Should concerns about the economy stop us from buying a house?
July 1, 2018 8:24 PM Subscribe
My partner and I think we're ready to purchase a home. Everything's lining up and we feel pretty good about the decision, except for, well...Trump. And trade wars.
Is all this trade war talk likely to affect the economy in a way that might make house prices significantly cheaper in a year or two? How should current events effect our decision?
Is all this trade war talk likely to affect the economy in a way that might make house prices significantly cheaper in a year or two? How should current events effect our decision?
Is all this trade war talk likely to affect the economy in a way that might make house prices significantly cheaper in a year or two?
If housing is significantly cheaper in a year or two, depending on where you live and what the local economy depends on, will your jobs and credit-worthiness also have taken a dive?
During the last recession, my new career field got hit very hard and was slow to recover. I was underemployed for three years until I left my chosen career field and luckily was able to pick up other work for two years. During the recession, we tried first to refinance the regular way to get our house payments to a more manageable level but we were so underwater that we weren't able to. Then Obama's administration put together HARP which allowed us to refi and get our payments to a manageable level to keep us from foreclosing. Now we are in a different kind of financial landscape and our house value has tripled from that underwater low. However, so has everything else.
I think timing the market is really hard for regular folks. The key is always to be conscientious about what your financial situation is, what your personal safety nets are, and how you would weather any downturn. Make the smartest decision you are able to make with the hand in front of you. You can't play a hand you haven't yet been dealt.
posted by amanda at 8:36 PM on July 1, 2018 [10 favorites]
If housing is significantly cheaper in a year or two, depending on where you live and what the local economy depends on, will your jobs and credit-worthiness also have taken a dive?
During the last recession, my new career field got hit very hard and was slow to recover. I was underemployed for three years until I left my chosen career field and luckily was able to pick up other work for two years. During the recession, we tried first to refinance the regular way to get our house payments to a more manageable level but we were so underwater that we weren't able to. Then Obama's administration put together HARP which allowed us to refi and get our payments to a manageable level to keep us from foreclosing. Now we are in a different kind of financial landscape and our house value has tripled from that underwater low. However, so has everything else.
I think timing the market is really hard for regular folks. The key is always to be conscientious about what your financial situation is, what your personal safety nets are, and how you would weather any downturn. Make the smartest decision you are able to make with the hand in front of you. You can't play a hand you haven't yet been dealt.
posted by amanda at 8:36 PM on July 1, 2018 [10 favorites]
This may be obvious, but: It's important to be aware of whether you live in a state where the $10K SALT cap is likely to limit the deductibility of property taxes, and whether the increase in the standard deduction may mean that the interest is not separately deductible. Additionally, and even more obviously, mortgage interest rates have gone up. This should slow housing price growth and means you should give comps a hard look in deciding whether a price is reasonable. But that's just the known math of today. You can't predict the future, especially when it comes to the policies of the present administration. Stick to under a 30% DTI, have a good emergency cushion, and you're making a reasonable decision.
posted by praemunire at 9:23 PM on July 1, 2018 [2 favorites]
posted by praemunire at 9:23 PM on July 1, 2018 [2 favorites]
Response by poster: (I should have added that we live in the United States.)
posted by waffleriot at 9:49 PM on July 1, 2018
posted by waffleriot at 9:49 PM on July 1, 2018
Is all this trade war talk likely to affect the economy in a way that might make house prices significantly cheaper in a year or two? How should current events effect our decision?
The first order effect of a trade war is going to be, counter-intuitively, higher unemployment in both countries. Basically a recession among the two largest economies as folks end up paying more and yet buying less. Does a recession mean lower prices? Not necessarily; the last one did but the causation was largely the reverse. Longer term data shows in 2000 home prices went up globally. Even in California. So I wouldn't hold out for a price drop from this necessarily.
As amanda mentions, the trick is not losing your job in the crossfire. Although, renting is also difficult without a job, so maybe the factor to consider here is how mobile you'd need to be to find a new job. One practical consideration is that trade wars are political. This means that tarrifs are likely to target Trump supporters in an effort to get them to break with the President. If your employer sells into China, and supported Republicans and/or Trump you are at a higher risk of retaliatory tariff.
All this said, there's a second factor that's sort of a wildcard. China has a lot of currency controls, and for a long while, foreign real estate was sort of the pressure relief valve. Borrowing fueled a lot of that, and for Chinese nationals, if conditions change in the local market, they may need to sell off foreign investments like real estate to pay back debts. Or, they might decide to hide from their creditors in the asset they bought, though this seems less like a great plan in a Trump presidency.
posted by pwnguin at 11:28 PM on July 1, 2018 [2 favorites]
The first order effect of a trade war is going to be, counter-intuitively, higher unemployment in both countries. Basically a recession among the two largest economies as folks end up paying more and yet buying less. Does a recession mean lower prices? Not necessarily; the last one did but the causation was largely the reverse. Longer term data shows in 2000 home prices went up globally. Even in California. So I wouldn't hold out for a price drop from this necessarily.
As amanda mentions, the trick is not losing your job in the crossfire. Although, renting is also difficult without a job, so maybe the factor to consider here is how mobile you'd need to be to find a new job. One practical consideration is that trade wars are political. This means that tarrifs are likely to target Trump supporters in an effort to get them to break with the President. If your employer sells into China, and supported Republicans and/or Trump you are at a higher risk of retaliatory tariff.
All this said, there's a second factor that's sort of a wildcard. China has a lot of currency controls, and for a long while, foreign real estate was sort of the pressure relief valve. Borrowing fueled a lot of that, and for Chinese nationals, if conditions change in the local market, they may need to sell off foreign investments like real estate to pay back debts. Or, they might decide to hide from their creditors in the asset they bought, though this seems less like a great plan in a Trump presidency.
posted by pwnguin at 11:28 PM on July 1, 2018 [2 favorites]
I would personally worry more about the possibility of losing jobs or having to relocate for one than hoping that economic instability will push down housing prices. It's really hard to predict anything the moment, so if you're able to buy a house that you like at present and are fairly certain that you'll be stable, I wouldn't delay. Housing prices may dip, but interest rates are likely to rise, and you'll be losing money to rent that could be building equity in something you buy.
And if you wait and things don't turn out poorly for whatever reason in your local housing market, you may find yourself priced out of where you want to buy.
posted by Candleman at 1:10 AM on July 2, 2018 [6 favorites]
And if you wait and things don't turn out poorly for whatever reason in your local housing market, you may find yourself priced out of where you want to buy.
posted by Candleman at 1:10 AM on July 2, 2018 [6 favorites]
Yes, if you're in most of the US. Sure there are a lot of risks, but buying a house has generally been a good financial move if you plan to stay in the house for at least 8-10 years.
There's something really weird going on in tech-heavy cities like SF and Seattle. I wouldn't touch those cities with a 100-foot pole.
posted by miyabo at 4:27 AM on July 2, 2018 [2 favorites]
There's something really weird going on in tech-heavy cities like SF and Seattle. I wouldn't touch those cities with a 100-foot pole.
posted by miyabo at 4:27 AM on July 2, 2018 [2 favorites]
'You can't time the market' applies here as well. Furthermore houses aren't astounding investments, but they are pretty good places to live. So if you want to buy a house to live in, and can afford it, it's a good time. If you don't or can't, then it's not.
posted by so fucking future at 7:41 AM on July 2, 2018 [2 favorites]
posted by so fucking future at 7:41 AM on July 2, 2018 [2 favorites]
Buying a house is scary all the time. Where I live, buying is way cheaper than renting. If you're really worried, there are insurance options to cover things in case you think you're going to lose your job or get injured, etc. etc. I doubled up and now own and feel much more secure. At the end of the day I don't have house payment/rent to make and just have to worry about taxes and insurance once a year.
posted by PJMoore at 9:12 AM on July 2, 2018
posted by PJMoore at 9:12 AM on July 2, 2018
Some standards to think about: are you planning to stay at least 5 years? Can you handle the payment on one paycheck? What's you emergency fund looking like? Are you putting 20% down?
Last week (or so), Marketplace had the CEO of Zillow on, and then I listened to the extended interview on their podcast. He has an eagle's eye view of the housing market, and saw the 2007 downturn in the data as it happened.
His take on the housing market, broadly writ, today is that the major driving factor is the number of houses that weren't built between 2008 and 2012, due to the recession. That lack of new homes has led to a very tight market today, particularly in the lower-end homes that should be starter homes. The rental market is also tight, due to that same cause. So the conditions that caused the crash in 2007 are not repeating themselves -- this time, it's different ;-)
I expect the trade wars to show up in our lives as 1) layoffs, and 2) increased prices for materials (like drywall from China, or steel in nails). So if you think you are reasonably well insulated from (1), you could make the argument for buying sooner than later because of (2), and because of the cost of lending, which has been increasing and most bets say will continue to increase.
But, nothing is normal now.
posted by Dashy at 12:00 PM on July 2, 2018 [1 favorite]
Last week (or so), Marketplace had the CEO of Zillow on, and then I listened to the extended interview on their podcast. He has an eagle's eye view of the housing market, and saw the 2007 downturn in the data as it happened.
His take on the housing market, broadly writ, today is that the major driving factor is the number of houses that weren't built between 2008 and 2012, due to the recession. That lack of new homes has led to a very tight market today, particularly in the lower-end homes that should be starter homes. The rental market is also tight, due to that same cause. So the conditions that caused the crash in 2007 are not repeating themselves -- this time, it's different ;-)
I expect the trade wars to show up in our lives as 1) layoffs, and 2) increased prices for materials (like drywall from China, or steel in nails). So if you think you are reasonably well insulated from (1), you could make the argument for buying sooner than later because of (2), and because of the cost of lending, which has been increasing and most bets say will continue to increase.
But, nothing is normal now.
posted by Dashy at 12:00 PM on July 2, 2018 [1 favorite]
I asked my Harvard MBA Brother the same question some years ago. It's extraordinarily difficult to predict the economy. There are people with tons more resources trying to predict what will happen and they can't get it right, so your efforts to predict are not a good use of time.
President Corrupty McPantsOn-Fire is likely to be president for at least 1 term. Some House and Senate seats may be flipped, but a solid non-Republican majority is not assured. The Bigass Tax Giveaway is driving a lot of economic joy and is unlikely to be successfully overturned any time soon.
Don't buy as much house as you can afford, certainly don't push the limits of what you can afford. But in any city that is not dependent on just 1 industry/ company, you are likely to be fine.
posted by theora55 at 12:44 PM on July 2, 2018
President Corrupty McPantsOn-Fire is likely to be president for at least 1 term. Some House and Senate seats may be flipped, but a solid non-Republican majority is not assured. The Bigass Tax Giveaway is driving a lot of economic joy and is unlikely to be successfully overturned any time soon.
Don't buy as much house as you can afford, certainly don't push the limits of what you can afford. But in any city that is not dependent on just 1 industry/ company, you are likely to be fine.
posted by theora55 at 12:44 PM on July 2, 2018
Buying a house was the scariest financial move I ever made. We bought in 2012 in LA. Our house is now worth 200k more then when we bought it. We got extremely lucky with our timing. This is good and bad. The good...if we sold now we would profit...a lot. But if we bought now...it would cost us...a lot. I am not an economist or a real estate agent. But right now at least where I leave we're in a major housing bubble. The stock market is due for a crash. We have a president who is unpredictable at best. While his behavior hasn't yet resulted in catastrophic consequences for the economy...it could in the near future. Bottom line...I think it's a bad time to by a house. That said there is no right or wrong and there's no way to predict the future. But I wouldn't buy a house in today's market. I would never pay what people are paying for houses in my neighborhood. The stock market is gonna eventually take a hit...hopefully not a recession hit but a hit. Housing prices will more then likely take a dip. These are once again my opinions.
posted by ljs30 at 10:52 PM on July 2, 2018
posted by ljs30 at 10:52 PM on July 2, 2018
Have you been following the area you want to purchase? I have been stalking my zip code for about a year on redfin as we are considering what to do in terms of our home (remodel, etc) and you definitely see some trends but they can be very local.
posted by typecloud at 10:49 AM on July 3, 2018
posted by typecloud at 10:49 AM on July 3, 2018
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posted by something something at 8:33 PM on July 1, 2018 [4 favorites]