7% interest rate?!

[barkley]

I was recently looking to purchase a rental home as an investment….

It quickly became clear to me that waiting 18 to 24 months would provided better value because:

Prices became Artificially inflated when people were running to get out of the cities….at-least near me.

We have a diesel fuel storage in this county that is going to exploded into a huge crisis with the first cold snap. This will add further upward pressure to the price of Necessities.

Raising interest rates are going to force seller to have to except “normal” prices again.

People that “won” their bidding wars to buy their dream houses, are going to realize they can afford them, and this house will either be sold for “normal” prices or end up in the foreclosed market again….

When all of this happens I will buy a rental house or two…..

Maybe I’ll get lucky and be able to buy the house from someone that is about to lose it then rent it back to them…

we are rural so those city dwellers were hot to buy around us-and the prices they paid were insane. while many still got what they considered great deals as compared to housing prices in more urban areas combined with very low interest i suspect the pain of their purchases is coming to hit them as they are experiencing much higher commute costs due to fuel prices as well as realizing that it can be much more costly to maintain rural.

 

[tvguy]

I assume you know that everyone's circumstances are different?

Of course. None of us can speak from anything other than our circumstances.

 

[mom2rtk]

When we bought our house the rates were "down" to 8 percent.

Our 27 year old son is living here for a bit. He was moving back to this city about the time the market topped out and hesitated to see what happened. Not sure if it's good or bad that he waited. It is what it is at this point, but at current rates he's holding off and settling in for a bit.

 

[barkley]

I wasn't saying people wanted a 200 sq ft room with no closet, just that they might buy a 4 bedroom or 5 bedroom house instead of a 3 bedroom so that a room or two could be dedicated to an office.

In my case the single downstairs bedroom is a dedicated office for my wife, and what would be a formal living room is my dedicated office.

Prior to Covid the average size of new single family homes had been declining for about 5 years.

View attachment 716379

https://eyeonhousing.org/2022/05/new-single-family-home-size-trends-2/#:~:text=Since Great Recession lows (and,higher at 2,318 square feet.

we (dh and i) never had the raging desire to have a huge house. sure, we wanted sufficient space but so many homes that we saw when having kids necessitated us 'buying up' from our small starter home in '98 and then moving out of state in '07 were just pushing the amount of square footage without any attention to how that square footage was designated. in california it was the 'mcmansions' with so much wasted space and crazily small kid's bedrooms (like twin bed and small dresser space only-so sorry kiddo, no playing with any toys in your room) while up here where we live now it was all these 'bonus rooms' (the 200 sq footers w/o a closet you mentioned)-like 3 or more 'office', 'craft room', 'bonus walk-in storage' spaces. i would much rather have less square footage that is usable-i have a more spacious laundry room and guest bath vs. many of the larger homes in my neighborhood and i have no need for a basement that accounts for 50% of the square footage of the entire house but goes largely unused except for storage (and upping property taxes). i've got rooms that can have a dual purpose (like you said-the bedroom that doubles as an office). as a result i have more livable space and pay lower taxes-win win in my estimation.

the chart you provided still floors me though-those are still BIG footprints but then i grew up w/3 sibs in around 1100 square feet so every extra 100 or so square feet feels luxurious!

 

[MrsCobraBubbles]

Many of us bought at times when rates were 'normal' to be above 7 percent and we made it ok. We took out 30 year mortgages to keep monthly payments down.

After you close watch for times when rates go down and refinance at the lower rate and for a shorter term.

That's what we did.

I'm not as young as I used to be, I'm 41 buying a house on a single income so I'm gonna have to take a 30 year mortgage, but then I'll be paying well into retirement. Ugh, it's scary to think about.

 

[MrsCobraBubbles]

When I bought my house rates were 6-7%. You young'uns aren't use to that, but it's not a huge deal. To many of us, it's just becoming normal after a decade of dirt cheap credit.

Lol, I'm 41

But reading through some of the replies I guess we just lucked into a great rate when I got married, and that's my only knowledge of home buying.

 

[MrsCobraBubbles]

The issue here is, rents are more un-affordable than housing prices. My daughter bought half a duplex in a subdivision of identical duplexes. Those duplexes rent for $2,000 a month, more than she can afford. Her payment with insurance and taxes is $1,100, which is within her budget.

Yes, rent is insane. I'm only looking at houses with a mortgage the same or lower than what I'm currently paying in rent, which is about what your daughter pays. In my area that means a fixer-upper though.

 

[RamblingMad]

I wouldn't count on rates coming down any time soon.

 

[Robbie Cottam]

I wouldn't count on rates coming down any time soon.

No, but prices will

 

[dvcgirl67]

I fall into the continue to rent camp. I've seen estimates that rates can hit 8.5% next year, but prices may fall far enough that you'd be better off waiting a bit. I might try and see if I could sign a month to month lease...or possibly a six month or less lease to give you some flexibility. But right now there's effectively a stand-off happening in the housing market. Sellers are reluctant to budge much on price...and buyers aren't willing to pay that much as their buying power has been eroded by interest rates. However, the market is already turning quickly into a buyers market. I'm not sure how much the market has appreciated where you live, but I am reading that housing will experience a 10-20% drop in many areas of the country, and up to 30+% in areas across the south and mountain west. Waiting a year or so....you'll see much cheaper prices.....and you could always go with a 7/1 ARM in order to get a better rate and hope to refinance down the road.

 

[RamblingMad]

No, but prices will

Only to a point.

Why would anyone sell a home to buy another with a much higher rate?

 

[Christine]

Only to a point.

Why would anyone sell a home to buy another with a much higher rate?

Some people have no choice. Others don't need to worry about another loan. If I sold my home today, to go and buy my next home, I would not need a loan. Between what I've saved and my equity, as long as I'm not buying "up" then I don't need a loan. Granted, I'm in unique position and I know most people buy up a few times so this doesn't necessarily work for them.

 

[tvguy]

Some people have no choice. Others don't need to worry about another loan. If I sold my home today, to go and buy my next home, I would not need a loan. Between what I've saved and my equity, as long as I'm not buying "up" then I don't need a loan. Granted, I'm in unique position and I know most people buy up a few times so this doesn't necessarily work for them.

They have no choice, or they move for a much better job. My son and his wife sold their house here, and moved to Southern California. It took them a year to get an offer accepted on another house. Their current mortgage is double the rate of their old one, and the sales price of the new house was exactly double of their old house. But the new job my DIL took paid so much more, they could juggle the extra costs.

 

[Mackenzie Click-Mickelson]

Some people have no choice. Others don't need to worry about another loan. If I sold my home today, to go and buy my next home, I would not need a loan. Between what I've saved and my equity, as long as I'm not buying "up" then I don't need a loan. Granted, I'm in unique position and I know most people buy up a few times so this doesn't necessarily work for them.

Here you'd likely have to that other house already purchased or have interim housing. Sellers who sell their house find themselves in the same pressured high priced market as the very people they sold their house to.

For my county this is what Zillow has as the market value over the years. 2015 is when the market in the metro itself switched from buyers to sellers market.


The forecasts for multiple websites have that the pricing in the county will continue to go up between 2022 and 2023. As of end of August 2022 comparing to August 2021 more than 66% of the homes sold for over list price and 20% below it. 5 days median before the listing goes to pending. Some people may have enough equity to purchase that home before selling the current home but you're almost never buying up, you're either same level or downgrading but your dollars are not going anywhere near as far as they did in the past.

 

[Mackenzie Click-Mickelson]

When I bought my house rates were 6-7%. You young'uns aren't use to that, but it's not a huge deal. To many of us, it's just becoming normal after a decade of dirt cheap credit.

Housing pricing along with interest rates are intricately tied together in terms of how people feel about it.

7% on the house across the street from us being built and listed for $400K more than our house was built for makes a big difference in how I would feel about that 7%. The timing is just over 8 years difference. I wouldn't have wanted to pay 7% on our house but when we got it the market was a buyer's market and pricing a heck of a lot better.

I also think the generational aspect accounts for something too. When you're considering Millennials the likelihood of a repeated interruption in wealth building plays into that.

 

[nickah79]

Well, to be honest from a historic perspective 7% isn't a bad interest rate. 2-3% was what wasn't normal. But one thing that isn't changed in the 40 years since we bought our house, if you have a mortgage, you need to check interest rates from time to time to see if refinancing is a good idea. My daughter had a 3.9% mortgage and refinanced last year to 2.4%.
When my wife and I got married in 1982 mortgage rates were 16%. We jumped to buy a house in 1983 when rates fell to 12.25%. We refinanced to 9% in 1987 and to 6.25% in 1991.

This is a fantastic point. I hear people say "you can't buy a home right now because the interest rate is too high." Is it really, though? I'm not concerned with the interest rate. What concerns me is that people who don't have the minimum percentage for a down payment have to insure their mortgage. That, to me, is insane, and straight from the corporate America playbook that offers innovative ways to drain the everyday American's wallet.

 

[kanerf]

I think the interest rate on my first home was around 9.4%. I was able to re-finance a few years later to around 6%. Homes were a lot less expensive than also. I think that first home, a 3 bed 2 bath rancher in Arizona cost about $96K.

 

[Miffy]

OP: My only advice is to make as certain as you can that you can afford the payments on the 7% mortgage along with the property taxes, insurance, and utilities. If the total is out of your range or too big a stretch, you could be waiting for a long long time for interest rates to go down in order to refinance, so I would definitely not depend on that.

Someone else upthread suggested an ARM. Since you already seem somewhat daunted by the 7% rate, think how you'd feel if the rate goes up to 10% or more and your costs would be much greater. Do not do it. This is what I'd put in the "gambling" category. You do not want to gamble with the place where you live. No matter what, as long as you're alive, you'll need a place to live.

If you don't know what the property taxes will be, find out. They can be.a huge expense. Also, your real estate agent should be able to get you information about the current owner's utility costs. You need to know these things before you make a decision to purchase.

 

[nickah79]

OP: My only advice is to make as certain as you can that you can afford the payments on the 7% mortgage along with the property taxes, insurance, and utilities. If the total is out of your range or too big a stretch, you could be waiting for a long long time for interest rates to go down in order to refinance, so I would definitely not depend on that.

Someone else upthread suggested an ARM. Since you already seem somewhat daunted by the 7% rate, think how you'd feel if the rate goes up to 10% or more and your costs would be much greater. Do not do it. This is what I'd put in the "gambling" category. You do not want to gamble with the place where you live. No matter what, as long as you're alive, you'll need a place to live.

If you don't know what the property taxes will be, find out. They can be.a huge expense. Also, your real estate agent should be able to get you information about the current owner's utility costs. You need to know these things before you make a decision to purchase.

Isn't it all a gamble, though? Right? I'm just putting this out there. I mean, look, if you're participating in our workforce economy for your income, isn't it all a gamble? For ex, I work in tech and look at what's happened in the past year with the layoffs. Whose job is really secure? Maybe if you work for government, but.... I guess my point is that we have a very fragile economy and I don't take my job for granted. Ever. What I have today could be gone in a couple weeks. And so ... I had put off buying because of this mindset. Also, is a home ever really affordable for the everyday worker bee majority? Everything is gamble to me. I get it .. you have to be able to make all the payments, but...

 

[Miffy]

Isn't it all a gamble, though? Right? I'm just putting this out there. I mean, look, if you're participating in our workforce economy for your income, isn't it all a gamble? For ex, I work in tech and look at what's happened in the past year with the layoffs. Whose job is really secure? Maybe if you work for government, but.... I guess my point is that we have a very fragile economy and I don't take my job for granted. Ever. What I have today could be gone in a couple weeks. And so ... I had put off buying because of this mindset. Also, is a home ever really affordable for the everyday worker bee majority? Everything is gamble to me. I get it .. you have to be able to make all the payments, but...

I agree. The "gamble" part I was referring to, although I didn't make it clear, was the adjustable-rate mortgage. That is a huge gamble, especially with interest rates rising so fast lately.