Would you buy your first house in 2021, if you had to start over?

[Caoineag]

My first house I bought during the great recession in Denver. When I sold that house 3 years ago to a fix and flipper, I sold it for more than double what I paid. At the time I sold it, I was very glad I didn't have to pay that price I sold it for. For the past 3 years I did full time travel and this year was the year we wanted to settle down. I was shocked how much it cost to get into a house in a lcol area (and how competitive the market was but I digress). I still paid it. Life stages are more important for when I buy or sell a house than the state of the market. Long term my expensive lcol property will probably end up being a good financial choice because rent or repairs on a different place would have racked up quickly. But I am also planning to spend at least the next 20 years here.

The fact that you have had 7 addresses in 7 years suggest you are restless. When I rented I always spent multiple years at an address unless forced to move. Why are you moving that often? That will determine whether a house is a good idea or not.

[mckaylabaloney]

My limited personal experience: My homeowner friends make good livings, but still they just put down 3-5% and banked on refinancing the PMI away, for the reason you say. They would have had to move to the outskirts of their cities (or perhaps buy condos instead of houses) if they'd spent 3+ more years saving up a bigger down payment. Again, that's not inherently a bad thing, but it really wasn't what they wanted.

I did something comparable to this when I bought my first house 18 months ago (at 31). My original plan was to save for a 20% down payment, then switch jobs and move from the large city I was in to my LCOL hometown, where I would buy a house. However, an ideal house went on the market a little early--ideal in that it was already fully and beautifully renovated, and within walking distance of my hometown's train station, which allowed me to keep my high-paying job in the large city and commute by train (which of course has wound up meaning "work from home" for the last 13 months anyway). So I bought it, even though I could only put down 5%.

It's worked out great for me so far. No regrets at all. Important caveats, though:

(1) Like I said, I make a lot of money, and the monthly payment is extremely affordable (about 15% of my net monthly income, which doesn't take into account additional income from a large year-end bonus). I don't feel strapped to my house at all. I also have comfortable savings (6 months of expenses in cash and 6 more months (and counting) in taxable investments) that I could rely on for quite a while if absolutely necessary.

(2) I bought this house intending to stay here for years (so was not especially concerned about having limited equity to start), and plan to live in my hometown indefinitely (forever, maybe?). This could of course change, but my house would also likely do pretty well on the rental market if necessary, due to its location in my city. At any rate, the housing market in my city, like many others, has gone nuts in the last year. I have no doubt that I could list my house tomorrow for 20% more than what I paid 18 months ago, and get multiple offers above asking. I'm not planning to sell, so I don't especially care about this, but it's nice to know (even if it doesn't matter because who knows where the market will be by the time I do sell).

(3) My PMI is 0.25%. I never banked on refinancing and getting rid of the PMI, because I'll barely notice when it's gone. I have no clue if this is a normal PMI? I was definitely also worried about PMI until I started talking to lenders and got actual numbers. So if PMI is a big concern for you, you might want to first find out what it would actually be, given your credit, location, income, etc. It might not be much at all.

[Dicey]

Woah, I just had to look up what a HARP loan was. Freaky. "Wait for it" still sounds like trying to time the market though, no? Or maybe just build up really cushy reserves to lessen the blow of any potential crash? I like to think that witnessing firsthand the housing crash and the mass layoffs of 2008-2009 has made me resilient, but maybe it's actually just made me so anxious that I turn to internet strangers for major life advice 😬 For the first few years of my career, I was sure I'd be laid off any minute - that's probably the main reason I stayed so mustachian! Not smarts, but fear! LOL. Maybe with time (and a second economic recovery), big financial decisions will come with a more optimistic lens for my generation.

I want to address the "time the market" comments as I see this bandied about in the forums. It's absolutely true that you cannot time the overall stock market. But we're discussing an individual house here, not the market. Entirely different beasts. Buying a house is more analogous (though still very different) to buying an individual stock. You SHOULD evaluate the fundamentals of an individual stock or house. No one has a crystal ball to see what prices will do in the future, so only buy if you're reasonably sure you'll stay put for 10+ years. And don't buy a house if you determine it's overpriced and/or will be a financial hardship. Sometimes the best option is to do nothing.

And to answer your main question: No, I would not buy our current house for what it's worth now. And we bought just a year ago, that's how crazy the market is. Normally this would get me thinking about cashing out but we want to be here long-term, have to live somewhere, and there are no deals to be had anywhere within ~1 hr. I don't envy those looking for housing right now :(

Thanks for the added clarification, FINate. The OP's comment was directed at my response to her question. I have greater concerns than that misunderstanding. She has also buried in subsequent post that she's interviewing for a job in a completely different area than her current location. Ack! FINally, anyone who uses the word "freaky" repeatedly in reference to Real Estate is clearly not ready to buy. I wish her the best, but I have no further input for her.

[anni]

Woah, I just had to look up what a HARP loan was. Freaky. "Wait for it" still sounds like trying to time the market though, no? Or maybe just build up really cushy reserves to lessen the blow of any potential crash? I like to think that witnessing firsthand the housing crash and the mass layoffs of 2008-2009 has made me resilient, but maybe it's actually just made me so anxious that I turn to internet strangers for major life advice 😬 For the first few years of my career, I was sure I'd be laid off any minute - that's probably the main reason I stayed so mustachian! Not smarts, but fear! LOL. Maybe with time (and a second economic recovery), big financial decisions will come with a more optimistic lens for my generation.

I want to address the "time the market" comments as I see this bandied about in the forums. It's absolutely true that you cannot time the overall stock market. But we're discussing an individual house here, not the market. Entirely different beasts. Buying a house is more analogous (though still very different) to buying an individual stock. You SHOULD evaluate the fundamentals of an individual stock or house. No one has a crystal ball to see what prices will do in the future, so only buy if you're reasonably sure you'll stay put for 10+ years. And don't buy a house if you determine it's overpriced and/or will be a financial hardship. Sometimes the best option is to do nothing.

And to answer your main question: No, I would not buy our current house for what it's worth now. And we bought just a year ago, that's how crazy the market is. Normally this would get me thinking about cashing out but we want to be here long-term, have to live somewhere, and there are no deals to be had anywhere within ~1 hr. I don't envy those looking for housing right now :(

Thanks for the added clarification, FINate. The OP's comment was directed at my response to her question. I have greater concerns than that misunderstanding. She has also buried in subsequent post that she's interviewing for a job in a completely different area than her current location. Ack! FINally, anyone who uses the word "freaky" repeatedly in reference to Real Estate is clearly not ready to buy. I wish her the best, but I have no further input for her.

Thanks for the well wishes Dicey. I guess I have not been thoughtful enough in my replies. My response to you about timing the market was because you were talking about having the fortitude to weather a shock, your friend's experience with the housing crash, and HARP loans. I mean, it is freaky to know from recent history that the most expensive thing you ever buy could suddenly become worth so much less than what you paid for it that it could ruin your life, due to forces almost entirely beyond your control. Isn't it? This is cheesy but I ask these questions because I know there's a lot I don't know. I really like these forums because they're full of more smart, experienced people than I can ever hope to meet in real life, which is why I like asking simple questions about complicated issues. I do get my ass handed to me intellectually but hopefully I come out the other end a smarter person! I hope you don't feel I have wasted your time here.

Anyway, I am not actually rushing to buy a house, I just think about it all the time, and I think many other renters do as well, and I think many people probably bought their first house before they really should have. And I would like to hear about that because I only have happy stories in my IRL friend group so far. But anyway, the emotional element I've gotten to the bottom of is that I just want the stability that precedes being ready to buy, so you're right about me for sure! It has been an illuminating discussion so far nonetheless.

[Metalcat]

Woah, I just had to look up what a HARP loan was. Freaky. "Wait for it" still sounds like trying to time the market though, no? Or maybe just build up really cushy reserves to lessen the blow of any potential crash? I like to think that witnessing firsthand the housing crash and the mass layoffs of 2008-2009 has made me resilient, but maybe it's actually just made me so anxious that I turn to internet strangers for major life advice 😬 For the first few years of my career, I was sure I'd be laid off any minute - that's probably the main reason I stayed so mustachian! Not smarts, but fear! LOL. Maybe with time (and a second economic recovery), big financial decisions will come with a more optimistic lens for my generation.

I want to address the "time the market" comments as I see this bandied about in the forums. It's absolutely true that you cannot time the overall stock market. But we're discussing an individual house here, not the market. Entirely different beasts. Buying a house is more analogous (though still very different) to buying an individual stock. You SHOULD evaluate the fundamentals of an individual stock or house. No one has a crystal ball to see what prices will do in the future, so only buy if you're reasonably sure you'll stay put for 10+ years. And don't buy a house if you determine it's overpriced and/or will be a financial hardship. Sometimes the best option is to do nothing.

And to answer your main question: No, I would not buy our current house for what it's worth now. And we bought just a year ago, that's how crazy the market is. Normally this would get me thinking about cashing out but we want to be here long-term, have to live somewhere, and there are no deals to be had anywhere within ~1 hr. I don't envy those looking for housing right now :(

Thanks for the added clarification, FINate. The OP's comment was directed at my response to her question. I have greater concerns than that misunderstanding. She has also buried in subsequent post that she's interviewing for a job in a completely different area than her current location. Ack! FINally, anyone who uses the word "freaky" repeatedly in reference to Real Estate is clearly not ready to buy. I wish her the best, but I have no further input for her.

Thanks for the well wishes Dicey. I guess I have not been thoughtful enough in my replies. My response to you about timing the market was because you were talking about having the fortitude to weather a shock, your friend's experience with the housing crash, and HARP loans. I mean, it is freaky to know from recent history that the most expensive thing you ever buy could suddenly become worth so much less than what you paid for it that it could ruin your life, due to forces almost entirely beyond your control. Isn't it? This is cheesy but I ask these questions because I know there's a lot I don't know. I really like these forums because they're full of more smart, experienced people than I can ever hope to meet in real life, which is why I like asking simple questions about complicated issues. I do get my ass handed to me intellectually but hopefully I come out the other end a smarter person! I hope you don't feel I have wasted your time here.

Anyway, I am not actually rushing to buy a house, I just think about it all the time, and I think many other renters do as well, and I think many people probably bought their first house before they really should have. And I would like to hear about that because I only have happy stories in my IRL friend group so far. But anyway, the emotional element I've gotten to the bottom of is that I just want the stability that precedes being ready to buy, so you're right about me for sure! It has been an illuminating discussion so far nonetheless.

The truth is though that almost all large purchases you make will drop in value.

When it comes to housing, especially long term housing, it really is best to look at it as an expense, not an investment. Decide what type of housing you want and what location and then decide what you are willing to pay for it.

If none of the houses in your preferred location match what you are willing to spend, then seriously consider another location, or reexamine your priorities and see what trade offs you are willing to make.

So what you have a lot of friends who are happy with owning?? Who cares? You probably also have a lot of friends who are happy being married, does that mean you should rush to find just anyone willing to marry you.

It's not being married or owning a house that makes people happy, it's having crafted a life and partnership that they *want* to commit to long term both legally and financially that makes them happy.

I'm glad you're starting to see that.

In the meantime, try not to glamourize home ownership. In many ways, it really isn't for a lot of us. People just make a big deal of it because it's a social expectation to live up to. Once you choose to stop measuring your life by the milestones of others, you gain a lot more power to craft your own, customized, ideal life.

Maybe homeownership is ideal for you, maybe it isn't. But give yourself a chance to learn what you need and want from your life first. I know what it's like to crave stability. It's all I ever wanted throughout my crazy nomadic 20s. But after having it for a few years, tethered to a home I didn't love...I learned the difference between stability and feeling trapped.

[Fomerly known as something]

I’m actually kind of going through this as a 43 year old.  I’m likely to sell my house in a MCOL and move to a VHCOL area.  I’m probably going to rent for the first time in 16 years.  But it’s mainly because I’m likely to move again in 4 years and I don’t want to have to wait out a downturn.

[skp]

I would buy a house today if I had to start over   I would use the usual guidelines- IF and only IF it was 2- 2 1/2x my income and I knew I wanted to stay in the area.   I do think housing is expensive and who knows if the top is in, but I also think low interest rates mitigate that.  If I bought my house today, I really don't think it would be any more expensive relatively.  We bought our first house in 1980.  Interest rates were 13.75%.  Our mortgage on $85000 was $750 a month.  If I bought my house today,  I'd probably need a mortgage of $240,000.  At todays interest rates of  3% my mortgage would be $1000 a month.  I'm guessing that a starting salary for a nurse is probably twice that of what I started at. 

[ender]

I would buy a house today if I had to start over   I would use the usual guidelines- IF and only IF it was 2- 2 1/2x my income and I knew I wanted to stay in the area.   I do think housing is expensive and who knows if the top is in, but I also think low interest rates mitigate that.  If I bought my house today, I really don't think it would be any more expensive relatively.  We bought our first house in 1980.  Interest rates were 13.75%.  Our mortgage on $85000 was $750 a month.  If I bought my house today,  I'd probably need a mortgage of $240,000.  At todays interest rates of  3% my mortgage would be $1000 a month.  I'm guessing that a starting salary for a nurse is probably twice that of what I started at.

This is one thing I've thought at length about is how recency bias clouds perspectives on pretty much all things related to housing prices, etc.

My parents sold their house recently (bought in early 90s in a midwest area which has grown significantly in the 30 years since then). They basically are going to average around 3-4% returns per year.

It's easy to go "oh wow your house is worth 2.5x what you paid housing got so expensive!" but when you think about it, 3% CAGR for a house return isn't really even that impressive.

There are of course areas which have dramatically outpaced this. But https://www.supermoney.com/inflation-adjusted-home-prices/ has some really interesting analytics - inflation adjusted price per square foot to build has stayed pretty consistent. However of course, most newer houses are a lot more sqft, and thus much more expensive.

One thing I think people forget is that houses generally depreciate. The land does not (outside of cases where the land is damaged/trashed). But you have to put a decent amount of money into houses for them to retain/gain value.

[ChpBstrd]

I would buy a house today if I had to start over   I would use the usual guidelines- IF and only IF it was 2- 2 1/2x my income and I knew I wanted to stay in the area.   I do think housing is expensive and who knows if the top is in, but I also think low interest rates mitigate that.  If I bought my house today, I really don't think it would be any more expensive relatively.  We bought our first house in 1980.  Interest rates were 13.75%.  Our mortgage on $85000 was $750 a month.  If I bought my house today,  I'd probably need a mortgage of $240,000.  At todays interest rates of  3% my mortgage would be $1000 a month.  I'm guessing that a starting salary for a nurse is probably twice that of what I started at.

I always bristle when people talk about being able to afford a $40,000 SUV because the dealer financed them at 1% or something, and so the payments are really low. It sounds a bit too much like the “no money down and just $299 per month can put you in a brand new car!” ads playing on the radio all day.

If rates went to 13%, those $240k houses would suddenly be $85k again, which raises questions about whether interest rates really set the price of things. Better yet, should we buy non-investment things for high prices because we can borrow cheaply? How many such things?

[zolotiyeruki]

If rates went to 13%, those $240k houses would suddenly be $85k again, which raises questions about whether interest rates really set the price of things. Better yet, should we buy non-investment things for high prices because we can borrow cheaply? How many such things?

The point about interest rates is an important one.  I ran the numbers recently, and with a 30-year mortgage, a drop in interest rate from 4 to 3% allows a 13% increase in purchase price with the same monthly payment.

As for OP's question...our starter home, which we purchased for $105k in 2005 and sold in 2011 for.... $105k, is now worth $180-190k.  A 75% increase in 10 years, for a house of only 1,100 square feet (plus garage), is hard to stomach.  Our current home, which we bought for $300k in 2011, was stagnant in value for about 8 years, and in the last two years, we've seen prices shoot up 30-40%.  In the area where DW and I would like to move, we've seen prices jump probably 75% in the last two and a half years.  It's tempting to sell our house at these high prices to lock in the gains, but then where would we live?

[FragglesRock666]

I'm age 44 and living in Denver in the first house I've ever bought. And let me tell you that if I wanted to buy this house now, at what it's valued at according to Zillow and Redfin,  I literally couldn't. At my salary, there is no way I could afford this house, even if some dumb bank would give me the loan to do it. I don't know how much this helps you in your position, though, I never thought the value of my home could possibly exceed the craziness of right before the crash, yet here we are. No way to predict if there will be another drop in value. I guess you just have to make the best guess with your individual circumstances that you can.

[AccidentialMustache]

We would not buy our first house again, because the location (across town) is not what we need right now.

Now if you asked a slightly different question, would I buy a house like our first again if the location was right, the answer is a clear yes. We moved for location. We also got more finished square footage but less overall space (old house 2100sf ranch w/full basement, new house 2700sf 2 story with partially finished basement). We did also get windows and light (a proper ranch with those huge overhangs and lots of mature trees outside the overhangs is DARK; you don't get much sunlight) as well as a better kitchen layout (more counter/cabinet/work triangle not in path).

Site our original house within 1.5 miles of DS's school and we'd buy it again -- or at least would offer on it. We might not get it -- there's lots of fish in the sea as they say, so if one gets away, eh, no big deal.

[deborah]

I learnt a lot from my first house. It was badly in need of a lot of maintenance, and over the years we gradually fixed it up, learning skills as we went. I love having lots of fruit trees and growing my own vegetables, so I planted the trees I wanted and they matured and gave me lots of fruit. By the time we moved, it was my ideal home. We could have stayed there for the rest of our lives. We still look back at it nostalgically.

But I got a job in another city, bought a new home, planted fruit trees, got a vegetable garden... It’s a completely different house, and is just about my ideal home. We’re probably never moving again.

I wouldn’t buy my first house now because I’m at a different place in my life. I’m happy in my community. And it would take another five years for new fruit trees to reach maturity.

[Imma]

I'll add a positive story! Other posters have valid concerns, but our personal experience is great.

We bought our first house when I was 24, in 2015. Before that we were in a rental. We bought the house because
1. we both strongly felt the need to put down roots and wanted to live in the same house for a long period of time
2. it would improve our cashflow, because where we live renting is way more expensive than buying
3. we'd have a bit more space which would allow us to get a roommate, in our city most landlords do not allow having roommates
4. we were tired of living in a run-down place because landlords very often don't maintain their properties very well in this city, and the high-quality landlords are very picky and look for high-income tenants, which we were not
5. we thought we would both love homeownership and I thought I would love having a garden

Especially Mr Imma had been moving from house to house a lot, not by choice but because a house was condemned, a roommate turned out to be a psycho, etc etc etc. It was very disrupting for him. We had both grown up in instable families and we both strongly felt we wanted to stay in our future property for the long-term. We enjoyed living in this city and we wanted to stay here. This is where we want to put down roots and we'll look for career opportunities here. We certainly don't want to move for a job, because we don't feel that life revolves around working, but rather that working is necessary to pay for our life. YMMV, this is why we feel.

A long-term rental in this particular area could also have been an option, but truly long-term rentals are very hard to find here. We weren't interested in short-term rentals because we wanted to have the option of adapting the place where live to our personal wants and needs. If you know you're not going to be there next year you're not going to buy perennials for the garden and you aren't going to paint the rooms in your favourite colour.

The financial side was not extremely interesting to us, but our cashflow would improve by buying.  Our rent was €650 + utilities around €200 = €850 and we bought a house in the same city but a different neigbourhood, slightly bigger and with a garden. We went from an old rental to an old house but the house we bought was properly maintained, just cosmetically dated (solved easily with a few cans of paint + we don't care about fasion). Our new mortgage payment was €300 + €150 in utilities = €550 + maintenance budget is €200 = €750.  We decided to set aside €200/month for maintenance but over time we found out that amount was way too high. At times we've had a roommate who would pay about 1/3 of that amount, we don't have a roommate currently, but we could always get one again. Over time, our income has increased a lot (3x higher than in 2015) and the value of our house has increased by 40% as well. I would definitely buy this house again today for this price.

In fact, the only downside is we've been having issues with a neighbour, who clearly has mental health issues and is causing lots of disruption. That's the only reason why we are thinking about moving, and we seriously tried buying the same house but around the corner. It would be much more expensive to buy, but with the equity we have + much lower mortgage rates than in 2015 our monthly payment would only go up about €50/month and that would be totally worth it to get away from this guy. One big advantage is because it's around the corner we already know the neighbours. But unfortunately someone else has bought it.

I agree that if you are interested in earning the maximum amount of money and getting the maximum amount of career opportunities, it's better to stay flexible. But I feel like a lot of people in our generation are obsessed with flexibility. They are too afraid to put down roots or make definitive choices, they are always focused on keeping all options open. I also see it with regard to marriage/committed relationships - I know a lot of people that are hesitating to get into a serious relationship because someone better may come along some day. And I understand, I grew up through the 2008 recession too and my parent lost their house, and we were very much raised as a generation to always achieve, achieve, achieve, but it felt very empowering to me to say "THIS is where I am going to live, with THIS person, THIS is going to be my life". Even though I know full well that this may not be "forever" and things are always changing, it still felt massive for me to say "I'm going to take this path, and I'm not going to walk in between two paths forever, just in case, to keep the maximum amount of options open".

[ChpBstrd]

^ There are some good points here. In a world where money is considered the most important thing, stability and lifestyle take a back seat.

Maybe the cynicism of generation X, which has redefined politics, relationships, and media in favor of the unconventional, has also led to a world where people waste their lives in frantic pursuit of the greener grass on the other side of the proverbial fence. Maybe most of us will die alone or among strangers in some random place where we went to chase a dollar/euro until an unremarkable layoff leveled everything we had devoted our lives to. Maybe when everyone is a cynic, no one is a cynic and it’s just another herd.

[Mr. Green]

I wonder if anyone here bought in the year leading right up to the crash?

I'll offer you an alternative perspective on runaway housing prices.

We bought our first house in August 2005 for 260k. I was 22.  So not quite the very top before the crash of 2008 but very close to it. This was in the Frederick, MD area, arguably an extended Washington DC suburb. Lots and lots of commuters to DC and Baltimore.

After the crazy price appreciation of the past year, my house is probably worth 280-290k. It took almost 15 years for my house to become worth again what we paid for it in 2005.

We now live in Wilmington, NC where the price appreciation on homes is unreal. We've been looking at houses for the past 18 months and we've watched our desired-size home escalate in price from 250k to almost 350k. Our friends there bought a house in 2013 for 260k and now that same model in their neighborhood is reselling for almost 450k.

However, when you find homes older than 2005 in the Wilmington area and look at historical sales, I see echoes of the same thing, homes that are just now getting back to their 2006 peak prices.

It feels damn hard to know what to do right now. I really would like to buy a house. We're about to be "homeless" in June. We'll be travelling around the country with no home base, and I've learned over the last couple years that having a home base makes me much more comfortable, knowing there's a place I can return to with ease.

But the headwinds right now make it feel like buying the top. Lumber at $1300 (normal is $300-400)? That's fucking insane! Housing demand so high that builders can cover the cost of lumber prices and raise their profit margins? That's even crazier. We resorted to looking at new home communities because there are few existing homes for sale, and contracts go over asking, and we dealt with crappy realtors who just got into real estate because "it's like shooting fish in a barrel." One of the communities we'd looked at is built by DR Horton, and they just changed their business practice to no longer signing a contract with a buyer until the house is partially built. Prices are accelerating so fast that they were making less than they could by agreeing to a price on a home 6 months before the closing date rather than 3 months before. Mind=blown.

Demand for lumber and homes has to stabilize eventually but will that be a slow return to normal or a big screeching halt? Plus no one knows if inflation is going to take off coming out of the pandemic and force the Fed to raise interest rates, creating additional downward pressure on house prices.

All those exceptional factors mean there is certainly the possibility of a housing price collapse somewhere on the horizon. Or maybe things will just stop appreciating so rapidly. I wish I had a crystal ball!

We've recently become far less certain about where we want to end up long-term. Given the conditions I've listed above, and the run up in prices already, it no longer makes sense for us to look at homes. Not worth the risk of buying because we feel pressured to and end up with a repeat performance of our 2005 home. Plus rents are still in the toilet. We can rent a one-bedroom apartment in Wilmington for under $1000 a month and most all the nice complexes are running incentives like a free month. Demand is down. So there are some healthy alternatives out there. That's our personal situation.

An interesting footnote. Stocks have outperformed housing by a large margin. Housing in Wilmington is up something like 40-50% over the last year. VTSAX is up about 100%. So we haven't had the value of our down payment money eroded by rising home prices.

[jeromedawg]

I wonder if anyone here bought in the year leading right up to the crash?

I'll offer you an alternative perspective on runaway housing prices.

We bought our first house in August 2005 for 260k. I was 22.  So not quite the very top before the crash of 2008 but very close to it. This was in the Frederick, MD area, arguably an extended Washington DC suburb. Lots and lots of commuters to DC and Baltimore.

After the crazy price appreciation of the past year, my house is probably worth 280-290k. It took almost 15 years for my house to become worth again what we paid for it in 2005.

We now live in Wilmington, NC where the price appreciation on homes is unreal. We've been looking at houses for the past 18 months and we've watched our desired-size home escalate in price from 250k to almost 350k. Our friends there bought a house in 2013 for 260k and now that same model in their neighborhood is reselling for almost 450k.

However, when you find homes older than 2005 in the Wilmington area and look at historical sales, I see echoes of the same thing, homes that are just now getting back to their 2006 peak prices.

It feels damn hard to know what to do right now. I really would like to buy a house. We're about to be "homeless" in June. We'll be travelling around the country with no home base, and I've learned over the last couple years that having a home base makes me much more comfortable, knowing there's a place I can return to with ease.

But the headwinds right now make it feel like buying the top. Lumber at $1300 (normal is $300-400)? That's fucking insane! Housing demand so high that builders can cover the cost of lumber prices and raise their profit margins? That's even crazier. We resorted to looking at new home communities because there are few existing homes for sale, and contracts go over asking, and we dealt with crappy realtors who just got into real estate because "it's like shooting fish in a barrel." One of the communities we'd looked at is built by DR Horton, and they just changed their business practice to no longer signing a contract with a buyer until the house is partially built. Prices are accelerating so fast that they were making less than they could by agreeing to a price on a home 6 months before the closing date rather than 3 months before. Mind=blown.

Demand for lumber and homes has to stabilize eventually but will that be a slow return to normal or a big screeching halt? Plus no one knows if inflation is going to take off coming out of the pandemic and force the Fed to raise interest rates, creating additional downward pressure on house prices.

All those exceptional factors mean there is certainly the possibility of a housing price collapse somewhere on the horizon. Or maybe things will just stop appreciating so rapidly. I wish I had a crystal ball!

We've recently become far less certain about where we want to end up long-term. Given the conditions I've listed above, and the run up in prices already, it no longer makes sense for us to look at homes. Not worth the risk of buying because we feel pressured to and end up with a repeat performance of our 2005 home. Plus rents are still in the toilet. We can rent a one-bedroom apartment in Wilmington for under $1000 a month and most all the nice complexes are running incentives like a free month. Demand is down. So there are some healthy alternatives out there. That's our personal situation.

An interesting footnote. Stocks have outperformed housing by a large margin. Housing in Wilmington is up something like 40-50% over the last year. VTSAX is up about 100%. So we haven't had the value of our down payment money eroded by rising home prices.

Nice perspective! I share the same sentiments as you do but you just explained it way better than I ever could haha. Currently renting in OC and 'missed the last wave' in terms of getting a place in the area when prices were 'reasonable' (e.g. people not overbidding and driving prices up by margins of $50k on average). We got out of our last place a bit too early back in August - could have waited and prob netted $50k more at least but the upstairs tenants were driving me crazy - I was losing sleep and sanity from the foot traffic and noise from them. So I'm relieved we moved out... although, the noise issue seems to follow us wherever we go. In the past several months it has been 3 things: 1) guy with a Subaru WRX who likes to idle his car for several minutes whenever he leaves (and this includes between 5am-7am) 2) guy with Roush F-150 who likes setting his neighbors' car alarms off when starting up his car (and he also likes to idle his car for several minutes before leaving... what is it about guys with loud cars and idling? smh) and 3) next door neighbor who games in the midnight and early AM hours with the window open, talking loudly and yelling with the guys he's playing with over the internet. It got so bad I had to complain about 1 and 3 and they've been *mostly* resolved (#2 is a more recent development that may warrant complaints soon if he keeps up the antics). Subaru WRX guy apparently installed a muffler to dampen the sound but it's still nearly as annoying (he woke me up at 5:45am today because he was slow-revving his car... he has been doing this lately and it's even more irritating in some ways). I digress. We have the funds from the condo sitting in a savings account (in anticipation that we were going to use it as a down payment) and I'm wondering if I should just say screw it and invest all of it in index funds... we really want to get a place though - we have two little ones and value the stability of growing up in a place we can come back to and not worry about getting evicted or rents increasing. Growing up, I think I took this for granted. My wife grew up in both homes and apartments. Her parents actually lost their home to the Northridge earthquake and got into deep financial trouble - they were forced to move into an apartment and after that it was just downhill. Throughout her elementary years she remembers the power and water shutting off because her parents weren't making the payments. So I think she values financial security and being in a home as much if not more than I do. But it's hard even wanting to get a place now with the way the prices are. We made a few offers weeks ago, all over asking, and were still outbid. smh.

How long did you wait to invest your down payment funds into VTSAX (presumably this was from the monies from selling your last home?)? And how long do you intend to keep it there? Right now, I've conceded to putting $100k in HMBradley (to earn 3%) and the remainder in a T-mobile Money account (to earn 1%). I'm afraid of putting it in index funds right now unless we concede not to buy for at least the next 5-10 years. That's a long time and our kids will be in late elementary-middle school by then.

[ChpBstrd]

This is the way (just get rid of the carpet):

https://www.zillow.com/homedetails/1322-E-59th-St-Kansas-City-MO-64110/2350044_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare

[Imma]

^ There are some good points here. In a world where money is considered the most important thing, stability and lifestyle take a back seat.

Maybe the cynicism of generation X, which has redefined politics, relationships, and media in favor of the unconventional, has also led to a world where people waste their lives in frantic pursuit of the greener grass on the other side of the proverbial fence. Maybe most of us will die alone or among strangers in some random place where we went to chase a dollar/euro until an unremarkable layoff leveled everything we had devoted our lives to. Maybe when everyone is a cynic, no one is a cynic and it’s just another herd.

I always knew I liked this particular neighbourhood where we lived, but I didn't really find out how much until the pandemic hit. Now we're all home almost all of the time, I hardly see anyone, and I'm so glad when I'm on my daily walks, I may bump into the baker and have a chat with him outside, and that when I'm at the post office, staff don't just make polite small talk with me, they actually know who I am. Maybe I'm the exception, but now we don't really see coworkers, family and friends anymore, I'm so glad there are still people around who don't just politely greet me but actually know who I am, even if I bump into them in a different location. That sense of community is very important to me. It doesn't necessarily mean you have to own, if you can find a long-term rental that would work too, but in our location that was an issue.

I try not to see our house as an investment. We know the monthly costs and we regard that as a sort of rent. If we end up making a profit after we've sold, that's an unexpected windfall. Even if you are a real estate investor, your primary residence is not where you should expect to make money. You buy it because it fits your wants and needs. If you are looking for an rental property, you use other criteria.

In our case, we bought our house with a 5% downpayment. That's what the bank offered us with no extra costs; PMI doesn't exist here, a lender just charges a higher interest % in case of a high-risk loan and in our case we were offered the standard rate for a 5% downpayment. We knew there would be tons of costs associated with moving in, and we were awaiting a 10k back payment from a previous employer, so we figured we'd wait until we were properly settled in and after 6 months or so we'd start to pay a bit extra towards the mortgage to make sure we were protected against a sudden drop in house prices. We'd planned to pay in about €100 or so, which meant we'd spend the same amount of money on housing that we used to spend when we were renting. But shortly after we moved, prices started to go up, and have continued to go up. So we never paid extra and our current mortgage is around 55% of the value of the house and less than our yearly income. We were lucky, it could have gone the other way. But we would still have value for money, we still have a nice house to live in even if we don't make a profit at the end of the day.

[DadJokes]

We bought our first house in 2016 (I rented for several years or lived in military barracks before that) for $200k. Redfin says that it is currently worth $280k. That would have been well outside our budget at the time but easily within our budget a short two years later.

I probably would have continued renting, largely because our rent was pretty reasonable, due to renting from family.

Unfortunately, rent prices have climbed in many areas as well, so I don't think the choices are great at the moment for people. People may just need to get roommates when they previously wouldn't have needed to.

[zolotiyeruki]

An interesting footnote. Stocks have outperformed housing by a large margin. Housing in Wilmington is up something like 40-50% over the last year. VTSAX is up about 100%. So we haven't had the value of our down payment money eroded by rising home prices.

I'd be careful about posting that growth statistic regarding VTSAX.  Today it's at $106, a year ago it was at $69, so YOY it's only 54%.  If you cherry pick the bottom of the market in mid-March 2020, it's not far off (106 vs 54, so 96% increase), but that's not a very honest or useful statistic.*  If you cherry pick the peak just before COVID (mid-Feb), it was at $84, which gives you a bit under 26% return.  Still impressive, but given the spectacular sums of money printed and tossed about over the last year, not all that surprising.

*This one's a pet peeve of mine.  The "Billionaires doubled their money because of COVID" news stories tend to conveniently leave out the whole "Billionaires lost half their money first" fact, and also the "everyone else who held onto their investments also doubled their money" points.

[Mr. Green]

@jeromedawg Our normal down payment funds are still in bonds because volatile equities isn't a great place for short term money. But 80% of our portfolio is in equities so we could sell a little to get the extra we needed for a higher down payment and we'd still have more money than before housing prices exploded.

@zolotiyeruki I wasn't really paying attention to specific dates. I just remembered housing prices taking off shortly after the pandemic hit, which was also the time of the correction. So I guess worst case scenario where you take the peak before COVID and now, equity gains have still largely kept pace with house price gains except for some of the most overheated markets. I think the real point I was trying to make was that in this particular case, it doesn't feel like the rise in home prices has put as much of a pinch on anyone with significant equities exposure because everything is up. I guess if you're having to take a bigger loan the your income may come into play it I've been FIREd 4-5 years now so I wasn't thinking about that when I posted. Just shows my loss of relatability. Hah!

[AccidentialMustache]

We bought our first house in August 2005 for 260k. I was 22.  So not quite the very top before the crash of 2008 but very close to it. This was in the Frederick, MD area, arguably an extended Washington DC suburb. Lots and lots of commuters to DC and Baltimore.

After the crazy price appreciation of the past year, my house is probably worth 280-290k. It took almost 15 years for my house to become worth again what we paid for it in 2005.

We also bought our first place in 2005, although for a lot less than that. Zillow would tell you the price has stayed about the same -- except the last couple years it has started creeping slowly upwards. Slowly like maybe 20% over what we bought it for, 16 years later. We'll hopefully find out later this year what it is worth. We plan to de-rental it, do any required maintenance, and then sell it as a SFH.

The 2008 crash was hardly even noticeable here. House prices were not blowing up in the run-up and were not crashing down after. Prices for existing inventory can't go up that much, because if they do someone just flips the next corn field into a housing development.

So as always with real estate -- location matters the most -- and that includes for how your ups and downs go.

[ender]

An interesting footnote. Stocks have outperformed housing by a large margin. Housing in Wilmington is up something like 40-50% over the last year. VTSAX is up about 100%. So we haven't had the value of our down payment money eroded by rising home prices.

I'd be careful about posting that growth statistic regarding VTSAX.  Today it's at $106, a year ago it was at $69, so YOY it's only 54%.  If you cherry pick the bottom of the market in mid-March 2020, it's not far off (106 vs 54, so 96% increase), but that's not a very honest or useful statistic.*  If you cherry pick the peak just before COVID (mid-Feb), it was at $84, which gives you a bit under 26% return.  Still impressive, but given the spectacular sums of money printed and tossed about over the last year, not all that surprising.

*This one's a pet peeve of mine.  The "Billionaires doubled their money because of COVID" news stories tend to conveniently leave out the whole "Billionaires lost half their money first" fact, and also the "everyone else who held onto their investments also doubled their money" points.

These types of analysis often ignore the impact of leverage on real estate growth too though.

If stocks return 100% and real estate returns 40%, you might end up with a higher cash on cash return from real estate depending on what you put down.

Putting a 20% down payment ends up being a 200% effective return for real estate vs the 100% for stocks, even though at first glance the 100% vs 40% makes it look

[MudPuppy]

I would, yes.

I’m early 30s and we bought in 2017. My area is growing rapidly, so rentals are more than my current mortgage. Plus, for my lifestyle, I need a yard. I have three large dogs and I often foster others. The yard we have is just a small city lot but it’s enough for frolics! Also I can’t imagine the hemorrhaging we’d be doing in pet rent/pet deposits for three big dogs.

[Morning Glory]

@Mr. Green you are right about those lumber prices. I just sold a truckload of unused lumber that was in my barn for about double what we paid a couple years ago, and I priced it about 25% less than what the big box stores are now charging.  Same for a load of PVC pipe, although I didn't make quite as much on that. For both things I ignored the lowballers and had someone show up with asking price in cash within a day or two. It is a great time to sell any extra stuff you have lying around!!!

[Mr. Green]

@Mr. Green you are right about those lumber prices. I just sold a truckload of unused lumber that was in my barn for about double what we paid a couple years ago, and I priced it about 25% less than what the big box stores are now charging.  Same for a load of PVC pipe, although I didn't make quite as much on that. For both things I ignored the lowballers and had someone show up with asking price in cash within a day or two. It is a great time to sell any extra stuff you have lying around!!!

It's crazy how broadly this applies right now. I see people dusting off their RVs and campers that have been rotting away in their back yards, slapping a new set of tires on them, and selling them. The only word I can find for it is...bizarre.

[Dicey]

This is the way (just get rid of the carpet):

https://www.zillow.com/homedetails/1322-E-59th-St-Kansas-City-MO-64110/2350044_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare

Potential foundation problems (see cracking on porch), a mishmash kitchen with two different cabinet styles and multiple countertop materials, popcorn ceilings and heavily textured walls, sleeping porches converted to bedroom, etc., etc. are all fixable, but schools with 1 and 2 ratings? Not so much.

[ChpBstrd]

You'll hear a lot of talk about the risk of inflation, and how historically housing has been a good inflation hedge because its value tracks, or used to track, the costs of labor and materials. However, I'm not sure those assumptions hold true any more, especially in HCOL and MCOL areas, where the cost of construction is a small fraction of a home's price. If the price of labor and materials go up 100% for a house selling at $500/sf which cost $200k to build, the house might only gain 40% from that (or might not gain at all if the $300/sf premium shrinks).

Much worse, real estate ownership can limit us from taking part in the upside of inflation - rising wages. If I'm stuck in a place because I own a home there, I may be at the mercy of only a handful of potential employers. If the promotions don't come, my wage growth could fall below the inflation rate for decades at a time. If on the other hand, I was willing to relocate for my raises, not only do I have more negotiation leverage, but I also have a much bigger pool to play in. The decline of unions means there is no one to pressure employers to raise wages, so if you aren't willing to pack up and leave, you'll take what you're given.

This factor is especially significant for young people. It is true that the earnings trajectory you set when young will follow you throughout your career. But the difference between a rising star and someone stuck in a rut could be as simple as geographic mobility.

[Imma]

You'll hear a lot of talk about the risk of inflation, and how historically housing has been a good inflation hedge because its value tracks, or used to track, the costs of labor and materials. However, I'm not sure those assumptions hold true any more, especially in HCOL and MCOL areas, where the cost of construction is a small fraction of a home's price. If the price of labor and materials go up 100% for a house selling at $500/sf which cost $200k to build, the house might only gain 40% from that (or might not gain at all if the $300/sf premium shrinks).

Much worse, real estate ownership can limit us from taking part in the upside of inflation - rising wages. If I'm stuck in a place because I own a home there, I may be at the mercy of only a handful of potential employers. If the promotions don't come, my wage growth could fall below the inflation rate for decades at a time. If on the other hand, I was willing to relocate for my raises, not only do I have more negotiation leverage, but I also have a much bigger pool to play in. The decline of unions means there is no one to pressure employers to raise wages, so if you aren't willing to pack up and leave, you'll take what you're given.

This factor is especially significant for young people. It is true that the earnings trajectory you set when young will follow you throughout your career. But the difference between a rising star and someone stuck in a rut could be as simple as geographic mobility.

In theory, this is absolutely true, and a good reason to stay flexible, but how many people would actually take the drastic step of moving to a different area just for a job? People talk about it a lot on MMM but I only know a few people that ever did it, and half of them regretted it later on and moved back. For many people it's important to live near friends and family, church or clubs you're a member of, and especially when they start having children, they want to keep the children in the same school and close to grandparents and aunts and uncles.

I did it, right after highschool, and I'm still in that location and planning to remain here. I already had ties to this city but I had never lived here, and I knew the job market was better here. But I probably wouldn't do it again, not to another city. We are planning to retire to a more rural location eventually.

[DadJokes]

You'll hear a lot of talk about the risk of inflation, and how historically housing has been a good inflation hedge because its value tracks, or used to track, the costs of labor and materials. However, I'm not sure those assumptions hold true any more, especially in HCOL and MCOL areas, where the cost of construction is a small fraction of a home's price. If the price of labor and materials go up 100% for a house selling at $500/sf which cost $200k to build, the house might only gain 40% from that (or might not gain at all if the $300/sf premium shrinks).

Much worse, real estate ownership can limit us from taking part in the upside of inflation - rising wages. If I'm stuck in a place because I own a home there, I may be at the mercy of only a handful of potential employers. If the promotions don't come, my wage growth could fall below the inflation rate for decades at a time. If on the other hand, I was willing to relocate for my raises, not only do I have more negotiation leverage, but I also have a much bigger pool to play in. The decline of unions means there is no one to pressure employers to raise wages, so if you aren't willing to pack up and leave, you'll take what you're given.

This factor is especially significant for young people. It is true that the earnings trajectory you set when young will follow you throughout your career. But the difference between a rising star and someone stuck in a rut could be as simple as geographic mobility.

In theory, this is absolutely true, and a good reason to stay flexible, but how many people would actually take the drastic step of moving to a different area just for a job? People talk about it a lot on MMM but I only know a few people that ever did it, and half of them regretted it later on and moved back. For many people it's important to live near friends and family, church or clubs you're a member of, and especially when they start having children, they want to keep the children in the same school and close to grandparents and aunts and uncles.

I did it, right after highschool, and I'm still in that location and planning to remain here. I already had ties to this city but I had never lived here, and I knew the job market was better here. But I probably wouldn't do it again, not to another city. We are planning to retire to a more rural location eventually.

I know a lot of people who did it, including myself. Now that we have kids, I probably wouldn't do it, unless the pay raise was >100%. But we also make good money. If we were struggling, I would absolutely move if the raise would help us to get ahead.

[Metalcat]

You'll hear a lot of talk about the risk of inflation, and how historically housing has been a good inflation hedge because its value tracks, or used to track, the costs of labor and materials. However, I'm not sure those assumptions hold true any more, especially in HCOL and MCOL areas, where the cost of construction is a small fraction of a home's price. If the price of labor and materials go up 100% for a house selling at $500/sf which cost $200k to build, the house might only gain 40% from that (or might not gain at all if the $300/sf premium shrinks).

Much worse, real estate ownership can limit us from taking part in the upside of inflation - rising wages. If I'm stuck in a place because I own a home there, I may be at the mercy of only a handful of potential employers. If the promotions don't come, my wage growth could fall below the inflation rate for decades at a time. If on the other hand, I was willing to relocate for my raises, not only do I have more negotiation leverage, but I also have a much bigger pool to play in. The decline of unions means there is no one to pressure employers to raise wages, so if you aren't willing to pack up and leave, you'll take what you're given.

This factor is especially significant for young people. It is true that the earnings trajectory you set when young will follow you throughout your career. But the difference between a rising star and someone stuck in a rut could be as simple as geographic mobility.

In theory, this is absolutely true, and a good reason to stay flexible, but how many people would actually take the drastic step of moving to a different area just for a job? People talk about it a lot on MMM but I only know a few people that ever did it, and half of them regretted it later on and moved back. For many people it's important to live near friends and family, church or clubs you're a member of, and especially when they start having children, they want to keep the children in the same school and close to grandparents and aunts and uncles.

I did it, right after highschool, and I'm still in that location and planning to remain here. I already had ties to this city but I had never lived here, and I knew the job market was better here. But I probably wouldn't do it again, not to another city. We are planning to retire to a more rural location eventually.

I know a lot of people who did it, including myself. Now that we have kids, I probably wouldn't do it, unless the pay raise was >100%. But we also make good money. If we were struggling, I would absolutely move if the raise would help us to get ahead.

Me too, I know a ton of people who have relocated for work. It's very common in my industry.

[ender]

I relocated for work but rather regret it :)

[Morning Glory]

I relocated for work after graduating college at age 26. Prior to that I had bought a house in my hometown and commuted to school (took a couple years off in there too).  I regret not getting out of there sooner for personal reasons, but financially it was a good choice in the short term because I could live very cheaply and avoid student loans.  Long term I'm not so sure: I would have felt like I had a lot more choices of majors and careers if I had gotten out of that town.

[zolotiyeruki]

I've only ever had two full-time jobs, and moved, with wife and kid(s), for both of them.  And I don't regret either one.

Job 1 was in Houston (lived in the suburbs).  We loved everything about living there, except the climate.
Job 2 is in Chicago (live & work in the suburbs).  The climate is about the only thing we love about the location.

[affordablehousing]

here's the lesson-

buy a house when you need a house, and don't when you don't need a house/project/settle down/school district/ etc.

if you want to buy a house to not miss out on something, then it is an investment, and the same diligence and deal searching should be done like picking a stock or another investment. there are good deals and bad deals at every point in the spectrum, and 99% of people who "make a lot of money" on their house, in reality, just got lucky when they moved/got pregnant/got a new job and are not unusually savvy or smart. Same goes for those that lose money. The only thing most of us do have control over, is how much money we make or spend, and what goal we put in front of ourselves.

[clifp]

I would absolutely buy now, in most markets. The coastal cities are a bit more nuanced, but generally, I if I could figure out how to swing it I'd buy in LA, Seattle, Boston etc..
Why for one simple reason, interest rates are at historical lows, not just for Americans but for the world.  For most of the last 500 years, the governments had to pay ~5% for people to loan them money for 30 years, now it is just over 2% for Uncle Sam and less than 2% for many European countries.  We are near the tail end of 40-year bull market in bonds, and I think the people (i.e. banks) who lending money this cheap are making a mistake.

I know it seems like there are huge obstacles to buying a house at 25.
Rest assured that's always been the case in HCOL places.

I bought mine in the heart of Silicon Valley (Santa Clara) in 1984 at the ripe old age of 24.
The house was $153,000 I was making 30K.
I could only come up with 10% downpayment (some borrowed from my parents)
I couldn't afford the payments myself, so I had to find a co-owner (a college roommate)
The mortgage rate was 13.75% and it was negatively amortized meaning I owed more money than we borrowed for the first 5 years. It also meant my payments rose by 5% each year for the first five years.
We had two and one point 3 roommates (5 bedroom house)
I got laid off 4 months after closing. The new company (Intel) cut my pay by 10% the next year.
Now, I don't want to exaggerate and say I was living on Ramen and had no money, but I was definitely always concerned about making the mortgage payment for the first 3 or 4 years. But then with lower interest rates and higher salary things got much easier. The number of roommates dropped from 3 to 0, I bought out the co-owner, I paid off the mortgage.

The early sacrifices paid off. it was big factor in letting me retire early at 39, I sold it for 3x what I paid for it in 1999. The guy who bought from be still owns it and today it's worth $1.9 million according to Zillow and monthly payments and taxs would be ~$10,500/month.  So it would still take two software engineers making $150-200K and a renter or two to swing, but I'd still do it today.

Now obviously there are lots reasons not do it, you are not sure about your work situation, or the area, or you have an out of state boyfriend. But I'd certainly consider sacrificing for the short-time to reep the long-term rewards.

 

[secondcor521]

The only thing most of us do have control over, is how much money we make or spend, and what goal we put in front of ourselves.

We also have control over what house we offer to buy, at what price, with what contingencies, and with what (if any) financing and/or down payment.

[Le Poisson]

Funny story. I was visiting my mom last year and noticed that my first house was for sale for 40K.  I paid 45K for it in 2002 and sold it for 62K in 2007.  I am guessing the condition leaves something to be desired, plus I don't have any desire to live in that area again, so I would not buy it.

Your location matters more than your age. In some areas it is so much cheaper to buy than to rent. I was 20 when I bought that house and my mortgage payment was less than $300/month.  My classmates were paying more for half a dorm room. In other areas, renting wins out.

Funny, we are going through the same thing here right now. The house I bought for $100K in 1990 when I was 23 is now $500,000 (Brantford, Ontario - Canada)

In the interim we have "laddered up" and have more equity in our current house (bought at the outrageous price of $400K 10 yrs ago) than that house is worth. This house is now worth just shy of $900K.

Referring the OP's question, if you are going into RE, go in with a plan, know your market, and know where you want to end up - both in terms of timeline and lifestyle/life goals. If you are buying for life, then your expectations will be different than if you are going to ladder up on a schedule of 5yr turnovers or 3 yr turnovers or whatever.

And as for buying in the current market - I see RE investment the same as I see stock market investment. There is never a better time than now, and there is never a worse time than now. Just make the most of your opportunities and work your plan.

[ChpBstrd]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

[Le Poisson]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

UH... nope. This is very manufactured. At least I don't know anyone who has had "neighbourhood decline" as an issue, and if you get divorced every 5 years, you have bigger challenges than RE investing.

The post is talking to the time value of money, you are speaking to lifestyle choices that really don't fit the MMM theme.

[Metalcat]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

UH... nope. This is very manufactured. At least I don't know anyone who has had "neighbourhood decline" as an issue, and if you get divorced every 5 years, you have bigger challenges than RE investing.

The post is talking to the time value of money, you are speaking to lifestyle choices that really don't fit the MMM theme.

I agree with you, but in a less extreme way, it is valuable to point out that a lot of people ridiculously over estimate how long they will stay in a home, and dramatically under estimate the factors that could drive them to sell.

It is worth being realistic about how likely one is to stay put long enough to really benefit from owning.

For example, someone who kind of hates their job should be a bit more cautious about committing to buying, because their probability of switching jobs is so much higher, and new jobs can require new locations.

Life happens, and people do seem to kind of forget that sometimes when they think about real estate.

[DadJokes]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

UH... nope. This is very manufactured. At least I don't know anyone who has had "neighbourhood decline" as an issue, and if you get divorced every 5 years, you have bigger challenges than RE investing.

The post is talking to the time value of money, you are speaking to lifestyle choices that really don't fit the MMM theme.

I agree with you, but in a less extreme way, it is valuable to point out that a lot of people ridiculously over estimate how long they will stay in a home, and dramatically under estimate the factors that could drive them to sell.

It is worth being realistic about how likely one is to stay put long enough to really benefit from owning.

For example, someone who kind of hates their job should be a bit more cautious about committing to buying, because their probability of switching jobs is so much higher, and new jobs can require new locations.

Life happens, and people do seem to kind of forget that sometimes when they think about real estate.

It happened to us. We moved into our first house in 2016. Less than two years later, I took a different job, and we moved again. Thankfully, the house had appreciated enough that we broke even after realtor fees, thanks to the crazy home appreciation.

[Mr. Green]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

UH... nope. This is very manufactured. At least I don't know anyone who has had "neighbourhood decline" as an issue, and if you get divorced every 5 years, you have bigger challenges than RE investing.

The post is talking to the time value of money, you are speaking to lifestyle choices that really don't fit the MMM theme.

I agree with you, but in a less extreme way, it is valuable to point out that a lot of people ridiculously over estimate how long they will stay in a home, and dramatically under estimate the factors that could drive them to sell.

It is worth being realistic about how likely one is to stay put long enough to really benefit from owning.

For example, someone who kind of hates their job should be a bit more cautious about committing to buying, because their probability of switching jobs is so much higher, and new jobs can require new locations.

Life happens, and people do seem to kind of forget that sometimes when they think about real estate.

It happened to us. We moved into our first house in 2016. Less than two years later, I took a different job, and we moved again. Thankfully, the house had appreciated enough that we broke even after realtor fees, thanks to the crazy home appreciation.

This gets overlooked a lot. When you buy a home you are immediately in the red for the first couple years due to selling costs. You basically have to rely on home appreciation to break even if not staying longer than that.

[Metalcat]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

UH... nope. This is very manufactured. At least I don't know anyone who has had "neighbourhood decline" as an issue, and if you get divorced every 5 years, you have bigger challenges than RE investing.

The post is talking to the time value of money, you are speaking to lifestyle choices that really don't fit the MMM theme.

I agree with you, but in a less extreme way, it is valuable to point out that a lot of people ridiculously over estimate how long they will stay in a home, and dramatically under estimate the factors that could drive them to sell.

It is worth being realistic about how likely one is to stay put long enough to really benefit from owning.

For example, someone who kind of hates their job should be a bit more cautious about committing to buying, because their probability of switching jobs is so much higher, and new jobs can require new locations.

Life happens, and people do seem to kind of forget that sometimes when they think about real estate.

It happened to us. We moved into our first house in 2016. Less than two years later, I took a different job, and we moved again. Thankfully, the house had appreciated enough that we broke even after realtor fees, thanks to the crazy home appreciation.

This gets overlooked a lot. When you buy a home you are immediately in the red for the first couple years due to selling costs. You basically have to rely on home appreciation to break even if not staying longer than that.

That's exactly my point. People underestimate how long it takes to get out of the red and over estimate how likely they are to stay there that long.

It just needs to be risk managed realistically like anything else.

[Mmm_Donuts]

There's no way I would or even could buy my current house now. At the time we bought (many years ago) we took out a 500k mortgage, which seemed crazy at the time. Buying nowadays would mean 1M+ mortgage, maybe even 2M+ mortgage (depending on the downpayment of course.) Our house is currently worth about 2.5M (conservatively), and it is not a mansion. Average house prices across Canada are now about 700k, which is insane.

I bought my first place in my 20s, which was about 20 years ago, and it was affordable - the mortgage payments were on par with rent. Now - I don't believe this is the case and there is the threat of mortgage rates going higher, which would make owning even more unaffordable. But... perhaps Canada is a unique case.

[StashingAway]

This is a really long thread!

• You don't need to "buy" a house to grow roots in an area. I have made deep roots in places even whilst changing rentals every couple of years
• Buying a house and renting are all on a spectrum. Even if you buy a house, if you have an HOA you have rental like restrictions sometimes. You will downsize or sell as you get older. In reality, many people buying a house are just in a long term rental. After alll, we all turn to dust eventually
• As others have mentioned, try to really decipher which part of owning a house you are emotionally tied to. I would loved to have bought bitcoin 10 years ago. I would have loved to invest in real estate 3 years ago. It's all just FOMO. Don't fall for it. What if the housing market were crashing, then would you buy? Would you buy in 2008? If the answer is "no", then think long an hard if you actually want to own a house or are just experiencing FOMO. I would buy my current house in 2008.

[Le Poisson]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

UH... nope. This is very manufactured. At least I don't know anyone who has had "neighbourhood decline" as an issue, and if you get divorced every 5 years, you have bigger challenges than RE investing.

The post is talking to the time value of money, you are speaking to lifestyle choices that really don't fit the MMM theme.

I agree with you, but in a less extreme way, it is valuable to point out that a lot of people ridiculously over estimate how long they will stay in a home, and dramatically under estimate the factors that could drive them to sell.

It is worth being realistic about how likely one is to stay put long enough to really benefit from owning.

For example, someone who kind of hates their job should be a bit more cautious about committing to buying, because their probability of switching jobs is so much higher, and new jobs can require new locations.

Life happens, and people do seem to kind of forget that sometimes when they think about real estate.

It happened to us. We moved into our first house in 2016. Less than two years later, I took a different job, and we moved again. Thankfully, the house had appreciated enough that we broke even after realtor fees, thanks to the crazy home appreciation.

This gets overlooked a lot. When you buy a home you are immediately in the red for the first couple years due to selling costs. You basically have to rely on home appreciation to break even if not staying longer than that.

That's exactly my point. People underestimate how long it takes to get out of the red and over estimate how likely they are to stay there that long.

It just needs to be risk managed realistically like anything else.

Totally with you there Malcat - you need at least a 4 year commitment for the equity to catch up with the sunk costs if you buy and sell traditional RE in a traditional manner (RE agent, listing, etc.) - drawing outside the lines you can minimize those costs somewhat, but my rule of thumb has been 4 years. Admittedly, this is a dated opinion and houses I bought 3 years ago have appreciated beyond expectations. I still wouldn't buy on less than a 4 year horizon though.

Your comment also applies to renovations though - so many people install major items (HVAC, Roofs, landscaping) and use lifetime costs to justify upgrades that push budgets skyward. I would love a  standing seam steel roof with a 50 year guarantee - they look beautiful and have zero maintenance. I would love to convert my house to hydronic radiant heat set into a mortar bed for thermal mass with stabilized bamboo flooring over it... Then reality sets in. even though these systems have ridiculous efficiency/lifetime operating cost savings, the initial cost will not be recovered in the time I will live here. The impact of items like these on resale home value will be negligible. If I can't recoup the value of the improvement in 10 year horizon (including savings on expenses and capital appreciation), it isn't realistic for me to consider it.

[Metalcat]

On inflation, you get a nice hedge if you're able to take the mortgage with the house.  Others hinted at that.  But that's the hedge: I own a house, but I owe a note priced in dollars at a fixed rate of 2.5% (which is still unbelievable--even more so that we got it for zero cost with no points).  I now benefit from both wage inflation and price inflation as that bank note becomes less valuable.

The mortgage inflation hedge often breaks down though, due to our own behavior. E.g. Buy a house with a  3% mortgage. Five years later, sell the house to chase a job opportunity. Buy a new house with a 5% mortgage. Get divorced. Spouse gets the house. Buy a new house with a 6% mortgage. Stay there until the neighborhood declines. Trade up to a new house with a 8% mortgage. Etc...

Real life stories sound a lot more like the above than our plans to lock in a low rate for 30 years.

UH... nope. This is very manufactured. At least I don't know anyone who has had "neighbourhood decline" as an issue, and if you get divorced every 5 years, you have bigger challenges than RE investing.

The post is talking to the time value of money, you are speaking to lifestyle choices that really don't fit the MMM theme.

I agree with you, but in a less extreme way, it is valuable to point out that a lot of people ridiculously over estimate how long they will stay in a home, and dramatically under estimate the factors that could drive them to sell.

It is worth being realistic about how likely one is to stay put long enough to really benefit from owning.

For example, someone who kind of hates their job should be a bit more cautious about committing to buying, because their probability of switching jobs is so much higher, and new jobs can require new locations.

Life happens, and people do seem to kind of forget that sometimes when they think about real estate.

It happened to us. We moved into our first house in 2016. Less than two years later, I took a different job, and we moved again. Thankfully, the house had appreciated enough that we broke even after realtor fees, thanks to the crazy home appreciation.

This gets overlooked a lot. When you buy a home you are immediately in the red for the first couple years due to selling costs. You basically have to rely on home appreciation to break even if not staying longer than that.

That's exactly my point. People underestimate how long it takes to get out of the red and over estimate how likely they are to stay there that long.

It just needs to be risk managed realistically like anything else.

Totally with you there Malcat - you need at least a 4 year commitment for the equity to catch up with the sunk costs if you buy and sell traditional RE in a traditional manner (RE agent, listing, etc.) - drawing outside the lines you can minimize those costs somewhat, but my rule of thumb has been 4 years. Admittedly, this is a dated opinion and houses I bought 3 years ago have appreciated beyond expectations. I still wouldn't buy on less than a 4 year horizon though.

Your comment also applies to renovations though - so many people install major items (HVAC, Roofs, landscaping) and use lifetime costs to justify upgrades that push budgets skyward. I would love a  standing seam steel roof with a 50 year guarantee - they look beautiful and have zero maintenance. I would love to convert my house to hydronic radiant heat set into a mortar bed for thermal mass with stabilized bamboo flooring over it... Then reality sets in. even though these systems have ridiculous efficiency/lifetime operating cost savings, the initial cost will not be recovered in the time I will live here. The impact of items like these on resale home value will be negligible. If I can't recoup the value of the improvement in 10 year horizon (including savings on expenses and capital appreciation), it isn't realistic for me to consider it.

Lol, I've seen some pretty fancy mental gymnastics done to justify some batshit renos.

[zolotiyeruki]

I bought my first place in my 20s, which was about 20 years ago, and it was affordable - the mortgage payments were on par with rent. Now - I don't believe this is the case and there is the threat of mortgage rates going higher, which would make owning even more unaffordable. But... perhaps Canada is a unique case.

You can't just do a static analysis.  Higher interest rates won't simply add to housing prices, because the demand curve (i.e. how many people can afford what monthly payment) hasn't shifted.  It'll just mean that the selling prices for homes will drop in order for those same buyers to be able to buy.