Housing Market Forecast

[Bruce]

How long would they plan to stay in the house? How long might a bigger factor than current prices and rates.

Location also is an issue.

Where I live, outside a tourist town in Arkansas, I see baseline two to three bedroom aged homes with rental prices of $1,400 to $2,000 a month. At those rates you might as well buy.

 

[BigN8]

I just can't get my head around the economics of today's economy. Let's say they are looking at a $375,000 house, which today isn't much of a house and is pretty old. Putting 5% down and an interest rate of 6% that would be a $3,025/ month payment. Mortgage payment is $2,136, Taxes would be $602, and house insurance around $289. If they are making $175,000 then that is a net income of around $5,352 taking into account a small contribution to 401k and some med benefits. After making the house payment that leaves $2,327/month. Let's say they have 2 cars, one is used one is new. I'd guess those payments with insurance are around $1000/month. Now they have $1,327 to live on for the Month.

Either house prices have to come down, or interest rates need to fall. I just don't see young people making it today in this economy. Not without going into credit card debt or something else that you read about everyday. You can't be fiscally responsible just starting out with this type of economy in my opinion.

That is why my opinion to them is continue renting. They are basically riding on someone else's low interest rates at this point. I know they are not gaining equity, but I just don't see it happening.

 

[Sidarousmg]

$175k annual income should equal around $9000 a month of net income, assuming 25% taxes, 10% into 401k, and another 5% for healthcare (roughly). spending 1/3 of net income on mortgage payment is not that uncommon, most spend that much of their gross income (which is what is used to calculate DTI). but assuming the same numbers you are using, if they rent, and rent is $2000 per month, would that change you opinion? how about if rent was $2500? most investors want their rents to cover their mortgage payment, so as mortgage rates continue to increase, so will rents.

 

[FSH 210 Sport]

I just can't get my head around the economics of today's economy. Let's say they are looking at a $375,000 house, which today isn't much of a house and is pretty old. Putting 5% down and an interest rate of 6% that would be a $3,025/ month payment. Mortgage payment is $2,136, Taxes would be $602, and house insurance around $289. If they are making $175,000 then that is a net income of around $5,352 taking into account a small contribution to 401k and some med benefits. After making the house payment that leaves $2,327/month. Let's say they have 2 cars, one is used one is new. I'd guess those payments with insurance are around $1000/month. Now they have $1,327 to live on for the Month.

Either house prices have to come down, or interest rates need to fall. I just don't see young people making it today in this economy. Not without going into credit card debt or something else that you read about everyday. You can't be fiscally responsible just starting out with this type of economy in my opinion.

That is why my opinion to them is continue renting. They are basically riding on someone else's low interest rates at this point. I know they are not gaining equity, but I just don't see it happening.

Its called financial oppression.

I believe it was Thomas Jefferson who said something like banks were a greater threat than a standing army to our country. Congress abdicated their responsibility to issue and manage the US currency way back when and created the Federal reserve which is nothing more than 12 private banks, and the FR controls the value of our dollar instead of it being on a gold standard. The gold standard limited the amount of money that could be printed based on the value of gold. FDR confiscated all gold bullion in the early 30’s and arbitrarily raised the value of gold from his bed so he could print more money. JFK tried to put our currency back onto a precious metal, silver certificates, and was assassinated shortly thereafter.

My family came to this country as slaves in 1762 as indentured servants from debtors prison. The founding Fathers made sure in the constitution that this would not happen assuring that those incarcerated were for breaking the law and only then by due process by a jury of their peers.

 

[kgower]

I was a Mortgage Banker/Loan Officer for almost 25 years. While rates are up, they are still below the average of the last 30 years. There has been a small price correction in many areas, but I don't believe that prices will correct more than about 5% at most in most areas while some are still appreciating. Two reasons, as previously stated those with low rates aren't willing to give them up and construction of new homes fall far below historical averages. According to Forbes the average number of units built from 1960-2007 was 949,000 units a year, and from 2008-2019 the average was 656,000 units.
Affordability is an issue but many younger, even 1st time buyers were buying their first homes in the $600K - $1millon range and now that's changed. We bought our first home a 3/2 for $56K at 10.5% in 89 a far cry from today's reality.

 

[bubbasuwannee]

Affordability is an issue but many younger, even 1st time buyers were buying their first homes in the $600K - $1millon range and now that's changed. We bought our first home a 3/2 for $56K in 89 a far cry from today's reality.

Yikes...$600k - $1million hard to comprehend how young and first time home buyers could afford homes priced like that. The most I've ever spent on a home was $168k...I guess I'm a cheap azz.

 

[adrianp89]

Yikes...$600k - $1million hard to comprehend how young and first time home buyers could afford homes priced like that. The most I've ever spent on a home was $168k...I guess I'm a cheap azz.

I would assume inheritance daddies money, or tech industry. Maybe Only Fans in todays world. It certainly is not common. Me and my wife are top 5% in our state and a $1 million dollar home would pretty tough to pull off.

 

[bubbasuwannee]

I would assume inheritance daddies money, or tech industry. Maybe Only Fans in todays world. It certainly is not common. Me and my wife are top 5% in our state and a $1 million dollar home would pretty tough to pull off.

I guess it's all how you want to spend your money as well. We live in a nice, but very reasonable home values have more than doubled though since we purchased) and prefer to have extra to spend on traveling and hobbies like our boat. Everytime we look at moving, we see that we'd have to spend double the money, so we stay put. Honestly, I'll probably die living where we are or end up with a small 1-2 bed place on a piece of land away from everything.

 

[BigN8]

I guess it's all how you want to spend your money as well. We live in a nice, but very reasonable home values have more than doubled though since we purchased) and prefer to have extra to spend on traveling and hobbies like our boat. Everytime we look at moving, we see that we'd have to spend double the money, so we stay put. Honestly, I'll probably die living where we are or end up with a small 1-2 bed place on a piece of land away from everything.

Exactly our position. We built this house in 2007 which is just shy of 4,000 sqft for around $289k. Now houses like mine in this hood go for around $600-$700k. I've got a refinanced 15 year loan at 2.8% and maybe halfway through that loan. To say my wife and I are handcuffed by this house would be an understatement!

I'm not getting the same results as @Sidarousmg for the net income of my kiddos. I used a pay check calculator that ADP has and after entering their approx. income, potential 401k contributions, and potential medical benefit allotments I get a net income of $5500-$6000. I need to get into the weeds of their finances I guess. My daughter won't really have a good idea until she gets started. She is starting late June at my wife's company which is TIAA CREF as a financial consultant. I guess if they were netting closer to $9,000 I could see how they could swing it.

 

[adrianp89]

Exactly our position. We built this house in 2007 which is just shy of 4,000 sqft for around $289k. Now houses like mine in this hood go for around $600-$700k. I've got a refinanced 15 year loan at 2.8% and maybe halfway through that loan. To say my wife and I are handcuffed by this house would be an understatement!

I'm not getting the same results as @Sidarousmg for the net income of my kiddos. I used a pay check calculator that ADP has and after entering their approx. income, potential 401k contributions, and potential medical benefit allotments I get a net income of $5500-$6000. I need to get into the weeds of their finances I guess. My daughter won't really have a good idea until she gets started. She is starting late June at my wife's company which is TIAA CREF as a financial consultant. I guess if they were netting closer to $9,000 I could see how they could swing it.

Unsolicited advice here (and all families are different) but stay out of the kids finances, especially since it seems she has a degree in Finance. My family will express concern if they think I’m making a bad choice but would never deep dive, nor would I appreciate that without me first asking for it.

 

[Sidarousmg]

Exactly our position. We built this house in 2007 which is just shy of 4,000 sqft for around $289k. Now houses like mine in this hood go for around $600-$700k. I've got a refinanced 15 year loan at 2.8% and maybe halfway through that loan. To say my wife and I are handcuffed by this house would be an understatement!

I'm not getting the same results as @Sidarousmg for the net income of my kiddos. I used a pay check calculator that ADP has and after entering their approx. income, potential 401k contributions, and potential medical benefit allotments I get a net income of $5500-$6000. I need to get into the weeds of their finances I guess. My daughter won't really have a good idea until she gets started. She is starting late June at my wife's company which is TIAA CREF as a financial consultant. I guess if they were netting closer to $9,000 I could see how they could swing it.

i don't think I'll ever get rid of my 2.5% mortgage either, and I'm in the mortgage business. If I ever decide to move, I would just rent this one out. regarding the net income, i was using their (combined) gross of $175k to get to $9k net monthly (so they keep about half of what they actually make, after uncle sam takes his cut).

 

[BigN8]

Unsolicited advice here (and all families are different) but stay out of the kids finances, especially since it seems she has a degree in Finance. My family will express concern if they think I’m making a bad choice but would never deep dive, nor would I appreciate that without me first asking for it.

They've asked for it. They're young (24 and 25), I paid for her degree and their wedding, and I absolutely will insert myself if it means keeping them from making a bad decision they will regret, and then ultimately my wife and I paying for by either having to help them financially, or God forbid.....them moving back in with us.

 

[Bottom Bracket]

Just buy them a house dad, we did.
We bought bank repo's during the last dip both had termite damge, they pay insurance taxes and utility's. I show no income with these properties for taxes.
Both repo's are stashed in our trust. Kids in one, mom in the other.
More than likely they will get there shit together and find their own home in due time.
I will sell before I go the rental route again. imo and experience the only way to get ahead in the rental game is to turn it over to a leasing company and let them handle it. Renters will suck every dime of profit, and the headache isn't worth it.
I still have my 1st home, purchased in 1987 with my VA benefit as a guarantee, 13% interest, the rule then was to refi at every 2% drop in the rate, take nothing and roll the closing costs into the note. Now in retirement we are debt free.

 

[suke]

I would assume inheritance daddies money, or tech industry. Maybe Only Fans in todays world. It certainly is not common. Me and my wife are top 5% in our state and a $1 million dollar home would pretty tough to pull off.

I work in tech and have worked for a major silicon valley player my whole career. It's a really small percentage that make hella money. Or you happen to start your own company and sell big. Also what seems like big money in the Bay area is really upper middle class in most other areas. If their salary was adjusted for location. However, with remote work you're seeing them leave the Bay area with those salaries unadjusted and driving up costs at an exponential rate in TX, Fl, TN, and NC. They've crushed our local market. I can't afford to move within my town, even. Shit is bonkers. Company I work for is adjusting your salary (down) to local levels if you move to a lower cost location. Doesn't work the opposite if you move to a more expensive location. LOL!

 

[kgower]

I would assume inheritance daddies money, or tech industry. Maybe Only Fans in todays world. It certainly is not common. Me and my wife are top 5% in our state and a $1 million dollar home would pretty tough to pull off.

Yes, mostly techies. When rates were 3% +/-, depending on debt load credit score et cetera people could qualify for approximately 6 times their gross income. In more normal times like now it's 3 -4 times gross depending on the variables.

 

[TimW451]

@BigN8 I get a similar number as @Sidarousmg for net income.

5-10% seems to be the common, realistic down payment for first time buyers. One may just have to rent until they get to that nut. My first home was 10% and I was lucky enough that my home appreciated enough in the first year that I could drop PMI. For my second home, 5 years later, I capped my budget so that my down payment would be 20% to avoid it, regardless of what I could afford monthly payment wise or what the bank would lend me (which was a lot more).

I really didn’t know what a good monthly payment would be, and my dad wasn’t a lot of help just because things were ”different” compared to his experience (sorta like is our advice here applicable to your kids ). I was lucky enough to work with a salesperson for a new home builder that specialized in first time buyers. She worked out what my payment would be, she asked me what I thought, I said “I don’t know?”, and she said, “well how much do you make?” When I told her, she was like WTF, most of her customers make way less. The monthly payment was like 25% of my net income And everything else had me putting 50% of my income into the house (insurance, utilities etc.) and that’s what I often see as a guide post when buying a house. As raises come that % decrease to become more manageable and allow for new cars, vacations, etc.

Other points, some previously mentioned:

1. Rates are still historically low. (But they happen to be the same as when I bought my first house!) IMHO, they will never be under 4% again, improbable that they be under 5%.
2. House prices may fall in hyperinflated markets, but declines are outliers. No one is selling a house for less than they paid for it by choice. So don’t wait for prices to come down.
3. Its not like buying a boat, you can’t make your second house your first. Need to build equity asap or you’ll rent forever.

HTH

 

[AZMark]

If she’s working at a credit union they may have employee mortgage programs with reduced or no PMI or other benefits.

 

[CanTex]

Having moved to the US from Canada 21 years ago, my wife and I have always been very financially conservation (there was no move back in with Mom & Dad, and no financial backstop).
- In the early 2000's we were living in Southern California and housing prices seemed "over-priced" and we rented for 7 years - after we purchased our home prices kept going up. Yes, interest rates were a variable but what I didn't consider was the increase in salary my wife and I had in our 20's. Looking back there was almost $100k of appreciation lost in those 7 years.
- In 2013 we moved to Texas, purchased a home shortly after the move. Being financially conservative we purchased a nice home but could have spent a little more and bought in a more desirable area. In the recent run-up in home values, I have noticed that the more desirable the location the higher the appreciation. It was not a linear appreciation for all home locations (In my area). Lesson learned, spend a little more for the most desirable area.
- In 2016 we purchased a small lake house (vacation property), I still didn't learn anything from the previous 2 purchases and remained conservation on the budget. 7 years later, lake homes have more than doubled in value. And the theme repeats itself again.

My advice since you asked:
* Find the home you want, in the location you want and when it becomes available buy it!!!
* Don't be reckless, but don't be a miser either. My wife & I have always been a 2 income household but budgeted as though it was 1 income household - looking back I would have done a few things differently.
* The salary you have in your 20's will most likely be the lowest salary in your working career

 

[seanmclean]

* The salary you have in your 20's will most likely be the lowest salary in your working career

This is a good point. We bought our first house when we were 23/24, and since we didnt make very much we made the purchase fairly conservative relative to our income. 2 years later our income doubled but the market crashed and we were stuck with that place way longer than we ever wanted. If we stretched a little, could have had a house that would have lasted us 15 years or so. At certain points in life, you can stretch but that doesn't mean to be reckless. Older you get, often the less risk you can take with other obligations.

 

[suke]

This is a good point. We bought our first house when we were 23/24, and since we didnt make very much we made the purchase fairly conservative relative to our income. 2 years later our income doubled but the market crashed and we were stuck with that place way longer than we ever wanted. If we stretched a little, could have had a house that would have lasted us 15 years or so. At certain points in life, you can stretch but that doesn't mean to be reckless. Older you get, often the less risk you can take with other obligations.

That's also a good point. When we bought our house I was 26 and my wife was 23. I wanted something cheaper but my wife wanted something more expensive. At the time we bought a house we could barely afford to get into a size of house we would never have to move out of. My wife quit work about 8 years ago when we had our son. Just this year did I get to the point I make what we made when we had 2 incomes. Soooooo you may eventually be at a total income level where you are right now, but I'd imagine that isn't the story for most people. Upside about buying a house we could barely afford in our 20's is now we can't afford the town we live in with prices what they are today. So it's good we bought something big enough we'll never have to move out of. Otherwise we probably would have to move to a significantly cheaper town without the quality of schools we have.