The Expert Podcast

So we all want to look at our crystal ball and see what's going to happen with the housing market. Well, there are two very important factors in the housing market that are often overlooked. One is that builders still can't keep up. According to this article from the building industry, home builders can't build houses fast enough, and part of the reason is cost. In this day and age, lumber prices are up, labor prices are up, permits are up, and permit costs and fees are up. There's also a lot more new expenses added to the building industry for building a new house.

Even in this picture here, see this guy standing on the beam, leaning over, picking up a board. You know, if you can make $2 an hour working at McDonald's in some cities, what do you have to pay that guy on the roof? Some builders are having to pay $70-80 an hour to get skilled tradespeople, and that's affecting the prices of a house. If the prices are that high, the builder looks at the numbers, and it doesn't pencil out. You might say, "What about interest rates? Is that going to curtail housing prices?"

Well, from a page article today, "Housing market won't crash at 8% mortgage rates, even if the economy struggles." And here's why: The first reason is this: home builders can't meet demand. The only place that additional homes come to the housing market is from builders building them. There's no magic house machine that pops up houses—they have to be built. There are always houses getting removed from the market that get old, are remodeled, or are not for sale. Homes coming into the market only come from builders.

On the other hand, the 8% mortgage rate has been baked into the market now, meaning that people have figured their budget with that mortgage rate. It's not that crazy high. In the '80s, rates were 12, 13, 14%. It went up to 18% at one point and then settled back down to about 10%. 8%—mark my words—2 or 3 years from now will be considered low. Anything in the single digits won't be so crazy.

So it's not going to crash the market. There's still too few homes, and most of the people that own homes either have a lot of equity, have a low-interest rate, or own it for cash, so they don't need to sell desperately. This is going to put a real crimp on people looking to get into the housing market. So keep those two things in mind: the inventory, because of new home builders not building fast enough, and that's only going to get worse. They're building some new houses, but too slowly to keep up with demand.

And the fact that 8% is not really a high bubble interest rate. Once you get over 10 or 11%, now you can start saying, "Hey, these are high rates." 7%, 8%, 9%, 9 and a half—that's the normal range that rates have always been in going back 30, 40, 50 years. So that's not going to have too much of an effect on the market.

I know you have an opinion about that. Let us know in the comments, but also let us know what you're seeing in your market area. As always, our recommendation is to buy the cheapest house you can stand. So take your budget, go to the low end of your budget, look at homes for that, and maybe compromise and accept less than what your ideal dream home would be.

Because if you don't buy a house now, you're going to find that for the next 2-3 years, you'll be paying rent, you won't be any closer to owning it, and you're also at risk of your lease being canceled by your property owner or your rent going up. So it's a tough pill to swallow, I get it. But you can always paint, you can always do new carpet—there are a lot of things you can do to make a house look better. These are things you can do yourself for cheap. But if you don't buy a house, you won't be able to do that or risk your rent going up.