Housing Is Haunted - InvestingChannel

Housing Is Haunted

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Housing Is Haunted

It’s October. And because we can’t do a pumpkin spice newsletter, we decided to do something even more useful. Throughout the month, The Juice will cover our nation’s housing crisis from multiple angles. 

The series focuses on our main areas of concern—the economy, personal finance and investing—all aimed at helping you make better money-related decisions. If what we discuss gives you something to bring up in conversations with family, friends, colleagues and strangers—all the better. 

Email newsletters: the modern day watercooler. 

Except ours contains lots of pulp. Studies show that pulp “contains nearly 95% of the fiber of fresh fruits and veggies, as well as up to half the nutrients.” So, if someone forwarded you this email or you think a friend might like what we do, use this link to subscribe

Here’s what to expect in the first part of our October housing is haunted series: 

  • A Tuesday look at the silver linings of this rough housing market: Homeowners who are in excellent situations. Maybe you’re one of them?
  • An introduction to real estate ETFs with deeper dives to follow. So, keep today’s five most searched tickers from our Trackstar database in mind because we’ll be going back to them on Wednesday. 
  • On Thursday, we consider the large numbers of homebuyers who are moving, with many of them headed to locations threatened by climate change. 

Today, we take a general survey of the housing landscape. If you’re not in one of the groups we’ll detail tomorrow, things are about as bad as they’ve been in a long time. And, depending on your timeframe, they might be worse than ever. 

To illustrate, consider the situation we wrote about at the beginning of 2023: 

In January 2023, the rate has cooled to around 6%. Prices have cooled to a median of about $400,000. If you’re able to come up with the now $40,000 down payment, you’ll pay $2,158 each month for the typical house before the aforementioned additional expenses.

Let’s take a look at how things stand today—about nine months later— adding in the additional expenses of property tax and insurance. 

As of the third week of September, the median sale price of a home in the United States was $372,500. That’s actually up 3.1% year over year. 

With the interest rate on a 30-year mortgage hovering around 7.5% lately and a 10% down payment ($37,250), the monthly payment on the typical home comes to $2,344. That’s 8.6% higher than our January 2023 calculation. Both numbers are before factoring in the additional expenses. 

So let’s do that. 

Tack on property tax and insurance and the monthly payments increase to: 

  • January 2023: $2,857
  • September 2023: $2,995 

Three thousand dollars a month to take on the median priced home in America today. 

Earlier in the year, some real estate agents encouraged prospective homebuyers to marry the house and date the rate. Slang for buy the house now at a high interest rate and refinance when rates come down. 

Dating suddenly turned into a long-term toxic relationship. 

First, it’s not like you can just buy a home today, turn around tomorrow and refinance it with ease—and for free—with your friendly, local non-profit banker. It doesn’t work that way. 

But setting that aside, who do these armchair economists think they are? How horribly irresponsible. 

As we screamed from the rooftop of our rented apartment over the summer: 

Over the weekend, The Juice saw a story about homeowners who once had a target mortgage payment of around $4,000 to $4,500 upping that number to $7,000 a month. They’re shrugging their shoulders, calling the present housing environment the new normal at the same time as they make the assumption that interest rates will come down. Once they do, they can refinance at a more favorable rate and lower monthly payment … 

We have to wonder if mortgage lenders and real estate agents are the ones giving this guidance … Talk about playing Russian roulette with your budget and overall personal finance. Nobody has a macroeconomic crystal ball. Not world class experts. Definitely not your Facebook friend who became a Realtor during lockdown.

This is exactly why we urge caution as our default position around here. 

Close your eyes for a second and imagine heeding the advice of some hack real estate agent and taking on a $7,000 mortgage payment after years of thinking $4,000 or $5,000 was your limit. 

Imagine rationalizing it by saying we have two healthy incomes in our household so why not tap our maximum purchasing power. Imagine rationalizing it with the whole marry the house, date the rate fantasy. 

Then, imagine seeing mortgage interest rates spike yet again—like they did last week—amid predictions that they’re not expected to come down in 2023. In fact, some people who actually know a thing or two about this stuff (not the aforementioned real estate agents) think the high rate environment could persist for the foreseeable future. 

Imagine the impact on your personal finances. Imagine the impact on the economy. 

Spending money on a mortgage that you could be saving or using to go out and buy stuff in stores, bars and restaurants. 


The Bottom Line: So, the silver lining. 

Yes, it must absolutely suck to be in the housing market today, as a first-time buyer or someone in a current mortgage who is not operating from a position of strength. However, large numbers of homeowners—thankfully, a majority—actually are not in this situation. 

And it’s not only the fact that they got a relatively or super low interest rate when the gettin’ was good. There’s more to the story that The Juice will cover tomorrow as we find that silver lining in our housing is haunted series.

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