I realized just now that there is only about one year left in my wife’s training program, after which she will be geographically mobile again and we plan on moving back close to family. This also means that we have only one year left before we plan on buying a house. Scary! I haven’t been keeping a particularly close eye on the real estate market, just kind of reading the newspaper and talking with friends.
What will housing prices be like in a year? Who knows for sure, but here are my thoughts on housing prices, from a late-20s guy who’s never owned a house. I think that housing prices are set by supply and demand like everything else, and people buy what they can afford. I think that four major things have made the prices rise to fast in recent memory: low interest rates, dual-income families, relaxed mortgage lending policies, and parental support.
Low Interest Rates
This one’s pretty obvious. With lower rates, you can afford more house with the same monthly payment. According to Bankrate, the average rate for a 30-year fixed mortgage is now 6.38%. Tomorrow the Fed is supposed to raise rates another 0.25%. I’m a bit concerned as I thought that the rate hikes would slow down by now, as having to lock in an 8% mortgage doesn’t sounds like fun. Of course, as mortgage rates go up, that should also put pressure on housing prices. Shrug.
Everyone’s qualifying for these mortgages based on both incomes, also allowing them to qualify for a bigger amount. When we have kids, we don’t want to both have to work full-time and buy daycare. It would be nice to be able to technically qualify based on only one income. Perhaps that’s just dreaming, as this seems to be the status quo now.
Relaxed Mortgage Lending Policies
When’s the last time you heard someone actually pay 20% down for a house? I’ve heard of only one, and that was because of parental support. These days you can put down 0-10%, and then convince the mortgage company that you’ll put 50% or more of your income towards a housing payment. Wa-lah! You’ve just qualified for a $300,000 home with a $60,000 combined income. Just about anyone can get some sort of loan. And if not…
Every single person my age but one who’s bought a house that I know has gotten parental support for downpayment assistance. I guess it’s partially tradition as well. We might get some support too, as our siblings have gotten it already. But this is also answering all those “How did they afford it?” questions. Man, it’s tough on your own.
Short-term, all these things helped prop up real estate prices. Long-term, interest rates will even out, and I don’t think banks can become any more lax than they already are. Perhaps a flurry of foreclosure will give them a reality check. I think parental support will be around forever, and may even increase over time.
In the end, like everyone else, I just hope we’ll be able to afford a house that we can start a family in while living in the place we love.
By Jonathan Ping | Real Estate | 6/28/06, 3:50pm