Are house prices dropping??

amother

Petunia

Mon, May 20 2024, 5:13 pm

It’s so unfair 😢

I want to buy a small starter home and stick with it as long as I can, then upgrade to a bigger one using the equity and increase in value from the starter home but even a starter home would require me to double my income in order to be approved for a mortgage. It’s really hopeless. I might just be a forever renter.

amother

Amaranthus

Mon, May 20 2024, 5:26 pm

amother Petunia wrote:

That's a faulty calculation because if the starter home increased in value, so did the bigger home, leaving you with the same gap of money.

We bought a starter home, hoping to do what you wrote here. Well, it's eight years later, we could use way more space. My home is valued at 400k more than when we bought it, but any bigger house we look at is at 1 mil, leaving the mortgage payments unaffordable.

Amarante ↓

Mon, May 20 2024, 5:32 pm

So,e places have dropped but in general people are just not moving unless they have to because of high mortgage rates.

This is especially true of less expensive homes which man people might have upgraded from in terms of being a starter home.

Also the higher interest rates means that the actual expense of a mortgage will be more so uiu can afford less house.

amother

Babyblue

Mon, May 20 2024, 5:33 pm

amother Amaranthus wrote:

Exactly. Also when you buy a cheaper home and flip it later on you have to take into account all the interest you paid for the mortgage so you don't necessarily make as much money as you think. For example if you buy a house for 400k you pay way more than that with a mortgage so even if you sell it for 600k you aren't making that much.

↑ Amarante

Mon, May 20 2024, 5:35 pm

amother Babyblue wrote:

It you would have been paying rent during that period and you also got a tax deduction for the interest which is most of the payment each month especially in the first years.

Also in general you don’t owe capital gains if you purchase a new home.

amother

Hyssop

Mon, May 20 2024, 5:37 pm

amother Amaranthus wrote:

But if you think about it, what was the price difference between the houses when you bought and what are the prices now?

I bought a large, new home 20 years ago. I can get a lot more than I paid, but I cannot get double. My friend who bought small, older homes can get almost 2.5 what they paid.

amother

Maize ↓

Mon, May 20 2024, 6:03 pm

Rental and purchase prices are currently out of wack. A new duplex in Lakewood is going for 1.1-1.3 million dollars. Even after putting 20% down you are talking about a 7.5% to 8% mortgage which comes out to 75,000 to 95,000 a year when including property taxes and insurance, even after deducting 22,000 for basement rental income. This does not even include any additional repairs, maintenance and upgrades. Renting the same upstairs unit will generally run 36,000 to 45,000 a year.

The smart financial move to make right now is to rent instead of buying, and contribute the 40,000 difference in price to an index fund. At the end of 6 years you will have approximately $400,000 saved in the account (8% average index return) so even if houses were to jump to 1.6 million you will come out ahead.

Tangentially, the housing prices tend to go up approximately 1-2% above inflation over the long term, and there’s a good reason: When house prices outpace salaries, fewer people are in a position to buy a home. In 2024 the home affordability index nationally is at the lowest point in the last 40 years. It is unsustainable. Odds are that prices will not fall much. They will likely stagnate or barely budge for several years until inflation and workers salaries are able to catch up with housing prices so affordability improves.

This makes housing a fairly unimpressive investment right now. Renting and putting the difference in an index fund is the way to go until pricing relative to inflation improves.

amother

Brown

Mon, May 20 2024, 6:55 pm

amother Maize wrote:

What about renting and putting into a high yeild savings account?

amother

Emerald

Mon, May 20 2024, 7:08 pm

Amarante wrote:

Pretty sure that you still owe capital gains, although you can avoid taxes for 500k of a home sale for a married couple if you lived in your house for 2 years. Unless you mean doing 1031 exchange?

amother

Denim ↓

Mon, May 20 2024, 9:57 pm

Also the advantage of owning a home is that it is a form of forced savings.

Most people will do anything in order to pay the mortgage. Even in periods when I was between jobs I paid the mortgage on time every month and cut back severely in every other area of spending.

Now my home is worth more than three times what I paid for it and the cost to live in it is about 25% of what a comparable rental would be.

For most people, a home is their major asset unless they have been stupid and used it as an ATM and so have no equity.

At retirement one can live in it for a relatively low cost - can sell and downsize with money left over - can get a reverse mortgage if there is no other option.

amother

↑ Denim ↓

Mon, May 20 2024, 10:01 pm

amother Emerald wrote:

Pretty sure that you still owe capital gains, although you can avoid taxes for 500k of a home sale for a married couple if you lived in your house for 2 years. Unless you mean doing 1031 exchange?

For many people there aren't capital gains because there isn't that much appreciation when they sell - plus you can deduct certain capital upgrades.