Goldman expects a rate hike starting in July 2022 and another one in November 2022, then two 25 bps hikes every year for a couple years after that. Who here is feeling pressured to buy a home before rate hikes, even if they are not necessarily wanting a home right about now. The bank account is looking nice, but I'm emotionally and maturity wise a couple years out from buying a home. I like the career and movement flexibility of living below my means and being fairly mobile if I really wanted to. That being set, people that I respect a lot have been loading on rental properties since last year trying to buy as much as possible before rates go up. I would love to lock down a 3% 30 year mortgage and don't want to be kicking myself when I eventually buy something in the 5-6% interest rate in a couple years.
Who here is on a similar boat or what wise words of wisdom can you share?
I'd recommend looking at it seriously, especially with rent prices where they're at right now (assuming you didn't get a longer term COVID deal locked in). I have a co-worker and her 1 bed COVID deal net-rental after discounts is ~$3200. The same units right now are listed well above $4500.
I understand that people want the flexibility but let's be real how often does someone actually jump around neighborhoods... oftentimes people pay rent for optionality they'll NEVER end up using anyways. Similar 1 bedrooms to the above go for ~$800k-$1M and if you believe (I don't agree with trying to time the markets) that this bull run is going to cool off then the implied opportunity cost of a down payment isn't all that much. I'm early career and got a 30 years fixed rate at 2.5%. When I do the math, in well above 80% of the cases I'm better off financially buying vs. renting.
Did you let "lifestyle creep" happen when you bought or was the new place more or less similar to your previous apartment? I recognize that condos are built to be and feel like "homes" whereas apartments are a commercially intelligent concept that are designed to be less like homes and facilitate the moving in and out of people, with less attention to detail.
Buyig is a great way to keep lifestyle creep from taking too much hold. Housing is the number 1 lifestyle creep expense, followed by cars for 95% of people.
I let myself pay more all in than I would traditionally for rent because of the whole "you're building equity" argument. I sized down but went up in quality if that makes sense because I think quality > size for long term value retention (poorly maintained 1br worse off than a nice, well renovated studio). I'll be in a renovated studio in a building with amenities. I had also generally been living in a lower cost option so some might say I splurged but I can manage with my current finances.
My mortgage + tax + HOA is a bit more than my rent used to be but still within means.
As long as the S&P keeps pumping ~12% a year it’s hard for me to justify tying up $200k in an investment that yields 3-5%
3-5% on the asset level, not just the equity.
Yeah, I’m comparing unlevered to unlevered.
I just bought a modest, but nice place so I don't have to deal with rent forever. Once my mortgage is history, either my cash flow will get a whole lot prettier and/or I'll have a ton of equity to fuck around with. Could potentially quit, down grade my job, or get a part time got instead.
you're totally missing the double threat of leverage and tax advantages of re, not to mention the inflation hedge
Actually a decent point which I've thought about a lot. Keep coming back to diversification and not banking on this insane bull run in the market. Always get cucked every year by the market constantly outperforming due to a variety of reasons but feel that the real estate investments should be more steady if and when things go to shit market-wise.
Purchasing a home in a HCOL city with low-medium property value growth only makes sense if you purchase with interest only debt.. SPY returns are drastically outsized vs the yield off of equity stored in a home/condo. I would rather pay IO pmts and put my equity to work in higher yielding investments.
I’m with you. It eventually makes sense to buy a home if you have a family and plan to be in the same place for 10+ years.
But if you unexpectedly have to move after 3 years, that home will definitely have cost you more than renting unless: a) equities did not appreciate over that 3 year time horizon or b) your home value experienced massive appreciation during that 3 year period
I have (substantial) committed capital from the Bank of Mom and Dad to purchase my first home, so I'm waiting for rate hikes to fuck up purchasing power of the plebeians who have to borrow, meanwhile said capital is riding the equity bubble.
That's right. Property values are inversely correlated to interest rates. When rates are at all time lows and anchored a 0%, this causes property values to soar as people start to buy homes. When rates get high, property values decrease. Someone made the argument that they love to buy homes when rates are high because you can always refinance a high rate down the line, buy you can't refinance a high purchasing price. However just thinking it in my head, I can also picture the case for if rates are high, this is often towards the end of a bull market so property values should follow that bull market, so not 100% sure how that would play for property valuations.
Yeah but this assumes a perfectly efficient market. There are tons of non-economic reasons for people to want to sell homies. The home I bought was owned by a couple that had paid it off and had it for a rental the last few years. They're moving away from NYC and didn't want to be landlords in retirement. I bought it for a very competitive price.
Yes and no. It depends. I got a 30 year fixed on my house in the high 2s. I don't plan to move for awhile. So it doesnt matter which way rates go for me. I am locked in. You are correct about refinancing, but realistically it wont matter. Now for those on ARMs, they will get hurt. The real question is what % of households are on an ARM vs fixed. If its higher ARM, then yes, there will likely be some declines in prices.
My other theory is that people have been conditioned for the last decade to sell houses for a profit. The reality is if rates go up, sure prices will come down, but I believe transaction volume will decline as well.
You would think this is the case, but if you go look up the data the correlation is actually surprisingly weak.
this has been directionally disproven...its true in theory but tends to not occur in reality, certainly not like would one think
Wouldn’t worry too much about that honestly. When mortgage rate will increase the price of housing will stop going up anyway.
Im obviously simplifying, but plot the monthly mortgage payment for an average house and it’s the same as in 1980. (At least in Canada, where the market has been crazy these past few years)
This can't possibly be true. Do you mean they're the same after adjusting for inflation?
Yeah, after adjusting for CPI inflation. Sorry for not being clear enough.
For those who are interested here is a graph of the monthly mortage payment for an average priced house in Canada, with a base year of 1981. (After adjusting for CPI inflation, so it's in real terms) https://pasteboard.co/JZ17RIr7u0ri.png
Obviously doesn't factor in the higher downpayment, but I was very surprised to find that so maybe it can interest some of you.
People seem to forget that rates were on the rise pre-Covid and prices were still rising. Timing the market is tough. If you see something you like, and it’s within your means, get it. If you don’t plan to move in the next few years, you should come out on top. Don’t forget about the tax deductions from owning a home and the fact that the first $250k in capital gains are tax-free.
I would just be careful on making life decisions based off your (or some bank's) macro forecast. The fact is, no one knows what will happen.
was waiting for this
if you showed me that goldman sachs rate predictions combined with actual rate forecasts are predictive with an r^2 over 0.9, I'll bite
absent that, focus on value, location, needs, not a dot plot to make a potentially life altering decision
If rates go up, the entire RE market (hell, the financial system) will collapse.
We're doing deals in the 3 cap territory. Loans are mid 2s. Any rate hike will make our deals negatively arbitraged, and will upend the entire system.
Theoretically rates won't go up, because there's so much money out there need to be deployed. Distressed sales won't happen and said interest rates risks won't be perceived and realized by investors/lenders.
However, there's always unforeseen events that could turn the world upside down. COVID did, for a bit, and didn't nudge much but accelerated the innovations needed in the dated retail/office sector. Then the financial system rebounded due to abundance of cash and strong fundamentals.
Long story short - buy the house when you have a real need for it (ie, about to get married, move in with someone). If you're still young and bouncing around, hold off a bit. Try not to time these things as no one has a crystal ball. I would try to not feel bad if your home price "go down" on Zillow Zestimate, or feel good vice versa, since the decision to buy a home isn't an investment decision but a lifestyle choice.
The smartest thing a younger person can do it to buy a duplex/triplex/whatever in a less cool area where the rents cover the PITI while living in a unit for free, or close to it. Cheap enough to where when you want to buy a "real" house one day you don't need to sell to get your down back. Then every few years you do a cash out refi and treat the sucker as a piggy bank. That or just build the equity. Doing so will be your retirement plan one day. Might not be as cool to live not in the hippest area but so long as its not horrible it doesn't matter.
Thanks, I'm sure no one else has ever thought of this.
What makes you think it's so easy to find a duplex, one where you can cash flow beautifully and you've outlined. Maybe be in 'Bama?
Correct, it takes time and patience, maybe even a year or two of looking, but opportunities come up and there are ways to be creative financially. This is doable in Tier 1 HCOL cities in gentrifying areas. But to your point these aren't just sitting on zillow on the daily, takes a bit of work...but seems like you'd rather just be snarky.
edit: also the whole point of the thread was asking advice...did your MD just ask you to change the font in your latest pitch or something, sheesh
I know someone who did this. Not financially sophisticated or anything, he works labor at a factory. He just lives somewhere with cheap housing that isn't the best, isn't the worst. Got a quadplex for 3% down payment since they are living in one of the units and they are a first time buyer. The other 3 units are paying him to live there, it is more than free not even counting equity.
True it isnt always as easy as that, but its not impossible.
Great strategy in theory but overdone and hard to find in places worth living. Only places that exist in my market like this are in really rough areas that are not getting better anytime soon.
I live in Toronto so I am waiting for the rate hike to force a sell off since everyone in this city is levered up to their balls. The amount of parents who have taken out a HELOC on their home to pay the down payment on a 700,000 bachelor condo for their kid that makes 35,000 is insane. If you ever want to feel good about your domestic real estate market please take a look at listings here :(
The real estate market bubble may be bigger than the equity market bubble, which is saying something. In fact, it might be the biggest real estate bubble ever. Look at the Case-Shiller home price index. Don't buy the top if you don't need to (i.e. if you are just in the exploratory phase). Rates will get raised by 2023 (probably in 2022) and buying pressure should at least moderate somewhat.
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