Pay over Time

[Donatello.]

Originally Posted by ASAP

then I suppose you have no room to complain about high interest rates (have fun paying the bank more in interest), lack of supply and absurd valuations of homes...

most EU countries would give you an absurd interest rate... with an under 30% down payment lol... if you even qualified...

You are either being obtuse just to be obtuse or a clown. Good day.

[ASAP]

Originally Posted by dreamingat30fps

Part of the lack of supply I think is the higher rates. If you are paying 2-3% why would you want to sell your house and get into a much higher rate loan unless you absolutely had to.

I'm sort of in that camp. I would like to sell our FL home and buy something else further north maybe with an acre or so. While my home is paid off any home that would be worth the move for us is now a million dollars or more. Considering our home is worth probably around $600k that means I would still have to come up with another $400k or so with some high interest rate loan. Just not worth it, especially when even at a million dollars the few properties that meet our needs are typically just meh. They certainly don't look like what a million dollar home looks like in my head.

the lack of supply is primarily due to an over stimulation of demand of the last 5 years of low rates... basically everything that could have been was sold off

... so let's say you had low interest rates right now... you would have more transactions sure...at a FAR higher cost than we already have lol... so prices would climb further and you total transaction costs would go up even further... again, there are no resolutions to the current problem at this time

[zx10guy]

Originally Posted by dreamingat30fps

Part of the lack of supply I think is the higher rates. If you are paying 2-3% why would you want to sell your house and get into a much higher rate loan unless you absolutely had to.

I'm sort of in that camp. I would like to sell our FL home and buy something else further north maybe with an acre or so. While my home is paid off any home that would be worth the move for us is now a million dollars or more. Considering our home is worth probably around $600k that means I would still have to come up with another $400k or so with some high interest rate loan. Just not worth it, especially when even at a million dollars the few properties that meet our needs are typically just meh. They certainly don't look like what a million dollar home looks like in my head.

I said that in my reply above. My primary home is at 2.874 fixed for 30 years. I have no incentive to get out of it to buy another place closer to my daughter. I also don't need to "upgrade" as this house has plenty of space for a single guy. And as I said previously, many family and friends have asked why I don't downsize.

Which leaves my second home/vacation property. I could easily sell that off as I really don't need a second home. Very few people have a "need" for a second home. But again, there's no incentive for me to take the equity and appreciation in the property value and cash out. I'd get raped with taxes. If the Feds extended the tax free capital gains for primary homes to second homes, then I'd seriously consider selling.

[tgrundke]

Originally Posted by Donatello.

Why shouldn't it? The average American doesn't have a 20% dp in the bank & an emergency fund & a decent retirement account etc.

So you want no one but the wealthy to be able to buy a home? Brilliant.

Because history (2008) has taught us a few (broad brush) lessons:

1. People who have no skin in the game (NINJA loans, 2% and 5% DP loans) default at exponentially higher rates than those who who make 20% DPs.

2. If you cannot afford a reasonable down payment, statistically, you're going to have a tough time paying for emergency repairs, regular maintenance and upkeep, taxes.

Remember: the argument here is that affordability has been negatively impacted due to 15+ years of artificially low interest rates which have helped to create a speculative bubble.

There are over 12 million "second homes" (vacation homes, AirBNBs, etc.), and that number skyrocketed in the last 7 years thanks to the popularity of the STR fad, made possible by artificially low rates.

Keeping rates elevated for longer will help bring valuations down. It will, however, take some time.

[tgrundke]

This is definitely part of the reason for the "frozen" real estate market right now.

A $400,000 home two years ago at 3.5% for 30 years = $1,437 P&I (20% down)

A $400,000 home today at 7% for 30 years = $2,129 P&I (20% down)

If you're looking for that same $1,437 payment today, it only buys you a $280,000 home.

Problem is, sellers don't want to reduce their prices and buyers are looking for affordable payments. Reducing interest rates simply papers over the fact that the asset is overly inflated in value.

Price discovery fixes this problem, but it is going to be a slow adjustment.

Originally Posted by dreamingat30fps

Part of the lack of supply I think is the higher rates. If you are paying 2-3% why would you want to sell your house and get into a much higher rate loan unless you absolutely had to.

I'm sort of in that camp. I would like to sell our FL home and buy something else further north maybe with an acre or so. While my home is paid off any home that would be worth the move for us is now a million dollars or more. Considering our home is worth probably around $600k that means I would still have to come up with another $400k or so with some high interest rate loan. Just not worth it, especially when even at a million dollars the few properties that meet our needs are typically just meh. They certainly don't look like what a million dollar home looks like in my head.

[tgrundke]

Originally Posted by ASAP

the lack of supply is primarily due to an over stimulation of demand of the last 5 years of low rates... basically everything that could have been was sold off

... so let's say you had low interest rates right now... you would have more transactions sure...at a FAR higher cost than we already have lol... so prices would climb further and you total transaction costs would go up even further... again, there are no resolutions to the current problem at this time

Exactly. This is similar to car dealers charging markups. Sure, they could remove the markup, but they still have a limited supply of vehicles that can only be sold once.

There's virtually no incentive to sell for just MSRP when you've got 20 people lined up to buy 5 available cars.

[spazzyfry123]

Originally Posted by zx10guy

Which leaves my second home/vacation property. I could easily sell that off as I really don't need a second home. Very few people have a "need" for a second home. But again, there's no incentive for me to take the equity and appreciation in the property value and cash out. I'd get raped with taxes. If the Feds extended the tax free capital gains for primary homes to second homes, then I'd seriously consider selling.

Change your primary residence to the second home for a couple years. As long as it was your primary residence two of the last five years (as of sale date), no capital gains taxes!

[spazzyfry123]

Originally Posted by tgrundke

A $400,000 home two years ago at 3.5% for 30 years = $1,437 P&I (20% down)

A $400,000 home today at 7% for 30 years = $2,129 P&I (20% down)

If you're looking for that same $1,437 payment today, it only buys you a $280,000 home.

Don't forget that by paying $2,129 for a $400k home today gets you a $280k home from a couple years ago

[dreamingat30fps]

Originally Posted by zx10guy

I said that in my reply above. My primary home is at 2.874 fixed for 30 years. I have no incentive to get out of it to buy another place closer to my daughter. I also don't need to "upgrade" as this house has plenty of space for a single guy. And as I said previously, many family and friends have asked why I don't downsize.

Which leaves my second home/vacation property. I could easily sell that off as I really don't need a second home. Very few people have a "need" for a second home. But again, there's no incentive for me to take the equity and appreciation in the property value and cash out. I'd get raped with taxes. If the Feds extended the tax free capital gains for primary homes to second homes, then I'd seriously consider selling.

Sorry I didn't read the whole thread in detail.

You could theoretically live in the vacation home for 2 years then sell it and move back to your primary home. Who knows what's going to happen in 2 years though.

EDIT: I see spazzyfry123 already said this above... I read it this time... just read AFTER commenting.

[zx10guy]

Originally Posted by spazzyfry123

Change your primary residence to the second home for a couple years. As long as it was your primary residence two of the last five years (as of sale date), no capital gains taxes!

Originally Posted by dreamingat30fps

Sorry I didn't read the whole thread in detail.

You could theoretically live in the vacation home for 2 years then sell it and move back to your primary home. Who knows what's going to happen in 2 years though.

EDIT: I see spazzyfry123 already said this above... I read it this time... just read AFTER commenting.

I've sort of looked into doing exactly what you two suggested. My initial look is it's just too much of a hassle to transfer everything over to the state where my second home is located. Off the top, I've got a few vehicles which would have to be inspected and registered at the new state along with any taxes and changes in insurance. I have to change my driver's license. All my mail would have to go there with various businesses and things to have the proper paper trail. This might also impact the rules of the mortgage that's on my primary home if I were to follow the letter of the mortgage contract. And the list goes on and on.

It's just easier at the moment to hold on to that property as I do use it pretty frequently. And the longer I wait the more appreciation I'll expect on it as there are no less than 7 major housing developments going on with many units already sold. The development my second home is in is in the final stages of wrapping up. All the units as far as I can tell in the final section have been sold. Housing in this area which happens to be near the coast (ie beach) is appreciating due to many moving into the area. It's similar to the Florida effect as many are leaving higher cost of living areas to move into this area and are able to work remotely. I see it with the huge increase in traffic both in season and out of season.

[spazzyfry123]

Originally Posted by zx10guy

I've sort of looked into doing exactly what you two suggested. My initial look is it's just too much of a hassle to transfer everything over to the state where my second home is located. Off the top, I've got a few vehicles which would have to be inspected and registered at the new state along with any taxes and changes in insurance. I have to change my driver's license. All my mail would have to go there with various businesses and things to have the proper paper trail. This might also impact the rules of the mortgage that's on my primary home if I were to follow the letter of the mortgage contract. And the list goes on and on.

I currently live in Georgia, but am looking at property in Tennessee (also no income tax) for a vacation spot.

It's just easier at the moment to hold on to that property as I do use it pretty frequently. And the longer I wait the more appreciation I'll expect on it as there are no less than 7 major housing developments going on with many units already sold. The development my second home is in is in the final stages of wrapping up. All the units as far as I can tell in the final section have been sold. Housing in this area which happens to be near the coast (ie beach) is appreciating due to many moving into the area. It's similar to the Florida effect as many are leaving higher cost of living areas to move into this area and are able to work remotely. I see it with the huge increase in traffic both in season and out of season.

I kept primary residence in Florida (I in fact lived there) and raked in for no income tax, but registered my vehicles in Georgia at a different residence (lower vehicle tax) no issue. Neighbor did similar with his lake home in South Carolina despite living full time in Florida.

I’m looking at places in Tennessee (no income tax) as a vacation spot. Options are available.

Not condoning or advising, just happen to know it can work.

[JP10]

To chime in pertaining to the down payment debate, we didn’t have 20% when we bought in 2021 (first home). We had just gotten married that year, we’re renting the home we now own, and seller offered us first right of refusal so we didn’t have to go to market which was great. Put 5% down. Have to pay PMI, but we will be at 20% paid off by early 2024 because we bought something that we knowingly could afford then we can drop the insurance. Worked great getting in at 3% loan and our home value continued to sky rocket (25% equity as it is now). We are also in an area that is probably a little less susceptible to a crash (20mins to a few beaches and close to downtown CHS which is growing at a crazy rate).

My point is there are scenarios where people just don’t have the money yet - not because they weren’t saving, or because they were making bad financial decisions, life just had other plans and sometimes you roll with the punches. We were essentially forced into make a great financial decision so it worked out for us (luck). Without the allowance for minimum down payment we would be about $60k poorer right now (roughly - $2k/month wasted on rent for 30months). Instead we have over $100k in equity.

[ASAP]

Originally Posted by JP10

To chime in pertaining to the down payment debate, we didn’t have 20% when we bought in 2021 (first home). We had just gotten married that year, we’re renting the home we now own, and seller offered us first right of refusal so we didn’t have to go to market which was great. Put 5% down. Have to pay PMI, but we will be at 20% paid off by early 2024 because we bought something that we knowingly could afford then we can drop the insurance. Worked great getting in at 3% loan and our home value continued to sky rocket (25% equity as it is now). We are also in an area that is probably a little less susceptible to a crash (20mins to a few beaches and close to downtown CHS which is growing at a crazy rate).

My point is there are scenarios where people just don’t have the money yet - not because they weren’t saving, or because they were making bad financial decisions, life just had other plans and sometimes you roll with the punches. We were essentially forced into make a great financial decision so it worked out for us (luck). Without the allowance for minimum down payment we would be about $60k poorer right now (roughly - $2k/month wasted on rent for 30months). Instead we have over $100k in equity.

The problem with this is that it caused WAY too much accessibility into the market causing a major bubble... again, if everyone is cool with major asset growth, raised taxes, insurance and transaction costs... then so be it... just know those people are now stuck where they are... perhaps forever.

...also it seems like any sort of common sense flew out of the window in the past 5 years... folks bought houses that under normal circumstances they could never afford and effectively took supply from folks that in reality could...

Here a few scenarios that I saw in the past few years-

Guy trying to buy a 300k home w 15 down... turned out... he didn't even have enough for that 15k downpayment.... this is someone that should not even quality to buy a home.

Another individual going thru a VA loan that again didn't have anything down and was getting approved for a 430k home... the process took months by the way.

A cash buyer that lost a transaction for a few K to someone that had 10k downpayment but somehow got a loan for 5k more lol.

Any sort of common sense or reasoning flew out the window the past few years... there should be some sort of priority matrix to buying a home that qualifies buyers... it seems this doesn't exist as long as they have some job, like 15k down lol and some credit history... as a point of comparo, in most other countries, no one outside of the cash buyer above would even have access to a home... everyone else would have to live with a 10% rate lol.

[JP10]

Originally Posted by ASAP

The problem with this is that it caused WAY too much accessibility into the market causing a major bubble... again, if everyone is cool with major asset growth, raised taxes, insurance and transaction costs... then so be it... just know those people are now stuck where they are... perhaps forever.

...also it seems like any sort of common sense flew out of the window in the past 5 years... folks bought houses that under normal circumstances they could never afford and effectively took supply from folks that in reality could...

Here a few scenarios that I saw in the past few years-

Guy trying to buy a 300k home w 15 down... turned out... he didn't even have enough for that 15k downpayment.... this is someone that should not even quality to buy a home.

Another individual going thru a VA loan that again didn't have anything down and was getting approved for a 430k home... the process took months by the way.

A cash buyer that lost a transaction for a few K to someone that had 10k downpayment but somehow got a loan for 5k more lol.

Any sort of common sense or reasoning flew out the window the past few years... there should be some sort of priority matrix to buying a home that qualifies buyers... it seems this doesn't exist as long as they have some job, like 15k down lol and some credit history... as a point of comparo, in most other countries, no one outside of the cash buyer above would even have access to a home... everyone else would have to live with a 10% rate lol.

No argument here, definitely made it more accessible. We took advantage of that accessibility. Allowed us to expedite our plans by a year or so. As a first time home buyer then, I appreciated that. As now an owner, I can look at it in a different light but it won’t change anything.

[Donatello.]

Originally Posted by tgrundke

Because history (2008) has taught us a few (broad brush) lessons:

1. People who have no skin in the game (NINJA loans, 2% and 5% DP loans) default at exponentially higher rates than those who who make 20% DPs.

2. If you cannot afford a reasonable down payment, statistically, you're going to have a tough time paying for emergency repairs, regular maintenance and upkeep, taxes.

Remember: the argument here is that affordability has been negatively impacted due to 15+ years of artificially low interest rates which have helped to create a speculative bubble.

There are over 12 million "second homes" (vacation homes, AirBNBs, etc.), and that number skyrocketed in the last 7 years thanks to the popularity of the STR fad, made possible by artificially low rates.

Keeping rates elevated for longer will help bring valuations down. It will, however, take some time.

If you bought a home that wasn't zero down, you have skin in the game. Stop being ridiculous.

I'm not talking about second homes.

[spazzyfry123]

Originally Posted by JP10

To chime in pertaining to the down payment debate, we didn’t have 20% when we bought in 2021 (first home). We had just gotten married that year, we’re renting the home we now own, and seller offered us first right of refusal so we didn’t have to go to market which was great. Put 5% down. Have to pay PMI, but we will be at 20% paid off by early 2024 because we bought something that we knowingly could afford then we can drop the insurance. Worked great getting in at 3% loan and our home value continued to sky rocket (25% equity as it is now). We are also in an area that is probably a little less susceptible to a crash (20mins to a few beaches and close to downtown CHS which is growing at a crazy rate).

My point is there are scenarios where people just don’t have the money yet - not because they weren’t saving, or because they were making bad financial decisions, life just had other plans and sometimes you roll with the punches. We were essentially forced into make a great financial decision so it worked out for us (luck). Without the allowance for minimum down payment we would be about $60k poorer right now (roughly - $2k/month wasted on rent for 30months). Instead we have over $100k in equity.

If you have 25% equity, why don’t you apply to remove PMI?

[JP10]

Originally Posted by spazzyfry123

If you have 25% equity, why don’t you apply to remove PMI?

I’d have to reappraise. The 25%, I guess it’s actually close to 33% of the original loan balance, is half due to the spike in housing prices that we were able to dodge. I have the option to do so in October (2years after ownership).

[dreamingat30fps]

Originally Posted by ASAP

The problem with this is that it caused WAY too much accessibility into the market causing a major bubble... again, if everyone is cool with major asset growth, raised taxes, insurance and transaction costs... then so be it... just know those people are now stuck where they are... perhaps forever.

...also it seems like any sort of common sense flew out of the window in the past 5 years... folks bought houses that under normal circumstances they could never afford and effectively took supply from folks that in reality could...

Here a few scenarios that I saw in the past few years-

Guy trying to buy a 300k home w 15 down... turned out... he didn't even have enough for that 15k downpayment.... this is someone that should not even quality to buy a home.

Another individual going thru a VA loan that again didn't have anything down and was getting approved for a 430k home... the process took months by the way.

A cash buyer that lost a transaction for a few K to someone that had 10k downpayment but somehow got a loan for 5k more lol.

Any sort of common sense or reasoning flew out the window the past few years... there should be some sort of priority matrix to buying a home that qualifies buyers... it seems this doesn't exist as long as they have some job, like 15k down lol and some credit history... as a point of comparo, in most other countries, no one outside of the cash buyer above would even have access to a home... everyone else would have to live with a 10% rate lol.

Look at the chart posted a couple pages back. The market has pretty much steadily gone up since the 70s. You can see a mild bump with a mild drop around 1990 then the 2008 debacle. However both of those spikes don't hold a candle to that 2020 spike. The access to credit you mention would have also been an issue pre 2020, however while the market still went up, the massive spike was in 2020.

[ASAP]

Originally Posted by dreamingat30fps

Look at the chart posted a couple pages back. The market has pretty much steadily gone up since the 70s. You can see a mild bump with a mild drop around 1990 then the 2008 debacle. However both of those spikes don't hold a candle to that 2020 spike. The access to credit you mention would have also been an issue pre 2020, however while the market still went up, the massive spike was in 2020.

the massive spike in 2020 was obviously a result of EXCESS liquidity in the market during Covid... people had no idea what to invest money into as soon as Covid hit... that in COMBO with lowest interest rates ever and easy financing as well as stimulus payments, PPP loans etc.... caused a massive demand spike in housing... point is fuel + more fuel + even more fuel = now.