Mortgage rates and the housing market

[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.