My wife and I are ready to buy a house after years of renting. No kids now, but on the horizon (maybe 2ish years). I can't help but feel like a sucker for looking at houses right now.
I live in California, where house prices are insane. Even at the $2.5M range everything needs a ton of work (equivalent houses would sell for like $300k in the middle of the country). Mortgage rates just hit all time highs but prices haven't budged because of low inventory.
Part of me wants to wait it out, but I know that trying to time the market is a fools errand. We can afford the houses we are looking at comfortably but I don't see how the current situation can continue. Eventually, people will die, families will want to upsize, retirees will want to move, etc, and inventory will come back. When it does, the values of home should start to reflect the interest rate.
What do you guys think? I know I can always refinance if rates come down, and that our market is a good long term bet (though I don't consider a home an investment - otherwise I'd prob just be renting and buying elsewhere).
How much do you plan to put down?
As little as possible. We have some short term rentals that are hurting our debt to income ratios so we may have to put down more than we'd like.
Given that CA's state and municipal governments are the fucking worst when it comes to approving zoning for new developments, thus creating supply, timing the market is a bad strategy. Along with that bureaucracy, most homeowners refinanced into sub 5% and are never selling. Unfortunately, you're playing with a lot of bad hands if you're looking at this as a long-term financial investment, but if you're looking at it as a long-term roof over your heads where you'll raise a family and grow relatively old, then it's probably worth pulling the trigger. Ya, you might be house poor for a bit, especially with required maintenance/renovations, and you'll have to be cautious about lifestyle creep, but as long as you and your wife remain employed and capable of making mortgage payments, you'll be alright.
Good luck man. Keep us posted on what you end up doing.
Thanks for this. This thread was helpful to calm my cold feet. We are going to go for it.
Waiting for housing prices to reverse course is a fool's errand. Housing prices falling in wake of the 2008/9 financial crisis was highly atypical. Home prices in in-demand areas are not going to materially fall--they aren't really inflated relative to demand. The Fed is no longer predicting a recession in the near-term, so don't expect interest rates to materially (material being the key word here) fall in the coming year or so. More likely than not, the house you're interested in today will cost more in 24 months.
Also, there's the old real estate agent adage: marry the house, date the interest rate.
Regarding your comment on "marry the house, date the interest rate", most people don't think two steps ahead on this - what incentive does the bank have to give you a good appraisal for you to refinance?
They're already going to have you locked in at 8%, they'll just claim value went down or something else to keep you at that rate
That's not how the refinancing process works. You're usually refinancing with a different lender; if you're not, you're refinancing with a mortgage banker or loan officer who is financially incentivized to produce new loan business regardless of the impact on his company's earnings (usually, loans are sold into the secondary market, so primary lenders are making money that way, not on the rate itself over time). Also, you have a highly regulated appraisal process that grabs appraisers from a pre-approved pool of appraisers who have limited contact with lenders (this was implemented in the wake of the 2008 financial crisis); they couldn't give a rip about the circumstances of the refinance.
Re-financing a loan has nothing to do with the previous bank, it's with a different group
You want to buy and “you don’t consider a home an investment?” Huh?
He sees it as a place to live, not as a financial asset to flip as soon as the market appreciates or after he’s done renovating.
Treating a primary residence as a financial investment is one of the biggest lies that was ever sold to Americans.
Just because he doesn’t want to flip it doesn’t mean it’s not an investment. (yes triple negative I know)
It's more of an emotional purchase than a financial one, really hard to time the market. I bought my first place in 2016, and was told by my boss (I work in CRE) that when rates go up in 2018, the market will crash and that I should buy then and that I was dumb to do it in 2016. I think I timed that one about as good as I could have and made an absolute killing
Additionally, I bought a place in early 2022, basically at the peak, and was told by numerous people that this was the worst time to buy. Was getting married and the fiancée and I wanted to see if we could get into the area that we wanted to live in long term. A year an a half later, the house is probably worth what we paid for it, but it has been probably the best year and a half of our lives and the house has been a huge factor in that.
That last sentence hit home - thank you
I purchased my house in February 2020, and exactly one month later the pandemic hit. I thought I lost everything.
2 months later interest rates dropped, and my equity doubled.
2 years later I’ve tripled my equity and I could buy a second home, but I’m cool saving and investing that money.
Not bad for a “non-investment”.
(Moral of the story: you can’t time the market, and homes can be a good investment. And yes, luck is always involved.)
Can’t time the market from the guy who (luckily) timed the market. Lol.
I bought my house similar time (Fall 2019) and was being told at the time we were 'at the top' and not to buy.
Your primary residence isnt an investment vehicle, dont view it as such. People try to time the market with this decision, it ISNT a market timing decision but a personal finance one. Dont look at interest rates, try to speculate future price increases, dips, etc. It basically comes down to can you afford it or can you not.
if you cant then you move or rent. Simple as. People fall into the same trap with home improvement projects, lets spend 80k on landscapping and 25k on the kitchen. Unless you are doing it yourself or know some 'guys' then its ROI negative. Dont trick your brain into spending money on ths stuff by convincing yourself its an investment. View it like buying a toy for yourself because end of day its a consumption item
Yes it is a bad time…go run the math on what your monthly payment would have been at a 3/4/5% interest rate and now…also, you can’t “always refinance” if values go down.
People here giving advice like you a kid with three year’s experience out of school in MCOL city. Below is from someone who has been looking at homes in Orange County for over a year (oh yeah prices have not budged).
You are an experienced person who has owned many rentals you say on the west coast and has decided longterm to live on the west coast looking at $2mm+ homes. Unless you plan to move to the middle of the country and totally change your lifestyle tomorrow the price over there does not matter. Besides that many places in the middle of the country do not have beaches.
Finding a house in CA is going to be a 6month-1 year project on its own as you mentioned inventory is very low, and each area has its own plus/minus on its own. As well the major caveat going forward is school areas and commute in general, if you plan to have kids within 5 years down the line. Once you are 2-3 months into the process think you will see how important a nice home is to you longterm and budget accordingly.
For sure you are going about it the right way this is not an “interest rate” arb decision but probably one that will have a major emotional impact.
Too many comments don't know what they are talking about, either in the practical sense of home buying or in terms of CA specifically.
My generally rule is buy a house when you're ready to buy a house, not because of rates/market timing. As you noted, if rates go down you refi, if they stay flat it moot.
As for your comment about inventory coming back potentially helping with prices, I highly doubt that. In addition to pent up demand that will also be unleashed, one of the biggest factors these days in CA (probably else where to varying degrees) is the build costs have blown out through inflation / high demand. In a decent area, such as you're considering, build costs are 600-1,000 a sqft, depending on finishes and scope of project. Those prices are pushing existing home prices to the 1,000-1,500 a square in good areas. Prices won't fall so long as build costs remain high and usually build costs only go one way.
I personally think that home prices remain flattish, very modest growth, over the next few years given how much they have already run up post covid. But yea, fools errand to actually make a bet on something like that.
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