patrick.net

https://slate.com/business/2022/09/home-owner-personal-finance-advice.html

I Was Part of the Home-Buying Rush. I Deeply Regret It.

It seems to me like I bought a home at what was probably the peak of the market… Maybe even the same week it started to turn—when we didn’t realize it was turning from a seller’s to a buyer’s market. And, unfortunately, I don’t love the place (long story) and am not dying to be here for very long. The mortgage should be manageable if everything lines up but is higher than what would be truly comfortable.

What should I do, practically, to make sure it’s not a loss? And, more philosophically, how do I not obsess about the timing of this decision?

Realtor recommends that parents should buy a house for their child now because they will never be able to afford one in their lifetime

https://www.instagram.com/reel/CijHdUCg9-Y/?igshid=NmNmNjAwNzg%3D

When house prices drop materially, the shit is going to hit the fan because everyone is going to know that the government caused the drop because they raised interest rates. The government will have nobody to blame for this they are going to have to face the pitchforks.

The Fed is supposed to have a mandate for price stability. When they intentionally drop the price of the largest asset most families have by 20% putting millions of families upside down on their houses' equity, expect some shit.

Misc says

everyone is going to know that the government caused the drop because they raised interest rates.

No, the government created the ridiculous run-up in house prices (and other asset prices) by keeping interest rates stupidly and artificially low. What is happening now is just a correction. Saying the government caused a real estate house price crash by raising rates is like a drunk blaming his hangover on the fact he stopped drinking.

Misc says

The Fed is supposed to have a mandate for price stability. When they intentionally drop the price of the largest asset most families have by 20% putting millions of families upside down on their houses' equity, expect some shit.

Most consumers who are subject to inflation are not buying a house every day or every week or every month, like they are for other stuff. If they have underwater equity that does not increase the cost of the monthly mortgage payment.

The equity you write of is only an "asset" for one who's selling (can you say, Flipper?) that can only be otherwise exploited with HELOCs (more debt) or Reverse Mortgages (exploiting Old Folks). Otherwise, the equity's not really an asset. If folks get pitchfork angry for the loss of something they never really had, then I think they have an issue with Anger Management that will not be fixed by the fed (not part of the government) relaxing the overnight lending rate to pour gasoline on the inflationary fire.

The un-destructed capital of upside down equity is the creditors' problem, not the underwater homeowners'. I know a few folks here in non-recourse California who walked away from their underwater problems in 2006 - 2009. The underwater equity became destructed capital for the creditors, - not the problems of those who walked away.

On the other hand, the high gasoline prices staring them in the face every time they drive past a filling station sign, the inflationed grocery prices every week at the supermarket, monthly higher and higher utility bills, are a constant source of stress and anger.

For the 7-14 million families that bought their houses at the inflated price and now cannot make the mortgage payment because of consumer price inflation, dropping the price of their house by raising mortgage rates, puts them in a bind. They cannot sell to get out of the trap.

Everything will go along until collectively they all hit the credit limits on their credit cards at once.

Rents ain't gonna drop because there is a housing shortage and new construction has basically stopped. Add a few more million illegals and you get what you get. With OER and rent making up about a third of the CPI we need more housing. The FED has fucked themselves.

Misc says

For the 7-14 million families that bought their houses at the inflated price and now cannot make the mortgage payment because of consumer price inflation, dropping the price of their house by raising mortgage rates, puts them in a bind. They cannot sell to get out of the trap.

I get our point, but the government does not set interest rates.

Nor does the federal reserve, except the overnight lending rate between its member banks.

The fed (not part of the government) influences all other rates that are set in the marketplace, but it doesn't set those rates. Yes, yes, I know, the fed's actions forced rates down with Quantitative Easing (Money Printing) which set artificially high demand for debt and so its actions dominated the rates, which are set in the marketplace by auction for treasuries and bid/ask for other debt types.

Now they're using their influence to skew rates higher, in an effort to slow the inflation and slow the suffering for the homeowners you cite, - with their fixed-rate non-inflationary rate mortgages.

Or, in a formula it seems like you're suggesting, the fed can make matters worse by letting inflation turn into a conflagration.

Come'on bro, interest rates are still extremely low. Maybe too low to extinguish inflation. The still-low rates continue to punish savers including Mom and Pop retirees (can you say, fixed rate mortgages?) and make pension funds scramble to fund their liabilities.

Most homeowners did not over borrow (at fixed rates, bro) to over pay for a crapshack in the past couple or so years like those you cite. The huge majority of homes were purchased long before that.

Misc says

When they intentionally drop the price of the largest asset most families have by 20% putting millions of families upside down on their houses' equity

I see this is a no-factor as long as unemployment does not rise about 7%. A lot of them bought with a 30 year mortgage rate of 3% to 3.75%.

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B.A.C.A.H. says

Most homeowners did not over borrow (at fixed rates, bro) to over pay for a crapshack in the past couple

Anyone who bought in the last 2 years overpaid though.

Booger says

Anyone who bought in the last 2 years overpaid though.

Agreed. And if they all walk away from underwater loans we'll have another financial crisis.

But they are a small part of the overall homeowners.

That said, maybe Misc. has a point if the other 90% or so of homeowners were serial re-financers taking out their vapor equity to spend.

My partner and I did fairly well over the decades but could not afford all the sh*t my contemporaries spent on and consumed for. In my opinion the most egregious of that stupid sh*t spending was the timeshares. Maybe they were discreetly paying for it with cash out refinancing.

The government does set interest rates. It can buy up unlimited amounts of mortgage bonds to even push rates into negative territory (as has been done in Europe), and just the threat of it selling a couple trillion dollars of mortgage bonds would push mortgage rates to over 10%. The market is government controlled and it lets insiders know what is going to happen. If anyone gets carried away however, they simply get crushed.

With mortgage rates at over 6%, they are high, having doubled in the past 18 months. Construction has basically stopped because nobody can sell SFH to people requiring a mortgage and make a profit.

Misc says

Rents ain't gonna drop because there is a housing shortage and new construction has basically stopped. Add a few more million illegals and you get what you get. With OER and rent making up about a third of the CPI we need more housing. The FED has fucked themselves.

I see regression as we collectively tighten our belts and as a result, you get more people getting roommates to help pay for home expenses.

That is why if you went to Northern Virginia such as Manassas and Manassas Park, you will see two or three families living in one home.

I used to live in a boarding house and paid $700 a month in Manassas back in 2011 because my job was in Manassas. At least I had my own bedroom and bathroom. It as a 5 bedroom, 4 bathroom home built in the mid 1990s.

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Misc says

With mortgage rates at over 6%, they are high, having doubled in the past 18 months.

Historically the 30-year mortgage rate has trended or tracked about 2 to 3% above the Fed Funds rate.

If current home prices are priced based when the mortgage rate was 3%, then prices should drop about 30% based on a 10% drop for every 1% increase in the 30 year mortgage rate.

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Misc says

The government does set interest rates. It can buy up unlimited amounts of mortgage bonds

I get your point but it's not the government, its non-governmental agencies like the fed, Freddie Mac, etc. And those agencies don't set the rates either but they created artificially high demand which in a debt auction marketplace the bid goes to the lowest bidder.

Yeah I know, everyone wants to be a victim and blame the Big Bad Government.

The Big Bad Government didn't do those things. Fed and agencies' actions were political in response to political imperatives of whomever is in power elected by folks like us, not "the government".

Plenty of blame to go around and cry victim about. However, problems are not solved till we identify the source of the problem which will require a look in the mirror. We've coveted living beyond our means for decades. Politicians were all too happy to pressure entities like the fed to do some smoke and mirrors to keep the gig going for a while. Now we wanna blame everyone except our own selves.

Kind of like we Coastal Californians who live in a natural desert expecting copious amounts of cheap water to keep our lawns lush and top off our swimming pools,

Patrick says

zzyzzx says

Looks like money laundering.

Redfin doesn’t show that sale price. Maybe just a print error?

It is not the price of the house that changes (although it does to a certain extent because of inflation). It costs about the same to build a house from year to year. It is really the price of the land that changes. When you think that historically 80% of the purchase price of a SFH was the house and the other 20% the value of the land with a total price move of 20% you see how 3rd world the US real estate market is.

Ok, Powell said it out loud that the Fed wants house prices to fall.

Since nationally, this has happened only twice in the US's history: once the Great Depression and the second the Global Financial crisis....what could possibly go wrong ??????

https://finance.yahoo.com/news/feds-powell-u-housing-market-194508055.html

HeadSet says

Misc says

everyone is going to know that the government caused the drop because they raised interest rates.

No, the government created the ridiculous run-up in house prices (and other asset prices) by keeping interest rates stupidly and artificially low. What is happening now is just a correction. Saying the government caused a real estate house price crash by raising rates is like a drunk blaming his hangover on the fact he stopped drinking.

True.

Misc says

It is not the price of the house that changes (although it does to a certain extent because of inflation). It costs about the same to build a house from year to year. It is really the price of the land that changes. When you think that historically 80% of the purchase price of a SFH was the house and the other 20% the value of the land with a total price move of 20% you see how 3rd world the US real estate market is.

@Misc I think you might make a fine Georgist!

Misc says

The FED has fucked themselves.

How has the FED fucked themselves when they never experience any consequences? No, we're the ones who get fucked.

GNL says

How has the FED fucked themselves when they never experience any consequences? No, we're the ones who get fucked.

Good point, as the member banks of the Federal Reserve System (Trustmark, Wells Fargo, Bank of America, Citibank, etc.) are too big to fail.

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Booger says

B.A.C.A.H. says

Most homeowners did not over borrow (at fixed rates, bro) to over pay for a crapshack in the past couple

Anyone who bought in the last 2 years overpaid though.

How could you say stuff like this? I sold this flip for $1.325M 2 years ago. Comps show it’s still worth over $1.7M. Yeah, I paid $640k for it.

https://redf.in/ElcieL

This buyer did alright too. Yeah, I paid $355k for this flip. 😅

https://redf.in/PdOp3m

This buyer did alright too. Yeah, I paid $340k for this flip. 😅

https://redf.in/YES9V5

This buyer is holding up alright. The saving grace is that they all locked in really low mortgage rate. Hope they can weather this storm and come out on the other side. Yeah, I paid $510k for this flip.

My underwriting is 50-60% ARV. If anything higher, let others do it. Not worth the time and efforts.

https://redf.in/jWmLcQ

Eman says

The saving grace is that they all locked in really low mortgage rate.

I wonder in the current climate if an assumable mortgage like a VA mortgage is a positive selling point is someone wants to sell a home now.

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ad says

Eman says

The saving grace is that they all locked in really low mortgage rate.

I wonder in the current climate if an assumable mortgage like a VA mortgage is a positive selling point is someone wants to sell a home now.

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I know for a fact that there are assumable loans in the commercial space.

Don’t know about residential. VA is for veterans right? Unless you’re selling from one veteran to the next, I’m not sure VA would want to assume the loan to someone who is not a veteran, but it’s only my guess.

Assumable loans are so valuable right now especially those loans in the low 3%. 1031 exchange buyers would love to pay 1 point and assume these loans in the current market environment. You’ve just given me an idea. Thank you. 🙏

Eman says

Don’t know about residential. VA is for veterans right? Unless you’re selling from one veteran to the next, I’m not sure VA would want to assume the loan to someone who is not a veteran, but it’s only my guess.

Veteran Affairs mortgages are assumable, and they can be assumed by non-veteran homebuyers who qualify for the loan.

My wife and I have a 3% VA mortgage on a townhome we bought in 2016. We paid around $188,000 and now have about $160,000 remaining balance. The recent sales were about $300,000 for the identical townhomes in our community. But I figure the price will bottom from $300,000 to $220,000 if the 30-year mortgage rate steadies to 6%.

We could offer an assumable mortgage on that $160,000 balance. So if they buy at $240,000 then they would have to finance at 6% the remaining balance of $240,000 minus $160,000, or $80,000. Two-thirds of the loan ($160,000) is at 3% and one-third is at 6%, so the effective mortgage rate is 2% + 2% or 4%.

That effective rate of 4% is what we could market to any potential home buyers who qualify to assume the VA mortgage balance of $160,000.

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September 21, 2022 speech Q&A:

Existing home sales have fallen for seven months straight, mortgage are the highest since 2008, yet mortgage demand increased and housing prices are still elevated. You mentioned plans to reset the market. Could you elaborate on what you mean, and what you think it will take to get there?

>> CHAIRMAN POWELL: When I say reset, I’m not looking at a particular specific set of data or anything. What I’m really saying is that we’ve had a time of a red hot housing market all over the country where famously houses were selling to the first buyer at 10% above the ask before even seeing the house, that kind of thing.

So, there was a big imbalance between supply and demand. Housing prices were going up at an unsustainablely fast level. The deceleration should help bring prices more closely in line with rents and other housing market fundamentals. And that’s a good thing. For the longer term, what we need is supply and demand to get better aligned so housing prices go up reasonably and people can afford houses again.

In the housing market, we have to go through a correction to get back to that place. There are also longer-run issues with the housing market. It’s difficult to find lots now close enough to cities and things like that, so builders are having a hard time getting zoning in lots, and workers and materials. From a business cycle standpoint, this difficult correction should put the housing market back into better balance.

https://macenews.com/transcript-fed-chair-powells-post-fomc-qa/

The only way the Fed can make house prices go down is by causing a recession with mass layoffs. Raising the interest rates just slows sales a little as homeowners will just sit in their existing homes with 3% mortgage rates rather then buy a new house and take on a 6%+ loan.

Only mass layoffs forcing homeowners to sell is going to move the needle. Is that really what the fed wants?

ad says

Veteran Affairs mortgages are assumable, and they can be assumed by non-veteran homebuyers who qualify for the loan.

I believe this to be true. My buddy has bought I think 4 homes VA loan wise. He was able to offload them very easily. One of them to a couple 3 blocks away from me. I don't know if it was assumed or not though. Might be out in Montana again in October and ask him.

It is the best perk of being military. Fuck the free college. As long as you have income it's zero down minus closing costs. It was a slam dunk when we had those clients when I was in RE. Not huge money, but he's made at least $150-200k buying and selling his primary homes (tax free). He's a bachelor, so it's easy for him to up and move and works remotely. Not a bad life. Probably lonely though. He's not super social.

WookieMan says

Not huge money, but he's made at least $150-200k buying and selling his primary homes (tax free).

Let's see him do that in a rising interest rate environment. LMAO, everyone is a genius in a dropping interest rate environment. Comical.

https://www.reddit.com/r/REBubble/comments/xkpcx2/listing_agent_just_called_to_tell_me_that_our/

Listing Agent Just Called to Tell Me that Our Offer is Embarrassingly Low

Resubmit next week, 10k less, and add a line at the end stating all rejections must be signed as proof the sellers were made aware of it. Include a CMA showing the price of a 2br.

pudil says

The only way the Fed can make house prices go down is by causing a recession with mass layoffs. Raising the interest rates just slows sales a little as homeowners will just sit in their existing homes with 3% mortgage rates rather then buy a new house and take on a 6%+ loan.

It will correct as the boomers start to die off. They were the largest demographic in the United States until recently. The housing market will move to glut over time. We would have already gone to this if it wasn't for the massive illegal imigration.

https://www.npr.org/2022/09/21/1124272098/home-prices-see-biggest-drop-in-9-years-thanks-to-higher-mortgage-rates

Home prices see biggest drop in 9 years, thanks to higher mortgage rates