I agree. I think many who have bought during the last three years are in trouble too. Time will tell.

https://fortune.com/2023/11/01...s-13-year-breakeven/

I think you may have dropped something.

Link

Time will tell...Maybe, but it's impossible to know at this point

Guys

Sorry guys. The link is on Fortune's site and I cannot seem to copy and paste it. Sorry. I think maybe you need to pay for the site. If no one can link to it I will delete.

Just copy what's in the address bar and paste it here.

Got it. Thank you.

https://finance.yahoo.com/news...illow-100000012.html

Today’s housing market is the least affordable and least accessible it’s been in decades as mortgage rates reached 8% this fall and home prices continue to rise. Yet, every day homes are still sold as new buyers shell out tens of thousands of dollars for a down payment and lock into historically high mortgage payments. So just how bad is affordability? Zillow crunched some numbers and says it will take you a remarkably long time to break even if you buy a house under these market conditions.

Many do this not because they're thrilled at the prospect to buy into such unaffordable conditions, but to bolster their financial stability for the future. In other words, the sooner they can become a homeowner and start building equity in their starter home, the sooner they can break even on that investment and eventually afford something better. But Zillow's analysis shows that things have gotten so out of whack in the housing market, it’s taking much longer than normal for owners to be able to sell their homes for a profit.

New homebuyers can expect to spend about 13.5 years in their house before breaking even on their investment, Nicole Bachaud, a senior economist at Zillow, wrote in the report released Monday. Zillow’s analysis took into account typical and forecasted home value increases based on the Zillow Home Value Index, assumptions for closing costs, agent fees at the time of sale, maintenance costs, and interest payments. Zillow's estimates are based on market conditions as of July, when mortgage rates were over 7%.

“As mortgage rates near 8% and home prices level off, it now takes longer to break even on a home purchase when considering the cost of interest,” Bachaud wrote.

While Zillow doesn’t have historical data on breakeven durations, the timeline for homeowners to break even on their property is, typically, around four to six years, according to several real estate experts and resources. To see this timeline extend to well more than a decade could be a shock to future homeowners.

“Breaking even on a home purchase holds significant importance for homeowners, serving as a crucial milestone that signifies financial stability, home equity accumulation, and the creation of financial flexibility to pursue future financial goals,” Matt Dunbar, senior vice president of the southeast region for national mortgage company Churchill Mortgage, tells Fortune.
Not all markets and not all buyers will face decade-plus breakeven thresholds

Several factors go into determining how long it’ll take for a homeowner to break even on their house, including her mortgage rate, down payment amount, closing costs, insurance, property taxes, and annual appreciation rate.

Location of the home also plays a large role: Metro areas with high home values have “considerably shorter” breakeven points, according to Zillow. With a 5% down payment, San Francisco’s sits at seven years and six months, per Zillow’s calculation, while San Jose’s is six years and eleven months.

“These metros have a strong history of consistent growth, allowing homeowners to recoup their initial investment in a relatively shorter period of time if home values rise at the same rate they have risen historically,” Bachaud explains.

There’s a much longer runway to breaking even on a home in more “affordable” markets, however. In fact, it could take new home buyers in Cleveland, Ohio; Baton Rouge, Louisiana; El Paso, Texas; Akron, Ohio; and Indianapolis, Indiana; at least 20 years. In these areas there has historically been slower growth rates, meaning that it will take more time for home values to increase enough to build equity, Bachaud wrote.

Some real estate investors have a different take on where home values will appreciate the most. Contrary to Zillow’s standpoint that higher-priced markets will show more growth, more affordable markets with “robust job and population growth” will have the highest home appreciation values in the near future, Kurt Carlton, co-founder and president of national private residential investment property firm New Western, tells Fortune.
The breakeven point is not the only deciding factor in selling a home

Among the many reasons why people decide to sell their home is to upgrade to a larger or more expensive home. When it comes time to do this, it’s helpful to have at least reached a breakeven point on the original home so that they can make a profit or at least not incur a loss.

In their report, Zillow designed a dashboard to see how factors such as down payment percentages and interest payments affect breakeven durations. The higher the down payment, for example, the less time the duration tends to take.

That said, every homeowner’s situation will differ.

“The time it takes to recover your initial investment in a home can be extended and depends on various factors, including the current real estate market and your personal situation,” Bachaud wrote. “Deciding when to buy or sell a home is a personal choice, and it involves assessing your long-term financial goals, the potential for your property’s value to increase, and your ability to manage mortgage payments.”

Plus, the calculation for buying versus renting has changed in recent months due to higher mortgage rates. For now, rent payments trail mortgage payments, making homeownership not make financial sense for some buyers. However, homeownership is still a way to build long-term wealth.

“In the longer term, buying still beats renting,” Bachaud tells Fortune. “The increased equity and appreciation translate to higher household wealth.”

A major implication for a longer breakeven duration is needing to keep a home for a longer time, Ben Bowen, a global adviser with Premier Sotheby's International Realty, tells Fortune. Sellers aren’t likely to give up their home “if they have to bring a check to the closing table,” says Bowen. “Nobody wants to lose money on a home purchase.”

That said, there are plenty of non-financial reasons to sell.

“It is important for homeowners to break even or make a profit on a home purchase, but at the end of the day, it's not the most important criteria for most people,” he says.

I guess the practical effect depends on several factors - your age group, your time horizon, and your investment goals associated with buying the house.

If you’re young, was looking to build equity, or wanting to rollover into a bigger house in the future, then yes, it’s going to delay your plans. But, if you’re like me who is in God’s Waiting Room phase of my life just wanting a place to read my National Geographic while waiting to hear the nurse’s call, “Rey HRH? God will see you now… personally,” then the real estate outlook isn’t going to affect me much. I’m not counting on my home equity to finance my future living.

Interest rates rise and fall. I remember buying our 2nd house in Colorado and were thrilled to lock in at 7.25%. I'm spoiled now with a rate of 2.125%. I remember my parents during the Carter years stressing out at 17% mortgage rates. Rates fall, refinance. It's a game that's been going on ever since mortgages were created.

quote:

Originally posted by parabellum:
....as new buyers shell out tens of thousands of dollars for a down payment and lock into historically high mortgage payments......

Maybe historically high but because our dollars are worth less than ever so it requires more of them. People moan about interest but as mentioned it has been *much* higher and banks wanted 25-30% down. In the late 70's I bought our first real house, it was 2-story brick built in the 1920's and all original meaning it needed everything inside redone along with a roof, soffit and facia, windows, etc. With 30% down the seller agreed to finance the balance for 15% which was almost 3% under what banks were charging at the time which was the only way we could (barely) afford it.

I've been following real estate closely since I retired in 2020. I'm convinced that we are going to see a 30-50% correction in prices in the vast majority of real estate markets. Both due to irrational price increases over the past couple of years and due to other economic issues.
Our niece and her family moved from the Midwest to SC two years ago. Did well on the sale of their home and bought a great home in SC. Ultimately they determined that they needed to be back closer to family. They thought they had SC sold a couple of times but it recently fell through again. (over a couple months). Now the house is coming off the market long enough that they can re-list it as a new listing.
So now they are in a rental that is too small for the family back in the Midwest at least until SC sells. Frankly I'm afraid it could be for a long time. I'm afraid they are going to learn a very expensive and stressful life lesson.
Even when they sell SC the difference in interest rates between now and when they bought SC is going to translate to a much smaller house. I really feel for them.

^^^I agree...Minimum 30% correction coming! Anyone that purchased the first home in the current market will be WAY underwater and fucked financially! For those that sold their home at a likely huge profit and bought another (assuming they didn't opt for a HUGE upgrade and ended up with the same principal on their new mortgage) essentially ends up OK, otherwise they're fucked too! If you paid cash, you lost money once the correction crash gets here! Make no mistake, Financial Disaster is coming to the real estate market...Again!

Regarding the article about 'breaking even', curiously they seem to spend an awful lot of time talking about 'breaking even' (they mention the term FIFTEEN times!), going round and round without ever actually defining it!

So people who held on to their house's are now screwed as well. My homes value increased 60% over what I paid for it in 2013. My new tax bill for next year increased by 50% to match the new "value".

We're trying to sell but got royally screwed by a buyer at the last moment, and now we're into a big slump season. Definitely trying to cash out and down-size.

We'll get totally screwed on taxes, too, plus into the future with IRMAA in 2 years.

quote:

Originally posted by GroundedCLK:
So people who held on to their house's are now screwed as well. My homes value increased 60% over what I paid for it in 2013. My new tax bill for next year increased by 50% to match the new "value".

Not sure what town you live in, but something's not right there. It's kinda surprising you actually have your new tax bill already. We just got our new tax assessment and our valuation went up by 73% since the last revaluation in 2013, but that shouldn't equate to a huge tax increase as that's NOT how tax rates are 'supposed' to be calculated. In theory, those that purchased 'new' homes since the last revaluation would have been paying a higher tax bill due to the fact that the sales price artificially affects their assessment when compared to the rest of the town, so their taxes 'should' go down somewhat. Those that were part of the last revaluation would likely see an increase, but I wouldn't expect it to be substantial unless your town had HUGE growth in new homes built, or a huge loss of commercial/industrial tax base. Of course, if your town voted in a huge budget increase that could result in a correspondingly huge tax increase well.

I do know this...As this years tax bill was over $10,700.00 (an increase of 8% from the prior year!), there's NO way I can afford a 50% increase next year, especially with half of the bill due two months from now!

quote:

Originally posted by old rugged cross:
I think many who have bought during the last three years are in trouble too.

That depends greatly on a number of factors, especially location.

I bought a home 3 years ago. My home has appreciated 50% in the interim, thanks to the ridiculously rapid growth in this area. And my interest rate is 2.2%.

So I bought a home in the last three years, yet made out like a bandit. Even if the value drops 30+% in a "correction" as some are calling for, I'll still have a good chunk of equity, with one of the lowest interest rates in history.

My "breakeven duration" was a few months.

This has implications for investors who may have part of their portfolio in REITs (Real Estate Investment Trusts). It may be a good thing as wannabe home owners choose to rent for a while instead, driving up demand for rental properties, like those typically owned by REITs. OTOH, high mortgage rates will increase costs across the board for all types of properties. Office space is already in the tank, will we see similar on the residential side? Worth keeping an eye open, anyway.