7% interest rate?!

[mickman1962]

I'm on track to be buying a home in the new year, hopefully before my lease runs out in March. The current interest rate is around 7% and rising! I hate the thought of buying a house with the plan to refinance ASAP, but I don't really know what else to do. Does anyone have any good stories about refinancing? Or can you share your experience with buying when the interest rates are so inflated? When my ex husband and I bought our house the interest rate was under 4% so I'm feeling some sticker shock!!! And I read an article recently that was predicting we might see 10% interest rates!! I really want to follow through with my plan to buy but this kind of has me scared and ready to ask my landlord for another lease.

first mortgage 16% would have killed for 7%. People today are spoiled, yes I am a "Boomer"

 

[mom2rtk]

first mortgage 16% would have killed for 7%. People today are spoiled, yes I am a "Boomer"

I don't disagree. But I also think part of the reason prices are so inflated right now is because of recent low interest rates.

 

[mickman1962]

My daughter is in this spot now. Paying tons of rent, but she does not have the large down payment required to get into a home. Home (and condo) prices are high here so the downpayment requirements are kind of staggering. She pays so much rent, she can barely save. Though she does save.

Not saying this is her case but I have nieces and nephews who "can barely save" but have an $80k jeep and a $75k truck and vacation 2 or 3 times a year. Don't feel sorry for them. People ***** about "Boomers" but for the first 2 years we ate Kraft mac and cheese, sometimes with butter AND milk.

 

[dvcgirl67]

I don't disagree. But I also think part of the reason prices are so inflated right now is because of recent low interest rates.

Very true.....just did a quick calculation for a 600K home. In order to have the same payment at 7% that a buyer would have had just a year ago at 3%....the value of the home would need to drop down to 380K. That's a 37% drop. And this is why I'm not completely buying the idea that the housing market isn't in for a pretty big drop. I know inventory is in short supply, but I just don't see how we don't see at least a 20% drop in many parts of the country....higher in areas that had a huge increase in prices during the pandemic.

But....the only mortgage we ever had was with our first home, a jumbo mortgage at 7.125% in 2000. We were in our early 30s, newly married and we wanted to buy a house. So people will always sell and buy homes. But I also suspect that a lot of people are going to feel handcuffed to their existing homes with very low mortgage rates.

 

[Mackenzie Click-Mickelson]

Not saying this is her case but I have nieces and nephews who "can barely save" but have an $80k jeep and a $75k truck and vacation 2 or 3 times a year. Don't feel sorry for them. People ***** about "Boomers" but for the first 2 years we ate Kraft mac and cheese, sometimes with butter AND milk.

You sound bitter..why?

 

[Christine]

Not saying this is her case but I have nieces and nephews who "can barely save" but have an $80k jeep and a $75k truck and vacation 2 or 3 times a year. Don't feel sorry for them. People ***** about "Boomers" but for the first 2 years we ate Kraft mac and cheese, sometimes with butter AND milk.

Oh she could do better at saving for sure. But no, she's not driving that. She has a paid off 2014 VW Jetta that was like $16K when she bought it. She kicks in 12% of her income to her retirement funds, another 4% goes toward a defined pension. And she does put something away in a savings account. But it just seems like it doesn't build up fast enough to get to 15-20% of what's required for a $500K "condo" around here. She does travel a lot for work so no costs there, but she's been hit pretty hard lately with "bridesmaid" duties which apparently are a lot more extravagent than when I got married. And no one feels like they can say no.

 

[DCLMP]

Lol, I'm 41

But reading through some of the replies I guess we just lucked into a great rate when I got married, and that's my only knowledge of home buying.

Rates have been relatively low most of your adult life. What is the real estate market like where you live? Are people migrating to your state? Is there a supply issue? Regardless of all that I'd still wait.

Prices may or may not come down. The Fed may or may not pivot sometime next year. As interest rates rise so does the cost of servicing the government debt. If this keeps up all tax revenues will go to paying the interest on the debt. This is not the 80's when our debt to GDP ratio was much smaller. I would hold off see what prices do and more importantly see what the Fed decides to do next year. There's a lot to unpack when it comes to economic news.

I don't think buying at the top of the market when were heading into a recession is a good idea. I know rents high, but at least you are free and easy to move.

 

[barkley]

I don't disagree. But I also think part of the reason prices are so inflated right now is because of recent low interest rates.

i don't disagree-when the pandemic created the great exodus from urban to rural areas the prices for homes in my neighborhood went up but it went into one period of hyper drive when interest rates got low and more recently a second shorter one when rates were just starting to edge up (allot of f.o.m.o. buyers). homes initially were selling for double the price and topped out at triple what they were bought/built for including land purchases a handful of years back (pre pandemic price surges in construction).

or the first 2 years we ate Kraft mac and cheese, sometimes with butter AND milk.

dh and i still look back fondly on our years of 'tunaless tuna helper'. we also did the dave ramsey diet of beans and rice/rice and beans well before he started promoting it.

But I also suspect that a lot of people are going to feel handcuffed to their existing homes with very low mortgage rates.

me too. prices have a habit of readjusting. we are already seeing prices drop and it's projected for our region to see that continue at a minimum of 5% going into the new year. i remember the big price drops in years past, and i look at what people have paid for homes near me-i hope for the owners sakes they have very stable employment b/c their payments (and property taxes) have to be horrifically high despite the best of interest rates.

 

[MillauFr]

Rates have been relatively low most of your adult life. What is the real estate market like where you live? Are people migrating to your state? Is there a supply issue? Regardless of all that I'd still wait.

I don't understand why there isn't more people leaving high cost of living areas and moving to lower cost of living areas. Sure some areas are nicer than others but if you are heavily in debt in order to live in a high cost of living area why wouldn't you move?

 

[DCLMP]

I don't understand why there isn't more people leaving high cost of living areas and moving to lower cost of living areas. Sure some areas are nicer than others but if you are heavily in debt in order to live in a high cost of living area why wouldn't you move?

Maybe the job opportunities aren't as good or the cost of commuting. Safety would also be a concern.

 

[mousefan73]

Me personally I would focus more on what I can budget monthly for expenses whether that is rent or a mortage. If a mortage, even with a "high" rate, is signifcantly lower than renting, then buy. ( keeping closing costs in mind too )

 

[Colleen27]

I don't understand why there isn't more people leaving high cost of living areas and moving to lower cost of living areas. Sure some areas are nicer than others but if you are heavily in debt in order to live in a high cost of living area why wouldn't you move?

Jobs. You can come live in my area pretty cheap, if you want. But if you have a degree in something other than teaching or health care (and health care just means urgent care and OB, because that's all that's local), you're going to be commuting 30-50 miles/about an hour each way (more if you get stuck behind a tractor/harvester on the two-lane in and out of town). Because there aren't many jobs in small towns like this other than restaurant/retail, a handful of factories, and the schools. I expect the first declines in property prices we see will not be due to big regional/national trends but because our area always sees housing values suffer in times of high gas prices. So even with very good schools, especially relative to the cost of moving here, our community isn't appealing to educated professionals unless they can work fully remotely. And of course, being that far from the jobs also means being that far from most shopping, nightlife, concerts, sporting events, museums, etc. Even the closest Target is a half-hour each way without traffic.

 

[CaptainAmerica]

My daughter is in this spot now. Paying tons of rent, but she does not have the large down payment required to get into a home.

You can get a conventional mortgage with 3% down.

 

[pigletto]

first mortgage 16% would have killed for 7%. People today are spoiled, yes I am a "Boomer"

It’s not that simple. People today would have killed for your housing prices compared to wages (never mind pensions). I know it’s nice to feel like you worked harder than everyone else and made it on your own moxie and everyone is a softie whiner in comparison, but it’s simply isn’t true. Do some research on housing prices compared to wages then and now for starters.

I’m just about 50, and it was way easier on my generation than the current one in many ways.

 

[TipsyTraveler]

Jobs. You can come live in my area pretty cheap, if you want. But if you have a degree in something other than teaching or health care (and health care just means urgent care and OB, because that's all that's local), you're going to be commuting 30-50 miles/about an hour each way (more if you get stuck behind a tractor/harvester on the two-lane in and out of town). Because there aren't many jobs in small towns like this other than restaurant/retail, a handful of factories, and the schools. I expect the first declines in property prices we see will not be due to big regional/national trends but because our area always sees housing values suffer in times of high gas prices. So even with very good schools, especially relative to the cost of moving here, our community isn't appealing to educated professionals unless they can work fully remotely. And of course, being that far from the jobs also means being that far from most shopping, nightlife, concerts, sporting events, museums, etc. Even the closest Target is a half-hour each way without traffic.

And family. I’m originally from a high COL area and most everyone I know complains about it, even toys with the idea of leaving, but when it comes down to it they stay because they’re entrenched in their extended family dynamics. They either feel obligated to stay to help support aging parents, or their parents are helping them with childcare they depend on for their kids, or they know moving away would cause family strife they’d rather avoid. (Not to mention the people who are legally tied to an area due to custody agreements.) And, while moving away and having a lower COL would solve some problems, being in a new place with no support can bring about other drawbacks.

 

[DLgal]

Early 2023 will be a terrible time to buy a house. Wait until late 2023/2024.

Renew your lease. See if you can do a 6 month rather than 12 month one and reevaluate the housing market next fall.

Remember that refinancing is NOT free. And interest rates will stay high for likely a couple years so you will need to be able to comfortably afford the payments for awhile.

 

[mrodgers]

You can get a conventional mortgage with 3% down.

That's what people keep saying to me. They aren't taking into consideration for a $200k house to be affordable, you now need $100k down payment because my wage hasn't doubled. My affordable mortgage amount is still $100k so 3% down isn't going to get me there.

It would take me 30 years to pay off a $100k house, thus it will take me 30 years to save up the $100k downpayment to get the $200k house into an affordable mortgage range. Which means I'll be 80 when I get back into a house and will pay it off when I'm 110 years old.

 

[NotUrsula]

I wasn't saying people wanted a 200 sq ft room with no closet, just that they might buy a 4 bedroom or 5 bedroom house instead of a 3 bedroom so that a room or two could be dedicated to an office.

In my case the single downstairs bedroom is a dedicated office for my wife, and what would be a formal living room is my dedicated office.

Prior to Covid the average size of new single family homes had been declining for about 5 years.

[snipped out chart image]
https://eyeonhousing.org/2022/05/new-single-family-home-size-trends-2/#:~:text=Since Great Recession lows (and,higher at 2,318 square feet.

I think that there is another factor that will drive home size as well; the decline of the full open-plan. It won't go away, but it will no longer be completely dominant in new construction and renovations. Americans are now used to the feel of open spaces, but they have also come to realize the importance of being able to close off spaces other than bedrooms and bathrooms; for noise reduction if for no other reason. (I forsee a resurgence in the use of pocket doors, and also adaptation of sliding wall panels somewhat like Shoji screens.)

The only period of my life when I have ever lived in a house less than 50 years old was when I was a kid, from 1969-74. My parents were the 2nd owners of a home that was 4 years old when we moved in. It felt really large in my memories, but I just looked it up; it is 1386 sq. ft. The house that we've lived in for the past 30 years and raised 2 children in is 1100 sq. feet (built in 1934.) If I could have my dream house in terms of size, it would be right around 1800 sq. feet, I think, and I wouldn't want anything larger than 2200. I truly dislike open-plan architecture, whether in a home or an office; I like being able to close a door, and I also prefer to use hanging storage, which requires walls.

I'm wondering if this rather unusual "not-recession" will drive more people to older stable neighborhoods and perhaps cause more people to re-think the strange American compulsion to always want to live in a *new* house. Older homes are quite liveable and usually cost less per sq.ft than new, and usually will give you a shorter commute if you work in a city (or like me, a reverse commute because I work in suburbia.) Besides that, it's better for the environment to leave more mature trees in place and reduce the concrete footprint; suburbia actually creates more heat islands these days than inner-ring cities do, and often has more issues with flash-flooding as well.

 

[Mackenzie Click-Mickelson]

the decline of the full open-plan. It won't go away, but it will no longer be completely dominant in new construction and renovations. Americans are now used to the feel of open spaces, but they have also come to realize the importance of being able to close off spaces other than bedrooms and bathrooms; for noise reduction if for no other reason.

I wouldn't bet on that.

The pandemic taught people they want a space they can set up for a home office or schoolwork space and for new homes that was largely already the case. I rarely saw a new house plan in my area that didn't have a flex room. Sometimes it was an actual office or den where it wasn't counted as a bedroom, sometimes (like it is at our house) it's counted as a bedroom because there is a closet in there.

Over the years the formal dining area went away replaced by either that flex room or was switched to an open to the rest of the area office space but it was also quite normal to have a flex room as well.

People still don't like the idea of the past where things were more confined feel and that is very different than having a space you can go to and literally building in closing your great room off from the rest of your house with sliding wall panels.

 

[CaptainAmerica]

I truly dislike open-plan architecture, whether in a home or an office...

Say it louder for people in the back!

The single-family home was perfected in New England 375 years ago. The center-hall colonial is the pinnacle of form and function. Four rooms downstairs. Kitchen, dining, living, office. Four bedrooms upstairs. Symmetrical and clean, five windows over four windows. The design scales and works just as well at 1,800 square feet as it does at 5,000 square feet.