Dear Quentin,
I wanted to share my experience with the current housing market and ask for advice on my next moves in a seemingly impossible situation. Let’s take a trip back to 2017. I was married at the time with three young children, and my then-wife and I were renters. We both worked the best jobs we could for our education and experience, which was not much at the time.
She brought home $2 per hour, plus tips, waiting tables at a nearby restaurant, while I worked at a marine store for $500 a week. We rented a very small manufactured home in a mobile-home community and paid $800 per month in rent. We were able to save for a year to take our next steps toward home ownership in 2018.
We found a home through my wife’s former colleague. It was a three-bedroom, two-bathroom 1,400-square-foot home on 1.53 acres of land. We obtained a price of $145,900 from the seller. We were approved for an FHA loan at 3.5% down and a 4.625% interest rate. This was all our savings, but we took a leap of faith and agreed to move forward.
A single father paying all the bills
We closed on the home and lived there for three years. We had some relationship troubles along the way — mostly about finances, as we were now paying $1,053 a month for a mortgage — and we decided to divorce. As a single father in the home, I was left with all the bills. With hard work and dedication I prevailed. It was tough, but not impossible.
In 2021, I changed jobs and was making $23.10 an hour, working 60-plus hours a week! Life was looking great. I was saving money, able to make repairs on the home and provide a Christmas for my children. I met a woman and we had a blended family of six children. We moved into the house together at the end of the year 2021.
Last year, our world turned upside down. My second wife was let go from her manufacturing job and began working in the only area in which she could find a job: home-to-home sales. She has an associate’s degree in accounting, but for months she could not land a job. So the bills began to pile up. Our credit-card debt rose and we started to drown.
‘Stopped dead in our tracks’
We decided we could sell our home and walk away with more than we would need for 20% down on a new home. So we listed our home for $300,000. We sold it for $296,600. We began our journey toward buying land to build a barndominium, our dream home. But our joint income was not enough, and we were stopped dead in our tracks. Moving in with my parents was our only option.
We are now saving every dollar. Due to the interest-rate increase, selling our home is one of our biggest regrets, because we know that finding a single-family home on one acre for $150,000 is a thing of the past. We make more money now then we ever have, but we cannot afford a large enough home to fit our blended family. We would have to nearly double our annual income.
The home we sold is now going into foreclosure, but it’s way out of our price range. To say the market is disappointing is an understatement. Our dream of homeownership has slipped further away every month with rising rates and prices. Our American dream turned into a nightmare. Yes, we learned that nightmares are dreams, too.
What do you suggest we do?
Living With My Parents
Related: My husband left me and our two kids and won’t pay the mortgage. What now?
Dear Living,
Think of this time as a chapter in your life — one that will not last forever. You won’t get this time living with your parents back, so try to think about other things while you are saving and working and waiting for interest rates to fall. They will fall — it’s just a question of when. Many economists expect interest rates to fall to 6% in mid- to late 2024 and possibly closer to 5% in 2025.
However, predicting rate decreases is hard. “I think most pundits expected the first rate decrease to have happened by now,” says Robert Seltzer, founder of Seltzer Business Management in Los Angeles. “While I have serious doubts that rates will go into the 2% or 3% range that existed back in 2020 and 2021, I do think that rates could get back into the 4% or 5% range.”
You had a great rate when you bought in 2021, but you were also spoiled. The 30-year fixed mortgage rate went as high as 16% in the 1980s. Some economists say that 5% is the “magic number” that interest rates must reach before more sellers feel comfortable moving and more buyers feel like the time is right to jump. Historically, that’s a pretty good rate.
Alternative to buying a second home
Time goes by slowly when you want something to happen and when you believe you have missed a window with the property market. You’re not the only one who got caught by rising interest rates and prices, and you made the best decision you could at the time. On the plus side, you have savings, so you’re not starting from scratch. If you did it before, you can do it again.
Bryan Kuderna, CFP and author of “What Should I Do with My Money?” says that, in hindsight, you could have gotten a HELOC and paid off your credit-card debt while keeping your home, but what’s done is done. He too says you will have to live at home and/or rent until your cash cushion grows for a larger down payment. “Hopefully, interest rates will fall later this year and home ownership will become more affordable,” he adds.
Housing is a long-term prospect. “I always advise clients that you should not be buying a house unless you plan on living there for at least five years; hopefully holding onto it for much longer,” he says. “It should be viewed as an illiquid asset with lots of hidden costs to ownership and upkeep. While it can become a major asset in due time, it shouldn’t be considered an investment in one’s financial plan.”
You don’t say if you’re an only child, but perhaps you could use your savings to renovate your parents’ home instead of finding another house. It’s unfortunate that your wife lost her job, but with luck she will find better work and, given that you are saving on rent and presumably are not paying childcare costs, you may be surprised by how much money you can save.
Larry Pon, a CPA based in Redwood City, Calif., advises you to park the money you made on the sale from your first home in a money-market account so you can earn interest while you plan your next move. “With the higher interest rates, you should be able to earn more interest income to grow that nest egg for your new home purchase,” he says.
Compromise on your next home
Real estate is a long-term investment, especially given that most people need to pay 6% in real-estate agent fees, attorney fees and other closing costs. “Put a budget together to see how much you are bringing in and how much your expenses are each month. This will help you figure out how much you can add to savings on a monthly basis,” Pon says.
“Instead of getting a fixed mortgage, consider an adjustable-rate mortgage, since there is a chance interest rates may go down,” he adds. “Instead of building a barndominium, how about looking for an existing property that will fit your family? The kids will need to share bedrooms and sleep in bunk beds. No one is going to get their own room.”
Accountancy jobs are in demand, he says. In fact, the Bureau of Labor Statistics forecasts 4% growth in accountant and auditor jobs over the next decade, which is broadly in line with the average rate of growth. “If your wife can put her accounting education to work, the additional income will certainly improve your situation,” Pon says.
Forgive yourself for past choices — and don’t give up hope on having your own home again.
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