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Questions regarding lent up housing demand vs interest rates

2,648 Views | 31 Replies | Last: 24 min ago by Tex117
ReloadAg
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8:40a, 2/23/25
AG
How much of a drop in rates will it take to release whatever pent up demand there is in the market for housing to get people off the sidelines?

How much pent up demand do the experts think is out there?

Lastly, what do yall think rates will do in the short term this year and medium term going out a couple of years?
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txaggie_08
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In reply to ReloadAg • 12:00p, 2/23/25
AG
Everything I've read is to not expect lower rates any time soon, maybe not until later in 2026. Any forecasts are nothing more than guesses though. It seems the 10 yr treasury is being sticky as the market worries that Trump's tariffs are going to escalate inflation.

The other side of it, if you assume that Trump and DOGE are actually able to cut all this spending and let go of gov't workers, I would think that would lead us toward recession in the second half of the year. Our economy has been juiced the last few years with all the extra govt bucks flying around. If that does tighten up, the economy is also going to tighten.

I would expect rates in the 5s would loosen up the market (assuming no great recession). In that case, people start looking to move. I would imagine that'll cause prices to begin their rise again.
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Diggity
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1:18p, 2/23/25
AG
I'm not sure a rate drop to the 5's would be enough to make a significant difference.

home prices are still very high for the average household (which also elevates the property taxes), and insurance has skyrocketed the past few years in many areas.

my cynical prediction is the the "renter class" will get larger and larger over our lifetimes. People that don't have property/wealth passed on from their parents (i.e. most of the "middle class") will have a tough time affording home ownership.
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SteveBott
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1:18p, 2/23/25
AG
This was discussed in another thread but not the OP. I said mid 5s. But another poster thought high 5s. That is semantics. If conventional are mid 5s then FHA and VA are high 4s. Those products are mostly for first timers and veterans with no down payments. That would create bottom up demand.

As for a forecast? Good luck. I have no professional advice. My Personal opinion is 'it depends'. How extensive will tariffs be? How aggressive will the deportation be? What happens in Ukraine? All those factors are unknown right now.

My best guess is we won't see real rate reductions until the next recession. I'd bet in Vegas going higher in the next 24 months. But it would not be a big bet. Just fun money.
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Red Pear Realty
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3:25p, 2/23/25
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AG
My take is that there is a tranche of buyers sidelined who will jump in at 5.50% and another tranche capable of buying in the 3.00% range. The problem is that I don't think we see rates in the 3.00% range for a long time, if ever.
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Heineken-Ashi
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4:04p, 2/23/25
And as I've stated before, there's even more sellers than buyers that will throw their hat in the ring if rates come down. The only way this ends up is with a significant pricing correction.

I personally think we're in the latter stages of the biggest game of jenga. Those that join at the top have the hardest fall. Whether it's soon or takes years, i don't know.
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aggiepaintrain
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4:44p, 2/23/25
AG
Prices, insurance and property taxes matter more than these rates

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CFTXAG10
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9:24a, 2/24/25
AG
I would like to see them in the 4%-4.5% range before I consider moving. Like others have mentioned, its the property taxes and insurance going up consistently that will keep buyers out along with higher home prices.

Here in Harris County specifically we have a real problem on our hands with insurance rates. I think Diggity is dead on with his renter rate increase prediction, especially for those in the first time homebuyer category. The entry level home of even 5-6 years ago is up 100k+ in price it seems, which breeds the higher prop tax and insurance is up thousands of dollars. When you factor that in to a monthly payment anything in the 2k range is not attainable. Thus, folks will have no choice but to rent.
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agracer
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11:44a, 2/24/25
AG
Not sure what it's like in other areas but where I live the interest rates going down are going to make the bid wars worse.

In my group at work, there are 3 folks (first time buyers) trying to buy homes right now and it's all $10-$20k over asking, some waiving inspections and if you don't buy that weekend, forget it. These are $250k-300k homes. It's nuts.

This is in Johnson County, KS. Parts of MO across the state line are just as bad.

Some areas of KC MO are better.

Only place you can buy like a normal person, no normal person wants to live there.

EDIT TO ADD: My wife and I would love to downsize, but doing that, even it we just swapped homes for the same value would increase our mortgage P&I by 40%. We're at 2.875% and a lot of home buyers in our city are the same. Moving would cost more than it's worth.

Still mad at myself for not buying that fixer-upper 4-years ago, fixing it up enough for a rental then after a few years, then fix it for us to move into with no mortgage and sell our current home. It was $300k. A house across the street from that $300k home that had major renovations completed (like moving structural walls, complete gut and remodel, new driveway and garage floors, new HVAC, basically a new home in the old structure) just listed for $900,000.
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Diggity
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In reply to agracer • 11:47a, 2/24/25
AG
that's interesting....why is KC so hot right now?
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agracer
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In reply to Diggity • 11:53a, 2/24/25
AG
Diggity said:
that's interesting....why is KC so hot right now?
lots of good jobs, pretty low cost of living, lots of good public schools (on the KS side), mostly good city government (some lean a little left but not crazy left/right coast left) but for the most part manage the city well. One month in the winter and one month in the summer the weather sucks but other than that I can go outside an do stuff most days of the year.

Lots of families. I referee soccer and the local soccer league, IIRC, is now one of the largest in the country. Like 600 teams or something crazy between U7-U18.

Their is a severe shortage of inventory. My agent told me in February of 2020, 600 homes were listed for sale in Johnson County. In 2023, 200 homes were listed for sale. Covid and low interest rates shot up home values and it's only slowed a little. Inventory is just really low.
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Diggity
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In reply to agracer • 11:56a, 2/24/25
AG
seems like the builders should be able to catch up by now.

I saw somewhere there's an average of 9 months inventory for new builds nationwide. That's a big number.
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Heineken-Ashi
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In reply to Diggity • 12:49p, 2/24/25
Diggity said:
that's interesting....why is KC so hot right now?
Midwest pricing is also significantly down from 2023 highs barring a few key cities. It's really not comparable to Texas right now. Not sure about KC specifically, but if there's bidding wars, then it's likely that pricing is accurately reflecting cost of ownership, something that is not happening in the majority of the country.
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Heineken-Ashi
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11:06p, 2/24/25


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Tex117
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11:22a, 2/25/25
AG


Im not jumping into this real estate market. No way. No how. In Harris County, right now, taxes, insurance and maintenance on average, are more than my rent payment (for a similar house).

Yall get so caught up with the "renter class" and all that, but in some circumstances (like if you don't have kids and stuff), renting can make far more sense so long as equity is invested in the market.

One day, we are going to get a recession, can't tell you when, but it will happen. Lots of slush and corrections will occur then.

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cjsag94
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8:28a, 2/26/25
AG
Looking at current average home prices by state, Texas ($301,275 q4-2024) is still very modest, especially compared to other strong economic states. My personal opinion is that there isn't actually a housing affordability problem, it's just that most people don't save any money. It's not the payment, taxes, or insurance they can't afford (because rents are usually higher than monthly payments all in), rather most people can't come up with decent credit scores and necessary down payment closing costs to get started. Debt to income tattoos are through the roof on most people.

It's just easier to blame the price of houses/rates/taxes than it is to blame ones own behaviors. Just like complaining about high student loan debt after the fact.

I also believe we have pent up supply moreso than pent up demand - which is largely caused by higher interest rates.

Just my armchair economist opinion.
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cjsag94
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In reply to Tex117 • 8:59a, 2/26/25
AG
Tex117 said:


Im not jumping into this real estate market. No way. No how. In Harris County, right now, taxes, insurance and maintenance on average, are more than my rent payment (for a similar house).

Yall get so caught up with the "renter class" and all that, but in some circumstances (like if you don't have kids and stuff), renting can make far more sense so long as equity is invested in the market.

One day, we are going to get a recession, can't tell you when, but it will happen. Lots of slush and corrections will occur then.



You know, you could be right.. but profitable execution of market timing strategies are very unlikely. Look at the 45 year median home price chart and tell me when you would have profited by waiting on said correction?

https://www.fool.com/money/research/average-house-price-state/

Also, rent versus monthly payment is relevant to cash flow discussions. What it ignores, however, is the net worth effect as the principal portion of your payment combined with even modest capital appreciation serves to build wealth. A $250k home appreciating at simply 2% adds $5k+ principal pay down to your net worth each year (compounding).
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agracer
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In reply to Diggity • 10:05a, 2/26/25
AG
Diggity said:
seems like the builders should be able to catch up by now.

I saw somewhere there's an average of 9 months inventory for new builds nationwide. That's a big number.
They are, but only building $450k+ homes all south (and farther from work for most people) and west Johnson County. First time home buyers are looking for homes below $300k and no one is building those so inventory in that price range remains static.

And a bunch of folks in those $300k homes, and even higher, are in the same situation I am. Refinanced at <3%, or maybe even paid off, and close to or fully retired so they don't want to move and won't sell. It just doesn't make any financial sense for them to sell. So they stay, maintain or even upgrade their home. There just isn't any <$300k homes available.

Looking at Realtor.com, NW Johnson County (Olathe, Overland Park, Leawood, Lenexa) there are currently < 50 single family homes for sale under $300k. Some of them are <1,500 sq.ft with a single garage There are probably 200+ buyers looking for those properties (there are 4 people in my work section right now looking). When a good one gets listed 30 people will look at it and 10 of them will submit offers. On top of that they are competing with local contractors looking to update and flip it or turn it into a rental so they get cash offers with waived inspections.
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Tex117
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In reply to cjsag94 • 10:31a, 2/26/25
AG
Well, just looking at that graph...waiting to have the home prices go down to the average price increase makes sense (or interest rates go down to support that kind of price increase).

As for net cash flow and all that.

Man...All I can say is this. Market compounding is a hell of a drug. If one had bought a house like in 2018 (Im trying to ignore the dip of 2008, but even then), and proportioned more of the take home to dealing with all things house related, that person would not have made near that amount in gains by just making a modest rent payment and investing the rest in the market. AND, its liquid.

All my point ever is on these types of threads that if your circumstances warrant it (ie, no family, kids, need certain schools, want more of a place to call your own, etc. etc.), you can make more money renting something modest and dumping the rest in the market. (Im talking about very real monthly contributions here...at least as much as a mortgage payment per month).

Buying a house isn't necessarily the best option to maximize investment dollars. Hell, most of the time, its just "keeping up with the Joneses" disguised as "financial investing."

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cjsag94
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In reply to Tex117 • 11:11a, 2/26/25
AG
That's a different argument.. you said renting versus buying a similar home. I agree that much of home ownership is a lifestyle purchase, and there is absolutely value in renting if time horizon is short. But not buying to wait for a market crash is almost always a fools errand. My all in monthly payment is $2000. $600 is principal. So I'm investing $600/mo in an appreciating asset (probably 2-3% long term growth), and paying $1400/mo in "rent"... For a 3000 sq ft house with a pool.
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Tex117
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In reply to cjsag94 • 11:13a, 2/26/25
AG
Its not a different argument. Its all part of the whole picture. That said, yeah, trying to time the market is a bit of a fools errand in (in any market), but that doesn't mean that economic conditions can't favor buyers v. sellers. One can wait for that.
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Heineken-Ashi
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In reply to Tex117 • 5:52p, 2/26/25
Tex117 said:
Well, just looking at that graph...waiting to have the home prices go down to the average price increase makes sense (or interest rates go down to support that kind of price increase).

As for net cash flow and all that.

Man...All I can say is this. Market compounding is a hell of a drug. If one had bought a house like in 2018 (Im trying to ignore the dip of 2008, but even then), and proportioned more of the take home to dealing with all things house related, that person would not have made near that amount in gains by just making a modest rent payment and investing the rest in the market. AND, its liquid.

All my point ever is on these types of threads that if your circumstances warrant it (ie, no family, kids, need certain schools, want more of a place to call your own, etc. etc.), you can make more money renting something modest and dumping the rest in the market. (Im talking about very real monthly contributions here...at least as much as a mortgage payment per month).

Buying a house isn't necessarily the best option to maximize investment dollars. Hell, most of the time, its just "keeping up with the Joneses" disguised as "financial investing."

This is not technically true. But it also depends on situation. I bought in 2019. My money personally is worth a lot more in my current house than it would have been in the market. If I cashed out today, after netting out closing costs on both ends of the deal, HOA fee and R&M expenses, my money would still be up 7x from 2019. SPX is up slightly less than 2x and a bit over 2x with dividend reinvestment over that timeframe. SPX would be 2.5x from 2017 or 2018.

The best thing I could have done with my money in 2019 was buy my house at a sub 4% rate.
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Tex117
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In reply to Heineken-Ashi • 7:15p, 2/26/25
AG
Help me understand 7x.

A 2019 house didn't go up in value 7x. Even with the crazy covid run up. And did you sell? Did you realize the gains or just guessing on value?

I know you know your stuff. And your strategy is different from just a random dude buying too much house.

All my point always is on these things is compounding market money is a thing. Get enough money in the market over time… and even small increases can make huge gains.




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Heineken-Ashi
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In reply to Tex117 • 9:23p, 2/26/25
Tex117 said:
Help me understand 7x.

A 2019 house didn't go up in value 7x. Even with the crazy covid run up. And did you sell? Did you realize the gains or just guessing on value?

I know you know your stuff. And your strategy is different from just a random dude buying too much house.

All my point always is on these things is compounding market money is a thing. Get enough money in the market over time… and even small increases can make huge gains.




Leverage my friend. The house went up around 1.5x. The principal balance of the loan has dropped while the difference in value between today and then is my equity.

Now if you said to take that original equity and to leverage it into SPX, we might be talking apples to apples. But in that scenario, for many people, the COVID drop would have triggered a margin call and likely wipe out of equity.

The reason why real estate is the best wealth builder for the overwhelming majority of middle class people is because of the leverage component tied to the systematic inflation of built into our economy. And the fact that real estate is usually one of the safest, least volatile asset classes during downturns.

Now, I firmly believe troubling times are ahead and many will watch their wealth tied up in RE equity fall. Leverage unwinding can be more painful than the gains from it were joyous. But that's another topic.
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Tex117
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In reply to Heineken-Ashi • 10:33p, 2/26/25
AG
I get that, but still having trouble seeing how that is 7x. Regardless, awesome that it worked out. (And come on! Ya don't want to leverage the whole book! Gotta keep a modest margin percent on the brokerage account and pay off the interest every few years).

We both agree on troubled times for RE ahead (and likely the market at large).

But, you mentioned the point I'm making. You said "middle class." Is that assuming that investments into the market won't amass into enough to truly get that compound? (The magic number seems to be about two million, where it begins to rocket). You saying that a middle class person won't get to this?

My point is that so many folks blindly purchase a house and dump a lot of money in it (both equity, and expenses). End up with a good chunk of money tied up in their house. (Sure, maybe they contributed to their 401k a little bit). And they do this in their 30s.

Where if one can rent cheap. Basically FIRE invest, get to at least a million quick, then the returns may be much higher by the time that 35 year old is 65.


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Heineken-Ashi
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In reply to Tex117 • 10:55p, 2/26/25
I don't think an average middle class person could have gotten to the gains levered real estate has given over the last 5-7 years merely DCA'ing into the market. On a longer term scale, sure.
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Tex117
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In reply to Heineken-Ashi • 11:47a, 2/27/25
AG
Agreed.

But I am talking very long term, and I am talking about the amount of a solid mortgage payment in the market every month over the course of 35-40 years.
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SteveBott
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12:38p, 2/27/25
AG
I I've told my clients for 20 years that owning a home is not just about the hard ROI. While important in creating wealth there are many soft benefits that cannot be put on a spreadsheet.

There is a sense of 'place'. What are beneficial to the owner such as the commute, schools for the kids and safety of the community. Lot of soft numbers but they do matter.
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Tex117
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In reply to SteveBott • 12:50p, 2/27/25
AG
Of course. No question. Hence why I always say "depending on your circumstances."

Again, this is my point. So many folks just blindly buy a house thinking it's the only and/or best way forward to amassing wealth. For some, it makes all the sense in the world… for others, it doesn't.

But there are other paths…ones that can actually have higher ROI over the next 40 years if one builds a strategy around renting a place versus buying one.
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cjsag94
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In reply to Tex117 • 1:29p
AG
First.. I am not a real estate fan. It's illiquid, and can carry significant unexpected costs at random moments.

But, I believe you have over simplified the rent and invest vs home ownership scenarios. Your questioning the 7x return illustrates this. Say you bought a $200k home, with 10% down. 6 years later, home is worth $320, that would illustrate a roughly 56x return on your "investment". The same 20k invested would have be a fraction of that.

In my opinion, especially with where interest rates used to be, is that real estate with a high percentage of equity is a bad investment, and is a valid comparison to what you are saying (investment wise - but maybe cash flow benefit). But the majority of the middle class only builds wealth through home ownership with a $x00,000 appreciating asset with fractional investment into it.
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Diggity
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In reply to cjsag94 • 1:53p
AG
56x?
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Tex117
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In reply to cjsag94 • 2:19p
AG
Not following. Are you ignoring the payments you made? Taxes paid, insurance, maintenance?

You also brought up "middle class." Are you saying that a middle class person can't get to 1 million invested in assets? Because, compounding is magic once you get over about 2 million invested. (1 million, and things loosen up alot as well).

My point is that if you can get to this number however possible as quickly as possible, the investment starts to pick up major steam and it seems the housing market can't match that. Plus, its way more liquid.


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