Daughter wants to buy a house

[Cayman]

Wait or take the plunge?
DD very much wants to buy her first home and is understandably scared off by current high prices. She can be very patient, but wonders if prices will remain high due to Fed reserve policy over the past 2 years - she asked me if home prices will remain high indefinitely due to increased money supply (M2). She's concerned that so much money was created during the past two years that a few interest rate hikes and slowing the Federal reserve's QE purchases in March won't move housing prices down much, if at all.
What would you tell her?
(Yes she has a sizable down payment and good reserves) If this is a bubble, she could easily be out 30% of her purchase price. She's concerned that waiting may = even higher home prices.

 

[Sunset]

I think location matters a lot.

If she was paying cash I'd say wait, but if she is getting a mortgage the rate is low now and that alone will make the purchase cheaper than getting a mortgage when it's 1% or more higher.

Another factor is where is she living now, if living at home, waiting is cheap. If she is renting then what is the cost of rent vs a mortgage payment.

 

[Bamaman]

I would think that buying now will sure beat buying later. In both interest rates and cost of the housing.

We moved 28 months ago, and our house has appreciated almost 1/3 of its value. I didn't know that we were so smart at the time.

And in many places, rentals are out of sight. Big institutional buyers are sucking up apartments--and it's often cheaper to buy than rent in some markets.

 

[Helen]

I am thinking housing prices are going to come down. Look at the thread where people are saying they couldn't afford to buy the house they are living in now. And, when interest rates rise, housing prices come down.

Housing and the stock markets are in a bubble that is about to deflate. That's my guess.

 

[Koolau]

I am thinking housing prices are going to come down. Look at the thread where people are saying they couldn't afford to buy the house they are living in now. And, when interest rates rise, housing prices come down.

Housing and the stock markets are in a bubble that is about to deflate. That's my guess.

I tend to agree, but the timing is quite uncertain. I would have guessed that inflation would have hit a long time ago instead of this year, so bursting bubbles are difficult to call and YMMV.

 

[mrfeh]

I think location matters a lot.

+1

I suspect as mortgage rates go up that demand will wane a bit, but how that affects prices will vary greatly.

I really doubt a replay of 2008 where prices drop a lot everywhere. Most of the increases from the last 18 months are probably here to stay.

 

[Aerides]

If she is looking at a state/county/area where the prices are sky high, I think she will have a long time to wait.

The key is inventory. My neighborhood, SFH, average sizes, is over 40% up since early 2020. Right now there is one house for sale - the biggest one. In normal times usually at least 5. Most houses here sell in a weekend, for over the asking. No new listings so far this month on zillow - that means they are either not selling at all, or selling pre-market. Super hot. If she's willing to gamble and wait, it means at least 18 months to see a meaningful drop, if there is one, and that will come at the expense of a pricier mortgage.

But if she can make her money work for her and rent for a couple of years? Eh, no one knows.

The RE now is not 2008. Prices are propped up by a supply/demand problem, not by faulty money.

 

[DrRoy]

If she can afford it, and wants the house, buy it. Prices may not drop, and even if they do, mortgage rates could rise to make the payment the same or higher anyway.

 

[street]

I don't believe homes will go down in price that much. It still is a supply and demand world. With material high (inflation) and the way things are happening with work force I would think that isn't any issue. Like others have mentioned I would take advantage of low interest rates right now. It sounds they will be going up.

 

[HawkeyeNFO]

With no location given, this thread is a waste of time. All real estate is local.

 

[38Chevy454]

I agree that location matters a lot. There are several factors that I think are in consideration. First is that housing prices may flatten, but I do not think they will come down much in near future. Second is the interest rates will be going up, so that increases the cost of buying a house. Third is what is her job/location plans?
If your daughter plans to stay in the area, and your area is not in superheated status, it probably is good to buy. If you daughter may be changing jobs and potentially locations, then buying is going to be tougher to sell and move. Housing is a longer term decision.

In general I think it's OK to buy now, take advantage of the still low rates vs what they could be. Just realize that means some risk of costs changing up or down in short term. Kind of like stock market, over long term it will go up in value, but in short term it can go down below purchase price.

 

[jkern]

I use to think that I could reasonably predict the future of Real Estate. Boy, was I wrong. I grew up in San Mateo (SF Bay Area) and I remember a co-worker in 1975 was telling me Real Estate prices were insane and never ever should I buy RE. Oops, that was poor advice.

My recommendation would be based on her intentions. If she has the capability/flexibility to stay put if the market were to come down, then she should buy now.

 

[Bamaman]

I'm just glad your daughter is at the point in life where she can buy a home.

My daughter has a job making very good money, and she cannot afford apartment rent on her own. She's staying in my upstairs den, and floating to our lake house a day or two a week. If she wasn't here, she'd be couch surfing.

It's tough being a single, young adult in an inflationary world.

 

[Magus]

I am thinking housing prices are going to come down. Look at the thread where people are saying they couldn't afford to buy the house they are living in now. And, when interest rates rise, housing prices come down.

Housing and the stock markets are in a bubble that is about to deflate. That's my guess.

I'll take the opposite side of that bet. Inflation is still high, wages are rising, building costs are rising faster than housing prices, inventory is at record low and historically prices have gone up in periods of rising interest rates as buyers want to lock in at lower rates. And by any stretch of the imagination, the US has cheaper RE than all the other western countries as a % of income/disposable income.

 

[travelover]

I don't know either.

 

[pjigar]

I have a very simple rule when it comes to buying a personal home. Are you going to stay in the house for over 7 years AND can you afford it? If answer to both of these questions is yes then buy it!

 

[RobbieB]

I agree. First thing is are you reasonably certain that you will live there at least 7?

 

[kgtest]

I was thinking about the supply and demand equation today. With the rise of remote work, I understand the supply of people "needing" to relocate, forcing a sale has gone down relative to that remote work demand going up. With one minor factor, that now people can choose to work anywhere as soon as they get that remote job so there will be some trailing sales, but the bubble for supply probably already passed. I would expect some leveling out at minimum but I have been wrong before. I think housing supply shortage will be a problem for a while.

I really doubt people are racing to move in the negative 30 windchill temps we have here in MN and we always see a cool down when, well, when it cools down lol. Usually summer break when schools let out is our higher inventory and demand months with more people moving while the kiddos are out of school.

 

[kgtest]

I'm just glad your daughter is at the point in life where she can buy a home.

My daughter has a job making very good money, and she cannot afford apartment rent on her own. She's staying in my upstairs den, and floating to our lake house a day or two a week. If she wasn't here, she'd be couch surfing.

It's tough being a single, young adult in an inflationary world.

I lived with my folks until I was 26 after leaving the military. I actually went in on a 6 plex with the money I did have saved from my service instead of buying a home for myself. The six plex was 2 hrs away in a town close to a major medical campus and university and wasn't a great investment in hindsight. But it all worked out. I found a good women and somehow scrounged up enough cash for a downpayment with the help of a small loan from my dad. I had rented an apartment for a year before we bought back in 2007. I bought a foreclosure townhome without even hiring a realtor. I just emailed the listing agent and she did the txn saving me some commission. It needed a little work, but not a lot. We kept that townhome when we moved into our first SFH and still have it today, paid off. A lot changed in the last 15 yrs of my life. The biggest thing being I landed a stable IT career that continues to flourish. It's hard to remember how broke I was back then compared to my current budget and the inflation that came along pushing the cost of good and services even higher. I earned less than $7,500 the year before we bought our townhome and the next year earned $35,000. I remember being really depressed and wondering if I was ever going to catch a break and get out of poverty. DW really pushed me to apply for IT jobs vs the construction jobs I was pursuing at the time.

 

[rodi]

Agree on several points already made:
- She shouldn't buy unless she plans to be in the house at least 7 years.
- Location matters. So talk of booms and busts may not apply to her local market.

My gut says prices will soften, but not crash like 2008/2009. The current mortgages are more documented/real than the funny paper of the mid 2000's. There might be a 10-15% drop... but not 30-40%. The difference will be that buyers won't be in the bidding wars and over asking price situation that is the current market. And houses will stay on the market for 30 days rather than 24 hours.

 

[Cayman]

Thank you all for your thoughts on this. As always there is solid reasoning and experience here. I shared your comments with her and she's giving additional thought to it. Probably leaning toward buying this year.

Yes, she plans to live in the home at least 7 years, stable job/reserves, and her local market is hot, not as hot as some areas...homes in her market are now often under contract within 3-7 days of listing, some selling a bit above list or at list.

 

[firemediceric]

I agree. First thing is are you reasonably certain that you will live there at least 7?

Why is 7 years the magic number?

5 years ago I became a renter after 35 years of ownership. My plan was/is to move out of state sometime around the end of 2024. 5 years ago all the rent versus own calculators told me that renting made the most financial sense for anything less than 10 years.

How things have changed given the astronomical rents in the Port St. Lucie/Vero Beach/Sebastian areas of Florida. Despite the similar meteoric rise in home prices, now the rent to own calculators put buying as the way to go for a timeframe of around 3 years or longer. My landlord informed me yesterday that he will soon be listing for sale the house I have been renting these past 5 years. I'm in a pickle without reasonable rentals in my area and not much to choose from if I do decide to buy.

Regardless, my plan is still to relocate in the next couple of years. I just have to figure out the best way to put a roof over my head in the meantime.

 

[Koolau]

Agree on several points already made:
- She shouldn't buy unless she plans to be in the house at least 7 years.
- Location matters. So talk of booms and busts may not apply to her local market.

My gut says prices will soften, but not crash like 2008/2009. The current mortgages are more documented/real than the funny paper of the mid 2000's. There might be a 10-15% drop... but not 30-40%. The difference will be that buyers won't be in the bidding wars and over asking price situation that is the current market. And houses will stay on the market for 30 days rather than 24 hours.

I believe your evaluation of the previous "crash" is correct. Hawaii - for whatever reason - had not generally taken the road of no-doc loans and about the worst drops we saw were around 20% or so. Of course, I have no crystal ball, so who knows? It just seems impossible that booms can be sustained for very long. The longer they last, the more dramatic their end it would seem. Here is hoping for a quick and relatively painless resolution to the current boom. YMMV

 

[young-ish]

Is this a consumption item or an investment for her? If it’s a consumption item then it’s simply a question of opportunity cost for her. What else would she do with the money she pours into the house?
If it’s an investment then she should read a few RE investment books first. Then calculate the appropriate numbers for he like price/rent ratios, Cap rates etc.

 

[MC Rider]

Everything depends on location.
OK, not everything, but it is the biggest factor.
There are HCOL areas and LCOL areas and all shades between, and they are very different markets.
What is recommended in So Cal is not the same as the Mid West.