I have almost finished a 4 months long process of buying a summer house (including one failed deal), and my first financial agent - a very bright and fast girl - was fired right in the middle of my first transaction... and nobody told me a word about it - neither the manager, not the new agent, so I was sitting in the dark for a week or so. The agent that I got instead of a fired girl was very slow and unresponsive, so I've changed the financial company. Guess they will need to continue to "downsize"...
Why would anyone want to fire a nice worker and keep a worse one is beyond my understanding.
One thing that blew my mind was how terrible most mortgage companies I contacted are. I lost count of how many places I contacted that were slow and unhelpful about everything, and it kind of blew my mind. I was reaching out to companies offering them thousands of dollars in business and the usual response was "meh". There must be some pretty large moats in this industry because most shops are clearly not competing on competence or customer service.
The true demand from people with the intend to actually live in the estates has been constantly decreasing since around 2000; the real salarys dropped since then, so did the buying power.
The only reasons people found buyers at x3-x10 (!) prices were
a) that there is a class of people wealthy enough to still afford the purchase, even at those completely-out-of-touch prices, and
b) that people were given loans they should either never have gotten (2008) or that they shouldn't have asked for (because it's dumb to buy estates where the price is set by people and institutions that have n times your own income/net worth)
When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population.
As housing became more and more expensive to young professionals, some people in this group have worked harder and harder to buy property, even to the point where it no longer seems rational. For example, parents taking a lot of wealth out of their retirement savings or their own homes to assist children in buying. Professionals are working more than otherwise makes sense for their stage in life (young families with two full-time parents). They are committing a large share of their monthly budget, often right until the start of retirement.
They do this because they believe in the importance of owning property - beyond any reasonable narrow economic justification.
Of course, there is an inequality aspect to this - not everyone's parents have capital, not everyone can command a high enough wage.
But crucially, the presence of this group of people arguably turns the bubble into something else. These buyers put a floor on the market. If prices drop even a little, or something else changes to make mortgages slightly more affordable, they rush in and buy the dip. By doing this, they sustain the high prices for everyone else in the market.
This will probably happen now. Higher rates will make current prices unsustainable. As soon as they correct to the point where monthly payments are back to what they were last year, there will be buyers, only too happy to overextend themselves to get out of renting.
It's inaccurate to characterize these people as likely to default. They are actually very good mortgage risks - they have already shown themselves to be very committed to ownership. And the resources which got them into a position to buy mean they will keep on paying short of a disaster. The truly unrealistic borrowers of pre-2008 have never been let back into the market.
> When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population.
Nonsense. The home ownership rate is 65%, in-line with the long term average and the same as it was in the year 2000
I bought my house in early 2007 and mortgages were indeed crazy back then. My analysis said that at the mortgage rates for a 30 year fixed mortgage back then (a tad over 6%) said that my ideal home financially would be around $H or less, that I could go up to 1.25 $H without house payments being high enough to crimp my currently lifestyle, and maybe I could push it to 1.5 $H if the house and location were really great.
When I went to get a mortgage from the now infamous Countrywide Financial they looked at the same data I had and pre approved my for a loan of around 3 $H.
That was an absolutely ridiculous amount. I had the analysis to prove that, so just laughed and went back to looking at homes in the under 1.5 $H range [1].
A lot of people who didn't know how to do their own analysis thought that the mortgage companies would only approve them up to what they could reasonably afford, and so getting a pre approval for much higher made them think they could actually afford way more expensive houses than they actually could.
[1] In case anyone is curious, I found a house that was almost perfect as far as size, layout, and location for 0.9 $H and almost bought it, but then found that its water source was a well owned and shared by a group of 4 houses. I could not get satisfactory information on how maintenance and repair of the well was handled. I ended up with a place a little bigger, in a better location, but without quite as nice a layout for 1.16 $H.
This. And it was not only happening in the housing market, but also in a few other markets such as arts and certain jewelry. What happened during the last ~10 years is that the huge loads of money pumped into the financial system by central banks ended up with only a select group of people, who just got richer and richer and were looking for ways to spend or invest their excess money. And that caused an inflation in the markets where they liked to spend it.
c) private equity firms are buying up insane amounts of real estate, being able to outbid regular home buyers and (don’t quote me on this b/c I’m not 100% sure) pay cash for the properties they buy.
~20% or my housing "cost" is paid for by a tax break for owning a house. Another ~20% is principal.
When you also factor in that the Fed guarantees to devalue money at AT LEAST ~3% per year, and you have 5x leverage (or more) - that's another ~15% effectively subsidized by the government.
So when you have sufficient cash flow - it's easy to look at your housing "cost" as only ~40% of the actual payment.
Compared to rents, this is a steal.
Many of the investor class had the first mover advantage where they simply bought a house before everyone else and can now leverage those gains into more investment/rental income property. Couple that with foreign investment. Couple that with home equity and margin loans. Couple that with the private sector collecting houses. Couple that with mortgage fraud where people don’t pay investor taxes and continuously buy homes as a first time home owner. Couple that with with all kinds of things. I know a home owner that owns multiple homes, stopped paying taxes on one and had a tax lien discharge. They go on to sell that other home at profit and pay off the IRS. They never took the hit on their first home in any way. Multiple ownership is a problem, period.
We finally end up to where we are today and the only powerful entity that modulates this is the Fed, but not a single politician is taking up the battle over the fact that the multiple home ownership is killing our society at the moment.
I just bought a new house with 2% on the interest-only part and 1.6% on the annuity part!
In the month after rates grew by about 0.5% though. Seems like we hit the bottom and are climbing very slowly.
The mortgage we took out two years ago (2 year fix, ~60% LTV) had a introductory rate of 1.2%.
That falls back to 3.something variable in September. We'll probably look for another fixed but current 2yr fixed rates seem to be around 2.3% (plus a £1k application). That's an uncomfortable increase on a big loan.
What's interesting is the rates on bigger loans (eg 90% LTV) aren't much more (2.4%+application). That's not what I'd expect a bank to offer if they expected a bursting bubble.
So, obviously, US banks have to price more risk into their rates.
I got mine with about 1% interest two years ago and do almost 5% redemption, fixed almost over the whole time. Just 2 years or so left at the end.
I'm expecting rates to reverse at some point. Mortgage companies will either need to compete to get some business or just give up.
My question is: why would you fix for 30yr when you know you're paying multiple points to offset market uncertainty? Remortgaging every couple of years takes a bit of time, and shopping around, but is much cheaper.
To fix your monthly payment for the next 30 years.
Furthermore, with a fixed rate mortgage you can benefit from interest rate volatility since you can always buy back the debt at par. In practice this means you can:
1. Take out a fixed rate loan for $n at x%
2. If the rate doubles (to 2x%) you can refinance and you now only owe half ($n/2)
3. If the rate falls to x% again you can refinance again and now you owe the original amount ($n/2) at the original rate (x%)
This ignores the cost of refinancing the loan, so you’ll be paying some fixed sum for that (which is lost), but if rates moves sufficiently this is a huge benefit that you don’t get with a variable rate mortgage loan.
* This is based on how the Danish Realkredit mortgage works. I’m not certain, but I believe fixed rate mortgages work the same way in other countries.
https://bebusinessed.com/history/history-of-mortgages/
Fannie and Freddie basically agree to "back" those new mortgages (typically buying them from banks and selling them off later) as long as they conform to certain requirements - 15 or 30 year terms, 10-20% down payments, etc.
It's a massive subsidy for the housing market in the US, but also addresses the social goal of making housing accessible. You can get a mortgage and the monthly payment (interest + principle) never changes over the 30 year life of the loan.
This is an incorrect statement. It is true only if short term interest rates (on average) remain flat or decrease over the next 30 years.
Put another way, by getting a fixed rate loan you are paying for insurance against rising interest rates (+inflation), you’re saying it’s ALWAYS cheaper not to buy insurance - but the honest answer thsts probably been true recently, but not always historically, and may not be true in the future.
Here in Belgium I think most people got those.
>why would you fix for 30yr when you know you're paying multiple points to offset market uncertainty?
Because my rate was 0,98% fixed for 20 years here in Belgium. I'd have done the same if I needed 30 (which is rare here as 20 or 25 is more common) The chances of coming out ahead long term starting out with a higher variable rate are rather slim
Because you are leveraged to the gills and a rate hike could lose you your entire principal.
At least in the US it is always better to get a fixed rate loan (meaning fixed for the life of the loan, typically 30 years).
This means your mortgage payment can never go up no matter how high rates climb in the market.
But if rates go down, you can always refinance to a lower rate and ratchet your payments down and lock them there.
It's as close to a free lunch as thing come. Your housing payment can never go up but can only go down.
In Germany, 15 years, 20 years, and up to 30 years is common. I took 20 years.
A close friend of mine working at a bank has an internal benefit, that the 10 year fixed rate applies for her as a fixed rate for however it takes to pay-off.
A refi bubble? Maybe (but that's more of a fad than a bubble)
Real estate bubble? Sort of.
Housing affordability bubble? Not really. Interest rates move profits from home sellers to banks.
Housing affordability is driven by supply+demand. Housing prices are driven by" Affordability minus Interest Rates: Low Rates + High Price = Monthly Payment = High Rates + Lower Price
Combine that with the fact that these areas are often in National Parks which have restrictions on new-builds and you'll inevitably reduce the amount of people actually living in the area.
It’s an absurd example but cities frequently see these effects when they let AirBNB and rental properties run wild.
Like a pimp, AirBNB is the helpfull middleman for the desperate or the sociopaths.
So, yes, at it's core AirBNB is horrible.
In the end all of these companies resell their mortgages to the big banks and so the amounts are very similar. It's all in how they get their fees: up front or behind or in points.
My guess is local banks and credit unions are the most likely source. They keep the loans on their portfolio instead of selling them like the mortgage companies.
If you're discussing builder financing: New in-progress construction loans are different than traditional mortgages. Not everybody plays in that space.
Banks often consider mortgages to be a loss leader to acquire customers for other services. They often don't have the best rates when rates are low, but they might have other perks like custom loan programs and longer locks.
Certainly there are still some people who are wealthy enough to keep their vacation homes vacant most of the time (and prefer it that way, since doing short-term rentals tends to involve quite a bit of wear-and-tear on a house and its furnishings). But many list on Airbnb now. I consider this a net positive for society.
Of course, Airbnb isn't all roses. In many places, investors buy up housing stock that would otherwise be used for long-term rentals, and deprive locals of much-needed stable housing. My guess would be that this is even -- unfortunately -- the primary use of Airbnb these days (I doubt they are primarily people renting out a room in their already-occupied house anymore). So this does suck.
On the renter side, I've found a lot of great places to stay through Airbnb over the years, experiences hotels just can't provide, and often prices hotels can't match. Should I just not be allowed to have these sorts of experiences? (It's totally fair if the answer to that is "yes", as much as it'd be disappointing.)
Can we find some sort of balance so that we can curb most of the negatives that come with real-estate investing, but keep most of the positives?
[0] Yes, vacation rental companies existed before Airbnb, but Airbnb completely changed this space.
You are missing a critical issue. Airbnb makes it way more affordable to have this second home, so now many more only-sorta-wealthy people can afford vacation homes while pricing people out of the local housing market.
why? Do you think the average person is renting out vacation homes for extended stays?
Yes, having cool places to stay is fun but there are better ways to accomplish that then rich people renting out their 2-nth homes.
A little bit of Googling around seems to indicate that there are ~95,000,000 single family homes in the US. So all of those AirBnB's represent less than 1% of all homes. If all of those AirBnB's were in a given year they may have an impact on purchase prices. Yet these purchases have been spread out over many years which leads me to believe their impact is negligible as a driving force in price appreciation. Are they a player, sure, are they a big player.....probably not nearly as much as people think.
And I agree with you that number is much lower than I would have expected, and doesn't seem like enough to meaningfully move housing prices overall. Also consider that some number of those listings are people renting out a spare room in their owner-occupied property, which I don't think is fair to count "against" Airbnb; not sure what that number is, though.
It would be interesting to also see more local numbers. Like what percent of units in each of SF, NYC, downtown LA, Chicago, DC, etc. are listed on Airbnb? There are a lot of housing units in small towns and cities across the US that don't have much tourist appeal, so they likely don't see many Airbnb listings. But they also likely don't have housing-cost issues like some cities that are more attractive to tourists.
I think people try to invent complicated reasons for skyrocketing home prices, when it's fairly simple: we aren't building enough in the places where people want to live. Sure, other things (Airbnb, foreign investment[0], cheap credit, etc.) don't help matters, but I think they're pretty minor factors. If there's demand, and you don't meet it, prices go up. Econ 101.
It's interesting to note that Vancouver and Toronto instituted 20% and 15% (respectively) foreign buyer taxes for home purchases a bunch of years ago. These taxes did actually do their job of deterring foreign buyers, but, sadly, home prices still continued to go up, undeterred. And now Canada overall has barred foreign buyers for two years. I doubt it will help. I expect Airbnb bans would have a similar non-effect.
The site hostsorter.com uses a citation from muchneeded.com[2].
When looking at the muchneeded.com link I see: "11. There are 660,000 listings in the United States."
However he citation for the above statistic is a site called pulse.ng[3].
When I get to the pulse.ng site I finally see the root source of the 660K figure you quoted. I also see that not only is the article from 5 years ago(2017) but there is no citation given at all for the statistic that is regurgitated from the previously 3 links.
[1] https://hostsorter.com/airbnb-statistics/
[2] https://muchneeded.com/Airbnb-statistics/
[3] https://www.pulse.ng/bi/tech/tech-airbnb-now-has-more-listin...
I prefer having discussion about the underlying issues causing these emotions though, they keep being mentioned here all the time but I guess its easier to just bash the messenger rather than fight government and selfishness/greed in general population.
Of course, the housing crisis is death by a thousand different cuts, but there are studies out there indicating in many cities AirBnB is responsible for around ~5% of the rental price.
For my apartment, that translates to paying ~$180/mo because of the induced demand from AirBnB.
I would love to see investors get burned too, but I don't think there's anything to pop. We're just a decade behind Canada.
That's not healthy
The other side is that anyone who sells right now will need to buy at the top of the market, possibly incur the 5%+ interests rates(if they didn't make out extremely well) and afford the increase in taxes on their new home's possibly insane property valuation. This is of course in addition to all the other current inflationary concerns of maintaining a house right now.
Rents have outpaced mortgage costs and the return on investment has been ridiculous. People all over here have jumped into it. Hell, I've had people tell me I should do it... No F'in way I'm dealing with tenants and house calls in the middle of the night, though. I fix my own house, poorly and struggle to do that. I fix computers and call people to fix the house, usually, so it gets done right. I venture out of my lane every once and again, but I know I'll usually call a professional =)
If you made a good enough offer you could buy it from them. Investors aren't trying to hoard. They want to make a return on their investment.
"Return on investment" shouldn't be more important than housing people affordably.
Are homes for living in, or for making money? That's the fundamental question we need to resolve. Because if its the former, then we are doing an abysmal job at satisfying that need. If its the latter, then we're doing a bang up job.
Canada never had a 2008 housing crash. Housing has been on a tear since the early 2000's and the average sale price of a home (nationally) is 2x that of the US despite lower salaries, higher taxes and a lack of 30-year fixed rates.
That is a bubble. My opinion is the US market is hot, but not a bubble. It could turn into one, but if this is a real correction, the fear of a bubble is much less.
The Toronto suburbs are already falling in price and Canada is only ~1 month into 4-5 rate hikes this year. And unlike the US: 1) most mortgages need to be renewed in a much higher interest rate environment and 2) a lot of Canada has recourse loans - they can come after your other assets if you sell you house for less than the loan value. No sending the keys to bank and walking away like in the US.
Toronto and Vancouver cores will correct, but rebound. Small towns and suburbs? It's going to be a bloodbath.
Reasonable houses in my small US town are available for ~$100,000 (there's also listings north of $400,000, it isn't just a lack of economic activity).
Probably have to look at the US on a regional basis to do a meaningful analysis.
I was able to do way, way better by going with a local bank, as did my friends.
The only thing I can figure is they are better for folks with "good" (not "excellent") credit and can maybe close the loan faster.
If you have a good working relationship that you can used for good terms, then go for it. But don’t go with a local bank because you think you’ll continue to work with them.
All that said, our local CU does in fact keep their own mortgage portfolio. This may be rare, I don't know. They're a large CU associated with a government contractor.
When I bought my house they had the best deal (rate + closing costs) hands down. When I refinanced they were no longer offering 30yr loans on their portfolio (and I wasn't interested in 10/15), but still were originating them to sell. Unfortunately the 30yr rates were not as quite good as I could get elsewhere and closing costs were close to a wash so I went another direction.
That said, they were phenomenal during the whole origination process, and they gave us a rock bottom rate (2.375%).
My only fear is servicing being transferred multiple times, rapidly, then having to decipher who to pay now.
Credit Unions tend to be different (at least the 3 I'm a member of, maybe this is not universal) in keeping loans in-house.
The banks will indeed most likely sell off the loan as soon as it's done.
Not that it matters either way.
When I looked into it they wouldn't do jumbo loans (which is just anything slightly above the median home price in the state of California these days) and their rates on traditional loans were worse than the big bank I was comparing it to.
On top of that it's not even an automated tech solution like they pretend it is, it seems to be just a thin veneer of a shiny website that then connects you to a traditional lender. So it's not even really any more convenient in terms of submitting paperwork and stuff, at least for the initial quote that was my experience.
If not for that I'd have preferred someone local, you could tell you were just a number over there, and there were a bunch of communication issues around scheduling the appraisal that were annoying to sort out.
My local rates were over 3% for a 15 year, they got me 2.25% + .25% in points.
Despite that bad start, I was very happy with how they serviced the loan. They didn't play any games or make things harder than it needed to be. If you sent in extra money they both applied it to the principle immediately, and pushed your next payment date out accordingly (and cumulatively), so you could retroactively treat it as a prepayment if something came up. This was really nice, and none of my other mortgages have done both - the better ones automatically applied it to the principle, and the worse ones treated it as prepayment unless you jumped through hoops to inform them otherwise each payment. I did end up taking advantage of this to help get through some unexpected medical expenses.
Paying off the loan was also trivial - just sent in the last payment and the loan was done and they sent me the necessary documentation. That is how all my car loans have worked, but for some reason previous mortgages have required some extra steps for the final payoff, or the mortgage ends up in some weird purgatory state.
I'm self-employed. I make about 200k/year. I had 0 debt (I paid off my house the prior year). I had 20% for up to 350k. I had an 812 credit score.
When I applied they asked for my P&R statements for 2 years. The current year showed a $400 deficit (which was due to charitable giving). They said that I was losing money.Therefore I was too great of a risk.
I explained to them why the numbers were $400 lowers. I told them that I already had another $20k in receivables. I told them my present house was on the market. All to no avail. I was too great of a risk.
It was at this point that I knew they had little idea how to work in the industry. If they turned me down, they were turning other stable individuals down. I promptly sold my shares and moved on.
The realtor of the condo I eventually purchased recommended a broker. They looked at the same info and laughed at Rocket. The new broker gladly took the loan.
As times get tougher, the edge cases will probably become a lucrative section of market. Rocket's been troublesome before. I doubt they have the capacity to pivot (given, again, their apparent lack of skilled brokers/underwriters).
Spending a lot of time to work with an individual client in order to make $1k-$2k or whatever they make ushering a loan over to fannie or freddie is not good business- especially during the recent market.
They should have been honest with OP about what the limitations are. Conforming loans (i.e. Fannie & Freddie) are notoriously tricky for self-employed borrowers. Salespeople gonna salesperson, though.
The world is bigger than tech.
Also Rocket recently shifted their technology strategy to build fewer point solutions in house where there was an adequate market solution available, focusing more on customer facing technology to build in house.
Anecdata - I have friends that lived there for 8+ years, then moved to the south in the last 2 years and their property value barely budged.
You've got to be ready to overbid (our first SFH got overbid by 70k), "best and last", and deal with 5+ bids per house.
You can find stuff away from public transit/no walkability but then why move to Chicago at that point?
If trends continue, prices will start falling. You might be able to offer under asking, too.
I bought 15% under asking in October of last year.
Chicago didn't really go crazy like Phoenix or Palm Springs...
That is a wild revelation to someone comparing greater Denver housing market, where adding 30% is required just to be considered....
I've been watching Zillow pretty consistently over the past few weeks, and have noticed price drops as well as longer days on the market in the Chicago area.
Knowing values don't increase much isn't really a deterrent considering the desirability of the location.
Getting an accepted offer? Getting better by the day, in many areas.
The last 3 years have been a gold rush for the refi business.
That and we are probably in a general housing slowdown off the highs which is related to the first point anyway via rates rising.
Something like 25% of loan holders refinanced during Covid.
Less people are buying right now compared to this time last year which was a genuine frenzy at 2.8% rates.
Simply put, one of the biggest mortgage booms in history just came to an end. Rates were at all-time lows. That meant an unbelievable boom in demand for mortgage refis.
Then when the Fed started taking inflation seriously, mortgage rates (which tend to track 2-3% above 10-year treasury yields) skyrocketed to 10-year highs. This means that very few people are in a position to benefit from a refi, and that business is pretty much dried up. The refi business is the specialty of Rocket Mortgage and other online lenders.
There is tremendous demand for housing right now, due to millenials being homebuying age and housing preferences changing with the pandemic. However, supply is tightly constrained. Boomers are aging in-place, home builders aren't completing homes due to building supply and labor disruption, investors are buying properties (smaller effect than people claim), and sellers don't want to sell without a home to buy. So for-sale inventory is at all time lows. This means less demand for purchase money mortgages, the main other product of a mortgage bank.
Mortgage lending is notoriously labor intensive. Nearly every lender, like Rocket, staffed up huge to meet the demand of the refi boom. Now, nearly every lender finds itself overstaffed for a mortgage market bust. Hence, layoffs. Every lender from the largest (Rocket) to the smallest is impacted.
This is just how the mortgage industry works, though. It is both seasonal and dependent on the economic cycle.
I don't think this is a sign of a bubble bursting but more of a sign that unless you currently own and can hang onto it, you'll be a renter soon no matter your status.
1) The cash is better used to diversify across other investments. These investments will likely out-earn the mortgage interest.
2) The government gives you tax write offs for mortgage interest. Not as beneficial for everyone as it used to be but there’s a good chance you will be able to deduct if your mortgage is in a high cost of living area. Up to $750k in mortgage debt.
3) A home is an illiquid asset. By borrowing the money and keeping your own money in liquid assets you gain flexibility and can jump on good opportunities.
Agreed though that having tons of runway is wise.
The vast, vast majority of homeowners do not foreclose ever. It’s no more “servitude” than paying the person who holds the note to rent from them instead of holding the note directly.
You’re responsible for maintenance and upgrades. And it’s harder to move to a new place if you own vs rent. These things are true. But “lifetime of servitude” is comically hyperbolic and ignores all the positives of homeownership that historically vastly outweigh those negatives.
With 30-year rates around 6% right now, the math becomes a lot tighter as well. Where are you going to find 6%+ investments right now?
Second, your mortgage interest (plus other deductions) need to be high enough to warrant itemizing deductions. At the start of 2021, my mortgage balance was $270K with a rate of 2.275%. Even including a $7,000 donation to charity, it wasn't enough for my wife and I to itemize.
That said, it's much better to mortgage than pay cash for reasons outlined already in this thread.
Would you say that mortgage is probably driven down 8% because just can't afford the down payment anymore, or people like me who seem to have an irrational aversion to it?
You can't control rent prices any more than you can employment. At least with buying, you will likely have some appreciation eventually. The government gives you back the interest you pay. You have an asset you can borrow against in bad times. You are paying the future's housing bill at today's prices. Inflation is your fried after you have bought your house. A house is the best way 90% of Americans have to build equity. Additionally, with all the NIMBYism everywhere, the likelihood of appreciation is almost guaranteed (outside of dead towns)
1. All remodels lose money, except MAYBE a minor kitchen remodel.
2. Ergo, if you buy a house that was remodeled, you win.
3. Ergo, upgrade instead of add-on, so start small and buy up.
By a substantial margin, having a large home mortgage leaves you in a better financial position the vast majority of the decades, even if you lose your job and are forced to sell mid decade.
