New purchases & ARM rate expectations

YES. By this point I spent a lot more time thinking about levers than my mortgage LOL

I feel for you. It took me 6 months to get my new place set up, but now I’ve moved onto the more important things in life. Like asking people how they think about rates.

I feel for you. It took me 6 months to get my new place set up, but now I’ve moved onto the more important things in life. Like asking people how they think about rates.

I will take a crack at jumping into Inonada's original post on how I think about ARMs. Maybe this is too much rejecting the premise of the question though...

I view greater returns to be had investing outside of Manhattan real estate. Accordingly, funds I use to buy Manhattan real estate will be 'sunk cost' and can only be made when I feel I have excess funds to put into the real estate. I won't look to the capital as investment capital, as much as capital that was invested into a way of life.

This means I need to have excess funds to put into the real estate, and that is a primary driver for purchasing versus the type of financing package I go for.

When I do buy, I will be solely focused on monthly cost/FT pre and post-financing. I don't think about monthlies in a ZIRP world, but in terms of monthly payments to me through my cost of ownership. At the outset, I will be focused on monthly levered payments in context of having just made a new levered purchase. However, I would intend to pay down the mortgage aggressively to lock-in/derisk the way of life and get that monthly payment just the monthly co-op fees etc. (i.e. where I want to be in retirement).

Accordingly, I would do an ARM to lower my monthly payments and give me a little more flexibility to hold off/press the gas in terms of principal repayment. And I would be de-risking the interest rate move on the back end by paying down principal in the interim.

The amount of monthly payment is what I struggle with in my budget currently. As mentioned elsewhere, I want to save a higher % of my pre-tax income than others (partly a function of being a a late bloomer career wise and have some savings catching up to do in an industry with uncertain tenure... also because I think it is just 'possible' and 'prudent' to save as much as one can to build escape velocity/safety net away from needing a paycheck every pay period).

I tend to be conservative, so I do try to assume stress cases of monthlies. E.G., if I financed at a 2% ARM, I would definitely assume I am refinancing at something higher after 7YRs... e.g., looking at the futures curve on interest rates and then adding a cushion onto that. E.G., adding another 1% to it.

In talking to associates that have financed with ARMs, they seem to be less focused on where interest rates are going... but what they can afford today with the assumption they can always sell in the future without taking any losses. Such a major assumption, but hell they have mostly been right...

Thanks, Mouse. That makes fine sense to me as a response to the question.

On the “mostly right” comment and the tail end, I was reminded of this listing in your (current) neck of the woods that came across my screen:

https://streeteasy.com/sale/1385572
https://streeteasy.com/building/trump-world-tower/79c

Upshot is a $5M purchase in 2007 with $2M down back when monthlies were $4600 (including a partially-entact 421a abatement). A 5/1 IO ARM in 2007 at 6.4%, reset to ~3.5% in 2012, then rolled into a fixed 3.6% in 2017. Tried to sell in 2019-2020 for $7M without success, monthlies now approaching $11K, touting “Investor Opportunity with tenants in place until end of 2020”. The asking rent is currently $20K, so ~2% rental yield if they get that. Sounds alluring with ~2% ARMs…

A quick run of the costs shows after 14 years, the cc + interest maybe covered the rent. There would be no gain on a sale. So “no losses” on the $2M, and I’m sure the buyer will be just fine. The (intentional) tailwind from Uncle Sam’s interest rate cuts saved the buyer’s skin, but it doesn’t seem the buyer really thought through the tail end clearly enough.

Meanwhile over the 14 years, MCR’s beloved VBAIX 60/40 fund would have turned that $2M into $6M and Keith’s S&P index would have made it $8M. That’s my nightmare scenario…

I'm surprised the balanced fund underperformed the S&P by so much over that period of time. But I guess that's another conversation...

@Ionada I cannot wait to move in and move on... at which point I will likely disappear from the board (except for checking back every few months to see if Mouse found his dream apartment).

@Mouse I am in the same boat regarding savings catch up after few career changes; not every person in Manhattan went banking analyst --> PE route.

@keith looks like the balanced fund includes 40% bonds, which as an asset class have lower risk/reward profile and in most time periods would underperform stocks. So therefore that fund underperforming 100% stocks S&P 500 index fund is the expected result.

@krolik - exactly,
@keith - I am relatively risk averse; less risk, less reward. VBAIX is perfect for my profile.
@inonada - 845 UN Plaza is the building that really makes the most sense in our neighborhood on a number of levels (with the caveat that none of them make sense from an investment perspective). We were tempted but just could not get past the name on the building, and that aversion goes all the way back to 2011, before the name became as polarizing as it is today.

What @krolik said…

@mcr, I understand on the name... FWIW, I think the building's units, particularly the ones on the higher floors w/ (actual) 10-11' ceilings, have aged well. The kitchens / bathrooms obviously are dated, but the bones are good.

@krolik understood on the funds composition.
I actually suggested that fund for my daughter who is very risk adverse (nervous) investor. I just had read a few places where surprisingly balanced funds had kept pace with the S&P 500, I thought it was over the past 10-years? Anyway I agree, it shouldn't.

You have a good nose NADA for snooping out lemons. Not sure where they came up with that pricing or who originally agreed to pay that amount. But it's well above where many units have previously and currently trade.

I get it's on the 79th floor, but at some point does that even matter?

https://streeteasy.com/building/trump-world-tower/32ae

Hmm... I don't think these are particularly good deals.

https://streeteasy.com/building/trump-world-tower/24g

This apartment is both smaller and much more expensive than the coop apartment I purchased (but on a higher floor and with bigger windows). Monthlies are pretty good though.

16G was just rented for $5500 so the cap rate is not great, around 2%, which is below 30 yr fixed mortgage rate, so to me, this makes little sense as a purchase with mortgage, unless you think the rent will go up a lot soon.

@inonada Your whole computation is based on the assumption for the investment. People with more money values stability with the people with less money and they are paying a premium with purchase. This explains the expensive home has a lower CAP rate than the inexpensive one. At the expensive end of the spectrum, renting costs less than the equivalently monthly cost with a purchase, while at the inexpensive end of the spectrum, renting is more expensive than purchase.

From the early data you cited, I am probably at the top 10% in terms of household income, while most of the posters in streeteasy are more in the top 1%. I purchased my home for about 8 years for around 350K in Queens. At the time of the purchase with a 20% downpayment and 3.25% interest rate (30 years fixed), the monthly cost is less than the rent.

Now eight years later, I upgraded my home from 2bedroom 2 bathroom to 3bedroom 2 bathroom due to the growth of the family. However, the price in this neighborhood has been doubled, so the home is more expensive, and the total monthly at 3% rate (still 30 years fixed) becomes more expensive than the rent of the similar apartment.

@krolik - Coop discount was too big for me to ignore, but as far as condos go in Turtle Bay/Beekman/Sutton, 845 UN Plaza fared the best in my personal research. Had the building not been affiliated as it is, Mr. MCR might well have put his foot down and insisted on a bigger place in that building. He has come to appreciate our building, but he would have preferred a relatively modern condo.

TWT is a building with a nice level of service, FWIW.

@keith, not sure which pricing you refer to: the $5M transaction in 2007, or the $7M attempt in 2019-2020. I agree that the $7M price is trash: that's why it didn't transact, but 32AE did in its renovated state. Personally, I'd take 79C over 32AE at the same price: I can always spend $1-2M to bling out 79C, but I can't buy 32AE and open up the views / raise the ceilings.

But I'm not sure why you think $5M in 2007 is off-market. The building originally sold in 2001, and there are many other high-floor / high-ceiling 2007 transactions around $2K ppsf:

https://streeteasy.com/closing/84938
https://streeteasy.com/closing/86742
https://streeteasy.com/sale/52490
...

@Krolik I do not think I will ever find my dream apartment. The apartments I would like be in rent for $12-14K; I would be happy there.. but the ones I dream about must be more! And my current budget is < $10K. I do work in finance as well, and have made my employers over $1BN over a 20YR career.. but it hasn't been for the right employers and I have learned the hard way (through time) that finance is not really a meritocracy (if it were, markets wouldn't be as inefficient as they are! so it does keep me employed at the end of the day...).

...
https://streeteasy.com/sale/87014
https://streeteasy.com/closing/140373

That's 6 transactions of basically the same thing in the same year. These flat 2007-2021 examples are a dime-a-dozen. When StreetEasy assembles all same-home resales into their price index, they get the same: $1.0M in 2007, $1.0M in 2021.

Krolik>> Hmm... I don't think these are particularly good deals.

Not sure if that was directed at me or not, but I wasn't making a comment about whether it was a good deal or not (buy or rent). Just that the apts have aged well: there are lots of 2000-ish buildings that have me feeling *meh* at the prospect of living there, irrespective of price.

@ionada those apartments do look nice, nice windows, and I think a decent deal for rent. Don't know if I'd be able to get over the name.

@Mouse I can relate, except my dreams are a bit more down to earth :-) Maybe I need to dream bigger.

I was talking about the 2007 price. I didn't see the other listing I only saw the rental, which I only glanced at.

Apologies this is what happens when I'm trying to work on a phone with my contact lenses and no readers nearby!

I didn't see the 2007 transaction I was referring to the $7 million transaction.

Got it. $7M wasn’t a transaction, it was an asking price nobody took over 2 years.

@woodside, I have often wondered at the discrepancy between rental yields of less vs more expensive RE. I kinda concluded that it might more be a matter of labor than anything else.

Imagine you had $10M cash and were choosing between 1 apt at $10M or a 100 apt complex at $100K each (in AZ, say).

The $10M apt might have a rental yield of 2%, plus another 2% in appreciation, minus say 1% in upkeep & transaction costs. So 3%, or $300K per year, overall. The $10M complex might have a rental yield of 5%, which ends up (under the same assumptions), as $600K per year overall.

Pretty awesome, right? Except managing 100 units is a full-time job for a bunch of people, costing (say) $3K/year for each apt.

People tend to ignore this labor cost in personal RE investment, because they consider it “free” on the margins. But any scaling by a single owner shows how the odd-job of managing a single unit becomes a part-time job when managing a dozen and a full-time job going much beyond that.

@inonada My reply is probably going to be delayed by several days due to the requirement of the streeteasy review. When I compute the CAP rate of a coop apartment, I only consider pure profit, e.g., the difference between rent (for a similar apartment) and the maintenance fee for coop (or the maintenance + property tax for condo).

After we subtract the maintenance for coop (or the maintenance + property tax for condo), the problem of managing is not a problem as the cost of labor has already been baked into the computation.

Another reason that the landlord may ask for higher rent for the inexpensive apartments (which tends to be smaller and also in outer boroughs) is probably there is high turn-out (so more labor cost) . There is also higher demand for renting inexpensive apartments as people always start to rent smaller (inexpensive) apartments and then transition to purchase large (expensive) apartments so the market can support this market rent.

I was reminded of this thread by an article in the WSJ today:

https://www.wsj.com/articles/inflation-jackson-hole-fed-powell-11661288446
Jerome Powell’s Dilemma: What if the Drivers of Inflation Are Here to Stay?
"Central bankers worry that the recent surge in inflation may represent not a temporary phenomenon but a transition to a new, lasting reality. To counter the impact of a decline in global commerce and persistent shortages of labor, commodities and energy, central bankers might lift interest rates higher and for longer than in recent decades—which could result in weaker economic growth, higher unemployment and more frequent recessions. The Federal Reserve’s current round of interest-rate increases, which economists say have pushed the U.S. to the brink of a recession, could be a taste of this new environment...."

@inonada - we have some weird stuff going on right now

"the west" generally is raising rates while China is actually lowering rates

USD historically strong against other major currencies

You are seeing the first moves of what could be a major China supply chain unwinding with Apple moving some of their iPhone manufacture to India

War-driven energy prices continue to be underlying cause of much of the inflation & relative western country performance (US is not as beholden to imported energy as EU, Japan)

One thing I absolutely did not expect to see is my ~5 year old new dev BK condo now having resales closing at +15~25% above 2016-2018 cost basis for some of my neighbors... to new buyers who now are going in with 5%+ mortgages vs existing owners sitting in ~3% mortgages!

The best I can figure is:

- People are flush with $$$ => more demand
- Fewer people working, and doing so less hard => less supply

Then there’s this interesting positive feedback going on with higher rates driving people into pushing up rents driving people into pushing up prices driving Fed into pushing up rates. I guess I’m just not seeing us resettling into ZIRP anytime soon….

Agree that zirp is history but new range of 10y over the next 5 years is tricky to forecast right now due to pandemic and Ukraine driven factors.

I get the sense that a some people might be behaving as if ZIRP is just around the corner: borrow now, refinance later. Who knows, maybe Uncle Sam forgives mortgage debt next?

"Central bankers worry that the recent surge in inflation may represent not a temporary phenomenon but a transition to a new, lasting reality"

Ive been saying to friends and family since the first time the word "transitory" was used that they're idiots at best, but most likely lying and have been consistently ignored.

The western world's 25 year bull run has been fueled by chinese labor.
In addition to hotter cold wars, tarriffs, shipping , pier, and trucker issues, that run is over.

Add to that , the majority of consumer goods are made of plastic. A product of oil that enjoys heavy subsidization from the production of Oil energy which on the verge of getting its retirement watch.

And I didnt even have to mention a war in Ukraine.

>> Then there’s this interesting positive feedback going on with higher rates driving people into pushing up rents driving people into pushing up prices driving Fed into pushing up rates. I guess I’m just not seeing us resettling into ZIRP anytime soon….

A WSJ video discussing the same, suggesting that people rent given high prices and rates:

https://www.wsj.com/video/series/dion-rabouin/should-you-rent-or-buy-a-home/08F88485-608C-4079-851B-98F45A33D7E8

Just received this note from a banker today:

"As noted, we can lock you in on the 30YRFixed at 3.75% for a 90 day rate. You will receive the $4k closing credit. Unfortunately we are unable to extend past 90 day rate lock unless you were interested in our 180 day lock program which would add 75bps to the rate, locking at 4.5%."

What?

Sorry to get you so excited 300. Actually realize this rate is for a building in East Harlem. The bank is First Republic and it's part of their 'Eagle community'. These rates are based on neighborhood not income. Looks like they may be going up if the Fed does indeed raise rates, 4.75.

Thank you. Makes sense for that program.

Wells Fargo is no longer doing HELOCS.
I read this online but haven’t verified it. I don’t know of a another HELOC lender that would do piggy back loans.

I saw Jeffrey Gundlach late last week on TV. He said that the FED should only raise rates by a quarter of a percentage point and that he is worried about deflation.

And Bank of America is doing no down payment loans...

Isn’t that for investment properties?

Conforming
Loan Type MI Type Interest Rate Discount Points APR
Conforming 30-year Fixed 6.000% 0.875 6.135%
Conforming 5-year/6-month ARM 5.375% 0.875 5.271%
Conforming 7-year/6-month ARM 5.500% 0.625 5.357%
Conforming 10-year/6-month ARM 5.875% 0.625 5.679%

Jumbo
Loan Type MI Type Interest Rate Discount Points APR
Jumbo 30-year Fixed 5.125% 0.750 5.201%
Jumbo 15-year Fixed 4.875% 0.750 5.005%
Jumbo 5-year/6-month ARM 4.625% 1.000 4.957%
Jumbo 7-year/6-month ARM 4.750% 0.750 4.952%
Jumbo 10-year/6-month ARM 4.875% 0.875 5.007%
Rates shown are for purchase loans only. This information is accurate as of 9/21/2022 10:07:52 AM (CT) and is subject to change without notice.

That’s a community affordable loan solution for first time home buyers

https://www.nytimes.com/2022/09/01/business/zero-down-payment-mortgages.html

Well, Gundlach would say that, along with "This is a very good time to buy bonds...," because he's got a portfolio stuffed full of lower yield bonds that he'd like to swap out for issues with higher rates, without taking a long sudsy bath. A big rate jump means he has to unload things faster and explain to investors why he's caught on the wrong side of the rate moves (He's 'a bond king', after all).

It's great that we are opening up financing to those lower on the economic ladder now that rates have spiked & all the home price appreciation gains are in.

Is this 2007 again?

The cynic in me thought the same thing, stache.

So fed raises rates and new construction costs even more money to due to carrying cost of construction. Multifamily cap rates go up making rent breakeven even more expensive for new buildings. Fed demand management makes the new building supply situation worse.

We accompanied a young family member on a real estate hunting trip to Charlotte, NC last weekend. My advice to them at the end of the weekend: RENT. Even though rents are high right now, that market seems way out of whack. I cannot believe how little $600,000 gets you down there compared to what I expected. Our well-educated young family member said “But if I don’t buy now, I might be priced out forever!” and protested further that he did not want to “waste money on rent.” I wanted to cry. Young man with excellent credit and solid salary who is ripe for being taken to the cleaners by one of the shiny new developments (dime a dozen all at outrageous asking prices).

My point being: Sure seems like 2007 again. There is no way these new developments in Charlotte are going to even maintain what they are asking let alone appreciate.

@MCR - similar anecdata for you

My parents home, CT but outside NYC commute range.. Zillow & Redfin price estimate is sideways 2010-2020, totally flat. 2020-2022, +50%.

Lot of development in town including right across the street, all new homes priced at 2x parents zestimate, or 3x what the 2010-2020 zestimate was. My parents tell me most of the buyers are New Yorkers. Likewise my wife had a colleague move during WFH all the way out to where my parents are, no way shes ever commuting to midtown again.

This is a town when growing up, the 1-2 "rich families" I knew had 1 parent that drove the same BMW 3-Series for a decade, lol. Now new devs are crossing $800k? Median household income in both these towns are still ~$90k. OK.

Same for my in-laws who are 45min further out. Flat for 10 years, +50% 2020-2022.

There was definitely some HCOL to LCOL remote relo price pressure 2020-2022, I was part of that with my 2nd home purchase (which not coincidentally is marked as being +50% in 2 years hmm). But that was a one-time event and not a continuous flow.

Who is buying @ +50% pricing and 2x soon to be 3x the interest rate of 2020?
Looking at close to 2.5x the monthly payments!
Seems like the Feds rate hikes are doing exactly what they intended - icing the overheated housing & car markets are leading indicators of the slowdown.

@steve123 - Exactly. Anyone who has been around the block will run screaming, but I still worry about those 1st-time homebuyers who have saved and are being sold a bill of goods by some smooth talker. My first indication that something was amiss was our Uber driver’s glee over recent purchase of $450,000 house in some place called Fort Mill, SC. I looked it up and my heart sank. If he loves the property and is prepared to live in it forever, then great; but if he was buying hoping to make money, I do not think it will end well.

My greatest fear for the unwary is they buy at unsustainable price with high interest loan and then cannot take advantage of any rate drop to refinance when house is under water. Again, if they love the house, can afford the payments and purchased for the love of the property and stability for their family alone, then they will be fine, but I fear the “you must buy real estate to accumulate wealth” mentality remains alive and well despite the dismal data of the past 15 years.

People don't like to rent in the south... Tell him to watch the market for another 3 to 6 months. Housing market is cooling off all over the country, and the south is not immune to it.

I am perpetually perplexed by situations like this:

https://www.wsj.com/articles/the-luxury-home-market-posts-its-biggest-decline-in-a-decade-its-like-crickets-11663795015

When Nancy Lam up­graded in Jan­uary to a home closer to her child’s school in the San Fran­cisco Bay Area, she thought she had plenty of time to list her old house, a five-bed­room mod­ern home in the sought-after sub­urb of La­fayette. 

Af­ter all, the pan­demic had sent the lux­ury hous­ing mar­ket soar­ing, and homes across the coun­try were see­ing ag­gres­sive bid­ding wars and sell­ing for sky-high prices. Ms. Lam, a busi­ness pro­fes­sor, and her hus­band, who works in health­care and de­clined to be named, took their time spruc­ing up the house in a bid to get the best pos­si­ble price for the home, which they had bought for $1.67 mil­lion in 2014.

But af­ter list­ing it for $3.95 mil­lion in May, they re­al­ized they may have mis­cal­cu­lated. Af­ter weeks on the mar­ket, the house hadn’t been scooped up like they ex­pected. There were no rea­son­able of­fers, and no bid­ding wars. Now, four months and two sig­nif­i­cant price cuts later, the prop­erty is still lin­ger­ing on the mar­ket, ask­ing $3.49 mil­lion.

“It’s crazy,” she said. “We never ex­pected for this to still be on the mar­ket. It re­ally caught us by sur­prise.”

So…

Business professor looks around the world in January 2022, with 30yr fixed mortgages sitting at 3% while CPI has skyrocketed to 7.5%, and decides it’s a great time to buy a new house. Instead of dumping the old one quickly for an exchange, she decides to double down and fiddle while Rome burns. “You know what this house really needs, what would get us top dollar? A new deck and green marble in the bathroom. Lemme spend 4 months looking for the right shade before listing.” Fast forward to Sept 2022, and she’s surprised by the effects of the Fed simply doing its most basic function.

If a business professor has trouble internalizing Econ 101, what hope is there for MCR’s hapless kin?

Timing is everything. Now the business professor with her infinite wisdom could have done what the Burkhardts' did, and simply stayed put and made some changes to their current home to make it a bit more palatable and just dealt with the slightly inconvenient commute to their kids school.

I'm not exactly sure but it sounds like she purchased when the market was close to peeking in 2014 before the covid boom. She gets an F.

She probably has a very nice house and a great neighborhood. Seems like they're staying put in the area, much different narrative if we interviewed them 15 years from now in their previous home. The good news is they still have a lot of profit margin to play with, they just have to suck it up and get with the program and make a meaningful price reduction that's in line with what buyers are willing to pay. But then again maybe they've got a little bit of a lemon house since they bought at a time when there were also probably multiple bids on homes and they've got the worst house on the worst block scenario?

I don’t really fault them for changing homes to meet a need. It’s more the speculative aspect. Rather than simply selling the home in January, they “took their time spruc­ing up the house in a bid to get the best pos­si­ble price for the home”.

To me, that seems like poor speculation / blinding greed given the environment. As a business professor, surely she knows about the Fed and actions they need to take to stop inflation from running further amuck, no? But beyond the question of whether or not the speculation was wise, do they have the means to speculate in such a way? I’m sure they’ll get by, but it kinda doesn’t sound like it:

>> That’s bad news for sellers like Ms. Lam. While she said she’s grateful to have found a new house, she noted that it’s difficult to carry two mortgages and two sets of property taxes and insurance. “We didn’t budget to be carrying two of everything for more than a couple of months,” she said.

Hapless indeed. Poor thing is listening to his grandparents over his parents. He will land on his feet even if he makes a mistake, but it won’t be so easy for the Uber driver. Everyone knows my personal bias in favor of owning, but that is a quirky personal preference that works against sound financial management decisions in my case. It makes my head explode when I hear anybody talk about purchasing their primary residence as a risk-free-sure-to-win investment. When is this conventional wisdom going to die?

@Aaron2
I just heard Jeremy Siegel, the MIT professor lash out at Jerome Powell. It’s not only Gundlach that’s cautioning about these huge rate increases. This Jerome Powell who is not an economist appointed by Trump to head the Federal Reserve is going to drive this economy into the ground with a severe recession. As Siegel noted, it was just a year ago when inflation was raging out of control that Powell insisted that it was transitory. Powell would not listen to anyone urging him to change course, and raise rates. Now Powell is doing the same thing in reverse. Inflation is cooling and he’s hawkish and the stock market is declining and interest rates are rising due to how incompetent Powell is and the fear of the ramifications that his hawkish is causing.

As far as owning real estate, right now I just read how Wall Street is continuing to buy single family homes to rent out.
That said years ago when I used to read Forbes 100 richest people, there was information on how they accumulated their wealth and at least 50% but probably more got rich from investing in real estate.
But regardless right now if I didn’t own a house, I would buy; rents may be going up more and with Wall Street depleting inventory it would make sense to do.
As far as not being able to refinance to get a lower rate down the road if one is under water, chances are that is not the case. When the housing market crashes lenders and Fannie Mae change course and offer programs to borrowers to prevent foreclosures. As late as 2013, there were Fannie Mae rate and term refinances, and even included no income check for the low rate mortgages, and even included borrowers who had negative equity. This program created by FHFA was called the HARP program. There is even talk now of mortgage forgiveness as a follow up to student loan forgiveness if the housing market gets worse.
Now it’s a buyers market, I say buy. I still remember buying a co-op in 1987 and got a rate of 12% and I was very satisfied.

Hawkish is hawkishness

If I wear Ms. Lam with her unsold home in Lafayette, since I assume she has moved into her new home, I would list the Lafayette home for rent, doesn’t mean you take it off the market for a sale, but it’s best to hedge your bets as the rental market is still pretty strong. I realize many people will balk at becoming a landlord, but if she is currently carrying two mortgages, getting the vacant home rented would go a long way to covering her expenses. But I agree, reading this article, it’s hard to believe this is a business professor. Certainty not a university I would want to send my kids…

Years ago the conventional wisdom made sense. These days, not so much. The kid’s grandparents are basing their advice on their experiences from decades past. The world has changed. Buying is still the right decision for many; it is the notion that it is a risk-free-sure-to-win investment talk track that I object to.

Like anything, the shorter the time horizon the riskier it becomes. If he's going to buy a condo and plans on being there for 10 years, can comfortably afford the payment, has sufficient reserves after purchasing along with a relatively stable job, I don't think this is a life-ending choice. Wish I had a crystal ball to know exactly how it turns out....

We're also seeing in today's market equities aren't exactly one straight line up. It's only been the last 12 years where stocks have really outperformed real estate in a significant way. Owning my own home didn't keep me out of equity markets for the last 12 years, for the most part I was all in.

I view a home as one piece of the puzzle, I don't want to put all my eggs in one basket whether that's a home, Bonds, equities or some alternatives. I can personally say I thoroughly enjoy home ownership along with the home that I've built and customized to meet our families demands.

Just be smart about what you're going to purchase, what you can afford and that it's silly to buy a place you're going to live in for less than 5 years.

Keith Burkhardt
TBG

I think I started this thread in early Aug 2021. Now it’s late Sept 2022, just over a year later. The change in rates has been astounding:

- 10yr treasuries were at 1.2%. Now they’re at 4.0%.

- Mortgage products ranged from 1.8% to 3.0%. Now they range from 5.0% to 7.0%.

- ARM resets a few years out, at market expectations, were at 3.75%. Now they’re at 6.75%.

Interesting times…

Will interest rates come back down before those resets hit? What happens if they don't?

They might come back down, but they might go up even higher. The market is telling us its best guess on the average of possible outcomes, which is that they’ll stay in the 3-4% range for the foreseeable future. Anyone who feels differently can speculate directly if they want.

In terms of what happens, I think George summed it up best last year:

>> I have no clue what the world will be like next year, much less 7 or 30 years from now. All that I know is that I am highly unlikely to own this property with the same mortgage in a decade, so a 30 year fixed is stupid for me. And I have a lot of good uses for cash at more than 2.375, so I should pay down as little as possible. Buy, borrow, die.

Seems like people will either refinance, sell, pay down debt, or die.