I can’t fathom the idea of your lender just selling your mortgage to some other company. Bananas. I am so glad that doesn’t happen here.
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For me, it’s that it feels like it’s starting to be less normal to absolutely need a 20% down payment. One thing I remember from that time is being actively discouraged from putting anything at all down, and when I insisted on putting down at least something, because it didn’t feel right otherwise, I was actively mocked by one mortgage broker. (Needless to say, we didn’t use him.)
I feel like that was the start of people not being able to afford their homes and things crashing. But, I am not an economist AT ALL.
(ETA: and also the prices that seem out of line with what you are actually getting, but that can be an argument for supply and demand though so IDK.)
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Oh yes, thank you, all this too, and you articulated much better than I did.
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This is an excellent explanation and I did not know that they weren’t allowed to do mortgage backed securities any more.
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Yeah, as I recall you have to sign something during closing acknowledging this - but, like, I had no idea what the side effects were. Maybe that was just me being stupid - I got a fixed rate because that felt better to me than the ARMS they were trying to push me into, and I knew payments could go up over time because taxes but not by as much as mine did and not for the reason I was given by the new lender.
(Who, as a side note, failed to pay my property taxes out of escrow like they were supposed to, TWICE, causing me to get late payment nastygrams.)
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Oooh I just remembered another factor - ARMs and balloon payment mortgages. So someone could make the payments with a low interest rate, but as soon as the rate increases they would default. Then there were also mortgages that has really low payments for the first few years, like interest only payments, but in year x you suddenly owed a big balloon payment and people thought they were great because of course they were going to save for that big payment and get promotions along the way, etc. Then the time came and they couldn’t make the payment.
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So, there are still things called mortgage backed securities but they are so strictly regulated now that they are virtually different things altogether
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Re: housing demand.
My job is specific to the housing market and building markets in general.
This country (USA) is very under built in the residential world (there are over 1,000,000 homes destroyed every year, not including the very strong housing demand). There is an expected slow down in commercial buildings but from the residential side it will likely continue to be strong, especially in states like TX, LA, FL, CO, ID, MT. Many people are moving to lower tax locations with warmer/calmer climates.
Covid has introduced a lot of changes in the housing market. First- many companies are going fully remote or hybrid so people are able to live in different states or live 1-2 hours away from their offices. They are looking at living in larger spaces-specifically single family housing.
I am not an expert but the residential housing market now is very different from the market in 2007-2008. There are shortages in almost every material required to build a house (lumber, appliances, insulation, metal, labor) causing prices to go up a ton and housing starts to decrease from what they normally would be.
The mortgages and banking requirements are also so different from 2007-2008. Honestly in my opinion the only way housing prices can “correct” is for interest rates to go up. People will typically pay the same monthly payment and right now with rates so low that means they can buy more house. When rates start to go up monthly payments will go up and therefore housing costs might go down.
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I don’t think there will be a massive crash like in 2008, but I think things will slow down a lot and normalize. The run on houses, I think, has artificially driven up purchase prices and high interest rates aren’t stopping that. To me that says emotion and irrationality, which I believe started because of the pandemic. Experts predicted housing would screech to a halt due to job loss and the economy, but the exact opposite occurred because these purchases (unlike pre 2008, as Economista described so well) aren’t about easy money, but high and wild emotions.
People are paying way over list price just to win the house because the demand is super high and they feel frantic to get a house, even in areas that don’t warrant it, for properties that are not at all spectacular, and in areas where there is ample stock and land. This doesn’t surprise me. A lot of people made rash moving and buying decisions as a direct result of Covid. For a lot of people the pandemic was the biggest stressor they have ever experienced, and I think that’s manifesting in a lot of ways (increase in liquor sales, for example) including in real estate.
I think many people moved to areas they wouldn’t have otherwise and bought properties they wouldn’t have otherwise and that it’s still happening to an extent. I think it’s unsustainable and that it will slow and prices will decrease and stabilize, which is when I’d like to buy. I think it will happen for a couple of reasons. First I think it’s not sustainable for it to continue. I also think a lot of people will realize their error and put newly purchased homes back on the market. There was a lot of financial stretching and magical thinking, I think. People temporarily stopped spending on a lot of things because of the shutdown and so justified high cost, relatively unplanned housing purchases (especially inner city renters who bought houses in outer borough type areas or smaller towns, remote white collar people basically). I don’t think they’ll all stay put and I think many will want to revert to their pre-pandemic life (especially as the threat of Covid continues to lessen. I also think the general franticness of the market will fade with time due to higher interest rates and a general burnout.
So that’s basically what I see, I might be totally wrong! I just think there’s a lot going on that can’t be summed up by financial reporting alone, and I think that’s part of why the run on real estate wasn’t predicted by most pundits. This run is emotional, not structural, IMO.
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Even though I definitely don’t want anyone to suffer the stress of losing money on a house purchase, I hope your predictions for the future are right and mine are wrong! Hopefully building will catch up with demand soon. We can only hope, right?
It seems like there is some movement at the federal level to scale back zoning restrictions and make it harder for localities to block the construction of new housing, so I’m crossing my fingers that they can slip that under the radar to get around all the NIMBYs.
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So, as the fed raises interest rates I don’t think house prices are going to fall, especially not in strong markets like the Denver area. I think the rapid increase in prices is going to slow/stall out. I also work with appraisers and that is their prediction as well.
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Personally, my main reason that I would want to wait is I don’t think across markets things have averaged out the way that they will after the pandemic. I think some further outlying suburban areas will see a drop in demand as more places push harder for return to work in person. So the type of house i would be looking for, which is a suburban area outside of a metro, could be impacted by this. I don’t see demand slacking soon inside an urban area proper though. Like people were saying above, I think there’s still some of been made and some weird checkouts that are going to be helping, so I think there will be some localized adjustments to prices in some markets. I would just hate to get caught on the wrong side of that. But I don’t think there will be a wholesale collapse.
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We’re also in very different areas of the country! That changes things a lot. The demographics of where I live are probably almost polar opposite to where you live. My city is low income and has a huge supply of housing as well as one of the highest % of owner occupancy (and most affordable housing) of a Northeastern city.
Yeah I agree with both of you!
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Thanks for the validation!
I do think that I…
- under value the financial benefits of buying (locking in housing cost)
- underestimate the risks/costs of renting
- lack knowledge and/or faith in evaluating/predicting those correctly
- have excess fear of homeowning associated risks/unknowns, possibly due to lack of examples and secondhand experience (my parents rent)
On the other hand, I don’t think I’m wrong that…
- HCOL metro property values are overvalued and the growth is not sustainable indefinitely… I don’t want to bet on it
- it’s best to buy a home when it will add security, not take it away (whatever that means to you!)
- Even best predictions don’t account for unprecedented events (eg, pandemics!) or our reactions
Really appreciate everyone again their knowledge and thoughts on this interesting topic!
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This makes a lot of sense and I admit I am likely one of those people to whom homeownership looks way more attractive due to the pandemic. (Wanting more space, wanting some say over who comes into my home and who does not, not living in close quarters with others of unknown infection status, wanting to not have my building sold out from under me.)
I just want to be smart about it and not panic-buy something we have no way of affording!
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I was starting to get into the panic buying mindset. For the first time in my life houses in my city are consistently being sold over asking, and the prices are jumping like crazy.
My husband talked me down. Part of me wishes we could sell our home and move to a different market, but we dont have that mobility now. We will just have to see how things shake out in 2 yrs and go from there. Anxiety!
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Yeah, I mean, realistically our best-case scenario time frame is 2 years. Enough time to figure out whether we like our new city and want to stay in it, because, if no, then it definitely doesn’t make sense to buy!
Also, time to save up a down payment which we don’t currently have… I mean, we’ve got plenty of savings but it’s all earmarked for something other than down payment.
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This is a good point, I wonder how differently this will look regionally over time. I didn’t realize your city was so affordable (relatively! as much as anything is anymore!) and I also don’t know anything about moving patterns in your region: I’ve just paid attention to news about people leaving CA and people moving nationally. You’re so on top of it and thoughtful that I know you guys will find something fabulous that meets your needs.
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A condo building has to be approved for a FHA mortgage. In order for it to be approved a certain percentage of the owners must live there. If a building has more renters then owners living there it won’t be approved.
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The Minimalists had an interesting podcast about panic buying. They talk about scarcity mindset and how to have a reset on some of these items! I have definitely found myself in panic but mode and have a lot of leftover feelings from early 2020 (shelves have not been empty since then). For example, in CO we get lots of snow storms and our city is designed for it. During the last couple of storms I found myself panicking more than normal and using spending to help those feelings of scarcity. Now we have a basement full of food.
Lots of good food for thought in this episode.
ETA. This is the biggest take aways I had:
“You won’t have enough until you know what enough is.” —Joshua Fields Millburn
“The simple things aren’t the easy things.” —Ryan Nicodemus
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