patrick.net

Rubicon says

If more people sell you think inventory rises, which is actually not correct. A seller is usually a buyer. You sell one +1 and you buy another -1 = 0. Your net inventory doesn’t increase.
Inventory rises when you add more supply to the market (building new construction).

yes as far as net housing available for long term rent or purchase

hopefully areas of population AND housing growth that has some tourism do not see where new housing starts are eventually made into vacation or short term rentals

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1337irr says

Where do you live? Texas it's easy to get bids generally.

No one builds in IL. They move out. That includes contractors. There's not work, so they go where it is. Texas or Florida is probably a good guess.

zzyzzx says

Which is why it's going to cost WAY more than you originally anticipated... You forgot to mention that.

I honestly don't care about the cost. We do very well. We won't be house poor that's for sure. That would take $2-3M and that ain't happening where we live. $600-700k on the high end. 2x's income. We just can't live in this current house with 3 boys that are nearing teenage years. There's zero inventory. So we have to build. Rates will come down. Centrally located for the wife's work and I'm 14 minutes away from mine. My mom wants the house and has cash to give us. Knock on wood, life has worked out for me. My dad was a fucking ass hole, but he did teach me a lot.

Freakin' housing market is crazy here in San Jose, July 7,2023.

I thought Trailer Homes were difficult to sell. Silly me. Our Friday Senior Fitness Instructor at the gym told us her Trailer Home will be "shown" tomorrow.

Jeez.

We like her a lot. We wish her the Best.

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https://www.cnn.com/2023/07/08/business/mortgage-rates-home-prices/index.html

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Higher mortgage rates have reduced home inventory
In theory, when mortgage rates go up, home prices should fall since it raises the cost of homeownership, thereby reducing demand. But that’s not happening.

That’s partly because the higher mortgage rates that came after the Fed hiked rates created a major lock-in effect, said Kiefer.

At the start of the pandemic, the Fed slashed rates to near-zero levels in hopes of stimulating the US economy as businesses closed and workers stayed home to avoid catching or spreading Covid. With such low rates, homeowners and homebuyers were then able to refinance or buy with rates as low as 2%.

With mortgages now approaching 7%, all that has changed. Selling could mean forfeiting a low mortgage rate for one that’s potentially double.

“Many existing homeowners find it difficult to give up a mortgage under 4% to trade for one over 6%,” Kiefer said. That has contributed to a decline in housing inventory.

And since many homes are still listed above where they were before the pandemic, homeowners have little incentive to sell.

“It seems to be that supply will be stuck for the foreseeable future,” said Dougherty.

Housing inventory, or the number of active home listings, is down by a third from before the pandemic. As of June, there were nearly 614,000 existing homes listed compared to almost 928,000 in February 2020, according to data from Realtor.com.

In many ways, the housing market is still playing catch-up from the Great Recession, which induced nearly a decade of sluggish new home construction, Divounguy said. When mortgages fell below 3% in 2020, home builders started to pick up — but not fast enough to meet the pandemic surge in demand.

Home inventory is likely to drop even lower due to the “low flow of listings paired with the demand for homebuying in the spring,” Zillow’s Divounguy told CNN. On top of that, housing demands remain high because the labor market is still so strong and workers continue to earn more than they had before the pandemic, he added.

“That tells the crux of the story for why the housing market seems a bit odd right now,” Divounguy said.

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The author of the article made some great points. In theory, people expect home prices to fall when mortgage rates go up. Unfortunately, this has been proven wrong time and time again. If this were true, how would the author explain what happened in the 1970’s and 1980’s when mortgage rate went as high as 18% and home prices tripled? Reality and theory are 2 different things

ad says

“It seems to be that supply will be stuck for the foreseeable future,” said Dougherty.

i rarely agree with CNN but this is pretty much spot on for anything outside the major cities. My tenants are pretty much stuck being renters unless rates crash so sucks for them, but I only raised the rent 4% for the good ones. Feeling pretty good as a landlord right now. My brother has been telling me housing will crash for the last 5 years. I just don't see it anywhere outside the big cities.

Eman says

Reality and theory are 2 different things

I'm not sure as far as the number of housing sales in this market of +6% rate. The number of sales has significantly dropped off recently; please check this chart. Hence, less liquidity. Look at the drop off in home sales in 1980 when interest rates increased significantly.

Like Patrick said when he was on 20/20 and/or in his book, you are buying a house payment (mortgage, property tax, property insurance, and HOA fee); so a higher interest rate means higher house payment. That prices people out of buying a home they could barely afford at a lower interest rate.

What I want to see is more new housing construction starts to increase to increase supply and drop prices.
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RedStar says

ad says

“It seems to be that supply will be stuck for the foreseeable future,” said Dougherty.

i rarely agree with CNN but this is pretty much spot on for anything outside the major cities. My tenants are pretty much stuck being renters unless rates crash so sucks for them, but I only raised the rent 4% for the good ones. Feeling pretty good as a landlord right now. My brother has been telling me housing will crash for the last 5 years. I just don't see it anywhere outside the big cities.

I remember buying a 12-unit building in summer 2018. I told myself it was the top of the housing market while I’m going all out, but the deal was too good to pass up.

Then in the fall 2018, another 10-unit came up, I told my partner it’s a no go for me. He said let’s raise money to buy it, and we did. Both buildings are doing super well and we’ve been getting record rents on turnovers. More people are being forced to rent due to the higher mortgage rates. The Fed did it again…

ad says

Eman says

Reality and theory are 2 different things

I'm not sure as far as the number of housing sales in this market of +6% rate. The number of sales has significantly dropped off recently; please check this chart. Hence, less liquidity. Look at the drop off in home sales in 1980 when interest rates increased significantly.

Like Patrick said when he was on 20/20 and/or in his book, you are buying a house payment (mortgage, property tax, property insurance, and HOA fee); so a higher interest rate means higher house payment. That prices people out of buying a home they could barely afford at a lower interest rate.

What I want to see is more new housing construction starts to increase to increase supply and drop prices.
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How do you expect sales not to decline when there are less homes for sale? How did Patrick explain the housing phenomenon in the 1970’s and 1980’s on 20/20?

I’m shocked that people are still buying in the current market. As I’m clueless, I’m observing and learning. I’m not going to call anyone stupid or an idiot. They must be doing something right to be buying in the current market environment.

With respect to new construction, it’s around 10% compared to existing home sales if my memory is correct. It’s not significant. I haven’t been tracking housing data for years since I switched to buying apartments so you may want to look it up and prove me wrong.

Rubicon says

Lol, I got people like that in my circle of friends and relatives. Since 2016 I hear the RE market is going to crash. I just keep buying houses is my response to that.

This couple in our social circle sold their home in 2020 for maybe 300k in profit and I was the only one telling them not to do it. The guy wont even show his face to me anymore as if it's my fault.

Eman says

I’m shocked that people are still buying in the current market. As I’m clueless, I’m observing and learning. I’m not going to call anyone stupid or an idiot. They must be doing something right to be buying in the current market environment.

Yeah right now just doesn't make sense. The fortress areas in Placer County (loomis, lincoln, newcastle) where I'd like to upgrade to haven't dropped at all.And everything still sells. I'm guessing its the bay area people.

RedStar says

Eman says

I’m shocked that people are still buying in the current market. As I’m clueless, I’m observing and learning. I’m not going to call anyone stupid or an idiot. They must be doing something right to be buying in the current market environment.

Yeah right now just doesn't make sense. The fortress areas in Placer County (loomis, lincoln, newcastle) where I'd like to upgrade to haven't dropped at all.And everything still sells. I'm guessing its the bay area people.

Bay Areans bring their housing market mindset to other markets and F everything and everyone up. It’s a disease IMO. I don’t share their value and their politics.

Commercial loan mortgage rates were kind of high in 2018. We borrowed at 4.6% and 4.4% on the 2 buildings. Rates dropped in 2019. We asked our lender if they could do something for us. The modified our loans and lowered our rates to 4.25% and 4%, respectively. We had to pay $1k or so for the fees and recording new loan docs.

In 2021, rates dropped even lower. We refinanced both buildings to 3.5% on another 5/1 ARM so they’re good till 2026. Both buildings have been performing exceptionally well since. Hopefully, we’ll be alright when it’s time to refinance in 2026.🤞

Higher mortgage rates have reduced home inventory

That's just lazy. Mortgage rates are historically normal to low :

https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart


The inventory problem is a demographic problem. There are more millennials, and right on the heels of that more Z'er's, than boomers.

https://www.statista.com/statistics/797321/us-population-by-generation/

I highly recommend going to housingwire.com and listening to any and all podcasts with analyst Logan Mitsubishi (not even attempting to spell his name right). : https://www.housingwire.com/shows/housingwire-daily/ Agree or disagree, he's been proven right over time.

stfu says

That's just lazy. Mortgage rates are historically normal to low :

https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart

That's lying by omission because if peak prices were set around a locked-in 30 year mortgage rate of 4% and if the rate increases to 6%, then it would be harder to sell a home without dropping it every 10% for a 1% increase in the rate.

Remember what Patrick said that you are buying a monthly home payment not a home, unless you are buying with cash and are presumably Eman-like.

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Rubicon says

Rates fuel the market or put pressure on prices but the notion that higher rates mean lower prices have been proven wrong for decades.

We haven't had high rates for decades so how can you say that? But yes, home prices are set by more than 1 factor.

Logan was on Patnet for a while. He used to argue with iwog. Funny guy.

I was skeptical with some of his predictions, but have to give credit to him for being right. Did he say when this housing cycle would peak? around 2026?

GNL says

Rubicon says

Rates fuel the market or put pressure on prices but the notion that higher rates mean lower prices have been proven wrong for decades.

We haven't had high rates for decades so how can you say that? But yes, home prices are set by more than 1 factor.

I’m not sure the definition of high rates. The last time we saw rates this high was in 2007. My in-law bought their house in 1999 at 8% for a 30-year fixed mortgage. Their house has appreciated more than 4x since.

Rubicon says

And currently, inventory is historically low.

I personally do not think this will change. We are at the point where % of owners vs renters is going to go down down down.

Rubicon says

Do you know what happened to rents and house prices during the 70’s? I’ll let you google that yourself.

You said decades. You're referencing half a century ago.

Rubicon says

wouldn’t be surprised if in a few decades law changes and you can’t do it that easily anymore because it will be dominated by corporate America.

And what will be your opinion then...whatever? Was America always destined for feudalism? I'm scratching my head not knowing why people don't have a problem with this. Corporations as our masters? This sucks for everyone.

Unless there's something attractive about patnet to RE Rubicon is someone who has been here before, but doesn't want to use his old monikor. Maybe because he's on the ignore list a bit too much to get any attention?

I don't live in philosophy man, I live in reality. And reality for me, living in SoCal for 20+ years has been no housing shortage. I've moved whenever I wanted, wherever I wanted, lived almost exclusively in houses, and never paid the rent everyone else has. And unlike you, I've never had to pay a cent for maintenance. Boiler blows up, not my problem. Roof leaks, not my problem. Pipes are bad, not-my-problem. I bought in '06 and now loan is worth more than the house it's attached to, never happened to me. I bought in Yuma recently and can't rent or sell my house for enough to cover my mortgage, NOPE - not me.

Oh yeah, and I've done all this on one income. My wife never had to work, was able to be fully dedicated to raising our kids. Your outlook is unrealistic, narrow, and biased. Mine is based on not wanting to buy something without seeing it first, and without paying a reasonable price. When those factors are true in a market we're willing to buy in, that's when we'll buy something.

Rubicon says

Exactly. A nation of renters and some that own an empire of rental units

depends as Patrick can attest to this...if one can save (and effectively invest ) money renting compare to owning, then it may not be problematic as far as renting ...

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I've always owned the home that I live in but I do sometimes envy renters. I tell my kids all the time to rent forever. I know, "math" says to buy but I have never seen a calculation that includes the true cost of home ownership. I'm talking about :

NuttBoxer says

Boiler blows up, not my problem. Roof leaks, not my problem.

There is SO much truth to this. I will also add painting, staining, or power washing (brick) every 10 - 12 years. Trim work. Landscaping. It never ends. If you're married, you are probably looking at a remodel project every 5 years. If you do the work yourself you can save a bundle but you'd probably make more on an hourly basis behind a fast food counter. Eventually, we all get to the point were we physically just can't keep up with the maintenance.

I'm hoping I'm on my last house. It's too big and it's too old and it's not even a question of 'what needs to be done' but of 'where do I stop?'. My plan (unbeknownst to my wife) is to finish this project, sell it for three times what we paid, and pay someone rent until I die.

Just got this in my inbox. Lenders will find creative ways to lend to qualified borrowers. They don’t sit around and do nothing. Like everyone else, they have to put food on the table for their family too.

This is the beauty of commercial real estate. Its qualification is based on the asset. Strong borrowers help too. Having high income helps even more.

Rubicon says

He said they are trying to re-zone parts of the island to prevent short term rentals.

This is true, even mine might be affected and it's been zone for nearly 50 years. People who live there hate the traffic, tourists and are too lazy to try to make money to afford the ever increasing cost of housing. University of Hawaii is available to them but they just bitch instead.

just_passing_through says

Rubicon says

He said they are trying to re-zone parts of the island to prevent short term rentals.

This is true, even mine might be affected and it's been zone for nearly 50 years. People who live there hate the traffic, tourists and are too lazy to try to make money to afford the ever increasing cost of housing. University of Hawaii is available to them but they just bitch instead.

This is why immigrants thrive in this country. We’re willing to work hard. We see the rewards unlike the folks who are born here and speak the language. They have it good without realizing it.

Renting is a temporary thing for us immigrants. We want to own our house. We want to control our destiny. No one can tell us to move with a 30-day notice. We want to own multiple homes and keep them for the next generation if we can afford to do that.

My neighbors are immigrants from South Africa. They own 2 SFH rentals nearby. They bought them decades ago, one for each kids.

Eman says

This is why immigrants thrive in this country.

True and admirable but I wasn't entirely clear: I was mainly speaking of the natives however there are a lot of losers from all over that have shipwrecked in Hawaii.

Eman says

Lenders will find creative ways to lend to qualified borrowers.

For me I have a lot saved but limited income counted toward a VA mortgage. They don't count short term capital gains such as from options trading. They will count dividends as income.

So I have the cash to pay for discount points for a mortgage.

I would hope if the 30 year mortgage is 6% that I could spend 10% of the mortgage to pay down the rate from 6% to 3.5%.

This is based on 1% discount point for every 0.25% decrease in the 30 year mortgage rate.

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just_passing_through says

Eman says

This is why immigrants thrive in this country.

True and admirable but I wasn't entirely clear: I was mainly speaking of the natives however there are a lot of losers from all over that have shipwrecked in Hawaii.

I hear you. There are immigrant losers too, but they are the minority in comparison.

Based on my experience dealing with people in the Bay Area and people I encountered on Biggerpockets, folks, who are born here, have a different mindset and work ethics compared to immigrants. The same with my circle of friends, immigrants simply do better and hustle more.

ad says

Eman says

Lenders will find creative ways to lend to qualified borrowers.

For me I have a lot saved but limited income counted toward a VA mortgage. They don't count short term capital gains such as from options trading. They will count dividends as income.

So I have the cash to pay for discount points for a mortgage.

I would hope if the 30 year mortgage is 6% that I could spend 10% of the mortgage to pay down the rate from 6% to 3.5%.

This is based on 1% discount point for every 0.25% decrease in the 30 year mortgage rate.

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At the risk of sounding arrogant, I believe I have a solution for you if I know your financial situation.

To share a couple of examples: 1) I helped my cousin bought a $600k house with a $417k 30-year fixed conventional mortgage on a $38k salary at 4.75% mortgage rate. Just think about it for a moment. It was done by one of my favorite and creative loan officers, 2) I loaded my wife with debt during the last downturn to the tune of 15:1 debt to income ratio. How was it even possible during one of the most stringent loan underwriting of our time after the Global Financial Crisis? I don’t know if you remember “pkennedy” on this site. @EBGuy probably remembers. We bought 6 properties together, and I loaded him up with 7:1 debt to income ratio. 😅

As Henry Ford once said “If you think it’s possible, or impossible, you’re both right.” When I shared what I did during the downturn to buy and finance real estate, my Bay Area real estate friends/investors, who I met through Biggerpockets and local meetups, said they wish they had met me earlier. It’s not what we think. It’s how we think. Be a problem solver. That’s how we get paid in real estate.

Rubicon says

Builders, as we can see, are savvy in building enough to sell quickly but cautious enough to prevent overbuilding. They are smart enough to not fuck themselves.

Bingo. A lot learned the hard way during the housing bust. So they build cautiously now. That and quality trades are hard to come by. During the end of the boom builders around here were still buying 80 acre parcels and dropping 200 homes on them with no buyers. 1/4 lots and you could pee on your neighbors house out the window. Sure they sold 20-30, but then the inventory skyrocketed because they overbuilt. Not remotely seeing that here in IL. It's contract and then build.

Eman says

My neighbors are immigrants from South Africa. They own 2 SFH rentals nearby. They bought them decades ago, one for each kids.

I don't like this practice. I have wealthy friends that do this. I get wanting to do what is best for your kids, but I'm paying nothing for college, not buying houses. They need to figure it out on their own.

I also don't believe that college is for everyone. Go be an airplane mechanic or something weird like that. Those jobs will always be in demand. You need annual inspections and overhauls after so many hours. Not a pretty job, but everyone needs plumbing and electric. Do 2 years of business study at a CC and start your own company. Learn accounting. IF you go to college make sure it STEM. Everything else is pretty much stupid.

Eman says

I helped my cousin bought a $600k house with a $417k 30-year fixed conventional mortgage on a $38k salary at 4.75% mortgage rate.

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Your cousin's monthly gross income is $3167 yet he is paying $2175 for just a monthly mortgage (not including property taxes, insurance and hoa fee).

So he has unreported income to help pay for food and other expenses ? Or is he going to rent out a couple of rooms as part of being a boarding house ?

I assume this is his primary home. How do I get a deal like this ?

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Eman says

I helped my cousin bought a $600k house with a $417k 30-year fixed conventional mortgage on a $38k salary at 4.75% mortgage rate. Just think about it for a moment.

Ok, I've thought about it for a moment. How does he pay the debt with that income? How did he qualify?

Good point. 417000 * 0.0475 = 19807.50 per year in interest alone. That's half of his $38k salary.

I suppose one could eat ramen all the time.

Patrick says

Good point. 417000 * 0.0475 = 19807.50 per year in interest alone. That's half of his $38k salary.

I suppose one could eat ramen all the time.

With PMI (although I don't
think PMI is required in this scenario) and taxes, insurance, principal it eats up more than the after tax 38k.

GNL says

Ok, I've thought about it for a moment. How does he pay the debt with that income? How did he qualify?

You don't need to be qualified to get home loans. That's a false narrative when they claim It's different this time!

The dude put down over 30% of the purchase price. I am guessing that even though he may have meager income, he has substantial assets. A lender that would see several millions of dollars of assets would have no problem loaning the guy the coin. Plus the loan is protected by the down payment.

The dude flashed a sheet ton of bitcorn at the lender?