[OkieSnuffBox]

Originally Posted by vreihen16

What does the commercial office space market look like in your area? In these parts, it there is more than 50% vacancy. I could rent a small office for peanuts as a WFH space. If it's the same there, you could come out ahead by renting a work space and not upsizing your house.....

That's a good point. But not sure I could make it work for myself. My home office I have my laptop screen plus two 27" monitors. And I need it unless I'm in a meeting.

[vreihen16]

Move them to your rental office.....

[virtualbong]

Originally Posted by cmyx6go

I think it depends on the area and the price point. I constantly watch the listings. A lot of houses are hitting the market and are selling pretty quick in my area and are still selling for listing price or above. The price reductions seem to be on the lower priced/smaller houses. I’m guessing that people with a tight budget are pulling back as the interest rates increase, their budget is shot to shit. What was affordable a few months ago isn’t anymore. Those looking for larger, more expensive houses that have the money aren’t affected by the increase in interest rates. It’s a decision if they should, not if they could.

I have a lot of equity in my house but unless I see a perfect house house for me, I’ll wait. I have a 3% fixed mortgage. Even though I can afford it, it seems silly to make a move right now. I re calculated my purchase on my banks website (I bought 2 years ago) and the monthly payment jumped almost $1,000 for just principal and interest.

This is exactly how I feel. The people who have the funds are not really impacted by this because if they want a house, they are going to go get a house. The good thing about my place is that it's right in the range of what the "middle class" in metrowest of Boston can afford. So I think even those who may have a tight budget, may go for it because my place should a better reach than others.

[OkieSnuffBox]

Originally Posted by virtualbong

This is exactly how I feel. The people who have the funds are not really impacted by this because if they want a house, they are going to go get a house. The good thing about my place is that it's right in the range of what the "middle class" in metrowest of Boston can afford. So I think even those who may have a tight budget, may go for it because my place should a better reach than others.

Disagree. Even though prices have pulled back a bit, the interest rate rises have killed any desire.

My current house is locked in under 3%, anything we'd be interested in would be double the price of our current house at 5% even though we have strong credit/income for our area.

[allinon72]

I think it's human nature to believe as soon as the economy starts to turn negative, the music stops immediately and everyone stops buying at once. Reality is there is still slack in the market and those buyers who have been desperate to find a home are going to pay, even at these rates. Albeit, the buyer pool may be smaller, but there's so much pent up demand that it's going to take a while to flush out. Same thing with the car market.

[virtualbong]

Originally Posted by OkieSnuffBox

Disagree. Even though prices have pulled back a bit, the interest rate rises have killed any desire.

My current house is locked in under 3%, anything we'd be interested in would be double the price of our current house at 5% even though we have strong credit/income for our area.

I think this is the case where everyone's situation is different. Let's say that you were a first-time homebuyer and you're looking to purchase a home that costs $700,000. Here is the breakdown:

Total cost: $700,000 (30 Year Fixed Loan)
20% down payment: $140,000
Annual Property Tax: $9,000
Annual Homeowner's Insurance: $2,800

If the mortgage rate is 3%, then the monthly mortgage would be $3,347 per month.

If the mortgage rate is 6%, then the monthly mortgage would be $4,343 per month.

In my opinion, most people who are looking at a home at this price range would be able to find a way to cover the additional $1,000 per month but again, everyone's situation is different, e.g. daycare costs, pre-existing medical costs, etc.

Either way, the rate increase sucks and I can see people not wanting to pay that additional cost but that just means you are most likely wasting thousands of dollars every month to rent which does not hold any value in the end.

[tgrundke]

I'm on the opposite side of the argument: I think that there are significantly more people who are really stretching their budgets to the limit than we are admitting.

There are a lot of "$30,000 millionaires" out there. Tightening credit and worsening inflation is going to expose the fact that, especially in boom markets, there's a way to go before bottom.

In hot markets, there's at least a 40% drop coming, easily. The worst part is that you might be catching a falling knife for a while - it could take 2-3 years before single family real estate bottoms.

Depending on how QT impacts liquidity in markets, assets outside of commodities are right now riding a bear market rally. Go back to the .com bubble of 2001-2002 for a good idea of how this might play out.

Final thought: think seriously about 8% mortgages and what that will do to the real estate market.

[tgrundke]

Originally Posted by RickFLM4

My wife likes to send me listings of houses from Zillow and Realtor. We just spent over $50K on a roof, paint and gutters on top of the $65K for impact resistant glass and a master bath remodel in the last few years. Our mortgage is 2.375%, our property tax increases are capped, and it would cost as much in realtor fees and closing costs to sell this house as it would to remodel our kitchen. I keep telling her every dollar we put into this house is another day we add onto living in it. We aren’t going anywhere.

This is a really good point: over the last two years a lot of people invested a massive amount of capital into their homes to remodel them extensively. Unless you were doing so in an effort to sell your home, I imagine these people are going to stay where they are for quite some time. This might put a cap on the number of single family units coming to market.

Similarly, if you made this massive investment and then valuations tank by 40% or more - unless you've got a financial reason to sell, you're probably *really* not going to want to sell. Again, limiting supply.

[OkieSnuffBox]

Originally Posted by virtualbong

I think this is the case where everyone's situation is different. Let's say that you were a first-time homebuyer and you're looking to purchase a home that costs $700,000. Here is the breakdown:

Total cost: $700,000 (30 Year Fixed Loan)
20% down payment: $140,000
Annual Property Tax: $9,000
Annual Homeowner's Insurance: $2,800

If the mortgage rate is 3%, then the monthly mortgage would be $3,347 per month.

If the mortgage rate is 6%, then the monthly mortgage would be $4,343 per month.

In my opinion, most people who are looking at a home at this price range would be able to find a way to cover the additional $1,000 per month but again, everyone's situation is different, e.g. daycare costs, pre-existing medical costs, etc.

Either way, the rate increase sucks and I can see people not wanting to pay that additional cost but that just means you are most likely wasting thousands of dollars every month to rent which does not hold any value in the end.

I'm sure there are a lot of people that "make it work." But it's a terrible idea to do so. I understand I live where housing is very affordable.

Our mortgage payment is about 1/9 of our monthly take home. The banks say we could do 1/3 of our gross, but that's just stupid.

That's why people think having nice cars, going out to eat, going on vacations is a huge deal..........it's because they've made themselves house poor.

[vreihen16]

Originally Posted by OkieSnuffBox

Our mortgage payment is about 1/9 of our monthly take home. The banks say we could do 1/3 of our gross, but that's just stupid.

The monthly payments on that hypothetical $700K house above was more than I net in a month! I'm currently paying about 1/2 of my monthly net to pay off the mortgage on our modest 2BR house in another 2.5 years, which probably comes out near the 1/3 gross suggestion.

My grandparents' post-war home was financed with a 20-year mortgage, which seems to have been common back then but is no longer readily available. Looking back, we'll be paid off in 20 years so it may be something for the finance market to ponder.

(Disclaimer, we started out with a 30-year ARM that was so good for us that the bank wanted out of the deal, and re-financed it into a 15-year fixed at 2.75% with only a minimal increase in the monthly payment amount....)

[dmatre]

Originally Posted by tgrundke

I'm on the opposite side of the argument: I think that there are significantly more people who are really stretching their budgets to the limit than we are admitting.

There are a lot of "$30,000 millionaires" out there. Tightening credit and worsening inflation is going to expose the fact that, especially in boom markets, there's a way to go before bottom.

In hot markets, there's at least a 40% drop coming, easily. The worst part is that you might be catching a falling knife for a while - it could take 2-3 years before single family real estate bottoms.

Depending on how QT impacts liquidity in markets, assets outside of commodities are right now riding a bear market rally. Go back to the .com bubble of 2001-2002 for a good idea of how this might play out.

Final thought: think seriously about 8% mortgages and what that will do to the real estate market.

Just for reference: my first mortgage was 7.75% for 30 years in 1991 - and the market in Charlotte was booming at that rate….

[vreihen16]

Originally Posted by dmatre

Just for reference: my first mortgage was 7.75% for 30 years in 1991 - and the market in Charlotte was booming at that rate….

You would have paid it off last year if you stuck with it. Just saying.....

[RickFLM4]

Originally Posted by tgrundke

I'm on the opposite side of the argument: I think that there are significantly more people who are really stretching their budgets to the limit than we are admitting.

There are a lot of "$30,000 millionaires" out there. Tightening credit and worsening inflation is going to expose the fact that, especially in boom markets, there's a way to go before bottom.

In hot markets, there's at least a 40% drop coming, easily. The worst part is that you might be catching a falling knife for a while - it could take 2-3 years before single family real estate bottoms.

Depending on how QT impacts liquidity in markets, assets outside of commodities are right now riding a bear market rally. Go back to the .com bubble of 2001-2002 for a good idea of how this might play out.

Final thought: think seriously about 8% mortgages and what that will do to the real estate market.

I think you are projecting based on 2008. That is not where we are. There were no underwriting standards then. Anyone who got a mortgage in 2002 - 2008 and another mortgage in the last 10 years or so should have witnessed a dramatic difference in standards. There will be some people in trouble if they lose their jobs, like any recession, but there is no reason to expect a 40%+ drop, at least in the vast majority of markets. And if there is - buy real estate. There is still a shortage of housing and with builders pulling back, that condition will persist for quite a while. The pace of sales and price fluctuations will pull back to rational levels, but that doesn't mean the pendulum will swing all the way to crisis.

[OkieSnuffBox]

Originally Posted by vreihen16

The monthly payments on that hypothetical $700K house above was more than I net in a month! I'm currently paying about 1/2 of my monthly net to pay off the mortgage on our modest 2BR house in another 2.5 years, which probably comes out near the 1/3 gross suggestion.

My grandparents' post-war home was financed with a 20-year mortgage, which seems to have been common back then but is no longer readily available. Looking back, we'll be paid off in 20 years so it may be something for the finance market to ponder.

(Disclaimer, we started out with a 30-year ARM that was so good for us that the bank wanted out of the deal, and re-financed it into a 15-year fixed at 2.75% with only a minimal increase in the monthly payment amount....)

To be fair, I haven't really seen 20 year mortgages, but 15 year seem to be pretty common. But most people don't take that option because the payment is higher.

Which goes back to my point about people overextending themselves when it comes to buying a home. I bought my current house on the idea of "If one of us loses our job, has a medical issue, etc, we may not be able to afford all the fun stuff, but we won't lose our house."

The vast majority of Americans don't use the same the thought process. They think everything is always going to be great and they will never have any hardship.

[vreihen16]

Originally Posted by OkieSnuffBox

To be fair, I haven't really seen 20 year mortgages, but 15 year seem to be pretty common. But most people don't take that option because the payment is higher.

When we bought our house a few years before the last bubble popped, the mortgage company (who folded after the pop) told us that we only qualified for a 30-year 5/1 ARM. I wanted fixed, and either a 20 or 15 year note. I'm pretty sure that this was a salesperson pushing their highest-commission loan, not the underwriters. Long story short, we only did it because of the great 5-year intro rate, and were planning to either move or re-fi into a 15-year fixed when the intro rate ended. I was paying it off at a 20-year pace anyway, even though they said that we couldn't have a shorter loan.

I'm sure that I posted the story of what happened after that. The bubble popped, and the ARM formula that they used had interest terms that never envisioned 0% government money. For consumer protection, the regulators made them put in a 0.5% annual cap for ARM rate increases, but had no cap on decreases. When the first adjustment hit, our rate dropped to essentially zero...and they could only increase it by 0.5% per year because of the ceiling! In other words, it would have taken them five years to get the rate back above 2.5%.

They sold our money-losing loan off to a shady bank right before they collapsed, and we went straight to our credit union to lock in a 2.75% re-fi for 15 years for about the same payment that I was already making. I've been paying the new one at a 10-12 year pace, and will have it paid off in a bit over two more years if all goes well.

My DW and I celebrated the month that we finally went net-positive financially, and there's no f-in-weigh that we will ever be negative worth ever again as long as I'm alive and can work.....

[Alfisti]

Bahhhhhhhhhhhhhhhhhhhhhhh I think I moved too slow on a deal. 70 * 320 ft lot across the street with a decrepit knock down, was listed at $1.9M, I felt that was high. Saw it drop to 1.7 and said to the wife we should look at it, see what a modest 2700 sq ft home would cost to build.

It sold in a day dammit.

[freakystyly]

And you get to watch someone else knock it down and replace it with a 3 story monstrosity with 10' wide windows and 5 garage doors.

I see some oddball plans come through at work but we avoid the TO area like the plague.

[Alfisti]

Originally Posted by freakystyly

And you get to watch someone else knock it down and replace it with a 3 story monstrosity with 10' wide windows and 5 garage doors.

I see some oddball plans come through at work but we avoid the TO area like the plague.

Yeah you get a real mix in this area, some are classy and not too big, others are huge. I was thinking a pre-fab home, a nicer one for a prefab but a prefab, try to keep it under $750K anyways. It's a BIG lot for that money just 10 mines from downtown but it's gone.

[curd]

Originally Posted by tgrundke

I'm on the opposite side of the argument: I think that there are significantly more people who are really stretching their budgets to the limit than we are admitting.

There are a lot of "$30,000 millionaires" out there. Tightening credit and worsening inflation is going to expose the fact that, especially in boom markets, there's a way to go before bottom.

In hot markets, there's at least a 40% drop coming, easily. The worst part is that you might be catching a falling knife for a while - it could take 2-3 years before single family real estate bottoms.

Depending on how QT impacts liquidity in markets, assets outside of commodities are right now riding a bear market rally. Go back to the .com bubble of 2001-2002 for a good idea of how this might play out.

Final thought: think seriously about 8% mortgages and what that will do to the real estate market.

I think there are certainly many folks who are over-leveraged in this market. Still, I think what is really resilient now in comparison to '08 besides stricter lending practices -- more equity and liquidity for nearly all homeowners, strong job market which is stabilizing the economy, and the pandemic bull rush allowed a lot of folks in many different industries to line their coffers.

The real problem is the low to low-middle class who are actually affected by many of the rate increases making it increasingly unaffordable to buy. I am in the Real Estate industry, myself and many of my clients are still making cash purchases to continue to prop up our real estate portfolios.

I don't believe there is anything more than a correction, and maybe a larger shift in some markets like Boise, ID which was sharply overvalued due to only pandemic factors & demand there will dry up until rates rise again. Luckily, my Chicagoland market (aside from Loop condo sales) has been relatively insulated so far from alot of these market pressures, even though I am starting to see a bit of a uptick in market time & price decreases.

Once rates stabilize a bit somewhere in the mid to high 4's I think we will see another up turn in the Real Estate market again either next Spring, or we will be in a "recession" type period until 2024. Still far too much demand that was only deflated due to rates, and builders still behind many, many years on new construction let alone more "affordable" homes.

[tgrundke]

Originally Posted by dmatre

Just for reference: my first mortgage was 7.75% for 30 years in 1991 - and the market in Charlotte was booming at that rate….

Correct, and prices were commensurate with that rate. What's going to crush the big boom markets is the fact that mortgages have more than doubled in 8 months. Prices have not yet met that reality.

Bought my home at 5.75% in 2005 and that was just before the market peak.

[tgrundke]

Originally Posted by RickFLM4

I think you are projecting based on 2008. That is not where we are. There were no underwriting standards then. Anyone who got a mortgage in 2002 - 2008 and another mortgage in the last 10 years or so should have witnessed a dramatic difference in standards. There will be some people in trouble if they lose their jobs, like any recession, but there is no reason to expect a 40%+ drop, at least in the vast majority of markets. And if there is - buy real estate. There is still a shortage of housing and with builders pulling back, that condition will persist for quite a while. The pace of sales and price fluctuations will pull back to rational levels, but that doesn't mean the pendulum will swing all the way to crisis.

Tend to agree that it won't be a crisis like 2008, but that does not mean that valuations *won't* decline by 30-40% from peak, especially in markets that went bonkers in the last 28 months.

What's different from 2008 is that while underwriting is better, we've not been in a secular increase of interest rates like this in decades. People have become accustomed to cheap money and it's hard to say how this change is going to impact the market overall. The market eventually reverts back to the mean, and if you use this graph as a guide, the last few years' growth has a way to go back down.

[tgrundke]

Originally Posted by curd

Once rates stabilize a bit somewhere in the mid to high 4's I think we will see another up turn in the Real Estate market again either next Spring, or we will be in a "recession" type period until 2024.

I'm the pessimist here: I think we're going to see 8% mortgages by the end of Q1 2023.