"Why You Should Wait Out the Wild Housing Market" - Atlantic

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TimeTheMarket
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by TimeTheMarket »

I agree that, unless you're forced to (e.g. relocating), it's a fool's game to partake in at this time. If you had planned on selling at some near point this is a good catalyst to put you over the edge, but if you're looking for your first home or upgrading homes I'd wait and see. It's a lot of silliness now.
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rockstar
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by rockstar »

What if it really isn't that expensive.

If I take a loan with a $1000 payment and a 3.8% rate and convert it to a loan with a $1000 payment and a 2.8%, holding term constant at 30 years, I see the PV go up by about 13%. If I add a 3% wage increase on top of that, I should be good with homes going up 16% YoY. That's not that far off from how much they've gone up. Really, I think, this market boils down a supply problem, rather than a pricing problem. At these low rates, a point move in the interest rate is going to have a pretty big impact on price movement. I just don't know how low we can go.
finite_difference
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by finite_difference »

rockstar wrote: Mon Jun 07, 2021 6:42 pm What if it really isn't that expensive.

If I take a loan with a $1000 payment and a 3.8% rate and convert it to a loan with a $1000 payment and a 2.8%, holding term constant at 30 years, I see the PV go up by about 13%. If I add a 3% wage increase on top of that, I should be good with homes going up 16% YoY. That's not that far off from how much they've gone up. Really, I think, this market boils down a supply problem, rather than a pricing problem. At these low rates, a point move in the interest rate is going to have a pretty big impact on price movement. I just don't know how low we can go.
I don’t see how home prices going up 13% per year will work out unless interest rates also keep going down 1% per year and property taxes stay the same.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
rockstar
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by rockstar »

finite_difference wrote: Mon Jun 07, 2021 7:55 pm
rockstar wrote: Mon Jun 07, 2021 6:42 pm What if it really isn't that expensive.

If I take a loan with a $1000 payment and a 3.8% rate and convert it to a loan with a $1000 payment and a 2.8%, holding term constant at 30 years, I see the PV go up by about 13%. If I add a 3% wage increase on top of that, I should be good with homes going up 16% YoY. That's not that far off from how much they've gone up. Really, I think, this market boils down a supply problem, rather than a pricing problem. At these low rates, a point move in the interest rate is going to have a pretty big impact on price movement. I just don't know how low we can go.
I don’t see how home prices going up 13% per year will work out unless interest rates also keep going down 1% per year and property taxes stay the same.
We experienced a one year surge that isn't much greater than the impact of a one point drop in interest rates. There is maybe 6% of speculation risk built on top of it due to the low supply. None of this shocking when you do the math.
JBTX
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by JBTX »

The thing about waiting it out is prices rarely fall (except 2008), mostly people won't sell if prices go down, can't recover their investment or become upside down. Prices are kind of sticky. Real estate is not liquid.
finite_difference
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by finite_difference »

rockstar wrote: Mon Jun 07, 2021 8:05 pm
finite_difference wrote: Mon Jun 07, 2021 7:55 pm
rockstar wrote: Mon Jun 07, 2021 6:42 pm What if it really isn't that expensive.

If I take a loan with a $1000 payment and a 3.8% rate and convert it to a loan with a $1000 payment and a 2.8%, holding term constant at 30 years, I see the PV go up by about 13%. If I add a 3% wage increase on top of that, I should be good with homes going up 16% YoY. That's not that far off from how much they've gone up. Really, I think, this market boils down a supply problem, rather than a pricing problem. At these low rates, a point move in the interest rate is going to have a pretty big impact on price movement. I just don't know how low we can go.
I don’t see how home prices going up 13% per year will work out unless interest rates also keep going down 1% per year and property taxes stay the same.
We experienced a one year surge that isn't much greater than the impact of a one point drop in interest rates. There is maybe 6% of speculation risk built on top of it due to the low supply. None of this shocking when you do the math.
OK I see what you’re saying.

I agree that a one-time 15-20% price increase is not too bad. However, I think home prices in many areas are way too expensive already, so adding 15-20% makes it really crazy.

If home prices in your area have only gone up 15-20% in the last year or so, but over the past 10 years it has been ~3%, that’s not bad. If it’s been 20% for the past 10 years, well hopefully your salary has kept up with that!
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
rockstar
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by rockstar »

finite_difference wrote: Mon Jun 07, 2021 8:32 pm
rockstar wrote: Mon Jun 07, 2021 8:05 pm
finite_difference wrote: Mon Jun 07, 2021 7:55 pm
rockstar wrote: Mon Jun 07, 2021 6:42 pm What if it really isn't that expensive.

If I take a loan with a $1000 payment and a 3.8% rate and convert it to a loan with a $1000 payment and a 2.8%, holding term constant at 30 years, I see the PV go up by about 13%. If I add a 3% wage increase on top of that, I should be good with homes going up 16% YoY. That's not that far off from how much they've gone up. Really, I think, this market boils down a supply problem, rather than a pricing problem. At these low rates, a point move in the interest rate is going to have a pretty big impact on price movement. I just don't know how low we can go.
I don’t see how home prices going up 13% per year will work out unless interest rates also keep going down 1% per year and property taxes stay the same.
We experienced a one year surge that isn't much greater than the impact of a one point drop in interest rates. There is maybe 6% of speculation risk built on top of it due to the low supply. None of this shocking when you do the math.
OK I see what you’re saying.

I agree that a one-time 15-20% price increase is not too bad. However, I think home prices in many areas are way too expensive already, so adding 15-20% makes it really crazy.

If home prices in your area have only gone up 15-20% in the last year or so, but over the past 10 years it has been ~3%, that’s not bad. If it’s been 20% for the past 10 years, well hopefully your salary has kept up with that!
I'm only talking about 2020 versus 2021. The price increase along with the rate drop makes sense. Sure, there is some speculation risk built on top, but it's not crazy. If this continues into next year, then the speculation risk ramps up, and it starts to look like the housing surge leading up to the Great Recession. We're not there yet.
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unclescrooge
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by unclescrooge »

quantAndHold wrote: Wed Jun 02, 2021 6:17 pm
jackbeagle wrote: Wed Jun 02, 2021 4:02 pm 3.) What's worse, thinking the market will eventually go down, or thinking it won't (ever)? I'd advise against holding your breath, but so much of what is discussed this year about the market ASSUMES that we are talking about how to push your way into a city that's already "full". No one is talking about the far-flung little towns, beautiful nature that surrounds them, or how there are properties out there still with no offers.
Except there’s that pesky issue of employability. The majority of us still have to live near where our jobs are. I grew up in small town Kansas. My brother still lives there and raised his family in the house we grew up in. My house is worth 20 times what that house is worth, but when I was working, I made about $300k, and he works part time on a road crew for poverty wages, because that’s all he can find. If I lived there, I wouldn’t even be able to find work on the road crew. I’m completely unqualified to do any job that anyone in that town does. And even if I could (or wanted to) work from home, the internet isn’t good enough. When the colleges all closed down 15 months ago and my nephew got kicked out of his dorm, he had to move into an apartment in his college town, because the internet in his hometown wasn’t good enough for school-from-home.

And don’t get me started on quality of life issues. I’ve lived both places. I’ll take the city every time. Even in retirement, it’s worth every penny I’m paying to stay here.
Most cheap places are cheap for a reason. And vice versa.
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tomsense76
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by tomsense76 »

willthrill81 wrote: Wed Jun 02, 2021 2:37 pm
tomsense76 wrote: Wed Jun 02, 2021 3:10 pmPeople can choose how they consume and when they make changes to their consumption patterns. If folks can't afford a house, we already advise renting something similar. Computing with NYT rent vs. buy calculator is already effectively making a comparison between imputed rent for ownership vs. actual rent. Right now ownership is not looking like that good of a deal in many places when compared to equivalent rentals

Is question here meant to imply people should not evaluate their spending? My guess is no, but it does come across that way
Absolutely people should carefully evaluate the own vs. rent decision. For many years now, owning has made less and less sense in most HCOL and especially VHCOL areas; renting is financially superior. And the relatively recent boom in housing prices has exacerbated this as rents have not kept pace. But what no one knows is whether housing prices will ever be lower than their current levels. If they did, then they could likely make a fortune by shorting residential real estate.
Right. While there is some speculation as to when buyer sentiment or supply might change in the article (they focus on the latter which is more predictable), I think there are a couple points they are getting at that are not really related to market timing (at least not from my understanding of the term).

In particular they point to the fact that people are frequently needing to waive inspections to get an offer accepted. This is very risky. To me this seems like reason enough to wait things out. Buying a home is not like buying a share of VTSAX where one knows all shares are identical. It's more like buying fruit. It needs to be inspected to see if it is still good and therefore worth buying. If it doesn't look good, there may be some sunken cost in getting to that point, but it's not as bad as only discovering these issues once the purchase is complete and moved in.

This leads to another concern that the article doesn't mention (though I'm sure people familiar with hot markets know). Namely that people sitting on lemons try to unload them in a hot market as well. Combined with the fact that many buyers are pressured to wave inspections, this creates a particularly nasty combo. In particular people wind up buying these lemons at inflated prices without really knowing what they are getting into. This is a real problem and first time homebuyers may not be aware of this issue.

The other issue the article points to is prices are rising more dramatically. So if someone was saving for last 5yrs with a certain idea of where prices would be, and now they are finding themselves really stretching to reach current prices. It's worth reassessing from a practical standpoint of whether the house is still affordable with that increase. The answer may be no and that is ok. One can save a bit more until they feel comfortable trying again.

Other people in the thread have already pointed out that the real estate market is inefficient. This is something that I would agree with, but is not my primary concern. The concerns listed above are. Namely make sure you have a clear idea of what you are buying and be comfortable with the price you are paying. If you are able to pull that off in this market, great. If not, waiting is a sensible thing to do.

My guess is we can probably agree on these things, but I could be wrong
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
feehater
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by feehater »

tomsense76 wrote: Mon Jun 07, 2021 10:08 pm In particular they point to the fact that people are frequently needing to waive inspections to get an offer accepted. This is very risky. To me this seems like reason enough to wait things out. Buying a home is not like buying a share of VTSAX where one knows all shares are identical. It's more like buying fruit. It needs to be inspected to see if it is still good and therefore worth buying. If it doesn't look good, there may be some sunken cost in getting to that point, but it's not as bad as only discovering these issues once the purchase is complete and moved in.

This leads to another concern that the article doesn't mention (though I'm sure people familiar with hot markets know). Namely that people sitting on lemons try to unload them in a hot market as well. Combined with the fact that many buyers are pressured to wave inspections, this creates a particularly nasty combo. In particular people wind up buying these lemons at inflated prices without really knowing what they are getting into. This is a real problem and first time homebuyers may not be aware of this issue.
Here in the DC area "waiving inspections" has been commonplace for several years now. What this actually means for most people I know is that once you decide to make an offer, you get permission to do a "pre-inspection" before you submit the offer which is literally identical to an inspection. Then you can decide whether to submit an offer without the inspection contingency. So it's not like you're buying a house with 0 knowledge. One of the downsides to this system of course is paying for an inspector and then not getting your offer accepted.. I know many people who have bought this way in the past 5 years, and all of them had a preinspection done.
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tomsense76
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by tomsense76 »

feehater wrote: Tue Jun 08, 2021 7:25 am
tomsense76 wrote: Mon Jun 07, 2021 10:08 pm In particular they point to the fact that people are frequently needing to waive inspections to get an offer accepted. This is very risky. To me this seems like reason enough to wait things out. Buying a home is not like buying a share of VTSAX where one knows all shares are identical. It's more like buying fruit. It needs to be inspected to see if it is still good and therefore worth buying. If it doesn't look good, there may be some sunken cost in getting to that point, but it's not as bad as only discovering these issues once the purchase is complete and moved in.

This leads to another concern that the article doesn't mention (though I'm sure people familiar with hot markets know). Namely that people sitting on lemons try to unload them in a hot market as well. Combined with the fact that many buyers are pressured to wave inspections, this creates a particularly nasty combo. In particular people wind up buying these lemons at inflated prices without really knowing what they are getting into. This is a real problem and first time homebuyers may not be aware of this issue.
Here in the DC area "waiving inspections" has been commonplace for several years now. What this actually means for most people I know is that once you decide to make an offer, you get permission to do a "pre-inspection" before you submit the offer which is literally identical to an inspection. Then you can decide whether to submit an offer without the inspection contingency. So it's not like you're buying a house with 0 knowledge. One of the downsides to this system of course is paying for an inspector and then not getting your offer accepted.. I know many people who have bought this way in the past 5 years, and all of them had a preinspection done.
Yep use to live in that area. The problem with pre-inspection is it may not be as thorough, sellers can still deny it, and even if allowed it can be tricky to coordinate between all parties in the timelines being pushed currently.

This article showed up in ARLnow today, which you might find interesting. The author notes that many people are forgoing any inspection at all, which is an issue. Though a hurried inspection can be just as bad.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Atilla
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by Atilla »

Normchad wrote: Wed Jun 02, 2021 3:13 pm

It seems there aren’t that many people than can take advantage of the situation. (And selling a house you already own, moving into an apartment, and waiting for a crash seems crazy to me).
There are some. I know a builder who sold his 450K house for 650K. He's renting a house for him and his family while they look for land to build the next house...waiting for a land and lumber price crash.
euler
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by euler »

tomsense76 wrote: Tue Jun 08, 2021 3:53 pm
feehater wrote: Tue Jun 08, 2021 7:25 am Here in the DC area "waiving inspections" has been commonplace for several years now. What this actually means for most people I know is that once you decide to make an offer, you get permission to do a "pre-inspection" before you submit the offer which is literally identical to an inspection. Then you can decide whether to submit an offer without the inspection contingency. So it's not like you're buying a house with 0 knowledge. One of the downsides to this system of course is paying for an inspector and then not getting your offer accepted.. I know many people who have bought this way in the past 5 years, and all of them had a preinspection done.
Yep use to live in that area. The problem with pre-inspection is it may not be as thorough, sellers can still deny it, and even if allowed it can be tricky to coordinate between all parties in the timelines being pushed currently.

This article showed up in ARLnow today, which you might find interesting. The author notes that many people are forgoing any inspection at all, which is an issue. Though a hurried inspection can be just as bad.
I sold my house in a Seattle suburb last month. We received 16 offers, with the highest 25% over asking. (In fairness, the asking price was rather modest, although still fair IMO, because this tends to "goose" the bidding war.) Less than half of the would-be buyers performed a pre-inspection. We ended up not taking the highest offer, mostly because of shaky financing and uncertainty with the lender's appraisal, but also because the runner-up had completed a pre-inspection, which to me says they are serious.

I'm also among those renting for a time. I don't want to buy while the froth is this intense (and it is almost as bad in my new MCOL area).
nigel_ht
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by nigel_ht »

willthrill81 wrote: Wed Jun 02, 2021 5:11 pm
olyveoil wrote: Wed Jun 02, 2021 5:06 pm
willthrill81 wrote: Wed Jun 02, 2021 4:57 pm
olyveoil wrote: Wed Jun 02, 2021 4:54 pm
willthrill81 wrote: Wed Jun 02, 2021 2:37 pm So market timing stocks is bad, but market timing real estate is good?
Yes.
Two different things, imo.
If you can predict the future price of real estate effectively, then you can make a literal fortune.
Um. OK.
Why does it have to be so binary.

Home buying is different than stock/bond/mf/etf investing. Do you not agree with that?
Age/first or second home/location/job situation/etc etc all come into play with home buying and making decisions whether to buy now or later.
Yes, buying real estate is different than buying a stock. And both are different than buying a bond. Etc. That doesn't mean that you can effectively market time real estate.

There are indeed many factors that into the decision-making process when it comes to real estate, but thinking that you can accurately predict the future movements of prices is a whole other matter.
“Housing starts are back to their highest levels since before the Great Recession, even with lumber prices in the stratosphere. Although there aren’t a lot of homes on the market, there are a lot of new homes on the way—buyers just need to be a little patient.”

I don’t think there is an equivalent scenario in stocks…maybe QE. lol

1.6M starts in 2021. 1.7M starts expected in 2022. Whatever the real demand we’re about to have a whole lot of supply injected…

There’s likely no downsides in waiting (if you can) except perhaps in markets artificially constrained like San Francisco. Prices may not fall but they aren’t likely to rise at the current rates either.

I’m holding off on a new deck until lumber prices come back down a little…
PeterParker
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Re: "Why You Should Wait Out the Wild Housing Market" - Atlantic

Post by PeterParker »

I was briefly looking at investment properties in Dec 2020/ January 2021, when pandemic was at height, and it was blizzarding here, leading to low interest short-term in checking out places.

One place looked good, but I saw it a bit too late and it got snagged. Ah well.

Now ... even but 5 months later ... prices have gone up 40% in the entire area, for no discernable reason, other than many many people (including many young people) who see 2% interest rates and have the dumb logic of "rent is throwing your money away!" (narrator: it isn't).

Like, many it's the new normal, in some parallel universe, but I doubt it.

I think the current prices are a temporary trend and to buy now would be fool-hearty (unless you really see a diamond in the rough).
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