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I have been on the fence for so long that now I believe that's where I live!!! here are a few lessons I learned.
1. Lower interest rates and Covid (low inventory/low construction/low supplies) created a perfect storm where people with means committed to long term living in an area of their choice and were willing to over extend on their mortgage payment.
2. This squeezed the supply even more. Add to that forbearance, food stamps, banning foreclosure further prevented market forces from playing out. So now banks have inventory building on their books which they are compelled to hold back thanks to government.
3. Government printed a boatload and got through the backdoor to help you run your business.
4. Jobs in the entire retail, hospitality and to a large extent manufacturing were lost over a course of 2 years. So you have a market where the consumer is not gain fully employed yet the cost of one of his primary needs has shot up to unaffordable level.
5. Now even if we have decided to let the pandemic know its officially terminated on Mar1 does the workforce have enough jobs with matching pay to pay an increased price with higher rate of interest.
6. The above statement is to point out how absurd it is for industry and 'informed sources' who created this mass hysteria that low interest rates is enabling first time home buyers to buy homes! In 2019 pre pandemic the interest rate on 30 yr fixed was around 3.7 - 3.8. During pandemic lets assume it went down to 2.2 - but the sectors that create bulk of employment were paralyzed - then "who" exactly was enabled to buy houses.
7. Worst is the current paranoia where people feel markets will only continue to rise up. I agree there are families like mine trying to make a move for kids school or slightly more space but the fact stays that none of these families are 'homeless' or sleeping on the streets. So when the mortgage to income ration starts skewing at say 50% or higher people will make the most sensible decision and stay put where they are.
But sanity is currently on vacation and we must all feed each others paranoia to help builders and banks make profit while we diligently dig our own mortgage/foreclosure graves. Uncle Sam needs out sacrifice.
I think you’re understating the impact on affordability on those interest rates. A $500,000 30 yr mortgage at 2.25% is roughly the same monthly payment as a $412,000 mortgage at 3.75%. So even if someone paid 20% above pre-pandemic prices, the debt to income ratio is the same. Real estate prices can’t keep going up forever but I wouldn’t bet on them ever returning to pre-pandemic levels.
Time will tell whether we’re insane for pulling the trigger now or if you’re insane for waiting.
Some posters missed a few points - if first time home buyers could not have afforded 2019 rates then they certainly cannot afford 2021/22 rates. In two years with loss of employment or without loss of employment it challenging to save additional $30/40K towards a 20% down payment.
So rally in the NJ market is not mainly driven by new home buyers but those who sold from a high price location and moved to bigger houses in the suburbs.
While debt to income ratio 'might' have stayed the same in some cases, the runaway increase in prices mean the ratio was stretched. But say if we even agree on that point the fact remains one is on the hook for a bigger mortgage. If circumstances change and they want to move out then I dont see them being able to get the price they paid for. Essentially saying you are locked into your property unless you can pony up cash to get out or go into foreclosure if life takes turn for the worst.
Lending rules are just as lax, eg When I was looking for investment property in Texas (agreed my info is TX specific) banks were ready to give me loan even for 5% down!
I think one of the other overlays here is that while indeed COVID has taken a large toll on retail & service workers, medium-large corporations are in year 2 of reporting record breaking profits. This area is full of middle managers that get a piece of that exposure, either in the form of higher bonuses or equity which is tied to a tremendous runup of the stock market. And that's not even considering the massive bank bonuses that were just paid, which (rumor has it - not my industry) were insane.
So said another way, there's a lot more $$$ sitting out there on the sidelines, probably more than people are willing to acknowledge. Now I can't explain it for every area, but for the areas that were already in demand (good schools, train town, nice downtown, etc.) I think this is having an impact.
Some posters missed a few points - if first time home buyers could not have afforded 2019 rates then they certainly cannot afford 2021/22 rates. In two years with loss of employment or without loss of employment it challenging to save additional $30/40K towards a 20% down payment.
So rally in the NJ market is not mainly driven by new home buyers but those who sold from a high price location and moved to bigger houses in the suburbs.
While debt to income ratio 'might' have stayed the same in some cases, the runaway increase in prices mean the ratio was stretched. But say if we even agree on that point the fact remains one is on the hook for a bigger mortgage. If circumstances change and they want to move out then I dont see them being able to get the price they paid for. Essentially saying you are locked into your property unless you can pony up cash to get out or go into foreclosure if life takes turn for the worst.
Lending rules are just as lax, eg When I was looking for investment property in Texas (agreed my info is TX specific) banks were ready to give me loan even for 5% down!
How many people do you think are still unemployed? And how many of these people do you think were prospective homebuyers anyway? Cashiers and wait staff are probably not your typical homebuyer. Have you not been hearing about the Great Resignation? I personally was able to get a 30% increase in pay by switching jobs. Alot of people are thriving, especially people who are in the market for real estate in NJ. And I already gave you and example using math how it’s just as affordable to buy a house with a 20% markup if the rate is much lower. You’re saying people might be on the hook and locked into a property without being able to sell for what they paid. Well, that may be true but it’s speculative at best. OP is talking about selling a house he bought just last year for potentially 50k profit. You probably would’ve told him the market was too hot to buy last year too. I just don’t see a huge decline in real estate prices anytime soon. If you really want a house and can afford it, I don’t think it would be wise to wait.
Hudsonconj....I definitely agree with you when it comes to the possibility that home prices won't decrease significantly this summer. Anyone who is thinking of selling should not lose this opportunity.
But rational thinking has to return else there will be much heartburn down the line in less than 24 months. 2008 was fueled by optimism and paranoid as much as it was due to no lending standards. This time it's fueled by Covid and supply chain issues.
Prices wont decrease were are going through historical inflation right now. There is no shortage of people with money out there either.
January 2022 inflation was 6.01% meaning home values should adjust for the month accordingly. There is an expected interest rate hike in a few weeks and we will probably see 3-7 (Goldman says they expect 7) in 2022 which will level out houses.
It is quite possible that home values could increase up to 20% in 2022. With rates going up either way expect to pay alot more this year, and if youre in the market to buy a home yesterday was the best day to buy and the next best day is today.
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