Since the election I’ve kinda buried my head in the sand to try and stay sane, so I’m not sure what projections are looking like for the real estate market. Unfortunately I need to move pretty ASAP and I’m having the worst luck with rentals.
So, anyone have any advice or an idea of the outlook in the next few months?
I made the decision to buy at a bad time, and it turns out the mortgage rates went much higher than what I bought at. I have no idea if that will happen again, but my mental health absolutely benefited from owning my house over the stress of renting and waiting to find out if I need to move every year again.
Same, mortgage rates were near record high when I purchased but the circumstances were otherwise right. Mortgage ended up being a little over half the cost of renting and won’t go up every damn year, and homes aren’t getting cheaper. Plus there’s the option to refinance in the future if rates drop enough.
I’m honestly really surprised that your mortgage is about half the cost of renting. That has not been my experience in recent years at all. That’s how things used to be, but in post 2020 times, monthly mortgage payments often seem to surpass rent payments in my area, making the whole thing kind of a hard pill to swallow. Idk. Maybe I was looking at things wrong. I’m not a real estate expert. I just know that buying my place increased my monthly bills a bit instead of decreasing them like that. It seemed that would have happened with any property I looked at.
Yeah, mortgages around here are a lot higher than rent. But rent is going up at a rate of about 10% per year, so it probably makes sense to buy, even with a more expensive mortgage. Eventually you’ll come out on top.
Mortgage was always higher than rent where I live, in the past, because people were renting houses they bought a long time ago so even with the profit in there it just worked out that way. Then rents exploded here, and buying was cheaper but then prices of houses exploded and now renting is cheaper again.
The caveat is that “circumstances were right” meant a sizable down payment among other things. Without the down payment, a mortgage would have approximated rent at the time. I was at the end of a lease though, and the jump to renew in a craphole apartment was enough to tip the scales. Bills are approximately the same, thankfully. I did take a hit on convenience in location, but the house was a tremendous deal.
No one knows.
But, if rates suddenly drop you can always refinance.
The Trump administration had a few ideas on how to fix the market, which boiled down to removing regulations. The Harris administration had a more complete plan that addressed housing costs at different angles including regs but we no ont be getting that plan anytime soon.
There’s a saying that goes along the lines of: “The best time to buy a house was 10 years ago. The second best time is now”. Rates are bad but you can refinance down the road. I was also on the fence because I wasn’t 100% sure yet if we’ll still be in our city in 5 years, but our lease was ending and I was getting tired of moving with ever increasing rent. Back in my home country, you typically buy a house and live there forever, so it was also a culture shock for me to learn that the average homebuyer in the US lives in their house for only 7 years before moving on. So I had to change my mindset, and we bought a house earlier this year.
It’s always a good time to buy if you are confident that you will live there for 3-5 years. Even pre 2008 crash, homes recovered in about 5 years.
The important part is avoiding becoming house poor. The payment you can qualify for and the payment you can afford are very different. There’s plenty of online calculators that can show you what a payment would look like. In many states taxes can increase dramatically after the first year, so be prepared to pay more in the future. For a down payment, 20% is ideal but often unrealistic for a first time buyer. More is better, but don’t clean out your entire account. You can put as little as 3% down, but that’s a good sign you can’t afford it if anything goes wrong
You can test drive a payment level while watching the market. Pick the price bracket that you think might be your max and calculate the payment. Then set up an automatic recurring transfer from your checking to a savings account for the amount of the theoretical house payement with escrow - current rent. This will help you see if you can manage a higher payment or if you will feel too house poor. Those savings transfers can be earmarked for the downpayment too.
When figuring out how much of a downpayment you can afford, don’t forget to reserve money for closing costs which can be thousands of dollars. You will also need to reserve some emergency funds, and expect to buy a significant number of tools in the first few years. Yard care tools, ladders, etc. really add up.
If you look at places that need a little work, do your best to arrange to have all that work done before you move in. For example I wish we had our floors refinished before we moved in. To do that now would be a lot like moving twice.
Not answering your question. But if you do buy, don’t listen to the realtor or loan officer about how big a loan you can afford. Both are incentivized to sell you the biggest house/loan. Neither will care when you’re struggling to pay for it.
You’re monthly payment plus insurance plus taxes should be something you could safely pay for six months while unemployed. If that’s impossible, get a small house. The worst possible situation is being house poor.
Trying to work out house price trends is like trying to catch a falling knife. My advice would always be that you should just buy when you have the deposit and know you can make the mortgage payments.
I went with buying raw land out of the city, for me it’s a 30 minute drive and no traffic, my “rent” is under $200 for the year of property taxes. I own the land for less than 1 year of rent.
I can live in an RV, and I can build a house or convert a shed to live in so it’s super affordable, plus I have room for a garden to feed my family.
I’m not trying to step on your comment, but I read this as unrealistic? It sounds like you bought land, but don’t actually live on it currently. Like, you CAN live in an RV, but what are you actually doing with it now? Again, not trying to be a dick. I actually considered the exact same, but once we started crunching numbers on what we wanted, just buying the land and building on it was out of our budget.
It really really depends on the county and it’s rules, there are a few counties near here that have permits to live in an RV, the county I am in is a bit more restrictive and requires a building permit to have an RV.
Right now we are camping in the car as we wait for the septic, since it’s holidays things are a bit slow now.
For anyone considering this, check your zoning laws. Years ago, to save money, I wanted to buy some land and put a trailer on it so I could save up to build something more permanent.
The laws did not permit that. Nor living in an RV. Or living in your car. We had to fight to get tiny houses here IIRC, but the cost savings for those isn’t as big as I would have hoped. (And being disabled, being able to do a lot of the work to save money wasn’t an available option.)
Yes the county rules are very important, there’s only a few counties that allow this. I moved to a state that allows us to live in an RV and to build our own house out of almost any materials.
You’re gonna have to specify an area, and you’d be better off asking people from that area
Ah you’re right. I figured the US overall would kinda answer the question. But I guess NW Washington state is where I’m looking.
If you can afford it and plan on staying a while, buying is the way to go. I’m in NW Oregon and waited to buy because I was nervous and thought I “needed 20% down to avoid PMI” and essentially missed out on an extra 1000sqft for the same price by waiting. Putting 10% down, my PMI was $40 a month, which is chump change in the grand scheme of things, and has already been removed due to increased value and payments.
Even still, buying in 2019 when I did, I’m in so much better shape now than if I’d continued renting. Rent would probably be $500-$1000 more each month, and I wouldn’t be gaining equity on top of that.
Of course nobody has a crystal ball to make it 100% risk-free, but this is still a pretty solid strategy, and you live in an in-demand area in case you ever wanted or needed to sell, so you should be fine. If the interest rates go down substantially, refinancing is also a good idea.
Since 2008 the best time to buy has been when you have the money and find something appropriate. It’s no different now. Millennials have been hoping for a housing crash they could take advantage of for 16 years and it hasn’t materialized. Prices just keep going up and historical evidence suggests that will continue until another crash at an indeterminate point in the future. Trying to time that point is only going to leave you as a permanent renter.
The best time to buy is when you need to, it’s hard to time the market and if you are going to stay there for a long time all that matters is can you afford it. Where I live they sure seem overvalued, but when we bought our house I was sure it was overpriced and the theoretical value now is 2x that amount not even 5 years later, WTF? So my guess is we will see a downturn, especially with the new government, but really the best time to buy doesn’t always align with the best price.
Remember that maintenance on a house is expensive too, build that into your affordability calculation.
I’m neutral on the housing market right now. People buying houses are generally living in them (or renting them), there’s very little house flipping like in 2005-06. There’s also no interest-only mortgages, so people actually have the cash flow to stay. Rates are probably not going up, but they might come down a little. If they do drop, I think prices will go up proportionately such that the monthly payment is the same either way. New housing is being built, but not fast enough to make a major impact on demand in the near term.
Altogether, I think housing in the US is “fairly” valued on a supply/demand basis at the moment. If we get a recession, prices might dip, but I would be very surprised to see another crash like 2007-09. However, I also don’t expect to see prices go up quickly from here other than in response to lower interest rates. So, if I were making a new purchase decision today, I’d be thinking about the following:
- Do I plan to stay 5+ years (the longer, the better)
- Can I comfortably afford to pay the mortgage (or is it at least comparable to rent)?
- Can I afford a major repair bill? Especially if any of the big ticket items will hit their typical end of life in the next 5 years.
Here are some of my major home maintenance expenses from the last 10 years:
- Water supply line to the house failed (polybutylene): $2.5k
- Tankless hot water unit failed: $3.5k
- Wildlife exclusion due to rats in the attic and crawlspace: $2k
- Electrical repairs due to rats in the crawlspace chewing on wiring: $3.4k
- Totally gut and rebuild kitchen & bathroom due to plumbing failure: $2k deductible, plus my homeowner’s insurance increased every year since
- Replaced failed mini-split HVAC system: $3.5k
- Dig up and repair sewage line that was clogged with roots: $3.5k
- New sod to repair the lawn after the plumbers dug it up: $1.5k
Those are the big items I recall that I had little choice in. I also replaced my way past end of life 2 zone HVAC system for about $30k. I could have kept the old one running longer and I could have gotten a cheaper replacement (maybe $22k), but the old system was struggling and couldn’t keep the house comfortable anymore. I seem to recall hearing a good rule of thumb is to set aside 1-2% of your home’s value every year for major maintenance and that seems about right from my experience.
Things are only seemingly getting worse. I’d say buy while you can still afford to and there is inventory, who knows what kind of crazinesss is coming to the economy after January.
If things get too wild, sellers will remove inventory, only making both rent and existing inventory prices increase.
How long will you live there? Generally 7 years is a good rule of thumb for rent vs buy. Selling is more hasstle and expense. 7 years of no rent increases (read inflation, and your raises) and some principal paydown mean typically your have done better. However that is a guess. Sometimes even one year is better to buy, sometimes 15 years is needed (new roof and other major evpenses) just to break even.
Great advice in the other comments, so I’ll only add this - with this being your first house, if you can afford it, do a multifamily unit or a property that can be used as multifamily. Nearly everywhere is in a housing shortage, so you’ll be able to get a good win win with some renters that can help pay your mortgage faster while they have an affordable place to live. Best if the units can be fully separated so less drama.
Whatever bad luck you’re having with rentals is nothing compared to how badly home ownership can go, renting isn’t all that bad even if it is more expensive. What’s really expensive and financially distressing is a sudden and expensive furnace / roof replacement, flooding, fire, the list goes on
Mortgages aren’t going away anytime soon, start off with renting and see where that takes you before jumping into a $400,000+ loan
Well that’s a super nuanced answer though.
IF OP can afford a house AND can keep enough emergency savings to deal with an issue, it may still be better to buy. Rental money is just gone forever in exchange for not assuming any risk on the property, but it retains no value.
If OP can’t afford to buy at all, this post is stupid, so the question is really if there’s no money left for emergencies. In which case, the obvious answer is keep renting because a single point of failure pushing you out of your house is a bad proposition.
If there’s SOME money… It just depends on the house. Some of the failure points are covered by inspection, but it could be risky. Better to not max out your ability to borrow if at all possible.
First few years are spent in interest so it’s also going straight to the bank
Equity is uncertain in this market, especially with unexpected maintenance
Rent comfortably for a few years is still the better choice, buying a house now that might fall in price is a terrible risk
Depends how much money you have an the mortgage length you pick. Every payment covers some principle and some interest. There is no situation where you get a house and then just pay interest. This is a lack of understanding of how payments work.
The first few years are overwhelmingly paid towards interest and not the principal, it’s not an equal ratio throughout the mortgage. I think you missed some fine print
If you get into a mortgage then sell in 2 years you would have paid off less than 2 years worth of payments to the principal and you’re not getting that money back, that’s straight to the bank
“The first few years go to interest” and “the first few years are overwhelmingly paid toward interest” are not the same thing. The shorter the term, the smaller the total amount of interest paid is (and often the better the rates), and the more principal only payments you can make the lesser the interest paid.
Of course interest fraction is different by payment, but it’s not as though the first payments you make are a lost cause: mortgage payments are always contributing to your ownership, rent payments never are. It’s only a question of liquidity in the moment. Depending on the OPs situation rent could be more than a mortgage payment, in which case I know which I’d rather pay (as long as I could afford the insurance) if I wasnt planning to move right away.
A question of liquidity over decades with the liability of a big repair, and all for the hope of building equity and not paying rent in 20+ years
I’m paying more in rent than many of my friends with mortgages yet somehow their payments are shooting up with the rate changes, things are constantly needing repair and they’re stressed beyond belief
Not a problem here in the states: mortgage rates are fixed. Also once you put some equity in, you can usually leverage it. But it really depends on your personal circumstances.