In 2021, you already lost waiting to see if you buy your first home. Prices have been going up and homes have been appreciating since 2012, and in 2021, prices will have gone up 10-13% on average. So you just figured this out and assume a drop is coming, and you’re going keep waiting. For many of you, bad move. Listen to the details on how this historic run will likely be more historic and you should get some piece of it, instead of waiting and spending money on rent.
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It Will Cost You Much More To Wait For Things To Cool Down
Waiting Versus Buying Your First Home In 2021
This is episode number 57. Regular readers know that we covered wait versus buyback in February 2021 on episode 40, but things have changed. For you waiters, not the food servers, but the people who waited to get a better deal, the numbers say that you missed out, so what now? Keep waiting or get planning, so you don’t miss it again? Spoiler alert, waiting may not be your best option.
If you pegged me for one of those cheesy corporate dudes with the desks that go up and down, you win. If you are new to the show, welcome. You’re new, so you don’t know me, and that means you don’t trust me. Let me tell you just a little bit about me, and maybe you’ll figure out if you want to trust me or not. I don’t give a crap when you buy a home, you do you. You can wait, you can buy in 5 years or in 10 years, whatever.
Here’s what we got. I’ve got a fifteen-year track record with hundreds of stories from my buyers, and hundreds of stories from the podcast listeners that took this free advice and figured out when the right time for them to make this big step was. It’s not a great sentence, but you know what I meant. The whole goal is to help people make better lives for themselves whenever they’re ready.
The key is some people are ready before they know it. If you go back, you’re new, and you read to the catalogue of episodes, hopefully, you’ll figure out that I’m a bit of a rogue realtor, probably despised by the rest of the entire real estate industry because I’m dropping truth bombs for anybody who will listen, about how first-timers are getting awful service and even worse advice. What that does is it takes you to just as you are frozen in fear and you don’t know your options that you have the opportunity to start building wealth now.
For most of you, it’s not with me. I don’t get rich if you listen and you decide you’re ready to buy. Even I have several buyers that I’ve been consulting with for years. People take in three months. I’ve had people that have taken three years. It doesn’t matter to me. Whenever you’re ready to buy, rock on, I’m not trying to get paid quickly. I’m not selling a seminar to anybody out there reading this. I’m not selling an eBook or a webinar. I’m giving you these facts and data for free. You do what you want with it because no one else out there is, and I think that sucks, so that’s why I started the show.
I spent all day writing and researching this episode instead of selling houses because my greater good is to reach more of you with this crucial information, instead of making a paycheck out working with one local buyer now. I know it sounds a little cringy, a little pious, little high and mighty. I don’t care. It’s true and the truth will set you free. Sure, maybe I sound a little bit like Jamie Tartt from the greatest television show ever made, Ted Lasso, streaming on Apple, not a sponsor.
[bctt tweet=”Some people are ready to buy their first home before they know it.” username=””]
There was an episode where Jamie said, “Coach, I’m me. Why would I want to be anything else?” If I sound like that, it’s cool. I can handle it because this is how my hero, Coach Ted Lasso responded. I’m not sure you realize how psychologically healthy that actually is. Waiting or buying, timing is everything when it comes to buying a home, and no one has a crystal ball. All we have is data and historical trends. Can you dissect all of the complexities about all that data in a top three list? One of those top lists that you must know when you’re buying a house? Hell no. This takes work.
This is going to be challenging to figure out if you should wait or if you should buy, but like my boy Ted Lasso says, “Taking on a challenge is a lot like riding a horse.” If you’re comfortable while you’re doing it, you’re probably doing it wrong. Here’s what we’re going to discuss. Topic number 1) Rising rents. 2) Family wealth. 3) Rising prices and forecasts talking about the bubble or no bubble stuff. 4) Rising interest rates. 5) Supply and demand, and 6) We’ll be reminding you that you can buy for a very little down payment. I re-recorded episode two of the show.
Rising Rents
I left all the original stuff in, but I wanted to add some new stats about our first topic, rising rents. I saw October 2021. If you’re reading this in the future, I saw this article, October 2021 from ApartmentGuide.com, and it was about rising rents. It says that the average two-bedroom apartment in 2020, 87% of the states, the cost of the apartment has gone up and 13% of them down. An average two-bedroom apartment costs $1,949. Now that’s up 10.1% in 2020. This is what I told everyone. This is crazy. 10.1 is the average but let me give you some cities, and if you live in these cities, except for the first couple, I’m really sorry.
These are the stats. Percentage of increase year over year. Washington DC, 6.2%, San Francisco, 8.4%, Fort Wayne, Indiana, 11.6%, Madison, Wisconsin, 12.9%, Houston, 13.8%, Omaha, 14.3%, New Orleans, 16.1%, Arlington, Texas, 16.7%, Jacksonville, 30.5%. Do I really have to keep going? I’m going to. Buffalo, 34.3%, New York, 35.5%, Denver, 39.9%, Raleigh, 42.7% Irvine, where I’m standing now, 43.3%, Henderson, Nevada 46.4%, Santa Ana, 50.7%, Reno, Nevada, 63%, Detroit, Michigan, 72.7%.
I thought Detroit was supposed to be out of this crazy recession, and just up the Coast right next to where I used to live, Long Beach, California, 80.6% rent increase for a two-bedroom apartment in 2020. If you think that’s bad, here’s some insight information that I want you to think about with rising rents. That is the back story. You can look at the stats and the data all day long, but it’s those extra pieces of information that really tell you the full story.
According to the Orange County Register, that’s our local paper here. I’ve found out there’s 3 or 4 different Orange County’s. This is Orange County, California. “Rising rents spark buying frenzy among apartment investors.” Buying apartments, that’s a hot commodity right now. People are paying more than they usually do to buy an apartment building, and investors are the cheapest. If they’re paying more, that means they know something. Prices for multifamily properties jumped 69% and most are Southern California, Los Angeles, Orange Riverside, and San Bernardino County. You don’t care about that.
Jeff Rowerdink is a multifamily broker in principle with the Orange County based Salt Creek Capital Advisors. This is what this dude said. “I’ve been doing this for 37 years and I will tell you I’ve never seen it this hot, this crazy. It’s very competitive for these buildings, but not just here in California. If you go across the United States, it’s everywhere.” You’re like, “Dude, I’m buying my first house. What do I care?” I’m talking to you about if you should rent and wait or if you should buy. If you’re going to wait, here’s what’s going to happen.
Tenants and older buildings can feel the effect of an upswing as investors spruce up buildings and raise their rent. The cool thing about that is, in California, there’s a law, AB 1482. That’s a state-wide rent cap that limits rent hikes to only 8.6% a year in Southern California, even if the ownership changes. How that works with the changes on the other stuff? I’ll get to that in a minute. The rents are up this 2021 all over the place.
Tenants are usually unaffected by the sale when a building sells because of that law, and the older buildings that are out there, the investors are seeing that as a value add opportunity. It’s someplace they can rehab and bump the rents up significantly, even though AB 1482 is preventing the egregious rent hikes. In some cases, the owners are figuring out that they can ask their tenants to vacate the apartments. It’s called Cash for Keys.
A lot of time, if you’re an apartment and someone comes to you and says, “I’ll give you your first and last, plus a month.” Cool, you’ll bail. They then send you out, they renovate and remodel the place, and they jack the rent up to double what it was and change the whole price of the building. The bottom line, landlords are looking for tenants who can pay more. They’re saying that with the most important thing to them as investors, they’re saying with their dollar.
Family Wealth
That was incredibly depressing, so let’s go to topic number two, something a little bit more on the positive side. When you decide to buy, no matter when it is, family wealth, your personal financial portfolio is going to be something that is going to be a big part of why you do this. There was an article and it was headlined, “11,285 reasons you should buy a home this year.” Basically, the article states and restates everything I’ve been saying in the show for years, but if you’re a brand new reader, you just want to read somebody else validate the information that I’ve spewed out while spitting facts on the show since 2019, here it is.
According to the latest research from the National Association of Realtors, my friends at NAR, they call it, they say, “Homeownership is a key pathway to building wealth and narrowing the racial income and wealth inequality gap. Housing wealth, also known as equity, that accumulation takes time and is built up by price appreciation and paying off the mortgage.” It’s great.
We’re talking about equality, and equality comes from equity. The cool thing about that is equity is not just for you. It’s for whoever you want to give them money to, friends, kids, charities, or pets. I showed a home with some buyers that had been baking vacant for several years, and because the trust stated, the dogs had to live in the house until they passed. It sat there for four years.
Fortunately for the kids of the person who had the trust, who apparently didn’t give mom as much attention as these dogs did, this was the world’s most expensive dog house in Costa Mesa, California. Over those four years, because of the timing, it gained them $300,000 in equity during that time. It sold for almost $1 million. Your home can be the largest part of your estate. I know you don’t think of yourself as someone who’s having an estate sounds like a 1% or thing, but it’s going to be.
Consider how much money you make every year in income and how much of that you spend, yet your home increases and you get that money at some point in your life. You can keep it, you can pass it on, or if you’re not going to have kids, fine, you do you. Sell that house when you retire, blow all the cash on yourself. The last few years of your life, just spend it and leave nothing to nobody, whatever.
Another quote about how families can use it. This comes from the Federal Reserve in an addendum to their survey of customer finance. It explains, “There are numerous ways families can transmit wealth and resources across generations. Families can directly transfer their wealth to the next generation in the form of a bequest that can also provide the next generation with an inter vivos transfer, that’s gifts. For example, providing down payment support to enable a home purchase or a substantial wedding gift.” If you are thinking about having kids, then let’s break the cycle.
Let’s change the broken system. Don’t wait for it. Use that equity in your estate and you use it because you start early. I screwed up in my twenties. I didn’t buy, so I had a hustle like a mad man in my 30s and 40s to build enough so that my kids will never have to rent. My oldest is teenager, so we’ll be using our equity in the money that we put away from that to buy him his first place when he moves out.
He and all of his nerdy roommates can pay the rent, but I’ve decided I don’t want my kids ever to pay rent. At that point, Daniel’s going to get the equity when he’s ready and he’ll have a huge chunk to put down. He might even be in a position to buy his first place for cash. The Federal Reserve also explains another way wealth, including the additional net worth generated by an increase in home equity, can benefit your future generations. In addition to direct transfers or gifts, families can make investments in their children that indirectly increase their wealth.
That’s the wealth of the kids, not the wealth of the parents. For example, families can invest in children’s education success by paying for college or private schools, which can turn to increase their children’s ability to accumulate wealth. Buy for your kids to go to a fancy private school or a college, and then they’re going to make more money when they get older. That’s the way we break the wealth inequality cycle, but you’ve got to figure out, where are you right now? Should you wait or should you buy?
The only reason why I would even spew any type of this conversation is because a lot of you are renting and scraping by when maybe you could be buying, building this wealth, and breaking the cycle. If you want to start to use your wealth for your retirement and blow on yourself on one of those five-star around the world cruises. If you rent for the next couple of years, you’re going to lose hundreds of thousands of dollars that you could have spent on that cruise. You could upgrade it to the presidential suite. Maybe you could’ve paid to have dinner with a Captain. That’s a thing.
I don’t know why it’s a thing, but it’s a thing. If you just want to help your kids with their future home, follow my plan and make sure that your kids don’t rent. You don’t have to give it to them. You can tell him and his dummy friends, “You’re not in the dorm.” In the second year, “You’re not getting an apartment. I bought a little duplex there and you and all your idiot friends are going to live there. Your parents are going to pay for it, and then you can keep it and have it go towards your stuff.”
Rising Prices And Forecasts Talking About The Bubble Or No Bubble Stuff
Of course, if you wait to start your plan, you also might be missing out on an opportunity to help your kids towards their future in their education as well. Topic number three, rising prices and the forecast bubble or no bubble prediction stuff. First, let’s talk about the numbers in the rising prices. The National Association of Realtors research reveals that the average gain for homeowners over the last five years was $139,134. Over the last ten years, it was $218,505. I’m talking to you now. If you’re sitting there thinking, “Sure, he gives the stat about the last ten years. We’ve seen an unprecedented appreciation without a crash or a debt.”
[bctt tweet=”Home ownership is a key pathway to building wealth and narrowing the racial income and wealth inequality gap. ” username=””]
This is the longest streak since 1998 to 2008. You’re right, so if you knew that and you don’t want to listen to the stat and you’re going to sit in your fear, again, this is all fine. I’m just giving you the numbers. This is not a sales pitch. My response to that is two of them. 1) Yes. It’s not going to go up like this for another ten years. I’m going to be straight with you guys all the time. Don’t jump into a house now, thinking that you’re going to for sure make $218,505 over the next ten years, because we did it in the last ten years.
It’s also projected to last for a few more years, the equity and the appreciation based on the unprecedented low inventory and lack of homes for sale, not to mention the homes being built. That high demand is not going to fall off a cliff anytime soon as long as rates stay low, which they’re predicted to stay below 4% for at least a year and a half. No, you’re not going to get ten years of pure equity if you buy in 2021. Even the most pessimistic viewpoint would think that you’re going to get 2, 3, or 4 years of appreciation.
If you rent instead, during that time, if you wait, you’re going to get exactly zero of that appreciation. In fact, you’re going to get negative below zero, because take your rent, multiply it by twelve for each year that you sit out. 2) Historically, if you’re going to stay in this place for a long time, the numbers back you up. Homeowners who purchased a typical single-family existing home years ago at the median sales price of $103,333. Wouldn’t that be nice years ago?
If you bought $103,000, place a 10% down, and sold the property at the median sales price of $357,700 in the second quarter of 2021, you would have accumulated a housing wealth of $349,258 because you would have been paying down the loan during that time as well. Now you’re saying, “We’re not going to get it for ten years, so I’m not going to do it because it’s going to be a big crash, so even that 30-year number doesn’t make sense.”
That 30-year number, that was through the housing crash of the 1990s, the dot-com recession of the 2000s, and the biggest housing, financial and global meltdown since the depression that happened in 2008, and that 30 years also includes a global pandemic. If you’re fighting this fear, you have to realize that what history says is that things like this have happened before, it can’t get much worse than what we’ve survived over the last years.
If it does, awesome, you’ll be right, and you’ll be living in the bunker and we’ll all be dead or living in a video game post-apocalyptic world, running around like walking dead or some other zombie game. My money is on the usual historical rollercoaster, and those of you who want to take advantage with informed decisions are going to be better off than, “Johnny, the world is going to end. Who’s going to be chilling in his one-bedroom apartment, because he doesn’t think because you just don’t know.”
He’s going to sit there and bitch and moan about how it goes up to $200 every year. Again, guys, I’m on your side. These aren’t theories. This is historical data. These are facts. This has been tested. If you’ve missed out on the game over the last years, maybe you weren’t even born yet, don’t worry about it. Experts are still calling for financial growth and equity over the next years. I say 2, 3, or 4. I was being conservative. Let’s hear what the experts have to say about the bubble. Again, that’s all in episodes 47 and 48, but let me give you the quick rundown.
The home price expectation survey from mid-2021, a survey of over 100 economists and they split them up, 50 optimistic people, 50 hardcore, negative Nellies. They’re all real estate experts, investments and market strategists. They expect the home values and the equity to increase as follows. 2021, 11.74%. Don’t have much time left, so you’re not going to get that whole 11%, 2022, 5.82%, 2023, 3.94% up. These are predictions from the leading economists, good and bad. Not good in bad, bull and bear, pessimistic and optimistic. They’re still all positive. 2024, 3.56%, and 2025, 3.55%.
That survey estimates a 31.8% cumulative appreciation over the next years. You don’t get that whole 31.8% even if that’s correct, because 2021 is almost done, which means the earliest that most of you reading this can make this happen is January of 2022, I should say. Again, another good reason to subscribe and follow if you don’t already, you might’ve had this information. Taking their 31%, they started with projections at a $350,000 house bought in January 2021.
That home is going to be worth $391,000 in January 2022. Let’s look at the appreciation. We missed the first year but for the next four years. You don’t get the 31.8%, you get 20% because it was 11% the first year. Too much Math for you? Hang with me, I’m standing. Your house was $391,000 if you get it together and you buy before the end of 2021. January 2023, that house is up to $413,000. January 2024, $430,000. January 2025, $445,000 and January 2026, $460,000. It’s not even, I had hundreds of dollars in there, but this is a lot of Math. It’s getting really intricate, so I just left it out. Start at $413,000, finish in 2026 at $461,000 to $485,000.
The grand total that while you’re paying a fixed monthly payment, fixed, not rising like those rents, is if you purchase that $391,090 house in January 2021, experts are thinking that you’re going to make $70,195 in equity. $70,195 for paying that monthly payment. That could be the same as the rent payment you’re pay nowadays.
I don’t know your numbers, maybe it’s more. Maybe that new mortgage payment is $1,000 more on your rent. $1,000 more than a mortgage, so you say, “I’m not paying $1,000 more for four years. That’s 48 months. That’s $48,000. $48,000 is a lot of money. What was that equity number? $70,195.” That is the Math, and even that Math is low, again, I just gave you some basic numbers and I hear you.
You don’t want to buy because $1,000 more a month, you could save $48,000 while we just showed you that you’re going to gain $70,000, but you’re saying, “I still want to do that because I’ll save $48,000 in those four years plus it will help me save up 20% down so I can get a way better payment. I know I can buy a better home because it’s going to be cheaper too because prices are going down.”
First, it’s wrong. That’s not me saying that. That’s the experts saying the price is going to go up for the next four years. I just told you that and there’s lots more data on that, and $47,000 or $48,000 on the bubble. Second, interest rates affect your monthly payment. That’s our next topic. We’ll get into that a little bit later.
Working in favor of buying versus renting on the four-year is the wait it out plan. A third reason why I had that statement, “You don’t want to buy because the mortgage is $1,000 more and you’d say $48,000 over the next four years, which means I could save a lot more money to get to my 20% because that’s going to be a lot cheaper.” No, it’s not. That’s another episode and then a home price is going to be cheaper. As I said, that’s most likely wrong. Here’s the other thing. You’re not going to save $48,000.
It’s going to be less because in the four years, you’re not saving $1,000 a month because rents go up and mortgages are fixed. Just to be conservative, let’s say you pay $2,000 a month and you don’t want to pay $3,000 a month because you want to save $1,000 a month to put that money away and save up. Remember the stats from the beginning, from ApartmentGuide.com, when I read that whole list that just scared the bejesus out of you?
I’m not going to go nuts and I’m not going to use the 80% annual increase in Long Beach, where apparently, they’re kicking everyone out of houses, redoing them, and raising the rents. I won’t even use the 2020’s average of 10%. I’m going to use a super conservative number. Let’s say the landlords are buying up apartments like crazy in bloated prices but they’re only raising the rents by 5%.
I don’t see a world where that happens, but let’s say that is. I’m not even going to do a true five-year cumulative or four-year cumulative 5%. I’m just going to do a 5% basic for four years. $100 a month increase for four years. You have to take that into account. I’m going to say $48,000. If you have a $100 a month increase for four years, how much has that? $100 times 48 months, $4,800. With low 5% raising rents, which we know is going to happen at least. You’re really only saving $43,200 versus $70,195 in equity.
Rising Interest Rates
Who wishes I started a YouTube channel and did this with charts and graphs on a whiteboard, instead of you reading? Topic number four, mortgage interest rates. If you nerd out like me and you follow this stuff, rates hit an all-time bottom in January 2021. 2.66%, but that golden window of opportunity is not over yet. If you are one of the buyers who missed out, don’t freak out.
Today and tomorrow’s mortgage rates are still totally worth taking advantage of and still mathematically a lot of times. It means that it’s better if you plug it in when you’re thinking about waiting versus buying. Let’s make a formula for this one. It’s X minus Y equals Z plus A times B. If the variables were X was rising rent, Y was a mortgage payment with low interest, Z was long-term family wealth, A in this equation is low inventory, and B is buying with a low down payment, leveraging this asset with a low down payment and a low loan rate. Math nerds out there, I know that the actual functionality of the equation is totally wrong, but I think I made my point. Variable B in my jacked-up equation is a big part of it.
The low fixed monthly payment is dependent on price, but much more dependent on the mortgage interest rate. That payment is fixed and it gets set obviously based on the price, but it’s way more dependent on the interest rate, which in October 2021 is a little over 3%. Rates are below where they’ve been in decades, so do not shop with your friends who got a lower rate this 2021 because they did because it was the lowest it ever was in 2021. That doesn’t mean it’s still not low nowadays, it’s still lower than it’s been for many years.
Big picture, people. A raising rate even a whole point could still mean that the math works better for you than renting for 1 year, 2 years, or 5 years. Trust me, your parents or grandparents got in way higher and they survived, but they didn’t have this incredible low rate that changes the equation for everything. The key is going to be acting sooner rather than later.
According to experts throughout the industry, mortgage rates are projected to continue rising in the months ahead. The average forecasts from the four different real estate giants who figure all this stuff out, they’re called Freddie Mac, Fannie Mae, the MBA, which is the Mortgage Bankers Association, and the National Association of Realtors. They have us now at 3.17% at the 4th quarter for 2021. In 2022, it will be going up in each quarter, starting at quarter one at 3.32%, 3.45% a second quarter, and 3.5% third quarter.
Again, not a huge jump, but that jumped from 3.17% to 3.5% next fall. We’re going to do your principal and interest, the P and the I. For the same $350,000 house, if you got super lucky and got that house at 2.99%, which some people are, that payment is $1,474 principal and interest with a 2.99% mortgage interest rate. That’s for the $350,000 house. If you’re buying it next fall, you’re actually going to be buying maybe 2% to 4% less of a house, because the prices go up this 2021 as well.
If you did buy a house for $350,000 at that higher rate of 3.5%, your payment is going to go up to $107 a month and you’re also going to be buying less of a home. I know it’s a lot of math, but you got to do it if you got to figure out. You can’t just say, “I’m going to wait because I saw a headline that says it’s wrong.” $107 a month, you combine the price increases, the potential rate increases, and your fixed purchase of a $350,000 home in 2021.
If you pulled it off at 2.99%, in a couple of years, that same home could be $400,000 purchase at 4%. Do you want me to tell you how much that is and how much more? The term is a buttload more that you would save than if you rented. For some of you, the mortgage, even if that high 1%, is not going to be more than you’re already renting now. Remember my 25-year-old hairstylist in Vegas, listened to the show and bought a condo better than her apartment. She only used 3.5% down and she now pays $100 less than her rent.
Supply And Demand
Topic number five, supply and demand. We are still doing topics. I don’t know this is for all the haters that don’t believe the data on the bubble and are still going to wait for it to go down a little bit. First of all, no. Second, still, just no. The Math doesn’t make sense. Third, this is why. There’s a bunch of data in the bubble episode, but it also is not going to go down until the supply changes. An average American or Canadian home that goes for sales stops selling in the first weekend with ten offers. This is still happening all over North America. No matter what the headlines say.
As of October 2021, that is what’s happening. The only way things go down is if homes go back to their normal selling cycles, and a normal selling cycle, if you don’t know is three months on the market and then you get one offer. I’ll let you know when we start seeing that in the actual marketplace and trust me, it’s not going to happen overnight. We’re not going to go from selling in 48 hours to selling in three months. We’re not going to go from 25 people trying to put offers on a house the first weekend to one guy putting an offer in three months later. This isn’t happening anytime soon.
I’ve given out the actual supply and demand data in past episodes. I’ve already hit you with way too many numbers now, so I’m not going to rehash the inventory numbers with you. Instead, you focus on the numbers I’ve discussed. Those are the ones that are most important. Your personal numbers and the wait versus buy. I want you to digest your personal numbers on waiting versus acting now.
This is key, and it’s key for you to realize where we are in the current market cycles, for not only home prices but for mortgage interest rates. You then got to factor in your rent, which is going to nothing every month, versus the possibility of having equity appreciation. When did you put that all together? For most of you guys out there, it’s probably the biggest no-brainer of all time. For some of you who might be in the planning stages, don’t worry about that. We have time before we’re going to see any price lowering.
[bctt tweet=”Equality comes from equity. The cool thing about that is equity is not just for you. It’s for whoever you want to give the money to.” username=””]
For now, the supply is low and it’s not easy, but it should stay there, which means we will continue to see price increases so you can still get this even if you’re starting your planning now. Here’s one stat that sums it all up from 2017 to 2019. That’s three years. We averaged 1.4 million homes listed for sale in August 2020. The peak months were August, September, and October during those years, but we took the average. Back then, we still had competition. It wasn’t like 2020 or it wasn’t 20 or 50 offers on every health, but there were multiple offers and things moved quickly.
I’m not sure if you heard about it, but that was the average up to that. We still had multiple offers, but then there was this little global pandemic thing, so things slowed down a little bit. In 2020, the number of homes in August was only 850,000. It continued to drop to only 500,000 homes from the average peak of 1.4 million. That was May of 2021. If you talk to people who were buying in May, June, July 2021, you heard about all the knife fights in front of the houses trying to get their offer accepted, 50, 60, 70 offers and $100,000 over list price.
You Can Buy For A Little Down Payment
Don’t believe the hype when you hear those things are cooling off because listings are increasing. They’re increasing from being 2/3 off of the peaks from 2017, 2018, and 2019. Even then, it was a competitive market at those peaks, but we’re 2/3 below it. August 2021 was a poultry 650,000 homes for sale. Still 750,000 homes less than ‘17, ‘18, and ‘19 and it hasn’t gone up much since then. Unless a million people decide to sell their home, this is the way it’s going to be for a bit. Topic number six, you can buy for a low down payment. This one should be tattooed on my forehead. I’m not going to argue with you.
If you haven’t heard this with me before, then you probably got to be new to the show. Here are the facts. Military and veterans can buy with zero down. Most of my buyers in the last fifteen years purchase a 3.5% down. It’s called an FHA loan and they’ve done it in crazy skyrocketing markets going way up and they’ve done it in the total crashing burn the ground down markets in the Great Recession poop show that happened 2008, 2009, and 2010. 3.5% most of my guys, people. Them and these.
If you’re looking for the real numbers, here are the real numbers from the National Association of Realtors. This is the published, legitimate numbers, 2021 first-time home buyers. Only 32% used a down payment of 20% or more. Here’s the big one. The average down payment for every first-time buyer, million buyers, 2021, 9.7%, and if you’re going, “There’s still a bunch of guys who bought cash.” Cash buyers were only 3.2% of the first-time buyers. That’s the facts. As I said, I’m just going to give it to you.
That’s topic number six covered. Done. Let me recap the topics then I’m going to leave you some useful nuggets from an audience who texted me. It’s cool little piece. Recapping our topics on waiting versus buying October 2021. Topic number 1) Rising rents, 10.1% in 2020 and the landlords are buying more buildings at high prices waiting to gouge all you renters.
2) On the positive side, buying earlier gives you a longer history to increase your family wealth. Use your monthly payment that you already spend on rent to begin building your financial security, so you can pass it on or if you don’t want kids or want to give to anybody, fine, then spend it all on live like a Trust Fund Baby when you’re 65 years old.
3) Rising prices and forecasts, talking about the bubble or no bubble. I can’t do it, too many words. I already told you everything. 4) Rising rents. You won’t get the deal your friend got this summer. You’re not going to get 2.7%, but it does not mean you shouldn’t run your numbers and see how this can be better for you than waiting.
5) Supply and demand. People want homes. People buy homes. Builders stopped making homes in 2008 to 2012, then they finally started making homes again in ‘13, ‘14, ‘15, ‘16, then there was a global pandemic and the builders stopped again, and then people stopped listing homes. Remember, there are not enough homes for the buyers out there to buy, even if a million people decided to list their home on Halloween or if the builder started working 24 hours a day. We’d be in a normal market.
6) You can buy for a little bit down. Twenty percent is not the rule. Believe me. It says so in gang font on my forehead because nothing says harsh like a tatt about shrewd financial strategy regarding your largest monthly expense leveraged against the low-interest loan with a small percentage initial investment. If you still think after all my rambling things are going to cool down at the end of 2021 and into 2022, since 2021 market was so freaking hot that it has to go down. First of all, you are right. It’s going to go down, but it’s relative to the crazy peak.
Those headlines are going to tell you what’s going down, but it’s relative. It’s not going to go down to a market that saves you money by waiting. Let’s use a simple 1 to 10 scale, cold to flaming burning hot scale. If it was a 5% fall of 2020, and then a 10% the summer of 2021, prices went up a little bit there as it went up to the 10%, so you’d need to go down to a 3%for it to make financial sense to wait since prices and interest rates have gone up and will keep going up.
Let’s say everybody curls up during the holidays in the winter and it slows down to an 8% or a 7%. First of all, we got to look back at what the experts think. Experts, real people doing the data, not just you googling for twenty minutes or listening to a podcast from some alarmist guy for one hour. I’m talking about experts who spend every day working on this stuff and send the detailed information, gathered the data for 10, 20, 30 years. The good stuff. I pay for the data I get. It’s not that spam crap.
Let me give you some real insider stuff. The data they give to us, realtors, to be sure that we look like we know what we’re talking about. If you read the blog, you know that the sources getting the data for the realtors. The realtors know who their customers are. Who do you think they’re trying to get the information for the realtors for? All you first-time buyers? No. They know who the realtors want to talk to, sellers. Realtors love sellers and think that you’re at the bottom of the chain, but they love to tell sellers about you and all your buying habits.
Do you want to hear some stuff? This is the real insider marketing information that’s going out to realtors to talk to sellers at the end of 2021. Let me get in my cheesy marketing mode talking to realtors who talk to their sellers. Chances are high that some of the storylines you’ve come across mentioned terms like cooling or slowing when talking about where the market is headed. You may see these headlines about a drop in home sales, but are the headlines telling the full story?
The most recent exists home sales report from the National Association of Realtors does show a drop of about 2% from July to August 2021. This month-over-month decline doesn’t provide the full picture. Historical context is key. Nowadays, home sales are well ahead of some of the more normal years that led up to the health crisis.
We’ve dropped from a twelve-month high of $6.8 million sales in August of 2020 to $5.88 million in August 2021, compared to $5.4 million in August 2019 and $5.2 million in 2018. That means buyers are still in the market, which is great news if you’re planning to list your home with Captain Cheesy Realtor who only likes sellers. Talking about the speed of houses.
Houses are only faster than usual. When the headlines mentioned the market is slowing sellers mean naturally wonder if the house will sell as quickly as they like. Seriously? As quickly as you like? “Sorry. It took me two open houses. That was a three-hour Saturday, three-hour Sunday, and I only got four offers. I know I’m not doing a very good job. Am I?”
According to the Realtor Confidence Index from NAR, homes are still selling at record speed. If we took a look at the data from previous years, we could see the average time on market, seventeen days now. In August 2020, that was 22 days and on August 2019, 29 days. This means homes are selling faster than pre-pandemic levels. It was 22 or 29 days in August 2019. That means we could increase twelve days and we’d still be in a seller’s market.
If we cooled down a little bit, we still got room. What about bidding words? I’m not going to go into the cheesy words. I can’t do that anymore. They say that the average numbers of offers are higher than 39 of the previous 45 months. In 39 and the last 45 months, the number of offers on each home is higher than it was. 3.8% offers per home and I think that’s crazy low, but it says only 3.8% offers in August of 2021.
That number there in August 2021, that’s less than when it was at 5% in April or May of 2021, but that was coming right out of the pandemic, so we won’t use that one. 3.8% in August of 2021. In 2020, it was 2.3% and in 2019, it was 2.2%. Even when we’re slowing down from the high of 5% offers on every home to 3.8%, we’re still one whole offer above the normal highs in 2019.
The number of offers on your house that you receive, that’s going to have a major influence on how high you can sell it for. This is what they’re telling the people. Do some markets is slowing down? No, it’s not. They’ve got a guy who quotes here. “It’s not the white-hot market from 2021 and it’s not the 2020 market benefiting from a wave of pent-up demand, but no one can mistake that this is still a hot housing market.” That’s what they’re telling people. They’re telling people don’t let the headlines rethink buying or trying to sell your house.
The buyers are still out there, and it’s going to happen because that’s what they told people in August 2021. This whole report came from August 2021. I haven’t seen and we haven’t seen in the nation things slow down. The numbers show that offers on homes and the prices are still rising even though they’re calling it a cooling-off period, but it’s only a cooling-off period because it’s a 9 out of 10. Not a ten like it was a couple of months earlier, but it’s a nine. It’s not a 4 or 5. One fun fact and then we’ll wrap up and that’ll give you that last little reader’s tip.
[bctt tweet=”Buying earlier gives you a longer history to increase your family wealth.” username=””]
Fun fact, here’s three more reasons why renting sucks but owning a home is super bitching. 1) The flexibility to make the space you own. I know you sit and watch HDTV all day. Wouldn’t you love to do that to your place? 2) The pride of ownership. 3) The sense of stability. That’s a fun fact for you. Hang tight for that reader’s tip. If this episode or any of the others has been helpful, please subscribe or follow now. You’ll automatically get updated because we’re going to be doing these current market updates.
If you subscribe or follow, it’ll show up right there. If you have an opportunity and you’re digging this, share it with someone. You can text it right from your phone to your friends. I’m sure you have friends who hate their high rent. If you’ve got them in a quick review, it’s always helpful. This will help other people find the show. That’s the only reason I asked for those. I really appreciate it. We can help lots of people out there who need to know this.
If you’ve got your specific questions, most of the time, Instagram is the best @DavidSidoni or you can contact me through the website, HowToBuyAHome.com or DavidSidoni.com. Fill out the contact form and send me your question. There’s a Facebook group, @HowToBuyAHome. There’s also an opportunity to follow me on Instagram, YouTube @DavidSidoni, and TikTok is @HowToBuyAHome, and then it’s Twitter too.
I always tell people, if you are a reader and you want to print all these episodes out because I know I busted through those numbers and if you rewind it, your brain might explode, HowToBuyAHome.com, print out all the pod scripts. I just made up that term. I’m sure I’m not the first person. The last tip from a reader. I’ve said this before but it’s worth repeating coming from someone else’s mouth. Getting your credit score from an app, credit card statement, or bank statement that is absolutely not the whole picture.
Your app, your credit karma, your free karma, your free credit karma, Aura.com is not your entire credit picture. Go back to the episode on credit, we did it in 3 and number 8 episodes. You have over 28 credit scores and the score that you see is absolutely not what the bank is going to be looking at for your score for the biggest loan request of your entire life.
Listen to this text exchange from a reader who got hooked up with a unicorn realtor and a unicorn mortgage broker. She says, “My credit was 50 points better than my FICO credit. It’s really no joke how off the free credit pools are. Everything you’ve said so far is spot on. I’m sure you’re very aware.” That was very nice. I didn’t say that just for the plug. I want you guys to know. Again, that was very nice and I appreciate that a lot of the things I said were spot on, but I definitely don’t know everything is always spot on, except I do know one fact for sure, you can do this.
Important Links:
- New York City Average Rent Prices are Skyrocketing
- ApartmentGuide.com
- Rising rents spark buying frenzy among apartment investors
- Jeff Rowerdink – LinkedIn
- 11,285 reasons you should buy a home this year
- National Association of Realtors
- How Does Intergenerational Wealth Transmission Affect Wealth Concentration?
- Is This A Housing Bubble Ready To Burst? – Previous episode
- Bubble Home Buying: What First-Time Homebuyers Need To Know – Previous episode
- @DavidSidoni – Instagram
- @HowToBuyAHome – Facebook
- @DavidSidoni – YouTube
- @HowToBuyAHome – TikTok
- Twitter – David Sidoni
- Aura.com
- What Do You Need To Know About Credit – Previous episode
- Quick Credit Tips For First Time Home Buyers – Previous episode
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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