Sell house and rent?

[Tim]

Data is also neighborhood specific.
https://www.houstonchronicle.com/bus...e-survey-2022/
Not sure if this will show. Increases are not uniform in any city. 2011-2021

[Tim]

True there's probably a setpoint. We just don't have one set and really don't want one. I'm sure if theres a knock at the door with such an offer we'd be game. Same chance of us getting a lottery ticket winner too

I keep getting phone calls, would you consider selling 1234 street.
“Since you have an address, send me your offer in writing. Thank you good bye.”
For the right price, I am gone in a week. I just don’t know what my wife or I would take. House Porn. It’s everywhere.

[Nash22]

everyone has PTSD from '08 understandably, but i will tell you that i personally do not think this is a bubble. all the smart people i read say that this is a supply issue. limited housing supply is a very different issue from subprime lending. people are sitting on cash right now, it's not that they are broke it's the opposite problem. i know that this isn't a politically popular thing to say but the economy is actually in good shape right now aside from a few months of inflation. unemployment is very low, jobs are relatively easy to find, the market is down a bit but still <10% of the all time high. stop viewing this as something that has to end, it doesn't.

i disagree with essentially all of this.

The reason there is a supply issue is multi factorial but due in large part to an artificial shortage created by allowing people to escape debt obligations (rent moratoriums, mortgage forbearance, etc), and the Covid free money giveaway that inflated our currency and gave Americans a false sense of wealth. Once that artificial force is removed from the market, I think there will be a violent natural reaction to return things to the way they are supposed to be.

People are also not sitting in cash right now. That would require the general public to be responsible. Why would you think they would do that? In reality, they are blowing their pent up savings on discretionary purchases and using debt to keep the party going when they run out, and they are running out. If you don't believe this is happening, I invite you to take a trip to Las Vegas and look at the people next to you that are paying $700 per person for a family of 4 for a round trip flight on Spirit and $400/night for a mediocre hotel room on the Strip then blowing $300 on dinner and $1000 on designer brands at the Forum shops. I was just there. I saw it. They cannot afford it. They just can't. This is not real and cannot last.

Yes, there aren’t many people with subprime interest only loans. But many, many people have minimal equity in their homes, like 3% or something stupid.
Yes, there are lots of jobs available, but these are not good jobs. These are $15/hour jobs nobody wants (hence all the screaming to push the minimum wage to $30 or whatever silliness to make these jobs more palatable).
New housing starts are back to all-time highs. Builders are going gangbusters with the record profit margins they are enjoying. Even if there is no resale because of artificial forces keeping people in their current homes when they shouldn't be, there WILL be a massive influx of supply hitting the market in 6-12 months in for form of new construction. This is FACT, and you can look this data up. If this supply hits when we are in a recession and people are actually losing jobs with 401(k)s down 30%, which is very possible given that GDP just contracted and we are witnessing the largest drop in the NASDAQ in one month since Lehman Brothers failed in 08, then look out. Then you will have a glut of new construction on the market at the same time as people being forced to unload their primary residences (unless the government bails them out, which being around the time of midterms I wouldn't count on).

If you take the average family making $100k/year, who stretched and bought a $450k/house 3 years ago with the absolute bare minimum down and is making $2200/month mortgage payments, they are probably spending 1/3rd of their take-home on mortgage. Yes, maybe they got a cost-of-living raise and are making $125k/now, an extra $15k or post-tax. However, gas is double what it was, property taxes are higher, house maintenance costs are 30% more than they used to be, food costs 20% than it used to, they just bought a brand new Ford F-150 (which used to be an entry level truck anybody in the middle class could afford) for $60k and have payments on that, and add to that a family that got addicted to a lifestyle of loose discretionary spending and are now using credit cards to keep that going at 15-20% APR and the payments that bring.... It's really not going to take that much until they CAN'T meet those $2200/month mortgage payments.

It wasn't the subprime loans that caused the GFC, it was that home values didn't keep going up forever. If the supply-demand curve had stayed favorable and kept prices up, it would have been ok. But it didn't. Likewise, the situation we have with our family above is one where you are probably thinking "Well, suppose the husband loses his job and can't make payments. It's not ideal, but it's not the end of the world because that $450k/house is now worth $750k. It doesn't matter that they have no equity in it. The bank will get it's money back, they will make a profit from the forced sale, and they will move somewhere cheaper when he finds a new job." Well that's all fine. Assuming he is the only person it happens to. What happens when this is happening to everybody and that house they paid $450k 3 years ago is now only worth $400k, not $750k because there is a glut of houses on the market coming from people just like them? Now they are underwater on the house.

This is the situation I think we will shortly find ourselves in. The same thing that happened in 2008. No, subprime loans didn't get it us there this time. But egregious lending isn't the only thing that can result in that outcome -- that's the fallacy I keep hearing, which gives me even more confidence that it will happen.

My advice for the OP is this: Financially, I feel your husband is probably correct. However, I would encourage you not to sell. Moving sucks, #1, He is a physician, which basically puts you near top 1% income, in other words you can afford it #2, YOLO #3, and You can still keep this property as a rental even when you eventually move. Just approach it with that mindset. That you will own this house for the next 30 years but that it will just become an income-generating asset (worst case) that covers your modest mortgage payment when you move in a few years. Best case for you, I am totally wrong about all of the above, the market goes up another 30% and you sell it then.

I sold my house near the big city 2 years ago to take a job 3 hours away in a smaller town and figured I would buy a house after renting for a year and making sure the job was good (hah). It is worth probably $200-250k more than what I sold it for. It is literally impossible to find anything comparable at any price where I am right now. I regret selling the house, not so much in that I am sad that I didn't have a crystal ball when I signed it over in June 2020 and missed out on pocketing 200k in equity by being able to sell it after the 2021 gamestop-level pump in house prices, but that I now live in a dumpy apartment and wish that I could go back to my old home on the weekends where my things and life was. Most of my things have been in storage for 2 years now. Don't give up your home to live in an apartment complex with college students. Life is too short to go backwards to the way you were living when you were 20. Yes, I am saving a ton of money right now as my expenses are basically zero beyond rent. It's not worth it. I didn't do this by choice, whereas you would be. Don't.

[Dont_know_mind]

I think we are about due for a real global dust-up at some point in the future.
I think Xi is more calculating and realistic than Putin. Putin is caught in a bit a a loop of 1950s propaganda in his head. He longs for Soviet glory. He’s ruthless, but personally sensitive and easily swayed by emotion and perceived disrespect.

Xi is more practical and calculating, but knows that in the end, The US is standing in China’s way, long term.

China will play the smart, long game, knowing that economic success is the foundation to global power. The war in Ukraine is likely beneficial to them, as it consumes western resources and draws us closer to direct conflict away from them.

It would be best to let the US exhaust some of its effort and resources on a broad European conflict and/or direct conflict with Russia, before staking their claim to the Pacific and asserting itself fully, while the US is partially distracted and spread thin. Then it will be a win either way. They get that sphere entirely outright, or we fight about it, and the fight is inevitable anyways.

Sun Tzu would say, when equally matched or superior.. attack. They are not quite there, but they are catching up fast.

Hard to plan for these things financially though, too many variables and potential actions and unintended reactions.

Thanks for your thoughts. That's pretty balanced and great insight and clear thinking on the politics. I guess everyone has things they get spooked about and one thing that spooks me is if Xi turns out like Putin.
What is happening in China with their current COVID policy is highly unstable. I read a good twitter post on it when someone said, either a) China becomes North Korea or b) Xi backpedals/pivots and there is an enormous market reaction. Hopefully the latter.
Will be interesting to see what the China geopolitics is long term and you could be right on that one.

[Jaqen Haghar MD]

Did you mean war in Europe or more generally conflict between democratic states and totalitarian ones ?

Do you think Xi is similar to Putin?
I’ve been thinking about that lately and what that means if anything. What do you think of China and how that impacts on the Ukraine war?

Sorry to derail thread slightly OP, but another reason to be in cash! (jk). Compared to now, 2008, everyone seemed optimistic, maybe even euphoric. China was going to take over the world, in a good way.

I think we are about due for a real global dust-up at some point in the future.
I think Xi is more calculating and realistic than Putin. Putin is caught in a bit a a loop of 1950s propaganda in his head. He longs for Soviet glory. He’s ruthless, but personally sensitive and easily swayed by emotion and perceived disrespect.

Xi is more practical and calculating, but knows that in the end, The US is standing in China’s way, long term.

China will play the smart, long game, knowing that economic success is the foundation to global power. The war in Ukraine is likely beneficial to them, as it consumes western resources and draws us closer to direct conflict away from them.

It would be best to let the US exhaust some of its effort and resources on a broad European conflict and/or direct conflict with Russia, before staking their claim to the Pacific and asserting itself fully, while the US is partially distracted and spread thin. Then it will be a win either way. They get that sphere entirely outright, or we fight about it, and the fight is inevitable anyways.

Sun Tzu would say, when equally matched or superior.. attack. They are not quite there, but they are catching up fast.

Hard to plan for these things financially though, too many variables and potential actions and unintended reactions.

[StarTrekDoc]

True there's probably a setpoint. We just don't have one set and really don't want one. I'm sure if theres a knock at the door with such an offer we'd be game. Same chance of us getting a lottery ticket winner too

[AR]

-wife asked us what's our 'make us move price'. My answer was -- where would we go? We have no goals beyond SoCal. hence -- no 'make us move price' exists at this time.

Of course it does. It is an amount that no one would actually pay, but there is absolutely and amount of money someone could pay you to get you to clear out in a week. I'm confident 20 million would do it. I'm also confident that is more than it would actually take.

[CordMcNally]

If you want to sell and move to a LCOL area then it makes sense. If you want to sell and rent in the same area then that doesn’t make as much sense to me. At that point, you’re just gambling. If housing prices collapse then I’d bet the stock market will be going down, too. I’d continue with the mortgage you have at the rate you have if you’re not changing your actual location.

[StarTrekDoc]

One can really get into the weeds of timing and risk of bubble vs real estate correction in the new location vs bubble risk at a vhcol. ...at the end of the day, it's timing and time out of market if one sells and intention to return to market in 'near' future.

ultimately op and spouse need to get together an set goals then make financial decisions

[Dont_know_mind]

Thinking about your situation a bit more, if you want to get your money out of that house, to reduce the risk of losing some of your equity, that could be a reasonable plan. You sell now and you move to a more modest rental. You then have all of that cash in hand. A correction is coming in the RE market. It always comes to a correction, eventually, and it seems likely that the currently irrational price increases will be followed by a correction.

The correction in RE prices may be a soft landing or a hard landing. No one knows. The risks in selling now are that your rent goes up quite a bit over the next few years. If you consider that risk and you feel that is a lower risk than the risk of losing some of the equity you currently have at today’s prices, then selling is reasonable. It will be quite a hassle to move, potentially multiple times, but only you can determine if the move is worth it to lock in your RE gain.

That’s the classic market timing dilemma:
involves being short relative to a neutral position (eg owning a house to live in for a lot of people), due to a combination of myopic risk aversion (fear of a bear market) and belief in overvaluation- and hence implicit belief in reversion to the mean. This combination results in the participant being short an asset (relative to the desired allocation) and foregoing the return of that asset for the period. But I guess this is why we get the risk premium for owning the asset- we take risk! So I guess it hinges on when mean reversion occurs.

What has seriously stuffed me up a few times in the past is when things have moved to a new higher mean. So I am super paranoid about mean reversion as an argument in being short anything with a positive expected real return over time. Also, I feel a lot of the time, it’s often myopic risk aversion and mental accounting tricking me.

The prospect theory articles are some of my favourite finance articles (refers to stocks, but applies to all risk assets, including real estate):

https://www.nber.org/system/files/wo...4369/w4369.pdf

http://piotr-evdokimov.com/bt.pdf

I revisit them from time to time when I’m trying to figure out if my gut feeling is onto something or being tricked (again).

[Dont_know_mind]

There is cyclical problem that hasn’t happened in a very long time. So long, that it’s youngest participants have passed away, and it’s memory so distant that it isn’t even a realistic possibility in the minds of the population.

Did you mean war in Europe or more generally conflict between democratic states and totalitarian ones ?

Do you think Xi is similar to Putin?
I’ve been thinking about that lately and what that means if anything. What do you think of China and how that impacts on the Ukraine war?

Sorry to derail thread slightly OP, but another reason to be in cash! (jk). Compared to now, 2008, everyone seemed optimistic, maybe even euphoric. China was going to take over the world, in a good way.

[White.Beard.Doc]

Thinking about your situation a bit more, if you want to get your money out of that house, to reduce the risk of losing some of your equity, that could be a reasonable plan. You sell now and you move to a more modest rental. You then have all of that cash in hand. A correction is coming in the RE market. It always comes to a correction, eventually, and it seems likely that the currently irrational price increases will be followed by a correction.

The correction in RE prices may be a soft landing or a hard landing. No one knows. The risks in selling now are that your rent goes up quite a bit over the next few years. If you consider that risk and you feel that is a lower risk than the risk of losing some of the equity you currently have at today’s prices, then selling is reasonable. It will be quite a hassle to move, potentially multiple times, but only you can determine if the move is worth it to lock in your RE gain.

[Jaqen Haghar MD]

The GFC was caused by people taking out giant, exotic, convoluted loans to pay for houses they clearly couldn’t afford. This drove the market up like crazy. But then the devil eventually called in the margin loans.

The lesson was learned, as it usually is after a specific financial crisis. This is why the the same type of financial crisis rarely repeats in a generation.

Lending standards have been reinforced and are strict during this market rise, and people are buying these homes with cash quite often these days. The market will undoubtedly cool, but the rise is more of a supply-demand issue between well-heeled buyers and sellers, so a true hard crash is pretty unlikely.

The next financial crisis is on the horizon, and it’s likely something none of us have seriously thought of. That’s part of the recipe needed for a big crash.

There is cyclical problem that hasn’t happened in a very long time. So long, that it’s youngest participants have passed away, and it’s memory so distant that it isn’t even a realistic possibility in the minds of the population.

[White.Beard.Doc]

I like the reframing I saw some folks mention.

Inflation is 8% per year right now. Your mortgage is less than 3%. If inflation continues at the current rate, and the house goes up at the rate of inflation, then you are earning 5% on the amount you have mortgaged, and 8% on the rest. And you and your partner get to enjoy living in your beautifully renovated house while it earns all that passive growth in your net worth.

Of course, no one knows what will happen with inflation or with real estate prices, but what I laid out above could be just as likely as many other scenarios. We invested in real estate over the years, and inflation and leverage gave us 25% returns, on average, over the years. The results have been amazing!

Once you start to have significant wealth, whether it is tied up in the market, or tied up in real estate, you carry the risk of those investments losing some value. This may be a new phenomenon for the two of you, the feeling of significant wealth. It is time to get comfortable with that risk. That is what it means to be invested in stocks and real estate. Your net worth will fluctuate, but if you invest wisely, despite the fluctuations, over time your wealth will grow.

[bovie]

...a house that we think is overvalued - we would never pay this much for it - we couldn't. It doesn't make sense to us that people are paying this much for these houses.

You've gotten a lot of great advice so far. My take that pretty much just summarizes it: Partner needs to get a grip, try to remove the emotion from this (admittedly emotional) decision, and don't sell until you know when/where/if you are moving.

The numbers and good ol' fashioned common sense strongly support this.

I also just want to specifically point out that your statement above is completely irrelevant--it matters what the market will pay, not what you would pay, or whether it makes sense to you what others are doing.

And if you're afraid that we're in a massive bubble and primed to re-live the GFC tomorrow where your appreciated value will be wiped out, well, we're not. The simple economic reasons for this have been laid out.

You are holding a mortgage on which you currently net a 6% gain by simply making your payments. You'd be hard-pressed to find a new place to live in town that was double the payment and half as nice.

I honestly don't understand how it's even a consideration for you two to sell right now.