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I agree - if the OP wants a house and can afford one now, then just buy one. If interest rates rise in 2015 and buying power decreases, wouldn't home prices also start to drop due to less demand at the higher price? Even if you're a housing bull, you have to admit home prices will at least start to stagnate instead of increase as interest rates rise which still results in less buying power in the future than today. Of course this all hinges on increasing interest rates.
I'm doubtful interest rates will bump significantly in the next 12-15 months. Most (if not all) of this US 'recovery' has been fueled by cheap money ... a bump in rates would snuff things out rather quickly. Even if rates do increase, I'm not sure the home prices would correct. It's not as if we're on the verge of seeing '80's era rates.
What I believe we are heading into is a period of stagnation. 1-2% real estate gains for the next the couple years (at least) and continued low rates (historically). This might strip away some of the market panic which existed in 2013 when buyers were convinced the window for low rates was closing fast.
I agree that timing a market is extremely difficult, if not impossible. My primary concern is not building equity, but rather, ensuring the equity exists in the first place. Most of the dated/aged estate sales I tour have listing prices which do not reflect the real cost of repair/updating. There's just little incentive to buy a 'sweat equity' home when material costs are high and all I see is 'sweat' and 'negative equity'. Have any of these sellers/agents priced out the cost of a roof?
I agree - if the OP wants a house and can afford one now, then just buy one. If interest rates rise in 2015 and buying power decreases, wouldn't home prices also start to drop due to less demand at the higher price? Even if you're a housing bull, you have to admit home prices will at least start to stagnate instead of increase as interest rates rise which still results in less buying power in the future than today. Of course this all hinges on increasing interest rates.
You would think so, but without an increase in inventory prices will continue to rise. If there continues to be more buyers than sellers, then people will just have to suffer their lower buying power and prices will continue to rise because they won't have any other choice if they want to buy a house. There's not much of a rental alternative out here in the 'burbs. So, if your goal is to live out in the 'burbs then chances are you don't have much choice about whether to buy or not.
Quote:
Originally Posted by Shrewsburried
I'm doubtful interest rates will bump significantly in the next 12-15 months. Most (if not all) of this US 'recovery' has been fueled by cheap money ... a bump in rates would snuff things out rather quickly. Even if rates do increase, I'm not sure the home prices would correct. It's not as if we're on the verge of seeing '80's era rates.
What I believe we are heading into is a period of stagnation. 1-2% real estate gains for the next the couple years (at least) and continued low rates (historically). This might strip away some of the market panic which existed in 2013 when buyers were convinced the window for low rates was closing fast.
I agree that timing a market is extremely difficult, if not impossible. My primary concern is not building equity, but rather, ensuring the equity exists in the first place. Most of the dated/aged estate sales I tour have listing prices which do not reflect the real cost of repair/updating. There's just little incentive to buy a 'sweat equity' home when material costs are high and all I see is 'sweat' and 'negative equity'. Have any of these sellers/agents priced out the cost of a roof?
A lot of pundits are predicting interest rates by the end of next year of around 5-6%. On a loan amortized over 30 years even a 1% increase in the rate can make a significant change in the monthly payment. You can wait to buy if you want, but if you're capable of buying now that's probably a better financial decision. Again, I don't have a crystal ball but G_d help us if a serious crash comes.
You pay for the roof yourself, or through the higher buying price and higher mortgage. Either way, you pay. Sweat equity is tried and true way to boots home value, if location warrants buying. It can be very rewarding to be able to do things to a home and make it your own. If you are young and have energy, why not?
What happens if next the spring brings even more bidding wars, and inflated prices simply because of the low inventory? What's the plan B?
In Eastern MA it is never just about interest rates, but inventory as well. It is wild card you need to consider seriously.
Any FTHB also needs to consider how many potential sellers refinanced into super low rates in the last decade. They will not sell. Most will rather expand their "starter" homes, and stay put, than double their mortgage for one or two bedrooms in better home they need to get into bidding war for. On top of it, cost of selling and buying is not cheap. Market is not as good to trade-up home buyers right now.This also kills inventory.
My take is that lower inventory might make prices go higher despite interest rates, simply because they will be more buyers competing for handful of homes. Which, creates another type of panic.
I don't know if it's a product of the fact that most of my work is in some pretty upscale suburbs, but ever since the housing bubble burst most of the buyers insist on "move in ready" homes. If they have to put in a new kitchen, renovate a bathroom, or really do more than just paint then it's on to the next one. As the bubble was inflating, people would have sold their grandmother for a fixer upper.
It's an interesting question - I think it's a confluence of several things. But one would be that with prices where they sit, for many buyers you'd have to leverage to the hilt to get in the door today. That doesn't tend to leave much money in your pocket or income stream for doing repairs.
When prices were rising steadily above inflation and lenders were falling all over themselves to hand out HELOCs, that was less of a concern, since all you had to do was wait 12 months and just market appreciation would create 8-12% equity that you could tap out regardless of credit to pay for the repairs/upgrades.
And, of course, everyone "knew" that prices could only go up, so it was a no-risk prospect.
I think now there's the reality that home equity loans are much harder to get, prices are rising but not as fast, and there's some risk of prices falling down the road. There's a very real risk of getting stuck in your fixer-upper without any money to fix it up, and potentially with negative equity to boot if the market turns.
I think now there's the reality that home equity loans are much harder to get, prices are rising but not as fast, and there's some risk of prices falling down the road. There's a very real risk of getting stuck in your fixer-upper without any money to fix it up, and potentially with negative equity to boot if the market turns.
This is my primary sticking point with 'fixer uppers' given the current market. You've captured my borderline rant into one concise paragraph.
This is my primary sticking point with 'fixer uppers' given the current market. You've captured my borderline rant into one concise paragraph.
To be clear, my concern is not the inability to pull equity out of the house for improvements (I don't believe in pulling equity), rather, its the real risk that a 'fixer upper' can quickly lead to negative equity if the market stagnates (due to the cost of improvements exceeding market return). I'm willing to take on risk and commit money/labor if there is a good value proposition; however, I've seen few distressed properties which seem economically viable in terms of the required repairs/improvements not exceeding market value. I can now fully appreciate why all the new builds in these towns are 3,500 sqft monstrosities ... it's the only viable economic path for a developer.
Any FTHB also needs to consider how many potential sellers refinanced into super low rates in the last decade. They will not sell.
This is an excellent point which rarely gets mentioned. Many assume boomers must cash out at some point; however, I've yet to see this 'downsizing' effect happen in a significant way. The only boomers who appear to be 'cashing out' are the dead ones, in which case, the kids are the one's cashing out. Most have refi'd down from their 1X.XX% rate over the past 10-20 years and show little motivation to sell. Perhaps in 10 years we'll see a flood of 'boomer homes', but playing that bet would cost me $200k+ worths of rent.
This is an excellent point which rarely gets mentioned. Many assume boomers must cash out at some point; however, I've yet to see this 'downsizing' effect happen in a significant way. The only boomers who appear to be 'cashing out' are the dead ones, in which case, the kids are the one's cashing out. Most have refi'd down from their 1X.XX% rate over the past 10-20 years and show little motivation to sell. Perhaps in 10 years we'll see a flood of 'boomer homes', but playing that bet would cost me $200k+ worths of rent.
Haha, I was thinking about this the other day. I've been reading for the past 10 years that boomers will be selling their homes in the suburbs which will create a glut of inventory. Like you, I just don't see this happening. In fact, I can only think of 1 couple that actually moved to the city after their kids left the nest. The vast majority stay put because Americans don't like change. I can see immigrants, particularly from Asia and Europe wanting to move to the urban areas, but not Americans. They like the idea of living in the city, but most will never be able to get rid of all their crap in order to downsize into a condo.
Haha, I was thinking about this the other day. I've been reading for the past 10 years that boomers will be selling their homes in the suburbs which will create a glut of inventory. Like you, I just don't see this happening. In fact, I can only think of 1 couple that actually moved to the city after their kids left the nest. The vast majority stay put because Americans don't like change. I can see immigrants, particularly from Asia and Europe wanting to move to the urban areas, but not Americans. They like the idea of living in the city, but most will never be able to get rid of all their crap in order to downsize into a condo.
I agree. It's not like all of a sudden the entire generation will decide to sell and the market will be flooded. They'll sell their homes gradually and hopefully by the time that happens the next generation will be ready to buy the boomers' houses. There's a generation coming down the pipe that is similar in size to the boomers. I can't remember if it's the millennials or maybe the echo boomers.
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Originally Posted by wxjay
A real estate broker told me that for MA, the most closings happen in February. *shrug*
I can't imagine that's correct. The majority of houses are listed in the spring (April/May) and the process to get from contract to closing usually is about 60-90 days. So in the current environment where houses sell in the first week, that put most of the closings in July/August. In a more balanced market, it would probably take 30-60 days to get a contract which will put the majority of closings in September/October.
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