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
[ 0.19 ms ] story [ 73.7 ms ] threadI 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.
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.
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%
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.
#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.
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.
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).
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...
My friends who are purchasing homes either move very far from the city or their parents pay for the down payment.
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.
I believe it's been shown that investing in equities outperforms housing historically.
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.
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/...
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.
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.
Please correct me if I’m wrong here. I can’t keep up with all the variables.
... 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)
"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."