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High Rates and Prices Leave Many Stuck in a Starter Home
(www.nytimes.com)
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this post was submitted on 03 Jun 2024
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First, don't share any information that you're not comfortable with. I'm not trying to pry into your life. However, I'm not quite following this your numbers and seeing your same limits.
So yes, your mortgage payment would be more than double what it is now, but the difference is only $5208/year more. That's certainly not nothing, but you also said...
Does doubling your income still make $5208 more of housing cost per year difficult?
By pushing up your purchase price and getting a mortgage on a $400k home ($237,000 mortgage with your current equity) would push your monthly payment up to $1,673 or an extra $12,624/year over your current mortgage and interest payment. Unless your starting salaries were pretty low to begin with, it seems like this would possibly be in reach for you.
What am I missing?
One other random thing to consider, many of us did a refi during the pandemic. Hell, my bank simply said they’d lower my interest rate if I didn’t leave and refi with another bank. Shit was bonkers during the pandemic.
All in all, they might be sub 4% or even sub 3%.
Absolutely. We refinanced to 2.8% from 3.9% but we also rolled a high interest student loan into that so we ended up saving $1000/month. We could move but unless we completely moved areas, the housing prices are going to be similar to ours but with a 6.9% interest rate.
Our starting salaries were indeed low. We purchased at the end of 2017 and interest rates had already gone up to 4.7%. And our property taxes are covered by escrow which is rolled into our mortgage payment. Property taxes have also more than doubled on our current house and our escrow payment has gone way up as a result.
And we have also since had a baby, so a lot of our general expenses have increased along with all the general inflation prices increases associated with just living.
Okay, gotcha. So in your situation, its not just interest rates that are keeping you where you are but other things unrelated to rates such as property taxes, general expenses and new baby (congratulations!).
Thanks! We want a second child, and I am very risk-averse. So we requested pre-approval for $375k. Could we afford more? Technically. But it is a much tighter squeeze than we feel comfortable with especially with wanting to expand our family.
Interest rates are only a small part of my personal hesitancy behind selling/buying. The much larger portion is the lack of inventory in anything that is less than $400k in my area. Flippers and real estate companies are buying everything with cash. And I also recognized that we are very privileged to be where we are now. In 2017 I felt that if we didn't buy at that time (even though we took on a bit of PMI to do it and have since eliminated it) we would never be able to buy. Seems I was correct sadly.
We traded up to a newer house a couple of years ago (right before the interest rates went bonkers). I was in a similar pricepoint to you for target house. I found something interesting (in my area at least):
There is HUGE competition in the sub $300k pricepoint. Absolute vultures circling all the time for any house that comes on the market. Its not just Private equity, its first time homebuyers, its downsizers, and also mid income first time landlords that consumed the last 15 years of personal financial advice about "passive income". That put me looking in the $350k-$400k. What I found here was not much of an upgrade from the $275k house we were selling. However, the $425k-$475k was a disproportional huge upgrade! I would have expected the "upgrade value" to linear. Its not! We ended up getting one posted for sale in this range. It has appreciated over $100k more in value in the last 2 years.
When you get around to looking again, see if you see this same behavior reflected in your local housing market.
I completely understand that. You have to plan for all sorts of other life contingencies under those circumstances. Cost like child care in the future will also certainly have budget impacts.
We're still looking currently, so I can say that it's fairly accurate for here as well. Except we really don't have downsizers because they are retiring elsewhere. It was already brutal in the sub-$250k market in 2017 and it has only gotten worse.