Tl;dr version: when should we buy a house?

When we moved into our rental house this summer, we sort of assumed that we would try to buy a house in late spring 2024. Besides the fact that more houses seem to be listed in the spring, this being a college town, the rental market also operates on a fairly consistent (rigid) annual cycle, and if we want to (need to) get someone to take over our lease, the May-August window is the best time…

Well, the mortgage rates are still ugly-high, and will probably stay that way for a while. (forever?)

And then there’s that real estate lawsuit and it’s not at all clear how that’s going to affect real estate transactions and whether or when any changes might start to be implemented.

Separate from that, there’s the whole rent thing, which to me feels like just throwing money away, so I really don’t want to be renting for very long if at all possible…

So, when should we buy a house, spring 2024 or wait until spring 2025? What things should we be paying attention to in order to do a better job of sussing out the best timing and understanding whether or how to request an updated approach to the buyers commission etc.?

Nothing wrong with building equity in a home. But ... and you knew there had to be a but ... nothing wrong with taking the very same money that you would use to service a mortgage and investing it in a broad portfolio financial equity instead. The key here is diversifying risk and having assets that do well in a down economy as well as assets that do superbly in an up economy.

Housing equity has certain advantages, including tax preferences. But it also has some pretty substantial disadvantages as well. It's quite illiquid, and HELOCs and other forms of "borrowing against your equity" aren't a panacea. Also, the transactions costs of getting your equity out of the house, by selling it, are substantial.

Lastly, since WWII housing values have grown far more slowly than "the market" overall. If you're investing for 25 years, you'll likely do better in stocks than in housing unless we see some strange break in post-WWII patterns of value change over time. The real value of home equity tends to rise at roughly the pace of real GNP per capita (2-4%). Stock prices tend to go up much faster, but with much more volatility.

I say that as someone whose second home, purchased in 2018, has proven (so far) to be perhaps the best (large) financial investment I have ever made. I recognize, however, that that was primarily luck. We bought just in time for a spike in housing prices in our area (and nationwide) that was really well outside of the normal rate of return.

I’ve been renting since 2021. I put off buying until rising interest rates started to put a dent in home prices. That’s now happening, and I intend to buy in 2024 if something I like shows up on the market. But all that’s predicated on being a cash buyer. If I were buying a mortgage too I’d probably wait. I’ll be the first to admit that timing is hard. I got lucky on timing with my last two real estate purchases, I may not get three in a row.

P*D, thanks for these comments! Your post helped me articulate part of the problem: building equity in something other than housing is probably very smart financially, and something I need to think more strategically about -- but we really hate renting. It might be different if we were in a high-end rental condo or something, but we're in a run of the mill single-family home built in the 1990s that has some issues which we can't/won't fix because it's not our house. So there's the financial issue of "throwing money away on rent," which is probably debatable, in that if we used money for a house down payment on some other investments, we might see the returns more quickly etc. But there's the emotional issue of wanting to own our own home. Although it's not totally emotional, in that there are practical issues, like being able to take better care of the piano in a house that we own etc...

Anyway, lots of food for thought here.

Jon, we will definitely have to buy a mortgage, so that's huge part of the issue for us.

Re getting lucky, we got so lucky with the house we bought, we bought in early spring 2019, and immediately did some big upgrades (new roof, new HVAC, some new flooring and so on). In fall 2020, we refinanced, and those upgrades, plus the pandemic stuff, meant that the appraised value plus interest rates really worked in our favor, we got a great new mortgage rate. And all those details benefited us again when we sold the house as well.

I don't think we'll get so lucky ever again. I always joke that we may never recover, either financially or emotionally, from letting go of that mortgage and that house. -_-

(ETA which is not to say we wish we hadn't moved, we are *super* happy we did!!)

I’d buy a house as soon as possible, but everyone already knows that.

Right now interest rates are about normal compared to what I’ve seen during my lifetime. The super low rates of a year or two ago were probably a fluke and the last time interest rates were below 5% was during the 1960’s IIRC. If you do end up buying and rates drop you can always refinance, generally at no cost to you.

If you decide to go the Wall Street route, you’ll want to find investments that reliably generate enough cash to pay your rent plus whatever appreciation you might expect, plus fees and commissions, plus the loss of tax benefits available to homeowners, less taxes and projected maintenance costs. If you can do that (difficult in my experience) you’ll be at break-even. Do that over the long term and rising rents will make breaking even that much harder.

And you still won’t like the house you’re living in.

Not something I’d be willing to do but I’m biased. You all know I love houses, the possibilities they contain, and creating spaces that make me feel good. Shelter, security, art project, hobby. All our lives we’ve prioritized home ownership over nearly everything else and we’ve never regretted it.

Maybe houses are like pianos - not the best investment but the joy factor makes them worth paying for.

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Maybe houses are like pianos - not the best investment but the joy factor makes them worth paying for.

Reading your post, Steve, makes me want to buy right now!!

Re buying… I’m basically trying to figure out either to buy in 2024 or wait till 2025, I don’t think we want to wait longer than that.

And I’m not going to wait for the rates to reach some super low number, but timing does matter. Oh and AFAIK refinancing is not free, there are costs associated and I believe you have to have built up equity or else have a chunk to put down (right?)

So I’m assuming that once we buy, we won’t want to (or be able to) refinance for at least a year and probably more. Right?

The last few refinances we didn’t cost anything up front or add to the loan balance. I think the lenders make their money when they sell the loan.

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The last few refinances we didn’t cost anything up front or add to the loan balance.

I have only bought and sold one house, so my experience is limited, but as I recall, I paid for the appraisal and a few other not very expensive “closing-type” fees, and then maybe I put in a principal-only type payment, I can’t recall the details but the last bit was optional and the other bits were not. Another perhaps relevant detail is that our loan was still quite new, less than two years old. So that may have been relevant. Also the appraisal was important bc of the upgrades we did. I do remember doing the math and figuring out that the expensive of the refi would pay for itself very, very quickly.

So, probably whether a refinance is free or not depends on a whole range of factors, and it’s those factors that I don’t have a good handle on.

Next time you need a home loan or a refi get in touch and I’ll introduce you to my lender. We’ve done several deals with them and every time the process has been trouble free.

They’re licensed in all 50 states.

Steve, thanks!

Article entitled Home Buyers Are Ready To Buy. But Sellers Aren't Selling:

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According to Freddie Mac, the average rate on a 30-year fixed mortgage has declined for seven straight weeks, falling to 6.95% as of Dec. 14 after hitting a two-decade high of 7.79% in October.

The most significant constraint is the shortage of homes on the market. Many homeowners who locked in low mortgage rates in recent years are unwilling to give up those loans to take on a different mortgage at a significantly higher cost.

* * * *

“It just feels like a desert. There is nothing there for us to even look at,” she said. “We are saving money and we’re ready to spend it, but we have nothing that meets our criteria to spend it on.”

* * * *

“I can’t imagine that we would go much lower in terms of existing inventory,” said Christine Cooper, chief U.S. economist at CoStar Group. “There’s got to be a number, a percentage of homeowners, that do have to move. They’ve inherited a house, for example, or they have a job change.”

https://www.wsj.com/economy/ho...=trending_now_news_3

Thanks for the link, I’ll give it a read!

Btw,
Lack of inventory, and lack clarity on availability of houses for sale was one reason we decided not to bother we moved here this past summer.

That article reminds me… I probably need to sit down with my real estate agent and have a discuss about how sales have been going spring here .. by which I mean, for example, how common are bidding wars for houses in my price point, things like that. And what kinds of offers are more likely to get rejected. When we sold our house, we had two offers that came quite quickly. One was a typical 20% down, the other was a 100% cash sale. We went with the latter.

But now, when we’re ready to buy, we will be the typical 20% down buyer. So in this market (in general and in our specific local market), how much of a disadvantage will that be for us.

If you want to own your own home and not rent, then buy. If interest rates come down, you can refinance. If interest rates go up, then you were lucky to buy before they went up.

Over the long haul, real estate is a good investment. But even if it wasn't, people who want to live in a home they own are not going to be happy as renters.

There are no crystal balls. Who had any idea in 2019 that housing prices would go up 60 percent over the next three years? Nobody. Pretty much unprecedented.

Find a house you like and that you can afford and buy it.

Personally, I don't ever want to be a renter again. I like being able to do what I want with my home. I like having dogs (and horses). I like it that nobody can give me notice to leave because their kid wants the house (that's what happened with the house we rented when we moved here). I like it that I don't have a landlord, period.

Does it pencil out to own v. rent? Depends on unpredictable circumstances. Most likely it does. Maintenance, taxes, insuramce are all expensive and the costs are going up, but so are real estate values, over the long haul.

If you want a house in 2024, go for it. The only thing I would say is that there is less of a "season" now for buying and selling and you should start looking right away and jump on the first house you feel like you would enjoy living in, because inventory is very very low.

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Originally posted by piqué:

If you want a house in 2024, go for it. The only thing I would say is that there is less of a "season" now for buying and selling and you should start looking right away and jump on the first house you feel like you would enjoy living in, because inventory is very very low.

Good advice!