The Expert Podcast

When you see this headline, you're probably thinking, "Well, this must be 2020, 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, where there were still home buyers facing bidding wars, high prices on homes, and now, on top of that, you have higher interest rates. This article mentions a 6.7 percent rate, but the rate is now over seven and will probably be eight or nine percent within the next six to eight months. So what gives? What's happening, and what are the prospects for the future home buyer?

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 "buy a house, get a 30-year mortgage" is really unsustainable, even for current buyers, for 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 who can't really afford the mortgage payment on an average house at seven or eight percent. You know, a $400,000 or $500,000 house at seven or eight percent, by the time you figure taxes and insurance, is going to be five or six grand 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.

What's going to happen is that a lot of Wall Street-type hedge funds are coming into the market and creating new ways of living in homes. One of them is strictly just renting a house, but there are also fractional ownerships, hybrid ownerships, and 40-year mortgages. These are new ways of buying a house. In the same way that cell phones are not really owned anymore, homes are going to be the same thing. Back in the '80s and '90s and early 2000s, you bought a cell phone, paid a few hundred bucks, and got the phone—end of story, right? And you paid your monthly fee for your service. Now, how many of you have cell phones that you actually own, that you paid actual cash for? 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 financed. 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 fifteen hundred dollars, 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 that there are still enough buyers willing to pay the higher prices for homes and the eight percent mortgage, or pay cash. There's still enough of those buyers for the inventory—that's the problem. There's still a shortage of inventory. Even if 20 or 30 or 40 percent of the buyers can't afford the inventory, the other 50 or 60 percent can afford it and are willing to pay $700,000 for the house and an eight percent mortgage, and have a $7,000 mortgage payment. There are still enough of those buyers out there who are taking up the inventory. At the very low end, two- and three-hundred-thousand-dollar houses 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 on the house and you can't find homes, there are homes 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 six or seven thousand dollars a month for a mortgage payment? Or do you want to lower the standards you're looking for in a home, get something that's two or three hundred thousand dollars, at least get into homeownership, and save some money over your rent? Then maybe, in the long run, you can build up some equity to trade later. Because it may be that the door is closing for new home buyers or first-time home buyers to get into a house before homeownership becomes a thing of the past, where it's 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.