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Former Bond Fund Manager Wonders Why Americans Don’t Just Buy A House Already
If you're sitting on your hands waiting for a better time to buy a home, you're missing money.
That was the message from Brian Luke, Head of Commodities, Real & Digital Assets at S&P Global on Tuesday. "The waiting game for the possibility of favorable changes in lending rates continues to be costly for potential buyers," Luke said, editorializing around more gains on the marquee gauge of US home prices, which continue to "march forward."
The key Case-Shiller 20-City gauge posted a 6.8
The accuracy of that observation depends on the local housing market no? Most of the time, the correlation of local housing markets is national numbers is moderate. Only in a boom or bust are price correlations high. In terms of rates the observation is largely correct. Lower rates will largely be offset by higher prices. Waiting for lower rates is likely an error. Waiting on prices may or may not be an error depending on factors related to your local or regional market.
The decision to buy should largely also depend on time horizon, personal financial situation, taste, and affordability on buying versus renting in a particular housing market.
LOL. Exactly. I live in SF, possibly even an outlier among outliers in terms of cost, but I tried it out on a housing cost calculator, and even including rent increases, the cost of renting my 3br apartment for another 30 years vs the cost of owning the median 1br condo in this town for the next 30 years worked out vastly in favor of continuing to rent. Even with a 30 year horizon it wasn’t even close. But, this local market might not be representative of anything at all outside of this local market. I can’t imagine it’s like this nationally.
SF is one of those markets that is really quirky that way. It is skewed by foreign purchasing. I understand Vancouver, Canada is similar. There is also a lot of tech money chasing housing and limited land to build. NIMBY in California also does not help for purchasers. Work from home makes it worse. Did you happen to catch the Bloomberg article pointing out that poorer places such as West Virginia and Mississippi have high home ownership rates? Counterintuitive but influx of money is low there, so demand is restrained. SF is the opposite, and work from home is driving demand for larger spaces to work- especially in a new hybrid work environment.
As someone who has lived in Vancouver, you are correct re: foreign money in the city. A lot of wealthy Hong Kong citizens left right before the British handed the territory back to China in 1997 and many ended up in Vancouver. Toronto, Miami, and Vancouver are the only cities, I think in the world, with a larger foreign-born population than native-born.
It’s true. For the uninformed, I read a couple years ago that something like 30% of SF housing is unoccupied and owned by foreign investors.
Veering off the topic here, but overall, it’s just another aspect of the way living in SF can throw a very harsh light on your most deeply held progressive values. I hate those YIMBY folks, but obviously the anti-development folks, who I was a vocal member of for many years, all doing their best to constrain supply isn’t helping anything. Meanwhile those anti-rent-control folks make lofty arguments about it creating an inefficient distribution of housing resources, which I vociferously fought against until I looked around and realized I was living in a 3BR/2BA apartment by myself in the middle of SF and said, “uh-oh”. It took me becoming the victim of a brutal violent crime inside my own home to discover the problem with how hard they’ve made it for Californians to even defend themselves (and also the brutal truth about the reality of the policies of a corrupt district attorney, who is now beloved by the left as a candidate for the presidency of the United States). And my favorite, the fact that I live across the street from a pot dispensary where I can buy weed with a credit card, but I can’t buy Captain Black tobacco to load my meerschaum with because it’s illegal to sell in SF. (Ditto if I liked menthol cigarettes.) And don’t get me started on the soft drink vending machine bans.
I was raised a dyed-in-the-wool liberal, and I still agree with those values, but living in SF is an object lesson in how prone the left is to impractical “solutions”.
I didn’t see that Bloomberg article, but nor does that information surprise me. It makes sense.
I think a first-time homebuyer should lever up and buy with the least possible equity (downpayment) even at 7% rates, and roll the dice, because it is heads you win big (rates decline, you refi, price rises, you enjoy 10:1 leverage) and tails you don’t lose too bad (rates rise, you walk and enjoy non-recourse mortgage and rent for seven years until the foreclosure drops off your credit).
i’m not sure that latter outcome is a risk worth taking. “The worst case scenario is that you’re a certified deadbeat for seven years.”
Several mortgage brokers have told me that when rates get back down to 5%, a lot of people who wanted to change their housing during the past 4 years, but didn’t because of their low mortgage rate, will finally do so.
In other words – if someone has a 3.5% mortgage- they probably chose to stay put when mortgage costs on a different house would be 7%. However, if mortgage rates get down to 5%, the financial advantage of their lower rate won’t be enough of an advantage to deter someone from getting their housing situation the way they prefer.
At this point, the thought is that supply of for sale homes, both existing and new, would increase to better meet the demand- resulting in lower prices. Seems like a possibility worth waiting for. If rates never get down to 5%, and homeownership is not financially feasible, then the down payment that was saved can be reallocated. Although, if home ownership becomes less attainable over time, we probably have bigger problems.