As frequent readers of this blog know, the Tako family is currently in the market for a new home. This summer we sold our house in Washington state, and moved south to Arizona. Currently, we’re renting a temporary house, and it’s a pretty small place.
Over half of our “stuff” is still in storage, and we’re sitting on a small mountain of cash that we plan to use to buy a home… once we actually find one.
This of course is our current challenge: Finding a home we want, and one we can actually afford in today’s housing market.
Does All The Cash Make Me King?
A year ago, it wasn’t uncommon to see multiple cash offers on every house for sale. The housing market was absolutely nuts back then. People were cashing-out 401k’s to have enough cash to buy a house.
The market has slowed down considerably from those days, but having a pile of cash is still a Good Thing™ in my opinion. We can shop for a house today without worrying about where mortgage interest rates are at.
After paying-off our old home loan, we walked away with slightly over $1 million dollars in cash. This might sound like an astronomical sum, but it doesn’t buy a lot these days.
Newly built houses in our area can easily exceed $1 million. For example: a new built house mere blocks from where we’re renting, costs $1,375,000. It’s not even a particularly fancy house! Although at 3100 square feet, it is slightly larger than we’re used to.
This is the price builders were asking back in 2021 and early 2022, at the height of the home buying frenzy. Low interest rates fueled high prices, and builders were actually able to find buyers at those ridiculous prices. Crazy, right?
Not many people can afford a home like this today.
Interest rates on 30 year fixed-rate mortgages are now around 7%, which makes affording such a princely home no small feat. Even assuming we plopped down the whole $1 million dollars as a down-payment, the payments on such a home would cost around $3,600 per month (including taxes, HOA fees, and insurance). Ouch!
Yes, money is expensive right now! And at 7% (roughly the same as the long term return on stocks), it’s not a loan I want to have for the next 30 years.
Inventory Levels Are Nonexistent
So why haven’t we purchased a home yet? I would love to spend my million dollars on a new house… if only there was something to buy!
Part of the reason why home buying was so difficult last year was because of low housing inventory levels. There was just way more demand for housing than the available supply. This hasn’t changed over the past year.
With interest rates rising to multi-decade highs, it appears existing home owners are choosing not to move. This has the effect of lowering supply at the same time demand is falling. Nothing has really changed, except for interest rates. There is still a dearth of housing inventory right now. Fewer homeowners are willing to put their house up for sale, which means there’s almost nothing to buy!
We’ve only seen a handful of homes appear on the market over the last 2 months, and most haven’t fit our needs. This has made shopping for a home very difficult.
That said, interest rates are not the only reason people choose to move or stay in one place — Divorces happen, people die and change jobs, babies are born, and children eventually “leave the ‘nest”. Life happens, and it will keep happening regardless of what interest rates do.
I’m hopeful this lack of inventory is a temporary phenomenon. The homes available for sale in our area are mostly “fixer-uppers” right now. They tend to be very old, and very outdated.
And I’m OK with that. I’m not against buying an older home and remodeling it, but the price has to be right. If I’m going to gut an existing house, fix all the problems, and then spend $500k to remodel — The price better be reasonable!
Unfortunately fixer-uppers in our area aren’t selling at “reasonable” prices today. Buying and then remodeling one of these older houses would actually cost more than the brand-new $1,375,000 house I mentioned earlier.
Sellers seem like they’re locked into the “old prices”, when the market was still crazy-pants.
Life will eventually happen again, of that I have no doubt. Eventually the ‘shock’ of higher interest rates will wear off. Humans will eventually “normalize” this new interest rate… whatever percentage the Fed finally settles on.
Which leads me to the next big problem with buying a home right now…
New Builds Mostly Suck
Due to the very small housing inventory available, Mrs. Tako and I briefly considered a “new build” house. You know, one of those homes built in massive neighborhoods by mega-builders like Lennar, D.R. Horton, NVR, and the like.
This was a bad idea, which we quickly dropped. Why, you ask?
If you’ve ever looked at new homes (those that were built in the last couple of decades), they’re mostly terrible. Sure, they might be all shiny and new, but they’re almost exclusively two story houses, built to look exactly the same, and they’re built extremely close to one another.
This is NOT what our family is looking for.
We’d like a reasonable size house (a couple thousand square feet), with a reasonable size lot (half an acre would be a good size). Enough to provide a little privacy, but not “out in the woods” levels of privacy. New builds just don’t have this.
In some of these new neighborhoods, you can literally lean out a window and touch your neighbors house with an outstretched arm.
These homes are built practically on top of one another in order to maximize the ROI for the builder. Not the buyer.
In some urban areas where land is limited and expensive, I can understand this. It might help keep the cost down for cost-sensitive buyers. (Those willing to give up privacy at least.)
Fortunately, there’s no lack of space out here in the Arizona desert. It’s fairly rural and undeveloped. Land is affordable and readily available… yet this is still how home builders choose to build houses. I just don’t agree with it.
Not to mention that most of these new-build homes come attached with a HOA (Home Owners Association) that charges hefty fees for what I can only describe as “expensive nonsense”. Other than maybe enforcing CC&R’s, and perhaps maintaining a few small common areas, the home owner gets almost nothing in exchange for several thousand dollars a year. It’s disgusting.
Some people might describe a HOA as a positive thing, but in my opinion they’re almost entirely negative.
Where Do We Go From Here?
So, what is the Tako family going to do? We’ve toyed with the idea of buying a plot of land and having a builder put up a house. Realistically though, that would take over a year to build. It would also involve a lot of stress and headaches. I’m not convinced this is a good idea (yet).
Will I change my mind in a few months? It’s possible!
For now, our best choice is to keep renting and hope someone will eventually sell a nice home at a reasonable price. We’re going to wait it out! This might be optimistic thinking, but what else can we do?
Thankfully we’re in a good position financially, and have the resources to deal with inflation fueled rent increases when they happen. Not everyone is this fortunate position, and we’re comfortable enough in our small rental.
Got any ideas on how to solve this dilemma? I’d love to hear any suggestions you might have!
[Image Credit: Realtor.com, Redfin]