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There's never been a worse time to borrow. It is a fantastic time to buy if you have the cash.
High cost of capital is high cost of capital-- whether you're borrowing or foregoing other returns on capital to use it for real estate.
(Not to mention the not fully internalized effects of interest rates on other buyers' and sellers' behaviors-- prices have not nearly moved as much as one would predict from interest rate changes).
Not in Redmond, WA. Haven't read TFA yet (getting to it), but the houses I see for sale are priced as if interest rates are still 2.5%, which is why they're sitting for over a month. Two houses down is for sale, and has been listed for (checks Zillow...) 46 days, and they've cut the price. Since I'm two doors down, I get to observe the dearth of traffic to that house. Zillow says "pending", but we'll see. Unless it's a cash sale, someone still has to get approved for a >$1MM mortgage at 7.5%.
At least in our area, if I had the cash then I'd let houses sit for six more months, let reality hit a few folks in the face, wait for those prices to drop.
I think you should always be wary of statement like: It's a great time to buy if you have the cash!
It's the kind of thing a real estate agent says. Not that I think the original poster is one. The truth is that owning real estate, like owning most things and investments in particular is very situational. People make the decision too much based on what people around them are doing. It's much better-- good market or bad-- to be thinking things like: is this a good price? how long will I want this property? how much financial risk am I taking. etc. If that is your framework you don't really need to worry about the "good time / bad time" news cycle.
Sure, but if you're free to buy a house in cash you probably don't particularly care about the cost of renting vs buying.
In which case this kind of article really isn't for you. You're looking for real estate investment news, not housing.
https://fred.stlouisfed.org/series/MSPUS
https://www.redfin.com/news/housing-market-update-home-selle...
Not quite yet. Lots of sad sellers holding out hope for a macro long gone. Supply is constrained, but mortgage rates + risk free rate means house prices will come back to mortgage payment/wage governed prices. Folks who can will stick it out, folks who can't (relo, death, divorce, etc) will set the comparables/comps in their market.
Not necessarily. The returns from your all-cash purchase would be greater had you invested in treasuries. Rental yields and the 10 year recently flipped (after over a decade of rental income returns beating treasuries).
> There's never been a worse time to borrow
Maybe? In the 1970s in the UK we had double-digit inflation. It turns out that was the best time to borrow because (wage) inflation eroded the cost of mortgages within just a few years, making a large mortgage in 1970, a very small one by 1980.
Whether inflation, right now, is coming back under control in Western economies is a matter of debate.
Not necessarily. Nominal prices may be down slightly but the opportunity cost is still high. With higher interest rates, you're foregoing a higher return in the bond/stock market in order to purchase a home.
Typically there's an inverse relationship with borrowing rate and asset price.
Right now, we have both - high prices and high rates.
In the ~2012-2018 era, we had low-medium rates and average prices
In the Covid 2020-early 2022 era we had super-low rates and high prices.
Because the asset prices have not adjusted to the new rates yet, now is a [temporary] worst time to buy, regardless of whether you are borrowing or not.
Inflation is still higher than the APR you can get on a mortgage if you have good credit. So, nope. You should absolutely borrow.
Not really, prices have barely come down in most desirable areas. They may come down eventually, but it's usually a slow process unless there is a financial crisis (in which case the Fed will panic and cut)
so if you have a lot of cash, but still need a substantial loan, it’s just an… okay time to buy? i hope?
Not really-- prices are still quite elevated. Although the current cash buyers are probably in for a rude awakening when we finally exit this cycle.
i just bought an apartment. it made sense for me for a few reasons...
1) i've been screwed over by too many landlords and have become so exhausted with renting (i was forced out of my last apartment for complaining about not having hot water. i know this is illegal, unfortunately there is nothing you can do about it.) 2) the apartment i found was _perfect_ for me. it had everything i wanted...quite rare 3) i was not thrilled about the idea of waiting for mortgage rates to drop, home prices to go up and then ensuing bidding wars bringing you far over asking, like what happened in the early covid days. 4) rates will drop eventually and i'll refinance
maybe it doesn't make all the financial sense in the world, but it worked out for me.
You absolutely made the right choice. You needed a place to live, and didn't want to continue setting your money on fire paying rent.
The best time to buy is as soon as you can. High, low, whatever, it makes no difference in the long run. In that long run, you've bought a house you chose, are not throwing away money, and will eventually make back any money you lost buying high.
I have a feeling all the people giving advice to not buy in climate X at any given time are only saying so to feel better that they currently can't.
I think you made a reasonable decision and you should not get caught up in these cycle narratives. Prices go up and down. You could try to time the market but I think a better strategy is just get what makes sense for you, when it makes sense for you.
If you can afford it and be happy, then it was a good deal.
Good luck and hope it works out well for you.
Something is going to break. It will be prices or rates. My guess is prices will fall precipitously and it will happen soon. I further posit that prices will not be "sticky" as they typically are due to the extreme nature of the imbalance. Once the alarm sounds for the exits, it will be stampede verses an orderly departure.
Having sold a home (foreclosure we bought in 2009) in 2021, I am super happy to be renting again. Owning a home is pain in the ass and I say this a person that can remodel a bathroom, install flooring, and fix my own A/C if needed. Constantly on the hook for every problem that invariably crops up is giant time, energy and money drain.
My wife on the other hand, hates renting. She wants to paint the walls and decorate... and nest? We end up spending a crap ton of our time and money on the house. It's 100% emotional for her. I understand, but I don't share those emotions. We have had lots of time to talk about it and it will be different when we buy again. She will have a budget for house stuff and I will not be on the hook for every little thing. In short, she is going to step up for maintenance if she wants to buy a house again.
Homeowners aren't going to sell into a market with precipitously declining prices. The market will just freeze up. This is probably the primary reason house prices haven't adjusted. People who have low rates locked in aren't selling their houses to buy new houses, because they would be taking a huge loss to do so.
The only thing that's going to cause prices to drop are: rising interest rates + declining rental rates causing rental units to become unprofitable and go back on the market, or a wave of foreclosures, which seems unlikely given how many homes have very low rate mortgages right now. I don't think either of those are going to lead to a precipitous decline.
> It will be prices or rates.
If rates break, this problem will come back up again in the near future exactly as it is now or even worse. Inflation and everything else in the economy would create more uncertainty which causes even more problems for housing prices.
> It will be prices or rates.
It'll probably be neither. Prices will likely stay flat, rates will do whatever they want. What will change is people's expectations of how long it takes for a house to sell. It's not uncommon in non-big coastal urban areas for homes to sit for months, and until recently that wasn't uncommon. The anomaly has been the recent trend of "put on market, receive 5 offers before the end of the day".
Good Christ, my rent has gone up ~20% over the last 2 years, and we've just been no-fault evicted for the second year running.
Indeed, the math of buy vs rent does not take into account fixing your housing payment for 30 years and the fact that you can't be evicted unless you stop paying your mortgage. What financial arb you get with renting, you trade for no control over your housing situation.
No fault eviction should be illegal
I think people forget you can't live inside an index fund. It's hard to value a higher predicted YoY return when you have to spend a month out of every year moving because rent went up again.
You can’t live inside an index fund but you can pay rent with your index fund returns.
Sometimes inverting a finding suggests its nuance. In this case, the inverse for a homeowner is it’s a good time to sell and rent.
Except the markets with heavy homeownership also have high rents. If you’re in Manhattan, sure, it might make sense to sell and lease back. But in a lot of the country, I don’t think the math works.
The inverse does not hold true at all. Homeowners have locked in 3% mortgages that they would surrender if they sold but buyers would have to take out a 8% mortgage to buy the same house. It’s both a bad time to buy and a bad time to sell because every transaction creates a huge deadweight loss that is economically negative for both parties.
Used house sales are the lowest since 2010, so probably not a good time to sell either unless you having a fire sell
The system was never “worse” it’s been always bad, taking the power from people and gave it to the banks, who happens to be real owner, in fact, even if you are wealthy and bought it with the whole price upfront, the system still requires you to pay hefty taxes that if you don’t, the municipal can have a lien on your property and claim it, aka: they took your home.. the whole system is rigged, especially when money from bankers is theoretically unlimited since they can print more in any “crisis” to keep the system up while you, grind your whole life on something you never owned.
off topic, but I am stuck in a captcha loop where i fill it out correctly and its just giving me another one... have done 5 now and just give up. Anyone else or did i just do some "weird online behaviour"?
This is where I'm at. I want very little more than to than to buy some permanent property that I can remodel to my taste at my leisure, but mortgage rates just keep going up. Why spend 3.6k+ a month on mortgage when I can spend 2.1k a month to stall. I really can't imagine going in on a house right now without at least a 20% down payment to skip out on PMI (and lowering the amount of the mortgage overall)
In my area, some homebuilder companies are offering owner financing on the homes they build at rates 2-3% lower than what you can get from the bank.
Because at the end of the year your assets line for home will be -$25,200. In the mortgage case it'd be -$36,000 for payments but probably like +$25,000 for home equity bought so if cash flow isn't a problem you're better off.
PMI IS a waste of money, but it's relatively negligible. if it helps you get your house years earlier, that could easily be worth it, not only financially but also happiness (if owning is emotionally important).
i paid 5% down on my house and my PMI is only 4% of my all in monthly payment (mortgage, PMI, prop tax, insurance). if i had to wait until i had saved 20% i'd probably still be saving & renting. instead i've already paid down another 5% of my mortgage plus getting the interest tax breaks each year.
Presumably that £3.6K ish is repayment, not interest only.
Try working out how much you need to save over 30 years (while renting) to buy a home. Don't forget to account for inflation in any assumed investment return.
If you want to own a house then the best time to own a house is right now.
Why does everything always have to about investments and speculation and all that crap? What about, you know, actually living your life? If you do everything "right", according to the financial experts, the richest you'll ever be is at the moment before you die.
The reason to own a house is you want to own a house. You want it to be yours. You want to do whatever you want to it. You want to accept the responsibility of its maintenance because the advantages of ownership outweigh the responsibilities.
If that's what you want to do then do it. Or you could get depressed listening to these bozos who live their life like it's a game that you're somehow losing despite living in a developed country, no needs unmet and sleeping peacefully every night.
Unless you have infinite money you have to weigh the costs against the benefits of a major purchase like a house.
I don't agree. I'm London, UK and rents ante rising at an insane pace.
Isn't it normal for mortgage payments to be at least to some degree higher than rent if talking averages? Bought property tends to be much larger right? I tried to find normalizing factors like it talking about payment per square foot but didn't seem to find any. I assume WSJ wouldn't push out anything completely off so what am I missing? The difference has grown just much more than it should have?
Rents are stupidly high in my area and usually higher than paying a mortgage plus upkeep even at current rates (at least for single family homes). YMMV.
Another case of poor journalism discussing inflation in the abstract. What are the drivers? There are still buyers at the elevated prices even with 8+% mortgage rates. Despite wages being effectively negative against CPI and actual inflation.
So who are the buyers?
Anyway to get a non-paywall ?
The Fed went after inflation in all the wrong places. Would have been infinitely more effective to just ban corporations from owning single family homes.