Buy now in a housing market that has 2x'ed?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
KRP
Posts: 225
Joined: Thu Aug 27, 2020 11:56 am

Re: Buy now in a housing market that has 2x'ed?

Post by KRP »

SwampDonkey wrote: Fri Jan 14, 2022 7:50 pm My question: would you chase the market and buy in this situation? I fully admit I'm experiencing a bit of FOMO but at the same time, I just don't see how these prices are sustainable.
The traditional rule of thumb is that home prices tend to occassionally return to 3x up to 4.5x local average incomes. But markets can stay irrational longer than most humans can cope.

We stuck to our budget on our first house, which basically priced us out until the next recession hit, where we had our downpayment and had grown quite weary waiting, but obtained a good entry price on a small old house on a corner lot in a nice locale.

Five years later, everything was booming and we had a bit of a windfall from work, so we decided to step directly from our first/starter house to a stay-indefinitely house. We had a hefty appreciation on the old small house which we rolled over into the fairly new, big, expensive house. I told my spouse to be prepared for the price to be a market top for at least the next decade or so. We bought near the top, went up for a couple years, then swung downwards over the next seven years to drop back around the original price. Today it's more than double the original price.

My advice would be to treat home purchases like stock equity purchases....if you think you can hold on for a sufficiently long time (10+ years, minimum) and particularly if the house is a keeper, it can work out in the long run. Otherwise, for shorter horizons or poor locations, the all time highs make for a much tougher decision and recommend renting if materially cheaper. Shorter "home ownership" time frames behave a lot like market timing. They get you somewhere faster, but you cannot pick the direction...
sc173
Posts: 35
Joined: Sun May 16, 2021 8:27 pm

Re: Buy now in a housing market that has 2x'ed?

Post by sc173 »

sperry8 wrote: Sat Jan 15, 2022 2:02 am Over the next few years, interest rates may move up. This will knock affordability down. Covid may end (or become endemic), which should reduce demand and potentially increase supply.
Why would people stop wanting to purchase homes if COVID ends?
z3r0c00l
Posts: 3809
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Buy now in a housing market that has 2x'ed?

Post by z3r0c00l »

sc173 wrote: Sat Jan 15, 2022 2:19 pm
sperry8 wrote: Sat Jan 15, 2022 2:02 am Over the next few years, interest rates may move up. This will knock affordability down. Covid may end (or become endemic), which should reduce demand and potentially increase supply.
Why would people stop wanting to purchase homes if COVID ends?
Over 80% of Americans live in cities. The prime driver of the suburban/rural home price bubble during the pandemic has been an exodus of people from cities, working from home combined with the very low interest rates, also a response to the pandemic, plus deterioration of urban conditions during the pandemic drove these people out. Many didn't move permanently, just decided they wanted a vacation home, they came in very handy during the first year of the pandemic.

Interest rates are going up and people are moving back into the cities as evidenced by up to 50% increase in rents in just a year in many areas. Home prices went way up in NYC and there are lots of stories of lines around the block at the open house with people shouting how they will buy all cash. The desire to buy homes in marginal/rural areas doesn't have to end, it merely has to slow down a bit for prices to drop.
70% Global Stocks / 30% Bonds
User avatar
princetontiger
Posts: 132
Joined: Wed Oct 08, 2014 9:31 pm

Re: Buy now in a housing market that has 2x'ed?

Post by princetontiger »

One thing to keep in mind: I was in NYC during the worst of covid. For this particular recession, nobody sold into a crash. Most people just keep a floor on prices and refused firesales.... NYC real estate is largely a terrible investment... there are unique cases, but 1/2 bedroom properties are a dime a dozen. Over the past decade, owning the market and renting worked out better. The maintenance/common charges break the math.

Michelin restaurant stayed open... Daniel was like 50% at one point and we ate there A LOT.
Engaging in sloth
Posts: 145
Joined: Sun Aug 11, 2019 5:38 pm

Re: Buy now in a housing market that has 2x'ed?

Post by Engaging in sloth »

I understand over 2M people have been able come into this country from the southern border. These people need housing too. That is a lot of demand in a one year period. Surely that also causes an increase in real estate prices.
lazynovice
Posts: 3370
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Buy now in a housing market that has 2x'ed?

Post by lazynovice »

Engaging in sloth wrote: Sat Jan 15, 2022 4:34 pm I understand over 2M people have been able come into this country from the southern border. These people need housing too. That is a lot of demand in a one year period. Surely that also causes an increase in real estate prices.
You think those immigrants are buying 800k houses in Monument, Colorado? I don’t.
lazynovice
Posts: 3370
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Buy now in a housing market that has 2x'ed?

Post by lazynovice »

I don’t think they have gone up as much as you think they have. I can’t find a good source to say you are wrong but in the last year, Redfin says Monument price per square foot has increased 19%. I don’t think 2020 was high enough to get to your assumed increase. Do you have some market data instead of a few anecdotes? I think the anecdote is scaring you.

I am not sure why you think you are limited to 800k-900k in Monument? That sounded high to me. I went into Redfin, put in price range of 500k-700k, 4+ bedrooms, 3+ baths, minimum 3,000 square feet with a garage and 22 homes have sold in the last 3 months. 65 in the last 6 months. Castle Rock has had 153 homes sell with that criteria in 6 months.

Do you have some requirement that is unique?
phxjcc
Posts: 1329
Joined: Thu Aug 23, 2018 3:47 pm

Re: Buy now in a housing market that has 2x'ed?

Post by phxjcc »

All the “RENT! RENT! RENT!” advocates minimize the following:

1. Prices will continue to rise…a). 57 million millennials are starting families..and those downtown lofts don’t look quite as appealing as the6 once did…in the meantime their parents are still alive and therefore need a place to live, and b) building costs will continue to rise due to labor and material cost escalations.

2. Probable rent cost escalation in excess of inflation…utilities are going up, HOA’s are going up, maintenance and repair are going up.
So your $4500/month to rent a $ 1 mil house NOW will likely be $6700 in three years.

3. If you want to “keep your powder dry” (cash) to be able to pounce on a good RE dea while you are renting then you probably are talking CD or MM, which loses ground to inflation. Conversely, if you throw it into a “BALANCED” fund to save for the future, one could argue that any black swan event that affects the RE market will hit the financial markets first…and therefore your “balanced “ fund investment will get hammered. I think that RE is a trailing indicator, not a leading one. With $1,000 new dollars people go on vacation, with $10,000 they buy a car or boat, and with $100,000 they buy a new house.

4. Lastly…COVID….if you are Bob of Bob, Inc. and you found out over that last 2 years that you don’t have to rent 100 sq ft of CUBEVILLE space for every employee, but that 80% on any given day can work from home…you just cut your G&A costs and your stockholders are thrilled. Now, Bob, what are you going to tell the analysts when your costs skyrocket due to everybody returning to the workplace?

COVID is over! Market drops 15% due to P&L hit.

WFH is here to stay…and that means 3rd and 4th and 5th bedrooms to be used as home offices will remain a driver.
sc173
Posts: 35
Joined: Sun May 16, 2021 8:27 pm

Re: Buy now in a housing market that has 2x'ed?

Post by sc173 »

z3r0c00l wrote: Sat Jan 15, 2022 2:26 pm
sc173 wrote: Sat Jan 15, 2022 2:19 pm
sperry8 wrote: Sat Jan 15, 2022 2:02 am Over the next few years, interest rates may move up. This will knock affordability down. Covid may end (or become endemic), which should reduce demand and potentially increase supply.
Why would people stop wanting to purchase homes if COVID ends?
Over 80% of Americans live in cities. The prime driver of the suburban/rural home price bubble during the pandemic has been an exodus of people from cities, working from home combined with the very low interest rates, also a response to the pandemic, plus deterioration of urban conditions during the pandemic drove these people out. Many didn't move permanently, just decided they wanted a vacation home, they came in very handy during the first year of the pandemic.

Interest rates are going up and people are moving back into the cities as evidenced by up to 50% increase in rents in just a year in many areas. Home prices went way up in NYC and there are lots of stories of lines around the block at the open house with people shouting how they will buy all cash. The desire to buy homes in marginal/rural areas doesn't have to end, it merely has to slow down a bit for prices to drop.
Thanks for clarifying, I see the point you're making here and it makes sense to me. I have often thought the towns in rural Maine, the plains states, etc.. where prices shot up 40% in one year didn't make any sense. The local incomes in those areas don't support the prices, and I do expect that regret will set in when we get "back to normal" and people realize rural America is sadly full of drugs, poor education, poor medical care, with little to do. A lot of people have an idealistic view of rural America until they spend some time there. Absolutely nothing against the people living there, some very great, genuine caring people live there. The decline of industry has sadly destroyed the way of life for many.

Just a note, 80% of Americans don't live in cities, they live in urban metropolitan areas. The majority of Americans live in the suburban areas surrounding cities: https://www.pewresearch.org/social-tren ... mmunities/

So with that said, I'm not sure demand for suburbs near urban hubs is going to cool off. A lot of people have gotten either full WFH, or in many cases, partial WFH. My office had one day a week remote prior to the pandemic, at the supervisor's discretion. Now everyone has been granted up to 3 days per week, (4 or full with extra approval). The 1-hour car ride is a lot more tolerable when only done 2x a week. To me, the fact that COVID is still here entering year 3 has really cemented WFH in place. People have done their jobs for multiple years now, and gotten things done. It is now an expectation for many skilled, white-collar workers.

It could be the worst of both worlds price wise, since cities have had far more demand than supply, and now will still have demand that comfortably exceeds supply as things get back to normal. Suburbs were already running short on supply and now will probably still have more demand than pre-COVID for the foreseeable future. The White House has published a pretty daunting page on the supply constraints: https://www.whitehouse.gov/cea/written- ... ng-market/

To me, rents going up means people are accepting higher payments for housing overall. This means even with interest rate increases, people are willing to pay more in their monthly payment. I think it will certainly curb price appreciation (which is desperately needed), but in suburban areas, I'm not so sure there's going to be as much downward price pressure on SFH as people may be thinking. The spring market is going to be very interesting to watch. :sharebeer
Northern Flicker
Posts: 15367
Joined: Fri Apr 10, 2015 12:29 am

Re: Buy now in a housing market that has 2x'ed?

Post by Northern Flicker »

SwampDonkey wrote: Their purchase cost: $749k. Their asking price: $1.47M. That's nearly double what they paid for the home two years ago.
A homeowner's asking price is not a very accurate measure of appreciation in the area, particularly when the home has not been exposed to the full market. It may be a blue sky number, and moreover, you should expect to pay a premium if you are getting right of first refusal ahead of the market.

The past valuation trajectory is maybe not relevant? If you are indeed moving to the area, you need a place to live. Your goal should be to find the cost of a suitable home and decide if you can afford to buy it and/or whether it is more financially attractive to buy or rent and/or whether you want to rethink your decision to move to this area.
Last edited by Northern Flicker on Sat Jan 15, 2022 7:32 pm, edited 1 time in total.
User avatar
LiveSimple
Posts: 2312
Joined: Thu Jan 03, 2013 6:55 am

Re: Buy now in a housing market that has 2x'ed?

Post by LiveSimple »

Buy before it becomes 2.5 X. Some will say it will become 0.75 X.
So make a decision for your living and what is favorable you.
Invest when you have the money, sell when you need the money, for real life expenses...
Topic Author
SwampDonkey
Posts: 321
Joined: Sun Dec 26, 2010 7:49 pm

Re: Buy now in a housing market that has 2x'ed?

Post by SwampDonkey »

Northern Flicker wrote: Sat Jan 15, 2022 6:46 pm
SwampDonkey wrote: Their purchase cost: $749k. Their asking price: $1.47M. That's nearly double what they paid for the home two years ago.
A homeowner's asking price is not a very accurate measure of appreciation in the area, particularly when the home has not been exposed to the full market. It may be a blue sky number, and moreover, you should expect to pay a premium if you are getting right of first refusal ahead of the market. A few days after she offered it to me via DM, she posted the listing on Social Media and the response she was received by interested buyers and realtors was impressive. I would not be surprised if it sells for above asking.

The past valuation trajectory is maybe not relevant? If you are indeed moving to the area, you need a place to live. Your goal should be to find the cost of a suitable home and decide if you can afford to buy it and/or whether it is more financially attractive to buy or rent and/or whether you want to rethink your decision to move to this area. All good points. Thank you.
Topic Author
SwampDonkey
Posts: 321
Joined: Sun Dec 26, 2010 7:49 pm

Re: Buy now in a housing market that has 2x'ed?

Post by SwampDonkey »

lazynovice wrote: Sat Jan 15, 2022 6:17 pm I don’t think they have gone up as much as you think they have. I can’t find a good source to say you are wrong but in the last year, Redfin says Monument price per square foot has increased 19%. I don’t think 2020 was high enough to get to your assumed increase. Do you have some market data instead of a few anecdotes? I think the anecdote is scaring you.

I am not sure why you think you are limited to 800k-900k in Monument? That sounded high to me. I went into Redfin, put in price range of 500k-700k, 4+ bedrooms, 3+ baths, minimum 3,000 square feet with a garage and 22 homes have sold in the last 3 months. 65 in the last 6 months. Castle Rock has had 153 homes sell with that criteria in 6 months.


Do you have some requirement that is unique?
https://www.zillow.com/homes/560-Avena- ... 1967_zpid/ (35% increase in 17 months)
https://www.zillow.com/homedetails/320- ... 5117_zpid/ (97% increase in 4.5 years)
https://www.zillow.com/homedetails/1981 ... 6557_zpid/ (57% increase in 3.5 years)
https://www.zillow.com/homedetails/235- ... 7540_zpid/ (107% in 5.5 years)
https://www.zillow.com/homedetails/3327 ... 7659_zpid/ (46% in 24 months)
https://www.zillow.com/homedetails/1272 ... 8025_zpid/ (62% in 3 years)
https://www.zillow.com/homedetails/1595 ... 1905_zpid/ (100% in two years)

The homes above are just a random assortment from our "saved homes" queue. Tried to get a broad representation without cherry-picking the biggest gainers. My estimation of 70-90% appreciation over the past 24 months is too high for most of the homes. However, there are a few that still meet that criteria. In any case, the overall appreciation is still staggering.
User avatar
sergeant
Posts: 1849
Joined: Tue Dec 04, 2007 10:13 pm
Location: The Golden State

Re: Buy now in a housing market that has 2x'ed?

Post by sergeant »

Firemenot wrote: Fri Jan 14, 2022 9:36 pm Prices in my area (California) have doubled during Covid as well. But there is no additional supply. And I mean none. You can’t hook up a new water meter and haven’t been able to do so for a decade.
You must be on the central coast. We have been looking in that area for several years.
For the ashes of his fathers, And the temples of his gods. | Pensions= 2X yearly expenses. Portfolio= 40X yearly expenses.
Topic Author
SwampDonkey
Posts: 321
Joined: Sun Dec 26, 2010 7:49 pm

Re: Buy now in a housing market that has 2x'ed?

Post by SwampDonkey »

phxjcc wrote: Sat Jan 15, 2022 6:29 pm All the “RENT! RENT! RENT!” advocates minimize the following:

1. Prices will continue to rise…a). 57 million millennials are starting families..and those downtown lofts don’t look quite as appealing as the6 once did…in the meantime their parents are still alive and therefore need a place to live, and b) building costs will continue to rise due to labor and material cost escalations. Really good points.

2. Probable rent cost escalation in excess of inflation…utilities are going up, HOA’s are going up, maintenance and repair are going up.
So your $4500/month to rent a $ 1 mil house NOW will likely be $6700 in three years. Absolutely... and with institutional buyers now investing significantly into SFH, availability of homes to buy will go down and rent prices will go up.

3. If you want to “keep your powder dry” (cash) to be able to pounce on a good RE dea while you are renting then you probably are talking CD or MM, which loses ground to inflation. Conversely, if you throw it into a “BALANCED” fund to save for the future, one could argue that any black swan event that affects the RE market will hit the financial markets first…and therefore your “balanced “ fund investment will get hammered. I think that RE is a trailing indicator, not a leading one. With $1,000 new dollars people go on vacation, with $10,000 they buy a car or boat, and with $100,000 they buy a new house.

4. Lastly…COVID….if you are Bob of Bob, Inc. and you found out over that last 2 years that you don’t have to rent 100 sq ft of CUBEVILLE space for every employee, but that 80% on any given day can work from home…you just cut your G&A costs and your stockholders are thrilled. Now, Bob, what are you going to tell the analysts when your costs skyrocket due to everybody returning to the workplace?

COVID is over! Market drops 15% due to P&L hit.

WFH is here to stay…and that means 3rd and 4th and 5th bedrooms to be used as home offices will remain a driver. The formal dining room is being replaced with the home office.
Topic Author
SwampDonkey
Posts: 321
Joined: Sun Dec 26, 2010 7:49 pm

Re: Buy now in a housing market that has 2x'ed?

Post by SwampDonkey »

z3r0c00l wrote: Sat Jan 15, 2022 2:26 pm
sc173 wrote: Sat Jan 15, 2022 2:19 pm
sperry8 wrote: Sat Jan 15, 2022 2:02 am Over the next few years, interest rates may move up. This will knock affordability down. Covid may end (or become endemic), which should reduce demand and potentially increase supply.
Why would people stop wanting to purchase homes if COVID ends?
Over 80% of Americans live in cities. The prime driver of the suburban/rural home price bubble during the pandemic has been an exodus of people from cities, working from home combined with the very low interest rates, also a response to the pandemic, plus deterioration of urban conditions during the pandemic drove these people out. Many didn't move permanently, just decided they wanted a vacation home, they came in very handy during the first year of the pandemic.

Interest rates are going up and people are moving back into the cities as evidenced by up to 50% increase in rents in just a year in many areas. Home prices went way up in NYC and there are lots of stories of lines around the block at the open house with people shouting how they will buy all cash. The desire to buy homes in marginal/rural areas doesn't have to end, it merely has to slow down a bit for prices to drop. One can hope!
Topic Author
SwampDonkey
Posts: 321
Joined: Sun Dec 26, 2010 7:49 pm

Re: Buy now in a housing market that has 2x'ed?

Post by SwampDonkey »

KRP wrote: Sat Jan 15, 2022 1:49 pm
SwampDonkey wrote: Fri Jan 14, 2022 7:50 pm My question: would you chase the market and buy in this situation? I fully admit I'm experiencing a bit of FOMO but at the same time, I just don't see how these prices are sustainable.
The traditional rule of thumb is that home prices tend to occassionally return to 3x up to 4.5x local average incomes. But markets can stay irrational longer than most humans can cope.

We stuck to our budget on our first house, which basically priced us out until the next recession hit, where we had our downpayment and had grown quite weary waiting, but obtained a good entry price on a small old house on a corner lot in a nice locale.

Five years later, everything was booming and we had a bit of a windfall from work, so we decided to step directly from our first/starter house to a stay-indefinitely house. We had a hefty appreciation on the old small house which we rolled over into the fairly new, big, expensive house. I told my spouse to be prepared for the price to be a market top for at least the next decade or so. We bought near the top, went up for a couple years, then swung downwards over the next seven years to drop back around the original price. Today it's more than double the original price.

My advice would be to treat home purchases like stock equity purchases....if you think you can hold on for a sufficiently long time (10+ years, minimum) and particularly if the house is a keeper, it can work out in the long run. Otherwise, for shorter horizons or poor locations, the all time highs make for a much tougher decision and recommend renting if materially cheaper. Shorter "home ownership" time frames behave a lot like market timing. They get you somewhere faster, but you cannot pick the direction... Great advice; appreciate your input!
Ripcord
Posts: 48
Joined: Mon Oct 14, 2019 9:56 pm

Re: Buy now in a housing market that has 2x'ed?

Post by Ripcord »

We live in Falcon. Bought in 2019. Home worth $200k+ what we paid for it today. Demand is as high as ever. Monument, Palmer Lake and Castle Rock are among the highest demand locations due to Denver teleworking transplants but honestly its like that everywhere on the I25 corridor. There is crazy high demand and they can't build fast enough. I see things maybe slowing down and plateauing for a bit but a drop not likely. Too many good high paying jobs in the area....not to mention the draw of Colorado living. I would bite the bullet and do it now.
FireProof
Posts: 960
Joined: Thu May 05, 2011 12:15 pm

Re: Buy now in a housing market that has 2x'ed?

Post by FireProof »

SwampDonkey wrote: Fri Jan 14, 2022 7:50 pm
My question: would you chase the market and buy in this situation? I fully admit I'm experiencing a bit of FOMO but at the same time, I just don't see how these prices are sustainable.
That's not FOMO, which means Fear of Missing Out, i.e. you would want to buy a house now because you fear that if you don't, you will miss a sure-fire winner. It's more market timing or anchoring to past prices.
invest4
Posts: 1905
Joined: Wed Apr 24, 2019 2:19 am

Re: Buy now in a housing market that has 2x'ed?

Post by invest4 »

Given your circumstances and options, I would rent without hesitation. Renting is more economical and gives you options:

* See how market plays out

* Seize an opportunity if it arises

* Additional research while you are on the ground…you may choose somewhere or something different than what you are now.
capran
Posts: 1091
Joined: Thu Feb 18, 2016 9:45 am

Re: Buy now in a housing market that has 2x'ed?

Post by capran »

SwampDonkey wrote: Fri Jan 14, 2022 7:50 pm We are relocating this summer to Colorado, specifically the area between north Colorado Springs and south Denver. Our intentions are to buy a home as we plan on staying in this area for at least 10-15 years.

Unfortunately, the housing market in the town we are most interested in (Monument) has gone from warm, to hot, to boiling over (at least in my opinion).

Example, we posted on social media we were looking for a home in the area. A woman reached out and said they were going to be putting their home on the market but wanted to know if we were interested. They bought the home 24 months ago as a new construction. Their purchase cost: $749k. Their asking price: $1.47M. That's nearly double what they paid for the home two years ago. $1M is the top of our price range so the $1.47M is no longer an option. But there are other homes that were in the $500-600k range that are now in the $850-900k which is what we would be limited to.

While I don't think that particular house 2x'ing in 24 months is normal, almost all houses are selling for 70-90% above where they were 24 months ago. Other towns nearby have similarly jumped 60-70%.

My question: would you chase the market and buy in this situation? I fully admit I'm experiencing a bit of FOMO but at the same time, I just don't see how these prices are sustainable.

If we decide not to buy, we do have housing available to rent but this is definitely not our first choice. If we were to rent, our rent would be $2.6k/month which is substantially cheaper than any of the mortgages we would be considering. Our rental option is limited to three years, at which time we would be forced to find alternative options.
"Location, Location, Location". If it's perfect for you and you're staying put, and it gets your kids in a good school, and minimizes commute, and you have the money, why not? But to be devil's advocate, is the last rapid rise upward sustainable? We're suggesting to our youngest we don't think so. Why? Interest rates are clearly headed higher. Will that slow the growth, or will it reach a point where buyers are saying no way? It is a crap shoot. And what will happen to the higher housing costs if there is a significant stock market correction? (Did you see the article by Vanguard suggesting the stock market valuation is the highest it's been since the "dot com bubble"...the article is probably on their website, but I saw it recently on a FB ad.) I am in touch with a lot of millennials, and they are afraid that the climb in real estate and the stock market is never going to end. They were not around in 2001 and 2009.
smectym
Posts: 1530
Joined: Thu May 26, 2011 5:07 pm

Re: Buy now in a housing market that has 2x'ed?

Post by smectym »

KlangFool wrote: Sat Jan 15, 2022 10:46 am
smectym wrote: Sat Jan 15, 2022 1:53 am
Ostrmat wrote: Sat Jan 15, 2022 12:24 am Based on your timeline of wanting to stay there for 10 years I would recommend buying. With remote work being a standard for many, desirable places like Colorado, etc will likely be hot for the foreseeable future. But even if they aren’t and you don’t appreciate a single penny, you will still build equity and inflation will make your fixed payment feel smaller over time. I would buy and keep your family happy.
Agree and look,if it turns out you bought at the “top of the market,” so what. There have been several “tops” in the real estate market in the last 20 years and in every case, homeowners who bought at the top of those previous cycles are sitting on fat positive equity today. Not making any predictions about the future trajectory of real estate. But the idea that “buying at the top of the market” is some sort of shameful cardinal sin that must inevitably trigger terminal buyer’s remorse, is ridiculous.

Your question should be, can you afford the mortgage payment and property taxes, based on reasonably secure employment. If yes, just buy.
smectym,

<< There have been several “tops” in the real estate market in the last 20 years and in every case, homeowners who bought at the top of those previous cycles are sitting on fat positive equity today. >>

I disagreed. In my neighborhood, those who bought in the 2004/2005 peak only recover to that level in 2019. Even assuming that 30% increases in the last 2 years, it is an increase of 30% from 2004/2005 to 2021/2022. 30% increase over 18 years. It did not even beat inflation.

And, this is in Northern Virginia. One of the hottest market now.

KlangFool
Klangfool, a fair point, and of course there is risk in every real estate transaction. And I agree with your posts above: also consider the benefits of renting before pulling the trigger.

However, not every prospective homeowner is buying only on condition that the real estate must continue to appreciate. If a family needs a home, doesn’t wish to be beholden to a landlord, and the mortgage and other costs of homeownership are affordable, then the time to buy is now. It’s a mistake to try to time the real estate market, which is unpredictable and has too many moving parts.
lazynovice
Posts: 3370
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Buy now in a housing market that has 2x'ed?

Post by lazynovice »

SwampDonkey wrote: Sat Jan 15, 2022 9:32 pm
lazynovice wrote: Sat Jan 15, 2022 6:17 pm I don’t think they have gone up as much as you think they have. I can’t find a good source to say you are wrong but in the last year, Redfin says Monument price per square foot has increased 19%. I don’t think 2020 was high enough to get to your assumed increase. Do you have some market data instead of a few anecdotes? I think the anecdote is scaring you.

I am not sure why you think you are limited to 800k-900k in Monument? That sounded high to me. I went into Redfin, put in price range of 500k-700k, 4+ bedrooms, 3+ baths, minimum 3,000 square feet with a garage and 22 homes have sold in the last 3 months. 65 in the last 6 months. Castle Rock has had 153 homes sell with that criteria in 6 months.


Do you have some requirement that is unique?
https://www.zillow.com/homes/560-Avena- ... 1967_zpid/ (35% increase in 17 months)
https://www.zillow.com/homedetails/320- ... 5117_zpid/ (97% increase in 4.5 years)
https://www.zillow.com/homedetails/1981 ... 6557_zpid/ (57% increase in 3.5 years)
https://www.zillow.com/homedetails/235- ... 7540_zpid/ (107% in 5.5 years)
https://www.zillow.com/homedetails/3327 ... 7659_zpid/ (46% in 24 months)
https://www.zillow.com/homedetails/1272 ... 8025_zpid/ (62% in 3 years)
https://www.zillow.com/homedetails/1595 ... 1905_zpid/ (100% in two years)

The homes above are just a random assortment from our "saved homes" queue. Tried to get a broad representation without cherry-picking the biggest gainers. My estimation of 70-90% appreciation over the past 24 months is too high for most of the homes. However, there are a few that still meet that criteria. In any case, the overall appreciation is still staggering.
You said “almost all houses are selling for 70-90% above where they were 24 months ago.”

I don’t see an6 support for that. In your examples, 1 house meets that criteria. And it’s not on the market. I think you are psyching yourself out. I live not far from there and it isn’t that crazy.

Anecdotally, we know people who have bought in the Parker area in the last month in your price range. Further north than you are looking but room to negotiate an offer, with financing and inspection contingencies. Very different than last summer.
feh
Posts: 2011
Joined: Sat Dec 15, 2012 10:39 am

Re: Buy now in a housing market that has 2x'ed?

Post by feh »

poker27 wrote: Fri Jan 14, 2022 10:59 pm IMO, if you are confident you will stay in the area, and are set buying at some point, so it now (assuming you find a place you like).

If you have a 50/50 chance of the value going up or down, but who cares, it’s a house. It’s also a PITA to move from a rental, and it will always be top of mind.
+1

All RE is local. Colorado RE has been appreciating for a very long time and will likely continue to.

As long as you wouldn't need to sell in the next few years, I'd buy now.
chazas
Posts: 853
Joined: Wed Nov 01, 2017 1:22 pm
Location: NoVa

Re: Buy now in a housing market that has 2x'ed?

Post by chazas »

With those numbers I would probably rent, but it’s a tough call. Some folks look at housing expense as just a number like anything else, but there are intangibles that can make living in your own place vastly more enjoyable - at least for me. The few times I’ve rented in my adult life the homes available to rent were much less nice than the ones I’ve owned.

On the other hand, I am not of the “housing always goes up” viewpoint. My ex and I built a custom home in close-in NoVa in 2007-08. We were forced to sell in 2014ish due to a job move, and didn’t quite break even due to transaction costs. Our first home in DC was bought in 1988 and after renovation expenses sold for a modest loss a decade later. We got a fantastic deal, so we thought, on a house in flyover country, for a home where the replacement cost would have been 2x the purchase price, but when the job took me back to DC it took two years to sell and we lost $200K. We lost another $200K after divorce selling a close-in farm where we had planned to build a forever home.

We also made a huge amount of money on other houses. In the end it probably nets out, but you’re not going to know when in the cycle you are buying and need to sell. People act like they can time the real estate markets in a way they know they can’t time the stock market, but in general they can’t.
YoungSisyphus
Posts: 346
Joined: Mon Sep 24, 2018 7:35 am

Re: Buy now in a housing market that has 2x'ed?

Post by YoungSisyphus »

SwampDonkey wrote: Sat Jan 15, 2022 9:49 pm
KRP wrote: Sat Jan 15, 2022 1:49 pm
SwampDonkey wrote: Fri Jan 14, 2022 7:50 pm My question: would you chase the market and buy in this situation? I fully admit I'm experiencing a bit of FOMO but at the same time, I just don't see how these prices are sustainable.
The traditional rule of thumb is that home prices tend to occassionally return to 3x up to 4.5x local average incomes. But markets can stay irrational longer than most humans can cope.

We stuck to our budget on our first house, which basically priced us out until the next recession hit, where we had our downpayment and had grown quite weary waiting, but obtained a good entry price on a small old house on a corner lot in a nice locale.

Five years later, everything was booming and we had a bit of a windfall from work, so we decided to step directly from our first/starter house to a stay-indefinitely house. We had a hefty appreciation on the old small house which we rolled over into the fairly new, big, expensive house. I told my spouse to be prepared for the price to be a market top for at least the next decade or so. We bought near the top, went up for a couple years, then swung downwards over the next seven years to drop back around the original price. Today it's more than double the original price.

My advice would be to treat home purchases like stock equity purchases....if you think you can hold on for a sufficiently long time (10+ years, minimum) and particularly if the house is a keeper, it can work out in the long run. Otherwise, for shorter horizons or poor locations, the all time highs make for a much tougher decision and recommend renting if materially cheaper. Shorter "home ownership" time frames behave a lot like market timing. They get you somewhere faster, but you cannot pick the direction... Great advice; appreciate your input!
I don’t fully agree with this comparison. More apt to compare a single home purchase to betting on a single stock. You can buy a single stock and even if you hold on to it for 10 years, it does not necessarily appreciate. In fact, many stocks (homes) may fall and never regain the initial price point.

You are leveraging yourself as well, and frankly, any house at this price point is not a necessity, it is a luxury. You should feel comfortable losing 50% of the value and writing it off permanently for the luxury - in other words - losing $700k. You should also feel comfortable paying for the (potentially) overpriced mortgage forever. If it falls, will you still be happy paying the mortgage for 10+ years? What if you lose your job, will you be able to still pay? These are things that you don’t have to worry about when stock picking.
YoungSisyphus
Posts: 346
Joined: Mon Sep 24, 2018 7:35 am

Re: Buy now in a housing market that has 2x'ed?

Post by YoungSisyphus »

Would also say that making the call on luxury housing also depends on your personal situation, and there aren’t any actionable details in the original post:
1. Are you paying all cash? If so, doesn’t really matter as long as you are ok with losing a % of your principle. You have the ability to pay and stay for a long period of time.
2. Are you confident in your job situation and financing if you are not paying all cash? If you lose your job can you continue to make the monthly payment for 10+ years? Are you confident you can find another job if you hit a recession and housing prices fall and you cannot sell the home for what you purchased it for? Assess your default risk.
poker27
Posts: 1149
Joined: Mon Apr 01, 2013 2:48 pm

Re: Buy now in a housing market that has 2x'ed?

Post by poker27 »

Valuethinker wrote: Sat Jan 15, 2022 11:47 am
poker27 wrote: Sat Jan 15, 2022 10:54 am
SouthernInvestor wrote: Sat Jan 15, 2022 6:42 am
poker27 wrote: Fri Jan 14, 2022 9:43 pm It’s really crazy. I’m in Chicago, however have been considering moving to all the cool places (AZ, CO, NC, FL). Chicagos prices have hardly gone up, and everywhere I’m looking at has doubled over the past 3-5yrs. I just tell myself you have to pay to play and you can’t time anything. Although it does make me enjoy Chicago more
Off topic but I am waiting for a "trend" to start of folks buying city vacation places in Chicago -- that market is way out of whack with other urban markets. Course, you could use some new politicians.
I don’t disagree, secret will get out at some point. If I hadn’t lived in Chicago for so long, I’d be looking at moving here, as the quality of life is great for a truly walkable big city. Unfortunately I got the itch for change at a bad time.
Doesn't the fiscal position of Chicago (& Illinois) give you pause?

It has managed the post-industrial migration well, but carries those legacy problems *and* really serious fiscal outlook?
It does, and I usually bicker about it over drinks weekly (including last night). However at this point I almost consider it an annoyance, as it doesn’t really affect my life all that much. Obviously $ has been mismanaged, but we’ve also had a stagnant population in Chicago for years. Ideally the population goes up soon, and solves for a portion of the financial challenges.
User avatar
Shackleton
Posts: 947
Joined: Mon Dec 29, 2014 5:20 pm

Re: Buy now in a housing market that has 2x'ed?

Post by Shackleton »

SwampDonkey wrote: Sat Jan 15, 2022 9:32 pm
lazynovice wrote: Sat Jan 15, 2022 6:17 pm I don’t think they have gone up as much as you think they have. I can’t find a good source to say you are wrong but in the last year, Redfin says Monument price per square foot has increased 19%. I don’t think 2020 was high enough to get to your assumed increase. Do you have some market data instead of a few anecdotes? I think the anecdote is scaring you.

I am not sure why you think you are limited to 800k-900k in Monument? That sounded high to me. I went into Redfin, put in price range of 500k-700k, 4+ bedrooms, 3+ baths, minimum 3,000 square feet with a garage and 22 homes have sold in the last 3 months. 65 in the last 6 months. Castle Rock has had 153 homes sell with that criteria in 6 months.


Do you have some requirement that is unique?
https://www.zillow.com/homes/560-Avena- ... 1967_zpid/ (35% increase in 17 months)
https://www.zillow.com/homedetails/320- ... 5117_zpid/ (97% increase in 4.5 years)
https://www.zillow.com/homedetails/1981 ... 6557_zpid/ (57% increase in 3.5 years)
https://www.zillow.com/homedetails/235- ... 7540_zpid/ (107% in 5.5 years)
https://www.zillow.com/homedetails/3327 ... 7659_zpid/ (46% in 24 months)
https://www.zillow.com/homedetails/1272 ... 8025_zpid/ (62% in 3 years)
https://www.zillow.com/homedetails/1595 ... 1905_zpid/ (100% in two years)

The homes above are just a random assortment from our "saved homes" queue. Tried to get a broad representation without cherry-picking the biggest gainers. My estimation of 70-90% appreciation over the past 24 months is too high for most of the homes. However, there are a few that still meet that criteria. In any case, the overall appreciation is still staggering.
A few of those look like they had significant improvements done to justify the increase (the one on Jack Boot Dr, for example.) I used to live in the area for almost 20 years. It is a great place and the Denver prices are driving up the costs since the drive is relatively commutable, especially with them widening I-25 from CR to Monument.

If you look in Larkspur, be aware of the potential for Renaissance Faire traffic during the summer depending on your location. In all those areas, be aware that open areas can be VERY windy, especially in spring. We were on the Palmer Divide (which is the little ridge that runs east-west through Monument, Monument Hill is where I-25 crosses the Palmer Divide) and we saw winds of 40-50mph regularly, and even gusts of 80mph. Trees help to mitigate the impact as long as they are healthy and not in danger of falling over. Elizabeth is growing a lot and I would worry about commute times into work, if that applies.

Oh, and I-25 in winter can be an awful commute since people are always driving over their cars’ ability to stop. If you aren’t familiar with driving in CO in winter, the roads are not salted. They plow the top snow off, leaving a nice layer of ice and then throw gravel on the ice for traction. I’m very serious about that. I highly recommend Blizzak tires which grip on ice, and make certain your car insurance includes glass coverage with $0 deductible for glass. You will generally end up replacing your windshield every spring.
“Superhuman effort isn't worth a damn unless it achieves results.” ~Ernest Shackleton
KRP
Posts: 225
Joined: Thu Aug 27, 2020 11:56 am

Re: Buy now in a housing market that has 2x'ed?

Post by KRP »

YoungSisyphus wrote: Sun Jan 16, 2022 8:30 am
SwampDonkey wrote: Sat Jan 15, 2022 9:49 pm
KRP wrote: Sat Jan 15, 2022 1:49 pm
SwampDonkey wrote: Fri Jan 14, 2022 7:50 pm My question: would you chase the market and buy in this situation? I fully admit I'm experiencing a bit of FOMO but at the same time, I just don't see how these prices are sustainable.
The traditional rule of thumb is that home prices tend to occassionally return to 3x up to 4.5x local average incomes. But markets can stay irrational longer than most humans can cope.

We stuck to our budget on our first house, which basically priced us out until the next recession hit, where we had our downpayment and had grown quite weary waiting, but obtained a good entry price on a small old house on a corner lot in a nice locale.

Five years later, everything was booming and we had a bit of a windfall from work, so we decided to step directly from our first/starter house to a stay-indefinitely house. We had a hefty appreciation on the old small house which we rolled over into the fairly new, big, expensive house. I told my spouse to be prepared for the price to be a market top for at least the next decade or so. We bought near the top, went up for a couple years, then swung downwards over the next seven years to drop back around the original price. Today it's more than double the original price.

My advice would be to treat home purchases like stock equity purchases....if you think you can hold on for a sufficiently long time (10+ years, minimum) and particularly if the house is a keeper, it can work out in the long run. Otherwise, for shorter horizons or poor locations, the all time highs make for a much tougher decision and recommend renting if materially cheaper. Shorter "home ownership" time frames behave a lot like market timing. They get you somewhere faster, but you cannot pick the direction... Great advice; appreciate your input!
I don’t fully agree with this comparison. More apt to compare a single home purchase to betting on a single stock. You can buy a single stock and even if you hold on to it for 10 years, it does not necessarily appreciate. In fact, many stocks (homes) may fall and never regain the initial price point.

You are leveraging yourself as well, and frankly, any house at this price point is not a necessity, it is a luxury. You should feel comfortable losing 50% of the value and writing it off permanently for the luxury - in other words - losing $700k. You should also feel comfortable paying for the (potentially) overpriced mortgage forever. If it falls, will you still be happy paying the mortgage for 10+ years? What if you lose your job, will you be able to still pay? These are things that you don’t have to worry about when stock picking.
A house is a consumable sitting on land, so if one lives in it 10+ years, one always gets that portion of the expected purchase value. The land under is definitely more like buying a single stock....hence the popular advice that the 3 most important things are location, location, location. The location part really comes down to personal taste (emotion) plus as others have mentioned, the ability to hold on through any financial turmoil. Of course, like stock picking, any individual's personal taste for location matters very little once one needs to sell it to another individual...
Firemenot
Posts: 1497
Joined: Wed Apr 01, 2020 8:48 pm

Re: Buy now in a housing market that has 2x'ed?

Post by Firemenot »

sergeant wrote: Sat Jan 15, 2022 9:37 pm
Firemenot wrote: Fri Jan 14, 2022 9:36 pm Prices in my area (California) have doubled during Covid as well. But there is no additional supply. And I mean none. You can’t hook up a new water meter and haven’t been able to do so for a decade.
You must be on the central coast. We have been looking in that area for several years.
You are correct. From what I’ve been told by realtor friends, most of the buyers that have driven up the prices are Bay Area buyers. Not that many local buyers. I have also met some recent transplants from NE that were looking for better weather in lockdowns.
rgs92
Posts: 3436
Joined: Mon Mar 02, 2009 7:00 pm

Re: Buy now in a housing market that has 2x'ed?

Post by rgs92 »

It is often mentioned that one should rent rather than buy. Renting in places like NJ or the NYC suburbs was always difficult with little to choose from and now it's even much worse.

If you want 3 or more bedrooms or over 1500sf, it's next to impossible or extremely expensive, like $5000+ (and the sky's the limit). And if you have pets or any sort of particular needs in a property, well, there may be nothing there.

In the past, for work or between houses at different times, I've been in the rental market in NJ, and it was extremely hard to find anything remotely acceptable at a reasonable price.

So renting is often not a practical alternative at all.
You may need to rent in a dangerous area or very,very far from work.

The suburbs and exurbs (especially around NY) were never designed for rentals, and there was little inventory even during real estate downturns.
So there really is no alternative to buying if you want a place to live. The only alternative is to live in a hotel.

That's why I really don't take those rent vs. buy calculators seriously. Once again, it is often just not practical. There are few big rental complexes with lots of vacancies.
pnw_guy
Posts: 164
Joined: Sun Feb 28, 2021 12:11 pm

Re: Buy now in a housing market that has 2x'ed?

Post by pnw_guy »

hoofaman wrote: Fri Jan 14, 2022 9:38 pm What would be the catalyst for housing to crash? All buyers have skin in the game this time around and are well qualified. Nothing is going to force the hand of most seller to dump a property for a big loss
I agree. Supply is incredibly low, and unlike the housing crash in 2007/2008, Americans have never held more equity in their homes (read: the craziness isn't due to cheap credit where people are collectively stretched too thin). And with relatively low interest rates, I think an extremely surprising event would be necessary to slow the housing boom. Surprising events obviously happen but I think betting on rising housing costs is pretty safe
mnnice
Posts: 831
Joined: Sat Aug 11, 2012 5:48 pm

Re: Buy now in a housing market that has 2x'ed?

Post by mnnice »

[/quote]

Those who bought at the peak of the Liar loan era will have real estate PTSD for life. Some may never purchase real estate ever again. Others did significantly better.
[/quote]

We bought in 1998 and then again in 2001 both pre-liar loan in areas that had few NINJA type loans. We made money on the first purchase and lost money after 11.5 years of ownership and good care. When jobs dry up in a market it can really bad. We sold house two on 2012 and spent three years as renters.

I think I have real estate PTSD. More important than the selling for a loss thing was the hassle of the boat anchor that a house you no longer live in or want can be.

I would sort of like to sell my house right now although practically we need to wait 18 months.

I’m on team rent especially if you haven’t lived in the area already.
leland
Posts: 267
Joined: Sun Sep 12, 2021 5:21 pm
Location: PNW

Re: Buy now in a housing market that has 2x'ed?

Post by leland »

Personally I'm on team rent (both for me and in your case) but I think with your intended time horizon buying is fine, too. Based on this thread call it a coin toss. When it's in the air if you're hoping for one side to win really hard choose that one.
rich126
Posts: 4475
Joined: Thu Mar 01, 2018 3:56 pm

Re: Buy now in a housing market that has 2x'ed?

Post by rich126 »

Just to show how markets vary:

1. Went, mostly out of curiosity, to an open house in MD last Sunday. In this case the house was listed for $675K. Ended up with multiple offers and sold for close to $700K

2. Last night was browsing listings in Phoenix and Scottsdale. Probably only viewed about a dozen or so and came across two homes that had about a $100,000 price drop. Both had originally listed for about $800K and now were around $700K (I think one dropped $100K and the other was $97K).

The neighborhoods IMO were comparable based on my living in both areas. Generally I think MD should hold up better than much of AZ since the job market here is higher end and more stable with the government jobs and contracting jobs. AZ tends to be speculative and the highs are higher and so are the lows.
----------------------------- | If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
Post Reply