The Expert Podcast

If you are a potential home buyer or a shopper and you've been waiting on the fence to buy a new house, then this news is not going to be good. Maybe you started house shopping in 2020 or 2021 and you decided to wait for the market to cool off. Maybe you figured that there's going to be a housing crash and that the prices will go back down like they did in 2008–2009. Maybe you're looking for opportunities where there's more inventory. Well, according to the Wall Street Journal, this article came out just this week.

Home price sales for January—their Case-Shiller Index rose 19.2 percent. And that's not the number of houses for sale. The Case-Shiller Index is a measure of average home prices, and it rose roughly 20 percent in January. So, if you were standing on the sidelines waiting to jump into the housing market, waiting for all the craziness to end, it may have turned out to not be a good move, at least up until now.

What about the future? Is there still an opportunity where house prices might go back down? Are prices going to decline in 2022 or 2023? Well, let's take a look at the fundamentals and where facts might come from to help shed some light on it and what you might do going forward.

Well, here's some additional data showing four-quarter appreciations for the country. If you notice, all the country is blue—and blue means zero to 34 percent—nothing really lower than that. Oregon four-quarter appreciation: 18 percent. Montana four-quarter appreciation: 23 percent. Five-year appreciation: 66 percent. Pretty much every part of the country.

Texas four-quarter—everything's around 20 percent. Hasn't changed anywhere. Some of the darker color states: here's Arizona—four-quarter, 27 percent. The biggest factor to try to eliminate from your purchase decision is the feeling of pride that you missed out on waiting for the last year. If you were looking at houses in 2020 and you figured you'd wait for prices to come down, now that they've gone up, you might say, "Well, now it's even more of a reason not to buy a house because the price is already higher."

It may be a better move to buy a cheaper house to at least get in the housing market because it doesn't seem like there's any end in sight. There's an old saying that says "What goes up must come down." Well, maybe it does—but when does it come down? Even real estate prices from the 2008 housing crash didn’t go down overall. There was a slight decline in some values in a few overheated markets, but in reality, the prices are higher now than they were then—even before this latest price jump from 2019 or 2020.

The housing prices in 2019 were higher than they were in 2009. So, ten years after the housing crash, so to speak, everybody made their money back. The only people that missed out are people that lost their house in 2008 or didn’t own a house after 2008. The fundamentals are even more dire now than they were in 2009. In 2009, there was an equilibrium of houses versus people that wanted to buy houses. There was a 37-month supply of homes in the 2010s—early 2010s—meaning that at any given day, based on how many houses were sold versus what was in inventory in the market, there was a 37-month supply.

Now there's a one-month supply. There are more people coming into the market in the next 24 to 36 months than came into the market in the last two to three years. There are less homes in the market. It's been said before—we’ve talked about it in prior videos—there is a four- to five-million home backlog in the building industry. And we're in the building industry—we're licensed general contractors—so we know what the backlog is.

Even if every builder, general contractor, home builder that’s out there scrambled and did everything they could to build as many houses as they could, it would take a decade to catch up on the number of houses that are needed to fill the current market—not counting the additional people coming in the market during that decade. More importantly, at least right now, builders can't construct homes at that fast pace because there is a deficiency of labor. Not enough people to frame houses, do electrical, tradesmen for plumbing, HVAC, roofers—there's not enough people to build houses even if you wanted to take on a new project.

In addition, there's a shortage of materials. Lumber is still kind of in short supply. More importantly, the things that you don't see in a house that are required are in short supply—paint, roofing, insulation. Not only are the prices higher, but you can't get them as fast and you can't count on your delivery—trim work, molding, carpet—there's a backlog. So builders can't build as fast as they wanted to fulfill this backlog.

So, that being said, if you are standing on the sidelines of buying a house because you think the prices are going to go down—from where we stand—we don’t see that happening. As a builder, as a broker of insurance—we're licensed insurance brokers from previous market investments—look, we’ve been a principal buying and selling over 60 properties—residential single-family properties—in the past decade. As a principal, we've been involved with title work and brokerage and other accessories on thousands of properties. We've seen the real estate market from inside. From where we stand, it doesn't appear that prices are going to go down anytime soon.

More importantly, it doesn't appear there will be any more inventory anytime soon. A month's supply is going to be the common rule of thumb going forward. Inflation is here to stay. The prices of the materials aren't going to go down. Look, if the president is out there saying that there might be food shortages—which that's what was stated in the last week—get ready for food shortages. Food is a very important thing that's easy to produce quickly. If there's going to be food shortages, what are the chances that there's not going to be a housing shortage?

It's already like musical chairs—people canceling their lease on an apartment because the rent is too high, then they can't find anywhere else to live. If you have a chance to buy a property, buy one now. If the reason you're not buying one is because you don't think you can afford it—well, guess again.

Whatever your rent is on your apartment or your house, it's almost certain that you can buy a single-family home in the area that you're in—within an hour’s drive or less—where you are for a mortgage payment less than what you're paying in rent. And check out our channel: Homescheep.com. We run features every week of a group of houses that are $200,000 or less in all areas of the country—houses with acreage, houses near the beach, houses near the mountains, houses near big cities, homes with 3,000–4,000 square feet for $200,000.

If you figure out the mortgage on a $200,000 house, it's under $1,000. Even when you add in taxes and insurance, it's barely over $1,000. You’d be hard-pressed to find an apartment this day and age for $1,000. Now there’s other things that go into buying a house than just affirming the payment—you have to have good credit, you have to get approved, you have to have some kind of down payment. Although your down payment on a $200,000 house might not be much more than your first and last and security on an apartment.

And also, on your house, once you buy it—your rent’s not going to go up. Your mortgage payment's locked in. So, in a year or two years, your landlord can't jack up your rent from $1,200 to $1,400 to $1,800. You know, we’re seeing people get $1,000 increases on their rent when they renew—not gonna happen on a mortgage.

Now, when you look at that $200,000 house, it's probably not going to be what you imagined as a dream house. But what makes a dream house for most people is the finishings—the furnishings. Does it have nice countertops, nice cabinets, nice carpet, flooring? All that stuff you can change once you have the house. You can paint a house. You can put new siding on a house. You can put windows on the house. As long as it's got a roof over your head, keeps out the bugs, has electricity, has water—you have a place to live. May not be as luxury as maybe your apartment was, but at least now you're paying less per week and per month on rent or mortgage and you're participating in the price increase of appreciation.

You're building equity and your money's not going to a landlord—it's going to your mortgage. Now we want you to look at it like—you buy a house because it benefits you. If prices go up or even if they don't, a $200,000 house is probably not going to go down that much in value. How can it really go down? They're hard to find. Starter homes are hard to find.

So by looking at these data points of appreciation, it shows that the last year of waiting didn't work out—prices went up. Even if prices go up half of what they did in the last year—last year was a 20 percent increase according to all the data—if prices go up only 10 percent this coming year (2022) and you bought a $200,000 house, 10 percent times $200,000 is $20,000. You just made $20,000 doing nothing and you saved money on your rent. Do that for a few years and you could build up some equity and some personal net worth.

Is there trade-offs? Yeah, there's trade-offs. You're going to live in an older house that doesn't look as nice as maybe a fluffed-up apartment that some management company makes look good with new carpet, new drapes, new sink—that kind of thing. What's the other trade-off? Well, if something breaks, you’ve got to fix it. You can't call the management company.

Are those trade-offs worth $20,000 in equity and not having your rent jacked up? That’s up to you—but from a financial standpoint, it's a no-brainer. And your mortgage is tax-deductible—but your rent isn’t. If you have equity, you can borrow against it if you need to. Or more importantly, if in three years or four years you're ready to buy your true dream home, the equity that you’ve earned on your $200,000 little entry-level house—let’s call it a sled house because it’s not really that nice—can go towards your down payment and the higher price of your dream house.

Because whatever your dream house is today—it’s going to be way more in three or four years. And you can offset some of that increase in price by buying at least something that gets you into the real estate market now. And making those sacrifices of not having the ideal, pretty house that maybe you're proud of having everybody come over and see—maybe it's going to take you a few months to get things painted, cut the grass, trim the bushes, put on new window trim—but learning those things will also benefit you in terms of having skills to work on property.

One of the things that we’re seeing right now is people who owned a home four years ago and their property appreciated $200,000 are taking out an equity loan of $200,000 and buying an entry-level house to rent out or to fix up and flip and make more money on that house. You can’t do that unless you were in the first house. If that person did not buy that house three or four years ago, they would not have had that $200K equity to buy the second house. They would still be renting, have no equity, paying $1,800 a month, and being backwards financially.

Check out the website Homesheep.com. Describe TV and tell a client—all your resources are there.