UPDATE: Why You Shouldn't Beat Yourself Up during this Housing Market
Updated: May 27, 2022
Since I wrote this post just over a year ago (May 26th, 2021), the market has continued to defy the naysayers and hit high after high, even in the midst of rising interest rates.
Another thing we've had to deal with, is since March of 2021, rents in some places have got up 20, 30%, and over 50% in some places like Miami. Crazy?
Unless you’ve been living under a rock, you’ve probably seen reports or have first-hand experience with how robust this housing market is. Real estate agents saying you better have cash and the asking price is the starting price, sellers getting cozy by negotiating waived inspections and free 6-month leaseback, and homes going under contract sometimes same day!
The tide is rising, but is it raising all boats?
Now that interest rates are going up, the rate of price increase is slowing, and there are fewer bidding wars, but the prices KEEP GOING UP.
It has to be tough out there to not only have a hard time finding a home, but then having it go gradually out of reach as the cost of borrowing increases, even after beating out other offers has to be disheartening.
There was even a house near my hometown that got 122 offers and one for more than $100,000 over asking! Though the article states it was a “Central California” home, and if you say that to anyone from the Sacramento area, they’ll probably get offended. You’ll also get some eye rolls if you think NorCal is the same as Silicon Valley.
Anyways, that is just one example of how competitive the market is. Low inventory of homes for sale, low interest rates, and people wanting more space after the pandemic and working from home. More people are going back into the office, but hybrid work is enticing some people to stretch their commutes even further out for more affordability.
If the Stock Market is on sale, shouldn't the Housing Market be too?
I’ll throw another one in the pot as to why I feel the housing market is like this: the stock market! With the rally since the start of the pandemic, stocks are at or near all-time highs, bolstered by the Fed’s policies and low interest rates, plus stimulus checks and other pandemic-related stimulus/assistance.
That's changed now, with rising interest rates as well as a slumping market due to concerns of inflation and a slowing economy.
People who have fared well by trading or just investing over time are looking to take some cards off the table and invest in real property. Then you also have those really lucky folks who get Restricted Stock Options (RSUs) and are given loads of stock in a valuable company, and rather than risk it in the market, they want to use stocks to buy property.
"My Realtor says this is the best time to buy, get in now before it keeps going up!"
Yes, realtors are never wrong, right? There can't possibly be a hidden agenda to sell you a house?
Many of us, myself included, are yearning for the earlier days of the past decade, when homes were much cheaper and there didn’t seem to be that many people living in the country. People didn't shame us for buying avocado toast or superfood smoothie pops.
Also, social media wasn’t so prevalent, so you could actually enjoy time with friends without constant distraction. “Man, if I only bought a house in 2011, or even 2015, I could have doubled my home value by now!” I mean, that’s kind of like saying “I wish I bought Apple back in 2000”.I’ve heard friends and peers lamenting the fact that they “missed the boat” on buying a home before and “need to get in the game now” to start building equity and even flip their home.
I readily admit I’m one of those Zillow lurkers that looks at what homes in my dream neighborhoods are for sale, what they’ve recently sold for, and what profits the most recent sellers made.
Housing Equity Isn't All What It Seems
Here’s the thing though; if you see someone bought 6 years ago for $300,000 and just sold it for $500,000, you might become envious of their $200,000 gain, while seething in your $2,600 per month apartment with no equity to show for it. Yet they didn’t make $200,000.
There are closing costs and real estate commissions to start off. Then, they also paid real estate taxes and insurance over those years. Maybe they had to repair the roof, landscape drainage, and furnace over those years, not to mention upgrades like new hardwood flooring.
Further, you shouldn’t get too worked up if you didn’t buy a home before because there are benefits to renting, especially renting an apartment. In my book Financial Fives, I talk about how to negotiate with a landlord, save money with a roommate, and hacks to reduce your overall housing costs.
Renting is the Lesser of Two Evils Right Now
With renting, you can pick up and move whenever your lease is up or you find someone to take your lease over. You are free of worry about anything related to maintenance. You will probably live in a much more walkable area, adding to your quality of life, as well as saving money on gas and getting exercise. You usually have access to a pool and gym, also which you don’t need to maintain on your own. Overall, there are a lot of benefits to renting, and it doesn’t all have to be financial. I know rents are higher, much higher, in many places than in 2021, yet rent can change at the end of your lease. You can't just end your contract to pay your mortgage!
Lastly, everything happens in cycles. Whether or not we are in a bubble is a whole other conversation, but know that there will eventually be a time when it is a buyers market or at least a more buyer-friendly market than we have now. Maybe missing out on that house now means that your life will take a new, better direction.
Maybe you’ll meet your life partner, new friends, get an offer for your dream job, or finally take the plunge and move to that city you’ve had on your mind. Maybe keeping your “down payment” money, for now, will enable you to go self-employed. If you don’t own now doesn’t mean you never will.
Later on, you’ll have had more time to save, more time to earn, and more time to decide where you really want to live and what kind of home you want to wake up in every day. And if it’s the right time for you, you’ll find a way. Stay positive my frugal friends!