It's a Seller's Market/Purchasing a Home Perspective

[luvmystang67]

We just put an offer 5% over list and will almost certainly not get it. Crazy market, might just continue to rent for a year unless something changes.

Be sure to look at your payments not price.  Buy a house now for $340k @ 3% interest = same $1432 payment as if you get it for $40k less next year but at @ 4% interest.  And you know interest will be going up over 4% and will you see that house at $300k again ?

Yes, is basically my answer to this.

Sure, you're spending $600k for a "normal" house today.  Is it any different that the house you bought with the same monthly payment that was $300k 10 years ago?  No, its the same house.  Sure rates qualify you for more money, more money to spend on the same house.

Income streams dictate the house you buy, not the interest rate.  (Obviously there are other real factors, but I think this is the biggest one in this short term period.

[vandeman17]

We just put an offer 5% over list and will almost certainly not get it. Crazy market, might just continue to rent for a year unless something changes.

Be sure to look at your payments not price.  Buy a house now for $340k @ 3% interest = same $1432 payment as if you get it for $40k less next year but at @ 4% interest.  And you know interest will be going up over 4% and will you see that house at $300k again ?

Yes, is basically my answer to this.

Sure, you're spending $600k for a "normal" house today.  Is it any different that the house you bought with the same monthly payment that was $300k 10 years ago?  No, its the same house.  Sure rates qualify you for more money, more money to spend on the same house.

Income streams dictate the house you buy, not the interest rate.  (Obviously there are other real factors, but I think this is the biggest one in this short term period.

What is the underlying factor in buying a house, the payment. Does it matter really if you buy a $600k house with a low interest rate or a $450k house with a higher interest rate when the monthly payment is the same?

[Angry Perch]

I have been in Construction for um 27 years now, man I getting old.  Im telling ya all to slow your roll.  Be carefull.  Crash is coming in next 2 years.  House will be much cheaper.   Buy low, sell high.  I sure as hell wouldnt buy now.

Maybe, but maybe not. Also, how big of a crash? Houses in my area are going up 12.5%-ish annually. If the market drops 25% in two years, the house you buy now will be worth the same then. But what will interest rates be? A guy can really miss the boat waiting for it to hit the fan.

[Stein]

We just put an offer 5% over list and will almost certainly not get it. Crazy market, might just continue to rent for a year unless something changes.

Be sure to look at your payments not price.  Buy a house now for $340k @ 3% interest = same $1432 payment as if you get it for $40k less next year but at @ 4% interest.  And you know interest will be going up over 4% and will you see that house at $300k again ?

Yes, is basically my answer to this.

Sure, you're spending $600k for a "normal" house today.  Is it any different that the house you bought with the same monthly payment that was $300k 10 years ago?  No, its the same house.  Sure rates qualify you for more money, more money to spend on the same house.

Income streams dictate the house you buy, not the interest rate.  (Obviously there are other real factors, but I think this is the biggest one in this short term period.

What is the underlying factor in buying a house, the payment. Does it matter really if you buy a $600k house with a low interest rate or a $450k house with a higher interest rate when the monthly payment is the same?

Yes, the $600k house will have much higher taxes, insurance and less deductible interest so the difference is likely thousands a year - enough to go on a hunt every year for sure.

[vandeman17]

We just put an offer 5% over list and will almost certainly not get it. Crazy market, might just continue to rent for a year unless something changes.

Be sure to look at your payments not price.  Buy a house now for $340k @ 3% interest = same $1432 payment as if you get it for $40k less next year but at @ 4% interest.  And you know interest will be going up over 4% and will you see that house at $300k again ?

Yes, is basically my answer to this.

Sure, you're spending $600k for a "normal" house today.  Is it any different that the house you bought with the same monthly payment that was $300k 10 years ago?  No, its the same house.  Sure rates qualify you for more money, more money to spend on the same house.

Income streams dictate the house you buy, not the interest rate.  (Obviously there are other real factors, but I think this is the biggest one in this short term period.

What is the underlying factor in buying a house, the payment. Does it matter really if you buy a $600k house with a low interest rate or a $450k house with a higher interest rate when the monthly payment is the same?

Yes, the $600k house will have much higher taxes, insurance and less deductible interest so the difference is likely thousands a year - enough to go on a hunt every year for sure.

All part of the factor when buying but is that $600k house your forever home and the $450k home one that isn't?  I am just saying that low interest rates give you options. When interest rates are higher, the flexibility is limited 

[luvmystang67]

I disagree that high interest rates limit options.

In fact, I'd much rather live in a world with high interest rates and low housing prices than the inverse.

Low prices mean lower down payment, lower taxes.  When the 10k cap on mortgage interest deduction was not in place, this would've also been a preference as part of your monthly payment is tax deductible.

The only thing low interest rates are good for (and rates that become progressively lower over time) are total home prices, which benefit the investor only and those who want to take cash out of their home.  Rising house prices are really not beneficial for those who want to live in a forever home, they only cost you more in taxes and insurance.  If you die in your home, there's no value to you in your home value going it, it just costs you more to keep.

As rates rise, if they do, it'll put significant downward pressure on home values.  Anyone who "locks it in low" will struggle if rates rise from an investment perspective.  If its your forever home, you don't mind this at all as a lower value only reduces your tax and insurance burden.

[Bob33]

If all housing prices in an area fall, the property "per capita" tax rate will rise so taxes won't necessarily change. Taxing authorities will get their money. The $600K house and the $450K house will pay the same taxes in that scenario.

We may be in bubble presently, but over a longer period of time I believe housing prices will continue to rise. In the PNW I'd rather be buying equity than paying rent.

[vandeman17]

I disagree that high interest rates limit options.

In fact, I'd much rather live in a world with high interest rates and low housing prices than the inverse.

Low prices mean lower down payment, lower taxes.  When the 10k cap on mortgage interest deduction was not in place, this would've also been a preference as part of your monthly payment is tax deductible.

The only thing low interest rates are good for (and rates that become progressively lower over time) are total home prices, which benefit the investor only and those who want to take cash out of their home.  Rising house prices are really not beneficial for those who want to live in a forever home, they only cost you more in taxes and insurance.  If you die in your home, there's no value to you in your home value going it, it just costs you more to keep.

As rates rise, if they do, it'll put significant downward pressure on home values.  Anyone who "locks it in low" will struggle if rates rise from an investment perspective.  If its your forever home, you don't mind this at all as a lower value only reduces your tax and insurance burden.

so you buy a less expensive house but interest rates are high and that is better than buying a more expensive house with low interest rates? The end result is the same out of pocket purely from a monthly mortgage payment perspective. I would much prefer to buy a house with the low interest rates where they are now and not have to worry when they go up. That 600k home that you could afford with a 3% interest rate becomes a $500k home that you can afford when interest rates go up.

[Sandberm]

Be nice to make 5% in a savings account rather then feel like you have to go ALL in on the stock market.

Im a saver and it kills me getting only .25%?

[luvmystang67]

I disagree that high interest rates limit options.

In fact, I'd much rather live in a world with high interest rates and low housing prices than the inverse.

Low prices mean lower down payment, lower taxes.  When the 10k cap on mortgage interest deduction was not in place, this would've also been a preference as part of your monthly payment is tax deductible.

The only thing low interest rates are good for (and rates that become progressively lower over time) are total home prices, which benefit the investor only and those who want to take cash out of their home.  Rising house prices are really not beneficial for those who want to live in a forever home, they only cost you more in taxes and insurance.  If you die in your home, there's no value to you in your home value going it, it just costs you more to keep.

As rates rise, if they do, it'll put significant downward pressure on home values.  Anyone who "locks it in low" will struggle if rates rise from an investment perspective.  If its your forever home, you don't mind this at all as a lower value only reduces your tax and insurance burden.

so you buy a less expensive house but interest rates are high and that is better than buying a more expensive house with low interest rates? The end result is the same out of pocket purely from a monthly mortgage payment perspective. I would much prefer to buy a house with the low interest rates where they are now and not have to worry when they go up. That 600k home that you could afford with a 3% interest rate becomes a $500k home that you can afford when interest rates go up.

I actually agree with you, but we are talking about the same house.  I'm saying the value of your house that you purchased at $600 will go DOWN to $500.  Or if you're buying a house that is in a development (for ease of thought), the average house in that development today may be $600k and in the future may be $500k with rising interest rates. 

If interest rates make the payment the same for each home, I'd rather have a higher percentage of my payment go to the bank than to the principle for a variety of reasons.

1) In the case above, if I "lock in my good rate early" I'm also underwater on my home.
2) If its the same $3k out of pocket in each scenario, then in the higher interest rate scenario, I can write off more of my payment (since its interest).
3) In the scenario above, if it IS as an investment... you will have a better position to make money if the total price is lower.
4) Lower asking prices come with lower down payments and higher interest rates on your cash in-hand.  Its easier to come up with the money down for a home when prices are low and interest rates are high.

The only real way to justify liking lower rates in exchange for the higher prices that come with it are that you have more equity to borrow against if you want to do some kind of cash-out loan on your asset.   If you don't plan on doing this, its really a lot of negative.

[luvmystang67]

I think my main point, is that unless you're super early to the party, the idea that low interest rates let you buy a BETTER house for the same monthly payment is something I reject.  It allows you to agree to a higher total price for the same house you would've bought before, for the same monthly payment.

[Stein]

If all housing prices in an area fall, the property "per capita" tax rate will rise so taxes won't necessarily change. Taxing authorities will get their money. The $600K house and the $450K house will pay the same taxes in that scenario.

We may be in bubble presently, but over a longer period of time I believe housing prices will continue to rise. In the PNW I'd rather be buying equity than paying rent.

There will always be insurance, interest, upkeep, heating, cooling and a bunch of other things that are based on the current value (and size usually), in addition to taxes.  More expensive houses cost more, there just isn't any way around that.

It's interesting to look not only at the average cost of a home over time, but the average size and build quality.  The average house since I have been alive has grown over 1,000 square feet and now has solid surface countertops, a/c, an office or extra rooms and a host of other things they never used to have.  In 1950, the average house was 983 square feet!

Provided you can afford it, holding on a home for long periods of time is likely one of the safer investments outside of treasuries.  The only problem is you will always need someplace to live and treating it like a savings account gets people into all kinds of trouble.  Even so, it won't be too long before your all in annual costs are less than rent and the difference will only grow.

It's one of the few things I would never try to market time, if your time horizon is a couple decades, timing on the buy doesn't matter.

[vandeman17]

I disagree that high interest rates limit options.

In fact, I'd much rather live in a world with high interest rates and low housing prices than the inverse.

Low prices mean lower down payment, lower taxes.  When the 10k cap on mortgage interest deduction was not in place, this would've also been a preference as part of your monthly payment is tax deductible.

The only thing low interest rates are good for (and rates that become progressively lower over time) are total home prices, which benefit the investor only and those who want to take cash out of their home.  Rising house prices are really not beneficial for those who want to live in a forever home, they only cost you more in taxes and insurance.  If you die in your home, there's no value to you in your home value going it, it just costs you more to keep.

As rates rise, if they do, it'll put significant downward pressure on home values.  Anyone who "locks it in low" will struggle if rates rise from an investment perspective.  If its your forever home, you don't mind this at all as a lower value only reduces your tax and insurance burden.

so you buy a less expensive house but interest rates are high and that is better than buying a more expensive house with low interest rates? The end result is the same out of pocket purely from a monthly mortgage payment perspective. I would much prefer to buy a house with the low interest rates where they are now and not have to worry when they go up. That 600k home that you could afford with a 3% interest rate becomes a $500k home that you can afford when interest rates go up.

I actually agree with you, but we are talking about the same house.  I'm saying the value of your house that you purchased at $600 will go DOWN to $500.  Or if you're buying a house that is in a development (for ease of thought), the average house in that development today may be $600k and in the future may be $500k with rising interest rates. 

If interest rates make the payment the same for each home, I'd rather have a higher percentage of my payment go to the bank than to the principle for a variety of reasons.

1) In the case above, if I "lock in my good rate early" I'm also underwater on my home.
2) If its the same $3k out of pocket in each scenario, then in the higher interest rate scenario, I can write off more of my payment (since its interest).
3) In the scenario above, if it IS as an investment... you will have a better position to make money if the total price is lower.
4) Lower asking prices come with lower down payments and higher interest rates on your cash in-hand.  Its easier to come up with the money down for a home when prices are low and interest rates are high.

The only real way to justify liking lower rates in exchange for the higher prices that come with it are that you have more equity to borrow against if you want to do some kind of cash-out loan on your asset.   If you don't plan on doing this, its really a lot of negative.

My scenario was for a buyer looking to buy now and the potential to by two different priced houses based on interest rates 

[idaho guy]

I think my main point, is that unless you're super early to the party, the idea that low interest rates let you buy a BETTER house for the same monthly payment is something I reject.  It allows you to agree to a higher total price for the same house you would've bought before, for the same monthly payment.

   

Thats an interesting perspective. There is no doubt lower interest rates help housing prices but its not a teeter totter where every 1% increase or decrease in interest rates corresponds to an exact decrease or increase in the price of a home. Wages grow-we had a long period where inflation adjusted wages didnt grow but the last 4 years real wages grew quite a bit above inflation. You're right the price of the home we buy is dictated by our income. As long as real wages are growing housing prices will increase and thats why people accurately believe real estate is a good hedge against inflation. The greatest contributor to inflation is wage growth. The feds mandate is to fight inflation so we could easily have a period of rising home prices, rising and higher interest rates with higher wages which could be in our future

[Stein]

The prices we are seeing now have way more to do with the supply shortage than interest rates which have been low for some time.  I refinanced at 2.7% seven or so years ago.