COVID + Residential Real Estate?

How to avoid signing your life over to a mortgage
ertyu
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Re: COVID + Residential Real Estate?

Post by ertyu »

So far in my home town the effect is that a shitton of property has been put on the market all at once - at the old, high prices. This is mostly the real estate agents who usually have first hand information on any listings and buy the best properties to flip later. Those guys have apparently called the top. I am in the market and there are properties I like, but the asking price is about 1/2 to 3/4 of my NW, which is too expensive. I am not sure exactly what sellers are thinking. I have enough to pay for a property like that after having worked abroad my entire career and it's still steep. How could locals who earn 1/10th of my salary if they're lucky + have kids ever afford it??

I want to wait for prices to fall, but everyone and their mother is predicting inflation, and faster than expected given the speed of all other developments. Pippa Malmgren gave an interview with Grant Williams, and it appears the rich are salivating over buying up distressed assets for cents on the dollar as quickly as possible, before inflation hits - she is negotiating with/advising governments on central clearing mechanisms, etc. Other than how the rich will get richer here and the poor will get screwed as always, this seems to be a signal to not get too cute waiting.

Seppia
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Re: COVID + Residential Real Estate?

Post by Seppia »

ertyu wrote:
Sun Apr 05, 2020 3:02 am
but the asking price is about 1/2 to 3/4 of my NW, which is too expensive.
I am usually fairly against using debt/leverage, but if you have a steady income, taking a mortgage now seems like a no brainer.
I just did a simulation and here in italy I can get a 20 year mortgage for 50% of the total value of a house at 0,59% variable interest rate.
At this price, it would be criminal paying cash

Jason
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Re: COVID + Residential Real Estate?

Post by Jason »

Seppia wrote:
Sun Apr 05, 2020 3:27 am
At this price, it would be criminal paying cash
Buyers who were in the underwriting process when shit hit the fan have postponed closings in order to take advantage of the lowering of interest rates. If/when things return to normal, interests rates will not instantaneously return to pre-pandemic levels so an aggressive lending environment will remain in effect for the foreseeable future.

classical_Liberal
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Re: COVID + Residential Real Estate?

Post by classical_Liberal »

US specific
Foreclosure process in normal circumstances, in most states, takes at least 6-9 months, usually longer. Given the current protections and the pressure that will be put on banks to help people renegotiate their mortgages, I would guess that the issues surrounding COVID will mostly be resolved via vaccine or herd immunity in the 12-18 months before the first wave of such foreclosures hit.

This makes me believe that real estate prices would only be impacted if there is a post COVID longer term recession. Very low rates will work to add positive pressure to residential real estate. Because again, people buy payment, not price.

IOW, I do not think, generally, residential real estate will be impacted by COVID, except for perhaps increasing prices due to lower rates, and a temporarily slow moving market as transactions have been cancelled or postponed. If there is a post COVID, longer term recession, then we may see impacts on residential real estate as folks will not be able to dig out of the COVID hole, despite probably extraordinary measures to help them do so. This is at least 12-24 months from now though. There may be some select bargains out there though, like @seppias apartment deal, if business who have developments completed, but unsold, have a fire sale due to business cashflow issues and the current swamp around real estate closings.

wolf
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Re: COVID + Residential Real Estate?

Post by wolf »


giskard
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Re: COVID + Residential Real Estate?

Post by giskard »

I figured I'd update this thread with new information. This week JP Morgan Chase said they were increasing the minimum credit score to qualify for a mortgage to 700, and requiring 20% downpayments. Previously, the average downpayment was 10%.

https://www.housingwire.com/articles/ch ... uy-a-home/

In related news we just had another 5.2 million file for unemployment giving us 22 million in 4 weeks. We are around 15% to 20% unemployment right now --> https://www.cnbc.com/2020/04/16/us-week ... laims.html

So I think this changes things. Now I'm seeing houses on the market and I'm thinking people are trying to dump things while they can. I'm seeing a lot of 10k price cuts on houses on Zillow this week (avg price in this area is 300k). If a 20% downpayment is now required by most lenders, I think the market is going to tighten a lot just for that reason alone.

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C40
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Re: COVID + Residential Real Estate?

Post by C40 »

I've got $70k cash sitting in my account from selling stocks in January for the purpose of setting aside cash to buy a house at some point...

The cities I've been considering include:

Tucson, AZ. where:
- Nice house: $130k
- Cheap/crappy house: $90k and up
- Decent house with Casita (ADU): $180k and up
(nice weather. Access to fun outdoors stuff. People ok but not great. Good for bicycling. Long-term water issues)

St Louis, MO:
- Nice house in ok neighborhood: $130k and up
- Nice house in shitty neighborhood: $100k and up
- Shitty house in shitty neighborhood: $50k
(nice weather. Fun and interesting city. Many people to make friends with. Poor access to outdoors stuff, though nice park in city. Not so good for bicycling. Long-term continued problems with crime, segregation, unemployment, racial tension. Exact location/neighborhood very important because ongoing decay in some, gentrification in others)

Wichita, KS:
- Nice house: $80k and up
- Cheap house that is livable: $55k
- Crappy house: $40k
(good weather. Far from large cities. Good for bicycling. Perhaps limited amount of people to make friends with)


Prices have been going up gradually in Tucson and St Louis. Prices in Wichita have had extremely slow growth over decades, which is why they're
so low. So, if there's a significant price drop, Tucson and St Louis seem like better options for buying while the price is low and getting some capital gains. Wichita is still appealing, because of such low cost of housing, but I think prices might not drop as much there because when they're already low, I think they can't go down as much.

bigato
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Re: COVID + Residential Real Estate?

Post by bigato »

From your description, I’d start doing cash offers for nice houses in Wichita. Finding nice people to be friends with is something that is possible almost everywhere. It may be harder where the numbers are against you, but you don’t need all that many close friends in your life, right. Time is limited and you can’t even have meaningful relationships with more than a certain amount of people.

Also, don’t be so sure that prices in Wichita won’t fall as the prices in other places do, just because their current price is lower. Real estate market is far from being rational. It may actually fall even lower than other places as people with cash cluster on the “opportunities” in the higher cost cities. Just like you, they may think it’s a better deal.

From your list, I’d not go for a place with potential water issues because the climate crisis and population growth may be likely to worsen it in the coming years.

black_son_of_gray
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Re: COVID + Residential Real Estate?

Post by black_son_of_gray »

C40 wrote:
Thu Apr 16, 2020 9:31 pm
Poor access to outdoors stuff, though nice park in city. Not so good for bicycling.
Not sure if this was on your radar, or if you were talking about biking within the city, but I discovered this while driving across the country. I love rails-to-trails...
https://en.wikipedia.org/wiki/Katy_Trail_State_Park

We're looking to buy a house coming out of all this COVID stuff too, although probably w/acreage in the PNW.

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C40
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Re: COVID + Residential Real Estate?

Post by C40 »

Yes I was aware of that. And if i lived there, might possibly go touring on that trail. But it'd be, idk, 40+ miles from home to get to the trail, so I would not ever ride it for just a normal day bike ride.

But, I was talking about bicycle riding that I could do from home in St Louis. And, comparing to the other two cities, which are WAY better.

It's nice riding in Forest Park, though going around the perimeter of the park is only about two miles per loop and there is a lot of traffic (It can be better riding on the roads).... And there are some other trails like a pretty crappy one that goes along the river. But, riding in the city is not good. And getting out of the city takes like 15 miles of riding, or getting across the river

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C40
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Re: COVID + Residential Real Estate?

Post by C40 »

bigato wrote:
Thu Apr 16, 2020 9:54 pm
From your description, I’d start doing cash offers for nice houses in Wichita. Finding nice people to be friends with is something that is possible almost everywhere. It may be harder where the numbers are against you, but you don’t need all that many close friends in your life, right. Time is limited and you can’t even have meaningful relationships with more than a certain amount of people.

Also, don’t be so sure that prices in Wichita won’t fall as the prices in other places do, just because their current price is lower. Real estate market is far from being rational. It may actually fall even lower than other places as people with cash cluster on the “opportunities” in the higher cost cities. Just like you, they may think it’s a better deal.

From your list, I’d not go for a place with potential water issues because the climate crisis and population growth may be likely to worsen it in the coming years.
Yes, I am leaning towards Wichita at the moment. I feel it is a bit of a gamble but if I go there and really like it, I'd feel like 'I won'.

Tucson has it really rough on climate change predictions. They have (potential) water issues.. and, I believe the temperature rise predictions there are that the area will be hit with much higher increases than average. 9 Degrees instead of 3. And it's already pretty hot there in summer. The real strong thing about Tucson is that the area is beautiful, and it's out west and close to a lot of fun places that I'd like to go for vacation/camping/road trip adventures/dirt bike vacations

classical_Liberal
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Re: COVID + Residential Real Estate?

Post by classical_Liberal »

@C40
If you are serious about buying, I would consider financing part of the cost. At least, if you can get financing with your income situation. Fixed rate loans will never be lower, and financing 50-70% of a purchase price at 3% for 30 years is a fantastic deal over time. Particularly if it's something that can potentially yield you some rental income (like a casita on site). Right now I think low leverage rates are the best thing going for purchasing residential real estate.

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C40
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Re: COVID + Residential Real Estate?

Post by C40 »

Yeah, I will be considering that. And it might work out especially well if I buy a house in an area where the prices are likely to be going up. IDK if it would work getting a loan. My AGI is about $18k per year. More than half of that is just IRA conversions.

classical_Liberal
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Re: COVID + Residential Real Estate?

Post by classical_Liberal »

@C40
I've been out of the mortgage biz for too long to know underwriting guidelines these days. I do know that LTV and reserve levels (liquid assets) matter almost as much as credit and income. Since you have 3 of 4, you may be able to find something. It's worth at least checking into, IMO.

Augustus
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Re: COVID + Residential Real Estate?

Post by Augustus »

I'd wait to buy if it's convenient. Real estate prices are predicated on jobs. Jobs are vanishing right now, so real estate in theory should tank as demand vanishes along with jobs, and later on, foreclosures start adding to supply.

I also recommend leverage, I think 50% is a good amount. I regret paying cash, because I could have invested the other 50%, and ended up with 2 houses instead of 1 house when I'm in my 60s for nearly the same cost. Not only would I have a paid off place to live in, but I'd have another income stream.

sky
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Re: COVID + Residential Real Estate?

Post by sky »

I liked Kansas when we drove through in 2015 and 2016. Because of the distances, it is kind of a world of its own, at least the central and western parts. I think the history of Kansas is interesting, in particular the border war with Missouri before the civil war.

Some downsides, it is in tornado alley. Also, I was surprised to see Wichita on a list of high crime cities. I believe it was a crime per capita type of list. That surprised me. I probably should fact check to see if it is true.

I would like to explore Kansas again. I would look at university towns (Manhattan) near I-70. I would also look at the westernmost towns in the general area of I-70. I have seen that area passing through, and it is unpopulated, but I would like to check out the historic towns. They might be quality living if they are a few hours drive from major Colorado cities. It is normal to drive long distances out west.

I like Tucson and Arizona, but only in winter. The high elevations might be more my choice.

chenda
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Re: COVID + Residential Real Estate?

Post by chenda »

I road tripped through Kansas some years ago. I recall be advised to avoid Wichita because it was apparently dangerous. At least according to some trucker we met one morning at an interstate stop (how American does that sound ? : ) No idea if it's true but I have good memories of the Kansas countryside, especially the east it was all very rolling green hills.

At times like these I prefer having my assets predominantly in something tangible like property, even if that's just a psychological benefit.

CS
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Re: COVID + Residential Real Estate?

Post by CS »

Kansas is really, annoyingly windy. I felt more earthquakes there in three months than three years in CA. It also has terrible has/has not signaling. I've never seen people feel the need to spend their year's salary (or more) on a car before - at least not to that level.

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C40
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Re: COVID + Residential Real Estate?

Post by C40 »

chenda wrote:
Mon Apr 20, 2020 4:35 pm
I road tripped through Kansas some years ago. I recall be advised to avoid Wichita because it was apparently dangerous. At least according to some trucker we met one morning at an interstate stop (how American does that sound ? : ) No idea if it's true but I have good memories of the Kansas countryside, especially the east it was all very rolling green hills.

At times like these I prefer having my assets predominantly in something tangible like property, even if that's just a psychological benefit.
heh, Wichita is definitely not that kind of dangerous. I looked at it some a could years ago and I as I recall, there is more crime than other small cities in Kansas, but still fairly low crime IMO


@CS - earthquakes from fracking? yeah.. that could be an issue. I should look into it more.

Campitor
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Re: COVID + Residential Real Estate?

Post by Campitor »

My personal opinion is the residential real estate prices will remain within the pre-COVID ballpark. The high cost of real estate is a result of excessive regulations that limit new construction, minimum plot size, and restrictions on multi-unit construction in single family zones. Also, any new construction can be tied up in court for any number of reasons: blocking a view, too close to property line, etc. Unless these laws are changed, the price of real estate will remain steady in most areas.

https://www.citymetric.com/fabric/tokyo ... hoice-4623

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