Kindly_Boysenberry_7 OP t1_iu6hkw6 wrote on October 28, 2022 at 10:32 PM

Reply to comment by CarlCasper in RVA Real Estate AMA - "What The H*ll Is Happening?" Edition by Kindly_Boysenberry_7

Yes.

OK. I'm not trying to be an *sshole, I promise. And if you are one of the people who were waiting to buy, and missed the 3% rates, it can't feel good to hear me say that ship has sailed, but....that ship has sailed.

3% rates were INSANE and historically low, and likely never to be seen again. It was a result of the Greatest Depression since the 1929 crash. So it's a once-in-a-100-year type deal. The entire housing market in the United States crashed, because people who had absolutely no business borrowing to buy a house were borrowing on crazy adjustable rate mortgages, acting like the appreciation wave was going to go on forever, and using their houses as piggy banks to pay for fancy cars, vacations, whatever. Then the ARMS adjusted and all of a sudden borrowers were paying $1,000s more a month on their mortgage payment. Then the mortgage industry collapsed, people's homes lost 25%+ of their value, people were all of a sudden underwater on their mortgages, and the foreclosure wave happened.

But everyone needs to understand that was a mortgage lending-driven crash. It was the FINANCING that was completely screwed up. And yes, developers were borrowing money to build more housing, and that also came to a screeching halt when the mortgage markets fell apart.

The economy was so screwed up the Fed lowered the federal funds rate to 0%. And it stayed there until this year. Which allowed for major economic growth, and a resurgence in the housing market, and then the weird Covid-accelerated and manipulated real estate market and now.....the Fed is trying to put the brakes on inflation. And the only tool they have is raising interest rates.

So the crazy low interest rates = result of a 100 year event, 2007 market collapse.

And I understand that if you are 30 years old right now and looking to buy your first house, the 2007 collapse happened when you were 15, and you have only been an adult in the world of 3% interest rates. But that's not normal. It is in fact completely abnormal. 6% is actually historically pretty low. My parents bought their first house when interest rates were 12%. Of course, their first house cost $12,000. But that's a discussion for another day.

If we get to mid-5% rates anytime in the near future, I'd jump on that. Now there are going to be options for adjustable rate mortgages ("ARMs") that offer rates somewhere in the 5s and they aren't "evil," they are a tool, so long as you understand what they mean and how they work. Another option may be an assumption, which allows you to assume the seller's mortgage and whatever their interest rate is. I need to educate myself on how assumptions will work moving forward. But I'd certainly raise it with my lender.

JeffRVA t1_iu6ov3g wrote on October 28, 2022 at 11:30 PM

Reading this only makes me feel better that we sold our house and built new last year. We had initially thought about waiting a few more years but then circumstances came together and we jumped on it. We locked in a below 3% rate and we never would have been able to afford what we have now if we had waited another year or more with rates being what they are.

On the flip side, we bought our first house in 2006 and got hosed when the housing market collapsed, selling it for a significant loss in 2014. So this sort of made up for it.

Kindly_Boysenberry_7 OP t1_iu72t64 wrote on October 29, 2022 at 1:23 AM

You can't time the real estate market any more than you can time the stock market. Sorry to hear about the 2006 house purchase, but you probably got into new for around 3% for 30 years, which is amazing. So hopefully it all balanced out.

JeffRVA t1_iu74p6s wrote on October 29, 2022 at 1:39 AM

We ended up at 2.875 and had it not been for a couple small material construction delays we probably could have gotten it slightly lower. We’ve done a few refi’s over the years on the other houses we’ve owned and while they were relatively easy I’m glad to not have to deal with that down the road either.

JeffRVA t1_iu75hah wrote on October 29, 2022 at 1:46 AM

I’ve run the numbers for curiosity sake and our payment would have been roughly $700 more a month if we locked in at today’s rates. And that doesn’t factor in the higher price our builder is now charging for our model.

blueskieslemontrees t1_iu6jfi6 wrote on October 28, 2022 at 10:47 PM

FYI from a former lender - assumptions have to be built into the note when the loan was first taken. Most people don't think then about having assumability so its not very common. A buyer would also only be able to assume remaining balance. So that means a higher down payment to cover the difference

Kindly_Boysenberry_7 OP t1_iu6k3xl wrote on October 28, 2022 at 10:52 PM

I believe at least FHA loans now have that assumability built in. Not sure about a regular conventional. But I did forget you can only assume the balance, so you'd need to be able to bring a chunk of change to closing.

Ah, yes, I have a feeling I will be doing lots of education with lenders in the not-distant future, to re-learn all the stuff about ARMs, and assumptions, etc. It's been nothing but 30 year fixed rate deals since 2008.

Laura37733 t1_iu7bjbe wrote on October 29, 2022 at 2:36 AM

Another important part to consider - if the loan has been modified, it's no longer assumable. So many people did long covid forbearances and modified the loan to tack the balance on the end, which prevents that loan from being assumed.

CarlCasper t1_iu6nyjy wrote on October 28, 2022 at 11:23 PM

Thanks for the incredibly detailed response. I was thinking more of my nieces and nephews with this question - we are incredibly fortunate enough to own our home outright.