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I Bought A Home In One Of The Worst Housing Markets

Certified Mortgage Advisor
NMLS 1701021
Published 
December 18, 2022

What it's like to buy a home in this crazy market?

I just bought a house in one of the worst housing markets that we've seen in the past few years, and frankly, I'm not worried at all because I followed a three-step plan to make sure I'm ready to buy an any market, and ride the wave of this volatile housing market. And really you should be able to feel that way too because it is exhausting to feel like you have to be some sort of savvy investor to be able to buy a home.

Buying a home and changing your lifestyle

Because ultimately buying a home isn't primarily about making money. But don't forget to make money when buying a home. You have to be able to sell the home or rent it out. If you're living in the home, you don't get to see the financial benefit of that unless your mortgage payment is lower than your monthly rental payment that you did have. So because of that, buying your primary home is primarily about lifestyle change and not investing choices.

Can you make money when you sell your home?

Absolutely. That's a possibility and use that money to purchase a bigger home or save more money, or, you know, put it into debt or whatever you want to do. But you're not going to make this big, massive amount of money just by purchasing a home, by doing it right, even if you time the market all the way to the bottom and you bought. You don't get to see the benefit of that financially unless you sell the home or you rent it out.

We all know buying a home is a BIG step, it's scary!

And look, I know how scary it is to purchase a home when it seems like so much is working against you. Again, I bought just a couple of months ago, you know, with home prices being unknown in the future, and interest rates that keep making payments higher and higher. What I wanna do is I wanna show you why I'm not worried. Three steps that I followed. So you don't have to be fearful stepping into the market and you can be confident that you'll be okay no matter which decision you make and what the market is doing.

And it'll help you be more comfortable moving forward with saying, I either want to wait out this market, or I wanna move forward and purchase a home.

Kyle: Mortgage Advisor

So first of all, it's helpful to note that I'm a mortgage advisor. I'm licensed in all 50 states, and I have a team that can work with you if you'd like help. But I'm following my own advice, okay? I'm not just sitting here telling you should buy a home because I'm in the industry of that.

I'm telling you this because this is what I did. I just purchased a home a couple of months ago, and I want to help you see my thought process of why I was comfortable buying a home, even amongst all the like fire thumbnails that you're seeing on YouTube.

We all can't see the future

So, what's been happening is, first of all, home prices have increased a ton. We've been seeing home appreciation hovering around 10 to 15% per year over the past couple of years, and a lot of people have then raised fears about home values coming down in the future.

Ultimately, nobody knows what will happen in the future, but that's a valid concern to have.  And then interest rates are double what they were just a couple of years ago, which obviously increases your monthly payment, making homes more and more unaffordable as home prices increase and the interest rate increases as well.

Here's why I still buy

Number one is just to get out of renting. I was renting and the place that I had was nice, but I wanted something that was a little bit bigger. I wanted a real lifestyle change with where I was living. So if we're looking into the future over the next 10 years, the cost of renting for me, I was paying about $900 a month in rent, which is pretty average in where I live. I would've been paying over the next 10 years, $123,810.

Now, obviously probably wouldn't have been renting for the next 10 years. This is just to illustrate the cost difference here. So it would've cost me this much money. Then over 10 years compared to buying a home. It would only cost me $54,000 to own a home, and that's in the loan costs.

Things like closing costs, taxes, homeowner's insurance, and all of that are here.

Easy way to compare loans or renting situations

So you can see it's a lot cheaper to own that home compared to renting and the way that I found all this math is I have a calculator that I built. You can just go to WintheHouseYouLove.com/advisor. You can compare loans, compare renting situations, and it helps you take a look at that.

Owning a home improves your lifestyle

So primary was to get out of renting. I wanted to be able to own a home and to gain appreciation and amortization for that home. Also, I made a huge lifestyle improvement in a home that I enjoy. I wanted space, well, just more space than I had cuz I was in a very tiny apartment. I wanted more space. I wanted to be able to bring my office to my house, which is where it is now.

I also wanted to be able to have more space to like entertain friends and have my family over where I really couldn't do that in my apartment. So you can see primarily buying a home for me was more about the lifestyle change of owning a home, being comfortable that I can do whatever I want with it compared to being in an apartment.

It just so happens that the math also follows suit where owning a home is more beneficial in my situation.

Gaining appreciation and amortization

Also, what's really interesting about buying over renting is that you gain appreciation and amortization. I rented over the past two years at just one spot, and in that time I paid $21,600 through just rent cost. I will never get that money back. I'll never see the benefit of that money which is okay, like renting is not this terrible thing absolutely because it helped me do two main things.

Renting for your FUTURE

And this likely, you know, your renting might help you do a lot of really great things to set you up in the future. Not only can it help you do things like maybe you're saving money for a down payment, maybe you're working up to get a higher income with a different job. Maybe you just need some time and you're not ready to buy right now. Maybe you're working on credit. That's perfectly fine. Renting is not bad at all. This is just what happened in my situation.

Explore neighborhoods

Primarily for me, the two biggest benefits of spending these past two years renting were one is I needed time to explore different neighborhoods. Real estate is not a national thing, and it's not just really a city thing. There are all these little neighborhoods in your city that are gonna change both in price and also, they're gonna be different in terms of if you actually wanna live in those pockets of that neighborhood.

So for instance, in my city, there are probably eight different pockets of neighborhoods. Some of them are great, and some of them are not so great. There are definitely ones I don't wanna live in, and there are ones I do wanna live in. But it wasn't until I lived in the city and rented that I was able to actually see, oh, these are the neighborhoods I like to be in because it's close to the things I want to do.

These are the neighborhoods I don't want to live in because maybe the home values don't appreciate as much. Then I would like to.

Work on your income

Also for me, I needed to work on income for loan approval. So this might be your situation. Maybe you're not ready or not able to be qualified for a loan right now. Maybe because of your income or how much money you have or because of your credit situation. Renting allows you, still a space to be able to live while you work on those things to move forward to buy a home. Okay? And personally, I needed a little bit longer of time on the job to be able to qualify for a loan.

Benefit 1: Appreciation

So buying gives you two primary benefits. It's appreciation and amortization. Appreciation is when the home, your home value increases over time. The 50-year average of appreciation in the US excluding the past two years of insane appreciation has been 4% which means year over year, the average home increases 4% in value.

So a $200,000 home turns into a $208,000 home the year after, and then 4% on top of that, 4% on top of that. That's what home values have been doing historically over the past 50 years.

Benefit 2: Amortization

So buying gives you two primary benefits. It's appreciation and amortization. Appreciation is when the home, your home value increases over time. The 50-year average of appreciation in the US excluding the past two years of insane appreciation has been 4% which means year over year, the average home increases by 4% in value.

So a $200,000 home turns into a $208,000 home the year after, and then 4% on top of that, 4% on top of that. That's what home values have been doing historically over the past 50 years.

#CalmMoment

So I believe when you're looking to buy a house, the calmer you have, the better decisions you're going to make moving forward. That's why you're watching videos just like this. So it's easy to get caught up in the negative news about buying a house. Like why do you think so many thumbnails are filled with pictures of fire?

Primarily because it gets clicks because it really brings up a lot of emotions in people and they want to know what's going on. And don't get me wrong, this is a really tough market to buy in. And it's valid when people have concerns about home values, you know, increasing now and then potentially going down in the future.

And also how much home unaffordability has picked up as well. And if you're not. Ready to buy right now. You absolutely should not buy a house in this market. But it's so easy to get wrapped up in feeling like there's one absolutely right decision that you have to make. And if you don't make it, all of a sudden you're doomed to financial ruin.

And that's just absolutely not true. Our brains work like this for some reason outta this way to try to protect us, but it really just creates a ton of anxiety and makes us feel unsure. And there's not one correct decision that you can make at this moment, if it feels right based on your research to wait, then wait.

If it feels right to move forward based on your research, then move forward. Trust your gut after you do your own research and remind yourself that nobody knows what's going to happen in the future as much as people wanna try to predict it and show you charts. Nobody knows what's going to happen. And since no one knows the future, it's impossible for there to be one right answer for you at this specific moment.

Why you should not worry when prices drops

So then that leads us to home prices and home price worries that you may have about buying a home because a lot of people are talking about, what if you buy a home and then all of a sudden the value drops? Well, really that's not an issue unless you're looking to sell your home.

It's the same thing with stocks. If you bought stock right now in a company and the value. It's not an issue unless you sell. You don't lose the money until you sell. If you keep holding and the value of the stock goes back up, you didn't lose any money.  I'm not afraid of home values declining. Okay? If there is this big home crash that happens, I'm not going to lose sleep over it because I'm not selling anytime soon and I'm comfortable with my mortgage payment.

So, I'll show you the steps I've taken with what I feel makes me confident in buying a house here in just a minute. So, I'm not afraid the home price is declining, and in fact, my home value based on comparable homes in my neighborhood since I bought three months ago has already gone up 3.3%.

This is the appreciation. That I was talking about. Now, obviously, this is a very short time horizon but it's really interesting to see because I put 10% down on the home that I live in, and so that's a 33% cash-on-cash return already in just a couple of months.

National Average

Also, national averages do not always apply to your market. When we hear talk about real estate, primarily what we're hearing is a lot of national data all squeezed together like this blanket that's supposed to apply to everybody. That's not the case because there are huge markets like you have Nashville and San Francisco and all of these big markets that are having lots of fluctuation.

They have lots of growth and then also some contraction as well.

Understanding the pockets of your neighborhood

Well, that just doesn't apply to a lot of people in the US but you're getting advice about these huge markets and assuming that they apply it to these smaller markets and real estate is so hyper-specific on local markets, and that's why I think you need to understand the pockets in your neighborhood.

I'm not worried about what San Francisco is doing because I don't live in San Francisco. The market that I live in is completely different than that market. And so I'm not worried if home values are decreasing in San Francisco because I know where I live, they're not decreasing. And I know the pocket neighborhood that I live in is growing a ton and our city is putting multiple millions of dollars into this neighborhood. That's what I'm more worried about than what's happening in some other city with a market that doesn't impact me at all.

You cannot time the market

I made this video How to Survive 5% Interest no matter what happens. Since then, interest rates have gone up to close to 7% and they come back down to 6.5%.

But here, I show you a couple of charts if you bought at the peak of where home values were and then we saw that decline, the longest time it took for you to break even on your money was six years. Meaning that if you stayed in your home for longer than six years, you would not have lost any money.

Sometimes there's this fear that home values are gonna decrease and you're gonna lose tons of money. It only happens if you sell at that lower timeframe if you hold onto it for longer. History has shown us that prices do go up.

Three rules that I follow

I would suggest that you follow them, but ultimately trust your gut, trust your instincts, and your own research as well. First, I do is I get really clear on why I'm buying a home. For me, I wanted more space. I wanted more freedom, and I wanted the financial benefits that came with owning a home. Okay. For you, it may be different, maybe your family is growing and you need more space. Maybe you're downsizing other people they're looking to buy as an investment. None of these rules are going to apply for those people.

If If you're looking at buying a primary residence, a place that you're going to live in, this is what's likely going to work best for you.

Can you pay it comfortably?

So for me, rule number one is it must be a comfortable payment, okay? I cannot buy a house for myself personally. I will not buy a house that makes me feel stretched then, and that's gonna be tough for me to afford that payment. Okay, there are tons of different rules on what you could afford. 30% of your net income is a good rule of thumb. Of course, some people are comfortable going higher, some people want it to be a lot lower. It's ultimately gonna depend on what you want.

An easy tool: Max Purchase Price Calculator

I do have a calculator called the Max Purchase Price Calculator. And in there, it walks you through an affordability dashboard. So you can enter your down payment, your income, and any debts that you have. So in it, it will show you a whole affordability dashboard that will show you an estimated purchase price, and monthly payment, walk you through different payment levels, and then also show you estimates on things like utilities and maintenance costs as well if you're interested.

I plan to live there for 5+ years

Also, my role is I have to plan to live there for at least five years. This is going to help me kind of weather those downturns if they happen. If you're looking to sell within three years, buying a home probably isn't for you at the moment because it exposes you to a little bit more risk.

Have 3+ months of reserves

Also, my rule of thumb is I need to have at least three months of reserves. What reserves are, it's your monthly expenses, kind of your survival number? What does it require each month for you to be able to pay all of your bills? Your future mortgage payment your electricity, gas, groceries, any money that you spend eating out everything that it costs for you to survive. You need to have at least three months of that in your bank account after you pay the down payment and closing costs for a home.

Six months is even better, but this gives you a nice buffer in case something does happen. You don't have to draw on credit cards to make that payment. 

Write down your questions

Then finally write down a list of questions that you have. Take all of the worries that you have up here, all the questions that you have about how it works, write it down on paper, and then after that I want you to reach out to us, talk to a mortgage advisor on our team. We'd love to know your story and figure out how we can help you move forward with this decision if it's something you wanna do.

Because what we wanna do is make sure that you get pre-approval so you're confident to be able to purchase a home and, you know, shop for homes and then be able to write an offer.

Then also we wanna show you all of your numbers up front. Show you the loan options you qualify for, and the max purchase price. You can put an offer in for your interest rate, your monthly payment with all estimates like taxes and insurance, and all of your closing costs. We wanna make sure it's transparent upfront so you feel confident moving forward.

Ask us a question →
Kyle Andrew Seagraves is Federal Mortgage Loan Originator (NMLS 1701021) licensed in all 50 states with the Dan Frio Team at Allied First Bank (NMLS 203463), an Equal Housing Lender. Separately, Kyle owns Win The House You Love LLC, an education company. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This website is only for educational usage. All calculations should be verified independently. This website is not an offer to lend and should not directly be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate, legal, and/or financial advice.

Servbank is not affiliated with the VA, FHA or any other government agency. This site has not been approved by any government agency.
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