Are current mortgage rates really that bad?

[dradernh]

Originally Posted by zx10guy

I actually think time in the market matters more than timing. Of course you have to be smart with where you buy, type of property, etc, etc.

Clearly, 8.5 years wasn't nearly long enough for us to cash-in during one of CA's periodic updrafts. The neighborhood was fine (hence todays $2.9 million est. value), it was a single family dwelling, which are not thick on the ground in San Francisco, etc., etc.

Bottom line, if we'd stayed in the rental and put the $4K/mo. difference into an S&P 500 index fund during those years, we would have come out with so much more cash that it wouldn't have been remotely funny.

Here's the kicker, though: why did we move from what was a to-die-for, rent-controlled apartment? Because the wife, who had been working in Hong Kong for 2.5 years, returned with so much clothing that we had to turn the rental's second bedroom into a walk-in closet!

[dradernh]

Originally Posted by 2008M36MT

I would agree but would imagine the number of majors and colonels are low, and many of them aren't buying their first home so they wouldn't get the no interest mortgage. I want to know what all those buyers are doing that I'm not. $500K doesn't buy anything in SD, a single family in the traditional sense starts at $850K.

city-data.com shows a median value in SD of $658,400. That was the number I used to do the math. I suspect that few on this forum would want to live in the median home in most parts of the country. I know I wouldn't. When I see a city-data.com housing value, I assume 50% more to leave enough room to find something I'd really like to live in.

[2008M36MT]

Originally Posted by dradernh

city-data.com shows an average price in SD of $658,400. That was the number I used to do the math. I suspect that few on this forum would want to live in the average home in most parts of the country. I know I wouldn't.

I guess I should say new construction homes in SD. You can get a new townhome at $550k.

[Chick Webb]

Originally Posted by dradernh

That's going to be ~$4.7K+/mo for principal, interest, and taxes. Wild guess, but I'm thinking...what...a minimum grade of major/light colonel to handle that (or the navy's equivalent grades)? Maybe military personnel get help living in a high-cost area like SD, too?

They absolutely do, otherwise they'd be in revolt and the services would have even greater retention problems. It's called Basic Allowance for Housing (BAH). My son's 5 yrs out of the USNA, an O-3 (Captain in the Marines/Army/Air Force, LT in Navy) stationed at Miramar, and is getting $3k/mo BAH, which is tax free. And there are a lot of Captains; it's the last "automatic" promotion.

Obviously there are fewer numbers as you go up the ranks (Major/Lt Cmdr/0-4, Lt Col/Cmdr/0-5, Col/Capt/0-6). You have to be in for ~20 yrs to make 0-6. So, demand from the officer cadre may be a bit stronger than you think. That said, it's still very difficult for them, as they're young and have relatively little to put down, which in a place like SoCal means you have a big monthly nut to crack. It's obviously tough to make such a huge commitment.

[Bc2005]

Military buying houses take a lot of risk because the typical tour in one location is not more than 3 years and you never know where the market will be when you are told to move. Some moves are just a normal change of duty, while others may be due to selection for a higher position/rank, funded grad school, etc. I personally know families that had to move with about 3 weeks notice because the officer was selected for a command position and they needed someone “right now”.

[XutvJet]

Originally Posted by dradernh

That was always JOB ONE in our household, and it's why we retired at ages 45 and 50. Granted, no kids, but still.

Very nice. We have the same mindset too. House was paid off nearly 10 years ago and our portfolio is solid. I took a 20% pay cut last year to only have to work 32 hours vs 55+ hours fulltime. Our son, a computer and video production genius, will either go to a 4 year college or a 2 year school next year to get his degree/certificate in cyber security and will make serious money from the start. His 529 can cover whatever he wants to do. Our 14 y/o daughter, with a dead straight face, says she'll be playing D1 volleyball so no need for college funding (she currently has a $80K in a 529 right now just in case plans change ). Once our daughter goes college, I'm retiring (~52). Can't wait. And yeah, kids can be expensive.

[zx10guy]

Originally Posted by XutvJet

Very nice. We have the same mindset too. House was paid off nearly 10 years ago and our portfolio is solid. I took a 20% pay cut last year to only have to work 32 hours vs 55+ hours fulltime. Our son, a computer and video production genius, will either go to a 4 year college or a 2 year school next year to get his degree/certificate in cyber security and will make serious money from the start. His 529 can cover whatever he wants to do. Our 14 y/o daughter, with a dead straight face, says she'll be playing D1 volleyball so no need for college funding (she currently has a $80K in a 529 right now just in case plans change ). Once our daughter goes college, I'm retiring (~52). Can't wait. And yeah, kids can be expensive.

Divorce+kid is expensive too.....

I had plans to retire at 55, but that got shafted with the divorce.

On topic, I have an opposite view. Rather have my money pushed into savings/investments versus locking it into property. I will start accelerating payments as I get closer to when I think I will retire so I can have no mortgage or very little at that time.

[UncleWede]

February, 2023 and the house in da hood is all ours! Youngest is in his final semester for teaching credential, and already working/sponsored by local HS district.

[XutvJet]

Originally Posted by zx10guy

On topic, I have an opposite view. Rather have my money pushed into savings/investments versus locking it into property. I will start accelerating payments as I get closer to when I think I will retire so I can have no mortgage or very little at that time.

We did a bit of both. We worked towards paying off more principal, refinanced a few times including going to a 15 yr mortgage, all the while socking away as much as we could afford into our various investment accounts. It helped that we didn't buy a newer and more expensive home like most of our friends nor did we drive new cars when we were in our 20s and 30s or have expensive hobbies, boats, extra cars, a lake property, etc. Paying off the house let us throw even more into investments and the timing was sheer luck as the markets really started cranking literally the month we paid off our house 10 years ago.

The only thing I really regret is having a financial advisor and not teaching myself investment basics when I was in my 20s/30s. I lost a TON of growth by paying financial advisor fees and being suckered into buying high fee actively managed funds. I fired that advisor back in 2013 and moved everything to Vanguard and I manage everything myself now. I'd probably have half the money I do now if I stuck with him and those types of investments.

[x622]

Originally Posted by dradernh

That was always JOB ONE in our household, and it's why we retired at ages 45 and 50. Granted, no kids, but still.


Why do you think it will do that? And, do you think it will do that everywhere, generally, or will it be concentrated in the regions where the housing market is typically hammered severely in every down-cycle?

Few factors;


First, the rise of easy money has had disastrous consequences across many sectors, and not just real-estate. The cost of money was so cheap, that it makes sense that everything exploded in price. It literally was $438 a month per $100k for a house. You suddenly have all sorts of outsiders and other people that ought not be investing buying speculative investment properties thinking they could flip or turn them into AirBNB's or Rentals. I call this "retail buy in".


Next, you combine this with the exodus of Californians fleeing their failed state (citations 1 and 2) and you suddenly have people selling their million+ dollar homes for something substantially cheaper. They move elsewhere to places like Scottsdale, Denver, Houston, Austin, Dallas, Little Rock, Tulsa, OKC etc, and in turn drive the prices up in these markets even further. This includes rentals house and apartments too. You can check out pretty much any decent neighborhood in any of these locations and see that the value near or even more than doubled from 2020-2022. Rentals are through the roof - a one bedroom crackerbox here in AZ is $1-1.4k a month now, driven by demand. (citation 3)

All of this collaborated to drive down available housing options. Bid wars, and easy money made it so that prices skyrocketed in desierable areas, or even areas in close proximity where an outsider wouldn't know it's a crappy area.


It gets better, because check out the total number of housing-starts and compare it to '08 (citation 4), why that looks similar doesn't it? Strange. So a ton of people started building a bunch of new developments all over the place because we were in a huge bull run on housing. This will increase available inventory (You can check this on the FRED site). This will lead to an increased supply in the next 2-5 years, and will suppress home pricing recovery a bit.



Finally, we are seeing substantial layoffs in multiple blue-chip companies, as well as the tech sector which is merely the smallest taste of what's coming as the cost of doing business in terms of energy, transportation and materials costs has exploded. What does this mean? That many will not be able to afford their sweet houses that they locked in at that 3-3.5% rate. There will be an increase in foreclosures. I do not see it being similar to the GFC of '08 because it's not a bunch of sub-prime people. You have joe everybody ("retail") buying these properties trying to make money. In the current market, available inventory is slowly creeping up, and housing prices are falling, because suddenly that $100k costs you $713 a month. This prices out a lot of people, and so you have less potential buyers. Expenses are getting higher and higher as food, gas, energy is all more expensive giving families less disposable income.


Perhaps I'm just a pessimist, or perhaps I'm just a realist. Not sure.



1 https://www.latimes.com/california/s...o-lead-the-way

2 https://www.borowitzclark.com/califo...re-they-going/

3 https://fred.stlouisfed.org/series/RRVRUSQ156N

4 https://fred.stlouisfed.org/series/HOUST