Real estate & inflation ver. 2022.

Milspec

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Inflation is a real deal and I would never suggest anyone take financial advice from an internet forum. Especially a Telecaster forum where we can't agree that tone is in the wood! LOL

But look at this...and make your decisions.

Inflation rates last 10 years: courtesy of

2012 - 1.7
2013 -1.5
2014 - .8
2015 - .7
2016 - 2.1
2017 - 2.1
2018 - 1.9
2019 - 2.3
2020 - 1.4
2021 - 7.0
2022- 7.9

Last time inflation grew like this and hiked in the last twenty years? 2000 and 2008, go back and take a look at the financial sector after Inflation went above 4.5%. It really scares me as I see the same thing that happened in 2005-2008 happening now. Property values continue to go up and people get overextended, the stock market has been on a bullish trajectory for the last 13 years other than the Co%%d blip in 2020. It is due for a decline.

I had a conversation with a young couple a few weeks ago (I am not a financial or real estate advisor) who were looking at buying a house in this market. Total income for the young couple with a two year old and one on the way ($125K annually together). They were going to put an offer on a $350,000 house to purchase. I thought that might be too much house and I asked them what they had been approved for? They said they had been approved for $350K and it would equate to 35% of their net debt with a house payment around $2900 including taxes and insurance.
I asked them what their take home pay was and they said around $6500 a month. I asked if they realized that their house would take HALF of their take home income and they said it was a stretch but they could make it.

This is what I am seeing in our area, everyone "stretching" to make it. I asked them what would happen to them if their insurance went up and if their taxes increased? They said that should not happen. I told them that on my old house the taxes increased from $3800 a year (it was undervalued) to almost $10K in four years because the new tax assessments. They said that should not happen on their house as it was brand new and would be taxed right to start with. I told them that another friend of mine bought a $300K house three years ago, last month it was assessed at $400K since the market has improved here significantly. His original tax bill annually was $7,200. With the new assessment his tax bill went up to $9,500 this year. That is a $200 monthly increase on his house payment. He is now being "Stretched" to make it every month and is thinking of selling his house that he just moved into new three years ago. He has some equity in the home, IF he sells but he has no where else to go as to buy a comparable house would be to spend another $400K and he can't afford that.
Excellent observations.

When I purchased my current house some 17 years ago, I was approved for twice what I paid for it. Agents kept telling me that I should buy more house, but I am normally a pessimist when it comes to money. I worried about what the market would do, what the taxes would do, and most importantly....what if I lost my job?

Fast forward 12 years later and the company I worked for shut down on one week's notice. My income dropped by 50% and most of my co-workers had to scramble to sell their houses in order to downsize their payments.

On top of that, my tax assesments have increased by 25% over the last 8 years as more people have moved to this small village. Buyers today don't think about any of those things, they just expect static pressures and there is nothing static about life.
 

Milspec

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The American Dream is gone. We allowed foreigners and conglomerates to buy up real estate driving prices out of reach, now the average Joe cannot afford a house while we let foreign companies buy 300 houses to rent at profit. Essentially we are back to 1000 AD, where the rich Lords own it all and the serfs/workers slave to pay them rent. The Mexican system of requiring nationals to own 51% of any real estate is a good one.
I don't diagree really, but I think that dream has changed more than died. People today demand big, expensive homes right out of college where their parents struggled for years to afford their starter home and upgraded down the road.

One can still afford a home on a regular guy income, but it will nothing fancy and out in the sticks a bit. People need to adjust their dreams a bit these days.

I do agree with you though on how much land is being purchased from foreign companies and individuals. A huge amount of the Nebraska Sandhills is now owned by people out of State and that is a shame.
 

schmee

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I don't diagree really, but I think that dream has changed more than died. People today demand big, expensive homes right out of college where their parents struggled for years to afford their starter home and upgraded down the road.

One can still afford a home on a regular guy income, but it will nothing fancy and out in the sticks a bit. People need to adjust their dreams a bit these days.

I do agree with you though on how much land is being purchased from foreign companies and individuals. A huge amount of the Nebraska Sandhills is now owned by people out of State and that is a shame.
Yeah, for only $400K you can get a whopping 320 sq ft.! This was a quick sale.
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stxrus

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We bought our house in a very down market 21 years ago. It’s worth, according to a real estate agent friend, 4+x what we paid for it.
A comparable house in today’s market, without the view or other things, is almost 5x it’s worth 2 years ago.
I‘m staying here.
 

Toto'sDad

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Make sure you have a substantial tax loss you can use to offset your Capital Gain. I thought
i had mine lined up correctly, but couldn't get to closing in time (for the same collection of events that had caused the loss).

Sucks being a living being - the corporations get all the useful breaks.
Whoa, when a lawyer gets in trouble on a deal, things must really be bad!
 

Milspec

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We bought our house in a very down market 21 years ago. It’s worth, according to a real estate agent friend, 4+x what we paid for it.
A comparable house in today’s market, without the view or other things, is almost 5x it’s worth 2 years ago.
I‘m staying here.
Same here
 

Milspec

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It’s insane here. People drive around our neighborhood and randomly ask if we want to sell. People are poor negotiators sometimes.
I have 8 houses on my stretch of road in a small village of 1100 people. Agents have been going door-to-door for the past month trying to find people willing to sell. So far, 5 of the 8 have sold.

The last offer I received was for 30% above market price. Now, if they can afford to pay 30% above market for my house, just how much do you think they plan on marking it up? Even though this house was never a good fit for me to begin with, I have no desire to sell simply because it would take me a month just to move out all the clutter from the garage alone.
 

Recce

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It might be appropriate to play it some more. As much as the house needs updates it also has some magic numbers - truly a 4 bedroom with master bedroom downstairs and a two stall attached garage.

The cash and no inspection offer is a woman a few years into the remodel/flip business. She's got to know it's a good place at the core. Combing through MLS for 4 bedrooms, there's nothing like it listed within city limits right now.

We absolutely plan to contribute to inflation here. I'm still going to tease some associates not getting the big picture. It's also just some entertainment or a light hearted moment when selling the house also represents a lot of mental stuff, work and challenges with the whole of life.

:)
So after you sell your house where are you going to live or do you have another house? I could sell my house at a high price but then guess what? I need to buy another house at inflated prices. Well, that didn’t work so well.
 
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Milspec

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So after you sell your house where are you going to live or do you have another house? I could sell my house at a high price but then gue what? I need to buy another house at inflated prices. Well, that didn’t work so well.
Exactly, the only people who will benefit are those looking to downsize or leave home ownership altogether.

My family just helped sell my mother's house and move her into a retirement home. They got almost twice what the house was worth just 5 years ago when she bought it.

I am still not pleased by the actions of the family as she really didn't want to sell, but was talked into it. That is a story for another day.
 

Killing Floor

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So after you sell your house where are you going to live or do you have another house? I could sell my house at a high price but then guess what? I need to buy another house at inflated prices. Well, that didn’t work so well.
This. My new tax assessment is over 3X what we bought for in 2011. But then what? I could sell without listing or even cleaning up. But I’d have to go somewhere else.

To me the worst part is kids can’t buy where they grew up.
 

Crafty Fox

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In cities like Toronto and Vancouver, prices are apparently out of reach for many first-time home buyers. But inflation is not the biggest reason for this: it's well-heeled buyers snapping up houses as investments and then renting them, in many cases, to those who got priced out of the market.
It's a very similar story over here in Australia. House prices are becoming obscene.
Many younger hopeful buyers are now priced out of the market. And rental costs have skyrocketed too.
 

stxrus

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It's a very similar story over here in Australia. House prices are becoming obscene.
Many younger hopeful buyers are now priced out of the market. And rental costs have skyrocketed too.
I have friends that are paying almost twice my mortgage for a rental half the size of my modest (1,475 sq/ft) house. Most with no view or a good breeze.

Just for grins I looked into what my mortgage would be if I bought my neighbors house (they are going stateside for medical reasons) and it would be almost double. They have no view but do have a flat yard. The new buyers are happy to have found a place they consider “affordable”
 

teleman1

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I have been a Realtor for 35 years. There are things that have changed the fabric of America. And it is not just Real Estate. But Real Estate is a big chunk of the problem. Honestly, the price hike for home sales is not what scares me. It is the friggen rent. I have two rentals with good tenants and over the past 10 years, I don't think I have raised their rent. I went through a guilt process raising them both $100 per month in January. But they are month to month. If either moved out, I could collect least $300-$400 more per month. I could sell, but I look at this longer term and it produces income. But so many are just selling. And rent has gone up significantly to actually change their class status/ school choices for their kids, and the list goes on the issues that come of this. Also, all this inflation is due to low inventory, but also, prompted buy corporate style investors & small conglomerate investors. It is NOT just people buying to live, it is also corporations, they hold & rent. It is a difficult proposition to sell & downgrade or upgrade. Whatever you are looking at has competition. And the competition is usually CASH. If you are going into assisted living or moving in with the kids, there couldn't be a better time to sell. It boggles me that the market could go even higher. As I tell anyone, get an experienced Realtor, preferably referred by a friend who has used them. If your deal goes wonky, his experience will keep things together & lower your stress. if you see the companies name on e-mail, busses, your mail, your TV, radio and now, even a park bench, , you can do far better. They want money too and you will pay for their promotions. And there is a lot of slimy unethical things going along with all this hoopla, so, be very careful. AND, auctions aren't always the beat way to sell a home; it attracts an odd sort. THe MLS is a tried and proved entity that deals with Real Estate and makes it more fair for all and levels the playing field. Now Corporations have invaded that field, so all things normal, they have made it more confusing and difficult to find a home. I can't name names, but do some investigating and you will get answers.
 

IanMoss

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Similar story in NZ.

Even allowing for a 10% dip from the peak, we're still up ~50% in just over 2 years on what we paid for a house in a commuter suburb of Wellington.

When the time comes to sell (no plans) we're likely to move to the West Island (Australia) or back to regional NZ (ie. different markets, rather than selling and buying in the same market).
 

Tonetele

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Let's face it, just about all people will sell for as high a value/prfit as they ca. It's oportunistic in most folk. Cut the bull about patriotism and do as I suspect, go on take the money and run. Real estate is a reflectin of inflation not it's cause. Our real estate has boomed ere at 0.1 inflation, but the eserve Bank is about to blow the lid on rates. Inflation is occuring due to external and internal factors anyway- so rates will go up.Buying a house in Oz now costs $1m +.
 

loudboy

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My heart goes out to the younger, first-time home buyers. They don't stand a chance.
I have a good friend who is in his late 20's, and he says that most in his generation have accepted the fact that they will never be able to own a house. He's frugal, has no debt, some investments, etc., makes about the US average income.

Where we are, things are nuts. There's almost no inventory, and rents are at the point where most people that are still working cannot afford to live here. Even the surrounding towns are becoming unaffordable, both to buy or rent.

When we bought in 2009, we rented it long term to a nice retired couple for $1400/mo. Now, we could easily get $3000+. This is a 1994 2BR/3Ba 1600sf ranch, in a quiet neighborhood. About as average as a house can be, and it's appreciated about 150% since we bought it.

The state eliminated all regulations on short term rentals in 2016, and virtually every home since then that is not in an existing HOA that bans them, has been converted, as well as many long term rentals, which exacerbates the problem for workers who can't find housing.

Tourism is the only real business here, and restaurants, hotels, resorts, etc. are struggling to find employees, which is leading to reduced hours/services. We're also classified as rural healthcare, and almost every facility is struggling to find employees, and cutting/closing offices.
 




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