Despite publishing cautionary posts about investing in stocks, bonds, and alternatives at current levels, the biggest caution I should be writing about is taking out massive debt to buy property at record highs.
If you lose 50% on your stock and bond portfolio, you’ll be upset, but fine. If your property loses 20% of its value, however, this means you’ve lost 100% of your 20% downpayment. In this scenario, you’ll also probably still be fine – if you don’t have to sell. But when property prices correct by 20% or more, many people become forced sellers because they’ve also lost their jobs.
I understand that millennials are coming of buying age and inventory is on the decline, making competition for buying a home fierce. However, only if you are fully cognizant of the following points I’ve highlighted below should you proceed with a property purchase today.
Things To Know Before Buying Property Now
1) Rents have softened from peak levels in many of the most expensive cities. Given property prices are a function of rental income multiples, a real estate buyer should be looking to buy at similar pricing discounts from peak rental periods. For example, research whatever comparable New York property you want to buy today that was sold for in March 2016 and aim to buy at a 14.8% discount to the March 2016 price because that’s how much rent prices are down.
In 2017 I experienced softening rents first hand when I tried to find replacement tenants for my SF rental house at a similar rent of $9,000 a month. After 45 days of aggressive marketing, I only got two offers, both for $7,500 (-16.7%). I even hired a rental listing agent for two weeks to find people for at least $8,000 and he failed. As a result, I sold. Pricing pressure starts at the most expensive markets and works its way down. The large supply of condos in many expensive cities has really put a damper on rents and housing prices.
Buying at peak prices when rents have fallen from peak levels means you are paying a higher valuation. This is a dangerous scenario that can’t last forever.
2) Mortgage rates are rising. With the surge in the 10-year bond yield to 2.85%, mortgage rates are following suit. My last mortgage refinance was in 2016 when I locked in a 5/1 Jumbo ARM at 2.5%. This same mortgage is now 3.58% based on the latest rates. In other words, if I were to take out the same mortgage today, my monthly payment goes from $3,951 to $4,535, a 14.8% increase. A 14.8% increase is significant because average income only increases by ~2% a year.
5/1 ARM Mortgage Rate Breaking Out
While 3.58% is still relatively low for a 5/1 ARM, everything is relative, especially since property prices in some cities have risen by double digits since 2012. If the average interest rate for the 5/1 ARM were to rise to recession levels 10 years ago, a $1,000,000 mortgage payment would go to $6,321, a whopping 60% increase.
10 year history of the 5/1 ARM mortgage rate
Check for a free mortgage quote here with LendingTree, a stock I should have bought for under $100 a share when I first met up with senior management a couple years ago. TREE has since tripled in price.
3) Prices have blown past their previous peaks in many cities. While every city is different, if you look at the prices in Denver and Dallas, you’ll find that the prices are roughly 45% higher than they were in 2006-2007. This price performance is similar to San Francisco’s. Meanwhile, hot cities like Seattle and Portland are only about 20% above previous peaks.
The US median existing home price is about 12% higher than its previous peak, which is a modest rise since over 10 years have passed. As a real estate investor, your goal is to invest in markets that have both underperformed and have the potential to catch up.
Do you think you should be selling or buying at these prices?
4) Tax reform takes time to negatively impact housing prices. Conceptually, we all know that limiting state income and property tax deductions to $10,000 and limiting mortgage interest deductions on new mortgages up to $750,000 are net negatives for expensive coastal city real estate markets. Until homeowners file their 2018 taxes in 2019, however, no financial pain will be felt.
Some will argue that lower income taxes will offset these deduction limitations. Perhaps. But nobody really knows for sure until 2019 tax returns are filed and accepted. Tax reform is a headwind, not a tailwind for coastal city property price appreciation.
5) Inventory is slowly creeping higher while rents are flatlining. The construction boom we’ve experienced over the past several years is finally showing up in the data as a wave of new inventory hits the market. When there’s more inventory, pricing comes under pressure.
Although inventory is still historically low, it’s important to realize the inflection point we’ve experienced in mid-2018. In just several months, the amount of inventory is back to where it was at the end of 2012. If the trend continues, we could quickly get back to 2008-2010 levels.
Here’s a more detailed inventory job of specific cities in 4Q2018. It is too late to sell in places like San Jose, Vallej0-Fairfield, Santa Rosa, Denver, Napa, Seattle, San Diego, San Francisco, and Oakland for maximum dollars. But giving downturns generally last 2-5 years, pricing is likely going to get worse.
4Q2018 YoY inventory up in many markets
Higher inventory also leads to flattening or lower rent prices. Here’s what’s going on with Seattle and San Francisco rent, for example. These two property markets have been the hottest in the country. But finally, we are seeing a cooling as buyer fatigue sets in.
6) It takes a while to recognize a peak. The housing boom that began in January 1996 ended in March 2006. But it wasn’t until the beginning of 2008 that people started to accept that the housing market had already peaked. Until 2008, property investors were still clinging to hope or at least were in denial that prices would no longer be going up. Once Bear Sterns was sold for nothing to JP Morgan in March 2008, people started to panic. Then Lehman Brothers went under on September 15, 2008, a full two and a half years after the housing market peaked. And things got even worse, with the S&P 500 finally bottoming out on March 9, 2009.
Below is a great chart that shows how badly housing prices corrected in some of our major cities. Notice how the previous boom lasted 10 years and the crash lasted 5 years. We’re now going into the 8th year of a bull market.
Keep Your Unbridled Enthusiasm For Housing In Check
The mass media and the real estate industry will focus on strong demand, strong job growth, and a dearth of inventory as drivers for higher property prices in 2019 and beyond. That’s fine if you can surgically buy in strong job cities via real estate crowdfunding. If you look at property nationwide as a whole, prices will probably continue to inch up.
However, if you look at individual markets, you are beginning to see cracks in the foundation. I don’t recommend leveraging up to buy expensive coastal city real estate as an investment at this point in the cycle. Look to the heartland instead, where valuations are much cheaper and net rental yields are much higher.
If you’re dying to buy a primary residence today, make sure you can withstand a 20%+ correction over a five year time frame, if history is any guide. If you don’t have a financial buffer equal to at least 10% of the value of your property after putting down 20%+, then you are not financially prepared for a downturn. Better yet, pay cash.
Too much debt is really what will kill you if we ever return to hard times. Buy a house to enjoy life instead of looking to make a profit. I doubt we’ll have a correction as violent as the last one given lending standards became far tighter after the housing crisis. All the same, please buy and borrow responsibly. The stock market is a forward looking indicator that is showing strains ahead.
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Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.
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Less than 5% of the real estate deals shown gets through the Fundrise funnel
“If you don’t have a financial buffer equal to at least 10% of the value of your property after putting down 20%+, then you are not financially prepared for a downturn.”
That’s the big gem here. It’s so imperative to know exactly where you stand finanically. That’s the best defense. If your eyes glazed over at the math then I wouldn’t make a move. I don’t think a downturn will be as violent as the last one either. Most of my millennial friends haven’t embarked or considered home ownership. They rather rent forever then leave the hustle and bustle city. Although my sampling is in the $$$ coastal cities.
Here’s my forecast, with the deficit clearing 1 trillion already and global markets and gdp on the downward slope we can expect a recession by April if not sooner first to go will be stocks and dividends then a major slowdown in luxury goods as soon as you see that housing markets will turn south with an already over built rental market and fed rates rising the correction of about 40% is likely to happen by mid Jun the Midwest has already seen their crops rotting because of 45s policies while in the rust belt manufacturers are cutting production layoffs will echo as Black Friday numbers disappoint and cyber Monday flatlines Washington’s policies and tax breaks for the top ten percent while all others are having tax hikes
Brace yourselves not even gold will save this one this time
Doom and gloom forecast above is drawn upon many negative scenarios working in unison to come to the conclusion provided.
While it remains to be seen, the actual performance of our economy as predicted by David will be negated by at least some positives not mentioned.
Awesome point! We all heard the term what goes up must come down. I understand the real estate market is banking well hoping on the millennial but my concern are they predictable or unpredictable? We all wish the market could withstand this large increase. But let’s be realistic here. There’s no way the average person can afford to pay 3,000 plus payment for 30 years come on man stop kedding yourselves please.
I totally agree. Ppl are lying to themselves big time. Especially the investors and real estate agents. I live in an expensive area (south Florida) to be exact and I watch the housing prices regularly. There are several houses sitting on the market, which have been completely remodeled that they still cannot sell. These homes have literally dropped $30,000 in price since they were 1st listed this time last year. That tells me they’re not even getting offers. The business end wants to say the housing market is sustaining itself, but the property listings say different. Continuously lying doesn’t make a lie become the truth lol.
Prices are down 5% – 10% in the SF Bay Area, once one of the hottest areas of the country because inventory is up 50% – 150% YoY.
Let’s see if Uber, Slack, and Lyft IPOs will save us in 2019!
Hi Sam,
Great write-up! Very well presented and backed up by data. Something to keep on watch. Thank you.
I’ve always been of the belief that when the stock market goes, so does real estate (401k’s effected negatively and more buyers sit out the market, selling of existing homes increase as people look to downsize, perhaps over-extended and think “get out now before prices drop more” etc). Of course, rising interest rates will eventually play a role to eventually turn the housing as well. I think the Fed is trying to do exactly that (raising rates) as we head into our 11th year of a bull market in stocks and housing and are aiming for a soft, gradual landing on that front.
Having said that, I think this recent correction in stocks (or “bear market” as some are calling it) will be short lived and the bull will be alive and well again sooner than later. I think markets end correcting by April/May and then the next leg of the bull begins. Our economy is strong. Job market is very strong. There is no risk of a recession Jobs are another KEY factor. How does housing fall any significant amount in the face of a bull market in stocks, a strong economy with strong jobs. I just don’t see it? What am I missing?
I do think the red hot housing market will cool off and pull back a bit as and we are seeing that now, but I think it will be very temporary and not much. Prices pull back maybe 5-10%? That’s nothing in markets that have seen 200%+ home price increases in the past ten years from the crisis lows. Thoughts?
I think prices pull back at 5 to 15% and just sit there for a couple years and then it’s back to the up and up. I don’t think interest rates will be going up anytime soon, for Mortgages that is, no matter what the Fed does.
I’ve held a bully for a long time now that the 10 year bond yield won’t get much higher than 3%.
This is always a tricky subject because we never know how much will a bubble last. People start talking about the “.com” bubble as early as 1996. The problem is should we completely stop investing? And do what in the meanwhile?
Also, bubbles can deflate very slowly and throughout some years.
In the case of real estate I always look for the average wage. Let’s say it’s about $15k per year. If an average house (in terms of quality and location) goes beyond 10-15 times (> $150k – $225k) the average salary on a region, I would say that we are in a bubblish real estate market. Therefore we should rethink our options of investment.
Thank you for this valuable information. I’m currently positioning for a downturn in the real estate and stock market. Hoping to acquire some good deals soon.
-G$
Good points, Sam. I’m 33, and still happily renting for the time being. A number of friends or colleagues are buying just because they feel they should be owning by now.
In Chicago, we’re still enjoying declining rents in a couple neighborhoods, including where we live. As you mention, the buying competition is fierce.
Mrs. BD and I do want to own a place someday, but (1) we’re just not ready at the moment and (2) the conditions do feel right for many of the reasons you highlight here.
Mike,
I admire your willingness to not go with the herd and buy just because that’s what “adults” do. I hit FI at 42 without ever owning a single piece of property and still don’t.
That sounds odd that the banks are not forcing their mortgage holders to stay firm on rent, even if it means vacancies. That is what they did in 2008.
I just moved a few weeks ago into a newer building in the same neighborhood; I received one free month of rent, a $500 rent credit for a friend who “referred” me to the building (he got $1,000), and an additional $1,000 rent credit for working for a “sponsored” employer in the area.
While rents have slightly risen, I’m still seeing an over abundance of new high rise rentals in downtown Chicago. It’s still good to be a renter; supply is continuing to outpace demand.
I know your thinking has been low interest rates “for our lifetimes.” Is that still the case?
Feels like they are just starting to go up, for serious.
Great article and totally agree. It maybe 6 months or 2 years, but some cities are going to have a major correction. The big difference to 2008 is I believe this will not go national. There are 2 markets I follow. The Denver real estate market is ridiculous with double digit growth for 5 years plus. While Little Rock has seen barely inflation growth in home prices. I will tell you the underwriting standards on housing are significantly superior to the last time. Real estate corrections should be local based on what is happening in the local area. Greed and stupidity caused the 2008 crash.
The lending standards aren’t much better. Research NON-QM mortgages
Housing market is cyclical, prices go up and down depending on supply and demand, just like any other market. Affordability is down, Some Millennials are buying but as a generation, the millennial is not buying at the same level as their Boomer parents did (at the same age). also millennials are fine renting or buying newer multifamily developments closer to jobs than commuting to the suburbs. Exceptions exist, but these are the trends. We’re beginning to see buyers become wary, rate hikes don’t help sustain the over-inflated housing markets in some areas, we will see a correction.
I’d rather invest in REITs due to the hands-off/ultra passive approach. I know that the returns are lower, but the investment is also lower as well as the risk overall. But there are many times where I still ponder about buying a beat-up property in a hot area and fixing it up; just to try the whole process out.
I thinks it’s worth doing, even for the experience. Just be careful on costs and risk.
Well according to my wife who’s a commercial loan banker here in Illinois, they are still seeing a lot of buyers in the rental property sector. She claimed that millennials are renting as opposed to buying. They’d rather not maintain a home and focus more on travel and some things they call matters most. Although nationally, the number of renters in the 55 years or older group increased dramatically in the last 7 years. I do like what you said to be ready for a 20% correction. The housing bubble prepared our minds now to think that way which is a good thing.
This is a trend I can attest to. My four rentals in Minneapolis are going gangbusters thanks to Millennials who prefer to rent, rent in the city, and have a yard for their dog.
Sam is right to point out that things will only get more difficult for potential buyers. As an investor, I’m hoping for another bubble burst and lower mortgage rates. As a human, I’m hoping for affordable housing to become more commonplace as evolve into a caring species.
One thing to consider before purchasing a home in a growing area is infrastructure. In our county (Union County, NC) a new highway connector system is under construction. At one point, it was set to cut right through our subdivision. Had that happened, property values would have declined and we may have had to re-think selling our home this spring. We made our profit in NY in 2005. We’ll be happy to break even on this one.
Interesting Mrs. Groovy! In our neighborhood they are calculating a light rail system to be placed in. It will be .7 miles away from us and I’m wondering the impacts. Most researches show highways as bad for neighborhood, I wonder about airports, rails, transit centers etc. Seems like a under researched area.
I would imagine a light rail system nearby would boost property values as most people want to be near transportation. As long as the rail is right next to the property or you can’t hear the noise…I think you’re good.
Really hope you are right Andrew! We are one of those people who would like to live near a lightrail / transportation hub so if things do pan out, selling might not even be a consideration!
I’m in the process of dramatically levering up to buy real estate right now but I’m buying a primary residence. I expect almost no appreciation in the value of my house but I’m buying to be in a good school district, not having to deal with moving all the time from rental properties and a better quality of life. I could buy a smaller house and hope to buy something bigger at a lower price if values decline in my area but with the absurd transaction costs in real estate (where else is a 6% commission considered acceptable in this technology enabled age?) and the hassle/stress of moving a family with small children I’m taking the opposite approach. Buying more than I need today knowing I can stay in the house for 15+ years with no problems. Yes it would be depressing to see my net worth take a hit if my down payment gets wiped out in the interim but I’m not expecting the value of this property to contribute to my wealth accumulation for retirement so in the end it doesn’t really make a big difference.
I’m in the exact same situation than you here in Long Island, NY. It’s ridiculous how pricey stuff here is (and the value of the homes are not really worth it plus most of them are ugly), but transaction costs are grossly expensive to consider starting with a smaller house and then moving to a bigger one later on. I’ve been in this process for 2 years but I keep on refusing taking the plunge. I’m motivated just because it’d be my primary residence + good school district, but other than that I would never do it. Of course the fiscal policy changes just made this whole process in this area a lot worse!
Not to mention the insane property taxes in Long Island!
Absolutely insane.. a total deterrent to purchasing a new home.
Cool. If you lose, Just know that at the end of the day it’s just money. Take the amount of money you’ve lost and divide it by your annual savings amount to see how much more you have to work.
What is it you do for a living?
You nailed it with this insight: “If you don’t have a financial buffer equal to at least 10% of the value of your property after putting down 20%+, then you are not financially prepared for a downturn.”
We have many millennial friends who are hungry for their first house. Being overly hungry inspires bad decisions on what to consume. We always tell them you want to be in a good financial decision before you buy a house (like your above comment) but people have to make that decision for themselves. When you’re financially stable, you don’t have to worry about a downturn or a correction. I truly believe one of the greatest definitions of wealth is the absence of worry in ones life. Aim to remove worry from your life, over the big beautiful financed house, and you’ll be set up great for the long term no matter what may happen to you.
I have a 5/1 ARM that resets in 2021. That’s still a long time, and I’m very happy to have locked in a 2.625 rate (summer of 2016 when you were advocating for it), and who knows where I will be then.
I’m definitely getting nervous as well. Seems things are slowing down rather than speeding up. Be careful out there…
I’m seeing some softening of the rental market here in Los Angeles as well. My neighbor’s house has been vacant for three months at what I consider a pretty reasonable rent. (No complaints, the previous tenant was noisy.)
I also have two coworkers in their early 30s who recently paid way over asking in neighborhoods that wouldn’t have been on their radar even two years ago. The market seems peak-ish, though I’ve thought that for some time and been wrong.
I’ve been watching the LA market as well and see some properties sit for 60+ days finally lowering their asking price. Inventory is still low but the future is promising.
In Los Angeles, how long would you say to hold out on buying a house? Not sure if I’m understanding correctly but after 20% down, having 10% of the property value seems unreasonable.
Why is it unreasonable to have a cash or semi-liquid buffer of 10% of the value of the house just in case something happens? It’s important to study the previous financial crisis. So many homeowners were forced sellers after they lost their jobs.
Were you reporting on that noisy neighbor? You’ve probably made them insolvent. Good luck with your foreclosure and tax nightmare.
I bet your street will have 5 for sale by the end of March and 2-3 foreclosures by April 17. No thanks to snitches throwing people onto the street who pay rent because you don’t realize YOU are going insolvent next. The bigger you come, the harder you fall.
I just went under agreement to buy a house in the heartland. It’s a duplex with rent going for $1175 a month with a purchase price of $79k. Pretty good, but not great. Add in an expensive 15 year mortgage and a house that revealed a ton of deferred maintenance and I’m out. It’s an expense I don’t want on my ledger with leaving my job and steady income.
Where is that located? I would buy that up all day long. I have a free and clear rental in San Diego, 2/2 condo, paid 290, rents for 1850. It has appreciated 25% or so, but 79k with $1100+ rent is a no brainer. I’d take 4, cash.
That seems like a pretty good deal depending on how much deferred maintenance there is. Let’s say $20k with def maintenance for all in cost of $100k. 1175 * 12 * 85% (assuming 15% maintenance, vacancy and property taxes combined) is $12k or a 12% un-levered yield. That is a very solid return.
The rental market in Portland is slowing down. I’m having a hard time filling my one bedroom condo. One of my prospects told me their landlord forgo the scheduled rent increase to keep them at their old place.
People are still moving to Portland and many new buildings are going up. Newer units are more expensive so I think they will help increase the market price, but who knows.
Anyway, I’m hoping to fill my unit by the end of the month. The weather is improving and I have more interests now.
I think you are spot on. It’s so hard to see the peak and it’s definitely important to be cautious in this time. Rents have really come down in SF. You sold at a great time.
I think it is likely the next drop will be much worse because people have been trained to default for a better deal. The people who went into default made out during the last bust and created much greater moral hazard.
Too much sideline money still. You see a 15-20% drop and people will be buying stuff up left and right. There is A LOT of sideline money still.
I think we’re witnessing a dangerous game where investment landlords are bankrupting their tenants by renting out bedrooms or shared space. That condition didn’t exist in the 08 crash, this is causing those new incoming workers to areas that are beach cities to go into their first bankruptcy before they even have a chance to go to a single open house in the new cities theyve moved to. Worse, employers are losing money due to turnover because these people are being removed from housing market participation.
Speculation has driven investors to high turnover, short term rentals to capitalize in short term real estate earning gains that even IRS won’t recognize. They’re going to catch a heck of a clip to the teeth when they realized they just made the last round of potential 1st time home buyers that the Fed set up to bail them out INSOLVENT. All because they were too loud or because they are conservative? I want to see those losers in prison for mortgage fraud, I will spend my next 7 years settling my score. These people’s properties are about to be forced into default by tax authorities and lenders, because they’re illegally making the property prices rise by renting piecemeal. Only those homes in property management because of bankruptcy and insolvency rules are available to rent on a non room per room basis. Thats what were seeing in’hot market’ cities. They aren’t even bothering to rent their homes any longer, they are trying to rent out the basement to one family, the attic to another, the guest house to another, and the garage to another. That’s something that will make the last recession look like apple pie – it really is going to cause a lot of bleeding when these inventory rentals become boarded up, unusable, and IRS, FTB, or lender owned. Worse because many of them were made available in the inventory via the last bailout, we will need to make it so that they cannot be bought by non first time buyers or we’ll see this cycle repeat and speed up. Then we’d be at war with other countries like China and Korea or Russia for making our own economic volatility so bad that our markets are rigged and insolvent because there is a chance that we could see up to 1/3 of our real estate inventory in hot market cities like L.A., Vegas, Portland, SF, Denver, etc. be removed from the market GDP.
If its bad now, imagine how bad it will be once the inventory for housing is reduced by 1/3 and the local officials refuse to regulate hoping they and their friends can profit..
Do you own real estate or rent? Helps me understand your doom and gloom. Thanks.
This same discussion seems to be happening here in Australia – whether our great property boom has come to an end. Sydney house prices are up around 75% in the past 5 years, and nearly 60% for Melbourne – our two biggest cities.
I’ve never invested in property outside our family home – the debt levels needed are just frightening.
Ditto your comments.
Australian property market has some odd features which make it difficult to call.
I think high debt levels are common for property investing, where as a business activity it’s easy to buy and hold but vulnerable to shocks and cashflow problems.
Couldn’t agree more. In Palo Alto there are many investment homes now come on to the market, each selling for $3.5M & up. 2 homes we visited the agents told us they were previously renting for $7K (we checked zillow and apparently they’ve been trying to rent $10K, then $8K, then $7K, etc..). Assuming their mortgage was $1M, the property tax + mortgage payment would exceed the rental income and have negative carries.
Granted primary home rarely make sense in buy-to-rent ratio or have positive carry, but even with with $2M cash down payment, we’re talking about $1.5m+ mortgage , which will take a two income family 15+ years to pay off (when spouse work you need to hire nanny, which is another $3K/month). This put the borrowers significantly at risk of default in the event of job loss, divorce, or interest rate hikes, etc..
Overall It feels like 2004 all over again, the problem with property bubble is they’re like slow train wreck, you just watch their 5/1 or 7/1 ARM coming due in 2022-2024 then refinance at 2x the rate will pop the bubble, but it’s oh so slooooooooow to happen because borrowers are hoping rate will miraculously get lower again to bail them out, or their spouse will be content to work to bring in income while raising 2 kids and cooking your dinner and forgoing vacations, etc… So who knows? If Fed stop raising rate in March, there may be another asset/monetary inflation around the corner to bail out these borrowers again.
Nobody buys homes in PA for investment. The people selling their homes would be making a killing! Also, if you can afford to put 2M in DP, you are talking about a totally different type of buyers. Not sure if you were around in 2009, but at the bottom of the housing market, dilapidated homes were selling for million plus. Cities like PA are independent of rates…. Now if you are talking about Fremont, that is a different story. But I do think we are close to the peak of this housing cycle, but there is not going to be a repeat of 2009. That was an opportunity of life time. There are very few buyers putting less than 20% DP in bay area. There are no NINJA loans, negative amortzation loans etc. At best we will see slow growth or a sideways market!
That’s not true. Talk to those agents listing homes for sale or go look at their listings on zillow and see if they are previously renting, you’d be surprised how many were investment homes. We know a few people bought homes in PA for “investment” purpose, some have negative carry, even if they bought them cheap during 2009-2011.
At current 2018 price and with rising interest rate, it’s definitely insane to buy them for investments, that’s why the market has slowed and you will see more investors dumping when their 5/1 7/1 ARM come due.
No, rich Chinese people (by which I assume you mean Chinese nationals) are looking for a place outside China to park their cash. Much harder for asset seizing by their government. For many wealthy citizens of other countries, US real estate is affordable and more stable than investments back home (I’ve sat in cafes next to people who do this and heard their conversations … in Mandarin …)
There’s very little inventory here but I agree wages where I’m at can’t support much more. I always buy for cash flow rather than appreciation which is getting tough as ever now.
Local Vancouver over leveraged folks which make up most of the owners are up for some rude awakenings with tighter regulations and mortgage requirements.
Staying with one property to live in and focusing on paying it down. Big corrections in the market like today are a great reminder to have a balanced strategy no matter how you are investing. For me that includes paying off my loans instead of acquiring as much as possible.
The more I work/invest the more I realize the only piece I have control over is the costs I choose! That includes how expensive of a home you mortgage yourself into. Looking forward to the day of no debt including the mortgage. Life is already better then it was holding just a modest mortgage in a HCOL area.
I am confident if I choose to “move up” in home it will be much easier then those folks who are wanting to go backwards and “move down”.
Pretty perfect timing.
My wife and I are already in the process of buying a new house.
Luckily, this will be something we plan on staying in for years and we’ll have 10% the value in savings.
Still, this write-up was all great stuff that we needed to hear.
Hey, FS.
I am in Reno, NV. The housing market here is flat out crazy. I was renting last year, and I got sick of the rent increases, so I bought instead. I am in Reno, NV. What is your opinion if I just paid off my primary residence? I owe 100k. Would it matter then if there is a 20% correction?
Ah, the pitfalls of real estate. I’m wondering if rising interests will force more buyers off the fence and cause a temporary spike in housing. And I’m still flabbergasted by interest rates. Right now a 30-year mortgage is 4.18%. When I bought my first property in 1998, my interest rate was 7.75%. And that was considered a great rate.
“Better yet, pay cash”.
This is timely, I am about to build a new house and have been grappling with paying cash, 50% or 20%. Outside investment liquidity needs play into the decision. Paying cash is tempting, but at what point does anticipated inflation not justify leverage? Perhaps the answer is: In a rising rate environment with arguable economic uncertainty from deleveraging historically overweight balance sheets.
My wife and I closed on our co-op in Manhattan this past summer. The price was well within our budget, essentially the same monthly we were paying in rent. However, I’m worried that the new tax plan is going to result in a 10-20% downturn in the NYC housing market. If we have 2 kids wthin the next 5 years we will need to move out, in which case we may need to sell at a loss or rent out our place to cover our monthly cost and then buy a less expensive property in the southern US with far less money down. My hope is that foreign cash buyers (China, Russia, etc…) will keep the NY market stablized. If any other readers live in this market let me know your thoughts….
What price range are you in? It seems like most of the weakness is in the $2M+ price range in Manhattan these days. There isn’t enough supply in the $1M or less, 2 bedroom market and over building in the high end. I’m ditching Manhattan for Westchester right now. I’m more concerned about the impact of the tax reform on Manhattan and Brooklyn prices than I am in Westchester. You have lower property taxes but are still paying the city income tax. There will always be people trying to leave the city for the suburbs when they have kids which provides a fairly steady bid under prices despite the added costs from the tax reform. There isn’t much construction happening in areas with good school districts so it’s hard for me to see how 5 years from now prices will be down much when your alternative is $50k/year in private school tuition. Steady/rising demand + limited supply growth = fairly stable market (I hope!)
We bought for $550k, it’s an 800 square foot 2 story apartment (two studios combined). We are in an excellent location on the upper east side 1 block from the new Q train. My hope is that 2nd Avenue blows up. A two bed would hae pushed our purchase price to $1mil, and i”m glad we didn’t do that given th new tax law.
Are you sure your co-op allows you to sublet? I’ve heard the ones in Manhattan are especially strict. Even mine in Queens only allows us to rent out for 1 year…maybe 2 if board approved in special circumstances. How big is your co-op? Don’t assume you’d have to move just because of the kids. We rented a 600 square foot apartment when we had one baby…moved to a 800 sq foot co-op and have 2 kids now. Sure it gets tight but it’s fine when they’re little. We might get a bunk bed soon! As for price drops…it’s possible but I feel that long term, you’ll be okay owning in NYC, especially in Manhattan.
Fortunately our co-op has a liberal renting polcy…we are able to rent it out indefnitely after 3 years of occupancy, with board approval of course. OUr place is 800 square foot, 2 story 1 bedroom. So we will have a dining nook that will be come the child’s bedroom upstairs. When/if baby#2 comes however, things will get tight. But it’s nice to hear you’re in a similar situation.
Please check the rules of your co-op. My sister lives in NYC and decided to keep renting after she realized that all the co-ops she was looking at strictly prohibited renting the units out.
Sam, a couple of years ago I was actively participating in the RealtyShares fix-flips – specifically older homes that were torn down in expensive areas (Beverly Hills, Newport Beach, Brentwood, etc.). I was getting a nice 16-18% IRR on these for awhile, but I did notice my last few took much longer to market and price reductions were becoming the norm instead of the exception. Thus, I’ve stayed out of this fix-flip space for a year now and invested into an apartment syndication in TX for cash flow. It’ll be interesting to see how things fluctuate this year. I definitely wouldn’t want to be in the market for a primary residence currently.
Sam, I live in the heatland(Go Thunder!) and have 10 rental homes. I started building my portfolio here about 4 years ago. CAP rates were in the 12% range. In the last 6 months I’ve been collecting cash because the returns are shrinking as prices, taxes, and insurance have increased but due to supply rental prices have stalled if not slightly decreased. Even though our local economy is not as robust as the nation I believe that outside money (Cali and beyond) is influencing housing prices. While I don’t think a major correction is in front of us there is no doubt as liquidity begins to dry up a correction will ensue in all markets including housing. I plan to be ready and pick up opportunities as they present themself. I’m also really interested as I discussed with you previously the fall out of the crowd funding sites. I’ve dabbled into this space but will not place more than a few percent of my net worth there until crowdfunding goes through a stress test.
Thanks again for your work on FS!
Is it time to start worrying about the stock market again? ;-)
i know you’re using aggregated data to compile the city appreciation statistics, but i can confidently say that seattle is up more than 20% post peak.
we bought in nov 2006 for $373k. we will be listing in april for $650k (min, maybe higher) and fully expect a bidding war up to $700k.
What did you sell it for? Can you share prop location? I’m planning to bring my brand new condo into market soon. so trying to gauge the market. Thanks
1) Multi-family =/= single-family. Rents are coming down because there is way too much new multi-family supply coming on to the market in nearly all major markets. This was the case in 2017 and should continue through 2019. Multi-family starts are down but take 18-24 months to be completed. Urban multi-family pressures will continue (look at EQR/ESS/CPT’s recent releases). Suburban multi-family should outperform.
2) It would take the 30-year mortgage rate to climb to 5.25% for affordability to return to long-term average – not even become unaffordable, but just to hit the long-term average. Affordability defined as monthly payment + PMI, etc as a % of after-tax income. Using non-supervisory production wages as a proxy for typical income.
3) Denver is certainly a hot market and I am cautious on it. That being said, nationwide, the reason prices are ripping so much is not because of 2004-2006 type situations. Its because there is no demand. Look at single-family inventory as a % of households in the US – it is at ALL TIME lows. Look at days on market for entry-level and 1st time move up – all time lows (luxury is certainly sluggish and has been for a while, but constitutes less than 10% of national existing home closings and even less of new home closings). There is so much demand right now for the entry-level and first time move up product, and that product was not being produced by national builders until 2015 because of a lack of confidence in the cycle. Now, they can’t build enough. Family formations are blowing through the roof, homeownership is starting to pick up – this is because homeownership and having children was delayed because of the financial crisis and changing lifestyles.
4) Tax reform is a positive for housing. There’s two ways to look at it – the demand side, and the supply side. Let’s look at the demand side first. It is projected that 84% of all households in the US’s after-tax income is going up because of tax reform. The 16% going down? On the coast like you and me my friend. That is unquestionably a positive for national housing (Definitely a headwind for coastal markets though, no doubt!). Second, mortgage interest deduction piece being capped at $750k? Again, let’s look at that on a national basis not a coastal one. Over the last 13 years, that would only trip 1-2% of all mortgage originations! Like I said, nationally tax reform is a positive for homeownership.
5) People have been bearish on housing since 2008 my friend. Sam Zell went on tv two years ago and said homeownership would never recover and would go down to 50% – its accelerated each of the last four quarters it has been reported! Look at all the points you made – these are echoed a lot in the financial press. Coastal markets are certainly mature, but nationally – we are still mid innings.
Your thoughts mirror mine
Hi FS,
I would be curious to hear your take/analysis on the Canadian housing market, more specifically, the Toronto Housing market. Our debt is out of control!
I stopped buying rentals in early 2012. Prices were moving up quickly, the numbers did not make as much sense, plus I was running out of cash to deploy. I’m busy paying off debt on the older rentals and piling up cash to buy the next asset class on sale.
Perfect. Couldn’t have said it better myself. Build cash and wait for future discounts somewhere. It’ll happen. No one knows where or when, but it’ll happen. You made my day with your post!
What’s the best way to cash in the gains from the real estate investment, but defer tax other than 1031 exchange? Since 1031 exchange would be forcing the exposure to the market again.
If the market is dry, no good deals, and you are worried about a bubble, I would hold a strong rental property or go for a low cap commercial investment.
Can prices really drop if inventory is so low? Where I am there’s a lot of overpriced junk, but with more buyers than sellers for the next conceivable 5-10 years is this time different?
That’s where I think we will see a melt up before housing GDP attrition of inventory starts to liquefy other asset solvency. It is already making renters insolvent in some markets because investors are suing solvent tenants who pay already high rent on time to make turnover higher and force higher rents up. That’s really what we call real estate market extortion. They’re panicking, having overbought with their prior equity and multi family housing being dumped, where people’s elder folks are dying, leaving them unable to pay, forcing a sale and often, renovations to let out units that have only pushed more insolvency.
At some point, banks will reposes these multi gen SFH starts and convert them into 1/2 address or duplex and four plex multi family address parcels because of the need for it vanishing as baby boomers die off. Investors in the multi generation casita or mother in law suite sector are going belly up, with 3-4 sale signs per block and we’re seeing the same thing in trailer and 55+ communities where owners are passing away and medical debts repossessions through forfeiture are dumping homes onto the markets.
Now, who wants to live forever?
This post is spot on. So many of my millennial friends buy houses for the sake of doing what others are doing. They put in less than 5% down payment and end up paying mortgages/PMI that is more than half their monthly income. Ridiculous.
I’d never heard of the 10% buffer rule and I like it. I’ve been reading you for a couple years now with the knowledge that I want to buy a non-investment condo sometime in 2018-2019. You’ve been consistent in your predictions and your exhortation to prepare.
Do you count the 10% buffer as an EF or is this on top of it? If I found a $150K condo and put 30K down, I would need to mortgage the $120K. To be prepared for eventualities, I should have an additional $15K available in liquid assets just in case? I was planning on having a $10K EF at that point. I have no dependents.
I live in one of those expensive coastal towns, but have below market rent. I’m keeping that as long as I can stand, and will shortly begin aggressively paying down some of my school debt to get my DTI within a range that makes me feel more comfortable. Especially as the federal government is talking about changing up how some of us pay our loans. Don’t want to acquire a mortgage and then get surprised that my SL payment shot up.
I think you can consider the 10% buffet as part of your emergency fund for sure.
There really is no need to rush to buy a place in the coastal city market is right now. I would be very, very picky. And bargain hard.
Thanks for the feedback. The only rush would be getting away from terrible roommates, but, thankfully (?), I don’t think I’ll be able to position myself until 2019 to really make the jump. Hopefully things will be clearer then.
Hi Guys -what are your thoughts on Connecticut housing. My area Fairfield county seems to be quite competitive, read reports CT as a whole is still 16% below peak median sales in 2007 of $295,000.
With our population shrinking and high paying jobs leaving the Fairfield county area, why does it seem most inventory does not sit long?
Sam,
My husband and I are turning 65 this year and he is retiring this year. We own a decent house in a good neighborhood with value of 560k in Surburb of Detroit and will be profit for 350k if sold. Both of our two kids are married and lived in NYC. We own 2 one-bed condos in Queens, NY. one for rent and one for second home. Right now we have a dilemma:
1. Should we take lump sum pension of 900k to purchase a 650k condo of 3-bed in Bayside, Queens and rent out both one-bed units for net profit of 3500?
2. or take traditional pension of 4500 monthly and stay at our second home?
Any advise is highly appreciated. We do have 1.4M in IRA. Our combined SSA is around 3600. Second home is paid off and rental has a mortgage of 330k with the rate of 3.875 for 15 year fixed and 13 years remaining.
Thanks.
Troymama
Let your husband make the decision. He earned all the money. At 65 you should spend more time doing things. You’ll be dead soon. Don’t answer any phone calls, asking the internet for advice puts you at the level you’ll lose all your husbands hard earned money by scammers.
Sam – Interest Rates – I am in the same situation as you…I bought my primary residence back in May of 2016. I did a 5/1 ARM at 2.7% with 2% cap change increase per year and a 6% cap total. So at worst I am at 8.7% in year 7, obviously not ideal and I was on your train regarding interest rates….my thoughts were (and I think still are) that come reset time in 2021, 2022, etc..rates will not be significantly higher. In fact, I think we are in store for a pretty large economic correct within the next 5-6 years. I was thinking this would mean rates would be stagnant if not lower than they are today.
I am a little bit of an outlier in that I have been paying my mortgage down aggressively – original balance of $536k (after 20% down) and now my balance is $483k. I did the ARM to beat the banks on interest…but this house is for now..my forever home. I have run worst case models and the worst case mortgage payment would not scare me…
However, am I still in a position to beat the banks you think?? Or is the best play right now to refinance? I would think no way – I just don’t see a normalized market with 6 month libor (my index) at 6.2% (resulting in my max 8.7% after the added 2.5% margin).
Did you refinance your ARM? Curious your thoughts here.
I wouldn’t refinance right now. I would beat the banks by simply earning more money, investing more money, and paying down debt as interest rates rise. Great job on paying down 20% so quickly.
I guess I’m kind of living in my forever house, well at least for the next five years before my son goes to kindergarten. If we are blessed with another child, then we might get a larger house.
I am in LA and the housing market is downright depressing and anxiety provoking. My husband and I were bicoastal and renting. Fast forward 5 years and we now have 2 kids, are miserable in our 600sqft apartment, and completely priced out of every good school district. We put an offer on a tiny house and it sold 400k over the Redfin valuation. At this point, it’s not clear if we should keep looking or find a better rental until a recession comes along (and how long would that even take?). If I was single, the answer would be clear. I lived in a studio for a decade. There is so much freedom in renting. It’s harder with a family because kids need a stable living situation and good school. I don’t understand how this housing market is sustainable. I know loans are more secure these days but with these outrageous prices, more families must be tapped out.
I understand that it’s hard. So many people I know are anti-housing when they are kid list, and then they have a huge urge to buy house once they have kids.
I would just try to sign a long-term rental lease in a neighborhood that you like that has a good school district. A lot of landlords love families because families tend to be stable and be there for a long time. I wish I found a family of four to run to in 2017. If I did, I wouldn’t sell because I know that they will stay for at least three or four years. But I couldn’t find a family, so I sold.
I have always been anti-house ownership because jobs lack the stability they used to. I find home ownership constraining. Also, my husband was out of work for a year and we were mostly fine because we have always tried to live within one paycheck. I can’t do that with a mortgage in LA.
I couldn’t afford your $8000 price tag! I think we need to bite the bullet and just spend more in rent but our priority has been shoveling money into our 401k and their 529 plans, neither contribution I want to sacrifice.
Hmm, yeah, being out of work for 1 year will definitely make you anti-housing. It’s great you guys are contributing to a 401k and 529 plan at least.
But instead of buy a $8,000 price tag, why not just buy a $4,000 price tag? Focus on your budget, not mine.
Related: How Much Should You Have In Your 401(k) By Age
If we want a good school district from K – 12, those areas almost exclusively have single-family homes with a buy in of 1.5 million. I don’t think it makes a lot of sense to buy a condo in an area that only has a good elementary school since we will have to revisit everything in six years. There are less than a handful of communities in LA with good middle and high schools.
What part of LA are you looking? I was born and raised there. 1.5mm for a good school district certainly sounds like an exaggeration.
The high rents didn’t just happen. During the last recession a person I knew was told by his bank that if he could not make his full payments, that was okay, as long as he didn’t lower the rental price. But if he lowered the prices, they would foreclose. (When the recession hit, a lot of people moved in together, and there was a glut of houses on the rental market for a while.)
Situation:
Most of my net worth is tied up in a primary residence, West Oakland 2000sqft condo purchased in 2012 that represents a likely +100% upside upon sale over purchase.
Cant stay because of schools. I don’t like the idea of selling and relocating to another bay area residence due to closing costs and taxes on a new purchase, increased financial exposure. Unsure if bay area is the right long term location. My gut says pack my bags and leave but that may be pulling the rip cord too soon on bay area income. If I planned to be in the bay area for 1- 5 years… Would you recommend selling this year then renting, selling at the time of move, or hold as a long term rental even if I am out of state?
If your primary residence is it, I would spend the next several years trying to boost your savings and investments to lower the percentage from 100%.
I think at most the property market will correct by 10% to 15% here. Given your up 100% as you think, it’s not that big of a deal.
If you want, you can do what I did and do a private listing. If you get your sky high number, then sell. If you don’t, then just enjoy your house and sell when you want to move.
Yup. Primary residence is my one and only; I should have made that clear. Given your thoughts on crx being 10-15% would you rent or sell in order to relocate to a better school system? (remaining somewhere in Bay Area) I’ll need to make that decision by next summer as my oldest will be ready for 1st grade and private school doesn’t seem like the best thinking.
Thank you for sharing your thoughts. Private listing is a great idea.
I too think housing price is peaky. Especially here in New York. What is your view on rising minimum wage and generally low unemployment rate? Should we expect wage to pick up in the near future along with lower tax to drive up consumer buying power? And therefore more higher housing price? I am at point where I need to consider buying a house. But I am so skeptical of the health of the housing market.
Didn’t see this in time. We just made a mistake in buying a house in bay area by overbidding. Frankly we went way over our budget and simply lost to our emotions :(. We don’t have 10% reserve, and the downturn is already confirmed. If we sell now, we probably lose all our 20% down payment and have to cough up cash to cover the agent fee. If we hold, we can probably just cover it if nothing happens to the jobs. Not sure what to do.
Not sure if you are serious or joking, but I doubt your house it’s over 20% less so soon. It takes a couple years for the realization that prices are on the decline and bidders go away. Although transaction fees are a killer common and off an amount to 5% to 6%. How did you find this article? And why do you think the downturn is confirmed? Maybe we pick up a little bit towards winter or the spring of 2019. Nobody knows for sure.
NO NO NO….you didn’t loose out. No on can predict a downturn. Those who own a home can see the appreciation, those who rent are hoping for depreciation. Both are right.
Of course someone can predict a downturn. In 2005 everyone that I worked with, which was a group of more than 20 maintenance technicians in a factory saw the housing bubble, knew about the trillions in ARMS coming due, and correctly predicted the downturn.
Looking at the real estate market in the twin cities
Builders are getting greedy again. Low quality and high prices
Despite an average increase of 4-5000$ in material costs and the same amount in labor
Builders have raised prices to exorbitant levels. Where is the great tax cut they received from trump. They have not passed this on
I own several rental properties and they are doing fine however much higher property taxes are cutting into my profit
Buying a new rental is too costly as you won t have a roí even if you pay 80% cash and one can not raise the rental prices permanently
This will lead to high turnaround and delinquent renters
Though no one can predict a time when the correction will come but the traffic lights are set to orange
Sellers and builders will get a reality check and make there way back to planet earth
We bought an investment property in boston this summer and just realizing that we paid too much for it. Prices are beginning to fall. It is currently renting. Should we hold on to it or sell it before the value drops even more? Your advice is appreciated. Rita
I would need to know some more details, like the actual price of the property, the rent, the mortgage, the interest-rate, etc. Also, what was your reason for buying the rental property? Usually people buy property and then hold onto it for at least 5 to 10 years. Did something change recently?
How do you know prices are we getting where you are? Get back to me with these answers I can better provide some guidance. Or, you can check out the FS forums for Community advice.
Thank you for your response. Price we paid was 500k. It will probably sell now for 465-470 based on recent sales in complex. Rent is 2200/mo. mortgage 350k. we purchase it for long term investment, thinking that prices will continue to rise..
Property prices generally for anywhere from 15% to 25% in major cities From peak the trough. If you are OK with that type of the decline, then I would hold on. Selling cost is about 5%.
Over a 10 to 20 year period, things don’t turn out OK. So depends on how great your liquidity need is during this time.
Did you find this article after you bought?
I don’t need to liquidate now. So are you advising to hold on to it? I’m worried that the value will go down to 400k or less in the next couple of years. 30k loss is better than a 100k loss. Do you think this is likely to happen? Unfortunately I came across this article after the purchase..
It depends on your financials really.
Losing $100K on paper sucks, but if you are worth $3M+, and make $500K, it’s not that bad.
The Forums will have more feedback IMO.
also interest rate 4.75
Looks like my previous post did not come though:
Actual price we paid was 500k. Based on recent sales in complex, now value is about 460-470k. mortgage 350k. renting for 2200/mo. we bought it for long term investment, thinking the value will continue to go up. shall we cut our losses short or hold on to it? Thank you!
I’m interested in how the “Airbnb effect” is affecting certain markets. We own a single family home in Rockridge, north Oakland that used to be our primary residence and that we now manage as an Airbnb. Thanks to its location it’s pretty much booked solid at a rate that comes to around a 50% premium over what a conventional tenant would pay. We bought in 2005 and it’s now worth about 2x what we paid, so it’s very tempting to cash out – especially after reading posts like this one. But for the time being the nice income stream is convincing us to hold on a bit longer. I wonder if this third-way alternative is becoming a significant factor in deciding whether to sell or hold…at least in some areas.
We are in contract for a property in San Jose for 760k, 3 bed 2 bath, 1,100sf. Mortgage 510k, rate 5.125. Should we back out, loose 23k deposit and keep our cash waiting for downturn or continue buying? It is going to be our primary home as we are current on a one bed room rent at 1,1k. Thoughts and advices are much appreciated
Please everyone take your time study the etf symbol ITB .Look at 2007 and now look at 2018.If this follows the 2007 script then 2019-2022 will have a motor housing downturn.Also because of pensions the real cost of housing will get much worse because property taxes will sky rocket.Along with the new tax law .I think a complete collapse is coming because of DEBT!The stock market is a joke completely elevated by debt.Also in 1980 the Dow was 850 by 2000 it was 12000 and the national debt was 5 t.Today almost 20 years later the Dow has doubled because the national debt has more than quadrupled!This is insanity that people think everything is ok just unbelievable!
First, thanks for the great article! Just what I was looking for.
My situation: Renting a townhouse in Emeryville, CA for $2900/mo. I own two single family homes in Memphis, TN that I own free and clear, bought both for $50k, in 2010-2012, valued at $100k, net rent after expenses is $1k/mo. Also own a single family house in an Austin, TX suburb, purchased in 2016 for $120k, currently valued at $200k, and rents for $1400/mo; after mortgage and expenses +$400/mo.
I started purchasing single family homes in other states as investments because I couldn’t afford to buy in the Bay Area in neighborhoods where I wanted to live, my rental is affordable, in a great neighborhood and 5 minutes from my work. I’m 52 and planning to retire at 70.
My question: Do you think I should purchase a townhouse in West Oakland for $625k. Same exact floorplan and builder as the townhouse where I currently live and rent, just in the next town over. My living costs (mortgage, taxes, ins, hoa) would be about $1200 more -OR- should I continue renting and buy another investment home? I’m thinking of buying where I want to retire for $300k (thinking of FL), rent that out, pay the mortgage off in 15 years and then have a free and clear house to retire to, plus save an extra $1200/mo. I’m tempted to buy now, as I’ve already seen listing prices in the Bay Area drop, but it still seems that Bay Area real estate is overvalued and better values are found out of state.
I would love your opinion on this. Your logic about real estate in general and your knowledge of the market in the Bay Area seems spot on! Big thanks!!!
The government will have to raise the rates back up if they ever want out of the mortgage business. There were 30 percent defaults in some markets during the last recession, and now we are to believe that 3 percent is a reasonable rate? HA!
Most real lenders today would not finance in places like SF and SV, Denver, Seattle, NYC, etc for less than 15% interest. And even that would be risky. One economic downturn and those million dollar studio apartment sized three bedrooms in Silicon Valley are going to lose half their value.
So, we get tax payer subsided interest rates though quasi government lenders.
It is similar to how they were in the bond market, and the FED will likely try to unwind their positions there as well. Expect seven percent interest and higher.
WHO READING THIS HAS A MILLION DOLLAR MORTGAGE?! WTF?! Seriously. If you have a million dollar mortgage, I doubt you’re concerned if the price of your house goes up a grand a month….and if it does, you probably shouldn’t HAVE a million dollar mortgage. What a moron.
I honestly believe A LOT of people who shouldn’t have very high mortgages do…how else can people afford to buy in the most expensive regions? There are way too many people who just ignore it all and live with their million-dollar or half-million-dollar mortgages and hope all goes well and are concerned indeed to imagine their monthly payment going up much at all because they are stretched to the max, hoping that house prices keep going up so that someday they can cash out and make up for all the years of living hand-to-mouth despite high salaries–i.e., being “house-poor”.