There are multiple factors that pushed the prices artificially up since 2020. They will look retrospectively obvious (as the 2008 subprime crisis seem obvious now). I'm usually not in favor of timing the market but I believe we are currently in the single worst time to buy a house in history.
Rates are, barring a crash(which will also hammer home prices) likely staying elevated for another year, possibly more. Those rates also allow me to make thousands per month, risk-free, in interest off my savings. I'm able to rent for $3-4k/month, while mortgage+taxes+insurance+maintenance would set me back around $5k/month. Housing inventory is poor, so if I did buy I'd have to opt for a suboptimal location and/or construction.
The one circumstance I could see that would possibly make me regret holding off is financial repression by the fed where rates are held below inflation and houses keep appreciating, but I don't see a big risk to that over the next year.
I do expect rates to hold, and maybe even rise, since we're running huge deficits(requiring massive treasury issuance) and going into an election year (where no politician will choose austerity). I think it will eventually drop housing prices. Even in the best case for housing, values will likely stay flat in nominal terms.
If you are in a state with income tax, I would take a minute, even immeasurable, increase in risk by putting it in US Treasuries (like TTTXX at Merrill), resulting in no state income taxes for 95%+ of your return. In case you already are not doing that.
I wouldn’t trust what the government is doing to have any bearing on rates. Lower interest rates actually make it cheaper for the government to borrow as it does for everyone else. Those treasury bonds get expensive when their yields pop above inflation.
> Lower interest rates actually make it cheaper for the government to borrow as it does for everyone else.
Right, and that's the government's incentive to pursue financial repression as I mentioned. But that also weakens the dollar and allows inflation to rip again so the government is somewhat boxed-in and has some hard choices to make. My guess is that no repression occurs, rates stay positive as they are now, the government continues to run huge deficits until after the election, and then they pay for it with huge tax increases in 2 years. Right now it feels like the boomers are squeezing the wealth out of the country for their final years and will leave us with quite the bill that only AI-driven productivity gains can resolve.
I know it’s a huge difference. As a parent I’d almost be willing to pay even more, though. I can’t rely on someone not selling my home from underneath me and then needing to find something else when vacancies are well below 1%.
I’ll probably feel some pain from this purchase eventually, but I’m prepared. I can also keep in mind that the alternative downsides of renting were serious and constantly present, with no real upside. Rates are extremely high here.
Just got back from Sacramento and they were building units for as far as I could see. Same thing in many markets.
Go back and read articles from 2006. They said housing prices were fine because we were lacking supply and had underbuilt for years. Then suddenly we had too many houses. Affordability matters appreciation expectations matter. Credit matters. Employment matters.
People will always sell. They can only hold off so long.
I was around in 2006. We didn’t have too many houses then, we had people granted credit on dubious applications, ARMs bundled up as AAA credit. That’s not going to repeat. And if it does, it’ll be nationwide all at once, rather than market-by-market like last time.
Certainly if there is a major jobs crash, then people cannot afford their mortgage. But the government doesn’t like this and they’ll step in again like they always do.
People are indeed holding on their low rate mortgage and that is the only reason why the prices are currently so high (artificially low supply). This will eventually end. People need to move for job (return to the office anyone?), retirement or other reasons. Some people will lose their job and simply be unable to afford their mortgage. It is only a matter of time before it starts crumbling and the floodgates open.
The other side of the coin is that in a perfect market, the obvious arbitrage is to simply rent and invest your money in better performing assets. (we could discuss how in America most people buy blindly without any considerations for the underlying numbers).
Finally in every cycle, housing always took multiple months/years to adjust to the conditions. This is due to a slow moving and illiquid market. Owners think they can still get that "pandemic" 1m$ for a fixer upper while the rates went up a couple %. This price anchoring and discovery takes time. You can see this currently happening all over the US. Prices are slowly declining.
The next 10 years are going to be extremely interesting. Especially if we don't increase immigration, at least for the transition
