Fair, but he also might have gotten a 10-15% discount on his purchase price by waiting just a few months.
That’s the thing: people obsess over timing, but the market adjusts and it generally evens out over the long term. Which is why it is generally sound advice to treat your principal residence as a basic need priced at what you can reasonably afford, rather than as an investment. And frankly, you can refinance if rates someday go lower, but you can’t rebuy from the seller again at a lower price…
Seeing the housing prices in Ohio (even at the inflated values of today) gives me a small desire to move back… but then I remember those brutal sub zero Februarys and gray skies every day.
This is my exact situation. I refi’d July 2021, 30 years, 3.25% on my ~ $250k remaining balance. House is worth around $400k which is definitely the target/desired market in my area. My “next” house I imagined in the $500-600k range with my equity down, but with rates what they are now, there is no way in hell I’d entertain a new house. I’ll wait.
The question if the Fed will try to force through some means (I.e. increased unemployment) those owners to sell even if they don’t want to do so in order to force house prices down so their metric of inflation would go down…
Because I imagine if anyone refi’d or bought a house in last 2-3 years won’t move or sell unless they have to thus constraining supply of housing even more.
2003: Bought my first house for $299K
2007: Sold it for $421K
2011: Same exact house was listed for $190K. It sold but I don’t know for how much.
You will not find a bigger proponent of long term real estate investing. It has made me a considerable amount of money. But there are no absolutes like what I quoted you saying.
And your primary house is very much an investment. Don’t fall for the “buy what makes you feel comfortable” talk. That’s bullshit. Buy what is the best deal long term. Sure, live somewhere you like and all that. But never lose sight of the fact it’s not only an investment, for the vast majority of people it’s THE investment.
My rentals were already rented ASAP after listing. And I didn’t think I had much room to increase rent after 20-30% increases I did last year and early part of this year. But you’re 100% right. This mortgage rate environment will allow some sweet increases for the rest of the year and into 2023. On the one had it’s making mortgage payments high. But the other thing it’s doing is making a lot of people think (rightly) that prices will fall more, so they’re hanging on as renters. And a 10% increase in rent won’t seem so bad vs the prospect of saving $100K on a purchase.
This situation isn’t what I’m talking about - sorry if it wasn’t clearer. What you are describing is luck in market timing. The point I’m making is that you cannot change your purchase price, but you can refinance.
I say this a lot. How many borrowers are going to be Interest rate locked in? If you have a mortgage rate that starts with a 2…there needs to be a really good reason to move and sell that home (and rate) and jump to a 7% + rate now. Heck even if they drop to say 5% a lot of people will still hang on to that rate and not sell.
I moved into my existing home back in October 2019. I refinanced in September 2020. My current estimated equity ranges anywhere from $150k to $200k (based on Zillow, Redfin, and Realtor.com).
I have two young kids in the school system, so I am not looking to move anytime soon.
It wasn’t luck. It was understanding market fundamentals and selling at the peak.
But I digress.
You’re right you can refinance. But refinancing costs money. Since most people only care about payments, they ignore those costs. But ignoring doesn’t make them disappear.
I’ve owned real estate for almost 20 years and have never refinanced. The better bet (and these are all bets) is to get ARMs. How many people live in the same house for 30 years so getting a 30 year fixed rate is buying down non existent risk. For the average person a 7 year ARM makes a lot more sense since chances are you will move within those 7 years. And if you don’t the interest saved over those first 7 years will be a nice cushion against a potential rate increase in year 8.
Obviously there are no absolutes. Some people do live in houses for 50 years. But it’s very unusual.
Well, you are kind of right. Let me make a few points:
You can always negotiate the asking price of a house for sale.
Hoping that rates drop so that you can refinance at some point does not always happen.
If you can afford to purchase a house in this current market, then go for it. I am no financial planner, but if one were looking to purchase their first home in this current market, I would recommend patience. In my area, inventory has always been low. New homes in my town are going for at least $600k; up from lows $400s 3 years ago.
Home values can’t keep going up. It would have to stabilize at some point.
I know nothing about real estate investing. Up here in MA, “affordable” properties are not a dime a dozen. Investors with deep pockets are paying cash for properties.
Yeah, he did buy pretty much at the top of the housing market boom (SoCal, paid nearly $100k over list). For now, any drop in prices since he bought has probably been cancelled out by the rate increases. But if rates drop back to the sub-5% level, may turn out it would have been better to wait. But who knows what the future will bring.
That’s what I did. Though I only had ~$107k equity to tap.
But since the interest % is variable, HELOC rate is now almost 6%! Makes me think twice about tapping it, as if the fed keeps raising rates, my HELOC rate will follow.
Definitely not… one rental I just filled, would be $4200/mo mortgage/escrow with $110k down + closing costs… rent is $3k without the risk of paying for repairs . This market is usually cheaper monthly to buy than rent, even with low down payment.
I’d argue if rates go back below 5%, there’ll be a big wave of people trying to buy again (assuming there isn’t a bigger economic downturn happening) and push prices up more.
People do themselves a big disservice when they compare rent vs mortgage in a vacuum. You have to look at net cost which takes into account equity and tax deduction. Of that $4200 at least $1000 has to go to principal pay down I would guess. And at that price point chances are the buyer/renter makes enough and has enough other itemized deductions that the MID is worth several hundred a month as well.
I mean I’ll happily have renters pay down MY principal instead of theirs. But still financially speaking, they’re better off buying most of the time, if they did the math.
It’s scary how little goes to principle early on in the loan at these rates…. Assuming $550k PP, $110k down 30yr fixed @6.75% (without escrow). Granted as the loan matures, opportunity to refi may come up (and principle portion increases over time). Definitely gets some tax deductions out of this though. Many who qualified before won’t qualify anymore, especially if they can only do 5 or 10% down.
was thinking of a diff house when I said $4200, actually is around $3950, but assumes that the home buyer has $110k+ closing costs saved up. However, I do agree with you with buying if/when you can- long term, it just tends to work out in the buyer’s favor.
I feel like this gets missed all the time in discussions about rent vs buy. I mean yes you have to potentially have some pricey repairs (but so does your landlord who passes his expenses on). My mortgage is ~$2200 but after removing principal and tax deductions the effective cost is more like $1300. Granted if you are new to the area or planning to move soon renting might be better, but over time I don’t see how buying could be beat in almost all cases.
. This market is usually cheaper monthly to buy than rent, even with low down payment.