IN 2005 when the housing market crash I purrchased a 2nd home for 250 K with a 60 K investment. I sold that home for 740K.
Most of the flyers I get are from real estate agents wanting to list my house for me.
Another factor to consider - I’ve never been so cash rich as today. Thanks to Covid, in the last 2 years we don’t take the expensive annual vacation we used to, nor those regular shopping trips south to the USA. Apparently, this is the same phenomena generating a boom in Amazon sales. OTOH, also the current Covid-related economics probably hints to most people that interest rates will stay low - there are simply too many organizations racking up debt to get through Covid, and so any interest rate rise could be detrimental to the economy. (The current inflation issues are more due to supply constraints, not any general excess of available money)
So for the families that have the income and nowhere to dispose of it, they have the extra to afford a move up or out to a bigger house sooner than previously planned. Working from home also allows that move to a bigger, but less expensive and more remote location. Add to that the delayed entry of many new participants due to Covid, and there should be a surge in demand.
I used to know a few fellows who had gone into the real estate investment business. They did what all small business owners do, they bought an extra home, then two, then more… They did their own property management, rent collection, etc. in their spare time while their tenants paid down the mortgage, and then leveraged that asset to buy more. They also could take advantage of a cyclical market. While properties didn’t really go down (except maybe 2008) they went up in fits and starts, and buying before one of the jumps helped. then they timed the final sale of their assets with a good market to retire moderately well off. meanwhile, discussion boards in Canada were variously filled with such small investors complaining bitterly about landlord-Tenant legislation and boards that too heavily favoured tenants.
Not sure how it is in the USA - I suspect laws are less inclined to protect tenants. But I assume a big investor paying a professional management firm to do things like repairs, collecting rent, ensuring that taxes and insurance are paid, this can eat up a lot of the implied profits; plus when the rental market is soft, revenues are way down, and the inclination will be to dump the investment, thus aggravating the downward market pressure and making way for the next wild price swing.
No, I can’t afford to sell because the taxes would kill me. Income taxes. My profit is way, way over the cap. But some of the cards come from legit real estate agents who want me to list the house with them. I see ads for the “we’ll buy your house” people on TV and I assume that they will really lowball the price.
I live in Fremont and you couldn’t get a house over 1300 sq ft in my neighborhood for “only” 1.1 million. Some are cracking the $2 million barrier. I wonder if the buyer thought you were too computer illiterate to use Zillow or something. Information is so readily available now. All our real estate agents send ads around with the selling prices of houses in our neighborhood also, so it is not like it is hard to see comps.
Yup, that it is.
I have this feeling though, just a gut feeling based on nothing I can point to, that the real estate market around here is going to start dropping in the next few years.
We get calls from people asking about buying our house a few times a week. In reality I would think we are exactly what they’re not looking for; our house is almost paid for, and would probably bring at least 3 times what we paid. We aren’t moving until I retire, which won’t be for another three and a half years. I know that someone flipped a house in our neighborhood about the same size at ours for $720K. The new owners have Colorado tags, so maybe they needed to buy fast and don’t know that similar houses are going for 150K less. I’m guessing that when we do sell it will be through a broker at a bit of a discount. It’s liveable, but could use some cosmetic work we probably won’t want to deal with. Places we’ve thought of moving to currently have what we’ll be looking for at a third to half of what we’d likely be getting (I know this could change; we’re talking about inside the Beltway DC suburb to Baltimore or Harrisburg).
There is no chance that they didn’t know what similar homes are selling for. That’s a two minute internet search. It was probably a bidding war. A house two blocks away from me that should have gone for around $1.6M went for a bit north of 2.0M. Two people with a lot of cash had their heart set on it. Rumor is that it was an extremely rich film executive wanted it for his kid and their spouse and kids. Another thing in its favor was that it was recently beautifully remodeled.
The house near us had been remodeled. There’s another one being remodeled a few houses down, and it’s bigger. I’m surprised it’s not finished yet, but since they basically just left the bones of the original house and added a lot to it there may have been a lot of permit stuff to deal with. That, or they got in over their heads. I’m wondering if it will go for close to a million. That would be mind-boggling; we paid 150K for ours a little over 20 years ago.
I really do know what they were thinking. I had a discussion about why the house was worth 1m and that was going to be the asking price if I put it on the market.I was definate about it. I can not figure how they thought a 50% reduction in price would be worth a all cash market. At that price they could have just turned around and put it on the market for 800k without dong anything to the house and made a quick sale.
Taxes ya tell me about taxes. I paid 42 K for the house did 2 additions and other things. My base on the house is going to be in the 158K range and I sold it for 1.1M. I figure I will have about 450K in capitol gains at around 30%. And my replacement house cost me 780K and I have already put about 30K into making it our home. I have 130K set baxck to pay the taxes. And on top of that because my adjusted income will be over the limit mi medicare deduction from my SS check will go up $350 a month for me and $350 a month for my wife, this increase in on top of the already $138 times two we already pay… The wonderful free medicare coverage for senior citizens.
I didn’t think about the Medicare issue. My understanding is that the price gets reset when someone dies. Don’t know the details, it is just a good excuse not to move. Which is one of the problems with California real estate - we’re two people in a five bedroom house.
But, First World problems.
around here the seller agents have them listed low as to start a bidding war… I’m told now that anything under 300k around here now is going to have some sort of baggage that makes it hard to buy with a loan
For example there was a house for 275 k but had a non-paying tenant awaiting covid rent relief funds and if you bought quickly enough you’d get any money that was due if and when the funds came in
No one apparently;y took the owner up on that offer because there was a listing update that said the house was now unoccupied and going for 315 k
The Medicare thing came out of the blue. Thanks to prop 19 which was sold as a tax cutting proposition that in it’s 1 year was expected to raise I think 10 million in increased property taxes and to top out at over 10 billion a year when you die the property will be assessed at full market value. If we stayed in our house until we passed the taxes would go from about $3000 a year to about $20,000 a year.
We moved when our last son moved out of town. Christmas and other holidays by our selves were no fun.
There are two homes for sale in my neighborhood under $400k. One is 260 sqft with no running water and a composting toilet in the basement and the other is 604 sqft with the potential to put in a well but they don’t talk about the waste situation. Both are on lots under 4,000 sqft. So if you want running water you have to pay over $400k.
I wonder too if that will, in the long run, affect housing prices - or at least skew the market. Changing demographics - fewer people have any children, or more than one child. Bedroom and one or two “offices” is more than enough, and for the older people (i.e. those who can afford a house) too big implies too much work on upkeep. Plus, the boomers who could afford a house way back when are going to either move out or be carried out eventually and there will be demographically less prospective buyers. (Fortunately immigration ameliorates this problem in the USA and Canada)
Plus, the trend for student loans seems to be to con young people into mortgaging themselves to the hilt for a degree, not a house. This will limit what they can spend on a house, thus limiting future buyers.
We are also in a fool’s gold mirage of extremely low interest rates. Given that, for a 25-yar mortgage, give or take, almost the entire first few payments represent interest, low rates mean the capital amount a couple can afford is much higher… with the time bomb that should interest rates go up, a decent number of newer home buyers will be priced out of their homes.
Note too that word “couple”. First of all, with both spouses working, the amount of income available for housing has gone up. So unless a single person has a really well-paying job (and not a lot of student debt) they cannot afford a house as a single person. And… people are getting married (or moving in together) a lot later in life than previously.
The market, especially with a shortage of desirable housing (for whatever constitutes desirable) will end up costing whatever the buyers can pay. The risk is that for the factors above, the number of buyers declines, the desirability of bigger houses declines, etc. As the saying goes: “If things can’t go on this way… they won’t.”
The problem with large companies buying up real estate to manage, is also repairs. Who will do the minor stuff, like clogged gutters or loose shingles. You or I would get up there with a hammer, so would a small-time landlord. A property management company has to consider sending a repair company out will be a couple of hundred dollars each call for simple maintenance. Loose shingles lead to ceiling problems… Without minor maintenance things become bigger problems. This is how slums are born - easier to ignore maintenance and milk the property for what you can from steadily less affluent tenants, then walk away.
I can’t imagine that very many people are getting variable rate mortgages these days. With fixed rate mortgages, the payment never changes. The latest statistic I could Google up said that in 2018 fewer than 10% of new mortgages were variable. I suspect that it’s way less now. Also, variable rates do have a cap. They don’t go up infinitely.
This trend started like 40 years ago. I don’t think that it has sharply changed since this recent boom.
I think the point is that if new buyers can’t afford mortgages due to high interest rates, then demand will drop and housing prices will go down.
However, what really counts is inventory. If the same high interest rates cause more people to keep their houses due to having to pay more for a mortgage for a new house, then prices will remain high. Like today. Houses around here at least are hardly affordable but with low inventory the prices keep going up from already absurd levels.
I vaguely remember a statistic on the number of adjustable mortgages today - less than 5%, I think. I happily rode the interest rates down in the late 80s so I know all about them.
AFAIK - in Canada, I assume in the USA - mortgages are renewed every few years (typically 3 to 5 years) at the current interest rate. If you want a 10-year term, the interest rate is higher, so people would opt for shorter terms. So amortization is over, say, 25 years, but the interest rate adjusts every few years. There would not be an immediate impact on everyone, it would be a rolling tide.
(This was an issue in 1980 when rates were hitting 15% and higher. the unlucky few renewed at a high number, and would have chosen variable to hope rate went down soon.)
No, but every bit of several trends is conspiring to make matters worse as time goes on. More couples working, more equal pay for women, less children interrupting the couples’ cash flow… it all adds up.
The most common mortgage is a fixed rate for 30 years. People refinance if the rate goes down but can keep it for the full term if they want.
If there are such mortgages in the US, they are never advertised. During high inflation adjustable rate mortgages adjusted every couple of years, but were 30 or 15 year terms. Many states allow you to pay early without penalty so it was easy to refinance.
15 year mortgages have higher principal payments so less interest over the term of the mortgage, but otherwise are the same as 30 year ones.
See, I’ve learned my one new thing for the day.
So rising interest rates only affect those in the USA with variable mortgages, I guess. But what they do I assume is make it harder for people to borrow larger sums if they can’t afford the larger payments, so puts downward pressure on the value of homes for sale by restricting the amount people can pay…
In Canada, interest is not deductible but there is no capital gains on the primary dwelling - so the tendency here is to pay off the house rather than remortgage. There are nowhere near the swings - we came out of 2008 with a fairly stable housing market; yet house prices here like the USA have been trending upwards in popular cities, despite some very different economic circumstances for people.
In the USA rising interest rates affect thoe with variable mortgages, anyone wanting to refinanace, or purchase a new home and take out a new loan.