Housing Market Forecast

[BigN8]

I've always thought this forum has a good cross section of knowledge and advice. So I'm interested in feedback on what most of you think is going to happen with the housing market?

A little back story. My daughter has recently gotten married, graduated college, and her and my SIL are both starting new careers. They are looking forward and will be starting a family soon. Currently they are renting a 3 bedroom house. They seem to be dead set on owning a house. So they have started looking and going to open houses.

I just don't see it happening. I think house prices are still bloated. There seems to be a shortage of houses, and to me it's still a sellers market. I believe the shortage is primarily due to many people being locked in to their current home due to having already low interest rates. My wife and I included. We'd love to downsize, but why would we give up a 2.8% interest rate? As much as my SIL and daughter want to get into home ownership and start creating equity, I feel like leasing and waiting for a better deal is smarter right now. It has to correct at some point right? My advice to them over dinner last night was to continue leasing a home and wait for better interest rates, or housing prices to come down, or both.

 

[fatboyroy]

I think your advice is spot on. Unless they find a great deal (way below market value) and refi later when rates are down but this is very hard to time I would think.

 

[zpaul]

We definitely live in crazy times now.
Everything indicates that prices should go down and we should see market crash.
As you pointed it is not happening. Most people who bought houses before or refinanced it sit on 3% rates. So why would you sell it?!?!
Unless you are moving to a different place or downsizing it doesn't make sense. Even if you are downsizing you are probably better off staying in your current place at 3% vs new one at 6-7%, unless you pay cash.
Rental market didn't catch up with rate increases so renting now is cheaper then owning. That actually affected investors. Investment property market is slowing down.
Renting/leasing is smart for now, but at the same time you are just giving your cash away to someone else equity.
My opinion is that right now it is probably not the best time to buy, but I feel buying is always a smart decision. 401k got trashed recently with stock market, but my real estate "return" is way better. Overall real estate will continue to appreciate, you will build equity, and there is some potential to refi later on. Big disclaimer - always buy in the right area, it is expensive there for a reason.

 

[FSH 210 Sport]

The housing market prices in So Cal have already been going through a correction due to them being over priced as well as other housing markets. Interest rates were wayyyy too low for wayyy too long due to quantitative easing, don’t know if we will ever see such low interest rates again. The fed gov is hiding the true impact of inflation, higher energy prices, eroding spending / purchasing power, true unemployment numbers, as well as the banks taking hits on the low interest rates of existing low interest rate mortgages and the high cost of borrowing new money and thats their fault, as well as the shadow inventory that started with the last big down turn where banks owned a lot of property that was defaulted on but was not put on the market to help support pricing and their balance sheets. So there is still a bigger correction coming, just like used boat prices, used car prices, new car / boat pricing.

Having said all that, in my opinion your daughter and SIL should continue to save money for a good down payment and wait, wait for a good deal on a good house in a great location. Buying a house in a bad location is way worse than renting, and by location I mean an area, and just as importantly who lives next door, across the street, down the street etc…. nothing like living in a neighborhood with some asshole that makes living their a drag.

Also, as they build time and stability through their new careers that will work well in their favor when it comes time to get a mortgage.

 

[Sidarousmg]

I don't believe there will be a massive adjustment any time soon, certainly not at the levels of 2008, if that is what you (they) would be waiting for. as you stated yourself, people who have low interest mortgages don't want to sell, and this is causing a huge decrease in supply. home builders are also not building starter homes nearly as much as they are larger homes, because their profit margins on larger homes are greater, further contributing to decreased supply. I can maybe see second or vacation home prices decreasing a little, but again, nowhere near the 08 levels. starter homes, even with higher rates, will continue to be relatively expensive for the foreseeable future. personally, I think if they are going to live in a house for 3-5 years or more, then they would be better off buying, even at these prices and rates, vs throwing away money on rent for 3-5 years, on the hopes that the market adjusts enough.

 

[zpaul]

I don't believe there will be a massive adjustment any time soon, certainly not at the levels of 2008, if that is what you (they) would be waiting for. as you stated yourself, people who have low interest mortgages don't want to sell, and this is causing a huge decrease in supply. home builders are also not building starter homes nearly as much as they are larger homes, because their profit margins on larger homes are greater, further contributing to decreased supply. I can maybe see second or vacation home prices decreasing a little, but again, nowhere near the 08 levels. starter homes, even with higher rates, will continue to be relatively expensive for the foreseeable future. personally, I think if they are going to live in a house for 3-5 years or more, then they would be better off buying, even at these prices and rates, vs throwing away money on rent for 3-5 years, on the hopes that the market adjusts enough.

Agreed. I am waiting for Vacation properties correction.
I see in Myrtle Beach properties double or even tripled in value since Covid. Mostly people realized that either it is nice to have vacation place or they just wanted to put their cash into a different "portfolio". What a lot of them didn't realized - high maintenance cost ($1000-1500 a months condo fees) and smaller then expected return going forward. Due to inflation people are starting to cut down on vacations - so demand is slowing down.
I can see that people start unloading those properties in the next couple years.

 

[adrianp89]

I think it will be highly location dependent. Where I live? Forget it about it. We continue to show up on lists of top places to move to/live. Even a nation-wide housing collapse would have little effect here.. IMO.

Two good pieces of advise I have received.

1. You can never time the market, you will always lose.
2. There is never a bad time to buy real estate.

The best advice I would give them is to make sure they save up 20% + closing costs, and buy when they find the house they want. Even in a bubble burst - they will still come out way ahead in the long run (assuming they keep the house for the long-term). They can re-finance whenever interest rates drops.

People having been waiting for prices to come down since COVID. They have only gone up.

 

[Sidarousmg]

I honestly feel terrible for people trying to buy their first home. How do you save up the 20% down while paying the also very high rents at the same time?

 

[bubbasuwannee]

We've considered moving further towards the coast here in NC, either sell our current home or purchase a small vacation place(not beachfront). But with house prices more than doubling since we purchased as well as interest rates, it just doesn't make sense. I cannot for the life of me see how people can afford and are willing to spend what houses go for typically in this area. Our home has more than doubled, but we've also put money into renovations and I'd still not pay what the market says our house is worth. All y'all folk in the NE or west coast... insane what housing and taxes cost there. A lot of the reason housing in my area is nuts is due to folk from those high rent areas moving here.

Anyways, for the OP... really depends on the area and the market AND what your daughter and son in law's goals are. I would never recommend being "house poor" like so many seem to be these days, but if it makes sense financially, it's never a bad investment to purchase real estate property in a decent area as others have mentioned. Could also look at fixer uppers and save some.

 

[adrianp89]

I honestly feel terrible for people trying to buy their first home. How do you save up the 20% down while paying the also very high rents at the same time?

I wonder this as well. Anything decent you need close to 100k at closing. Even if you and a partner could save $1500 a month it would take 6 years... and most people cannot commit 1500 a month to a mortgage savings.

 

[Bluewater272]

I think it will be highly location dependent. Where I live? Forget it about it. We continue to show up on lists of top places to move to/live. Even a nation-wide housing collapse would have little effect here.. IMO.

Two good pieces of advise I have received.

1. You can never time the market, you will always lose.
2. There is never a bad time to buy real estate.

The best advice I would give them is to make sure they save up 20% + closing costs, and buy when they find the house they want. Even in a bubble burst - they will still come out way ahead in the long run (assuming they keep the house for the long-term). They can re-finance whenever interest rates drops.

People having been waiting for prices to come down since COVID. They have only gone up.

Agreed. If they are ready to make a purchase (and not the bare minimum FHA stuff), and plan to stay for a while, I would absolutely buy now. If its just going to be a starter home type thing, then yeah its probably better to wait. Rates will relax at some point, and at least around here, I don't see any sign of prices making a significant retraction. Seemingly overpriced homes are still off the market within a couple of days, and waterfront homes by the shore are continuing to increase in price despite crazy rates (even higher for vacation homes, which most of these are).

 

[AZMark]

I agree that there probably won’t be a crash like we saw in 08, particularly in places that continue to grow long term (like Texas?). I could see prices coming down some, but if they are trying to wait for 2019 prices that may never happen. Inflation doesn’t usually give it back like that.
I also assume that the current generation of people that aren’t liking to work very hard don’t own a lot of houses, so they won’t be dumping thousands of them on the market when they eventually run out of whatever they are living on.

Rates are a problem and those might get a little better if we get into a recession but 3% mortgages again any time soon are kind of unlikely. They should just make sure they are paying their mortgage down as much as possible and be in a position to take advantage of a refi if/when rates get better.

I’ve got a friend that has been trying to time the market for years because he just can’t get 08 out of his mind, which was real bad here obviously. He’s now paying quite a bit more for a 1 bedroom apartment than I am for a 4 bedroom house that’s doubled in value. It would not have doubled without the pandemic but it would still be up a decent amount and my payment is fixed forever.

I’ve done the same thing with investments. You get inertia going when you’re sitting on the sidelines and it gets harder and harder to pull the trigger when you don’t see the spectacular (and obvious) deal you’ve been waiting for.

I don’t think many people put 20% down on their first house anymore. You can get away with as little as 3.5% on FHA but you have to pay mortgage insurance.

 

[BigN8]

They're young and just starting out so it'll be basic FHA stuff. No where near having 20% to put down on a house. I'd say you have very few first time home buyers that can swing the 20% down like other folks who are taking equity from one house and putting it in another.

 

[zpaul]

I’ve got a friend that has been trying to time the market for years because he just can’t get 08 out of his mind, which was real bad here obviously. He’s now paying quite a bit more for a 1 bedroom apartment than I am for a 4 bedroom house that’s doubled in value. It would not have doubled without the pandemic but it would still be up a decent amount and my payment is fixed forever.

Do we have the same friend ?!?! hahaha
My buddy is stuck in Baltimore since 2008, he bought before market crashed, so he finally recovered but still probably even what he paid for it.
I've been shopping houses with him for the past 15 years. I pulled the trigger when I saw 3% rates, his view was - your house is not worth that much. Now 12 years later my house appreciated 50% he is still at same value. He had plenty of options to double the value of his house if he would buy one. Most houses we looked at with him doubled in value in the past 3-4 years. He is still shopping and probably will buy at another peak of the market.

 

[zpaul]

They're young and just starting out so it'll be basic FHA stuff. No where near having 20% to put down on a house. I'd say you have very few first time home buyers that can swing the 20% down like other folks who are taking equity from one house and putting it in another.

it is crazy for first home buyer to come up with $100k plus closing plus some cash for repairs on $500k house.
NV Homes putting $650k townhouses around here, nice but not nearly as nice as single family house 10 years ago for same price.
And worst part 10 years ago your mortgage was much lower at 3% vs 7% now. that extra 3-4% add a huge chunk to the monthly payment.

 

[adrianp89]

They're young and just starting out so it'll be basic FHA stuff. No where near having 20% to put down on a house. I'd say you have very few first time home buyers that can swing the 20% down like other folks who are taking equity from one house and putting it in another.

Who is affording a 500k house without 20% down and 7% rates? You and your spouse need to be close to 100k each to afford that comfortably.

 

[KDMann]

...interested in feedback on what most of you think is going to happen with the housing market? ...my SIL and daughter want to get into home ownership and start creating equity, I feel like leasing and waiting for a better deal is smarter right now. It has to correct at some point right? My advice to them over dinner last night was to continue leasing a home and wait for better interest rates, or housing prices to come down, or both.

My (ex) wife and I bought our first home in Clearwater FL in 1985 with a mortgage at 13% -- we refinanced it twice and sold it four years later and made money. Since then we have (I have) continued choosing to OWN our homes rather than RENT, and always come out way ahead, regardless of the market.

But here's the thing -- it all depends on whether the Mortgage Interest your kids would be paying is TAX DEDUCTIBLE and that depends on a lot of other circumstances you haven't told us. Also, homestead mortgage interest deductibility (since 2017) is no longer a 'given'. The last of the 'people's deductions' was dismantled, so NOW they have to create a phony LLC and hire a crooked laywer to loophole their expenditures, and THEN vote to Defund the Police (the IRS) to make sure their phony-crooked deductions aren't discovered.

Bottom line, nowadays these decisions are way too complicated to resolve on a jetboater's web-forum by well-meaning dads (moms?).

My son and daughter are both in the same boat as yours. I resist the temptation to be the know-it-all-dad and I tell them to consult a professional...

 

[BigN8]

Who is affording a 500k house without 20% down and 7% rates? You and your spouse need to be close to 100k each to afford that comfortably.

Was this reply intended for me? Cause I did not say they were looking at a $500k house, and I also said they’re not putting 20% down, so I have no idea what you’re talking about. They both are starting out making just shy of $100k each though. I’d say their combined income would be around $175k

 

[Cobra Jet Steering LLC]

The other thing is property taxes I purchased my house in 1977 my property taxes are only 50 dollars a month I would hate to think what they would be if I purchased a 250k house, when I purchased my house there was a 0 missing on that price.
I feel bad for people today I see homeless all around every day and it just gets worse by the day.

 

[adrianp89]

Was this reply intended for me? Cause I did not say they were looking at a $500k house, and I also said they’re not putting 20% down, so I have no idea what you’re talking about. They both are starting out making just shy of $100k each though. I’d say their combined income would be around $175k

Just generally speaking how ridiculous the state of economy is lol.

That is phenomenal they just finished college and already have a 175k income, that is damn near unheard of. Took me and my wife a long time to get to that level. At that income, pending any major debt, they should be buying a home IMO.

(For reference, any decent 3/2 around here is going to be around 500k)