I’m in that camp and I’m starting to suspect there are enough people in that camp that any noticeable drop in prices will be immediately met by strong demand, even at current rates.
Since you cannot predict the future I recommend not waiting “for prices to drop”.
Instead, buy a house when you find one you love and that you can afford. Houses are not widgets- each have pluses and minuses and optimizing for price won’t make you happy.
Your advice is mostly sound, but buying in a bubble can have severe and very real ramifications on you, even if you can afford the monthly payment. You may not be able to move without writing the bank a large check, and many won’t have the cash on hand
Finding one that you both 1) love AND 2) can afford is the real trick. Most people have to choose one or the other.
This is questionable advice, and biased I guess.
It's quite easy to review historical sale data and see if a person is buying at a peak price. No it likely won't be the only or final peak, but it's a useful indicator.
> optimizing for price won’t make you happy.
On the other hand, not optimizing for price can make you significantly unhappy. Being immobilized due to an upside down mortgage, and stretching monthly finances can be really stressful.
The problem for us is the inventory has completely dried up. Our market has a lot of second homes. People who wanted to cash out already have. The people who weren't ready to sell, seem to be willing to "wait it out".
In the long run, it doesn't _really_ matter. We're well within our budget and plan to be in this home for a very, very long time.
As long as people are okay with buying insanely overpriced homes they will not fall.
But careful, you might be fired too. Or lending may be even higher later (forcing lower prices). Or rates will be high be many years. Or you'll go underwater and not be able to refinance. Or your taxes will also go up. Or maybe you need to move/divorce. Or maybe you die and your next-of-kin can't pay the house and be foreclosured. Or maybe you can dump the cash in bonds/stocks and make more money. You may have more kids and need to move to a bigger house and be forced to sell at a loss.
For that and more, /r/REBubble/
Waiting for a price drop doesn't really work.
Firstly, when prices start to drop people stop selling. You might want a cheaper house but the supply will be severely limited so you probably won't get what you really want.
Secondly, when prices drop it usually comes with other changes in the market. Mortgage lenders are weirdly skittish at the moment, and they stop lending the instant anything looks bad. If you need a high loan-to-value mortgage (eg 90% of the purchase price) you probably won't get it in a downturn.
I bought a place about 18 months ago and got a 5 year fixed interest mortgage because I figured we're going into a period of inflation and maybe recession so interest rates will probably go up. My timing was off a bit but it's going to save me a fortune over the next few years (and then I get a huge shock when the fix rate ends... yay!)
Most people who sell their home also buy a new one at the same time. So if those folks remove themselves from the market, it doesn't really change anything as they are decreasing both the supply and demand by an equal amount.
The net balance in supply and demand comes from first time buyers, investors (both buying and selling), immigration vs emigration, and the elderly (moving to care facilities or passing away). Investors have significantly reduced purchases, and as economic conditions deteriorate I expect them to start selling (for example a lot of AirBNB hosts bought at the top of the market and are starting to get nervous as bookings are declining).
Basically, you can have a market with record low inventory and still see significant price decreases if demand is also low. The fact that we have record high employment and inflation and we are still seeing prices either level off or decline is very concerning. If employment starts declining we are certainly going to see a lot more selling pressure.
So after years of holding our down payment money in low interest savings accounts, I am now moving it into CDs and bonds that have nice returns which will result in a nice chunk of change. And if prices don't come down anytime soon, I am more than happy to keep renting. I think prices would need to drop by almost 40% before I would really consider buying at this point.
For context, I am in the Bay Area so it might be a somewhat unique situation to our market. But in the four years that I have been renting at this particular location, rents have not really moved much while house prices are up 50%.
Having a long term reliable renter, which I'm sure you are, give them a rent that is a good deal (slightly below market), and they'll stay. Even if your rent doesn't cover mortgage and expenses, eventually you or other renters are going to buy the property for your landlord, and that's worth a lot.
Especially if home prices are up 50% - keeping your rent stable and you there paying it means your landlord is getting a spectacular deal.
Turns out “cash on the sidelines” disappears quite fast when assets broadly devalue.
Housing is correcting faster than GFC, though it remains to be seen if it ends up deeper. But when it falls at this pace, people start to get cold feet
The spenders of what they didn't have got rewarded for long enough.
Same. I dropped out of the market last year after refusing to take part in the insanity. No, I am not going to waive all contingencies, give you 5% earnest, and bid over appraisal, for the hope of having my offer selected. Hopefully this will change with the corporate money drying up.
Interest rates are going up so we'd expect to see prices go down, and they likely will in some markets. However, we are also seeing inventory dry up since who wants to sell their house and get a new mortgage at a massively higher rate?
With a low interest rate and inflationary pressures, current home owners are living for free. They can leverage this as well as their appraisals have all shot up.
Plus there's the quality of life factor if the home you purchase is a better fit for your life... spending 10 years in a home you don't enjoy has a mental cost to it.
FWIW we borrowed $2m at 2.5% (thanks Bay Area prices!) Thanks to that low rate even if the house drops in value by 30-40% we still come out ahead on the mortgage cost assuming we stay in the house. And it is likely any money not spent on the down payment or paying it off early can be invested which thanks to the current market and interest rates can take a risk to get a good return (stocks are discounted right now) OR easily find safe investments that exceed the mortgage APR.
Plus we have a house that fits our family way better with a lot more space. We also have knock-on effects (installed Solar with a <5 year payback, something renters can't do).
It is hard to imagine a scenario where waiting out this downturn would have worked out better for us.
We had to work hard to avoid areas in SF that had been overbid. We didn’t find a bargain but we found a good deal, something that the prior owners needed to let go off but which wasn’t in a super popular area. This was in a hot market. So I think in the coming market you will find good opportunities.
So, as I obsess over listings today pondering if there might be an opportunity… I think that there will be good deals to be had, but not necessarily steals. In the Bay Area, people trip over themselves to live in a few neighborhoods so I think prices in those highly sought after areas won’t reach absolute bargain levels.
But If you are prepared and ready to step in you can already find properties that I think are marked down.
I’ve been watching closely dreaming of a place for our parents, or maybe more space for us, or maybe a rental…
Great SNL skit: https://youtu.be/yEfsaXDX0UQ
There are no good deals in SF, those are probably the worst deals you can find in the country at any point in time.
Glad because everything is likely to crash at this point and we would certainly have an underwater mortgage, but not glad because with the more than doubled mortgage rate since we were looking, it'd be stupid to sell our current home and upgrade now (especially with prices still high), so now we feel stuck (granted, stuck in a home with a fairly cheap mortgage payment, so it could be worse, but stuck nonethless).
We also held off on refinancing during the super low mortgage rates, because we were pretty sure we were going to buy a new house so it would have just been wasted money, but now it's obvious it would have saved us some money. I had a feeling that would be the case, but my wife seemed adamant we were going to move last year (until we both got too busy with work), so I held off on pursuing it.
In my case, I think it is increased AirBnB demand. Don't know if that will start to ebb.
What you're missing is that when the bottom is in nobody will want to buy a house. They'll be way too terrified or plain incapable of acting. Afraid of losing their job. Of further declines. Of the bottom falling out of the economy. Of homelessness invading their area. Of they job they lost.
If you want to see significant drops in pricing thats going to depend how the winter macro economic environment hits everyone. Next summer is when you will see movement is my suspicion.
However we did hedge that decision by buying my mother in law an apartment and essentially becoming her landlords. We timed it as well as we possibly could have and locked in 2.5% on a 30 year in December of 2020.
And what part of economic collapse do you all not get yet?
Whatever the Boomers are going to start doing, the majority of them have probably already done it. I'm the last of the Boomers, depending how you measure, and typical retirement age is single digit years away for me. The first of them started whatever they were going to start doing close to fifteen years ago.
Redfin and Zillow are not the problems in the SFR industry. These are tech companies that were trying to capitalize on the PE flowing into SFR. Their lack of success is not an indicator for the industry as a whole.
Make no mistake about it: SFR is alive and well and increased rates will not hurt them. Most have paused acquisitions but their cash flow is still fantastic. The outcomes over the next 24 months will play in their favor and those companies will grow as the economy pulls back.
Rentals, and trying to quick-flip properties, are different business models.
I think your point about SFR is correct, but it seems off-topic and confusing/misleading in the current discussion context.
How can it be that the economy pulling back works in their favor, as you say?
In short, pension funds looking to de-risk in equities will move towards SFR. This isn’t US-only, but the SFR will be US-only. So expect EU nations that allow their pensions to investment in US assets to move more money towards SFR. The number of homes managed under institutional SFR will grow substantially in the coming years.
> short sales and foreclosure resource
Apparently an industry insider term (and a trademarked one at that.)
https://techcrunch.com/2022/11/03/stripe-cuts-14-of-its-work... , https://www.cnbc.com/2022/11/09/meta-to-lay-off-more-than-11...
No. It's similar to how IPO commission is always 7%. It's a number between "so small it's not enough" and "so large the org can't function".
That said I'm not defending Meta and wish they became employee owned or that capitalism in general would go away.
Lots of realtors and small office lenders who partner with bigger lenders could be about to go out of business.
Redfin and Zillow will no doubt try again if they survive and rate changes does indeed tank local employers.
Same loop that played out with local banks in 2008. Policy sure seems to prefer centralization.
We still need a more efficient way to let people transact real estate.
Even just the environmental impact that makes it cheaper to commute an extra 20 minutes to work rather than move seems like reason enough to work on efficiencies. The rental market is also insane, so maybe just focusing there would be easier than in the owner market.
Though BX did spin off from BLK
Instead, it sounded more like Zillow was providing a service of adding extra liquidity, which can be useful. For example, if I want to move to another house, but it's going to take me 90 days to find a buyer and close, I might be willing to pay a premium to sell it to Zillow so that I can get out faster.
I don't know if that accurately characterizes Redfin's business, but I think there's more to it than just evil corporations making life miserable for everyone else.
Back when they were at ridiculously low levels, I would tell people "Get a 15-year loan now! You'll be paying off principal as well as interest, real soon."
They'd object, reasonably, "Oh, I can't afford those payments!" So now with higher rates, what will they pay for that 30-year?
You can also object that nothing stops you from making extra principal payments, on top of your regular monthly payment. That's true. But will you?
Is all that incorrect? You can do this analysis in Excel or Google Sheets.
This is almost always optimal, even if you can easily afford a shorter term loan. Banks usually give a better rate for a longer term loan.
I think, only in rare circumstances, like rates being unusually high, such that they will almost certainly go down.
Locking in rates costs money. Nobody will give you a reduction in risk for nothing. Often they are a bad gamble, because if you're in a long term loan, even if the rate is variable, the length of the loan itself provides the averaging to de-risk that.
Most people work with spot rates for all sorts of stuff they consume. You don't get to negotiate a 30 year rate on steaks, milk or gasoline. You can still buy those things when prices are low and average things.
A 15-year payment is higher, of course, but after 15 years you've paid it all off. After 5 years, much of your payment is going towards principal, not interest. You can do this calculation in a spreadsheet.
The question is: when rates go up, at what point does the new 30-year monthly payment equal the old 15-year, when rates are lower?
> If budget allows, you can make additional payments towards the principal.
I said that. Most people will not, but YMMV.
There’s no free lunch.
It's a feature of the 7.7% average mortgage rate, which is not great for buyers. Nothing stopping it from coming back when rates go down.
True, IF.
> It's a feature of the 7.7% average mortgage rate, which is not great for buyers.
It's not AMAZING, but it's also pretty good. I bought my first home in 2010 at 5.4% - thanks in part to a ton of incentives at the time. My non-subsidized rate should have been closer to 7%. My parents bought their first home at a whopping 17% in 1976. It's important to maintain perspective; just because interest rates were incredibly low for a very long time does not make it the norm. The historical norm is far higher. The crux of the problem now are home valuations and asking prices combined with the interest rate. A home I bought in 2018 is now valued at 125% of my purchase price 4 years ago. The lack of inventory and inflated pricing are a direct result of the corporate buyers' actions over the last six or so years.
You mean like the mortgage interest deduction, 30-year fixed (subsidized) rate, SALT, Prop 13, etc - that actually make the problem worse for new buyers?
The real estate prices and estimates clearly are on a downward trajectory. Previously redfin struggled to keep up with growing value in their estimates and so always came in lower to the asking price. Now they constantly come in higher.
This is what happens when you throw cheap money at smooth-talking tech-bros living in the coastal bubbles.
Did the story mention why?
