How to navigate family housing in a hot real estate market

[tyrannostache]

I live in a hot market in the mountain west (Missoula, Montana). We are a family of 4 (2 adults, 2 small kids + dog) renting--and lucky to have found a rental that accepts dogs in a town with 0% vacancy.

We are currently renting a SFH. We pay $2050/month; this will probably increase at lease renewal in 6 mos.
We own a house in a different MT town, rented to a stable tenant for another year. We will consider selling when lease is up. Purchasing/financing a new house is not contingent on selling that one.

We're looking at homes in the $350-450k range. At current rates, that puts us at a mortgage payment & taxes, etc of roughly $1700-2100/month. However, the market is so nutty that I don't know whether it's worth our while to fight our way into it. People keep paying over asking, offers in cash, etc. We tried to buy a house here in summer 2020, but gave up after losing out on 2 deals that were already at the top end of our budget. Prices jumped well more than 10% last year alone.


My question: how do you make an intelligent decision in an environment like this? I'm concerned that if we wait much longer, we'll get completely priced out of the market. That is what has happened in Bozeman, for example, a city of comparable size and growth. At the same time, I don't want to be house-poor and locked into a mortgage that eats up our budget and savings.

I know there's no good way to time the market. I'm just trying to figure out how to best evaluate risks. Any advice?


I know that in terms of housing cost, our smartest plan would be to move back to our old town and old house and forget about Missoula. But that would make my spouse's work life a lot more difficult. And if his current job somehow ends, there are far more opportunities for him here than there were in our old town. My job should stay stable no matter what. (Plus, there's a big river, decent bike infrastructure/urban planning, and all the diverse bougie foods that I love.)

[Cb1234567]

Wow, I did a quick peek at your market and you’re not kidding! Just a few oddballs sitting that aren’t pending or contingent.

This is a philosophical response, not numbers.
1. No matter what, we would not set ourselves up to be house poor.

2. If a market is too expensive to buy, then that is that. The options are to move further out, eat it in rent (at least you have flexibility, and a rent payment = to a mortgage payment means the rent IS cheaper), relocate completely.

3. Do not count on a market to go up OR down. We would decide to buy based on what life we want (do we like the house, the area, community, amenities etc) and what other job we could get if someone lost employment- I.e. am I at the only game in town. Do we want to pay X for the house. Can we afford it. Be aware enough of your own circumstances to not get into a situation you can’t get out of or have a safety net for.

4. I’m not having a commute over 30 minutes. Ever. It’s a life choice for us. We move, or the job moves.

Example: Washington, D.C. area. Parents bought 20 miles outside of the city. Now it’s all built up, and dad’s house is something we would be priced out of. Too bad. Same idea outside of Philadelphia, where we found a niche house as a fixer upper (major issues). No where else there that we liked And also could afford (by our standards). So we moved elsewhere :)

...in the end, if we bought, our own #s and commute time have to work. Period.

In your case, look at the whole picture...2 offers isn’t bad at all... I believe that the best path presents itself in the correct time. Suggest not pushing until you see the way you want to go for sure. Give it 1-3 months and reevaluate.

So...Stand pat and see what develops in your life, or go with the move back/commute, or decide that home ownership in your new town is IT and get after it with a vengeance (find the oddball that works, get a more aggressive agent, troll your own network for upcoming listings or people who want to move). It’s more a life choice than a money choice, imho. Also, if you’re not going back, I’d sell the old house to simplify. Good luck!

[waltworks]

If you plan to stay for the long term, I'd just suck it up and fight and claw to get a place.

If you can swing $2000+ a month for rent, and you're ok with some DIY maintenance, your housing costs should be tolerable. And probably more importantly, stable. You can indeed end up priced out - we certainly would be at this point in our own town.

A lot of rich working remote people are moving to the intermountain west. I guess it's *possible* they'll all up and leave in a few years, but I doubt it. Park City went up something like 50% in one year, it's absolutely insane. I'd happily give back the extra equity to have my old town back but that's not an option at this point.

-W

[tyrannostache]

Thanks for the input, Cb and walt.

You are really helping me figure out how to frame this. I appreciate the philosophical responses, because this is more of a question of desire and needs than financials alone. The answer to the financial question is obvious--keep the old house and make my husband work remotely with weekly trips to Missoula. However, this town definitely has more opportunities for both of us if something should go wrong, but it will put us on the high end of our housing budget.

The influx of rich remote workers is really nuts right now. I don't think they are ever moving away; I think this town is changed for good. On top of that, I just heard about a new tech company poised to bring in 350+ new tech workers, and I'm not even someone who's tuned in to new businesses.

Thanks, y'all. We'll give it a few more months--not much is happening until the spring housing market starts rolling anyway.

[waltworks]

My wife and I sort of look at it this way - we have a ton of money tied up in the house now, and that's silly. But for now, we need (3 kids) the space. In 17 years (gah...) when they're all hopefully out of the house, we can downsize <1000 square feet and even if we want to stay in Park City, that will cost at most 1/2 of what our current place does, so we'll extract the equity then.

I mean, I'd prefer not to have a million plus bucks tied up in a house. I threw up a little in the back of my mouth just typing that. But I don't think it'll horribly lose value in the next 15-20 years. Even if it just keeps up with inflation, that's fine, as long as every other house/place we'd like to live doesn't skyrocket in value while our place stagnates. It's not an *ideal* investment, IMO, but it's not terrible either.

Now actually being house poor to the extent you can barely afford to live there would be bad. It does not really sound like that's the case here (especially if you sold the other house).

-W

[PMJL34]

I agree with CB and Walt,

This is a question of whether or not you want to pay the going rate or not.

Will you be buying at an all time high? It appears so.

Will the prices go up even higher or possibly lower? Who knows.

Will your quality of life improve enough if you move into this more expensive home? Only you can answer that.

Will the price you paid matter in 10 years? Most likely not since you can afford it.

This internet stranger would most likely hold off for another year to see what happens (unless an amazing deal pops up), but that's just me.

Best of luck!

[MissPeach]

It's an opportunity cost equation IMO. I am in a HCOL area that has been going crazy. They finally just put in a rent cap at 10% in my state. Salaries haven't been going up. Base salaries are about the same and most companies just do a 2-3% increase. For some reason my city is the least paid out of the large cities in my state even though our expenses are comparable.

A few months ago I finally figured the opportunity cost was worth cashing in a lot of my taxable account to get my living costs fixed at a rate I was comfortable with. I had saved a ton in my taxable account (which did really well this year) and was able to get my expenses for a 1,500 square foot house to that of a 1 bedroom rental apartment in my area. I need to stay in this city due to a custody arrangement for another 10 years so it made sense for me to lock things in.

I would look at it as an opportunity cost equation and if you plan to stay there for a long time figure out at what point it's better. In my area I have seen rents go up $200-300 per year for a 2 bedroom which is the minimum I needed. If rents increases had been more modest like $25-50 I wouldn't have given up my investment gains.

In the meantime I would keep building your down payment money. I had enough saved I was able to jump 125%-150% more than the starter home part of the market which helped a lot. Properties were still going quickly (week to a month) but not with multiple offers (often in cash) within a day on the market. As a result the sellers weren't being as crazy on terms and such since they were only getting one offer at a time. It really helped get something I liked quickly without having to do anything crazy like compete against crazy closing deadlines or removing inspections. It seems like most of the cash offers here are investors and most are looking at the lower end of the marketing competing with the people who can only afford that.

[FINate]

The recent run-up in prices does increase the risk of buying at the top. But what if it's not really the top?

Plus, there's a big river, decent bike infrastructure/urban planning, and all the diverse bougie foods that I love.

The above, plus other factors like scenery, easy access to the outdoor life, suggest that the city has been "discovered" and is unlikely to be cheap in the future.

My philosophical response: Your answer largely depends on how long you plan to own the house. If you intend to stay 10+ years then push hard to get into something. Otherwise, plan on  the likelihood of getting priced out over the long term.

Less than about 10 years and I would not buy in your market at these prices.

People keep paying over asking, offers in cash, etc. We tried to buy a house here in summer 2020, but gave up after losing out on 2 deals that were already at the top end of our budget. Prices jumped well more than 10% last year alone.

If you do decide to buy, you're going to have to pound the pavement a heck of a lot more than this. Last year we lost out on 2 houses in a hot market. These were over asking all-cash offers. And this was before the pandemic and resulting mass-migration-housing-insanity.

This is a bummer, but if you aren't all cash you will need to go significantly over asking to offset the risk to the sellers that the deal falls through. This also means you need a lot of downpayment to cover the potential that the appraisal comes in lower.  To do this you may need to consider lowing your price search range to small houses and or fixer uppers so you can beat competing offers.

[paideuma]

Don't have any advice, but posting to follow.

I'm in a similar boat. Attempted to buy last summer/fall, but supply is so low we ended up only making one offer and didn't get it. Went in $10k over list in a less desirable suburb that is pretty far out of town (we thought we'd have an easier time there ...ha). Ended up being kind of a shady deal where the seller already had someone lined up to buy via the listing agent, and the house sold at the price we put an offer in so we were a little peeved.

Went and saw some houses this past week and our agent has told us people are forgoing inspections, paying $10-30k+ over list, putting a lot down in due diligence money, and of course all cash offers. We can't do all cash, but have 20% down, two large incomes, no issues getting a loan, etc. Everything we like is gone within a day. I can't justify waiving an inspection, that just seems insane.

At the end of the day, she has told us a lot of the same things Cb1234567 mentioned: "Suggest not pushing until you see the way you want to go for sure. Give it 1-3 months and reevaluate." Straight up told us "unless you absolutely love it I can’t recommend paying over list".

We rent for the equivalent of what we'd aim our mortgage payment to be. We don't NEED to buy, but I've lived in the area for 15 years, and finally reached a place where I am financially stable AND ready to put down roots, but now I am afraid I'm getting priced out of my hometown. It's a bummer for sure.

I'm terrified of missing out on a great house by not looking, so I still peek at the MLS daily. If it were the right house at the right price we would go for it, but I can't get excited about putting an offer in anymore. We've already increased our budget by $50k since last summer, and while it is still something we could afford, it sets off a red flag. But at the same time, the area is growing, and I think will continue to grow so it doesn't feel like a bad decision. Ugh!

[waltworks]

If you have strong community connections, it's worth putting the word out. We know several folks here who have found off-market deals by being beloved local teachers/community members who some sellers strongly prefer to sell to, even if they're not getting as much money from the deal.

-W

[Fuzz]

It's not just coastal techies. There are also a second wave of people who are cashing out of Park City, Jackson Hole, and the Colorado equivalents and moving to Montana for the lifestyle/community that used to be more prevalent in those towns. If you got into a condo for 400K in Park City 5 years ago and it's now worth $800K, then taking that money and going to Whitefish, Big Sky or Bozeman makes a lot of sense for some people. Just saying. Same if you were in Jackson Hole 30 years ago. You could have 1M in equity (or more) on a home you purchased on a raft guide income.

If you can get a house that fits your family and lifestyle in Missoula, even if you have to fight and claw for it, I would try really hard to make it happen. That second piece--the fact that the job market is better in Missoula is key too. Frankly, Bozeman still seems underpriced for what you can get. Missoula is not far behind.

[waltworks]

Yeah, we've lost some cool neighbors already. Hard to justify working full time/not seeing your kids when you could tap the equity and move somewhere that's becoming cool.

It's a negative feedback loop of sorts, too. Park City was never very hip to begin with, but it's getting worse as long-time locals bail. I'd guess we're in it for the long run given our connections/friends/school for the kids, but you never know. We're FI anyway, so we'd only move if we no longer liked it, and we liked somewhere else better. But it's certainly in the back of my mind a lot now.

-W

[Finances_With_Purpose]

If you plan to stay for the long term, I'd just suck it up and fight and claw to get a place.

If you can swing $2000+ a month for rent, and you're ok with some DIY maintenance, your housing costs should be tolerable. And probably more importantly, stable. You can indeed end up priced out - we certainly would be at this point in our own town.

...

-W

As usual, I agree with @waltworks on this one. 

I would be wary of becoming house poor, but it sounds like you're within or close to the margin to be fine if you can DIY (and want to).  It will work out better and better the longer you stay, as your costs stay lower.  (Caveat: if you don't buy old/high-maintenance/a fixer-upper)  And you've said you want to be there for the job market, which is even more reason to stay. 

I won't get too specific here, but let's just say we own a place we probably couldn't afford today (or wouldn't want to, at least), largely because we bought before the market exploded.  My only regret is that we didn't opt for a slightly larger place back then, when we could have afforded it, because we can't now if we ever want to upgrade slightly, even with the incredible equity we now have (we bought a small, very mustachian place).  I'm sort of opposite where @waltworks is: we have the smaller house and are adding kids, finding it too small, rather than eventually having too much room.  But oh well: hindsight is 20/20. 

And nobody knows what the future is, especially in this era: you may have bought high, but it'll be OK since you're staying long-term, or you may find that you bought at the bottom of a long-term increase, and couldn't afford anything like it later. 

Like you, we also moved and bought here due to the market and long-term stability, and that has borne itself out, even in difficult times.  So do what's best for you considering the long-term factors.