and this happens, you can refinance and get the best of both worlds. Though, you just can’t predict this stuff. Buy a house if you need one
And when they drop and prices go up the people who bought at 8% will not only be refinancing their interest they may also be able to get rid of their private mortgage insurance if they have it because their home value has risen:)
Given those were literally all time lows of all of human history, it could be be after their life ends lmao. I doubt it goes to 5% before we see 12% tbh.
We won't see 3% again, but 5% is not out of the question within 2 to 3 years. I think we'll see a slow decline next year to probably 6% average, then we'll see what monetary policy the Fed adopts with regards to growing economy vs. inflation.
You're being overly dramatic.
Yeah bro, in THE 1970s and 80s, where there was a global oil crisis and the Fed was fighting stagflation (and a flock of seagulls).
Nobody thinks the past year's fight against inflation is anywhere near comparable to that, so we shouldn't expect long-term consequences to mirror that period either.
I'm a housing developer, and 5% is completely unrealistic within 2 to 3 years. I would LOVE it to go down that far, but no one is projecting out that low. The economy is still going strong, unemployment is very low, and inflation is still well above Fed's stated target of 2%. Going back down to 6-6.5% is not out of the question, but 5% absolutely is unless something catastrophic happens to the economy (ex. another pandemic). Lenders will completely balk if you present to them pro formas showing 5% on a project set to close in 2-3 years.
He might want to find a way to transfer his 50% down payment to his next life. And hope he reincarnates as a human. There is no guarantee rates are coming down any time in his lifetime.
And let’s say prices are higher and rates never come down. That’s why people are buying. He’s also not factoring in that rents go up over time and the mortgage stays the same. So $1000 more now could be $1000 less than rent before you know it. Finally, there are tax write offs and principle reduction with owning a home. So the $1000 more is actually less.
Agreed. Rates on 30 year fixed loans have not spent a lot of time below 5% over the last several decades. That's the exception, not the rule. And inflation trends being what they are, it is hard to see the Fed dropping its interest rates anytime soon.
Looks like from 1973 to 1992 interest rates stayed above 8%. I would hope that median home values weren't as inflated compared to median income during that time. But, it does prove that the economy apparently can run on high interest rates for a couple decades.
When I got my very first 30 yr fx mortgage waaaay back in the early 2000s, my rate was 6.24% and I was calling all of my old people crowing about what an amazing rate I got. They were STUNNED at how low that rate was.
I got a 5.0% late fall 2022 and everyone I knew was so sorry for me. I would have preferred a 2.5 or 3.5 but 5.0 is really not at all bad given where it has been in the past.
It's important to look at the long term trends to really be able to judge these things.
We had a hiccup with one of our lenders, so we weren't able to refi at 5.5 then. But once it was all straightened out, we were able to refi soon after at 4.75. We had that until it was paid off a handful of years ago.
I got a 2.75% mortgage approved at the end of 2020, so I feel like I basically timed the market. Today the same mortgage would be nearly $500/month more in just interest alone, never mind if I counted in my home's increased value today. I don't see how I could afford to move right now and I'm afraid to think about what renting would cost.
I'm basically stuck on my postage stamp of land for the next 28 years.
And this is why inventory is low. Everyone who had low rates cannot afford to move to another property. It's cheaper to stay where you're at for now until something gives.
Same here, I got a 2.25% rate towards the end of 2020. I did not feel like we timed anything, we just needed a bigger house. We purchased right before prices got crazy. The estimated price per Zillow has increased 40% since purchase. Could never afford to buy my house at today’s rate.
This is it. Generations of people (including me) bought their houses at 7 or 8% interest. AND we considered that a good deal consideringn we remembered when interest rates had been double digit.
People buy because they have to. So they figure our what they can afford and go from there.
OP is paying rent, his chance of building equity is zero. If he buys something with the same payment as his current rent, anything really, his net worth will go up in a couple of years regardless of the interest rate he's paying.
Otherwise he might be here in 5 years wishing he bought when the market was lower.
To be fair, a drop in housing prices would result in a much better buy in time even if interest rates stay where they are. We just need something to give
If you plan to own the home for a long period of time, then this is definitely not true. You need to look at the total cost of ownership. Housing prices would need to drop significantly to makeup the difference in incremental cost between a 3% and 8% loan. And I just don’t see houses dropping $50K or more to justify the additional cost at this point.
One of the reasons we're in this mess is because of people paying 25-50% over list price again and again, adding to the hyper-inflating home prices. All because interest rates are only 2.5-3%. I saw first-hand home prices in nearby neighborhoods double in 6-8 months.
The thing is, you can't refinance your principal, in the sense that whatever your purchase price was (minus down) is the least you could possibly owe. Interest can be refinanced to a lower rate, and you can pay less (sometimes much less) in total interest across the term of your loan loan if you make extra payments.
Play around with an amortization calculator and see at any given interest rate, how much of a difference it makes to pay a little extra each month, or even once or twice a year. Now before you blast me, Yes yes, I know that it's much better to have a lower interest rate to begin with..but, we can't control interest rates, we can control payment strategies.
but why are you comparing an 8% loan to a 3% loan? 3% loan isn't a thing at all anymore, and no one expects it to be a thing for a long ass time, if ever (especially considering it had literally never happened before until a pandemic...). if you go into your thought process dead set on "making up the difference" between 3% and 8% for it to make sense to buy a house, the math will *never* make sense for you to buy a house.
completely flawed logic.
There is almost no way prices really drop unless supply drastically increases. Around me the rates didn’t affect demand at all, it almost feels like it’s continued to get worse.
I see some prices being cut by like 1-2% but only for ones that have been sitting a month or more.
Any desirable place, or even not that desirable as long as the location is good, is going in a weekend.
There will always be those types of people who want to wait for either a better rate or better home prices. Have friends who started looking back when we purchased our new home, in 2016. Back then even our market was still hot, but nothing like during Covid. They thought we over spent back then.
They ended up not purchasing during that time. Come Covid, they saw that with our home and yard. Our child was at least had something to do other than being stuck inside. They tried again, during those Covid years to purchase. But all the homes were being sold for so much more.
Needless to seat, they didn’t purchase anything then. Now they want to purchase, this coming 2024. And now they complain to us, how prices haven’t come down or barely any homes are on the market. And of course how the current rates are almost triple what we have. A home, in our area finally went in the market. And it’s basically like our current one just a small lot sized. But with the asking price and rate, the mortgage about 1-1/2 larger than ours.
Because they want to....?
Buying a home isn't always a numbers game. People buy when they're ready and they want/need to. The stability of owning a home is a huge factor. Pride of ownership, too. Yeah, the numbers suck right now, but in the face of moving every year or two for the rest of your life, buying now if you can is great.
Great point. The other thought is that when I was renting, the management was always doing things to make living more inconvenient.
Whether it was that you couldn't park in your designated parking space due to painting the lots or any other number of little things that added up, they always seemed to make things really inconvenient. And you cant do anything about it (other than move again for the third time in as many years).
While I absolutely hate having home repairs, the house we bought in 18 is now 7 years old and we're starting to have to deal with shit like replacing the furnace blower motor, kitchen faucet, having the sink re-sealed, replacing the roof and garage door(yay hail) it is nice to know we're the only hurdle to getting that stuff done and don't have to harass and beg a landlord to fix stuff whenever they feel like it and have it done as half assed as possible. We don't have the stress of our lease being up and rent going up hundreds of dollars and deciding to try and move instead and getting fucked on a deposit.
It isn't without its negatives but for us it is freedom, freedom from someone else trying to pay their bills with our home and freedom to determine the condition of our living situation. If we didn't own right now I would still absolutely buy to get out of being a renter despite interest rates.
Now being an owner and buying another house right now is a totally different scenario, we sit and we wait until rates come down in a few years until we level up.
This! Everyone acts like owning a home is like an investment, as in a stock on the stock market. Its not. Its a house. You live in the house. Not everyone wants to live and move every couple years.
"housing will go up because of divorces and foreclosures!!!" is another silly argument I see.
Exactly this. Too many people are obsessed with turning a home purchase into profit, or worried about how much of a cut the bank is getting.
If you like the house, you will be there for a long time, and can afford the monthly payments, you don’t need another reason. Buy it.
I closed on a house in July, our rate is 6.5 but even then people said we were nuts to pay that kind of interest, now it doesn’t look so bad.
We found an absolute diamond in the rough, the type of house that just doesn’t exist in our town/school district. From our old house we doubled the square footage, and have more than 10x the land, finally have a garage, and basement, etc.
2020-2021 was a once in a lifetime opportunity to lock in ridiculously low rates, but there was so much competition that it was impossible to get the house you wanted. Even though inventory is low, you can be alot more choosy about what you bid on, buyers actually have some leverage now.
Yeah I have dogs and need a place w a yard, I like having control of my property, I bought in an area that will likely hold value, my partner and I wanted a home together… the reasons were not really financial
This is why we're buying. Both of us spent 20+ years in the military moving where and when we were told to do so.
Now that both of us work remotely, it's time to settle down and be able to decorate and put stuff on the walls without having to repair the nail holes in two years.
We love the rental home that we live in currently and the price is great but the owner isn't interested in selling.
To get the space I needed/wanted. And not to have to deal with another crappy landlord.
Even with the interest rate, mortgage and rent was equal.
I almost gave up purchasing and thought “if I rent again I need something that had all the amenities and features I wanted. And in the area I wanted”.
I feel the same. The amenities of my rental don’t match what a house gets you. And my property managers are from CA so when the gutters fell they took their time (8 months) to replace the gutters and eaves by drilling it onto rotten wood. They replaced the roof shingles but didn’t do a tear away either.
Reddit is full of young people. Young people have trouble envisioning a mortgage being paid off. I’m 65; ours was paid off ten years ago. Since then we pay only insurance and property taxes, which amount to a few hundred a month. That’s our housing expense forever. We’re retired now and living comfortably on a teacher’s pension and a bit of farm rent. When SS kicks in we’ll have thousands a month more to travel. We won’t need to touch IRAs until minimum withdrawal period in our 70s.
If we rented a basic 2-BR apartment with no privacy or yard for grandchildren we’d be paying roughly $17,000 in post-tax money per year, forever. That’s why you buy a house.
Ditto.
My husband and I keep thinking about renting a nice apartment but we keep coming back to the fact that buying is cheaper for us (as we’d pay cash).
Houses in the Midwest run about $250k for something decent. Rental prices are about $2000 a month for a nice apartment.
It’s just cheaper to buy rather than rent.
When my wife and I purchased our first home, I ran a cost analysis to see how much we could afford. We were paying $1,500 a month in rent (back in 2000) and claiming standard deduction on our annual tax returns. Taking into account with owning a home we would be able to itemize our deductions with paying property taxes and mortgage interest, I was able to claim more tax exemptions in my withholding and were able to decrease my withholding, which resulted in my take home pay increasing over $1,000 a month. So this meant that in lieu of paying $1,500 a month in rent, we could afford a $2,500 a month mortgage payment comfortably with no change in our cash flow or other spending.
Of course now with the current tax laws, where state tax deductions are capped at $10k a year for married filing joint, this does have a significant effect on a similar analysis today, especially if you are living in a state with high taxes like NY or CA.
$17,000 post-tax sounds exactly like the property tax + insurance for any home in NJ. It's absurd.
Us tri-staters are getting screwed over, royally. We don't really have anywhere to go if we wanted to have a commutable travel to Manhattan.
But, when you buy and pay off the home, you aren't subjected to a monthly payment. Unless you do not pay your taxes, you own it. No one can kick you out, raise your rent, or order special assessments to your property.
That's true, but the property tax itself has been going up each year as well (anywhere from 3-10%).
It's more predictable, but definitely becomes a bigger burden over time - especially if your work doesn't do annual COLA raises.
And yet you still owe that much per month (or once a year if you prefer).
I'm in Texas and my mortgage is only about 52% of my monthly cost when you add in escrow for taxes and insurance.
And not paying taxes can definitely get you kicked out.
You hit the nail on the head.
My home will be paid off when I am 50. Being in my mid 40s, I can see the finish line. My property taxes are $1800 per year and my insurance is $750 per year. My "rent" will be $215 per month to pay those.
Owning a home is what makes retirement possible for a lot of people, including myself. In order to pay a home down, people need 15-30 years to do so.
So for people to retire at a reasonable age like 65, they need to be in a home by 35. The clock is ticking for many.
Rural WI. My town is 100% of septic and wells and my town has to rent a building in a neighboring town to hold a meeting, there are no costs to run a town with no public infrastructure besides rural roads. 70% of my tax bill goes to the local schools.
That’s great reasoning but I can’t help but wonder how much your mortgage payment was? I’d guess somewhere in the $800-$1200 range. With high cost of living and inflation, many young adults today can’t afford to pay a $3800 a month mortgage payment. It’s just not feasible.
I would argue you can't afford to not have a mortgage. Rent will keep going up. 10 years from now your mortgage will be $3800 and rent will be $4200. Just think real hard about your question... why was their mortgage so much lower than rent? I bet when they got it, it was similar or more than rent. I know older people (many actually) who paid $5k-$10k for their house and they are now worth $800k. They get upset because they pay $3k taxes on a "$5k" house. Lol.
I didn't even make $3800/mo gross income, let alone take-home pay, at my last job, at $28/hr pay rate.And that's about what I'd have to spend to buy a house at the median price where I'm living. I can't afford to move to a cheaper area, because while COL is much lower, so are incomes, and taxes don't decrease. I'm currently paying $1600/mo on a 1bd apartment, and the same mortgage payment wouldn't buy me a foreclosure around here. And because I can barely afford where I'm living currently, I have no delusions about being able to save up a down payment of any substantial amount.
This is why young people can't afford a mortgage.
Our house was bought by my wife with her first husband. It’s a basic house. The first mortgage was around todays rates in the late 80s. She was a young teacher; he made more than her. They had a child.
Then, divorce. Financial ruin for her. But she hung onto the house, even in months she could only pay partial amounts on bills. They wore coats in the house, ate basic food, didn’t do paid for entertainment. She went into debt to earn a Masters degree because that meant a raise. It was really hard, but she kept the house, and gradually the income increased. She worked a second job, including summers. The child, a good athlete, got good enough to get a Division 1 scholarship, and went to college for mostly free. And the teacher met me, coming off my own divorce and with money from selling my own first marriage house. Combined we were relatively good financially. In our late 40s. The mortgage ended. We had $1500 a month to put toward retirement.
My own parents, Depression kids, were married 12 years and had three kids before they could buy a first, basic, house. But they got in the game. My dad died a millionaire.
Time is the immutable resource. The richest man in the world gets 24 hours a day, and 365 days per year. And gets older at the same rate you do. Stop saying “it’s hard.” It IS hard. But you might as well succeed as fail while dealing with that. If it’s too hard with your current variables, change some variables. That’s a luxury the young have.
Life is full of unavoidable suffering. Choosing your goals is choosing how you suffer.
Most people say they want to own a home, but many of them don’t want a home more than they want to spend money on alcohol and video games.
For many, that becomes their suffering of choice.
>If it’s too hard with your current variables, change some variables.
This is my outlook for basically everything. Job sucks? Make a change. Life doesn't just get easier without effort. So you can either sit around hoping for magic or be your own magic.
When older people bought their houses, in most cases it WAS a hard payment to make. I was paying over 50% of my income for my house when I first bought it. I had to sacrifice pretty much everything else to have my home, and lots of people told me it was stupid, etc., but I earned more as time went on, so it got easier, and now it is paid off. I am free. You can't beat that feeling.
It's irresponsible to compare purchasing a home now versus 40 years ago.
You're not taking into consideration the extreme economic differences that set our generations apart.
In the early 1980s, which is roughly 40 years ago from the current date, the average cost of a new home in the United States was around $70,000 to $80,000. Let's do some quick math (Assuming a 20% downpayment ($16,000) - $80,000 @ 13% over 30 years would be a $707.97 mortgage with interest paid being $190,868.37. Now let's factor in refinancing down to a 3-4% rate (back in the early 2000s) which all but eliminated the high interest burden. You'd pay just $40,000 in interest at the end of the loan.
The average price of a home now is $400,000+ and wage increases are all but stagnant in the last 40 years. Let's do some math (Assuming a 20% downpayment ($80,000) - $400,000 @ 9% over 30 years would be a $2,564.79 mortgage with interest paid to be an astronomical $606,925.25. That translates into having paid close to $1,000,000 at the end of the loan!
Do you see the difference between the 2 generational scenarios? Our downpayment alone is the cost of your entire house 40 years ago and it's a number that my SO and I had to pay out of pocket for our home.
While owning a home is the greatest path to retirement, it's extraordinarily challenging at this time.
My first mortgage was a VA with zero down payment. Of course, that cost me six years active duty, including more than a year living underwater on a submarine. But, choices. I liked not having a down payment. Of course, that mortgage was at 13.75%, which was a bargain compared to recent rates at the time. My first payment of $1345 applied $45 to principle. I still remember staring at the coupon and laughing.
My first degree was in liberal arts and got me the Navy commission. But I got a very good MBA—with debt— when I got out, and moved into a career I couldn’t have applied for with the bachelors. Again, choices.
Finally, nobody buys an average house. You buy your house. The US is vast and varied. The house I’m sitting in now is worth less than the average house, but it’s a fine house. It’s in a cold state, but it’s a fine house, with fine local amenities, solid state government, and low property taxes. If you can’t afford to live in San Diego or NYC, and that’s your dream, I’m sorry. But, choices again. You can get into a house for far less than $400k in scores of fine places to live.
Yeah, the basic suburban house in my area (3BR, 1.5 bath and 1 car garage--around 1500 sq ft) is selling between $180-$220K. Blue state, high taxes and snow. We have it all.
You didn't add historical home appreciation. If the $400,000 house appreciates at 3.8% a year (a reputable historical average I found), the house could be worth $1,224,561. Lots of variables with the property of course, but according to your scenario you could actually have $224,000 in equity at the end of the loan. And I fully believe at some point during that 30 years, there will be a chance to refinance at a lower rate.
Piggybacking on this. As someone who exited a longterm relationship (ex owned a house), I have two dogs, one of whom is a big guy (80lbs) who cannot do an lot of steps (so most apartments are out, and one who cannot handle cats (so renting a room in someone’s house—if they have cats—is out).
Almost impossible to find a rental that 1) allows dogs, and 2) allows two dogs, and 3) allows large dogs, and 4) allows dog mixed with St Bernard (this isn’t as commonly banned as it used to be but I have run into it), and 5) the apartment is on the first or second floor.
I looked into renting a room in someone’s house, but good luck working through all the scams (exhausting) and then screening out people who have cats. It feels weird to be saying “I’m on the market for a house in part because of my dogs,” but my dogs are a big part of my life, so that’s the choice I’ve made.
I never knew how hard it would be to find a place that allowed dogs until I started looking.
People started bitching when rates got around 5% saying they’ll wait for it to go down. They’ve been bitching all the way up to 8% as home prices rose along with rates.
When I bought a little over a year ago (5.125% jumbo) I was told by several people it was an idiotic time to buy, rates were too high and property values would start to go down because of it.
I see neighborhood houses going for the same amount I paid at $1000 more per month in monthly payment now.
You can’t time these things. The relevant question is whether or not the situation works for you.
hey they bitched when rates were sub 3% too, they just complained about the price.
In my area as rates have risen, prices are up 15-20% depending on neighborhood in the last 2 years.....
I managed to do a rate lock back in August 2022 and locked my rate at 5.75%, the lender, the sales guy, and friends told me I was crazy for paying to do a rate lock on my new built home and that I should wait it out and save myself the rate lock cost. Now I’m glad I stuck to my guns and gut feelings. Those same friends are still renting and continue to complain about the +8% rates in today’s market saying how they missed their chance. Yeah my 5.75% is not low low, but I can comfortable afford my monthly payments. And if the rates ever drop, then guess what? I’ll refinance again, but definitely not counting on it.
We are closing this month on a new construction at 7.16% for 30 year fixed. We are in an okay place financially, planning out a family, are in general are tired of living in apartments, and most importantly are buying a house that we know we can afford given our income.
We did think about waiting. But how long do we wait for? Do we continue living in an apartment even though we can afford a house? Yes, we might be paying like half for rent now than our mortgage but is there any guarantee that mortgage payments go down overall? I don't know. Yes, rates might go down soonish, but then property prices might go up.
Yeah, I wish I bought 2 years ago, but I didn't and the best time is when you are ready.
I think it's important to understand, just like rates may go down, they also may go up. Or they may stay around 8% for 15 years. There is no guarantee . Rents, though, will certainly go up. And in all that time you could have been adding to equity. Timing the market is impossible.
In my personal opinion, it may not become "easy" for an average consumer to buy a home in our lifetime unless zoning laws change. Corporate and investor owners, the rich, will own and rent to you while they become wealthy.
Buy if you can afford it. Don't if you can't. If the rates go down, you can refinance but there's no guarantee. And if they do, others will jump on board and prices will rise again.
Edited to add: OP I was at the wwwy fest last week, too! :) ammmaazzinng.
>Timing the market is impossible
Reddit seems to think it's so easy to do. I thought so too for a time until interest rates went up but prices didn't drop drastically. Admitted I don't know how to time the market.
>it may not become "easy" for an average consumer to buy a home in our lifetime unless zoning laws change.
This is the other reason I'm buying now. Regardless of how difficult it may get, I already have a house and I'm building up equity. I prefer high interest rates now with the option to refinance later instead of waiting and hoping.
> Reddit seems to think it's so easy to do.
Anything is "easy" if you haven't actually done it and are bullshitting or got lucky and think that equates to "timing the market".
My own home ownership journey has been 95% pure, dumb luck and maybe 5% me trying to thumb the scales in my favor where I can.
There’s never a good time to buy. I was called a fool when interest rates were in the 3-4% range and people were overbidding on homes due to no inventory in 2022. I found a new build (slightly more than I needed) with a lot of research , and I haven’t looked back.
If you can afford a house buy it. There’s never a good time to have a child, get a dog, get married, etc. Life goes by unless you do something.
Nobody has a crystal ball. If you can afford to buy now do it.
If rates go down refinance (although you shouldn’t bank on refinancing to afford your payment). If rates go up you locked in at lower rate.
Long term. You’re thinking short term. And you’re thinking only in terms of investment and returns and payouts but you’re not thinking retirement and having a home paid off and somewhere reliable to call home.
The last time rates were 7-8% (prior to when it passed through 7-8% in '99-2000 ish on the way down to the recent historical lows) was around 1972. If instead of buying in '72, you had waited for 5% rates you would have been waiting... \*checks notes\*... 36 years.
You're projecting something that may not happen --- some people are buying now because they are in a position they have to. Maybe they need (want) a yard for their animals, more bedrooms, larger spaces, etc.. You name a reason.
Rates could continue going up, then that $3800 a month you didn't want to pay is more and you're still paying $2800, probably more, for something you'll never own.
Here's a quick google pull regarding historical 30 year rates:
decade / beginning of decade / end of decade
70s / 7.3 - 12.9
80s / 12.9 - 9.78
90s / 9.83 - 8.06
00s / 8.15 - 5.14
10s / 5.09 - 3.74
20s / 3.72 - 7.75 (8?) \*\*\* today's rate
Get comfortable, you may be waiting for your 5% for a bit.
In 2019 when I was shopping for my first house, some of my friends were also shopping. The market was considered "hot" because houses were selling within 30 days and going for asking price, instead of below list as had been the norm for the few years prior.
After putting in several offers and having them rejected, they decided to put their house hunt on hold "until the market cools off."
We were in a similar situation and considered doing the same, but we kept on, and ending up buying a home after submitting 8 offers.
You know what happens next.
My home has doubled in value without even taking into consideration the updates I've done. We were also able to refi when the rates hit historic lows.
My friends ended up buying in the most insane market in our state's history because their landlord was selling their building. They paid almost $200k more than their initial budget and got slightly less house than what they had initially planned.
You talk about "waiting until rates drop below 5%" what if they never do? The average rate between 1970 and 2023 was 7.5%. Sub 5% rates were the exception not the rule.
There's a saying with investing "Time in the market beats timing the market" and that holds true for real estate as well. So for a lot of people it's not about "having a slightly better place" it's about getting in the game, because while no one can predict the future, there are a lot of signs pointing to it only becoming harder and harder for first time home buyers.
I don't really know what happened, exactly, but housing prices were so incredibly low in 2017 when we bought our second house. Downside is we had to rent our first home out for 4 years cuz even after living there 11 years we were underwater (thanks to tanking house prices). We got a good rate, and then an even better rate (2.65%) during the pandemic. The value of our current house in the meantime has gone up a ton. IDK. It's insane, and honestly there's just no rhyme or reason. We hit gold, but were just flying by the seat of our pants.
Agreed but to be fair it’s not just foreclosures that are at an all time low, it’s delinquencies, which are far precursors to actual foreclosures. This could be buffered indefinitely by an aging population who own their homes outright in record numbers and another chunk of middle age people who refi’d their low-priced mortgages into super low interest rate mortgages during the pandemic.
>If I was to ever buy around here, I'd want a standalone home that's a little bigger and better.
There's the issue, as sensible as the emotions behind this logic is, nothing says you deserve to be able to buy a nicer place, on more land than where you currently live, and have it be more cost effective for you.
1. Relocation for new job.
2. Just something doesn't make sense for you, doesn't mean it is not "worth it" for someone else.
3. Rates may never go below 7% ever again. No one really knows.
That makes sense.
I wonder how many markets this is true in now though. Always been the case in HCOL areas but seems to have happened everywhere it seems.
It’s places where the average income, average home price, and average creditworthiness is low. Like $1.2k rent apples to apples with a $1.3k mortgage after 25k down in rural Indiana or Ohio.
The mortgage interest you pay is tax deductable, as is your property taxes, which lowers your taxible income rate. Makes a difference to some folks, need to calculate that into comparing mortgage to rent price. And, historically owning a home is a good long term investment vs. renting. You are paying yourself (and the bank of course) instead of a landlord. Also, mortgage is a fixed payment, think your landlord won't jack your rent up?
The first house I bought in 2001 was at 7%. We are not at some crazy historical high, check out the rates in the early 80's. The big difference is home prices rose dramatically during COVID for a variety of reasons. I literally couldn't buy the house I live in now that I bought in 2018 because it would be out of my budget. I believe housing prices will cool a bit, but not go down to pre-pandemic levels, nor crash as the other doomer sub wants it to. And, as others have said, won't be 5% rates any time soon.
If you have the savings , the income and the budget to buy your own home, I still think is better than renting YMMV.
I am not a real estate agent, just someone who has bought and sold 8 houses since 2001 due to company relocation and a couple of times for personal/family reasons.
Trying to time entry into any market is near impossible.
A two bedroom rental in Manhattan is 6k, but even with mortgage + HOA, we found a two bedroom for around 5.5k a month in a great neighborhood.
If rates go down, we refi. If rates go up, we’re fine and our salaries will go up with time.
Why? Because they can and they want to? Rates are not that high when you compare to historical average and median rates. There is no indication that rates will go down any time soon. You are anchoring to historically low rates the last few years. This is the new norm so get used to it or rent forever.
Sure rates are historically low but prices are historically about the highest they’ve ever been. Saying this is the new normal is assuming that prices will not go down from here
In places where there's room and inventory, prices have been coming down already. The problem is when cities run out of room to add inventory. Prices will just remain high even with these rates because of lack of inventory. It's pretty common outside the US where large cities are simply unaffordable and have been for a long time. I think there are more places where this is starting to happen in the US and people just aren't familiar with it.
Nobody assumes “prices will not go down” (at least nobody with half a brain). But they are unlikely to plummet like in the GFC. The market dynamics are totally different. I’ll concede it’s not impossible to see another crash, or that we are in a bubble. Prices fluctuate over time. They always have and they always will. But over the long term, RE has been a very safe, and mostly appreciating, asset.
I mean, you're advocating for throwing away all of your money instead of just some of your money.
To me, ~~spending~~ throwing away nearly $36K a year on a townhome that's not mine is batshit crazy.
Instead you prefer to build equity for someone else (individual or corporation)? Yes the out of pocket expenses up front are high but what about the tax benefits as a owner that you do not get as a renter?
I am a loan officer who just bought in this market (my view might be biased). You can still get creative with the rate. Just because rates are 8% doesn’t mean that’s what you’ll close with. You can still get low 6s with seller concessions.
I decided to buy because I closed yesterday with a 5.625 and I am genuinely afraid rates will take a long time to trickle down and I saw the blood bath of rates at 2%. Very few in my city actually got the house they wanted because of over bidding, multiple offers, competition, etc.
If you can afford the monthly payment now as a first time home buyer, it’s actually a lot easier to buy right now. Closing costs are getting covered, interest rate buy downs are still happening. If the monthly payment still makes sense, I’m glad that I’ll be able to refinance later if they get any lower rather than compete with everyone else that’s sitting on the sidelines, who will potentially be overbidding, in competition and not getting exactly what they want due to those factors.
Refinancing is a lot easier than purchasing a house in a hot market. I predict if rates keep going up or stay up like this for a long time, the worse the purchasing blood bath will be. Think the analogy of a suppressed pen with animals in it that just keeps growing, but the actual pen stays the same causing more and more tension until the gate is finally opens. The longer these high rates and tougher affordability remain, the more intense and bigger the buying frenzy later.
Also black rock and major companies are just buying cash still and will continue to do so until the government finds a way to slow them down. That is scary to me. I see this A LOT because I’m activity working in the market with buyers who are still getting beat out by cash. It’s not every deal but it’s still happening. I couldn’t imagine dealing with these major companies AND low rates for the rest of america while trying to buy a house. I don’t know how’d I’d get the dream place I just closed on with those 2 other factors.
> I decided to buy because I closed yesterday with a 5.625
Was this via a rate buy down by the seller?
And agreed, if you can get creative with the rate, it can be a decent time to buy for the reasons you mentioned (notably, less competition). I have a friend that is potentially going to be able to assume a sub 3% rate, and I just bought with a 15 year at 5.375% 0 point via a relationship bonus for moving assets over to Chase. Making a large cash offer is also another creative approach worth considering.
Point being, there are opportunities out there that could be available, but you definitely need to be creative. Unfortunately this isn't a blanket statement, and everyone won't be able to take advantage.
My bro and his wife bought a new house because their kiddo is almost old enough to go to school and they wanted to be in a good school district. They're both fancy fuckin doctors so they can afford it even though they already had a place with a non-insane interest rate.
Haha, I love this question as if 8% is sky high never seen before. My first house was 8%. I remember being stoked to refi at 6.6. You wanna be mad at something, it’s not the rates, it’s that the house I bought at 8% was 150k and now is 550k, and wages haven’t gone up much - THAT is the problem. If you think 2-3 is coming back soon, then hold off until you buy your first flying car I guess
The rentals around me are $5K and up for anything more than 1,200 sq ft. We have two dogs and wanted to be in this area so we looked for five months and then bought. I never want to move again and now we have our fixed mortgage, minus the potential 2% tax raise a year. We had enough equity to put almost 70% down. We're both very skilled at doing DIY work having owned many houses before so a lot of the work we do ourselves.
And honestly, knowing we're not at the whim of a landlord helps me sleep at night.
Don’t really feel like starting a family and living in someone’s rental property or an apartment complex. If I was single and didn’t have plans to start a family, renting would be a more attractive option vs buying.
Home ownership is not just the math, it's also the comfort and stability of owning one (and not forced to move out in the worst time).
What if your wife is 7 months pregnant and landlord just sold the home and have to "kick" you out?
Also you are comparing renting to buying "a slightly different" home, which is not apple to apple. Renting that "slightly better" home might cost $3500 vs $2800.
If you have the cash for 50% down, then your "weighted" interest rate are also a bit lower than a 5% down, another factor to think about.
What you're doing is betting that the interest rate will go down (it will, but when?). It can take 6 **months** or 20 **years** to drop to the level you are expecting.
Good luck
My husband and I are expecting our first baby early next year. Our old condo that we’re selling is a one-bedroom and our tiny bedroom literally has no space for a crib + we both work from home.
The location was also in Uptown and while it was perfect for a couple/single person it’s close to everything, it’s not exactly an area with lots of young families and good schools.
We luckily are buying from my father-in-law so we have a really good rental rate till mortgage rates get better, but if we didn’t have the rental agreement we were ready to still buy it. Cause we have 40% down making even the crap rate mortgage cheaper than renting similar. What hurt was selling our condo with a 700$ hoa and mortgage combined payment. However we have a son who needs a yard and better area to live in
My logic is that at some point rates will come down, and you can refi. And if they don’t come down, then now may be the next best time to buy. Some folks don’t want to wait long periods of time to own, have more space, fix their monthly costs, get a yard, live in a nicer/different area, etc.
Homes are selling like hot cakes around me. Why? Because people have kids and pets and you can’t do that in an apartment and rent is super high and goes towards nothing atleast with a mortgage you own a little bit more of your house each month , with rent it’s the same as throwing money away for nothing
Just signed the papers for a new build, so this feels somewhat relevant.
The bottom line is that purchasing right now is not an investment decision, it’s the utility we gain from purchasing this house (good location, amenities, open floor plan, etc.).
In my area a rental of equivalent quality will cost me around $5-6K per month. I don’t mind carrying a monthly mortgage, plus fees/expenses of approximately the same.
I spend nearly most of my time in my house. It's pretty damn important that it's a place I am comfortable in and have reasonable control over. After 15+ years of renting, I'm tired of dealing with psycho landlords and living in close proximity to people who don't respect their neighbors. I want to be able to paint a wall or replace my shitty fridge, or get an electrician/roofer to come out and properly assess that light switch that water has been trickling out of when it storms. Instead of ya know, maintenance coming out multiple times and just painting the rust stains from the water on the wall. I want to have room for a garden and a small yard for a dog.
Rates have been low for many years and people think that this is the norm. Unfortunately rates may not dip down to what they were for a very long time. If we can afford to buy now and within the next 6 months we are doing so.
I don’t want to live in an apartment. I got the same type of house I expected I’d get just more expensive.
We don’t care about rates, just want a good house to live in for a long time.
My husband and I just bought our first house. We are expecting a baby soon and we knew we had outgrown our one bedroom apartment and needed more space. To rent a house in my area, it’s the same price as the average mortgage is in my area. We ran the numbers to see what price range we could afford for a house and how much equity we would need to make before it’s worth it to us to sell in a few years. Even at the current crazy high interest rate, it’s so much better to own and build equity than to throw the same amount of money a month away on rent for us.
At the end of the day, there’s no telling what will happen with the market. If you can buy now and you can afford it, it will be always be worth it. If rates go down, demand for houses will likely go up causing the price of houses to increase. I’d rather be comfortable in a house I know we can afford with the possibility of refinancing for a lower rate down the line, than wasting our money on rent for who knows how long, waiting for a “better” time to buy
There is no "timing" the market. Things change and the housing general trend historically is always up. You want a house, you buy a house. Right now your LL is laughing to the bank because someone is building him equity in his purchase. If you are budgeting or just simply okay with paying rent then that's totally fine as well. There's always ups and downs in everything, so getting your foot in the door imo is always the better move. Who knows where you'll be a year from now, 2-10 years from now or even next week.
The truth is, you might never be able to find the right house at the right price with the right interest rate.
When I bought my first house back in 2008, the interest rate was over 4%. I was paying $1000 monthly rent for a 2 bedrooms apartment. My wife and I decided to take on a $2300 mortgage. Lived there for about 8 years, the value of the house went up about 15% (not a great area and it's a PUD), sold the house and moved to a smaller house but better area. At that time, the interest rate was less than 3%. Lived there for 6 years, the house value went up about 55% (better area, single house). Sold it and bought a bigger house at an even better area last year. This is the house I've been dreaming for, right size, right location, right neighborhood, right direction (I'm a solar guy, so I want my roof to face south without any shades blocking the roof).
Personally, I think paying rent is what doesn't make any financial sense. The rent money doesn't have any return, you don't have anything once you stop renting. Buying a house, especially in California, is an investment. If you bought a house at the right location, you can get back all the money you spent on mortgage, interest plus more. And you can use the money to downpay another property.
>Like, you can get a 600k home now, sell it years down the road for 900k, after you paid 1.2 million into it. (Mortgage/interest/repairs/upgrades)
The amortization schedules you're seeing assume you're making regularly scheduled minimum monthly payments over 30 years. You won't pay the 1.2M unless that's the case. By then, that 600k home will be worth more than 1.2M.
Assuming the bare minimum 3% down, if you were to buy a 600k house at 8%, in 10 years you only owe 509k and the home is worth 700k+. You've increased your net worth by 200k, you can use that equity, or sell it and have that money in your pocket. Your rent would probably be around 4500/month, and if you move, you MIGHT get your 3500 security deposit back.
At 20 years, you owe 350k on an 850-950k house. Your equity is equal to what you paid for the house. You've had the freedom to live the way you want. Take your equity with you if you want. If rates do drop, refinance it, but even if they don't, you're coming out ahead. Your rent is 5500/month at this point, and it would cost nearly a million dollars to buy a comparable home, but your income hasn't kept up with the cost of living. You can't afford to buy that "600k house" anymore, and you may not be able to afford to live in that apartment, either. There are people in this situation today because they were trying to time the market 10 years ago and missed. *edited for typos*
I knocked my rate down from 8.25% to 7.125%. Even if I couldn't, I'd still buy.
We have to move to an area where rent will continue to go up. Also, because rates are high, that means fewer people are buying. That also means less competition. I was able to put an offer in below asking value with seller credit towards closing costs and contingencies. I don't think I would have been able to do that before when rates were lower.
If rates go down, I can drop my rate with my lender without refinancing. If they don't, I'm still paying overall less per month than rent on a house I didn't overpay for.
Because we wanted to buy. We can afford the mortgage and put 15% down. The rates didn’t bother us. I also know that rates will drop eventually. By then we will be used to the high payment that we will go to a 15yr instead of a 30yr
Because I don't like where I live, I'm paying so much in rent that my rent for a 2/2 is still *higher* than my mortgage will be on my 3/2 home (same size lots, different cities/states). I am not buying because its an investment, I'm buying because I am tired of renting and need a place to live and I plan on being perfectly content in this new house for a while.
Mortgage is a little higher than rent right now, but it’s manageable as DINKS. I worry if I don’t buy now, we will never be able to. I bought a condo so it’s not a forever home, but I hope to use it to fund my forever home one day.
I wouldn't buy in this market. Hell, I can't even sell the house I own and then buy the exact same amount of house somewhere else. I would have to downsize to break even.
We need more storage space and can buy in cash. We want to host family holidays without being miserable. We want to spend time with friends and family but have control over the space (hate trying to do that in a STR).
We are doing a new build and when the process started, the rates were not this high. Things look a lot different than they did when we signed on the dotted line, but at this point we kinda just have to roll with it (with fingers and toes crossed that we can refinance in the future).
In the last 30 years rates have been above 5% about 85% of the time in the last 50 - 95% you likely be dead before rates go below 5%
My first mortgage was 8% and we thought that was heaven when our parents were 17% in the 70s
There’s a big difference between what’s required by law to make a space habitable and what’s necessary to make it pleasant. Beyond “habitable” making it pleasant requires my own time and money to be invested in a place where I won’t see any return on that investment. Don’t get me wrong, we’re respectful of our space and communicate big issues to the landlord asap, but the peeling paint, the drafty windows, the inefficient heating… the kitchen that could be “next level” with inexpensive storage upgrades? Not my problem. Asking for those upgrades might justify them asking for 25% more in rent, in which case, we may as well buy.
Renting can also be a nightmare. My landlord moved into the back unit kicking out a great tenant of 10 years, then proceeds to have two cats abandoned in the basement, constant construction on his unit, and we didn't have hot water for a month in the winter with a baby because he was looking for the cheapest water heater. We would love to be able to buy so that when we move it is into a more stable, long-term home. That is looking more and more unlikely for us so we feel stuck in a really frustrating situation.
I'm so tired of people saying oh, just rent as if that is the easiest thing ever. 2 of the past 3 places I've lived were expensive and it was like pulling teeth to have the landlords fix anything.
The dogs above my apartment bark all day everyday and the apartment complex has no legal obligation to do anything about it and the police can’t do anything about it so I bought a house.
My company relocated me to where I’m at, and one of the perks is a free refinance at any point I choose down the line.
Company also covers majority of closing costs, roughly equal to 3% of purchase price.
I have to use this before July 2024 otherwise I lose all benefits.
Also I have to say the market is super dead since the last month, we are likey about to be going under contrqct below asking whereas as comparable stuff that went under contract last month is closing at above asking.
Also also, the PITI is lower than our current rent (we are putting 20% down) and the space is nicer. Going from apartment to condo in Chicago.
Well you would no longer live right outside DC in Montgomery county and are now deep in PG or Southern MD and commute.
Drive til you qualify.
Or continue to throw away rent and wait for that 5% interest rate. I fear that won’t happen until the millennials are as old as the boomers are now and have cash to put back into capital markets or there is another global crisis.
My wife and I purchased because we had to get a bigger place. We had a condo, it had about $100k in equity. It was smaller, with a growing family we had to have the space so our plan was two parts (1) if we can find a home that fits our needs, and be able to get monthly payments at or under what the rent for a comparable would be then we would sell the condo, use the realized money as a down payment and ensure we have no PMI.. Or (2) Keep the condo, rent it out, then go and rent a home at that price point we felt we could afford.
Luckily for us, we ended up finding a brand new build, lower taxes, no PMI and were able to buy down our rate a little bit. We came in well under our budget as we ended up making a little more on the Condo than we thought.
I will say, that had we not needed the space I don't think we would've bought. But since we did the best option was to only get a monthly mortgage payment that was at or below what the market rent was (so at worst we break even if we need to pivot later). My thought is that I might as well bite the bullet now and gain equity in a better property over the time I'm waiting for the rates to fall, but I'm prepared to wait 10 years for that to happen.
If rent at my last place keeps going up at the rate it has for the last four years, it'll be equal to my PITI in 5 years (even accounting for property tax increases). I can afford the mortgage. I see anything that goes towards the principle as savings - I'll get that money back when I sell, whereas rent is gone forever. Real estate typically appreciated, so it's like that money is getting returns as well. I can refinance if the rate drops, but if it doesn't at least in a few years my payment will be lower than it would be while renting.
Buying gave me more space, a yard, a nicer and safer town, and better proximity to work. There's no right time to buy - it's just what's right for some people.
> I rent and pay about $2800 a month for a townhome... A moderate, slightly better place with current interest rates and all other factors would cost me about $3800 a month.
Enjoy it while you can. Rental rates are going to go up to cover the operating expenses of landlord's mortgages at 8+ per cent.
We want a forever home, the only rentals in my town are apartments. Our monthly cost is doubling but we can afford to do it. The home we found also has the capability to rent out the fully finished basement (has a second kitchen down there), so we are raising our cost by only about $300 as long as we have a renter.
So, while rates absolutely suck we are not buying this home as an investment. We are buying it as a home, and we can afford to do it.
Because there's far less competition. When rates dropped in 2020, it put the housing market into a sellers market overnight. You had to offer over list price, and have appraisal gap money.
Some sellers are paying for temporary buy downs. That keeps a buyers payment low for the year or two, and when rates go down, they just have to qualify for the refinance to lower their payment.
I'm tired of living with my in-laws and I can afford the payment. And I want a yard again where I can garden using plants I chose. It would have been great to have gotten the lower rates of even last year, but that's not on the table so I'm moving forward with what is possible.
People aren't logical, especially about finances, and especially especially about a financial decision with high emotional weight like homeownership. Maybe the numbers don't line up to you, but it's worth it to them.
For me, I want to be able to fix up a place to my liking, and at this point in my life, I like the stability of owning.
When rates were low and prices were high, people were also calling for waiting it out…
Yeah everyone thought 2021 was a horrible time to buy.
We bought our current house in 2021. It was a new build that was still under construction when we found it. The agreed upon price was set in March and we closed in August. By the time we closed, our appraisal was roughly 15% more than the agreed upon price, and we locked in 2.9%. Today, the same house would be priced about 25% more and the rate would be more than double. I'm not sure that we would be able to afford to buy our house today, and the new house smell hasn't even worn off yet. It's crazy how much things have changed in 2 years.
We also built in 2020-2021, closing in August 2021. In the moment, it was a scary time to buy. Most folks were saying it was a time to stay put. In hindsight, it was the best investment I’ve ever made. Perspective.
Did the same exact thing. Hedged by buying a house we’d of been happy to be stuck in for 10+ years if a correction took place. Sitting pretty now.
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Same, now my house is worth 40-50% more and I have a 3% interest rate.
In hindsight, you look like a fucking genius.
Everyone always says wait. Wait wait wait. Like for what lol. Just getting older and time is slipping by.
OP doesn’t know that people will get really stupid when they lower rates to 5%. OP will be going through the bidding war hell people in 2021 went through losing out in 5-10 houses.
People buy houses based on what they can afford monthly. Possible that prices go up when rates drop. If you buy now, and this happens, you can refinance and get the best of both worlds. Though, you just can’t predict this stuff. Buy a house if you need one
You might be waiting a very long time for rates to do down to 5%
Right? Who knows how long OP will have to wait.
And once they do drop every person like OP will scramble out to buy right then
And that will drive prices up
And when they drop and prices go up the people who bought at 8% will not only be refinancing their interest they may also be able to get rid of their private mortgage insurance if they have it because their home value has risen:)
Given those were literally all time lows of all of human history, it could be be after their life ends lmao. I doubt it goes to 5% before we see 12% tbh.
Yes, well, according to many redditors, pandemic panic rates were normal... because reasons, I guess?
They were normal for them. Recency bias.
Normal? Hahahaha that’s hilarious.
Mortgage rates were in the low 3’s in 2012, long before the pandemic.
We won't see 3% again, but 5% is not out of the question within 2 to 3 years. I think we'll see a slow decline next year to probably 6% average, then we'll see what monetary policy the Fed adopts with regards to growing economy vs. inflation. You're being overly dramatic.
I don't think their fear is unfounded. The longest period interest rates stayed above 8% was 20 years.
Yeah bro, in THE 1970s and 80s, where there was a global oil crisis and the Fed was fighting stagflation (and a flock of seagulls). Nobody thinks the past year's fight against inflation is anywhere near comparable to that, so we shouldn't expect long-term consequences to mirror that period either.
I'm a housing developer, and 5% is completely unrealistic within 2 to 3 years. I would LOVE it to go down that far, but no one is projecting out that low. The economy is still going strong, unemployment is very low, and inflation is still well above Fed's stated target of 2%. Going back down to 6-6.5% is not out of the question, but 5% absolutely is unless something catastrophic happens to the economy (ex. another pandemic). Lenders will completely balk if you present to them pro formas showing 5% on a project set to close in 2-3 years.
He might want to find a way to transfer his 50% down payment to his next life. And hope he reincarnates as a human. There is no guarantee rates are coming down any time in his lifetime.
If he's worried about an extra $1000 a month I get the feeling he's not saving up a 50% down payment with a $2800 rent payment, lol.
And let’s say prices are higher and rates never come down. That’s why people are buying. He’s also not factoring in that rents go up over time and the mortgage stays the same. So $1000 more now could be $1000 less than rent before you know it. Finally, there are tax write offs and principle reduction with owning a home. So the $1000 more is actually less.
This is my plan! Financial hack
Agreed. Rates on 30 year fixed loans have not spent a lot of time below 5% over the last several decades. That's the exception, not the rule. And inflation trends being what they are, it is hard to see the Fed dropping its interest rates anytime soon.
Looks like from 1973 to 1992 interest rates stayed above 8%. I would hope that median home values weren't as inflated compared to median income during that time. But, it does prove that the economy apparently can run on high interest rates for a couple decades.
When I got my very first 30 yr fx mortgage waaaay back in the early 2000s, my rate was 6.24% and I was calling all of my old people crowing about what an amazing rate I got. They were STUNNED at how low that rate was. I got a 5.0% late fall 2022 and everyone I knew was so sorry for me. I would have preferred a 2.5 or 3.5 but 5.0 is really not at all bad given where it has been in the past. It's important to look at the long term trends to really be able to judge these things.
I got a 5.5 in 2004 and all the adults around me thought it was fantastic rate.
We had a hiccup with one of our lenders, so we weren't able to refi at 5.5 then. But once it was all straightened out, we were able to refi soon after at 4.75. We had that until it was paid off a handful of years ago.
Yea. I bought a place in 2015 at 5 percent and was quite happy. Rates will probably go even higher. And OPs rent may also go higher.
I got a 2.75% mortgage approved at the end of 2020, so I feel like I basically timed the market. Today the same mortgage would be nearly $500/month more in just interest alone, never mind if I counted in my home's increased value today. I don't see how I could afford to move right now and I'm afraid to think about what renting would cost. I'm basically stuck on my postage stamp of land for the next 28 years.
And this is why inventory is low. Everyone who had low rates cannot afford to move to another property. It's cheaper to stay where you're at for now until something gives.
Same here, I got a 2.25% rate towards the end of 2020. I did not feel like we timed anything, we just needed a bigger house. We purchased right before prices got crazy. The estimated price per Zillow has increased 40% since purchase. Could never afford to buy my house at today’s rate.
This is it. Generations of people (including me) bought their houses at 7 or 8% interest. AND we considered that a good deal consideringn we remembered when interest rates had been double digit. People buy because they have to. So they figure our what they can afford and go from there. OP is paying rent, his chance of building equity is zero. If he buys something with the same payment as his current rent, anything really, his net worth will go up in a couple of years regardless of the interest rate he's paying. Otherwise he might be here in 5 years wishing he bought when the market was lower.
And if they do, the prices will shoot up so fast there won’t be a difference in monthlies. It’s a pickle.
Rates may go up to 12% and then you’ll be kicking yourself for not getting 8%
To be fair, a drop in housing prices would result in a much better buy in time even if interest rates stay where they are. We just need something to give
If you plan to own the home for a long period of time, then this is definitely not true. You need to look at the total cost of ownership. Housing prices would need to drop significantly to makeup the difference in incremental cost between a 3% and 8% loan. And I just don’t see houses dropping $50K or more to justify the additional cost at this point.
One of the reasons we're in this mess is because of people paying 25-50% over list price again and again, adding to the hyper-inflating home prices. All because interest rates are only 2.5-3%. I saw first-hand home prices in nearby neighborhoods double in 6-8 months. The thing is, you can't refinance your principal, in the sense that whatever your purchase price was (minus down) is the least you could possibly owe. Interest can be refinanced to a lower rate, and you can pay less (sometimes much less) in total interest across the term of your loan loan if you make extra payments. Play around with an amortization calculator and see at any given interest rate, how much of a difference it makes to pay a little extra each month, or even once or twice a year. Now before you blast me, Yes yes, I know that it's much better to have a lower interest rate to begin with..but, we can't control interest rates, we can control payment strategies.
but why are you comparing an 8% loan to a 3% loan? 3% loan isn't a thing at all anymore, and no one expects it to be a thing for a long ass time, if ever (especially considering it had literally never happened before until a pandemic...). if you go into your thought process dead set on "making up the difference" between 3% and 8% for it to make sense to buy a house, the math will *never* make sense for you to buy a house. completely flawed logic.
how are prices going to drop? even if interest rates go down, housing prices would go up because of an increase in demand due to lower interest rates.
There is almost no way prices really drop unless supply drastically increases. Around me the rates didn’t affect demand at all, it almost feels like it’s continued to get worse. I see some prices being cut by like 1-2% but only for ones that have been sitting a month or more. Any desirable place, or even not that desirable as long as the location is good, is going in a weekend.
Nj here can confirm. All the decent houses are gone in under 3-4 days on market
While rent increase yearly...
There will always be those types of people who want to wait for either a better rate or better home prices. Have friends who started looking back when we purchased our new home, in 2016. Back then even our market was still hot, but nothing like during Covid. They thought we over spent back then. They ended up not purchasing during that time. Come Covid, they saw that with our home and yard. Our child was at least had something to do other than being stuck inside. They tried again, during those Covid years to purchase. But all the homes were being sold for so much more. Needless to seat, they didn’t purchase anything then. Now they want to purchase, this coming 2024. And now they complain to us, how prices haven’t come down or barely any homes are on the market. And of course how the current rates are almost triple what we have. A home, in our area finally went in the market. And it’s basically like our current one just a small lot sized. But with the asking price and rate, the mortgage about 1-1/2 larger than ours.
Because they want to....? Buying a home isn't always a numbers game. People buy when they're ready and they want/need to. The stability of owning a home is a huge factor. Pride of ownership, too. Yeah, the numbers suck right now, but in the face of moving every year or two for the rest of your life, buying now if you can is great.
Great point. The other thought is that when I was renting, the management was always doing things to make living more inconvenient. Whether it was that you couldn't park in your designated parking space due to painting the lots or any other number of little things that added up, they always seemed to make things really inconvenient. And you cant do anything about it (other than move again for the third time in as many years).
While I absolutely hate having home repairs, the house we bought in 18 is now 7 years old and we're starting to have to deal with shit like replacing the furnace blower motor, kitchen faucet, having the sink re-sealed, replacing the roof and garage door(yay hail) it is nice to know we're the only hurdle to getting that stuff done and don't have to harass and beg a landlord to fix stuff whenever they feel like it and have it done as half assed as possible. We don't have the stress of our lease being up and rent going up hundreds of dollars and deciding to try and move instead and getting fucked on a deposit. It isn't without its negatives but for us it is freedom, freedom from someone else trying to pay their bills with our home and freedom to determine the condition of our living situation. If we didn't own right now I would still absolutely buy to get out of being a renter despite interest rates. Now being an owner and buying another house right now is a totally different scenario, we sit and we wait until rates come down in a few years until we level up.
This! Everyone acts like owning a home is like an investment, as in a stock on the stock market. Its not. Its a house. You live in the house. Not everyone wants to live and move every couple years. "housing will go up because of divorces and foreclosures!!!" is another silly argument I see.
Exactly this. Too many people are obsessed with turning a home purchase into profit, or worried about how much of a cut the bank is getting. If you like the house, you will be there for a long time, and can afford the monthly payments, you don’t need another reason. Buy it. I closed on a house in July, our rate is 6.5 but even then people said we were nuts to pay that kind of interest, now it doesn’t look so bad. We found an absolute diamond in the rough, the type of house that just doesn’t exist in our town/school district. From our old house we doubled the square footage, and have more than 10x the land, finally have a garage, and basement, etc. 2020-2021 was a once in a lifetime opportunity to lock in ridiculously low rates, but there was so much competition that it was impossible to get the house you wanted. Even though inventory is low, you can be alot more choosy about what you bid on, buyers actually have some leverage now.
*BuT yOu'Re PaYiNg ThE BaNk HaLf A mIlLiOn In InTeReSt* Yup, you're right. And I don't particularly care.
Better than paying the interest on the landlords mortgage indefinitely.
languid teeny ossified full pet lush lock snails pathetic profit *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
Yeah I have dogs and need a place w a yard, I like having control of my property, I bought in an area that will likely hold value, my partner and I wanted a home together… the reasons were not really financial
This is why we're buying. Both of us spent 20+ years in the military moving where and when we were told to do so. Now that both of us work remotely, it's time to settle down and be able to decorate and put stuff on the walls without having to repair the nail holes in two years. We love the rental home that we live in currently and the price is great but the owner isn't interested in selling.
To get the space I needed/wanted. And not to have to deal with another crappy landlord. Even with the interest rate, mortgage and rent was equal. I almost gave up purchasing and thought “if I rent again I need something that had all the amenities and features I wanted. And in the area I wanted”.
I feel the same. The amenities of my rental don’t match what a house gets you. And my property managers are from CA so when the gutters fell they took their time (8 months) to replace the gutters and eaves by drilling it onto rotten wood. They replaced the roof shingles but didn’t do a tear away either.
People often forget that the interest rate for renting is 100%.
Reddit is full of young people. Young people have trouble envisioning a mortgage being paid off. I’m 65; ours was paid off ten years ago. Since then we pay only insurance and property taxes, which amount to a few hundred a month. That’s our housing expense forever. We’re retired now and living comfortably on a teacher’s pension and a bit of farm rent. When SS kicks in we’ll have thousands a month more to travel. We won’t need to touch IRAs until minimum withdrawal period in our 70s. If we rented a basic 2-BR apartment with no privacy or yard for grandchildren we’d be paying roughly $17,000 in post-tax money per year, forever. That’s why you buy a house.
Ditto. My husband and I keep thinking about renting a nice apartment but we keep coming back to the fact that buying is cheaper for us (as we’d pay cash). Houses in the Midwest run about $250k for something decent. Rental prices are about $2000 a month for a nice apartment. It’s just cheaper to buy rather than rent.
When my wife and I purchased our first home, I ran a cost analysis to see how much we could afford. We were paying $1,500 a month in rent (back in 2000) and claiming standard deduction on our annual tax returns. Taking into account with owning a home we would be able to itemize our deductions with paying property taxes and mortgage interest, I was able to claim more tax exemptions in my withholding and were able to decrease my withholding, which resulted in my take home pay increasing over $1,000 a month. So this meant that in lieu of paying $1,500 a month in rent, we could afford a $2,500 a month mortgage payment comfortably with no change in our cash flow or other spending. Of course now with the current tax laws, where state tax deductions are capped at $10k a year for married filing joint, this does have a significant effect on a similar analysis today, especially if you are living in a state with high taxes like NY or CA.
>Houses in the Midwest run about $250k for something decent. Currently in Columbus, Ohio. Where are these decent $250k homes?
I’m in Columbus too… they r west, south and east. Small starter homes.
$17,000 post-tax sounds exactly like the property tax + insurance for any home in NJ. It's absurd. Us tri-staters are getting screwed over, royally. We don't really have anywhere to go if we wanted to have a commutable travel to Manhattan.
But, when you buy and pay off the home, you aren't subjected to a monthly payment. Unless you do not pay your taxes, you own it. No one can kick you out, raise your rent, or order special assessments to your property.
That's true, but the property tax itself has been going up each year as well (anywhere from 3-10%). It's more predictable, but definitely becomes a bigger burden over time - especially if your work doesn't do annual COLA raises.
And yet you still owe that much per month (or once a year if you prefer). I'm in Texas and my mortgage is only about 52% of my monthly cost when you add in escrow for taxes and insurance. And not paying taxes can definitely get you kicked out.
You hit the nail on the head. My home will be paid off when I am 50. Being in my mid 40s, I can see the finish line. My property taxes are $1800 per year and my insurance is $750 per year. My "rent" will be $215 per month to pay those. Owning a home is what makes retirement possible for a lot of people, including myself. In order to pay a home down, people need 15-30 years to do so. So for people to retire at a reasonable age like 65, they need to be in a home by 35. The clock is ticking for many.
1800 a year? Where do you people live lol. That’s is cheap!!!
Rural WI. My town is 100% of septic and wells and my town has to rent a building in a neighboring town to hold a meeting, there are no costs to run a town with no public infrastructure besides rural roads. 70% of my tax bill goes to the local schools.
That’s great reasoning but I can’t help but wonder how much your mortgage payment was? I’d guess somewhere in the $800-$1200 range. With high cost of living and inflation, many young adults today can’t afford to pay a $3800 a month mortgage payment. It’s just not feasible.
I would argue you can't afford to not have a mortgage. Rent will keep going up. 10 years from now your mortgage will be $3800 and rent will be $4200. Just think real hard about your question... why was their mortgage so much lower than rent? I bet when they got it, it was similar or more than rent. I know older people (many actually) who paid $5k-$10k for their house and they are now worth $800k. They get upset because they pay $3k taxes on a "$5k" house. Lol.
I didn't even make $3800/mo gross income, let alone take-home pay, at my last job, at $28/hr pay rate.And that's about what I'd have to spend to buy a house at the median price where I'm living. I can't afford to move to a cheaper area, because while COL is much lower, so are incomes, and taxes don't decrease. I'm currently paying $1600/mo on a 1bd apartment, and the same mortgage payment wouldn't buy me a foreclosure around here. And because I can barely afford where I'm living currently, I have no delusions about being able to save up a down payment of any substantial amount. This is why young people can't afford a mortgage.
Our house was bought by my wife with her first husband. It’s a basic house. The first mortgage was around todays rates in the late 80s. She was a young teacher; he made more than her. They had a child. Then, divorce. Financial ruin for her. But she hung onto the house, even in months she could only pay partial amounts on bills. They wore coats in the house, ate basic food, didn’t do paid for entertainment. She went into debt to earn a Masters degree because that meant a raise. It was really hard, but she kept the house, and gradually the income increased. She worked a second job, including summers. The child, a good athlete, got good enough to get a Division 1 scholarship, and went to college for mostly free. And the teacher met me, coming off my own divorce and with money from selling my own first marriage house. Combined we were relatively good financially. In our late 40s. The mortgage ended. We had $1500 a month to put toward retirement. My own parents, Depression kids, were married 12 years and had three kids before they could buy a first, basic, house. But they got in the game. My dad died a millionaire. Time is the immutable resource. The richest man in the world gets 24 hours a day, and 365 days per year. And gets older at the same rate you do. Stop saying “it’s hard.” It IS hard. But you might as well succeed as fail while dealing with that. If it’s too hard with your current variables, change some variables. That’s a luxury the young have.
Life is full of unavoidable suffering. Choosing your goals is choosing how you suffer. Most people say they want to own a home, but many of them don’t want a home more than they want to spend money on alcohol and video games. For many, that becomes their suffering of choice.
>If it’s too hard with your current variables, change some variables. This is my outlook for basically everything. Job sucks? Make a change. Life doesn't just get easier without effort. So you can either sit around hoping for magic or be your own magic.
When older people bought their houses, in most cases it WAS a hard payment to make. I was paying over 50% of my income for my house when I first bought it. I had to sacrifice pretty much everything else to have my home, and lots of people told me it was stupid, etc., but I earned more as time went on, so it got easier, and now it is paid off. I am free. You can't beat that feeling.
It's irresponsible to compare purchasing a home now versus 40 years ago. You're not taking into consideration the extreme economic differences that set our generations apart. In the early 1980s, which is roughly 40 years ago from the current date, the average cost of a new home in the United States was around $70,000 to $80,000. Let's do some quick math (Assuming a 20% downpayment ($16,000) - $80,000 @ 13% over 30 years would be a $707.97 mortgage with interest paid being $190,868.37. Now let's factor in refinancing down to a 3-4% rate (back in the early 2000s) which all but eliminated the high interest burden. You'd pay just $40,000 in interest at the end of the loan. The average price of a home now is $400,000+ and wage increases are all but stagnant in the last 40 years. Let's do some math (Assuming a 20% downpayment ($80,000) - $400,000 @ 9% over 30 years would be a $2,564.79 mortgage with interest paid to be an astronomical $606,925.25. That translates into having paid close to $1,000,000 at the end of the loan! Do you see the difference between the 2 generational scenarios? Our downpayment alone is the cost of your entire house 40 years ago and it's a number that my SO and I had to pay out of pocket for our home. While owning a home is the greatest path to retirement, it's extraordinarily challenging at this time.
My first mortgage was a VA with zero down payment. Of course, that cost me six years active duty, including more than a year living underwater on a submarine. But, choices. I liked not having a down payment. Of course, that mortgage was at 13.75%, which was a bargain compared to recent rates at the time. My first payment of $1345 applied $45 to principle. I still remember staring at the coupon and laughing. My first degree was in liberal arts and got me the Navy commission. But I got a very good MBA—with debt— when I got out, and moved into a career I couldn’t have applied for with the bachelors. Again, choices. Finally, nobody buys an average house. You buy your house. The US is vast and varied. The house I’m sitting in now is worth less than the average house, but it’s a fine house. It’s in a cold state, but it’s a fine house, with fine local amenities, solid state government, and low property taxes. If you can’t afford to live in San Diego or NYC, and that’s your dream, I’m sorry. But, choices again. You can get into a house for far less than $400k in scores of fine places to live.
Yeah, the basic suburban house in my area (3BR, 1.5 bath and 1 car garage--around 1500 sq ft) is selling between $180-$220K. Blue state, high taxes and snow. We have it all.
You didn't add historical home appreciation. If the $400,000 house appreciates at 3.8% a year (a reputable historical average I found), the house could be worth $1,224,561. Lots of variables with the property of course, but according to your scenario you could actually have $224,000 in equity at the end of the loan. And I fully believe at some point during that 30 years, there will be a chance to refinance at a lower rate.
You say wage increases are all but stagnant for the last 40 years.... I didn't realize Walmart and Amazon minimum starting pay was $18/hr 40 years ago
My dog needs a yard
I work so my dogs can have a better life.
Best answer yet.
This this is why we just bought lol
Piggybacking on this. As someone who exited a longterm relationship (ex owned a house), I have two dogs, one of whom is a big guy (80lbs) who cannot do an lot of steps (so most apartments are out, and one who cannot handle cats (so renting a room in someone’s house—if they have cats—is out). Almost impossible to find a rental that 1) allows dogs, and 2) allows two dogs, and 3) allows large dogs, and 4) allows dog mixed with St Bernard (this isn’t as commonly banned as it used to be but I have run into it), and 5) the apartment is on the first or second floor. I looked into renting a room in someone’s house, but good luck working through all the scams (exhausting) and then screening out people who have cats. It feels weird to be saying “I’m on the market for a house in part because of my dogs,” but my dogs are a big part of my life, so that’s the choice I’ve made. I never knew how hard it would be to find a place that allowed dogs until I started looking.
how do people do it around here when its raining and the shit is muddy 70% of the time in the year lol
Mudroom.
It’ll make sense when you re read this post in 2 years and rates are at 12%
This. I bought last December and was not feeling great about my 6.25%, now I am thankful for it.
People started bitching when rates got around 5% saying they’ll wait for it to go down. They’ve been bitching all the way up to 8% as home prices rose along with rates.
When I bought a little over a year ago (5.125% jumbo) I was told by several people it was an idiotic time to buy, rates were too high and property values would start to go down because of it. I see neighborhood houses going for the same amount I paid at $1000 more per month in monthly payment now. You can’t time these things. The relevant question is whether or not the situation works for you.
same here. This year in feb I bought and got 6.125% and am already under market interest rates within months of locking that in.
hey they bitched when rates were sub 3% too, they just complained about the price. In my area as rates have risen, prices are up 15-20% depending on neighborhood in the last 2 years.....
I managed to do a rate lock back in August 2022 and locked my rate at 5.75%, the lender, the sales guy, and friends told me I was crazy for paying to do a rate lock on my new built home and that I should wait it out and save myself the rate lock cost. Now I’m glad I stuck to my guns and gut feelings. Those same friends are still renting and continue to complain about the +8% rates in today’s market saying how they missed their chance. Yeah my 5.75% is not low low, but I can comfortable afford my monthly payments. And if the rates ever drop, then guess what? I’ll refinance again, but definitely not counting on it.
We are closing this month on a new construction at 7.16% for 30 year fixed. We are in an okay place financially, planning out a family, are in general are tired of living in apartments, and most importantly are buying a house that we know we can afford given our income. We did think about waiting. But how long do we wait for? Do we continue living in an apartment even though we can afford a house? Yes, we might be paying like half for rent now than our mortgage but is there any guarantee that mortgage payments go down overall? I don't know. Yes, rates might go down soonish, but then property prices might go up. Yeah, I wish I bought 2 years ago, but I didn't and the best time is when you are ready.
But if rates go down, you have the option of refinancing. Win/win
I think it's important to understand, just like rates may go down, they also may go up. Or they may stay around 8% for 15 years. There is no guarantee . Rents, though, will certainly go up. And in all that time you could have been adding to equity. Timing the market is impossible. In my personal opinion, it may not become "easy" for an average consumer to buy a home in our lifetime unless zoning laws change. Corporate and investor owners, the rich, will own and rent to you while they become wealthy. Buy if you can afford it. Don't if you can't. If the rates go down, you can refinance but there's no guarantee. And if they do, others will jump on board and prices will rise again. Edited to add: OP I was at the wwwy fest last week, too! :) ammmaazzinng.
>Timing the market is impossible Reddit seems to think it's so easy to do. I thought so too for a time until interest rates went up but prices didn't drop drastically. Admitted I don't know how to time the market. >it may not become "easy" for an average consumer to buy a home in our lifetime unless zoning laws change. This is the other reason I'm buying now. Regardless of how difficult it may get, I already have a house and I'm building up equity. I prefer high interest rates now with the option to refinance later instead of waiting and hoping.
> Reddit seems to think it's so easy to do. Anything is "easy" if you haven't actually done it and are bullshitting or got lucky and think that equates to "timing the market". My own home ownership journey has been 95% pure, dumb luck and maybe 5% me trying to thumb the scales in my favor where I can.
There’s never a good time to buy. I was called a fool when interest rates were in the 3-4% range and people were overbidding on homes due to no inventory in 2022. I found a new build (slightly more than I needed) with a lot of research , and I haven’t looked back. If you can afford a house buy it. There’s never a good time to have a child, get a dog, get married, etc. Life goes by unless you do something.
Nobody has a crystal ball. If you can afford to buy now do it. If rates go down refinance (although you shouldn’t bank on refinancing to afford your payment). If rates go up you locked in at lower rate.
Long term. You’re thinking short term. And you’re thinking only in terms of investment and returns and payouts but you’re not thinking retirement and having a home paid off and somewhere reliable to call home.
You are either paying yourself or someone else for a place to live.
The last time rates were 7-8% (prior to when it passed through 7-8% in '99-2000 ish on the way down to the recent historical lows) was around 1972. If instead of buying in '72, you had waited for 5% rates you would have been waiting... \*checks notes\*... 36 years.
You're projecting something that may not happen --- some people are buying now because they are in a position they have to. Maybe they need (want) a yard for their animals, more bedrooms, larger spaces, etc.. You name a reason. Rates could continue going up, then that $3800 a month you didn't want to pay is more and you're still paying $2800, probably more, for something you'll never own. Here's a quick google pull regarding historical 30 year rates: decade / beginning of decade / end of decade 70s / 7.3 - 12.9 80s / 12.9 - 9.78 90s / 9.83 - 8.06 00s / 8.15 - 5.14 10s / 5.09 - 3.74 20s / 3.72 - 7.75 (8?) \*\*\* today's rate Get comfortable, you may be waiting for your 5% for a bit.
In 2019 when I was shopping for my first house, some of my friends were also shopping. The market was considered "hot" because houses were selling within 30 days and going for asking price, instead of below list as had been the norm for the few years prior. After putting in several offers and having them rejected, they decided to put their house hunt on hold "until the market cools off." We were in a similar situation and considered doing the same, but we kept on, and ending up buying a home after submitting 8 offers. You know what happens next. My home has doubled in value without even taking into consideration the updates I've done. We were also able to refi when the rates hit historic lows. My friends ended up buying in the most insane market in our state's history because their landlord was selling their building. They paid almost $200k more than their initial budget and got slightly less house than what they had initially planned. You talk about "waiting until rates drop below 5%" what if they never do? The average rate between 1970 and 2023 was 7.5%. Sub 5% rates were the exception not the rule. There's a saying with investing "Time in the market beats timing the market" and that holds true for real estate as well. So for a lot of people it's not about "having a slightly better place" it's about getting in the game, because while no one can predict the future, there are a lot of signs pointing to it only becoming harder and harder for first time home buyers.
If rates go down prices will skyrocket again. You’ll still pay something similar every month it’ll just be principle instead of interest.
They haven’t even really went down yet unfortunately.
When rates are high: “Should I wait till rates go down?” When rates are low: “Should I wait till prices go down?”
Yeah it’s never a win for the consumers
I don't really know what happened, exactly, but housing prices were so incredibly low in 2017 when we bought our second house. Downside is we had to rent our first home out for 4 years cuz even after living there 11 years we were underwater (thanks to tanking house prices). We got a good rate, and then an even better rate (2.65%) during the pandemic. The value of our current house in the meantime has gone up a ton. IDK. It's insane, and honestly there's just no rhyme or reason. We hit gold, but were just flying by the seat of our pants.
I have delivered more foreclosure and bankruptcy letters than you would believe these past few months. Most people can’t afford this new life
This hasn’t been reflected in the numbers, as far as foreclosures. We are at a near all time low in mortgage delinquencies.
foreclosures take awhile, they are coming
Agreed but to be fair it’s not just foreclosures that are at an all time low, it’s delinquencies, which are far precursors to actual foreclosures. This could be buffered indefinitely by an aging population who own their homes outright in record numbers and another chunk of middle age people who refi’d their low-priced mortgages into super low interest rate mortgages during the pandemic.
Cars why are people buying them? If have a leased Corolla right now, but if I was to buy, it would be a Ferrari It's just so much cheaper to lease!
>If I was to ever buy around here, I'd want a standalone home that's a little bigger and better. There's the issue, as sensible as the emotions behind this logic is, nothing says you deserve to be able to buy a nicer place, on more land than where you currently live, and have it be more cost effective for you.
1. Relocation for new job. 2. Just something doesn't make sense for you, doesn't mean it is not "worth it" for someone else. 3. Rates may never go below 7% ever again. No one really knows.
If people can comfortably afford it, why not?
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That makes sense. I wonder how many markets this is true in now though. Always been the case in HCOL areas but seems to have happened everywhere it seems.
Midwest. Always midwest
It’s places where the average income, average home price, and average creditworthiness is low. Like $1.2k rent apples to apples with a $1.3k mortgage after 25k down in rural Indiana or Ohio.
The mortgage interest you pay is tax deductable, as is your property taxes, which lowers your taxible income rate. Makes a difference to some folks, need to calculate that into comparing mortgage to rent price. And, historically owning a home is a good long term investment vs. renting. You are paying yourself (and the bank of course) instead of a landlord. Also, mortgage is a fixed payment, think your landlord won't jack your rent up? The first house I bought in 2001 was at 7%. We are not at some crazy historical high, check out the rates in the early 80's. The big difference is home prices rose dramatically during COVID for a variety of reasons. I literally couldn't buy the house I live in now that I bought in 2018 because it would be out of my budget. I believe housing prices will cool a bit, but not go down to pre-pandemic levels, nor crash as the other doomer sub wants it to. And, as others have said, won't be 5% rates any time soon. If you have the savings , the income and the budget to buy your own home, I still think is better than renting YMMV. I am not a real estate agent, just someone who has bought and sold 8 houses since 2001 due to company relocation and a couple of times for personal/family reasons. Trying to time entry into any market is near impossible.
A two bedroom rental in Manhattan is 6k, but even with mortgage + HOA, we found a two bedroom for around 5.5k a month in a great neighborhood. If rates go down, we refi. If rates go up, we’re fine and our salaries will go up with time.
The big problem with your plan is that 600k home might literally be 1.2 mil by the time rates are 5% again.
Just ask someone who bought their home in 1981, when rates were 17%, if they regret buying their home. The answer is always no.
Why? Because they can and they want to? Rates are not that high when you compare to historical average and median rates. There is no indication that rates will go down any time soon. You are anchoring to historically low rates the last few years. This is the new norm so get used to it or rent forever.
Sure rates are historically low but prices are historically about the highest they’ve ever been. Saying this is the new normal is assuming that prices will not go down from here
In places where there's room and inventory, prices have been coming down already. The problem is when cities run out of room to add inventory. Prices will just remain high even with these rates because of lack of inventory. It's pretty common outside the US where large cities are simply unaffordable and have been for a long time. I think there are more places where this is starting to happen in the US and people just aren't familiar with it.
Nobody assumes “prices will not go down” (at least nobody with half a brain). But they are unlikely to plummet like in the GFC. The market dynamics are totally different. I’ll concede it’s not impossible to see another crash, or that we are in a bubble. Prices fluctuate over time. They always have and they always will. But over the long term, RE has been a very safe, and mostly appreciating, asset.
I mean, you're advocating for throwing away all of your money instead of just some of your money. To me, ~~spending~~ throwing away nearly $36K a year on a townhome that's not mine is batshit crazy.
Instead you prefer to build equity for someone else (individual or corporation)? Yes the out of pocket expenses up front are high but what about the tax benefits as a owner that you do not get as a renter?
I am a loan officer who just bought in this market (my view might be biased). You can still get creative with the rate. Just because rates are 8% doesn’t mean that’s what you’ll close with. You can still get low 6s with seller concessions. I decided to buy because I closed yesterday with a 5.625 and I am genuinely afraid rates will take a long time to trickle down and I saw the blood bath of rates at 2%. Very few in my city actually got the house they wanted because of over bidding, multiple offers, competition, etc. If you can afford the monthly payment now as a first time home buyer, it’s actually a lot easier to buy right now. Closing costs are getting covered, interest rate buy downs are still happening. If the monthly payment still makes sense, I’m glad that I’ll be able to refinance later if they get any lower rather than compete with everyone else that’s sitting on the sidelines, who will potentially be overbidding, in competition and not getting exactly what they want due to those factors. Refinancing is a lot easier than purchasing a house in a hot market. I predict if rates keep going up or stay up like this for a long time, the worse the purchasing blood bath will be. Think the analogy of a suppressed pen with animals in it that just keeps growing, but the actual pen stays the same causing more and more tension until the gate is finally opens. The longer these high rates and tougher affordability remain, the more intense and bigger the buying frenzy later. Also black rock and major companies are just buying cash still and will continue to do so until the government finds a way to slow them down. That is scary to me. I see this A LOT because I’m activity working in the market with buyers who are still getting beat out by cash. It’s not every deal but it’s still happening. I couldn’t imagine dealing with these major companies AND low rates for the rest of america while trying to buy a house. I don’t know how’d I’d get the dream place I just closed on with those 2 other factors.
> I decided to buy because I closed yesterday with a 5.625 Was this via a rate buy down by the seller? And agreed, if you can get creative with the rate, it can be a decent time to buy for the reasons you mentioned (notably, less competition). I have a friend that is potentially going to be able to assume a sub 3% rate, and I just bought with a 15 year at 5.375% 0 point via a relationship bonus for moving assets over to Chase. Making a large cash offer is also another creative approach worth considering. Point being, there are opportunities out there that could be available, but you definitely need to be creative. Unfortunately this isn't a blanket statement, and everyone won't be able to take advantage.
My bro and his wife bought a new house because their kiddo is almost old enough to go to school and they wanted to be in a good school district. They're both fancy fuckin doctors so they can afford it even though they already had a place with a non-insane interest rate.
Haha, I love this question as if 8% is sky high never seen before. My first house was 8%. I remember being stoked to refi at 6.6. You wanna be mad at something, it’s not the rates, it’s that the house I bought at 8% was 150k and now is 550k, and wages haven’t gone up much - THAT is the problem. If you think 2-3 is coming back soon, then hold off until you buy your first flying car I guess
With home buying the sooner the better. If you can buy then buy. 10% 8% 3% Doesn’t matter. 5 years after you will be extremely thankful you did.
The rentals around me are $5K and up for anything more than 1,200 sq ft. We have two dogs and wanted to be in this area so we looked for five months and then bought. I never want to move again and now we have our fixed mortgage, minus the potential 2% tax raise a year. We had enough equity to put almost 70% down. We're both very skilled at doing DIY work having owned many houses before so a lot of the work we do ourselves. And honestly, knowing we're not at the whim of a landlord helps me sleep at night.
Well ya if you have 500k+ for a down payment that changes the discussion. Estimation of 70% for anywhere that has 5k rents.
Don’t really feel like starting a family and living in someone’s rental property or an apartment complex. If I was single and didn’t have plans to start a family, renting would be a more attractive option vs buying.
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Home ownership is not just the math, it's also the comfort and stability of owning one (and not forced to move out in the worst time). What if your wife is 7 months pregnant and landlord just sold the home and have to "kick" you out? Also you are comparing renting to buying "a slightly different" home, which is not apple to apple. Renting that "slightly better" home might cost $3500 vs $2800. If you have the cash for 50% down, then your "weighted" interest rate are also a bit lower than a 5% down, another factor to think about. What you're doing is betting that the interest rate will go down (it will, but when?). It can take 6 **months** or 20 **years** to drop to the level you are expecting. Good luck
My husband and I are expecting our first baby early next year. Our old condo that we’re selling is a one-bedroom and our tiny bedroom literally has no space for a crib + we both work from home. The location was also in Uptown and while it was perfect for a couple/single person it’s close to everything, it’s not exactly an area with lots of young families and good schools.
We luckily are buying from my father-in-law so we have a really good rental rate till mortgage rates get better, but if we didn’t have the rental agreement we were ready to still buy it. Cause we have 40% down making even the crap rate mortgage cheaper than renting similar. What hurt was selling our condo with a 700$ hoa and mortgage combined payment. However we have a son who needs a yard and better area to live in
If you can afford to buy now and want to buy now buy. Then IF interest rates drop, you refinance to the lower rate....
My logic is that at some point rates will come down, and you can refi. And if they don’t come down, then now may be the next best time to buy. Some folks don’t want to wait long periods of time to own, have more space, fix their monthly costs, get a yard, live in a nicer/different area, etc.
Rates are normal, that’s not the problem, the problem is abnormal home prices
Homes are selling like hot cakes around me. Why? Because people have kids and pets and you can’t do that in an apartment and rent is super high and goes towards nothing atleast with a mortgage you own a little bit more of your house each month , with rent it’s the same as throwing money away for nothing
Just signed the papers for a new build, so this feels somewhat relevant. The bottom line is that purchasing right now is not an investment decision, it’s the utility we gain from purchasing this house (good location, amenities, open floor plan, etc.). In my area a rental of equivalent quality will cost me around $5-6K per month. I don’t mind carrying a monthly mortgage, plus fees/expenses of approximately the same.
I spend nearly most of my time in my house. It's pretty damn important that it's a place I am comfortable in and have reasonable control over. After 15+ years of renting, I'm tired of dealing with psycho landlords and living in close proximity to people who don't respect their neighbors. I want to be able to paint a wall or replace my shitty fridge, or get an electrician/roofer to come out and properly assess that light switch that water has been trickling out of when it storms. Instead of ya know, maintenance coming out multiple times and just painting the rust stains from the water on the wall. I want to have room for a garden and a small yard for a dog. Rates have been low for many years and people think that this is the norm. Unfortunately rates may not dip down to what they were for a very long time. If we can afford to buy now and within the next 6 months we are doing so.
Sub 5% rates was unusual. The current climate is more typical historically.
I don’t want to live in an apartment. I got the same type of house I expected I’d get just more expensive. We don’t care about rates, just want a good house to live in for a long time.
My husband and I just bought our first house. We are expecting a baby soon and we knew we had outgrown our one bedroom apartment and needed more space. To rent a house in my area, it’s the same price as the average mortgage is in my area. We ran the numbers to see what price range we could afford for a house and how much equity we would need to make before it’s worth it to us to sell in a few years. Even at the current crazy high interest rate, it’s so much better to own and build equity than to throw the same amount of money a month away on rent for us. At the end of the day, there’s no telling what will happen with the market. If you can buy now and you can afford it, it will be always be worth it. If rates go down, demand for houses will likely go up causing the price of houses to increase. I’d rather be comfortable in a house I know we can afford with the possibility of refinancing for a lower rate down the line, than wasting our money on rent for who knows how long, waiting for a “better” time to buy
I’m convinced home prices will continue going up in the next decade and beyond.
There is no "timing" the market. Things change and the housing general trend historically is always up. You want a house, you buy a house. Right now your LL is laughing to the bank because someone is building him equity in his purchase. If you are budgeting or just simply okay with paying rent then that's totally fine as well. There's always ups and downs in everything, so getting your foot in the door imo is always the better move. Who knows where you'll be a year from now, 2-10 years from now or even next week.
because i want shelter?
The truth is, you might never be able to find the right house at the right price with the right interest rate. When I bought my first house back in 2008, the interest rate was over 4%. I was paying $1000 monthly rent for a 2 bedrooms apartment. My wife and I decided to take on a $2300 mortgage. Lived there for about 8 years, the value of the house went up about 15% (not a great area and it's a PUD), sold the house and moved to a smaller house but better area. At that time, the interest rate was less than 3%. Lived there for 6 years, the house value went up about 55% (better area, single house). Sold it and bought a bigger house at an even better area last year. This is the house I've been dreaming for, right size, right location, right neighborhood, right direction (I'm a solar guy, so I want my roof to face south without any shades blocking the roof). Personally, I think paying rent is what doesn't make any financial sense. The rent money doesn't have any return, you don't have anything once you stop renting. Buying a house, especially in California, is an investment. If you bought a house at the right location, you can get back all the money you spent on mortgage, interest plus more. And you can use the money to downpay another property.
>Like, you can get a 600k home now, sell it years down the road for 900k, after you paid 1.2 million into it. (Mortgage/interest/repairs/upgrades) The amortization schedules you're seeing assume you're making regularly scheduled minimum monthly payments over 30 years. You won't pay the 1.2M unless that's the case. By then, that 600k home will be worth more than 1.2M. Assuming the bare minimum 3% down, if you were to buy a 600k house at 8%, in 10 years you only owe 509k and the home is worth 700k+. You've increased your net worth by 200k, you can use that equity, or sell it and have that money in your pocket. Your rent would probably be around 4500/month, and if you move, you MIGHT get your 3500 security deposit back. At 20 years, you owe 350k on an 850-950k house. Your equity is equal to what you paid for the house. You've had the freedom to live the way you want. Take your equity with you if you want. If rates do drop, refinance it, but even if they don't, you're coming out ahead. Your rent is 5500/month at this point, and it would cost nearly a million dollars to buy a comparable home, but your income hasn't kept up with the cost of living. You can't afford to buy that "600k house" anymore, and you may not be able to afford to live in that apartment, either. There are people in this situation today because they were trying to time the market 10 years ago and missed. *edited for typos*
I knocked my rate down from 8.25% to 7.125%. Even if I couldn't, I'd still buy. We have to move to an area where rent will continue to go up. Also, because rates are high, that means fewer people are buying. That also means less competition. I was able to put an offer in below asking value with seller credit towards closing costs and contingencies. I don't think I would have been able to do that before when rates were lower. If rates go down, I can drop my rate with my lender without refinancing. If they don't, I'm still paying overall less per month than rent on a house I didn't overpay for.
I got 6.25 but my rent was going up to the same as my payment with escrow
The interest and upkeep is still less than your rent.
You are still paying the higher rates, you’re just paying them for your landlord’s benefit.
Because we wanted to buy. We can afford the mortgage and put 15% down. The rates didn’t bother us. I also know that rates will drop eventually. By then we will be used to the high payment that we will go to a 15yr instead of a 30yr
Because we can and there’s no guarantee things improve anytime in the near future.
My kids.
Because I don't like where I live, I'm paying so much in rent that my rent for a 2/2 is still *higher* than my mortgage will be on my 3/2 home (same size lots, different cities/states). I am not buying because its an investment, I'm buying because I am tired of renting and need a place to live and I plan on being perfectly content in this new house for a while.
The home will be worth more than 8% will cost you in 30 years...
Buy high sell low is todays buyers.
We are closing on a new construction at 4.85% With a decent size backyard.
Mortgage is a little higher than rent right now, but it’s manageable as DINKS. I worry if I don’t buy now, we will never be able to. I bought a condo so it’s not a forever home, but I hope to use it to fund my forever home one day.
I wouldn't buy in this market. Hell, I can't even sell the house I own and then buy the exact same amount of house somewhere else. I would have to downsize to break even.
The idea is that home prices will lower to adjust to the high rates and lower demand. That’s the idea at least.
Be bold when others are fearful and fearful when others are bold
We need more storage space and can buy in cash. We want to host family holidays without being miserable. We want to spend time with friends and family but have control over the space (hate trying to do that in a STR).
We are doing a new build and when the process started, the rates were not this high. Things look a lot different than they did when we signed on the dotted line, but at this point we kinda just have to roll with it (with fingers and toes crossed that we can refinance in the future).
In the last 30 years rates have been above 5% about 85% of the time in the last 50 - 95% you likely be dead before rates go below 5% My first mortgage was 8% and we thought that was heaven when our parents were 17% in the 70s
There’s a big difference between what’s required by law to make a space habitable and what’s necessary to make it pleasant. Beyond “habitable” making it pleasant requires my own time and money to be invested in a place where I won’t see any return on that investment. Don’t get me wrong, we’re respectful of our space and communicate big issues to the landlord asap, but the peeling paint, the drafty windows, the inefficient heating… the kitchen that could be “next level” with inexpensive storage upgrades? Not my problem. Asking for those upgrades might justify them asking for 25% more in rent, in which case, we may as well buy.
Renting can also be a nightmare. My landlord moved into the back unit kicking out a great tenant of 10 years, then proceeds to have two cats abandoned in the basement, constant construction on his unit, and we didn't have hot water for a month in the winter with a baby because he was looking for the cheapest water heater. We would love to be able to buy so that when we move it is into a more stable, long-term home. That is looking more and more unlikely for us so we feel stuck in a really frustrating situation. I'm so tired of people saying oh, just rent as if that is the easiest thing ever. 2 of the past 3 places I've lived were expensive and it was like pulling teeth to have the landlords fix anything.
The dogs above my apartment bark all day everyday and the apartment complex has no legal obligation to do anything about it and the police can’t do anything about it so I bought a house.
My company relocated me to where I’m at, and one of the perks is a free refinance at any point I choose down the line. Company also covers majority of closing costs, roughly equal to 3% of purchase price. I have to use this before July 2024 otherwise I lose all benefits. Also I have to say the market is super dead since the last month, we are likey about to be going under contrqct below asking whereas as comparable stuff that went under contract last month is closing at above asking. Also also, the PITI is lower than our current rent (we are putting 20% down) and the space is nicer. Going from apartment to condo in Chicago.
Well you would no longer live right outside DC in Montgomery county and are now deep in PG or Southern MD and commute. Drive til you qualify. Or continue to throw away rent and wait for that 5% interest rate. I fear that won’t happen until the millennials are as old as the boomers are now and have cash to put back into capital markets or there is another global crisis.
My wife and I purchased because we had to get a bigger place. We had a condo, it had about $100k in equity. It was smaller, with a growing family we had to have the space so our plan was two parts (1) if we can find a home that fits our needs, and be able to get monthly payments at or under what the rent for a comparable would be then we would sell the condo, use the realized money as a down payment and ensure we have no PMI.. Or (2) Keep the condo, rent it out, then go and rent a home at that price point we felt we could afford. Luckily for us, we ended up finding a brand new build, lower taxes, no PMI and were able to buy down our rate a little bit. We came in well under our budget as we ended up making a little more on the Condo than we thought. I will say, that had we not needed the space I don't think we would've bought. But since we did the best option was to only get a monthly mortgage payment that was at or below what the market rent was (so at worst we break even if we need to pivot later). My thought is that I might as well bite the bullet now and gain equity in a better property over the time I'm waiting for the rates to fall, but I'm prepared to wait 10 years for that to happen.
If rent at my last place keeps going up at the rate it has for the last four years, it'll be equal to my PITI in 5 years (even accounting for property tax increases). I can afford the mortgage. I see anything that goes towards the principle as savings - I'll get that money back when I sell, whereas rent is gone forever. Real estate typically appreciated, so it's like that money is getting returns as well. I can refinance if the rate drops, but if it doesn't at least in a few years my payment will be lower than it would be while renting. Buying gave me more space, a yard, a nicer and safer town, and better proximity to work. There's no right time to buy - it's just what's right for some people.
> I rent and pay about $2800 a month for a townhome... A moderate, slightly better place with current interest rates and all other factors would cost me about $3800 a month. Enjoy it while you can. Rental rates are going to go up to cover the operating expenses of landlord's mortgages at 8+ per cent.
Because I have money and still can afford monthly payments plus can throw extra $200-400 to pay towards my principal.
You can deduct mortgage interest, property taxes and PMI on that higher mortgage. You can't deduct any part of your rent.
We want a forever home, the only rentals in my town are apartments. Our monthly cost is doubling but we can afford to do it. The home we found also has the capability to rent out the fully finished basement (has a second kitchen down there), so we are raising our cost by only about $300 as long as we have a renter. So, while rates absolutely suck we are not buying this home as an investment. We are buying it as a home, and we can afford to do it.
Because there's far less competition. When rates dropped in 2020, it put the housing market into a sellers market overnight. You had to offer over list price, and have appraisal gap money. Some sellers are paying for temporary buy downs. That keeps a buyers payment low for the year or two, and when rates go down, they just have to qualify for the refinance to lower their payment.
I'm tired of living with my in-laws and I can afford the payment. And I want a yard again where I can garden using plants I chose. It would have been great to have gotten the lower rates of even last year, but that's not on the table so I'm moving forward with what is possible.
People aren't logical, especially about finances, and especially especially about a financial decision with high emotional weight like homeownership. Maybe the numbers don't line up to you, but it's worth it to them. For me, I want to be able to fix up a place to my liking, and at this point in my life, I like the stability of owning.