When you see this headline from MarketWatch “Young house hunters describe ‘demoralizing’ process of trying to find an affordable home. One listing had 30 offers — and sold for $85,000 above asking.” you’re probably thinking well this must be 2020 or 2021 when there was a lot of feeding frenzy on houses maybe even early 2022, but now that the rates have gone up and the market is slowing down, you might think this has to be old news. Well, it’s not. This is actually from October of 2022 when there are still home buyers that are facing bidding wars and high prices on homes. And now, on top of that, you have higher interest rates. This article mentioned a 6.7% rate. The rate is now over seven and we’ll probably be 8% or 9% within the next six to eight months. So what gives? What’s happening? And what are the prospects for the future home buyer?
Well here’s the problem. Home buying is not going to be dependent on prices going down. Everybody wants prices to go down except for the current owners of course, but home prices are not going to go down substantially. Here’s why. There are new ways being invented to live in homes. The traditional method to buy a house and get a 30-year mortgage is really unsustainable even for current buyers or the majority of current buyers. We’ll talk about another subset that’s continuing to buy homes even with high prices. But there are a lot of people that can’t really afford the mortgage payment on an average house at 7% or 8%. A $500,000 house at 7% or 8%, by the time you figure taxes insurance, it’ll be $5,000-$6,000 for a house payment. Well, that’s going to be beyond the affordability of many many people. Some people can still buy those but many people can’t.
So what’s going to happen is there’s a lot of wall street type hedge funds that are coming into the market that are creating new ways of living in homes. One of them is strictly just renting a house, but there are other fractional ownership and hybrid ownership, 40-year mortgages, and other ways of buying a house. In the same way that cell phones are not really owned any more homes are going to be the same thing. Back in the eighties and nineties and early two thousands, you bought a cell phone you paid a few hundred bucks and you got a phone. And that’s the story, right? And you paid your monthly fee for your service. Now, how many of you have cell phones that you actually own and that you paid actual cash for the phone? Most of you are on a plan where the phone price is actually a monthly fee. It’s kind of like rent to own or financing. There’s not really an option to buy a phone for cash you can, but if the phone’s going to be a thousand or $1,500, most people don’t want to come out of pocket that much for a cell phone, especially when you’re going to replace it in two or three years. So this type of ownership is migrating to real estate. The other problem is there are still enough buyers willing to pay the higher prices for homes and the 8% mortgage or pay cash. There are still enough people for the inventory. That’s the problem. There’s still a shortage of inventory. And even if 20 or 30 or 40% of the buyers can’t afford the inventory the other 50 or 60% can afford it and are willing to pay $700,000 for the house and 8% mortgage and have a $7,000 mortgage payment. There are still enough of those buyers out there that are taking up the inventory at the very low end $200,000 and $300,000 that are maybe not quite as dream home style as some of the mainstream houses. There’s more opportunity.
So if you’re a buyer looking to get into the market and you think there’s a bidding war in the house and you can’t find homes there are homes that are available they just may not be the type that you’re initially looking for. So you have to make a decision. Do you want to keep renting? Do you want to jump in and pay $6,000 or $7,000 a month for a mortgage payment? Or do you want to lower the standards you’re looking for in a home and get something that’s two or $300,000 at least get into homeownership? You’ll save some money on your rent and then maybe in the long run build up some equity to trade later because it may be that the door’s closing for new home buyers before homeownership becomes a thing of the past where it was not a mainstream part of life anymore. We’ll do another video a little bit later this week about how that door is closing and how homeownership might be either now or never for the majority of American consumers.