fishythepete t1_j5uzjf3 wrote on January 25, 2023 at 7:23 PM

> Some people say there will be a crash but I just don’t believe it anymore.

Instead of operating on belief, look at evidence. The run up in home prices since COVID is close to what we saw 2005-2008. Today we recognize that was an asset bubble driven by lax underwriting standard, poor transparency in the MBS marketplace, and low interest rates. At the time, a lot of folks looking to get into the housing market thought it was a “new normal” and bought in lest they miss their chance, including some friends of ours. Here are two anecdotes:

Friend 1 bought a 2 Bed / Bath condo at the height of the market for $230K. They sold in 2016, the condo finally reached that $230K valuation again last year. The sale proceeds didn’t even cover the 3% they put down on their new place.
Friend 2 bought a 2 Bed / Bath condo same neighborhood as the market started cooling for $200K. Friend 2 stopped paying his mortgage, and quit his job and worked under the table. His wife kept working. They got their loan adjusted down by about $100K, and made a decent chunk of cash when they upgraded.

Sometimes bad decisions are rewarded and good ones are punished.

>Is there any serious advice for someone looking to purchase their first home?

Wait. With interest rates where they are, the cost to buy has never been higher. Rising interest rates coexisting with rising home prices is an anomaly that cannot continue. If interest rates hit 8% (from 2% when I refinanced last year) that would doubled the monthly mortgage payment at the same purchase price. It’s unsustainable. If you look at the impact of rising interest rates were actually hitting value increases > the run up to the last bubble.

rolotech t1_j5var5r wrote on January 25, 2023 at 8:32 PM

I am also hoping for a bubble pop but unfortunately I do not think it will come, at least not in the same way that it did back in 08. Sure the rate at which prices have increasing will have to stop but it doesn't mean that prices are going to crash.

The 08 bubble was mostly driven by the subprime loans being given out and interests were not as low as what we had for the past few years. That means that when prices decreased people were quickly underwater with big loans that they were already too stretched to pay. So as people got foreclosed or had to sell supply increased as demand decreased since it became an overall economy crash and people and institutions were not buying as much.

But the run up on prices during COVID is not subprime. It is mostly people that could afford it or just went a bit over budget but given the low interest rate a modest decrease in price will not be a problem for them. Unless we have a massive wave of layoffs and people cannot pay anymore we will not have the same level of foreclosures that drove prices down las time. Also, this time so many houses were bought by big corporations as investments so they will not default the same way an idividual might.

We are seeing layoffs but they seem to be concentrated in the tech sector so on higher-paid individuals so even if we see some foreclosures they are going to be in the upper range of the market. So unless the whole economy collapses I don't think we will have a drastic bubble pop.

possiblecoin t1_j5vad7l wrote on January 25, 2023 at 8:29 PM

"With interest rates where they are, the cost to buy has never been higher."

That's absolutely not true. Average mortgage rates were consistently above 6%, and usually above 7%, from the early 70s until the rate cuts stemming from the financial crisis in the late aughts.

DesignRemote t1_j5x4ecq wrote on January 26, 2023 at 3:59 AM

Yes correct my parents had an interest rate of 17% for their $50,000 house

Now it’s 7% on a 800,000 house

fishythepete t1_j5vc64o wrote on January 25, 2023 at 8:40 PM

Yes. And homes were much cheaper. When I said the cost to buy has never been higher, I meant it literally.

Take a home that was valued at $250K at the peak of the last RE bubble. Even if that home were on sale for $250K today, the actual cost of that home is significantly higher than it was at the height of the last bubble because interest rates are significantly higher today than they were then. Prices are higher too. And if you add the impact of interest rate increases to the price increases the housing market has seen over the last 12-18 months on monthly cost to buyer (instead of just focusing on asset price inflation), the rate of change is just unprecedented.