What is going to happen to the housing market?

[Scallywag]

I think many believe that we're in a massive housing bubble due to low supplies and increased demands (due to low interest rates). House prices where we live (already high to begin with) have almost blown out in the past few months, increasing by a minimum of 10%.

We originally intended to move to another county in 2021 where houses are "more affordable" but now I'm afraid of buying in case we end up buying at the very top. I'm worried about a bust up due to the expiration of moratoriums on foreclosure and termination of unemployment benefits, losing my down payment as a result, because prices fall all the way to Hell. This happened to people I know who bought in 2006 / 2007.

i know that no one has a crystal ball but what do you believe will happen to the housing market eventually? I'm not trying to time the market but it took us SO LONG to save up our down payment that it would be horrible to lose it all if / when the market crashes in the next couple of years? We can delay our purchase if the housing market might stabilize by then. But thought I'd see what others think first?

[Jluke]

Do you live in a non-recourse state?

do you need to put down 20%?

first rule of real estate: location, location, location.

[Scallywag]

Do you live in a non-recourse state?

do you need to put down 20%?

first rule of real estate: location, location, location.

Yes, and yes (due to past financial STUPIDITY).

I'm set on the location, I just don't want to lose our downpayment if the market collapses.

[disneysteve]

Why are you concerned about losing your down payment? Where are you keeping that money? It should be somewhere safe, like a money market, not somewhere it could lose value.

Or are you saying you could buy a house and then see the value fall? You don't lose your down payment if that happens, though. You still own the house even if it's worth less than you paid.

[kork13]

Except for the 2007 crash, home values have basically never failed to go up. 2007 was fueled by unreasonable speculation, outrageously lose lending "standards", and a variety of other institutional factors. The current run-up in prices is due simply to supply/demand forces. People are literally fleeing from places like LA & NYC (one friend from LA mentioned that the highest-value commodity out there right now is a moving truck). People are moving to the mountain-west, plains, and all of those other well-scorned "flyover" states, bringing high equity values from the coasts, able to offer larger amounts (and used to even higher amounts), which is driving up prices. Like it or not, I expect that these higher prices will more or less hold due to that higher demand & higher value baseline caused by the coastal refugees.

That is 100% the case for what's happening here in Idaho. This place is seeing explosive growth from people leaving California. Housing prices here have been skyrocketing (10%+ per year for the last 2-3 years). But it's because of the extremely high demand.

My recommendation: don't let the market drive your decision making. Make your decisions based on what's right for your family, right now. Personally, I'd buy, work to pay it off ASAP, and don't worry about what's happening elsewhere. Even if there is a decrease in values, it won't crash. BTW, average home prices were back to their 2006 levels back in ~2012. So even with crashes on the scale of major industry disruptions, home values will still go up. They're still a safe bet.

[Scallywag]

Why are you concerned about losing your down payment? Where are you keeping that money? It should be somewhere safe, like a money market, not somewhere it could lose value.

Or are you saying you could buy a house and then see the value fall? You don't lose your down payment if that happens, though. You still own the house even if it's worth less than you paid.

Yes, we'd still own the house BUT the equity we built up would disappear if the market collapses. That happened to a few friends & acquaintances in 2008.

Secondly, IF we can get a better price if the market collapses, then it'd be worth the wait as a buyer.

Lastly, we just never know what life has in store for us. If we bought at the top, then needed to sell - esp within 5 to 7 years, then we might be in a major financial mess. We hope to live in that home for life but who knows what could happen to the best laid plans?

This is why I'm concerned about the housing market and wish I could know when to buy. I want to avoid buying at the top.

[Scallywag]

Except for the 2007 crash, home values have basically never failed to go up. 2007 was fueled by unreasonable speculation, outrageously lose lending "standards", and a variety of other institutional factors. The current run-up in prices is due simply to supply/demand forces. People are literally fleeing from places like LA & NYC (one friend from LA mentioned that the highest-value commodity out there right now is a moving truck). People are moving to the mountain-west, plains, and all of those other well-scorned "flyover" states, bringing high equity values from the coasts, able to offer larger amounts (and used to even higher amounts), which is driving up prices. Like it or not, I expect that these higher prices will more or less hold due to that higher demand & higher value baseline caused by the coastal refugees.

That is 100% the case for what's happening here in Idaho. This place is seeing explosive growth from people leaving California. Housing prices here have been skyrocketing (10%+ per year for the last 2-3 years). But it's because of the extremely high demand.

My recommendation: don't let the market drive your decision making. Make your decisions based on what's right for your family, right now. Personally, I'd buy, work to pay it off ASAP, and don't worry about what's happening elsewhere.

Questiom is - would that depress prices im LA & NY? I don't see that happening yet.

In addition to the low supply & high demand, I am also wondering if the moratorium on foreclosures & unemployment benefits are keeping prices up. The way I see it, if / when people can finally no longer afford their homes, a flood of inventory could eventually enter the market, depressing prices.

Ideally, since I plan to stay put, I shouldn't worry about the price I pay for that home. However, my life experiences have shown me to be VERY wary of Murphy so I am afraid of buying at the very top, and then being forced to move within 7 years before prices have had time to recover.

[kork13]

Questiom is - would that depress prices im LA & NY? I don't see that happening yet.

In addition to the low supply & high demand, I am also wondering if the moratorium on foreclosures & unemployment benefits are keeping prices up. The way I see it, if / when people can finally no longer afford their homes, a flood of inventory could eventually enter the market, depressing prices.

Ideally, since I plan to stay put, I shouldn't worry about the price I pay for that home. However, my life experiences have shown me to be VERY wary of Murphy so I am afraid of buying at the very top, and then being forced to move within 7 years before prices have had time to recover.

Yes, my understanding is that by most measures, those prices are either down somewhat, or growth is slowing down. Don't have the data readily available to show you, but that's what I've been reading & hearing.

Even if there is a drop due to foreclosures & such, the demands is so high that many of those homes will still get snapped up quickly. For those that don't, investors will go after them (which happened BIG-TIME after 2008). Note that many investors are fat on cash due to the market highs & lack of good deals. I have some friends in those circles, and they're all desperate to find decent deals to put their cash to use.

Your plan is to buy & stay put... So do that. Even if there is a dip in prices, it won't last for years on end (again, even in the biggest drop in history, it recovered after 4-5 years). Don't base your decisions on fear or unknowns. Look at what you know, evaluate FACTS, assess what works for your family & plans right now, and do it. You likely won't regret doing so.

[Jluke]

Perhaps home ownership is not right for you given your circumstances and fears.

nothing wrong with renting.

[amarowsky]

Yes, we'd still own the house BUT the equity we built up would disappear if the market collapses. That happened to a few friends & acquaintances in 2008.

Secondly, IF we can get a better price if the market collapses, then it'd be worth the wait as a buyer.

Lastly, we just never know what life has in store for us. If we bought at the top, then needed to sell - esp within 5 to 7 years, then we might be in a major financial mess. We hope to live in that home for life but who knows what could happen to the best laid plans?

This is why I'm concerned about the housing market and wish I could know when to buy. I want to avoid buying at the top.

To follow of Jluke below, it sounds more like your looking at an investment rather than the home you want to own. If you're concern is recourse post foreclosure, then I completely understand you fear. (TBH I had to look up Recourse definition, basically means those [12] states lenders can pursue more recovery of an underwater loan beyond foreclosure. Where the other 38 states let a bank's lawsuits end at foreclosing on the house and nothing more). A quite terrifying thing, considering how underwater some of the old loans went.

Is there any particular reason you want to buy this home? <---- Very important.

If this is based around the melt up housing prices and/or the artificially low interest rate, maybe it would be best for you to wait a little while. Until we reach a less volatile time. No shame in waiting, especially if your gut is stressing you out.

[disneysteve]

To follow of Jluke below, it sounds more like your looking at an investment rather than the home you want to own.

This.

When we bought our house, the future value was of absolutely no concern. It was our intention to remain in the house long term (and here we are 26 years later). The current value is of no concern. If and when we sell it someday, we'll get what we get and that will be the end of it. I don't care how much it appreciates or depreciates.

[corn18]

We just bought a custom built house that I know I could not sell for what I just paid for it. Yeah, it "appraised" for $700k, but in this market where I am, I could probably only get $575k for it. I knew that before I bought it. Maybe it will be worth more in the future, maybe not. That did not factor into our decision. We wanted a house in this location built exactly like we wanted. So we bought it. Housing is an expense to us.

[bjl584]

I'm sure we will see a reset at some point, but who really knows.
As long as rates are low and lenders are writing mortgages things will probably keep on keeping on.
A lot of people said Covid would cause massive foreclosures, but it hasn't happened yet

[ua_guy]

Resiliency is an important consideration in the housing market where you intend to buy. Certain markets are more insulated from national trends; that is, values fall softer than national averages, and they're quicker to return when the market rises again. And they outpace national growth when times are good.

The Covid factor is the wildcard here. Yes, there will be foreclosures and some areas will be hard hit. But there's a huge piece of the economy which is going to be fine once people start becoming vaccinated and life starts returning to normal, and there are sections which are doing fine even right now. I think if you have confidence in your job outlook and pick a place where you'd be happy living for at least 10 years, it's not wrong buy now.

[kork13]

In scallywag's defense, I see her concerns, and I don't think that they should deter her from buying a home. She's not viewing it as an investment, but as a stepping stone into a future home. The expectation is that she'll stay either long-term, but possibly move after 5-7 years. If home values were to crash in that period, she might have a hard time getting out of this house & into the next.

Those are valid concerns... They're just not practical or realistic ones. Worst case, this pandemic will be resolved by 2022. If the housing market were to implode sometime between now & 2023 (unlikely), it's almost certain that housing market values will recover within 3-5 years. Are there risks involved? Certainly. But risks are a part of life, and these ones are mitigated by a wealth of historical data.