The Great Stay

The Great Stay

I got an email from my mortgage guy (shout out, Matt Lieberman) with current mortgage rates, and sheesh. A conventional 30-year fixed mortgage is 7.375%! When I bought my home in Pennsylvania in 2017, my rate was 3.375% for the same term. Today’s rate is more than double!

On top of that, there has been a fair bit of inflation over the past decade, and homes have been one of its biggest beneficiaries. For many of us this is a great reality, the perfect beautiful storm. I am living in a house that has appreciated 30% or more in under 10 years, and the mortgage on it is laughably low. Said differently, if I bought my exact home today at a fair current mortgage rate, I would be paying quite a bit more. How much more, you ask?

Well, messing around with my nifty calculator and putting 20% down in each scenario, I would be paying 123% more, or 2.23 times what I pay now. In real terms, the increase alone would be over $4,500/mo, which is more than my entire current mortgage payment! You starting to see the issue here?

In other words, where the hell am I going to move? This is the exact issue many Americans are sitting with right now. Either they are retiring and looking to sell the big family home, or they are raising families and looking to buy one. Let’s take a deeper dive into both.

Retirees

Typically, a person retires, sells the family home, and buys a smaller and often newer one. Maybe it’s in a retirement destination, closer to family, less to manage, or simply newer and better set up. Then the calculus kicks in. These folks are in quite the predicament: they look at what’s out there and realize that what they can buy for the same money is a worse home than the one they are selling.

That is the perversion going on right now. There is nowhere financially attractive for this group to move. It is a really hard pill to swallow to sell your home for a million dollars and then realize the new, smaller home either costs more, will cost you more because of interest rates, or is simply a “worse” house for the same money.

Thus, we stay.

Families

This retiree issue is causing real headaches for people raising families too. For starters, those pesky retirees won’t sell them their homes because they have nowhere to go. So right out of the gate, there is a lack of supply. These people literally don’t have homes to buy.

Next, they likely bought a starter home a handful of years ago and now they are stuck. Yes, in most cases they are earning more than they ever have, but is it enough? Can they afford to upsize into a home that costs substantially more than their starter home? And since this is a double-edged sword, don’t forget that interest rates have more than doubled.

These families run the math and realize that if they did move, they would be house poor at best. So what do they do? The great stay!

Thoughts

Folks, the pain is real. People are stuck in place waiting for something to give. If you can’t wait, don’t want to, or simply don’t need to, there are a few tricks up your sleeve.

First, you can “date the rate” and plan to refinance when rates drop. To do that, I like something like a 5/1 or 7/1 ARM, which can lower your rate and payment quite a bit for the first 5-7 years. The idea is to take the lower rate now and bet that a window to refinance permanently at a much lower rate opens up during that time.

Second, you can put more money down or buy down the rate upfront. Both are great ways to get your rate to something a little more palatable.

Finally, call your super rich aunt or uncle and ask for a family-friendly loan (i.e., you never have to pay it back). Hey, I’m searching here, folks 😊!

The funny thing is that even these “astronomical” rates are firmly within America’s historical range for mortgage rates. Crazy, I know, but a decade and a half of historically low rates gave us a terrible frame of reference. That said, the pain is real, and all we can do is coach you through it as best we can.

As always, stay wealthy, healthy, and happy.