Is It a Terrible Time to Buy a Home? #551

because I don't know we all like being alive. If I'm thinking specifically of the past two years, man, the past two and a half years that we have experienced, what a time to have a personal finance podcast and be able to just learn about this stuff up close? And uh not only with the stimmy checks way back. Uh so that's when we started our Friday flights, right, Like, what's back when the stimulus checks were hitting and folks were wanting to figure out what am I gonna get mine?

What's that going to show up? That was the big question, right Like we were all kind of way, I mean, like, it is money going to really just show up into my account? That kind of thing. But the housing market, that's been another thing that we have seen just on a tear recently, and things are changing. I don't want to be self aggrandizing and make it sound like personal finance podcasts are more important than normal but they're the

best out there. But I do think these pasts there's so important a couple of years listening to a personal finance podcast because the facts on the ground are changing so rapidly in so many areas of our lives. When it comes to inflation, when it came to simmy checks, when it comes to it, and never changing housing market. It's like it's more important to get kind of some up to date information and advice. That's what we're here for. Certain,

that's the point of the show. It's certainly pertinent. And I guarantee that listeners out there who have found our show in the past couple of years, I guess I can't guarantee you, but but I'm pretty sure they're in a better place now then they would have been. Yeah, that's what I love about what we do here at How the Money. But yeah, we're talking about the housing market during this episode, specifically if right now is a terrible time to buy, and we're going to answer that.

Plus we're gonna be able to to guide people through a way of thinking about a home purchase so that they make the right decision for themselves. But first, man, I've got a frugaler cheap for you. You may have noticed during my lunch breaks, I like to get outside. I enjoy eating my lunch out side, seeing the trees here in the birds chirp, and then I I oft. Sometimes I try to go for a walk around the block.

And over the past few weeks when i've come back, I've come back with figs. I've offered you a figure too. You're not a fan. My daughter lovesick, she would pick out. Next time I will go, I'll bring a couple back for her and you can take this home. But I am pulling these figs off of a neighbor's tree. So this is I guess neighbor of the family we rent our carriage house from. And this fig tree, it's massive,

it kind of hangs out over the sidewalk. And there have been these gorgeous giant figs just right for the picking, and so I have been picking them. So my question to you, am I being frugal or cheap by stealing this person's fruit. That's a really good question. That's a really good question. And maybe I'm wrong here. I think most of them the fruit goes on eaten or it

gets eaten by animals. Right, So I think so. My guess is that if it's some sort of giant fig tree that's producing, they produce a ton figs if they're big, that a lot of them are going Uneaton, or maybe even all of them are going Uneaton. So I think if it's like hanging over the street, I don't think

it's a big deal to pluck a few. But you know, if you want to knock on the door and say, hey, I'm your neighbor, Matt and so, like the other day, we're starting to walk to school and the quickest way for us to get to the to our kids school is to walk through our backyard and through someone else's backyard. And I was like, this is just gonna save us so much time. But kind of walking down somebody's driveway

on the back end to make sure you're above boys. Yeah, so I go knock on the door and they're like, who is this weird guy? And I'm like, I'm a new neighbor. Can we walk into the driveway And they're like of course, And they were cool about it, but yeah, we're I to knock on the door. They I'm guessing they would probably be like of course, yeah. But there's also just like you said, who's this weird guy? There's an element of man. You don't need to ask, just

take them, like obviously I'm not eating them. Uh, if there was somebody out there, if there's like an old lady and she's out there, you know, knocking the figs into her, ask it and it looks like she's gonna

make a pie or I don't know. That's why I picture making thig pies, which I don't even know if that's a five could be a young man making fig pies, Matt, I will that is true, But I will say a few weeks ago, when they first started turning ripe, I was kind of eyeing them and I wasn't taking more than one fig initially, right, because they slowly begin to ripen.

But like a week or two into it, I mean, I'm looking at dozens of ripe figs and I thought, no, literally, nobody is picking these at this point, and I gave myself permission to then start gathering more than one. I'll grab, I'll grab two or three, and it's my it's my fruit serving fortunch. I think you're a bo bored on this. I think it's okay. I'm not gonna judge you keep

picking your figs. They're delicious. But I found out about it when and neighbor told me about a pear tree that's kind of on some sort of public property or something that bears a lot of fruit. And so we're gonna run in the snacks and pairs when one of those, one of those they're coming into season now nice, I think, because he had a pear tree in his frint yard and he told us he was and he was like, by on the way, there's one around the corner you

should grab. I'm from So so do you know, okay, while we're talking about forging for wild fruit, do you know the trick with pear trees? You will pull that pair and you will take it home and you're like, oh, I'm excited to eat this and you go to bite into it and you're like, oh man, this is not a good on the window. You wait one week. Evidently we learned this from our buddies Tim and he's got a pear tree in his yard and this thing evidently drops. I mean, he made it sound like hundreds of pears.

But what you do you you pull them, you gather them. You let him sit around for one week, and after a week they taste like the pairs you buy at the store and you don't eat them right away. So if if you've got one of those pear trees, uh, just give it a second. If it's a fig, if you happen to be walking around you see your right fig, go ahead and grab it and eat it right away.

Yeah no, no, you throw caution in the wind. If someone's looking at you, weird, Just to eat that fig anyway, right, get ready to take off, run and supposed to wash him first though, right, Well, yeah, I bring him home and I'm watching him here in this thing. The first time. I was like, I want to see how good these jokers are, and I ate one during my walk I think, here me fine. Yeah, all right, well let's let's mention the beer we're having on this episode, Matt. This one's

called Odette and it's by Fair Aisle Brewing. It is like an oak aged beer that food or smells fantastic. So we give our thoughts that the real end of the episode looking forward to this one. But let's move on, Matt. Let's get to the question of hand. We're asking, is it a terrible time to buy a house. And it's been said that timing is everything, right, I mean in

in almost everything in life. Your timing matters a great deal. Sometimes, like I don't know, I'm thinking about people who graduated during the Great Recession, and it's like, well, in my degree doesn't feel as useful right now as it might have just a few years ago. I was thinking about the first time that you asked Emily out on a day. That's true, we were ready. She's like, who you you ugly? I don't think so, but you know, over time she got to know me and she was like, he's beautiful

on the inside. But a year later, it's like the personality is what kept exactly she kind of came around. Well, something else that made me think of was like NASCAR or Formula One drivers they need like perfect timing in order to make a move to pass their competition. A split second right and ill timed attempt it can it can result in falling further behind in the race, or we're maybe some sort of like awful crash that takes

you out of the race completely. Well, the housing market has has kind of been shaking up in a big way as prices have risen substantially and now higher rates are making things even more unaffordable. All the rates have actually come back down to earth just a little bit in recent weeks, but the market feels like it's it's

kind of stalled out, heading for a correction. And although Matt, the two of us, you know, you and I would be pretty shocked if the current market oddities ended up in anything resembling the crash of two thousand and eight, like, we don't think it's likely to happen, but the fundamentals are just so different this time around. But there's still a lot of uncertainty when it comes to the housing

market right now. And so if if you were making offers last year, you kept missing out, consistently, kept getting out bit because there were thirty nine offers every time you try to buy a house and people paying a hunter more than list price. That's not happening right now. So is now the time for you to finally build to buy that house. That's kind of what we want

to discuss in today's episode. That is right, man. Yet, you know it's interesting too that we're talking about timing uh in the housing market today because timing the mark it isn't something that you necessarily hear us talk about it's not something we're in favor of, at least when we're talking about the stock market, right Like, we would prefer to see folks dollar cost average every two weeks for decades and then just leave the results to the

overwhelming odds that cares if it's a ten year bowl run or currently in a bear market, it doesn't matter, just keeping keep going. Exactly, you don't have to worry about timing because you're likely going to be just fine. But you know, you don't dollar cost average into a house, and so timing matters a good bit more when you're plunking down tens of thousands of dollars for just the down payment on a house, on the most expensive purchase

that you're ever going to make. And so for that reason, I think timing does come into play, uh slightly more than it does when you're talking about investing in the stock market. And so this episode is intended to help you to find some some firm footing as you're considering your next move when it comes to housing. So we'll we'll talk about renting versus buying in general, but we'll also discuss you know, which factors you should be most keenly paying attention to UH in a market that is

shifting in a in a big way right now. Yeah, market conditions for housing, they're changing and tappening fast right then. Like I said, uh, mortgage rates have been all across the board going shooting above six percent now back down to the five percent range. And so these ships are happening quickly. Home purchase agreements, when you look at the stats,

they've been blowing up left and right there. So a huge majority of contracts that are being entered into are now the buyers are not backing out, more so, way more so than we saw last summer in spring. Uh. And like I said, those those houses, Matt, that we're getting multiple offers, right. I mean when you sold your house, you had a ton of offers, there were a lot of people, there's a lot of interest. I did, yes,

and so that was that was a good thing. Now if you were to list that same house, UH, you might get crickets at least for a few days or a week or something like that. It's not nearly not nearly as frothy. But yeah, now these homes are sitting longer. Price cuts are happening with more regularity, and basically things are just mellowing out, and we would say that's actually

a good thing, right. Uh. It also creates more certainty though for buyers and for sellers, And so now you might start to wonder, however priced is this home that I'm interested in? Or should I wait until rates go down even more? Or you might be asking if I wait just a bit longer, am I going to get a more significant discount? And we can't answer these questions with perfect accuracy. So much depends on a whole slew of factors, especially given like the wild cards of FED policy.

What is going to continue to happen with mortgage rates? And then this specific location where you live, So much of the reality on the ground is going to be determined by things that are out of our control. But we'll do our best to kind of give you an overview of what's happening alongside with our thoughts on on how you should proceed. Uh. If buying house is something

that you're still keen on doing, that's right. Yeah, And I'm not going to give away the punchline, but I feel like a part, like a t l d R of this episode is that, like the question the true question though, right asking is do these things even matter? Because we're gonna talk about a host of personal factors

that we need to be considering. But you know, even though we are seeing price cuts to homes, housing prices are still through the roof when you when you back out and look at it, you know, they've increased something close to year over year on average. Uh, most counties in Florida, they've been going up at a rate like in the thirties and in the forties, and the median

monthly payment has gone up. Although that year over year increase, it's actually finally starting to slow down, uh, due to a combination of rapidly increasing prices and mortgage rates doubling overnight virtually. Like, that's what what has created this new reality. But when home prices go up that much in such a small period of time, it's bound to cause some turbulence in the market. Um. You know, first we saw bidding wars, and now we're seeing folks who are apathetic

to the market. A lot of folks have thrown in the towel, they've deleted Zelo from their phones altogether because they have decided that, you know what, it's not time for us to buy a house. Things aren't working out. But what we're saying is to think again, Uh look, look twice, because now actually might be the perfect time

depending on a number of factors. For We'll get into all those factors, and man, it makes me think of maybe being like in Atlanta Falcons fan, and how five games into the season you're like, I don't really need to follow the team anymore because they're basically had a playoff contention already, and so you might not realize whether they've gone on like a three win streak or something like that because you stopped watching because they were so

bad in the beginning of the season. And that's what happened with a lot of folks when it came to canceled cable. I'm not going to follow them anywhere, right, dang it? Well no, I'm listening on another all the winds and follow on Twitter. But that's just the kind of the reality for a lot of people is as they got priced out of the market, they just kind

of tuned it out all together. And like you just mentioned, interest rates, you know, have which were on the rise for for quite a while, impacted the cost of housing in a significant way. Uh, you know, most folks who buy a home, they out a mortgage on that home, and so it's not just the skyrocketing price the house, but it's also the increased costs of financing. And so, yeah, when when the Fed Fund rate goes up by three

quarters of a point, here's the thing. A lot of people assume that mortgage rates are gonna skyrocket, but that's not exactly how it works. They don't move in tandem when the Fed moves their rate up, and so the reality is the those rising interest rates impact the economy, and that is what's impacting what happens with mortgage interest rates. So rates have actually gone down in recent weeks, and and that means that you can afford just a bit

more house for the same amount of money. Not as much, of course, as when rates were below three percent, obviously, but I feel like we're starting to see a housing market that's got a little more balance to it, uh, less frothy, less apathetic, maybe a bit more of a healthy market in general, that's true. Yeah, it seems like

things are resuming some sort of normalcy. But buyers are not the only ones who've been shocked by rapidly increasing housing costs, will actually talk about what's happening to renters and also discuss the most important factors you need to consider before purchasing a home. Will get to all of that right after the break. Alright, best, but let's keep

talking about real estate, because do it. It's it's still a hot topic of conversation, even if you're on Zillo for thirty and at the left every day because you got priced out of the market. Well, here's the thing. It's not just that buyers have gotten priced out of the market. Renters have also seen a huge uptick in prices too. There's just been no reprieve for anybody when it comes to housing costs, and rents have kind of actually lagged the housing market in most places. So here's

the thing. Even if you have opted to forego a home purchase because it was getting it was getting too pricey, that doesn't necessarily mean that you've avoided the rising cost of housing, right You're still kind of impacted by it

in a in a different way. So instead of watching prices rise as you're looking through the apps, you probably just got a rough email from your landlord before your least expired telling you that your your rate is going up something like eight and the difference is largely determined based on where you live. Right. So, for example, the Wall Street Journal had a great article about a bunch of different markets and where rents and home prices have gone.

Uh So, in Atlanta, for instance, rents rose about twelve percent last year, while home prices went up by twenty two percent. And that was kind of like similar in markets like Charlotte, Vegas, Austin, and Phoenix, and there were other There were other cities I think, like Miami, where rents went up quite a bit more than housing prices. But you know, while those rising rent prices have been tough for a lot of folks to stomach, home buyers in lots of the country have seen the price tag

increase even more. So basically, I don't know, it's just bad news all the way around for anybody cannot escape. Yeah, who's trying to live anywhere? Right, that's right? Besides like a tent in your friend's backyard. Uh and maybe they're asking you to chip in a little bit water for all those outdoor showers. I don't know. And so the

question right like, will can rents continue to rise? Well, that's a complicated question, and there are too many factors to weigh in in order to nail down an answer. Because the fires continue to sit on the sidelines opting to not buy a home, it's going to mean more demand for rental units, raising prices. And that demand, like it's already pretty intense, you know. Plus rental units just

aren't being built fast enough. But as the housing markets continue this offten and more people are less in their homes for sale, now we could see prices decrease enough that buyers start to get interested again. So much of this hinges on things outside of our control. You know, we certainly don't have a crystal ball. We can't prognosticate, you know, what's going to happen with rents tomorrow or home prices tomorrow, um, especially as we look out even further.

I mean, it's harder, it's harder to know, especially like the wild cards that I mentioned, Matt, those are those exist. So what we had talked about a year ago was, hey, the housing market, because of the shortage of homes, is likely to continues to see price increases into the future. But what we weren't factoring in with some of these outside influences that we're gonna that we're gonna come in

and change the dynamics of the situation. But let's talk about the kind of the rent verst By conundrum right now, because both buyers and renters are in a tough situation, we'd recommend that you don't overly focus on the market and the numbers. Basically, if you're wondering if now is the right time to buy a place, it's it's just even more important to figure out what you want your life to look like moving forward. So you gotta think about the lifestyle factor, right I mean, owning a home

is a time and a money commitment. You're talking about fixing leaky toilets and a whole lot of other not so fun things. They become a part of your life when you own a home. Man, We've got this like toilet that keeps running, and I've got to figure out how to fix this thing. I've kind of checked and it's it's not the flapper you give it the old jiggle. You can sometimes you can running well. I mean it's not just toilets too, right like, because I feel like

that's kind of a that's what we think of. But I mean, like Essentially, when you buy a home, like you have to become versed virtually, I think, in all systems of a home, not because you have to be able to know how to do something beyond just the jiggle on the toilet handle, but to know what type of repaired person to call, and to know whether or not they're ripping you off, and to know whether they're

doing a good job. Like, these are all things that you have to kind of familiarize yourself with, and that might be up some people's alley where they're like, oh man, that sounds great, Like I already know all the systems. I grew up kind of doing that stuff as a teenager. But you also might be saying yourself, I grew up in a in an apartment in the city and never how to do any of that kind of stuff, So I have no clue. These are the kind of things

you need to keep in mind. Yeah, homeownership could be more daunting for some people than others, right based on kind of their knowledge level and comfortability level with figuring that stuff out. Plus you know, monthly mortgage payments and and monthly rent amounts. They're just not apples to apples comparisons right, And a lot of people think, well, as long as I'm getting into a house, you got a mortgage,

it's less than my rent, I'm coming out ahead. But that's that's truly not the case because of all the expenses that are associated with owning a home, and and despite the popular notion renting is not throwing money away, that is kind of a common perception, especially for people who want to get good with their money. They start to think, well, if I continue to rent a house, then basically what I'm doing is I'm flushing money down the toilet every single month. Well, that's keep going back

to toilets. Yes, exactly, but that's just not true at all, right, because you're paying for a physical place to live, for a roof of your head, and you're also paying for you know, more flexibility, uh, the right to not have to fix anything in that house when it goes when it goes wrong, except for changing light bulbs and stuff like that. You basically or if you broke it right, right, but that's gonna that's gonna put that onus, on on the landlord. And there's a lot of value in that.

So we want to make sure that that misconception doesn't continue in perpetuity because renting makes sense for a lot of people. Yeah, so as you are trying to decide if buying a home makes sense for you, it's important to remind yourself to that a home is not typically

a great investment. This kind of goes and intended with what you're saying, jel about flushing money down the toilet, But like we would suggest that you not think about primary residents in those terms as an investment despite the fact though that recent history debunks our claim because of the past couple of years, that doesn't guarantee that homes are going to appreciate this rapidly moving forward. There's like no better investment over the past two years than have

been housing it. But that is not normal. I mean people had not expect that, and especially even over the past ten of twelve years, Like the stock park has been on a tear, but so has the real estate mark every Yeah, everything has been on it and so you feel like you've missed out. But the reality of that that is just not normal and it is highly

unlikely for to continue at that base. But specifically that I mean when you are looking at housing versus just say the stock market generally speaking, like when you take a longer view of the typical returns, homes return about four percent on average, while the stock market is closer to ten percent. And so because of that, we want you to treat your home as a primarily as a

place to live, not as an investment. And so if renting is going to be a better lifestyle move for you, you you might actually be happier and also be able to see higher returns from investing passively within the stock market. Yeah, that's right. And and you know, by the way, now when we talk about the affordability of buying a house and we're talking about mortgage rates, we're talking about mortgage

rates right now in the five percent range. And I think a lot of people are like freaking out because when you're when you're looking at the past couple of years, when you're even looking at the past decade, that's high by by those standards, But when you're looking at the long arc of mortgage rate history, it's still ridiculously low, um near historic lows. To get a five percent rate that's locked in number to thirty years. And so it's important to out that that it's like, yeah, mortgage rates

are high. Well, in what context are we talking about high? Because in reality they're still pretty reasonable. And here's the thing. If you buy a home, you can always refinance at a later date if rates do go down. But we just don't want you to buy a home with the hope that you're gonna be able to write finance in

the future. Right, with the hope or the expectation buying at the extreme edge of what you can afford, saying a couple of years from now, pretty sure, I'm going to lower that rate and then it'll all be fine

and dandy. Like that puts you in a precarious financial position. Um, but just let that be the icing on the cake if it does happen, right, if you're able to a nice little bonus, Yeah, you're like, oh cool, now I get to lower my rate my monthly payment by a couple hundred bucks because I got to refinance as rates

went back down. But yeah, running the numbers based on comps in your specific market is what's going to be able to help you decide whether renting or buying is a better financial decision for you given the current conditions. That's right, Yeah, And aside from whether or not you can afford you know, the monthly payments that you might get with the mortgage. You need to make sure that

you have enough cash save up. And you know, we're not just talking about money for a down payment here, Like we want you to have funds saved for home repairs in addition to a nicely stocked emergency fund. And you know, I I say this knowing that this sounds like a big hurdle, but don't buy a house if you haven't been able to save up enough to make this happen. It's just gonna put you into precarious of

a position. And we just don't want you to experience that financial that financial stress, because it's a real thing. It impacts all areas of your life. Like I've heard interviews with folks who fought in Iraq and they've come back and they've made poor financial decisions, and they said how that was more stressful than actually fighting in the war, and and and you think, how in the world is

that possible. And he was actually talking about how well he wasn't trained to deal with this, when when you're fighting in a war, when you're in the military, you're trained to handle that kind of thing. Months by experts exactly. And this this isn't something we're often trained for. And we find ourselves in these sticky situations and often times we don't feel that we have anywhere to turn to and it feels like, you're our lives are about to

be up ended. Yeah. That's why when when some listeners reach out and they're like, I'm I'm scrounging to save up three and a half percent to put down on this house, typically we'll tell that person you're not ready to buy a house. And it's because if you're just scrounging up that three and a half percent to put down, you haven't saved up money. You don't have any more money in the fund, you don't have money in some sort of that's it. That's gonna be all your money. Yeah,

and like where you plink that down, right? You know, money in an ally bucket to pay for the thing that toilets that are gonna break, or the right I got a nick niter in my stove that I need to replace soon because it's malfunctioning. Those are the kind of things that, like you, you you you have to plan for um, you can't know, you don't necessarily know what is going to break, but you have to have the money on hand to be able to pay for it

when it does. And you another thing that people need to think about when it comes to that conundrum or printing versus buying is where their credit scores at. Because how healthy your credit score is is going to have this direct impact on the affordability of that house because it's gonna have an impact on the interest rate that you're gonna qualify for, and therefore what's your monthly expense

is actually going to be. So having a credit score that's a up seven uh is kind of a minimum goal we want you to aim for, but having a score of this at least seven sixty is what we prefer to see because that is what's going to qualify you for the best terms with basically every lender out there. And if you're not sure what your score is, check you can check it out for free on a site

like credit Karma. Will link to that in the show notes, but they also give me tips on on how to improve your score, which is helped to be like you're gonna see minus over here if you just if you just tend to this, you're gonna score coach. Yeah, you're gonna be able to raise that score, therefore saving you in money in the long run. And you can check out episode two eight seven for more on our thoughts

about working towards a solid credit standing. Yeah, the good news just for our economy overall, is the fact that since the Great Recession, since the housing crisis, like fifteen years ago, we've seen the quality of mortgage borrowers increased dramatically. So like the credit scores that we're seeing that folks are coming to the table with, they are much much higher than we used to see I guess, you know,

at least fifteen years ago. And so that's just I don't know, it's a it's a silver lining for for folks who are are worried about just all of the other sort of market conditions that seem to be changing under our feet. And something else too that's worth mentioning.

When you are considering whether or not you want to continue renting or if you want to buy a home, oftentimes you'll hear folks talking about taxes, and we basically want you to forget about the tax breaks that come with owning a home because one reason besides throwing away money on rent, that you'll hear as a reason for buying instead of renting is for that mortgage interest tax deduction.

But that's kind of a that's a flawed reason to buy a home because in doing so, you're you're letting the tax tail wag that home purchasing dog, and so buying something solely for tax purposes it sounds smart, sounds sophisticated, but it is often not. And secondly, I'm gonna invest in that that individual stock because I know it's gonna go down and then I can claim losses on my tax return. It's like, no, no, you gotta earlier losing the overall game. You'd rather make money on your investments

and then pay taxes on the income. But also because of the significant standard deduction that Mox folks are able to take, they don't actually receive any tax benefit from owning their home with our simplified tax code that we've seen over the a few years ago, roughly for an individual in twenty six, for for a couple. So talk to a tax professional before buying a home and hoping

that it's gonna significantly reduce your tax burden. Yeah, I think it's something like of of folks it's a ridiculous amount, Like, don't qualify everybody that everybody should be taking the standard deduction because most folks they're not going to come out

ahead by itemizing. So if you're saying, oh, that's the reason, because it's gonna help me all my taxes, the reality is it's unlikely unless you're in that ten percent of folks who actually will qualify, And you're gonna want to make sure you know that before you got for this, and and even if even if you do qualify for that mortgage interest tax deduction, you know, it might be a pittance, it might be a small amount, and it doesn't mean that you should tie yourself to the transaction

costs to the buying of a home just because of some sort of you know, small tax benefit. Yeah, yeah, exactly mortgage interest deduction. Oh you got an next with three or eighty six bucks? Cool, let let me just go ahead and just give that directly to the plumber exactly. Yeah. Um yeah, that's one I'm still trying to figure out, Like why is that? I don't know, it's if it's

not the flapper and toilets yourself basical. I feel like I fixed a bunch of toilets, but two toilets in my house are doing this, and this one's got your stuff to throw me for a loop. So next time I come over for when I baby sit, maybe I'll take a peek. Okay, yeah, great, Hopefully, hopefully you'll figure it out, and when I can't, we'll keep everybody posted toilet saga. Well, that one other thing we need to

talking about. When you're talking about buying versus renting, so much of that decision is so dependent on your timeline. Because let's say you're like, yeah, I want to buy that at home, but I don't know if I'm committed to this city or even to this house for for very long. I could see myself you're moving closer to my folks or something. You've got a pretty transient job. I'm gonna be here for maybe a couple of years. Yeah, you likely don't need to be buying it. No. Yes,

buying a house is typically a bad idea. Granted, a lot of people have been the accept into this rule over the past couple of years as home prices have increased exponentially, But how long you plan to live in a house has a massive impact on whether or not you should get it makes me think about buying a new car because we're mostly against. We don't think it's a great idea, at least financially speaking, for most folks

to buy a new car. There are some exceptions to that rule, and one of the things that makes buying a new car a less bad deal is if you hold onto it for a long time. So if one of our listeners says, hey, I really want to buy a new car. I like knowing what i'm owning. I don't want to buy somebody else's problems, but I only want to own that car for two years, we would say, no, don't do it. That's a terrible idea. But if they said, hey, I'm down to own this car for twelve or fifteen years.

I want to own it for the long haul. Uh, and I've got the cash to pay for it, we would say, great, it's not actually that bad of a move. So much of it depends on your specific circumstances, but also on your timeline. And so if you're looking to buy a home, you want to make sure, especially when we're talking about housing prices doing what they've done over the past couple of years, you want to have an even longer timeline of ownership in order to make sure

that you're not screwing up in this major purchase. We would say it's suggest a minimum minimum of five years, but more likely something like a seven to ten of year timeline where you're gonna want to own that home to make sure it's not some sort of big financial mistake.

You want to be able to depreciate those costs over a longer period of period of time, because you can take any smart home purchase and if you sell it a year later, it's gonna look like a dumb purchase because you're not able to escape these like fixed costs of real tor fees, of closing costs. And that's not even taken into account fluctuations in the market. That's assuming that things go up a little bit and maybe you

are able to pocket some of that equity. But what if things go down, then you truly are going to be in a hole. Bringing tens of thousands of dollars to the closing table is no fun, and you know that could be the reality if you buy a house right now and try to sell next year. Exactly. Yeah, But even though like it might sound like we're trying

to talk you out of buying a home. We're still actually bullish on the future of the housing market because like, like there is a housing shortage that won't get fixed overnight. We're talking about being millions of units short, which does impact some cities more than others. But there just is not enough construction to keep up with the population growth. It's not keeping up with with income growth, is not keeping up with household formation. That are just a slew

of factors that are contributing to that reality. Uh, like like district zoning laws. There's folks who don't want to see density in their backyard. There's all the all the nimbiism out there that's happening. So basically, the housing shortage, it remains and it's going to impact buyers for years to come, even though we're currently going through a bit of a market shock right now because of the higher prices that we just talked about and so all that.

I just wanted to put that out there as well, because we're kind of talking about, Oh, you probably shouldn't be buying a home if you consider how you should be looking at your home not as an investment, but instead as a place to live. Oh, you probably shouldn't be purchasing because, oh, your credit score is not all that great. We're like, we went through all these different factors.

But that being said, like we still think that the market over the long haul, over the long term is going to be higher a couple of years from now than it is right now. It makes me think about an article I read recently about Pokemon cards, and apparently, you know, some people were making just massive amounts of dollars on these rare Pokemon cards. And what did the people who created the Pokemon cards do. They printed more of those cards, and they actually they devalue that market.

And to some of those people who are selling the cards on eBay, were pretty bombs. But for other people who just like are enthusiastic about Pokemon cards, they were happy. Here's the thing, uh, the housing correction. We can't build enough units quickly enough. It's not like Pokemon where they can just like turn on the printers and just like, uh create the thrust uh two times or three times the amount of Pokemon cards out into the world. Like,

that's not how it works with housing. We are still millions of units short, and that shortage is likely to continue for for a while. So I agree, man, I think the housing market is going to continue to appreciate over time. You just can't expect it to look like it's looked over the past couple of years. But regardless of where that leaves you, you're probably wondering, well, what do I do now I'm thinking about continuing to rent

or I'm thinking about actually purchasing a home. We are actually going to run through a number of things that you should be thinking through if you are in either one of those positions, and we'll get to that right after this. All right, let's keep talking about buying house some kind of the current market. How that kind of changes the equation for a lot of people right as the price just skyrockets, it just it's just priced a lot of people out of the market who did want

to buy a home. Although we're starting to see a correction that that could improve the likelihood that some of those people who weren't able to buy a home a few months ago might be able to now. But um, we're gonna give our tips for for buyers. What are the next steps you need to do in order to buy a home in this market? We'll talk about that

in just a second. But first let's let's talk to the renters for just a second, Matt, because uh, maybe after running through all those factors, some of our listeners said, Okay, wait a second, and buying a home isn't for me. It's not just this crazy market. But maybe yeah, maybe I can looking at the disparity in my market, I can save hundreds and hundreds of dollars a month renting and then I don't have to put up with all the bogus toilet up and nonsense that Jolande to put

up with. Maybe it's more of a lifestyle thing. Maybe as they thought through what they're thinking, I just don't want to deal with that. I like, I want like you said, you're you touched on the flexibility and the just the lifestyle that that allows you. Maybe I want to have my options open if that's the case you want to rent. Or maybe they said, I don't have enough of a down payment even to really put the storm radar or by credit score stinks like those are

those are good things that you can be working on. Uh, if you're interested in buying a home in the future. But there is no shame in waiting, and so let's see if we can provide maybe those listeners with some tips to help cut their current rent down to size. And the first step we'd encourage folks to take is to attempt to negotiate their rent. We don't want you

to take a rent increase lying down. We would say, knowing the market where you live helps you know whether you should chop the open market or whether you should push back in a friendly way in order to to seek to garner a lower monthly rent amount. And if you want kind of just in depth tips on that, we actually interviewed an expert Justin Pogue back in episode

four sixty nine. But there are a ton of levers that you can pull used to your advantage to make sure that you are not getting hit in the chin with an exorbitant rent and increase. There are ways for you to push back and lessen it or maybe just eliminate it altogether. Sure, Yeah, I mean, and real quick, I'll say, like, I think one of the best things

you could do is just be honest. Right if you see uh one of those rent increased emails showing up, I think just sharing and being honest and saying, hey, this is gonna impact me in a pretty serious way this is going to impact my ability to continue living here. Is there any way that we could maybe meet in the middle, or even better yet, is there a way that maybe we can keep it where it was? Maybe I know, you hire a law service. What if I start mowing the law I'll see That's that's where that

creativity kicks in. What if we sign into your least like maybe that gives that that landlord a little more peace of mind that they're not gonna experience any vacancy. Maybe it's a win win if you are able to make life easier for your landlord. Coming from two landlords, we will seriously consider that because that's oftentimes when you have a renter in a place and they pay on time, they're not trashing the place. These are good renters. These are the kind of folks who you want to keep

around for the long haul. And so I guess what I'm saying is I don't want you to be afraid to start that conversation, because, like we often talk about with when it comes to like discounts, the worst somebody can say is uh no, thank you, Like I don't you know, they shouldn't belittle you. They're not gonna make fun of you or anything like that. Hopefully you have an upstanding landlord who's gonna treat you fairly, who's gonna

treat you right. Uh. I think another way to keep your rent in check is to find a way to share the burden of rent, you know. I think that's probably one of the best ways to maybe really get creative. And so this means considering a roommate when maybe you've not had a roommate in like since college. You know, maybe you've had your own place for a number of years. Actually, we talked about getting a much older roommate on a

recent Friday flight. Or maybe, you know, instead of simply just resigning your lease or just kind of going to the standard apartment complex that everyone else rents, that it means knocking on doors of houses that have a carriage house that you could possibly rent. Uh. Joel, We we kind of got lucky and we through personal connections and friends, kind of knew the owners of the house where the

carriage houses where we are currently recording. But before we had this lined up, we started thinking, man, there were a lot of carriage houses within that neighborhood. Literally, we were going to campass that plane. We were just gonna go doin the door and just start knocking, knocking on doors and politely, biggest smile ever, introducing ourselves, explaining who

we are, you know what we're looking for. And I can't imagine if there was a homeowner who had a vacant space, how would they not want to rent to some folks who are going to be able to provide them some additional income while at the same time for us potentially scoring a deal on our rent. And while we're talking about neighborhoods, it's I think it's important to reconsider where it is that you're living, reconsider your neighborhood because maybe you're not taking advantage of the of the

popular amenities that your neighborhood offers. Like maybe in a previous life, this is something that you took advantage of, This is something that you appreciated, but maybe now you've got kids and you're not going out to shows like you used to back before you got married. Too close to home right here, I know, yeah, I mean this is literally something we did because the cost of living change pretty dramatically when we moved to where we are now. I'm not going to say that that was the driving

force behind our move. But it sure is nice. Yeah, No, it's definitely a plus. Right is to save money every month? Yes, And I think another last tip to renters is maybe think reassess your space because it might mean accepting a smaller, lower quality space or living arrangement in order to stock more money into your savings account in preparation to buy

something for the future. And that might sound like a jerk thing to say, like, hey, moving to a crappier place that's much smaller and rodent infested or something that's not what I'm saying covered under the stairs. That's right exactly,

you can be the next Harry Potter. But it's true that sometimes renting something smaller, living in fewer square feet, or something that's not quite as fancy, like doesn't have the awesome pool and the gym or something like that, maybe that you're not even taking advantage of how often are you actually using that those things will save you money avoiding those things and finding something that's less expensive.

So we could say that like some extra discomfort to be able to reach your goal of homeownership more quickly. That's not deprivation, that is short term pain. For long term gain. Right. Uh, so do you really need a second bedroom? Can you move down to a one bedroom apartment? Or how how often are friends and family actually coming to stay with you that's why you keep that second bedroom. Maybe they could stay in a hotel instead. Maybe you don't need the extra square footage that you think you

need that you're saying you need. So I don't want to sound unrealistic or unkind, but I think there are a lot of people in those the kind of situations where they have more square footage than they need. They could save money by downgrading, and that additional savings can go a long way towards helping them achieve, you know, those bigger goals that they have. That's right, Yeah, reassess the amount of square footage that you're paying for. No pain,

no gain according to Doer's card. Uh, sleep on a bedter nails to just I think that just enhances your blood flow and makes you better human. The reason we wetion this is because we want folks to basically question everything. Well, like, we do not want you to get stuck in this rut. And just because you've had a place that's that has two bedrooms that doesn't necessarily mean you always from henceforth, from now until I die, I'm always going to have

a place that's at least two bedrooms. Big. Maybe you do need that bedroom, right, Maybe you're you're working from home, you need that home office. Uh, and that space is worth every single penny. But we just don't want you to get stuck in a rut where you're just making

these assumptions that things can't change. Everything is a trade off, yeah, exactly, and everything's on the table, like like you should be able to consider at least you should be able to talk about cutting things from your life without it causing too much emotional anguish. And I just want to say, like, now we we take our own medicine, right, and we have in the past where we have we have lived

in spaces that were somewhat uncomfortable. Or when it comes to downsizing becoming a one car family, because yeah, it's it's we're still rocking the one car family, even though we're out in the burb. It doesn't and it doesn't make our lives hopefully we can eas right. It doesn't make our lives easier having one car, but it does mean we're able to focus more, save more on the things that matter. Having one older car allows me a

lot more financial flexibility, and that's what I care about. Absolutely. Yeah, but okay, so again, you know, realize that purchasing at home it's a very personal decision. Maybe you're at the point though, where you realize that this is the next step for you. Uh. If so, that is awesome, Like we are so pumped for you. I can't think of any other purchase that's gonna positively, hopefully impact your life

as much as buying a new place. Well, someone in our Facebook group recently talking about buying a lemon of a house and it just made me really sad, like she had a bunch of issues. So again, buying a house potentially fraught with peril, like it's it's not the easiest thing in the world. You've got to be prepared and don't go for the the absolute cheapest inspector home inspector. But yeah, that just made me maybe really really sad

to me, that sucks. But you know, with with that in mind, we also want you to hopefully follow a few steps so that you don't end up in a stressful situation like that. Listener, And so the first thing you want to do, though, is to make sure that you get your personal fine is in order, because buying a home when your finances are in shambles, that's gonna be a terrible idea. And so what that means is that we do not want you with any high interest

rate debt. It's a good rule of thumb. And we also want to make sure that you've got SETI income. I'm thinking about how like, we currently still have roughly two job openings for every person who's unemployed. And so what that means, generally speaking, is we've seen a lot of job turnover. And you yourself, if you're listening to this, you might have finding yourself with an employer that you

haven't been with for that long. And I'm sure you're thinking, oh, they would never let me go, But we're that company to hit a rough patch. Chances are there, you know, last person hired, first person to go. Uh. And so even though you might feel like you are in a just a really solid position because you've got those checks, those checks coming in, but we don't want you to

feel overconfident with the paycheck that you've only recently been learning. Yeah, and one of the things that's gonna put you in a stronger position when it comes to buying that house, Matt is having more money on hand for down payment.

So yeah, like you said, paying off the higher interest rate debt, not having any credit card debt is the best position to be in when it comes to buying a home, but then also having a bunch of cash in the bank so that you can slap hopefully down We talked about down payments before the break, but uh, the more money you have on hand to put down, the lower your mortgage payment is going to be. That is just the reality, and that puts you in a better position to be able to actually afford more home

if that's your goal. But it's something that we're keen on, right. We want you to have more skin in the game. A bigger down payment typically means you're a more thoughtful

home buyer. And so if you're wanting to grow the money that you have right now in order to save up for a down payment, Uh, if you're talking about like a shorter term purchase, you're looking to buy in the next couple of years, Uh, if you're looking to buy in less than a year, A high yield savings account is really the only place to put that money if you're looking to buy in uh twelve, at least a year out from now, I bonds are a good

place to put it. And if you're looking for something like a longer term you're like, I want to buy a house in six, seven, eight years, you can actually invest some of that money, so good in a broker to Yeah, if you are thinking that proactively and intentionally, UM, I think that's awesome. Yes, I agree. But that's the thing. If you are thinking that long term, you definitely want to make sure that money is invested so that's not getting eaten a way by infliction, that it's able to

grow in the market, so you're not losing purchasing power. Yes, right, man. You count on that down payment because that is money that you already have, that's money in the bank, and you can kind of lean back on that to alleviate any of the risk of potentially, you know, not necessarily continuing continuing to earn the money that you are earning, where you're counting on the future those future earnings, uh,

in order to score the house that you're wanting. Another important step when you are looking to buy a home is that you gotta set a budget. A good rule of thumb is going to be twenty five to thirty of your monthly take home. Some folks, in an attempt to get in before things get too crazy, have purchased homes that maybe we're a bit more than they could handle.

Real estate agents, mortgage brokers, they kind of they love to tell out the recent price surge as as a reason why you should maybe buy a little more than you actually feelfortable with right now in the present moment, Like it's an investment, so it's okay, and it can barely afford this thing, and values are going to go up. I promise it's still you're you're gonna make money over time, even if you are at the outer edge of your

affordability comfortability. And obviously these are generalizations, and there are fantastic realtors and lenders out there, but there is a reality that this is something that you might have heard yourself, uh, and that would leave you left in the lurch. Some of that advice is, you know, it's based on recent history, uh, and some of it is self serving. But there are going to be real downsides to dividing off more than

you can shoe. If you end up spending more on a home, then you can actually comfortably afford I remember my dad telling me that the first time they bought, when they moved here to the Atlanta area from the Pacific Northwest. Someone at his work, even just a co worker, said, by something that's kind of at the outer edge of what you can afford, because of course you're gonna get like raises and pretty soon that's gonna feel really comfortable and you're gonna be glad add that you don't have

to move and upgrade and all that stuff. And I get why someone would say that, but it's terrible advice because what happened to my dad. He got laid off. And when that happens, now, not only is that house unaffordable or barely affordable on that current salary, it's completely unaffordable when you don't have any income coming in. So that's one of those things where a lot of people will tell you that, like, well, clearly it's going to

be a good investment. Yeah, that's assuming everything goes perfectly right and then nothing goes wrong. And I've experienced personal life, in your personal life, in the market, in the economy as a whole, because if we actually do turn and go into a recession. Let's say housing prices go down ten percent, you lose your job and you're forced to sell after you bought at the top of the market, and now that you you don't have a job, like

you could be in a tough situation. And you know, it's not that a lot of people haven't made a lot of money in the last couple of years. They have. But you also have to make sure you're not taking on more risk, you're not biting off more than you can chew. And and here's the other thing, Matt, you need to make sure you're getting granular with this. I like that you said twenty of your monthly take home pay, And we think that's a really good way for you

to think about it, your post tax income. Like you you want to make sure you're budgeting not just on like a certain percentage of my my gross gross pay, Like that's that's not what you want to be looking at. You want to be looking at the granular numbers of your actual budget and what you can afford. And we think of your take on pay is probably the best

way to think about that. Yeah, that helps you to kind of cut through the clutter because you're like, well, my boss say is like, I know, I make a hunter in fift K, and so just we can surely we can afford this house. And it's like, well, maybe you are participating in an employer match. Maybe you've got

a lot of money going towards retirement. Maybe you've got a lot of money going up, you know, due to tax, which is great, we want you saving money for your future, but that definitely decreases the amount of money that you have on cash, that you have on hand in order to cover your monthly expenses. Right and again, your loan officer, they might approve you for a loan that goes far

beyond that number. That doesn't mean it's smart. And so when you're when you're figuring your actual postax income, it's so much easier to know what you can actually afford, you know, whether we're talking about rent or a mortgage. But if you're looking to buy, it's helpful to go ahead and get pre approved, get qualified for a mortgage, and that way you're able to pounce when the time comes.

You want to make sure that if you're like I'm ready to buy home, I've got the down payment, I know that I can afford this that you're pre approved in all likelihood with a local mortgage lender or with a credit union, so that you can make solid offers when the home of your dreams kind of comes available

on it's right. And the reason too, that you can confidently pounce and purchase a home of your dreams is because, uh, this is kind of like an additional step too, is that you've been searching, You've been researching, you know the market that you you know that you're looking to buy in, not just on Zillo, not just because you have been like zooming in and tapping homes and looking at the price history and all the things that we've all done, but because you are taking it to the streets, like

literally you drive through the neighborhood. We've talked about the wave test before, where you wave at people and you see how they were they're like, oh, okay. We've had some pushback, some people didn't like the wave tests the way. Hey, I'm still all for the wave test. And but not just driving through neighborhood, but even walking through a neighborhood and talking to other folks who are out and about

walking their dogs. These are always garner a lot of information just by talking to the folks you want to You want to know is like specific streets like the back of your hand, so that when something comes up, you know that, oh you know that that doesn't seem like a great deal, but I know that street and that street is an amazing street. It is that you know that is worth every penny. That's the kind of confidence that you gain from research and knowing a market. Uh,

And so that's something you gotta do as well. Like something really small about the house that we moved into recently is that the specific location on the street just means there's a lot less car traffic, Like just a few houses up, there's this intersection where most of the cars turn, and so they turn away from your house exactly. And so it's kind of nice that we could send our kids into the front yard and there's just not really much thought to car traffic going by because there's

so very little of it. It's all those like little things that add value to the house that you can't necessarily see you on a Zilla listing. Yeah, So we share all this because it is important to not only to have all your finances in order and not just to sit back on the couch with your phone, dreaming of Oh, I could live in this house, or I could live in this house like everybody does that. That's easy. But do the harder things that are a little more difficult.

Do the things that nobody else is doing, because that's what's going to set you apart. You start doing the effort and you're gonna you're gonna have more success when it comes to actually finding the property that you want. You're gonna reap those rewards. And one other thing too. We we we don't want to folks to overdo it on housing costs. You know, as we kind of kind of

zoom out, step back here for a minute. If you're spending too much on a house like that is going to prevent you from reaching other important goals in your life. There's a reason that the term house poor exists because that's that's what you are basically, when you are spending too much of your disposable income on housing. It sounds like we're prudish by limiting the amount of money that you're bringing in on a house, but no, we're just trying to help you be be wise and not experience

that financial stress and difficulty. We're trying to help you to be thoughtful. And we know that this is easier so than done given the recent surge in housing costs for basically everyone who didn't buy a home three years ago with three plus years ago, I guess. But if you opt to spend a bigger chunk of your take on pay on housing, you're gonna have less for saving, You're gonna have less for investing in other awesome life goals.

We've referenced the staff before, but ninety percent of Americans have the vast majority of their wealth tied up within their their home, within their primary residence, which isn't good.

You should think about the home equity that you're able to build as icing on top, you know, icing on the cake is it's like a nice little bonus, But the majority of your net worth should come through basically passively investing within the stock market, or at least if you are going to purchase a home, investing within real estate, because you're looking through things through a different filter than you do when you're buying a primary home. Yeah, for sure.

And the reality is, Matt that for some people, never buying can also be a good option. For a lot of folks, Yeah, I think that's almost seem as like a slur in our society, where it's like, oh, oh, you're a renter. You're you're looked down upon a little bit in society ridiculous because it's often it's the best lifestyle and financial option for a lot of folks. It's

not a bad life like piece. I'm gonna take advantage of the sweet flight deal that I saw down to the Caymans and uh, oh, sorry, you've got to let the HV guy in to fix your furniss right, yeah, you don't have to worry about that. Uh. And ultimately the answer where you land is gonna vary based on a lot of different personal variables. Buying a home is beginning to look a little bit easier at least for a lot of folks then it has looked over the

past couple of years. There's less competition out there. Homes are sitting on on zillo longer. Right, you can you can actually get more of an idea of what the pricing should look like because things aren't going overnight. But things have also gotten more expensive, and here's the reality,

prices could moderate in the coming months. That's also not a sure thing either, and Ultimately, if if you really want to own that home, and you're doing great with your finances as a whole, you're wanting to own that home for a minimum of five years, in all likelihood, better advice to be able to commit to owning it for at least seven to ten years longer. Yeah, then

you know it might make sense. Even if you're unsure of what housing prices are going to do in the next six to twelve months, Well, that matters a whole

lot less if your ownership timeline is a little bit longer, exactly. Yeah. Like, in the end, what we want to leave you with is that all of the different headlines that you see, all all of the market conditions, what the FED does, where you know, where mortgage rates are, these are all a little less important than where you are personally, whether it be your own finances or you know, like where your head's at, Like maybe you're just not ready from a mental state to be able to own a home

because maybe you're focusing on your career or maybe you're thinking, you know what, I'm pretty sure i'm gonna get married in a couple of years. I'm going to find the one, and I don't think I want to buy a home when there's a chance that my partner might want to move somewhere else. These are other things that you want to keep in mind before you spend a lot of money on the most expensive purchase that most people ever

make in their lives. About Joe, Let's shift gears. Let's get back to the beer that you and I enjoyed during this episode. This was an Odelette, which is a food er laggard beer de guard and this is a beer by fair Isle Brewing out of Seattle. What were your thoughts on this, dude? So I wrote down three words to describe it, oky beer, champagne. It's kind of how I think about it. I like some of the okay beer champagne. Please, thank you very much, sir. So good.

Like you're at a tail party and they're walking around with bottles of just nice craft beer, right, and this was what That's the kind of party I'm want to go to. That's exactly right. This is what by fair Aisle Brewing is what you said. And to me that I think it's like some sort of Norwegian sweater style. So it's it's like a cozy Norwegian sweater for myself. It's those hand knit sweaters that have like the I

don't know, the lions going across. I've got a fair aisle um style like card again or something that I like to wear specifically in the winter when I'm kind of sitting there in my chair reading the book, specifically on Sunday afternoons. That old man by the sea life. That's that's what's for me feeling the higi or whatever they call it. Absolutely, man, I'll say that the like that oakiness, like that's the first thing that you taste.

I mean, it's the first thing you smell as well, But I can't like, almost every beer out there that's been aged in wood, aged on oak is going to taste a little bit better. But then you've got those tasty malts that you kind of expect with just a high quality logger. But then sure enough it just dries out, which is you know, that's kind of I guess more

of the champagne side of what you're saying. Yeah, man, it's it was really impressive that I think a lot of times with a beer that's got this type of complexity, you expect there to be maybe some more sugars, some more sweetness within the beer. But it just really dried up and it made this a very surprisingly delicious beer to drink here at the tail end of summer. I would highly recommend for anybody who might be interested in what we just talked about to pick up a bottle

of Odallett's. And again, this was by Fair Aisle. By the way, this is the first time we've ever had a beer by these guys, so that we are now getting down here in Georgia. But I will look forward to more beers by them in the future, no doubt. All Right, that's gonna do it for this episode, Matt. Folks can find the show notes for this episode up on our website at how to money dot com. So until next time, best Friends Out, Best Friends Out.