Tales from this insane real estate market [Home sales]

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ImmigrantSaver
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Re: Tales from this insane real estate market

Post by ImmigrantSaver »

AnnetteLouisan wrote: Sat Jun 11, 2022 7:28 am Relative is a NYC landlord in a pickle. Rents went way up in the highly desirable and trendy area, a tenant’s lease is expiring who has only been a tenant for one year and is not indigent or middle income. Not a regulated/stabilized/controlled apartment. Market is now $2k above what tenant is paying.

It’s kind of a hard conversation to have and landlord is a nice guy, was never in this situation before because he always charged market so always renewed at the same rent. It’s just with inflation, eviction moratoria, etc., the market is now what it is. All the other apts in his bldg get $2k more. And some in the area get $3-4k more. How to handle so as not to unduly piss off tenant? Landlords costs did not go up that much.
Me and my partner just went through something like this as tenants in May when we renewed our lease for our second year. We are in the "cheaper" area of Manhattan so our nominal increase was half of that but it represented 33% increase which definitely was a sticker shock at first. A couple of observations:
1) We did not take offence in getting a simple email from owner's broker that was very similar as someone suggested above. We would actually be weirded out by a personal visit or even a phone call - too personal
2) Sure we got angry at first but we admitted that we were getting a great deal and now knew ahead of time that it won't last forever
3) We did a quick search and realized that we are getting a fair market price, but a bigger space in this particular coop. Moving to a smaller place to save a couple hundred didn't make sense and we are not ready to leave the city or buy anything here as well
4) we negotiated a little discount which made us feel better
5) if next year the increase is higher than 200-300 we would consider moving

Hope this helps :sharebeer
blueberrypi
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Re: Tales from this insane real estate market

Post by blueberrypi »

Insanity continues in my corner of the world with no signs of slowing. Lost offer #11 today (10% over, waived inspection) and the other house I looked at over the weekend already has 8 offers in ahead of tomorrow's deadline. Someone hit the stop button.. please.
SmallSaver
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Re: Tales from this insane real estate market

Post by SmallSaver »

Only 10% over and only 8 offers? Sounds like it is cooling down. In all seriousness, hang in there. Something has to give. The median mortgage payment is up like 55% YOY in many markets. Inventory is trending up, price reductions are trending up, It's going to take time for the market to integrate the higher rates. It is, without a doubt, a terrible time to be buying a house, but the trends are (slowly) improving.
flyfishers83
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Re: Tales from this insane real estate market

Post by flyfishers83 »

I watch residential, rental and recreational property in about a 150 mile diameter circle. Everything has cooled significantly. I also see lots of junky rentals and marginal undeveloped land flooding the market. Such a reversal in just a couple of months.

I keep wanting to be a buyer, but biding my time.
59Gibson
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Re: Tales from this insane real estate market

Post by 59Gibson »

Many more Days like today in the stock mkt and the so called wealth effect of the last few years begins to fade, one would think but who knows.
Auream
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Re: Tales from this insane real estate market

Post by Auream »

blueberrypi wrote: Mon Jun 13, 2022 3:40 pm Insanity continues in my corner of the world with no signs of slowing. Lost offer #11 today (10% over, waived inspection) and the other house I looked at over the weekend already has 8 offers in ahead of tomorrow's deadline. Someone hit the stop button.. please.
I’m in an extremely hot housing market that has nearly doubled since the start of 2020 (Triangle area of NC). As recently as Late March, I was seeing nearly every house I was interested in go pending within a day or 2 of hitting the market (or less, in the case of an accepted offer in the “Coming Soon” period). Closing prices were frequently $75-100k over asking price. As of just the past 3-4 weeks, I’m suddenly seeing a lot of price drops and recent closings at or only slightly over asking. Nearly every house I have inquired about no longer has an offer deadline (because they no longer expect to get more than 1 or 2 offers).

If your market is still crazy, it may just be a matter of weeks before it cools. In March I was ready to give up and declare the market “permanently irrational.”
sandan
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Re: Tales from this insane real estate market

Post by sandan »

SmallSaver wrote: Mon Jun 13, 2022 4:13 pm Only 10% over and only 8 offers? Sounds like it is cooling down. In all seriousness, hang in there. Something has to give. The median mortgage payment is up like 55% YOY in many markets. Inventory is trending up, price reductions are trending up, It's going to take time for the market to integrate the higher rates. It is, without a doubt, a terrible time to be buying a house, but the trends are (slowly) improving.
A terrible time to be a full time real estate agent or loan officer!

I wouldn't be surprised if all the duplexes and triplexes coming on are coming from those folks.
lgs88
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Re: Tales from this insane real estate market

Post by lgs88 »

Auream wrote: Mon Jun 13, 2022 5:22 pm

...I’m in an extremely hot housing market that has nearly doubled since the start of 2020 (Triangle area of NC). As recently as Late March, I was seeing nearly every house I was interested in go pending within a day or 2 of hitting the market (or less, in the case of an accepted offer in the “Coming Soon” period). Closing prices were frequently $75-100k over asking price. As of just the past 3-4 weeks, I’m suddenly seeing a lot of price drops and recent closings at or only slightly over asking...
I am seeing same; problem (from my perspective as a potential buyer) is that the price drops are coming off of list prices based on the comps from the crazy closing prices of a few months ago. So we've got a long way to go to get back even to 2021 prices.
merely an interested amateur
Engaging in sloth
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Re: Tales from this insane real estate market

Post by Engaging in sloth »

We just bought a house recently. There were several bidders. A few offered at asking and a few offered over. We won the bidding by offering a bit over, but were not the highest bidders. However we paid cash and were able to provide a fast closing.

After this transaction was completed we put our house up for sale. There were a few offers over asking. We choose one that seemed to have the best financing options for a sale and buyers took house as is. The only cash offer was slightly below asking and taking the house as is.

The negotiating was not difficult on either sale. Seemed like a win-win for all parties involved.

Our area still has a very strong RE market.
arf30
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Re: Tales from this insane real estate market

Post by arf30 »

We bought a new construction for $1.6M (4br, ~3000sq ft) about a year and a half ago in a hot NYC suburb. Yesterday a very similar new construction went up for sale for $2.5M and we went to the open house. It was in rough shape, poorly installed tile, everything installed crooked. The realtor told us it's mostly cash buyers at this price point who don't care about rates. It's still crazy that house prices would increase almost a million dollars in a bit under 2 years - we're priced out of our own neighborhood.
Last edited by arf30 on Mon Jun 13, 2022 6:31 pm, edited 1 time in total.
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AnnetteLouisan
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Re: Tales from this insane real estate market

Post by AnnetteLouisan »

ImmigrantSaver wrote: Sun Jun 12, 2022 7:21 pm
AnnetteLouisan wrote: Sat Jun 11, 2022 7:28 am Relative is a NYC landlord in a pickle. Rents went way up in the highly desirable and trendy area, a tenant’s lease is expiring who has only been a tenant for one year and is not indigent or middle income. Not a regulated/stabilized/controlled apartment. Market is now $2k above what tenant is paying.

It’s kind of a hard conversation to have and landlord is a nice guy, was never in this situation before because he always charged market so always renewed at the same rent. It’s just with inflation, eviction moratoria, etc., the market is now what it is. All the other apts in his bldg get $2k more. And some in the area get $3-4k more. How to handle so as not to unduly piss off tenant? Landlords costs did not go up that much.
Me and my partner just went through something like this as tenants in May when we renewed our lease for our second year. We are in the "cheaper" area of Manhattan so our nominal increase was half of that but it represented 33% increase which definitely was a sticker shock at first. A couple of observations:
1) We did not take offence in getting a simple email from owner's broker that was very similar as someone suggested above. We would actually be weirded out by a personal visit or even a phone call - too personal
2) Sure we got angry at first but we admitted that we were getting a great deal and now knew ahead of time that it won't last forever
3) We did a quick search and realized that we are getting a fair market price, but a bigger space in this particular coop. Moving to a smaller place to save a couple hundred didn't make sense and we are not ready to leave the city or buy anything here as well
4) we negotiated a little discount which made us feel better
5) if next year the increase is higher than 200-300 we would consider moving

Hope this helps :sharebeer
Ended up fine. Uneventful, no anger, they are moving, everyone’s happy. It was never personal, just weird times these days. Thanks everyone for the suggestions.
THY4373
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Re: Tales from this insane real estate market

Post by THY4373 »

arf30 wrote: Mon Jun 13, 2022 6:16 pm Yesterday a very similar new construction went up for sale for $2.5M and we went to the open house. It was in rough shape, poorly installed tile, everything installed crooked.
Houses constructed since the pandemic are mostly on my do not buy list for this exact reason. Labor and supply shortages do not bode well for decent construction.
blueberrypi
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Re: Tales from this insane real estate market

Post by blueberrypi »

THY4373 wrote: Mon Jun 13, 2022 7:33 pm
arf30 wrote: Mon Jun 13, 2022 6:16 pm Yesterday a very similar new construction went up for sale for $2.5M and we went to the open house. It was in rough shape, poorly installed tile, everything installed crooked.
Houses constructed since the pandemic are mostly on my do not buy list for this exact reason. Labor and supply shortages do not bode well for decent construction.
Same with flips. I've been seeing some partially renovated houses hitting the market, probably due to cost of materials and labor. Which means the ones that were completed are selling for a ton and/or hiding some sketchy work under new flooring and paint.
Carefreeap
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Re: Tales from this insane real estate market

Post by Carefreeap »

blueberrypi wrote: Tue Jun 14, 2022 9:13 am
THY4373 wrote: Mon Jun 13, 2022 7:33 pm
arf30 wrote: Mon Jun 13, 2022 6:16 pm Yesterday a very similar new construction went up for sale for $2.5M and we went to the open house. It was in rough shape, poorly installed tile, everything installed crooked.
Houses constructed since the pandemic are mostly on my do not buy list for this exact reason. Labor and supply shortages do not bode well for decent construction.
Same with flips. I've been seeing some partially renovated houses hitting the market, probably due to cost of materials and labor. Which means the ones that were completed are selling for a ton and/or hiding some sketchy work under new flooring and paint.
Let the lawsuits begin!

I hate markets like this even if I personally benefit. Sellers will take advantage of newbie buyers and people waive contingencies they shouldn't. :annoyed
Every day I can hike is a good day.
runninginvestor
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Re: Tales from this insane real estate market

Post by runninginvestor »

blueberrypi wrote: Tue Jun 14, 2022 9:13 am
THY4373 wrote: Mon Jun 13, 2022 7:33 pm
arf30 wrote: Mon Jun 13, 2022 6:16 pm Yesterday a very similar new construction went up for sale for $2.5M and we went to the open house. It was in rough shape, poorly installed tile, everything installed crooked.
Houses constructed since the pandemic are mostly on my do not buy list for this exact reason. Labor and supply shortages do not bode well for decent construction.
Same with flips. I've been seeing some partially renovated houses hitting the market, probably due to cost of materials and labor. Which means the ones that were completed are selling for a ton and/or hiding some sketchy work under new flooring and paint.
I told my spouse this was going to happen as soon as signs the market was cooling off/rates rise. We've seen similar shoddy renos, even new con, put on lately. Happens every time a hot market happens. Wanna-be flippers see the greed and want to get in, usually a little too late. now they're just trying to unload as cheaply as possible. We've gone back to renting for this reason. My father has done res & com construction his whole life and I remember the aftermath of '08 how much work we had that was fixing poorly done flips. Things like not sealing tile, switches that weren't installed properly, amateur electrical work, missing sub-floor or just putting vinyl over hardwood! I would heavily caution any potential buyers atm.
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jfn111
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Re: Tales from this insane real estate market

Post by jfn111 »

sandan wrote: Mon Jun 13, 2022 5:29 pm
SmallSaver wrote: Mon Jun 13, 2022 4:13 pm Only 10% over and only 8 offers? Sounds like it is cooling down. In all seriousness, hang in there. Something has to give. The median mortgage payment is up like 55% YOY in many markets. Inventory is trending up, price reductions are trending up, It's going to take time for the market to integrate the higher rates. It is, without a doubt, a terrible time to be buying a house, but the trends are (slowly) improving.
A terrible time to be a full time real estate agent or loan officer!

I wouldn't be surprised if all the duplexes and triplexes coming on are coming from those folks.
It is an awful time to be an RE Agent. Business has really started to slow down because of the interest rates. House prices aren't dropping yet so we have no equilibrium in the market. We will get there it will just take awhile. (Thank God I saved and invested over the years and don't need to do this for a living).
Auream
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Re: Tales from this insane real estate market

Post by Auream »

lgs88 wrote: Mon Jun 13, 2022 5:59 pm
Auream wrote: Mon Jun 13, 2022 5:22 pm

...I’m in an extremely hot housing market that has nearly doubled since the start of 2020 (Triangle area of NC). As recently as Late March, I was seeing nearly every house I was interested in go pending within a day or 2 of hitting the market (or less, in the case of an accepted offer in the “Coming Soon” period). Closing prices were frequently $75-100k over asking price. As of just the past 3-4 weeks, I’m suddenly seeing a lot of price drops and recent closings at or only slightly over asking...
I am seeing same; problem (from my perspective as a potential buyer) is that the price drops are coming off of list prices based on the comps from the crazy closing prices of a few months ago. So we've got a long way to go to get back even to 2021 prices.
Absolutely true, for basically all of mid-2021 through March of 2022, I kept seeing new listings at roughly at the CLOSED price of comps (which themselves closed $50k or more above list), then those houses would end up closing another $50k above that. So it seemed like a never ending ratcheting up and just didn’t seem to have an end in sight (surely this house that would have sold for $550k 6 months ago and is now listed for 600 won’t go that much over asking? Oops, it closed at $715). The ratcheting seems to finally be pausing or even reversing, but there’s a way to go just to get back to December of 2021 prices (or it may never happen, depending on how much high interest rates suppress demand and new supply gets built).
SteveJones
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Re: Tales from this insane real estate market

Post by SteveJones »

I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
runninginvestor
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Re: Tales from this insane real estate market

Post by runninginvestor »

SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
For non-cash buyers, it affects affordability. Every 1% increase in mortgage rates, they lose ~13% affordability. The kicker though is prices are sticky downwards so it may not be as fast of a decline. It works much more quickly - house prices rising - when rates drop.

I don't expect housing prices to drop in line with the rise in rates bc part of the issues with price increases are:
Cash buyers
Low supply
deanmoriarty
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Re: Tales from this insane real estate market

Post by deanmoriarty »

SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
People like to think that, but in my opinion this breaks in some HCOL markets like the Bay Area. Interest rates rising might mean paying $1000 more a month. So what? Most households who could afford those $2M+ homes will still be able to now, maaaybe they’ll go out to eat a tiny bit less to find that $1k. And that doesn’t even count all the dry powder waiting on the sidelines for cash offers.

I would be incredibly surprised if these markets experience a correction.
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changingtimes
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Re: Tales from this insane real estate market

Post by changingtimes »

lgs88 wrote: Mon Jun 13, 2022 5:59 pm
I am seeing same; problem (from my perspective as a potential buyer) is that the price drops are coming off of list prices based on the comps from the crazy closing prices of a few months ago. So we've got a long way to go to get back even to 2021 prices.
I'm closing in two weeks on what will be a second home in a LCOL area but in a high-end development. My winning bid for one of the smallest places (2br) was not quite 10% above asking (happened via an escalation clause), which to me was overpaying but I didn't really care for a number of reasons. The similar place next door sold for a whole lot less a year ago, though it needed a lot more work.

I'm putting about 70% down, so I wasn't worried about the appraisal, but it actually came in a few thousand dollars above the pending sale price. Thank you, comps from the past few months.

Also really glad I locked in a 4.875% mortgage two weeks ago. 😁
doss
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Re: Tales from this insane real estate market

Post by doss »

I think it's going to be interesting for new builds.

First, you have to think about the estimated closing dates for these. How can you estimate what the mortgage rate will be 6-10 months from now? That's a HUGE gamble with your monthly payments affordability.

Secondly, I don't think construction costs are ever going to fall anytime soon (maybe half a decade?). So, you want a new build ...you either have to pay the higher mortgage payments, and if they drop, you still got to pay the higher construction costs that are trickled down to your house price.....or you pay BOTH higher mortgage payments and higher construction costs! But, if you don't buy a new build .....what and when are you going to buy?
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runninginvestor
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Re: Tales from this insane real estate market

Post by runninginvestor »

doss wrote: Wed Jun 15, 2022 7:39 am I think it's going to be interesting for new builds.

First, you have to think about the estimated closing dates for these. How can you estimate what the mortgage rate will be 6-10 months from now? That's a HUGE gamble with your monthly payments affordability.

Secondly, I don't think construction costs are ever going to fall anytime soon (maybe half a decade?). So, you want a new build ...you either have to pay the higher mortgage payments, and if they drop, you still got to pay the higher construction costs that are trickled down to your house price.....or you pay BOTH higher mortgage payments and higher construction costs! But, if you don't buy a new build .....what and when are you going to buy?
Some lenders will lock your rate for an extended period for new builds. I recall one I've spoken to that had a 240-day lock with a float down w/in 30 days of closing.

So yeah, you may not know if rates will be lower, so you'd have to have to be able to afford at the rate you lock at with a bonus if they've fallen within 30-days of close.
finite_difference
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Re: Tales from this insane real estate market

Post by finite_difference »

deanmoriarty wrote: Wed Jun 15, 2022 7:21 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
People like to think that, but in my opinion this breaks in some HCOL markets like the Bay Area. Interest rates rising might mean paying $1000 more a month. So what? Most households who could afford those $2M+ homes will still be able to now, maaaybe they’ll go out to eat a tiny bit less to find that $1k. And that doesn’t even count all the dry powder waiting on the sidelines for cash offers.

I would be incredibly surprised if these markets experience a correction.
More like $2500-3000 extra per month on a $2M house. Plus higher property taxes due to the ever rising prices. That’s a lot of takeout!

Cash offers, on the other hand, not sure where all those are coming from. Maybe folks are cashing out of the stock market into the hot local RE market.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
CletusCaddy
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Re: Tales from this insane real estate market

Post by CletusCaddy »

finite_difference wrote: Wed Jun 15, 2022 8:14 am
deanmoriarty wrote: Wed Jun 15, 2022 7:21 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
People like to think that, but in my opinion this breaks in some HCOL markets like the Bay Area. Interest rates rising might mean paying $1000 more a month. So what? Most households who could afford those $2M+ homes will still be able to now, maaaybe they’ll go out to eat a tiny bit less to find that $1k. And that doesn’t even count all the dry powder waiting on the sidelines for cash offers.

I would be incredibly surprised if these markets experience a correction.
More like $2500-3000 extra per month on a $2M house. Plus higher property taxes due to the ever rising prices. That’s a lot of takeout!

Cash offers, on the other hand, not sure where all those are coming from. Maybe folks are cashing out of the stock market into the hot local RE market.
A $2M house doesn’t have a $2M mortgage. Also property tax increases are capped at 2% per year. The takeout is safe.
DH0
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Re: Tales from this insane real estate market

Post by DH0 »

A $2M house doesn’t have a $2M mortgage. Also property tax increases are capped at 2% per year. The takeout is safe.
Still contemplating the trade-up to a $4M house in this environment?

Personally I am staying put in my ~$2.5M house with a ~$1M mortgage locked in at 2% interest only. While we have outgrown it and would love some extra space, the higher rates have made trading up really unpalatable even though we could still afford it. I'm expecting lots of new inventory in the $2–4M range over the next 6–12 months.
lgs88
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Re: Tales from this insane real estate market

Post by lgs88 »

DH0 wrote: Wed Jun 15, 2022 8:36 am …I'm expecting lots of new inventory in the $2–4M range over the next 6–12 months.
Yes, at the rate things are going, those houses that closed at $450,000 in February of 2021 should be sliding into the $2-$4 million range by October ‘22 at the latest!

:annoyed
merely an interested amateur
CletusCaddy
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Re: Tales from this insane real estate market

Post by CletusCaddy »

DH0 wrote: Wed Jun 15, 2022 8:36 am
A $2M house doesn’t have a $2M mortgage. Also property tax increases are capped at 2% per year. The takeout is safe.
Still contemplating the trade-up to a $4M house in this environment?

Personally I am staying put in my ~$2.5M house with a ~$1M mortgage locked in at 2% interest only. While we have outgrown it and would love some extra space, the higher rates have made trading up really unpalatable even though we could still afford it. I'm expecting lots of new inventory in the $2–4M range over the next 6–12 months.
I’m in your boat. My portfolio has also crashed which doesn’t help. I’m waiting out the balance of my fixed interest only term, hopefully rates will come back down (and stocks go back up) by then.
mkc
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Re: Tales from this insane real estate market

Post by mkc »

CletusCaddy wrote: Wed Jun 15, 2022 8:30 am
finite_difference wrote: Wed Jun 15, 2022 8:14 am

More like $2500-3000 extra per month on a $2M house. Plus higher property taxes due to the ever rising prices. That’s a lot of takeout!

Cash offers, on the other hand, not sure where all those are coming from. Maybe folks are cashing out of the stock market into the hot local RE market.
A $2M house doesn’t have a $2M mortgage. Also property tax increases are capped at 2% per year. The takeout is safe.
Property tax rate increase caps are dependent on locale. It varies significantly, as do assessment increases. In most cases, assessment caps reset when a property is sold.
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Watty
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Re: Tales from this insane real estate market

Post by Watty »

SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
It is more complicated and some other factors are;

1) If inflation is 8% then houses could increase by 5% but still lag inflation. Houses would need to lag inflation by more than 8% for prices to actually drop in nominal dollars. If home prices lag inflation by 5% a year for five years they could decline in price by around 25% in real inflation adjusted dollars even though their actual price might not go down.

2) As interest rates go up fewer buyers will want to upgrade to a more expensive home since they would have to give up a low interest rate mortgage. That can reduce supply.

3) I have lost track of where it is at now but there was a moratorium on home foreclosures and a backlog of courts being able to process the foreclosures. When housing markets were going up 20% a year lenders were in no great hurry to foreclose since the price increase gave them some protection. When foreclosures go up that could greatly increase the supply of houses and when home prices start dropping lenders will want to foreclose on houses as soon as possible. There was also a mortarium on rental evictions and when landlords can finally evict a bad tenant some of them will want to sell the house.
SmallSaver
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Re: Tales from this insane real estate market

Post by SmallSaver »

SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
Houses don't get priced based on buyers affordability, they get priced by the market. Prices will come down if the best price the seller can get drops. We're still drastically under-supplied, and the recent rate increases may exacerbate that by stifling new construction and keeping people in their existing homes. Unlike 2008, we're not going to see much forced selling. On the other hand, maybe the investor frenzy will die down. Generally, it looks like the market will slowly cool, but if that translates to meaningful price reductions remains to be seen. I think it will be this fall/winter before we would start to see meaningful changes.
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ray.james
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Re: Tales from this insane real estate market

Post by ray.james »

Watty wrote: Wed Jun 15, 2022 9:02 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
It is more complicated and some other factors are;

1) If inflation is 8% then houses could increase by 5% but still lag inflation. Houses would need to lag inflation by more than 8% for prices to actually drop in nominal dollars. If home prices lag inflation by 5% a year for five years they could decline in price by around 25% in real inflation adjusted dollars even though their actual price might not go down.

2) As interest rates go up fewer buyers will want to upgrade to a more expensive home since they would have to give up a low interest rate mortgage. That can reduce supply.
This is exactly what happened in 1977-1982 when Volker was raising rates.

My crystal ball,

1) House prices will remain flat/very mild changes in nominal terms. Prices will loose value in real terms.
2) A rise from 0% to 5% is almost devastating as the rise from 5 to 12%; if not more.
3) This brings me to the final conclusion the fed would probably need to rise to 4 to 5% to beat this inflation and not all the way above 8%.
4) The mortgage rates track 10 year yields. I expect mortgage rates not go above 6-7%.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
ryman554
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Re: Tales from this insane real estate market

Post by ryman554 »

CletusCaddy wrote: Wed Jun 15, 2022 8:30 am
A $2M house doesn’t have a $2M mortgage. Also property tax increases are capped at 2% per year. The takeout is safe.
Tax basis (in Bay area, of which you speak) get reset to purchase price at time of sale (among other reasons) unless you qualify for an exemption, which few do.
AZAttorney11
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Re: Tales from this insane real estate market

Post by AZAttorney11 »

SmallSaver wrote: Wed Jun 15, 2022 9:56 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
Houses don't get priced based on buyers affordability, they get priced by the market. Prices will come down if the best price the seller can get drops. We're still drastically under-supplied, and the recent rate increases may exacerbate that by stifling new construction and keeping people in their existing homes. Unlike 2008, we're not going to see much forced selling. On the other hand, maybe the investor frenzy will die down. Generally, it looks like the market will slowly cool, but if that translates to meaningful price reductions remains to be seen. I think it will be this fall/winter before we would start to see meaningful changes.
Aren't market prices based on what buyers can afford??? I don't see how home prices remain at these levels, at least in select markets, given the substantial increase in mortgage rates over the last few months.
gougou
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Re: Tales from this insane real estate market

Post by gougou »

AZAttorney11 wrote: Wed Jun 15, 2022 12:43 pm
SmallSaver wrote: Wed Jun 15, 2022 9:56 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
Houses don't get priced based on buyers affordability, they get priced by the market. Prices will come down if the best price the seller can get drops. We're still drastically under-supplied, and the recent rate increases may exacerbate that by stifling new construction and keeping people in their existing homes. Unlike 2008, we're not going to see much forced selling. On the other hand, maybe the investor frenzy will die down. Generally, it looks like the market will slowly cool, but if that translates to meaningful price reductions remains to be seen. I think it will be this fall/winter before we would start to see meaningful changes.
Aren't market prices based on what buyers can afford??? I don't see how home prices remain at these levels, at least in select markets, given the substantial increase in mortgage rates over the last few months.
You can afford a lot more than you think. The banks are willing to lend you 5x-6x your gross annual income. So if you make $200K you can buy $1M+. I don't think most people usually go that high but that may become the norm if the undersupply continues.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
Ron Ronnerson
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Re: Tales from this insane real estate market

Post by Ron Ronnerson »

finite_difference wrote: Wed Jun 15, 2022 8:14 am
deanmoriarty wrote: Wed Jun 15, 2022 7:21 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
People like to think that, but in my opinion this breaks in some HCOL markets like the Bay Area. Interest rates rising might mean paying $1000 more a month. So what? Most households who could afford those $2M+ homes will still be able to now, maaaybe they’ll go out to eat a tiny bit less to find that $1k. And that doesn’t even count all the dry powder waiting on the sidelines for cash offers.

I would be incredibly surprised if these markets experience a correction.
More like $2500-3000 extra per month on a $2M house. Plus higher property taxes due to the ever rising prices. That’s a lot of takeout!

Cash offers, on the other hand, not sure where all those are coming from. Maybe folks are cashing out of the stock market into the hot local RE market.
I think it’s even more. In my neck of the woods, homes which were going for $1.5m a few months back are about $2m now. Here’s a breakdown of the difference in cost:

A home purchased for $1.5m with 20% down and a 3% interest rate (30-year) along with a 1.2% property tax rate would have a mortgage payment and property taxes of roughly $7500, of which $2k is going toward principal and is a form of savings. The expense portion is $5500.

A home purchased for $2m with 20% down and a 6% interest rate (30-year) along with a 1.2% property tax rate would have a mortgage payment and property taxes of roughly $11,600, of which $1,600 is going toward principal and is a form of savings. The expense portion is $10k.

The difference of $4500/month is before taking taxes into consideration. Assuming that someone buying a $2m home is likely in high federal and state tax brackets, to come up with an extra $4500/month in one’s pocket to pay the bills would require earning something like $8k-9k more per month.

So an extra $100k/year in gross income is required now on top of an extra $100k down payment (to reach a 20% down payment). Also, previously, a significant potion of the mortgage payment would have gone toward building equity from the very first payment but now it’s almost all going to go toward interest.

Is the difference a lot? I personally find it to be huge but understand that some people may still view it as nothing major (like those in dual-income households where each person is making several hundred thousand dollars per year).
stoptothink
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Re: Tales from this insane real estate market

Post by stoptothink »

gougou wrote: Wed Jun 15, 2022 12:51 pm
AZAttorney11 wrote: Wed Jun 15, 2022 12:43 pm
SmallSaver wrote: Wed Jun 15, 2022 9:56 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
Houses don't get priced based on buyers affordability, they get priced by the market. Prices will come down if the best price the seller can get drops. We're still drastically under-supplied, and the recent rate increases may exacerbate that by stifling new construction and keeping people in their existing homes. Unlike 2008, we're not going to see much forced selling. On the other hand, maybe the investor frenzy will die down. Generally, it looks like the market will slowly cool, but if that translates to meaningful price reductions remains to be seen. I think it will be this fall/winter before we would start to see meaningful changes.
Aren't market prices based on what buyers can afford??? I don't see how home prices remain at these levels, at least in select markets, given the substantial increase in mortgage rates over the last few months.
You can afford a lot more than you think. The banks are willing to lend you 5x-6x your gross annual income. So if you make $200K you can buy $1M+. I don't think most people usually go that high but that may become the norm if the undersupply continues.
I think that is absolutely the norm in many metro areas around the country. If my social circle is any indicator, it's definitely the norm here in suburban Utah.
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novolog
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Re: Tales from this insane real estate market

Post by novolog »

stoptothink wrote: Wed Jun 15, 2022 2:34 pm
gougou wrote: Wed Jun 15, 2022 12:51 pm
AZAttorney11 wrote: Wed Jun 15, 2022 12:43 pm
SmallSaver wrote: Wed Jun 15, 2022 9:56 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
Houses don't get priced based on buyers affordability, they get priced by the market. Prices will come down if the best price the seller can get drops. We're still drastically under-supplied, and the recent rate increases may exacerbate that by stifling new construction and keeping people in their existing homes. Unlike 2008, we're not going to see much forced selling. On the other hand, maybe the investor frenzy will die down. Generally, it looks like the market will slowly cool, but if that translates to meaningful price reductions remains to be seen. I think it will be this fall/winter before we would start to see meaningful changes.
Aren't market prices based on what buyers can afford??? I don't see how home prices remain at these levels, at least in select markets, given the substantial increase in mortgage rates over the last few months.
You can afford a lot more than you think. The banks are willing to lend you 5x-6x your gross annual income. So if you make $200K you can buy $1M+. I don't think most people usually go that high but that may become the norm if the undersupply continues.
I think that is absolutely the norm in many metro areas around the country. If my social circle is any indicator, it's definitely the norm here in suburban Utah.
we borrowed 2x our annual income and we live a 30 min drive from downtown Boston.

that said, i agree with you. people borrow a lot of money to live close to cultural centers/metro areas.

our lender was very surprised when we told him our budget for a house.

"you know i can approve you for (insert number much higher than our budget), right?"

response in my head: "yes but i like buying companies more than houses"
S&P 500 + Bitcoin
Leesbro63
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Re: Tales from this insane real estate market

Post by Leesbro63 »

My adult kids are going to spend 2.5x their annual income to buy a McMansion in an Atlanta suburb. They have about 1/3 of the purchase price in cash to put down (old smaller home is paid for). Is this prudent? The dollar number (over $1M) seems shocking to me.
rascott
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Re: Tales from this insane real estate market

Post by rascott »

Leesbro63 wrote: Wed Jun 15, 2022 4:04 pm My adult kids are going to spend 2.5x their annual income to buy a McMansion in an Atlanta suburb. They have about 1/3 of the purchase price in cash to put down (old smaller home is paid for). Is this prudent? The dollar number (over $1M) seems shocking to me.
2.5x income seems prudent to me. The nominal dollar amount is kind of irrelevant. They'll come a day when we are all living in 7- figure homes. Sooner rather than later if the inflation beast isn't tamed.
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Watty
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Re: Tales from this insane real estate market

Post by Watty »

Leesbro63 wrote: Wed Jun 15, 2022 4:04 pm My adult kids are going to spend 2.5x their annual income to buy a McMansion in an Atlanta suburb. They have about 1/3 of the purchase price in cash to put down (old smaller home is paid for). Is this prudent? The dollar number (over $1M) seems shocking to me.
With 33% down that would be a mortgage of around 1.7x their annual income.

That metric is not unreasonable.

"prudent" is a high bar since it is hard to call anything "prudent" if you are buying anything more than the bare minimum that you need.
Leesbro63
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Re: Tales from this insane real estate market

Post by Leesbro63 »

Watty wrote: Wed Jun 15, 2022 4:38 pm
Leesbro63 wrote: Wed Jun 15, 2022 4:04 pm My adult kids are going to spend 2.5x their annual income to buy a McMansion in an Atlanta suburb. They have about 1/3 of the purchase price in cash to put down (old smaller home is paid for). Is this prudent? The dollar number (over $1M) seems shocking to me.
With 33% down that would be a mortgage of around 1.7x their annual income.

That metric is not unreasonable.

"prudent" is a high bar since it is hard to call anything "prudent" if you are buying anything more than the bare minimum that you need.
I'm sort of in that camp. I think their current 3200 sq foot home is fine. But I've been told that I'm living in the 1970s and don't understand how this generation lives blah blah blah. So thanks for the feedback that 1.7x mortgage is an acceptable metric.
SmallSaver
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Re: Tales from this insane real estate market

Post by SmallSaver »

AZAttorney11 wrote: Wed Jun 15, 2022 12:43 pm
SmallSaver wrote: Wed Jun 15, 2022 9:56 am
SteveJones wrote: Wed Jun 15, 2022 5:38 am I'd like to get comments on this thought:

Most buyers don't actually care about the total amount of money borrowed to buy a house. They base everything off of the monthly payment they will accrue. With that logic, is it reasonable to expect prices to drop to keep mortgage payments inline?
Houses don't get priced based on buyers affordability, they get priced by the market. Prices will come down if the best price the seller can get drops. We're still drastically under-supplied, and the recent rate increases may exacerbate that by stifling new construction and keeping people in their existing homes. Unlike 2008, we're not going to see much forced selling. On the other hand, maybe the investor frenzy will die down. Generally, it looks like the market will slowly cool, but if that translates to meaningful price reductions remains to be seen. I think it will be this fall/winter before we would start to see meaningful changes.
Aren't market prices based on what buyers can afford??? I don't see how home prices remain at these levels, at least in select markets, given the substantial increase in mortgage rates over the last few months.
Based on what the one highest bidder will pay. In a severe supply shortage it doesn't take a lot of buyers to keep prices up.

I don't mean to say there won't be any effect, I'm sure there will be, but I don't know that it will be concomitant price declines.
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Re: Tales from this insane real estate market

Post by Hector »

newyorker wrote: Thu Jun 09, 2022 8:59 am Would you buy a house now? Or will the price drop even more?
I would buy now if I can afford it.
newyorker
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Re: Tales from this insane real estate market

Post by newyorker »

House has to drop... mortgage is 6.3 percent now.
rascott
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Re: Tales from this insane real estate market

Post by rascott »

newyorker wrote: Wed Jun 15, 2022 7:38 pm House has to drop... mortgage is 6.3 percent now.
Should bring demand more in line with supply.

Demand has been over the top insane. When you had 10+ buyers for every 1 seller.

I don't agree it "has to drop". It could just stall/flatline as the weakening demand brings us closer to a 1:1 ratio, rather than a 10:1.

I.E... house prices go up 0% in a 6-8% inflationary economy. That goes on for a few years then it brings everything back closer in- line.

Predicting the housing market is only a slightly lesser fool's game than predicting the stock market.
newyorker
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Re: Tales from this insane real estate market

Post by newyorker »

rascott wrote: Wed Jun 15, 2022 7:47 pm
newyorker wrote: Wed Jun 15, 2022 7:38 pm House has to drop... mortgage is 6.3 percent now.
Should bring demand more in line with supply.

Demand has been over the top insane. When you had 10+ buyers for every 1 seller.

I don't agree it "has to drop". It could just stall/flatline as the weakening demand brings us closer to a 1:1 ratio, rather than a 10:1.

I.E... house prices go up 0% in a 6-8% inflationary economy. That goes on for a few years then it brings everything back closer in- line.

Predicting the housing market is only a slightly lesser fool's game than predicting the stock market.
Maybe... i would hold off now on buying a house
stup123
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Re: Tales from this insane real estate market

Post by stup123 »

Leesbro63 wrote: Wed Jun 15, 2022 4:04 pm My adult kids are going to spend 2.5x their annual income to buy a McMansion in an Atlanta suburb. They have about 1/3 of the purchase price in cash to put down (old smaller home is paid for). Is this prudent? The dollar number (over $1M) seems shocking to me.
that puts them in the annual income range of > $400k. thats huuuge income in Atlanta; Let them splurge; in my neck of the woods(Forsyth county) ppl are going 5X their annual income to get a house
Leesbro63
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Re: Tales from this insane real estate market

Post by Leesbro63 »

stup123 wrote: Thu Jun 16, 2022 8:17 am
Leesbro63 wrote: Wed Jun 15, 2022 4:04 pm My adult kids are going to spend 2.5x their annual income to buy a McMansion in an Atlanta suburb. They have about 1/3 of the purchase price in cash to put down (old smaller home is paid for). Is this prudent? The dollar number (over $1M) seems shocking to me.
that puts them in the annual income range of > $400k. thats huuuge income in Atlanta; Let them splurge; in my neck of the woods(Forsyth county) ppl are going 5X their annual income to get a house
Wow. Just wow.
Leesbro63
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Re: Tales from this insane real estate market

Post by Leesbro63 »

stup123 wrote: Thu Jun 16, 2022 8:17 am
Leesbro63 wrote: Wed Jun 15, 2022 4:04 pm My adult kids are going to spend 2.5x their annual income to buy a McMansion in an Atlanta suburb. They have about 1/3 of the purchase price in cash to put down (old smaller home is paid for). Is this prudent? The dollar number (over $1M) seems shocking to me.
that puts them in the annual income range of > $400k. thats huuuge income in Atlanta; Let them splurge; in my neck of the woods(Forsyth county) ppl are going 5X their annual income to get a house
Stip123,

I showed your post to a family member who said you can't be a real Boglehead. Because you said "let them splurge". :D
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