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Prisoners in Their Own Homes?
Fortune recently ran a piece about homeowners who feel “trapped” by low-interest-rate mortgages.
Cry those poor babies a river!
Most of the people Fortune profiled want bigger homes to accommodate their children. But they can’t make upsizing work financially. So they’re staying put, waiting for an entry point with lower monthly payments.
This dynamic makes us even more confident in our prediction that housing prices will meet and beat record prices in 2023 or, at the latest, 2024.
As the interest rate on a 30-year mortgage drops closer to 6%, leaving a 2% or 3% mortgage might feel more financially tenable for these “trapped” homeowners reluctant to begin more inflated monthly payments.
Presumably, as these prisoners in their own homes sit behind the proverbial bars, they’re stockpiling cash. These savings may be the difference between their current mortgage payments and potential future ones – so they’re ready to pounce when conditions meaningfully improve.
Pouncing will happen at different stages for different people.
Some folks will buy new houses at 6%. Others will wait until 5%. And so on.
However it happens, as interest rates drop – and more people come off the sidelines – competition will increase.
Realtors in places such as the Pacific Northwest are already reporting robust home-buying activity. Imagine what’ll happen with friendlier interest rates.
Houses will stay on the market for less time. Bidding wars will return. People will pay over asking. And prices will steamroll back into record territory.
This trajectory leaves nothing but confusion for the average person trying to figure out when they should start seriously looking for a house again.
The Bottom Line: Being stuck with a low-interest-rate mortgage is a good problem to have, especially if you really don’t need a new home and aren’t living paycheck to paycheck.
If you have enough cash to eventually buy a new home you don’t really need, consider making modest and relatively inexpensive improvements to your current home. Take the rest of your monthly cash surplus and plow it into the stock market.
Some people who are obsessed with investing – present company included – would rather put all their extra cash into stocks, ETFs, or cryptocurrency. Not take on additional overhead.
Whatever you prefer, consider the difference between spending more on housing (even if rates drop) and putting that money to work for you in an instrument that doesn’t charge you interest, but pays it out via capital gains and dividends.
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