Ask HN: What are idling first-time home buyers doing?
Renting another year? Sitting on cash or investing it? Pulling the trigger on a massive or small mortgage? And what's your reason? Is it due to market predictions or inability to further delay (family, etc.)?
32 comments
I think of pricing as a probability distribution, and while it's possible that prices continue to increase, in my view the downside risk on house prices predominates. Here are a few possibilities:
1. high interest leads to an increase in rates, significantly increasing payments and making current prices less affordable.
2. A recession drops wages
3. Stock prices drop precipitously, devaluing a lot of paper money in some markets (e.g., RSUs)
4. Previous 'hot-markets' have their use-value decrease substantially due to greater availability of remote work
5. In concert with a rate increase, if house prices look to be dropping housing as an investment vehicle may become unappealing, causing a flight and a downward spiral
All of this has to be balanced with the risk of holding onto cash or putting the money into other vehicles. Inflation is eating at the cash pretty aggressively right now and many other more liquid investments suffer similar risks as housing, but you don't get to live in your stock portfolio. If inflation doesn't get reigned in, housing may hold its nominal value or even increase and there's probably a sizable contingent of policy makers that would rather inflate than suffer significant nominal housing value decreases. For me, I'm basically watching what happens with inflation and how policy makers look to be acting. I'm holding a decent amount of cash, but I'm looking for a place to put it near-term and have limited patience on housing in the face of continued high inflation.
1. high interest leads to an increase in rates, significantly increasing payments and making current prices less affordable.
2. A recession drops wages
3. Stock prices drop precipitously, devaluing a lot of paper money in some markets (e.g., RSUs)
4. Previous 'hot-markets' have their use-value decrease substantially due to greater availability of remote work
5. In concert with a rate increase, if house prices look to be dropping housing as an investment vehicle may become unappealing, causing a flight and a downward spiral
All of this has to be balanced with the risk of holding onto cash or putting the money into other vehicles. Inflation is eating at the cash pretty aggressively right now and many other more liquid investments suffer similar risks as housing, but you don't get to live in your stock portfolio. If inflation doesn't get reigned in, housing may hold its nominal value or even increase and there's probably a sizable contingent of policy makers that would rather inflate than suffer significant nominal housing value decreases. For me, I'm basically watching what happens with inflation and how policy makers look to be acting. I'm holding a decent amount of cash, but I'm looking for a place to put it near-term and have limited patience on housing in the face of continued high inflation.
Do you have any evidence that #1 would actually happen, if interest rates rise?
I was listening to a podcast a while ago where an economist was discussing that if we go back in history and look at the times when interest rates rose, rarely/never we find that housing prices actually went down. They counterintuitively stayed flat or continued to rise (in the US).
I was listening to a podcast a while ago where an economist was discussing that if we go back in history and look at the times when interest rates rose, rarely/never we find that housing prices actually went down. They counterintuitively stayed flat or continued to rise (in the US).
Depends on how stringent of evidence you want.
Supply and demand in housing doesn't work on the purchase price. It works on the monthly payment (and the down payment), because that's the limiting factor for most buyers. If interest rates rise, the monthly payments rise for the same total house price. So fewer buyers can pay those prices. The demand curve shifts, so the price point shifts.
I saw this with our first house. We paid $61K, at 9% interest. Two years later, interest dropped to 7%, and our house was worth $90K. If we had bought the same house two years later, our monthly payment would have been the same.
Yeah, I know, that's anecdote, not data...
Supply and demand in housing doesn't work on the purchase price. It works on the monthly payment (and the down payment), because that's the limiting factor for most buyers. If interest rates rise, the monthly payments rise for the same total house price. So fewer buyers can pay those prices. The demand curve shifts, so the price point shifts.
I saw this with our first house. We paid $61K, at 9% interest. Two years later, interest dropped to 7%, and our house was worth $90K. If we had bought the same house two years later, our monthly payment would have been the same.
Yeah, I know, that's anecdote, not data...
Those account for first time buyers only with the min down payment.
All perfectly valid points. May I ask what you mean by #1? Interest rates are historically low and a fixed mortgage will only change based on property taxes and insurance.
#2 is something I thought about a lot as I was buying my first home, but I couldn't see how a drop in wage would change anything, since my mortgage is now less than what I paid in rent for just a modest apartment.
#2 is something I thought about a lot as I was buying my first home, but I couldn't see how a drop in wage would change anything, since my mortgage is now less than what I paid in rent for just a modest apartment.
Not OP, but as I see it, this is not so much about existing mortgages.
New purchases will be funded by loans on terms with higher rates. Because most borrow close to the limit of what they can service, future purchases will be for less. If you and your neighbour both purchased for $1M a year ago and your neighbour sells theirs for $800K this year (because that is all any new purchaser can afford), then your house is also now valued at $800K.
New purchases will be funded by loans on terms with higher rates. Because most borrow close to the limit of what they can service, future purchases will be for less. If you and your neighbour both purchased for $1M a year ago and your neighbour sells theirs for $800K this year (because that is all any new purchaser can afford), then your house is also now valued at $800K.
What other kind of investment apart from housing can one take out >=5x leverage on an investment and have the interest tax-subsidized?
Housing is a big racket in the United States, and everyone is too afraid to say anything becuse they just spent the better part of a million dollars on a condo https://www.redfin.com/WA/Seattle/3610-1st-Ave-NW-98107/unit...
But if you make $300/yr and don't have kids or too many expenses thats like 5 years to pay off, so not too bad then? Not totally sustainable for the rest of the country and/or poor people though.
Housing is a big racket in the United States, and everyone is too afraid to say anything becuse they just spent the better part of a million dollars on a condo https://www.redfin.com/WA/Seattle/3610-1st-Ave-NW-98107/unit...
But if you make $300/yr and don't have kids or too many expenses thats like 5 years to pay off, so not too bad then? Not totally sustainable for the rest of the country and/or poor people though.
I’m just now looking for a house. So far I’ve been throwing extra money into vanguard funds. It seems like waiting for a housing crash doesn’t make sense because stocks will drop too. My buying power would be about the same before and after.
Please correct me if I’m wrong here. I can’t keep up with all the variables.
Please correct me if I’m wrong here. I can’t keep up with all the variables.
This was the math I did when I bought 6 months ago...
... waiting for a housing crash makes no sense because my stonks would crash with the housing market.
Of course this was just my pocket philosophy.
(In general, waiting for a crash that might not happen also feels risky)
... waiting for a housing crash makes no sense because my stonks would crash with the housing market.
Of course this was just my pocket philosophy.
(In general, waiting for a crash that might not happen also feels risky)
Saving cash, because the obvious situation is to wait for the crash. It’s going to happen and then I won’t be wasting 2/3rd of my money on the inflated market investment value of what is one of the basic human needs. Real estate as an investment is the sand that a big part of the currently precarious global financial situation sits on. It’s going to collapse in my lifetime and I’d rather be sitting on a pile of cash the moment it happens than be leveraged hip deep in some stock brokerage unable to turn my cash into the one thing my parents and their parents generation got to take for granted, ownership of the land they lived on.
Given how rare a 66% crash is, it seems suboptimal to sit on cash until one occurs.
I think there are only two instances in the past century where prices crashed 66% from all time highs.
At a 7% annual return, you’ll triple your principal in 16 years, at which point you will still come out ahead even after a 66% crash.
I think there are only two instances in the past century where prices crashed 66% from all time highs.
At a 7% annual return, you’ll triple your principal in 16 years, at which point you will still come out ahead even after a 66% crash.
In recent years, house prices have gone up faster than most people's ability to save up a down payment (barring 0 down offers).
So let's say you wanted to save 20% for a down payment and closing costs. That 20% was growing faster than people's ability to save for it. These are the buyers that have been priced out of the market and are the ones that pretty much have to wait for a crash.
So let's say you wanted to save 20% for a down payment and closing costs. That 20% was growing faster than people's ability to save for it. These are the buyers that have been priced out of the market and are the ones that pretty much have to wait for a crash.
While I’m not in this exact situation, it’s why I’m waiting. I’m barely over the edge of this with enough that I could pull the trigger assuming I feel like completely changing my work life balance, commuting arrangements, social life, etc, in order to move a significant distance away in order to take advantage of lower property prices.
It’s obvious as someone living in an area where value is rising faster than peoples ability to save, that the crash will be quite dramatic in these areas in particular. While I don’t expect a 2/3rd crash across the entire property market, I do expect major price realignments well in excess of 25%
It’s obvious as someone living in an area where value is rising faster than peoples ability to save, that the crash will be quite dramatic in these areas in particular. While I don’t expect a 2/3rd crash across the entire property market, I do expect major price realignments well in excess of 25%
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I’m Denver a single family home within 20 minutes of downtown starts at $300k for a very small or rundown house. I’m continuing to rent apartments that are near-luxury for less per month.
My friends who are purchasing homes either move very far from the city or their parents pay for the down payment.
My friends who are purchasing homes either move very far from the city or their parents pay for the down payment.
That must be 20 minutes to the east.
20 minutes west is nearly double that for any SFH. A few near me went for 450 that were for land value only/needing to be scraped.
I ended up buying a townhouse a few years ago to stay close to downtown, near a train station, and access to a bike path. I don't need the space or maintenance of a SFH, so it seemed worth it at the time.
20 minutes west is nearly double that for any SFH. A few near me went for 450 that were for land value only/needing to be scraped.
I ended up buying a townhouse a few years ago to stay close to downtown, near a train station, and access to a bike path. I don't need the space or maintenance of a SFH, so it seemed worth it at the time.
Investing cash in other places and expecting a big crash. Laugh at me if you want.
Just make sure you're understanding charts like this: https://dqydj.com/historical-home-prices/
Maybe we are due for a correction - but there are reasons why housing went up so much the last few years. One is correction from the bust after 08, another is because people drastically changed their lives in response to the pandemic.
It is not super easy to get a loan. It isn't going to be like 08.
Maybe we are due for a correction - but there are reasons why housing went up so much the last few years. One is correction from the bust after 08, another is because people drastically changed their lives in response to the pandemic.
It is not super easy to get a loan. It isn't going to be like 08.
Yep, it is definitely not encouraging. If there is a deflation event that I am looking for, it also won't be easy to get a loan to actually buy a cheap property and it'll be hard to keep a job to pay the mortgage. But what can you do as someone who doesn't have the capital already and believes we are closer to a top than to a bottom.
Yeah. Buying a home has been considered an investment by many, and they expect the value of their home to increase.
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Sitting and renting because I don’t like where I live enough to buy, and where I like it I can’t afford it.
We're undecided so far. Living in the high cost of housing area is crazy expensive but it would be close to friends and family. Another option is living in another town in another province which would be cheaper but we'd be so far away from everyone.
This John Ruskin quote came to mind!
"When you pay too much, you lose a little money - that is all. When you pay too little, you sometimes lose everything, because the thing you bought is incapable of doing the thing it was bought to do."
"When you pay too much, you lose a little money - that is all. When you pay too little, you sometimes lose everything, because the thing you bought is incapable of doing the thing it was bought to do."
This question seems to have an implicit assumption that buying a house is a superior investment than other investment vehicles.
I believe it's been shown that investing in equities outperforms housing historically.
I believe it's been shown that investing in equities outperforms housing historically.
Top 5 hits on google disagree - they're pretty close, and most years it looks like real estate outperforms.
Plus you need a place to live. Factor in rent costs to the investment side, and you're losing value for investing returns. Factor in a lot of nice tricks you get with real estate (tax break for interest, ability to flip up with no capital gains along the way, dozens more), and housing is a pretty good investment.
https://www.investopedia.com/investing/reasons-invest-real-e...
https://www.millionacres.com/real-estate-investing/articles/...
Plus you need a place to live. Factor in rent costs to the investment side, and you're losing value for investing returns. Factor in a lot of nice tricks you get with real estate (tax break for interest, ability to flip up with no capital gains along the way, dozens more), and housing is a pretty good investment.
https://www.investopedia.com/investing/reasons-invest-real-e...
https://www.millionacres.com/real-estate-investing/articles/...
It’s not superior per se, but with real estate you can get cheap non-callable leverage that is almost impossible to replicate with equity investments. That’s how it becomes superior.
Find me a broker that will lend 5X the value of my stock portfolio at 3% fixed for 30 years, and won’t issue a margin call if the market drops 50% as long as I pay the interest and monthly repayment, and I promise I would never look at real estate at all. Until then, it makes complete sense to dabble with it.
Find me a broker that will lend 5X the value of my stock portfolio at 3% fixed for 30 years, and won’t issue a margin call if the market drops 50% as long as I pay the interest and monthly repayment, and I promise I would never look at real estate at all. Until then, it makes complete sense to dabble with it.
I have to sign a 6 month lease today while I wait for my new construction to be built. Locked in the price earlier this month, however.
Waiting until I know where I want to buy a house. I just moved to a new city this year. Not sure how long I'll stay.
Still saving, only have 60k saved, not enough for a down payment, no bank wants to look at us
Aren't 5% down loans still available?
Hoping the prices drop