House Shopping Sucks!
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]
26 thoughts on “House Shopping Sucks!”
Good points and I agree with the wait for better options call! I agree with your assessments on new build master planned communities and the HOA rip off. At least for a couple hundred dollars you get a playground. In San Francisco where I used to own a couple condos, by the time I sold I was paying nearly $800 per month for a front lobby with mail service. Unreal! You should check out some of the prefab modern home builders, like Blu or Connect Homes, and a plot of land. It may be less headache than you think and you can get a modern new home on a larger lot. Good luck and all the best!
Thanks for the suggestions Brian! I’ll take a look at those builders.
The housing market has changed quite a bit since I bought an apartment 5 years ago here in NYC. I remember the headache the home search was – and I was just one person, not a whole family. The big positive was that I was an all-cash buyer, which gave me the faster competitive edge over those needing mortgages.
I’m not exactly a real estate expert, so I don’t really have any useful ideas to give… But I would say, stay persistent and patient. The process will definitely test your patience, but opportunities will present themselves eventually.
Best of luck! 🙂
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We had somewhat related issues when we moved to our current state a few years back. Lady luck eventually stepped in though. That is, we found a place that basically checked off all our boxes at a time we never thought that’d happen. That allowed us to move from our first place out here (which was subpar). Like us, you’re in a dynamic urban area in the West. So, I’d say that the odds of you experiencing similar luck are pretty high. Just be prepared to pounce, which it sounds like you are.
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Yep, we’re ready to pounce. We lost out on a property this weekend because I attempted to ask the listing agent some questions. In the 12 hours it took before she replied, it already sold.
Why don’t you Just leave notes at houses you like of Just ring the doorbell. Our adjust the size of the house. Here in the NL we live in 125 m2 houses. And the prices are going down, interest, gas prices extreme, recession.
Or buy something our of the box, a farm (I have one), police station (have that to for renting out), old school etc etc.
Good Luck and be patience!
In our area, there aren’t really old buildings like farms and police stations. Almost everything is fairly new.
Until the mass spread of air conditioning, very few people lived in this area.
Knowing what you know now, if you could go back in time, would you have stayed in Seattle? I know it’s a hypothetical, but would be fun to know your thoughts.
No, we probably wouldn’t have stayed in Seattle. Housing has been an issue for a number of years… it’s just different now.
Consider looking around a military base. The economy is stabilized by the base, the military moves people a lot and homes are well-maintained and individualistic. BEST OF LUCK! Consider making a low offer and waiting them out. We’re buying and a few homes are reappearing on Zillow as “back on the market.” We’re happy to buy a fixer if the price is right, and if it has manageable lemony features. Many homes are not touted as fixers, when they really are. Some sellers have to go through losing a couple of offers on inspection to come to grips. Then the seller is willing to have an extra inspection (paid by us) that they just KNOW will generate an expensive repair estimate. We have a good realtor who has OneHome send us a few homes every day or two by email.
Thanks for the suggestion Noelle Jarn
Agree – new developments cram taller structures next to each other for significantly higher property taxes and absurd final prices.
Good luck with the house front. Of all the choices, I’m guessing buying a plot and building a home makes more sense.
Thanks gofi! If we can’t find anything, I might go that route!
Patience is a virtue, and all that. I have no idea how much virtue you’ll need though. Good luck! On a side note, it is funny that the general population think that being wealthy will solve all of life’s problems. Once you get wealthy, you generally want to stay wealthy, which is a new problem, in addition to all of the previous problems. Just now people will dismiss you as having #FirstWorldProblems and instead of sympathy, you get a healthy dose of sarcasm.
Thanks for sharing your experience. My favorite topic!
Surely, better deals are coming! I strongly believe they will by this time in 2023 or early 2024. The Fed is fine with crunching the housing market by 10-15%.
So it’s good you sold when you did. Seattle market seems to be one of the fastest fading housing markets. Did you have trouble selling when you did?
How are you investing the $1 million now will you wait, if at all? I’d just buy 3-month treasuries with rates at 3.8% or so.
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It took slightly over 1 month to sell our house in Seattle. The price was… just OK. Certainly not the ‘peak’, but we realized significant appreciation.
For now, we’re not attempting to invest the cash. I want to be able to move quickly if we find something we like.
Thanks for the comment Sam!
One option – Consider setting a timeline for finding a home to buy that meets most of your requirements. If you can’t find a home in that timeframe, then perhaps its time to move to another location.
Another option – Consider renting for the next few years.
Another option – Perhaps find a walkable community close to family in another part of the US that has more available housing. Kids are pretty resilient about moving until they hit their teenage years.
Thanks for the ideas Bev!
Sounds like a tough situation Tako, but if you didn’t have patience you wouldn’t be in the great situation you’re in overall as an early retiree and FI. Sounds like you just need to keep renting and since you’re not a super-demandy person you should be fine. As for HOA’s – I fully agree! I’ve never had a house with one and I never will. Freedom to me is being able to paint my front door whatever color I want, and all I hear is nightmare stories about thousands of dollars a year spent for nothing. Good luck!
Tako – we’re in the same spot and I’ll likely end up with Grandma / Grandpa’s 50yr old home in need of renovations.
Not fun to spend nearly $1,000 on a deal under contract to figure out if there’s still a deal, but we’ll see!
Totally agree with you Mr. Tako about HOA’s. We have a condo in Florida that we rent out, and the HOA completely dictates the terms. Like, how long someone can stay, and they must first approve of the renter, which we have had them turn a couple down! I doubt I would ever buy another property which has an HOA attached. I’ll live in the sticks if I have to!
I’m just curious what investment vehicles you have the money in. We don’t have the boatload that you have. We’re trying to keep some in high interest saving accounts to pay for college for our oldest right now. Wish we kept more in cash. His 529 went from 120k to 85k by Sept when we needed it. The loss would definitely have paid for a year in school.
Ugh, house shopping does indeed suck!
You’re definitely in a rough spot to be looking for a house right now for all the reasons you’ve stated. I guess the glass half full would be that you’re ready to pounce with a pocketful of cash once you eventually find what you’re looking for or if you decide to build.
I wish you the best of luck and hope you’re able to make it happen soon since I know it’s a pain just having stuff in storage in the meantime.
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Good luck with house hunting! Just take it slow and keep looking, I guess.
I’m just glad we aren’t looking right now.
Building your own house might be the way to go. But I’d wait a bit to make sure you want to stay in this area for the long haul.
I agree that the HOA is useless.