Mortgage rates and the housing market

[MU82]

Interesting piece in the NYT about how so many American homeowners have such low mortgage rates that it is making them unwilling and/or unable to sell their houses. And that, as much as anything, has almost frozen the housing market in many parts of the country.

https://www.nytimes.com/2024/04/15/upshot/mortgage-rates-homes-stuck.html?

These locked-in households haven’t relocated for better jobs or higher pay, and haven’t been able to downsize or acquire more space. They also haven’t opened up homes for first-time buyers. And that’s driven up prices and gummed up the market.

Another way to state how unusual this dynamic is: Between 1998 and 2020, there was never a time when more than 40 percent of American mortgage holders had locked-in rates more than one percentage point below market conditions. By the end of 2023, as the chart below shows, about 70 percent of all mortgage holders had rates more than three percentage points below what the market would offer them if they tried to take out a new loan.

[jesmu84]

There are a zillion things wrong with the US housing market.

Previous low mortgage rates are just a drop in the bucket.

[MU82]

There are a zillion things wrong with the US housing market.

Previous low mortgage rates are just a drop in the bucket.

My OP wasn't about "wrong" or "right." It simply offered a link to a fact-filled article on one of the main reasons the housing market is "gummed up."

This actually is one of the things affecting the housing situation for my daughter and SIL right now. They own a house in a Seattle suburb that they bought before they had their 2 kids. It's too small, and not in a walkable area, and they want to move. But they have a 3% mortgage and aren't wild about the idea of selling that to buy a more expensive house that also would come with a 7%+ mortgage. Also, partially because of this mortgage-rate situation, they are finding inventory to be very low where they want to buy; potential sellers in those areas also don't want to give up their low rates.

[dgies9156]

Mortgage rates are keyed to the 10-year Treasury rate. So long as the Federal Reserve uses higher interest rates to lock down inflation, mortgage interest rates will remain at current levels.

The irony in all of this is that those of us who came of age in the late 1970s and 1980s would have drooled at the current market interest rates. Many of us took out 30-year, fixed rate mortgage loans on our first homes that had an interest rate of between12 percent and 14 percent. We never dreamed that rates would get into the 2 percent to 4 percent range.

The difficulty with wide swings in mortgage interest rates is "consumer reach." When rates dropped to very low levels, homeowners had a couple of choices. The first is refinance downward, get a lower payment or pay off your home more quickly with the same payment on a shorter term loan. The second is to sell your house, buy up and keep your payment relatively flat on a much larger outstanding balance. Much of the country did the latter.

The housing market is locked up because young, first-time homebuyers who can afford homes at 4 percent can't afford the same home at 7 percent. They're either going to have to come up with a lot more down, which delays homebuying, or buy a much smaller property. For existing homeowners, many became aggressive assuming cheap mortgage money would always be out there. It's not and so the numbers don't work on a new home.

Incidentally, if rates do come down dramatically, expect housing prices to skyrocket. We made a fortune in the 1980s when we bought using a 12.75 percent mortgage and sold seven years later when mortgages were in the 6-8 percent range. I'd expect that as rates fall and demand recovers, prices will see double digit increases. My SIL and daughter are starting to look for a home in the Syracuse, NY market and as long as they can make the payment, the house would be a sterling investment.

[Goose]

82

You should cash out of some of your stocks and buy your daughter a home.

[MU82]

82

You should cash out of some of your stocks and buy your daughter a home.

Pot-stirrer

All stocks are worthless now, what with the economy at its worst point since the nation was founded.

[Skatastrophy]

82

You should cash out of some of your stocks and buy your daughter a home.

Kids. Always looking for a handout.

[The Hippie Satan of Hyperbole]

82

You should cash out of some of your stocks and buy your daughter a home.

He's 100% invested in Truth Social. It will pay off soon I'm sure.

[MU82]

Mortgage rates are keyed to the 10-year Treasury rate. So long as the Federal Reserve uses higher interest rates to lock down inflation, mortgage interest rates will remain at current levels.

The irony in all of this is that those of us who came of age in the late 1970s and 1980s would have drooled at the current market interest rates. Many of us took out 30-year, fixed rate mortgage loans on our first homes that had an interest rate of between12 percent and 14 percent. We never dreamed that rates would get into the 2 percent to 4 percent range.

The difficulty with wide swings in mortgage interest rates is "consumer reach." When rates dropped to very low levels, homeowners had a couple of choices. The first is refinance downward, get a lower payment or pay off your home more quickly with the same payment on a shorter term loan. The second is to sell your house, buy up and keep your payment relatively flat on a much larger outstanding balance. Much of the country did the latter.

The housing market is locked up because young, first-time homebuyers who can afford homes at 4 percent can't afford the same home at 7 percent. They're either going to have to come up with a lot more down, which delays homebuying, or buy a much smaller property. For existing homeowners, many became aggressive assuming cheap mortgage money would always be out there. It's not and so the numbers don't work on a new home.

Incidentally, if rates do come down dramatically, expect housing prices to skyrocket. We made a fortune in the 1980s when we bought using a 12.75 percent mortgage and sold seven years later when mortgages were in the 6-8 percent range. I'd expect that as rates fall and demand recovers, prices will see double digit increases. My SIL and daughter are starting to look for a home in the Syracuse, NY market and as long as they can make the payment, the house would be a sterling investment.

Trying to get this topic back on track ...

You make some good points here, dg, and I agree with you that if rates start going back down and get under 5-6% again, it probably would ignite a significant bounce to the housing market.

It's not really an "irony" that us oldsters would have killed to have rates as low as they currently are. It's just the way it is. When we bought our first house in Minneapolis in 1985, rates were 13-14% and we felt fortunate to get a 1-year ARM at 8 7/8%. But we also paid $84K for that very nice house in a great neighborhood - today's buyers would kill for that. What's tough now is the confluence between relatively high house prices and relatively high (compared to the last many years) mortgage rates.

In many markets and time periods, owning a house has been an incredible investment. But for many others, it's not really been that great of an investment. A person can say, "I bought this in 2015 for $250K and now it's worth $425K, so I made a boatload!" But if that person put $75K into the house to update the kitchen and baths, all of a sudden the profit isn't so great. Add in maintenance, taxes, insurance, etc, and maybe it's been a pretty bad investment. That's why I look at a house as a place to live; if it happens to end up being a great investment, that's wonderful.

[dgies9156]

In many markets and time periods, owning a house has been an incredible investment. But for many others, it's not really been that great of an investment. A person can say, "I bought this in 2015 for $250K and now it's worth $425K, so I made a boatload!" But if that person put $75K into the house to update the kitchen and baths, all of a sudden the profit isn't so great. Add in maintenance, taxes, insurance, etc, and maybe it's been a pretty bad investment. That's why I look at a house as a place to live; if it happens to end up being a great investment, that's wonderful.

Welcome to my home in Suburban Chicago. We lived there for almost three decades and, because of our tax and residency circumstance, we had to pay capital gains on the home. Fortunately, my wife was a pack rat who kept every receipt on every cap-ex we made. We went back to our suppliers for the ones we didn't have and acquired them. We paid almost no capital gains on our house, when you figure what we did to it over the life of the ownership.

The problem we had was our home was in a stable region with modest economic growth. The next suburb over was an emerging Chicago suburb that built and built and built more houses. They'd approve anything! The result was far more supply than demand at a time when professional jobs in the area were shrinking. Hence, modest price growth.

You argument is an eloquent reason why we ended up selling Chicago. It was a lovely home in a nice community. We used it a few months a year to escape Florida's summers and I used it to come back during the winter periodically. Similar to the way folks used homes in Northern Wisconsin. The costs of paying taxes, insurance, heating and cooling, repairs and cap-ex were just not worth keeping it. 

[tower912]

House paid for.   No chance I am moving for the foreseeable future.

[MU82]

Welcome to my home in Suburban Chicago. We lived there for almost three decades and, because of our tax and residency circumstance, we had to pay capital gains on the home. Fortunately, my wife was a pack rat who kept every receipt on every cap-ex we made. We went back to our suppliers for the ones we didn't have and acquired them. We paid almost no capital gains on our house, when you figure what we did to it over the life of the ownership.

The problem we had was our home was in a stable region with modest economic growth. The next suburb over was an emerging Chicago suburb that built and built and built more houses. They'd approve anything! The result was far more supply than demand at a time when professional jobs in the area were shrinking. Hence, modest price growth.

You argument is an eloquent reason why we ended up selling Chicago. It was a lovely home in a nice community. We used it a few months a year to escape Florida's summers and I used it to come back during the winter periodically. Similar to the way folks used homes in Northern Wisconsin. The costs of paying taxes, insurance, heating and cooling, repairs and cap-ex were just not worth keeping it.

We have friends in Chicago burbs just like the one you describe; counting everything they've done to their houses, they have seen little if any real profit. But they've still liked living in their houses/neighborhoods close to family and friends, so that's what really matters. We also have friends who live in ritzier burbs or the city who have seen tremendous price appreciation.

We got really lucky with our Chicago house - bought on the North Side in 1994 right when the market was just starting to heat up a little but nothing like it became less than a decade later. Even with the improvements we made, we did extremely well. We've also done well with our current Charlotte home - bought in early 2011 when effects of the recession were still out there. But with our 3 other houses we barely broke even, in part because we didn't live in any of them long enough.

There are buy-or-rent calculators out there, and lots of people would do better financially by renting. But for many folks, homeownership is an emotional decision so it's not all about the dough. We rented for our final 3+ years in Chicago and we actually liked the experience; it was a really well-managed building in a fantastic location and it had a lot of amenities. It was also the recession and house prices were plummeting, so we sure were glad that we sold before then - just dumb luck really. I'd consider renting again in a similar circumstance.

Unlike you, today's sellers benefit from updated tax laws that make the first $500K in home profit tax-free for couples ($250K for individuals). So no need to save every receipt except for those raking in big profits.

[jesmu84]

My OP wasn't about "wrong" or "right." It simply offered a link to a fact-filled article on one of the main reasons the housing market is "gummed up."

This actually is one of the things affecting the housing situation for my daughter and SIL right now. They own a house in a Seattle suburb that they bought before they had their 2 kids. It's too small, and not in a walkable area, and they want to move. But they have a 3% mortgage and aren't wild about the idea of selling that to buy a more expensive house that also would come with a 7%+ mortgage. Also, partially because of this mortgage-rate situation, they are finding inventory to be very low where they want to buy; potential sellers in those areas also don't want to give up their low rates.

For sure. My wife and I are in a similar situation. We could move, but don't NEED to. And we won't even consider it right now with rates being almost double PLUS home prices being super high.

[jesmu84]

Mortgage rates are keyed to the 10-year Treasury rate. So long as the Federal Reserve uses higher interest rates to lock down inflation, mortgage interest rates will remain at current levels.

The irony in all of this is that those of us who came of age in the late 1970s and 1980s would have drooled at the current market interest rates. Many of us took out 30-year, fixed rate mortgage loans on our first homes that had an interest rate of between12 percent and 14 percent. We never dreamed that rates would get into the 2 percent to 4 percent range.

The difficulty with wide swings in mortgage interest rates is "consumer reach." When rates dropped to very low levels, homeowners had a couple of choices. The first is refinance downward, get a lower payment or pay off your home more quickly with the same payment on a shorter term loan. The second is to sell your house, buy up and keep your payment relatively flat on a much larger outstanding balance. Much of the country did the latter.

The housing market is locked up because young, first-time homebuyers who can afford homes at 4 percent can't afford the same home at 7 percent. They're either going to have to come up with a lot more down, which delays homebuying, or buy a much smaller property. For existing homeowners, many became aggressive assuming cheap mortgage money would always be out there. It's not and so the numbers don't work on a new home.

Incidentally, if rates do come down dramatically, expect housing prices to skyrocket. We made a fortune in the 1980s when we bought using a 12.75 percent mortgage and sold seven years later when mortgages were in the 6-8 percent range. I'd expect that as rates fall and demand recovers, prices will see double digit increases. My SIL and daughter are starting to look for a home in the Syracuse, NY market and as long as they can make the payment, the house would be a sterling investment.

Okay. Now compare the prices of homes in the 70s and 80s to the average income at the time.

Further, the housing market is "locked up" because we have a terribly short supply.

We need significantly more public housing options. We need significantly less corporate/private equity ownership of housing. We need people to see housing as NOT an investment vehicle.

[The Hippie Satan of Hyperbole]

But houses are also much larger, and with more bells and whistles than the 70s and 80s though too.

[JWags85]

My OP wasn't about "wrong" or "right." It simply offered a link to a fact-filled article on one of the main reasons the housing market is "gummed up."

This actually is one of the things affecting the housing situation for my daughter and SIL right now. They own a house in a Seattle suburb that they bought before they had their 2 kids. It's too small, and not in a walkable area, and they want to move. But they have a 3% mortgage and aren't wild about the idea of selling that to buy a more expensive house that also would come with a 7%+ mortgage. Also, partially because of this mortgage-rate situation, they are finding inventory to be very low where they want to buy; potential sellers in those areas also don't want to give up their low rates.

Same as one of my close friends.  Bought a few years ago in Roscoe Village in Chicago.  He got a job with a financial firm in Dallas about 18 months ago.  The plan was for him to be remote/fly in regularly for the first year, and then move down.  But they'd be giving up a 2.9% mortgage for one closer to 7%, not to mention it would be a step up in size and value even if mortgage rates were still at 2.9%.  Its made him drag out the move as long as possible and continues to negotiate/bargain to delay it.  I can only imagine it for people who would sell/upgrade out of want/desire and not pressing geographic need.

[dgies9156]

Unlike you, today's sellers benefit from updated tax laws that make the first $500K in home profit tax-free for couples ($250K for individuals). So no need to save every receipt except for those raking in big profits.

That's true for your primary residence. Chicago was NOT our primary residence when we sold it.

Several years ago, we were spending so much time in Florida that we became legal Florida residents. That enabled us to shield all of the income on our original home in Florida, which was an incredibly smart move from a tax standpoint. We had massive appreciation on our first Florida home, which was sold in 2022, largely because of location and Florida's desirability. We used almost all of the $500,000 tax exemption.

We're now in our forever home and, like Brother Tower, it's paid off! We paid off a five-year, 4 percent mortgage because we absolutely hate debt! Especially at our age.

[MU82]

That's true for your primary residence. Chicago was NOT our primary residence when we sold it.

Several years ago, we were spending so much time in Florida that we became legal Florida residents. That enabled us to shield all of the income on our original home in Florida, which was an incredibly smart move from a tax standpoint. We had massive appreciation on our first Florida home, which was sold in 2022, largely because of location and Florida's desirability. We used almost all of the $500,000 tax exemption.

We're now in our forever home and, like Brother Tower, it's paid off! We paid off a five-year, 4 percent mortgage because we absolutely hate debt! Especially at our age.

Yes, thanks for the clarification. Primary residence.

Congrats on the great price appreciation of your previous Fla place and finding your forever home.

Like you and tower, we own our house free and clear. One could argue that all of us made poor financial decisions, because 3-4% mortgages are “good” debt, and $$$ could have been used to invest.

But again, emotions factor in, and it sure is comforting to be debt-free.

[dgies9156]

Okay. Now compare the prices of homes in the 70s and 80s to the average income at the time.

Further, the housing market is "locked up" because we have a terribly short supply.

We need significantly more public housing options. We need significantly less corporate/private equity ownership of housing. We need people to see housing as NOT an investment vehicle.

Brother Jesmu:

You are the first person since my Metropolitan Government professor at Marquette in 1976 to advocate for MORE public housing.

I assume you are speaking of outright public ownership and not rent buydowns with such things as Section 8 or subsidies, such as the VA and FHA. That being the case, you need to closely study the history of public housing in the United States. It isn't good.

The federal government is subsidizing housing every day. From deposit insurance at savings institutions, which came with Reg Q for decades that restricted investor return, to Freddie Mac and Fannie Mae, which set lending standards for single- and multi-family housing and federal infrastructure investment, housing has been government supported since the end of World War II. The last recession was triggered in no small measure because mortgage standards were relaxed on the theory that homeownership is the key to revitalizing neighborhoods.

The problem with public housing is ensuring a steady stream of construction and maintenance capital. If we want to live like my wife and I did in Ukraine, then by all means, push for the public option. But the place we lived was a disaster, because the government did the lowest amount of capital expenditure necessary to keep the building standing. I, for one, want to live better than that.

Case two against the public option is what happens whenever the government wades into the private sector. Back in 2009 to 2012, it took a massive capital infusion by the federal government to keep Fannie and Freddie alive. Both were insolvent. And then there's Amtrak, the worst excuse for a railroad this side of India. Amtrak is a rolling disaster because no one who works there is incented to take risk and break away from a 1950s transportation model. Plus, our Congress won't put capital into it in no small measure because Amtrak is so poorly run.

And we want to apply this model to housing?

I'll admit the private sector sometimes does a crappy job. The Sunrise condo collapse down here in Florida was one example of cheap people doing cheap things that ultimately killed many of them. But, to be candid, Sunrise is the exception rather than the rule.

[tower912]

Brother dgies, I understand your philosophical base.  And I am not in the mood to really go to the mats on this.   Suffice to say, for every example of government inefficiency or error, a corresponding example of corporate misconduct, carelessness, or malfeasance can be cited.

[jesmu84]

 No surprise that public projects like Amtrak and housing fail in the US.

Those things work darn well in western Europe.

The only public projects that succeed at all are the ones that benefit private capital.

NIMBYism also plays a role.

But, regardless, I'd be curious to hear folks' ideas about how to address the housing shortage. Or, if you don't consider housing supply a problem, how can we bring down housing costs?

[tower912]

Jesmu84, not to be morbid, but a decade from now the housing market will be saturated as a generation passes and is replaced by a smaller one.

[Skatastrophy]

No surprise that public projects like Amtrak and housing fail in the US.

Those things work darn well in western Europe.

The only public projects that succeed at all are the ones that benefit private capital.

NIMBYism also plays a role.

But, regardless, I'd be curious to hear folks' ideas about how to address the housing shortage. Or, if you don't consider housing supply a problem, how can we bring down housing costs?

Build dense market-rate housing in city centers, it drives down the cost of existing housing that just cant compete for consumer dollars with new construction. This is a solved problem. Build baby build.

[jesmu84]

Jesmu84, not to be morbid, but a decade from now the housing market will be saturated as a generation passes and is replaced by a smaller one.

That'll probably come to pass.

My fear is who buys those houses

[tower912]

That is a fair point.   

[reinko]

Bought our first home about 14 months ago after saving for 10+ years.  Put 20% down, bought the cheapest house in the best neighborhood we could get into in Bethesda, MD, top school district, NIH and Walter Reed only a stones throw away...will be the last place we ever buy.  Locked in 5.65% for the next 28 years, curious if we'll ever refinance (doubt it).

Amazingly happy

[The Hippie Satan of Hyperbole]

Jesmu84, not to be morbid, but a decade from now the housing market will be saturated as a generation passes and is replaced by a smaller one.

Net migration will more than make up for the net of deaths and births.

[The Hippie Satan of Hyperbole]

Bought our first home about 14 months ago after saving for 10+ years.  Put 20% down, bought the cheapest house in the best neighborhood we could get into in Bethesda, MD, top school district, NIH and Walter Reed only a stones throw away...will be the last place we ever buy.  Locked in 5.65% for the next 28 years, curious if we'll ever refinance (doubt it).

Amazingly happy

Why do you doubt that? If interest rates fall to where they were just a couple of years ago, you can knock years off - even refinancing at 30 but paying the same amount you do now will have a significant impact.

[lawdog77]

That'll probably come to pass.

My fear is who buys those houses

The Chinese? Canadians?

[reinko]

Why do you doubt that? If interest rates fall to where they were just a couple of years ago, you can knock years off - even refinancing at 30 but paying the same amount you do now will have a significant impact.

It's more of a bet to see if interest rates ever creep down again that low (in the foreseeable future)...if they do, absolutely I'll do it.  My knowledge of ReFi is admittedly limited, but a rule of thumb I read is it only starts making financial sense if rates are least a full point less than what you are locked in at (in this case I would need to wait until at least around 4.5%).

But probably a lot more expertise on this board, so I am all ears 😃

[The Hippie Satan of Hyperbole]

It's more of a bet to see if interest rates ever creep down again that low (in the foreseeable future)...if they do, absolutely I'll do it.  My knowledge of ReFi is admittedly limited, but a rule of thumb I read is it only starts making financial sense if rates are least a full point less than what you are locked in at (in this case I would need to wait until at least around 4.5%).

But probably a lot more expertise on this board, so I am all ears 😃

Oh OK. I guess if you are just doubting that rates will fall that makes sense. But eventually you could refi into a 15 year mortgage that would have even lower rates and may keep your payments at an amount similar to what you have now.

[jesmu84]

Build dense market-rate housing in city centers, it drives down the cost of existing housing that just cant compete for consumer dollars with new construction. This is a solved problem. Build baby build.

Is there an incentive to build if it brings down profit margins?

[lawdog77]

Is there an incentive to build if it brings down profit margins?

Would you rather have a 20% profit margin on 100 million in inventory or a 10% profit margin on 300 million in inventory?

[Herman Cain]

Bought lowest price house in the best neighborhood we could afford for first home. Had a lot of curb appeal.   Lived there for 6  years. Broke Even , after upgrades and selling costs. Total cost, was still far cheaper than rent.

Upgraded neighborhoods, to get better schools  and rinsed and repeat for second house with lowest house in Excellent Elite Level Community had less curb appeal was in private cul de sac.  Was the best thing we could have done for the kids, they prospered in Athletics and Academics made great life long connections . Lived there 24 years. Sold the home for 4x what we paid, had to actually pay capital gains on it. 

Third house paid up for Incredible Location and Views , so while not lowest priced, there was still many ridiculously priced in the neighborhood. Rolled all proceeds over from second home, Planning a renovation that will cost too much . Going in price was $580 a square foot. Comps are selling now for over a $1000 . This is the forever type home so it doesn't matter what it is worth. Frankly I wish it was worth less as the property taxes are ridiculous.
   
My best advice, is the old real estate slogan. Location, Location , Location.  Also to the younger folks just get yourself in the market.  Get a condo in a good building or development if the single priced homes are out of reach. You can always upgrade on house 2 and 3.

Biggest issue for housing market is Baby Boomers and now their Kids are inflating market. Throw in NIMBY which exists everywhere, and it is hard to get product built.

[dgies9156]

But, regardless, I'd be curious to hear folks' ideas about how to address the housing shortage. Or, if you don't consider housing supply a problem, how can we bring down housing costs?

First off, let's talk about what's causing housing prices to be "high":

Expectations -- Ever watch House Hunters or Property Virgins? While not scientific, those shows present a very interesting look at homebuying in the U.S. People who purchase homes aren't looking for the 1,600 square foot starter home we bought a generation ago. Nor are they clamoring for public housing! They want 3,000 square feet, quartz counters, hardwood floors, white kitchens, three car garages and enough bedrooms to start a small hotel. Oh, and open concept with an office.

Land -- Most if not all of the attractive cities in the United States are fully built out. And many, like Honolulu, San Francisco and New York, are on islands on peninsulas where building is limited to comparatively flat spaces.  If you want a home close to a major city in the United States, land costs are astronomical. Ditto for South Florida along the coasts. If you want affordable housing, go to a place like Superior, WI, with plenty of flat land and you can get a place that's mansion for less than $700,000. Of course, the climate is among the most robust in the continental United States and the economy has been on the downturn for about 80 years. But....

Building Codes -- Down here in Florida, we have some of the toughest building codes in America, if not the world. We have to if we're going to survive the next hurricane. Ditto for California and earthquakes. Adjusting to post-Homestead building needs is expensive. My home, for example, has foot-thick steel-reinforced concrete walls, quadruple strapped roofs to maintain structural integrity during hurricanes and windows capable of withstanding 160 mile per hour impacts. Add to that the requirement for energy efficiency in appliances, HVAC systems and insulation and the costs add up.

Materials Cost -- More than century ago, my forebears moved to Minnesota and Northern Wisconsin to clear-cut virgin timber in the woods. They and their peers did a pretty good job of it and the comparatively inexpensive lumber, iron and other materials have largely been exhausted. As a result, housing materials are more expensive, harder to get to market and, consequently, more expensive. Environmental laws that forbid clear cutting, open pit mining and require folks to restore the environment are great ideas but they come at a cost and they have to be passed on to someone.

Zoning -- Communities use zoning laws for lots of things that zoning wasn't intended. Originally, zoning was designed to keep a consistent feel to a neighborhood or community. It's evolved into everything from sales tax revenue protection to preventing affordable housing.

Of this group, the biggest "changeable" variables are revisions in zoning ordinances and changes in people's expectations. After Sunrise down here, I'm not sure we want to relax building codes and few of us want to see a change in the environmental laws to allow today's generations to do what my great grandparents did. And, land is land. Unless someone wants to live in Superior or West Bumfork, Texas etc., land prices aren't going anywhere.

[MU82]

My best advice, is the old real estate slogan. Location, Location , Location.  Also to the younger folks just get yourself in the market.  Get a condo in a good building or development if the single priced homes are out of reach. You can always upgrade on house 2 and 3.

Agree about location, of course, but younger folks (and older ones) should be careful not to make themselves "house rich and life poor" just to get into a house or condo (or to move up to their "dream house.") Having a house but not being able to afford to do anything fun or enriching, or to not be able to invest for the future, isn't a great way to go through life. As has been discussed earlier in this thread, houses/condos aren't necessarily great investments. Sometimes, they're even mediocre (or worse) investments.

Also, though it seems like house prices only go up, there have been many historic stretches in which that has not been the case.

Here in Charlotte, it took 5+ years for housing prices to recover after the Great Recession. It had been a hot market, but it cooled off fast and very painfully for many. It's a red-hot market now, and I hope some of those buying at what is a new top every day don't regret it. And there are many markets like Charlotte now.

[dgies9156]

Agree about location, of course, but younger folks (and older ones) should be careful not to make themselves "house rich and life poor" just to get into a house or condo (or to move up to their "dream house.") Having a house but not being able to afford to do anything fun or enriching, or to not be able to invest for the future, isn't a great way to go through life. As has been discussed earlier in this thread, houses/condos aren't necessarily great investments. Sometimes, they're even mediocre (or worse) investments.

Also, though it seems like house prices only go up, there have been many historic stretches in which that has not been the case.

Here in Charlotte, it took 5+ years for housing prices to recover after the Great Recession. It had been a hot market, but it cooled off fast and very painfully for many. It's a red-hot market now, and I hope some of those buying at what is a new top every day don't regret it. And there are many markets like Charlotte now.

Tell me about it!!! LOL.

One of my good friends in our old Chicago-area neighborhood took a new job in Arkansas and sold his home for $560,000 about 30 minutes before the recession of 2008 hit. Literally.

The people who bought that house sold it six years later for $440,000.

That house was one of the reasons why I NEVER lost a property tax appeal .

[Hards Alumni]

Main problem with the housing market is three fold.

Lack of inventory, commercial investment, and commodification of housing.

[jesmu84]

Main problem with the housing market is three fold.

Lack of inventory, commercial investment, and commodification of housing.

👆

[Plaque Lives Matter!]

Would you rather have a 20% profit margin on 100 million in inventory or a 10% profit margin on 300 million in inventory?

What about a 50% profit margin on 100 million in inventory but a 50% occupancy rate?

[MU82]

Main problem with the housing market is three fold.

Lack of inventory, commercial investment, and commodification of housing.

Agreed. The OP contributes strongly to the lack-of-inventory problem.

Commercial investment was all the rage here in Charlotte - a few national (and even international) companies were buying up single-family homes like maniacs. Prices finally got so high, though, that most of that has stopped ... but the effects linger on. Many other markets experienced similar.

[Jay Bee]

  Locked in 5.65% for the next 28 years, curious if we'll ever refinance (doubt it).

Bro, u crazy?

[GOO]

Labor.  Lack of skilled construction workers, electricians etc. It’s been a problem since the Great Recession. Supply won’t get in line with demand until we solve this, maybe more factory built will help. True robots are way too far off. We know the solution to lack of Labor and skilled labor, but politically it doesn’t work. So it is a chronic problem. Barring a recession or market collapse, the lack of supply will be a constant for the foreseeable future. 

Rates. My impression on the fed rate, mortgage rates, 10 year bond rates, is that we’re historically normal. Normal is not a bad thing, except that we’ve come off a decade plus of crazy low rates. 

US housing has been cheap compared to other comparable countries. I bet we still get more house for less. Maybe the difference is less.

Demand for luxury as pointed out. Same with new apartments. Maybe it’s instagram. Not sure. 

[reinko]

Bro, u crazy?

Comment above, obvi will refi if it makes financial sense, and rates drop in the next 5-7 years.  My original comment was I’m not so sure they will, but fingers crossed they do.

[tower912]

Different time, but I bought my house at 7.25%, refinanced down to a 15 year note at 5.5%, paid $20 more a month to knock 8 years off the back end.  I get what you are trying to do.

[jficke13]

We're at 4.25, and it will take a powerful "push" force to make us move off of that rate. Could it happen? I guess. But I'm skeptical that something will come along powerfully motivating enough to make it happen.

[ATL MU Warrior]

Sitting on a 3.0% mortgage on a house we bought 5 years ago that would sell immediately for nearly twice what we paid, maybe a bit more. We did finish the basement so put close to $60k into that all in (I did a lot of the work) but we’re still going to make out like bandits. We’re not going anywhere until kids are all out on their own (youngest is 6th grader) so hoping we continue to see growth in value over the next several years. We are in number one school district in state with top 5 schools across the board and one of the fastest growing counties in the country.

[MU82]

Sitting on a 3.0% mortgage on a house we bought 5 years ago that would sell immediately for nearly twice what we paid, maybe a bit more. We did finish the basement so put close to $60k into that all in (I did a lot of the work) but we’re still going to make out like bandits. We’re not going anywhere until kids are all out on their own (youngest is 6th grader) so hoping we continue to see growth in value over the next several years. We are in number one school district in state with top 5 schools across the board and one of the fastest growing counties in the country.

Well done! Continued good fortune to you.

[jficke13]

We're at 4.25, and it will take a powerful "push" force to make us move off of that rate. Could it happen? I guess. But I'm skeptical that something will come along powerfully motivating enough to make it happen.

whoops, not 4.25.

2.75.

[rocky_warrior]

whoops, not 4.25.

2.75.

Bank error in your favor, lol.

[dgies9156]

whoops, not 4.25.

2.75.

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

[jficke13]

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

I'm happy for them to be mad at me. They wrote the loan on fixed rate terms. It's not like they can be surprised by the fact that when rates increase, low rate mortgagees with fixed rates are incentivized to maintain their existing loans.

[Skatastrophy]

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

[jficke13]

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

Especially now given that all buyers' agents do is a tiny bit of form paperwork. It's not like there's some mystery to finding homes that are for sale.

[dgies9156]

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

Much depends on the agent and the market you're in. I admit, I have a generally low regard for real estate agents but there are times when they're useful.

A Realtor(c) brings access to the MLS, for one thing. It's not the only way to sell a home, but it's a proprietary network and probably the best opportunity to get noticed.

Secondly, the adept real estate agent, stages, helps prepare things for sale and has a pool of potential buyers.

Two years ago, I sold two houses and bought one within six months. The selling agent in Florida helped stage our home, got everything "perfect" and attended every showing to ensure the features of the house were fully explained. The selling agent in Illinois on my home there was good at staging but once the house was listed, we never saw her again.

I'll agree the buy side in Florida had limited utility but I'll also admit, I know real estate finance better than most people. We found the house we live in now; we knew the neighborhoods where we wanted to live; and, we ultimately set the price. The agent was our messenger but their idea on structuring a deal helped us get the house we wanted.

It's interesting that in Illinois, the real estate agent presents the buyer and then lets counsel for both sides negotiate a transaction. In Florida, the agents do the negotiation and legal counsel drafts the definitive agreement.

Much of the value of real estate agents depends on the customs in a region and their "connections." In both communities, we already had access to financing, attorneys and anyone else we needed. My concern with most agents is why they are recommending certain folks and whether there's kickbacks between the referral and referral source. Maybe it's because I lived in Illinois too long and no one's hands are clean!

[MU82]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

[dgies9156]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

Brother MU:

The problem with discount brokers comes from real estate agent behavior. In effect, if there isn't a satisfactory commission in it for the Realtor(c), they won't show the house. That, frankly, has been one of the reasons why the National Association of Realtors(c) was sued and ultimately lost!

You're a smart dude in a good neighborhood. That makes life a lot easier, I'll concede. But not everybody knows the market as well as you or has the time to assist in the set-up and sale.

A good real estate agent knows the market well and knows how to position a home to sell. The problem, in my mind, was commissions were not negotiable, agents were lazy and the set-up/marketing work sucked. I found the quick way to separate real from pretend real estate agents is to ask "who would buy my house?" and "how many clients do you and your agency have that you will show this house in the first week?"

[Hards Alumni]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

We did the same in 2012.  It was very easy.  Sure there wasn't a ton of showings, but we were in no hurry to leave or sell below what we thought our property was worth.

Also, I wouldn't for a moment consider using an agent to sell in 2024.  The market is still red hot and you're giving up a ton of money for someone who is a glorified pencil pusher.  People are buying homes sight unseen, and without contingency or inspections. 

[MU82]

Brother MU:

The problem with discount brokers comes from real estate agent behavior. In effect, if there isn't a satisfactory commission in it for the Realtor(c), they won't show the house. That, frankly, has been one of the reasons why the National Association of Realtors(c) was sued and ultimately lost!

You're a smart dude in a good neighborhood. That makes life a lot easier, I'll concede. But not everybody knows the market as well as you or has the time to assist in the set-up and sale.

A good real estate agent knows the market well and knows how to position a home to sell. The problem, in my mind, was commissions were not negotiable, agents were lazy and the set-up/marketing work sucked. I found the quick way to separate real from pretend real estate agents is to ask "who would buy my house?" and "how many clients do you and your agency have that you will show this house in the first week?"

Well, buying agents definitely WILL show the house if offered 2-3% (using local norms).

[Herman Cain]

Much depends on the agent and the market you're in. I admit, I have a generally low regard for real estate agents but there are times when they're useful.

A Realtor(c) brings access to the MLS, for one thing. It's not the only way to sell a home, but it's a proprietary network and probably the best opportunity to get noticed.

Secondly, the adept real estate agent, stages, helps prepare things for sale and has a pool of potential buyers.

Two years ago, I sold two houses and bought one within six months. The selling agent in Florida helped stage our home, got everything "perfect" and attended every showing to ensure the features of the house were fully explained. The selling agent in Illinois on my home there was good at staging but once the house was listed, we never saw her again.

I'll agree the buy side in Florida had limited utility but I'll also admit, I know real estate finance better than most people. We found the house we live in now; we knew the neighborhoods where we wanted to live; and, we ultimately set the price. The agent was our messenger but their idea on structuring a deal helped us get the house we wanted.

It's interesting that in Illinois, the real estate agent presents the buyer and then lets counsel for both sides negotiate a transaction. In Florida, the agents do the negotiation and legal counsel drafts the definitive agreement.

Much of the value of real estate agents depends on the customs in a region and their "connections." In both communities, we already had access to financing, attorneys and anyone else we needed. My concern with most agents is why they are recommending certain folks and whether there's kickbacks between the referral and referral source. Maybe it's because I lived in Illinois too long and no one's hands are clean!

In my experience real estate agents are business tools that have utility in certain conditions. The key is identifying the conditions.

My experience is the selling agents can help a lot if your home is in any way unusual or offbeat for its local market. Or if there  are issues that come up in inspections. Many times they can help work through the common problems facing older homes. Often they will cut their commission to “subsidize” a buyer issue.

Or if there is a limited potential market. The selling agents who are willing to hustle and market to the family who is the perfect buyer are worth  a lot. One of our homes fit that description . It was the lowest house in a great neighborhood and school system, not of the predominant style. So finding a family willing ,and able ,to fork over 7 figures for the place was not easily done. Basically the agent had to find someone who had enough equity and earnings to buy our home but not enough for the homes the next level up. Also had to have little kids who were young enough that the house was a good size , but the kids were old enough for the parents to get the value of the school district and not have to shell out 36 k a kid for private school. The agent found the one and only buyer at our price range. Took over a year to find the right buyer.

I have found buyers agents are valuable in settings where there are competitive market conditions . In our case both on our primary and secondary home the buyers agent created the deals for non listed properties . In each case we got premium properties without getting into bidding wars . They then helped negotiate for items that came up in inspections. We got lucky and bought current home for high 500s per foot and current market is over 1,000 a foot if you can even find a property to buy as most people keep in their family.

In some states the real estate agents controlled the process in a process working through the title companies that eliminated the need for lawyers . There is a lot of value in that.