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Depending on where one is thinking of buying, this could be more than a 1 million dollar question ..sorry about the lame attempt at humor!!
Onto the serious question, how would you advise first-time homebuyers in the current real estate market? Watching youtube videos from realtors, the general consensus seems to be "buy now and no benefit in waiting". Nobody has the crystal ball but what do the experienced folks here on the forum who have seen a thing or two in this market think about this madness!
For example, we can use the following as our example family:
Household income: $370,000 per year
Household Size: husband, wife 4 kids
2 kids in middle school in Plano, 2 kids ( 1 in preschool, 1 too young to go to preschool)
Area
Downpayment: Can put down about $50,000 to $100,000
Loan Amount Pre-qualified: Up to $1 Million
Current Homeownership Status: Renting a house under $2500 per month
Looking for: 4-5 bed room, new'ish house (built after 2000)
Area: Plano
Best time to buy?
Wait or rush to buy?
If wait, how long? Will this family be doomed to buy the same size house in 2 years or however long for even more inflated price?
What would you advise this family if they were related to you?
Anyway let the discussion start and looking forward to your collective wisdom?
Thank you in advance and apologies if this is getting tired (asking about real estate).
I'd say buy! I don't see the DFW housing market slowing down anytime soon. If you buy in a good and growing neighborhood (well which neighborhood isn't growing?!), then the house price will go up.
You may also post your question on Bogleheads.org. There are many people who'd love to answer your questions and give you ideas.
Do what everyone else does. Over-leverage yourself to the absolute max and get that house! It will only go up right. I remember 2007 - eerily similar mood. More and more people who I speak to, are dumping every single disposable income cent into the mortgage payment.
It will eventually go up. If not now most certainly 20 yrs from now. There is a real risk however that you might get prices out of the market pretty quickly. Thanks to inflation
As someone with the same budget as your example, and in the same predicament to buy now or wait things out, I can’t tell you what’s best for you and your family.
What I can tell you is that the home price appreciation in DFW over the last three years is simply unprecedented. In 2019, the average DFW home sold for $201k. As of February 2022, the average sales price was $405k.
Have incomes risen commensurately with these gains? Not even close. DFW median income in 2019 was roughly $72k, and has not risen +101% in three years to match the surge in home prices.
If that’s not a bubble I don’t know what is. Soaring home prices are a nationwide phenomenon, not a local or regional one, although DFW was recently named one of the top overvalued markets in the nation.
The massive price gains in housing over the past three years can be traced to two ill-conceived monetary policies: historically low interest rates for too long and aggressive quantitative easing throughout the pandemic, including PPP loans, which was essentially state-sanctioned theft ($587B, or 75% forgiven).
Inflation is the devaluation of fiat due to too much supply, and that’s why the price of everything has gone up so dramatically.
The third factor inflating house prices is a severe, persistent lack of inventory. According to the St. Louis Fed, housing inventory in DFW was 19,188 units in February 2019, compared to 6,218 units in February 2020, and 4,910 units in January 2022.
The reality is that we are in a bubble. No period of home price appreciation has continued unabated — there are always booms and there are always busts, and this time is no different. What will trigger the next bust? Who knows. But it’s coming.
Early in 2022, the “experts” were saying how we may not see 5% interest rates until the end of 2022, and yet we’re already averaging over 4.5% interest for a 30-year fixed rate. Add to this, the Fed just signaled that it may continue raise rates at a faster clip than originally stated (25 basis points), to fight inflation.
Higher interest rates are what I believe will pop this bubble. I do not see a situation in which rates continue to rise at this accelerated pace, and homes still go up +20% year-over-year. People eventually need to sell their homes, and with the pandemic essentially over, they will. As more inventory comes to market, prices will normalize.
Yes, lots of people are moving to DFW, but lots of people have always moved to DFW. The metro has always kept pace with its growing population by building more homes, and that will continue once some of the supply chain challenges are brought under control. DFW has never been this unaffordable, and it will — like most housing markets — regress to the mean (affordability relative to median household income).
I refuse to pay 10%, 15%, or 20% over ask during the most obscene real estate market this country has ever seen. It’s one thing to buy during the peak, it’s another to be fleeced, and people paying these outrageous prices are truly being fleeced.
As someone with the same budget as your example, and in the same predicament to buy now or wait things out, I can’t tell you what’s best for you and your family.
What I can tell you is that the home price appreciation in DFW over the last three years is simply unprecedented. In 2019, the average DFW home sold for $201k. As of February 2022, the average sales price was $405k.
Have incomes risen commensurately with these gains? Not even close. DFW median income in 2019 was roughly $72k, and has not risen +101% to match the gain in home prices.
If that’s not a bubble I don’t know what is. Soaring home prices are a nationwide phenomenon, not a local or regional one (although DFW was recently named one of the top overvalued markets in the nation).
The massive price gains in housing over the past three years can be traced to two ill-conceived monetary policies: historically low interest rates for too long and aggressive quantitative easing throughout the pandemic, including PPP loans, which was essentially state-sanctioned theft ($587B, or 75% forgiven).
Inflation is the devaluation of fiat due to too much supply, and that’s why the price of everything has gone up so dramatically.
The third factor inflating house prices is a severe, persistent lack of inventory. According to the St. Louis Fed, housing inventory in DFW was 19,188 units in February 2019, compared to 6,218 units in February 2020, and 4,910 units in January 2022.
The reality is that we are in a bubble. No period of home price appreciation has continued unabated — there are always booms and there are always busts, and this time is no different. What will trigger the next bust? Who knows. But it’s coming.
Early in 2022, the “experts” were saying how we may not see 5% until the end of 2022, and yet we’re already averaging over 4.5% for a 30-year fixed rate. Add to this, the Fed just signaled that it may continue raise rates at a faster clip than originally stated (25 basis points), to fight inflation.
Higher interest rates are what I believe will pop this bubble. I do not see a situation in which rates continue to rise at this accelerated pace, and homes still go up +20% year-over-year. People eventually need to sell their homes, and with the pandemic essentially over, they will. As more inventory comes to market, prices will normalize.
Yes, lots of people are moving to DFW, but lots of people have always moved to DFW. The metro has always kept pace with its growing population by building more homes, and that will continue once some of the supply chain challenges are brought under control. DFW has never been this unaffordable, and it will — like most housing markets — regress to the mean (affordability relative to median household income).
I refuse to pay 10%, 15%, or 20% over ask during the most obscene real estate market this country has ever seen. It’s one thing to buy during the peak, it’s another to be fleeced, and people paying these outrageous prices are truly being fleeced.
Love this cogent and accurate post! All very good points.
I’m shocked at what people are apparently willing to pay relative to the product they’re getting! There have been a few articles posted recently about how millennials delaying homeownership also contributed to a surge in buyers exiting the rental market. It mentioned some of these buyers now have remorse and did not budget for the 1-2% of overall home cost needed each year for upkeep, increased property taxes and the reality of compromising on preferred location solely to get in a home and end up in a part of town they don’t like.
Watching youtube videos from realtors, the general consensus seems to be "buy now and no benefit in waiting".
Realtors aren't the relevant experts here. This is like asking a sales person if he thinks his product will see increased demand in the future.
I wish news outlets far and wide would stop asking real estate agents for economic predictions and instead ask economists. Real estate agents are very in-tune with what is going on at the present moment, but they aren't in a position to forecast what will happen tomorrow.
Quote:
Originally Posted by iamanewuser
For example, we can use the following as our example family:
Household income: $370,000 per year
Household Size: husband, wife 4 kids
2 kids in middle school in Plano, 2 kids ( 1 in preschool, 1 too young to go to preschool)
Area
Downpayment: Can put down about $50,000 to $100,000
Loan Amount Pre-qualified: Up to $1 Million
Current Homeownership Status: Renting a house under $2500 per month
Looking for: 4-5 bed room, new'ish house (built after 2000)
Area: Plano
My opinion: $370k isn't enough income to support a $950k mortgage. Others will disagree, of course.
Quote:
Originally Posted by iamanewuser
Best time to buy?
Wait or rush to buy?
If wait, how long? Will this family be doomed to buy the same size house in 2 years or however long for even more inflated price?
A lot of people are going to say "Everyone who waited last year or the year before or the year before that regretted it. And they're right. But this time might actually be different. The higher the market gets, and the higher rates get, the more real the possibility of a downturn becomes. The last few years have been exceptional, and it isn't clear to me the next few will be similar.
No one knows the answer to this. Rates are going up -- that much is certain. But your payment is only part of the issue. A lot of people don't think about the fact that paying $4k per month on a house with $100k in equity is very different than paying $3500 per month on a house that is underwater. Your payment is lower, but I can't imagine anyone would rather take the latter scenario.
There is a significantly heightened chance that we have a recession and higher interest rates. It's hard for me to see how housing goes up under such scenarios. That scenario is far from a given, but it is far more likely than it has been in recent past.
Bottom line: Everyone is guessing.
Edit to add: There is a very good chance we end up with 6% or higher mortgage rates for 30 year fixed. At 3%, which is what rates were last year, a typical Plano $1MM house has a monthly payment of $6700 with a $50k down payment. Bump that rate up to 6%, and the payment goes up to $8500. Put differently, a $6700 payment can carry a $950k mortgage at 3% but only $770k at 6%. That is a reduction in buying power of $180k. Can the market absorb that? Maybe......maybe not. Demand doesn't just depend on how many people want a house. It also depends on what those people can afford/qualify for.
I'm not saying you shouldn't buy. I've been wrong at that game every time I've played it.
Higher interest rates are what I believe will pop this bubble. I do not see a situation in which rates continue to rise at this accelerated pace, and homes still go up +20% year-over-year. People eventually need to sell their homes, and with the pandemic essentially over, they will. As more inventory comes to market, prices will normalize.
One under-appreciated aspect of this is that an insane market discourages people from selling their primary residence because they don't believe they can easily buy the upgrade house. Selling the sure roof over your head to throw your offers in the ring with forty other people isn't enticing, and contingent offers aren't likey to be accepted. So a lot of people are sticking with what they have.
If we start to see the market normalize a bit, it's very possible we see an increase in inventory from people feeling like they have choices again.
What I can tell you is that the home price appreciation in DFW over the last three years is simply unprecedented. In 2019, the average DFW home sold for $201k. As of February 2022, the average sales price was $405k.
The "average DFW home" didn't sell for any price. The average of prices of houses that were sold is something very different from an average of all home values. The large increase is mostly due to a change in the type of houses being sold.
First and foremost, I would strongly advise anyone against moving as a result of the pandemic or any job or economic or lifestyle changes that resulted from the pandemic.
On a similar note, think about what brought you to Plano in the first place and whether, based on that, you will want to be in Plano for many more years. Think about possible changes in your or your spouse's jobs, income, or expenses. You are in the same boat as millions of other people, so if the market changes, it's highly likely it would be due to circumstances of people such as yourself.
I don't know how people put themselves through the stress of trying to buy right now.
Bottom line is that unless you are miserable where you are now or can no longer afford it, it makes little sense to move. No one can predict the future. A house is a place you are going to live, not an investment account.
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