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Should I Buy a House Now?

Buying a home is likely to be the biggest financial decision you will ever make. As a result, such a decision requires careful consideration of your financial…

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Buying a home is likely to be the biggest financial decision you will ever make. As a result, such a decision requires careful consideration of your financial situation, personal life, and the state of the housing market. And with interest rates at their highest levels since 2008, many are worried that now isn't the right time to become a homeowner. But before we write off the housing market entirely, let's do a deep dive on the real estate market to definitively answer the question, "Should I buy a house now?"

The Current Housing Market

If I had to categorize the early 2023 U.S. housing market it would be slowing sales, decreasing prices, and surging mortgage rates. As you can see below, existing U.S. Home Sales have dropped by 45% since their peak in late 2020: This is the largest decline in U.S. existing home sales since the housing crisis in 2008. And, with decreased demand, prices have begun to come down as well. The median sale price for existing U.S. homes has dropped by 13% while the median sale price for new U.S. homes has dropped by 14% within the last year: Chart of US median sale price for new houses and the % off their all-time highs. To put this in perspective, the median sale price of an existing home in the U.S. dropped from $408,600 in May 2022 to $359,000 by January 2023. How did this happen? As you probably already know—rising mortgage rates.  The 30-year mortgage rate in the U.S. is at its highest level since 2008:   Chart of 30-Year U.S. mortgage rate from 2008 to early 2023. And higher mortgage rates mean more costly mortgages. How much more costly? To be precise, the monthly mortgage payment required to buy the median existing U.S. home has gone up over 75% since the beginning of the pandemic [assuming a 20% downpayment and a 30-year fixed rate mortgage]: Monthly mortgage payment required for the median existing US home from 2020 to early 2023. To put this in perspective, in January 2020 the monthly mortgage payment required to buy the median existing U.S. home was under $1,000. As of January 2023, it was $1,772 (which is down 11% from the peak of $1,995 per month in October 2022). With such rising costs, affordability has become a serious issue in the real estate market. As research from Black Knight illustrated, the payment-to-income ratio for the average-priced home in the U.S. is at its highest level since the early 1980s: Chart of the payment to income ratio an the 30-year fixed mortgage rate in the US from 1976 to late 2022. As a result, many prospective home buyers are being priced out of the market. And for those homeowners that can afford to buy, they have little incentive to because they don't want to give up the low mortgage rate they locked in years ago. You can see this clearly if you look at the chart below (from Goldman Sachs Global Investment Research) which shows that 99% of borrowers have a mortgage rate below the current market rate: Chart showing the distribution of mortgage rates across all borrowers. Between the affordability issues and increased mortgage rates, it's no wonder that the housing market has slowed significantly. However, despite these bearish headwinds in housing, there are many reasons why now is a great time to be a homebuyer.

Why It's a Buyer's Market in Real Estate

The 18th century banker Baron Rothschild once said:
The time to buy is when there’s blood in the streets.
While Rothschild was referring to stocks and currency trading, the advice can apply to any asset class experiencing distress. And with the housing market going through its most difficult period since 2008, there's definitely some "blood in the streets" that homebuyers can capitalize on today. You can see this clearly in this chart from Redfin which shows how seller concessions are on the rise: Should I buy a house now? According to this chart of seller concessions in the real estate market from July 2020 to December 2022, the answer is leaning towards "Yes." As a reminder, seller concessions are those costs associated with buying a home (such as closing costs) that the seller agrees to pay for. Not only are we seeing a rise in these concessions in the data, but anecdotally I'm hearing about it as well. Real estate agents I've spoken with have told me that not only are many sellers covering closing costs, but they are also throwing in money for repairs/upgrades in an effort to win buyers over. While you won't see these seller concessions in list prices, they are a real benefit to homebuyers that demonstrate how the market is shifting in buyers' favor. This is especially true for all cash homebuyers. If you can purchase a home without having to take out a 6%-7% mortgage, you have an edge over those who are unwilling or unable to compete with you. This explains why all cash home purchases are at the highest levels since February 2014 (according to Redfin): Chart showing the share of U.S. home purchased in cash from 2011 to October 2022. Once again, since so many buyers are unwilling to accept a higher mortgage rate, all cash buyers (who don't need mortgages) have more leverage over sellers. Ultimately, it's a buyer's market in real estate because there aren't many buyers out there. As a result, if you are looking to buy, you can probably get a better deal than you would have in previous years. Of course, this doesn't mean that now is the perfect time to buy. Home prices could drop further after all. But, how long will that take? Since home prices tend to adjust much more slowly than the stock market, you might be waiting a while before you see the lower prices you want. And while you are waiting, mortgage rates could go even higher. In fact, if house prices dropped by 5% as mortgage rates increased by 0.5% (from 7% to 7.5%), your mortgage payment on a 30-year fixed rate loan would remain unchanged. So waiting it out is no guarantee that you will get a lower mortgage payment. And, as scary as it seems to buy a home with a 7% mortgage, this is pretty normal historically. As you can see in the chart below, mortgage rates were at or above current levels most of the time since 1971: Chart of 30-Year U.S. mortgage rate from 1971 to early 2023. And even if rates drop in the future, you should be able to refinance at these lower rates. And if rates don't drop (or go even higher), then you won't regret locking in at 7% now. Of course, there's more that goes into buying a home than mortgage rates and seller concessions. For this, we turn to our next section which looks at when is the right time to buy a house.

When is the Right Time to Buy a House?

Regardless of what is happening in the housing market, the right time to buy a home is when you can meet the following conditions:
  • You plan on being in the home for at least 10 years
  • You can afford it
  • You have a stable personal and professional life
Let's take each of these in turn.

The 10-Year Rule

In my book, Just Keep Buying, I estimated that the transaction costs of buying a home tend to be around 2%-11% of a home's value. As a result, you will want to ensure that you stay in a home long enough to make up for these costs. If we use the middle of this range, then we are assuming that the transaction cost on a typical home is around 6% of its value. Using Robert Shiller's estimate for real U.S. housing returns of 0.6% per year (from this NY Times article), this means that it would take 10 years for the typical U.S. home to appreciate enough to offset its transaction cost. This is how the 10-year rule was born. Of course, I don't expect all housing to appreciate at 0.6% per year. Some areas will appreciate faster and some areas won't appreciate at all. Nevertheless, using the 10-year rule is a great way to orient yourself for the long term and prevent your wealth from being eaten up by transaction costs.

How Do You Know if You Can Afford A House?

In addition to making up for transaction costs, you will want to make sure you can afford the house you are in. How do you know if you can afford it? If you can put down a 20% down payment and your debt-to-income ratio is below 43%. Why 43%? This is the maximum debt-to-income ratio you can have for your mortgage to be considered qualified to lenders in the U.S. As a refresher, the debt-to-income ratio is defined as:
Debt-to-Income ratio = Monthly Debt/Monthly Income
So if you have a monthly gross income of $5,000 and a monthly mortgage payment of $2,000, then your debt to income ratio would be 40% ($2,000/$5,000). Of course, having a lower debt-to-income ratio is preferred, but 43% is the absolute max you should have.    Additionally, being able to put 20% down on a house shows that you have the financial discipline to save money. I am not saying that you have to put 20% down on a home, but that you should be able to. If you have the ability to put down 20% of the home's value, then you are likely in a place financially where you can afford the home.

Don't Let the Mortgage Market Dictate Your Life

Lastly, buying a home is about far more than just dollars and cents. Even if you see opportunities in real estate, you will want to make sure you have a relatively stable personal and professional life before you lock in a 30-year loan. For example, if you are currently single but you expect to have a family in the future, buying a home may be the wrong move purely because of the transaction costs (see the 10-year rule above). Additionally, if you hate your job and are planning a major career shift soon, you may want to wait until you have more clarity on your income before signing up for three decades of ongoing payments. These are just a few examples where instability in your personal or professional life can make buying a home a more difficult experience. On the other hand, there are also cases where your personal life requires that you buy a home even if the timing isn't ideal. I recently asked a friend why he was looking for a home with rates as high as they are and he said, "I don't let the mortgage market dictate my life." This is a great point. Money matters, but some things matter more. Buying a house when rates are at 7% might be sub-optimal financially, but this doesn't mean that it is sub-optimal personally. After all, who regrets locking in a higher mortgage rate on their deathbed? I won't. You probably won't either. Happy investing and thank you for reading. If you liked this post, consider signing up for my newsletter or checking out my prior work in e-book form. This is post 340. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data

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One city held a mass passport-getting event

A New Orleans congressman organized a way for people to apply for their passports en masse.

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While the number of Americans who do not have a passport has dropped steadily from more than 80% in 1990 to just over 50% now, a lack of knowledge around passport requirements still keeps a significant portion of the population away from international travel.

Over the four years that passed since the start of covid-19, passport offices have also been dealing with significant backlog due to the high numbers of people who were looking to get a passport post-pandemic. 

Related: Here is why it is (still) taking forever to get a passport

To deal with these concurrent issues, the U.S. State Department recently held a mass passport-getting event in the city of New Orleans. Called the "Passport Acceptance Event," the gathering was held at a local auditorium and invited residents of Louisiana’s 2nd Congressional District to complete a passport application on-site with the help of staff and government workers.

A passport case shows the seal featured on American passports.

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'Come apply for your passport, no appointment is required'

"Hey #LA02," Rep. Troy A. Carter Sr. (D-LA), whose office co-hosted the event alongside the city of New Orleans, wrote to his followers on Instagram  (META) . "My office is providing passport services at our #PassportAcceptance event. Come apply for your passport, no appointment is required."

More Travel:

The event was held on March 14 from 10 a.m. to 1 p.m. While it was designed for those who are already eligible for U.S. citizenship rather than as a way to help non-citizens with immigration questions, it helped those completing the application for the first time fill out forms and make sure they have the photographs and identity documents they need. The passport offices in New Orleans where one would normally have to bring already-completed forms have also been dealing with lines and would require one to book spots weeks in advance.

These are the countries with the highest-ranking passports in 2024

According to Carter Sr.'s communications team, those who submitted their passport application at the event also received expedited processing of two to three weeks (according to the State Department's website, times for regular processing are currently six to eight weeks).

While Carter Sr.'s office has not released the numbers of people who applied for a passport on March 14, photos from the event show that many took advantage of the opportunity to apply for a passport in a group setting and get expedited processing.

Every couple of months, a new ranking agency puts together a list of the most and least powerful passports in the world based on factors such as visa-free travel and opportunities for cross-border business.

In January, global citizenship and financial advisory firm Arton Capital identified United Arab Emirates as having the most powerful passport in 2024. While the United States topped the list of one such ranking in 2014, worsening relations with a number of countries as well as stricter immigration rules even as other countries have taken strides to create opportunities for investors and digital nomads caused the American passport to slip in recent years.

A UAE passport grants holders visa-free or visa-on-arrival access to 180 of the world’s 198 countries (this calculation includes disputed territories such as Kosovo and Western Sahara) while Americans currently have the same access to 151 countries.

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Fast-food chain closes restaurants after Chapter 11 bankruptcy

Several major fast-food chains recently have struggled to keep restaurants open.

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Competition in the fast-food space has been brutal as operators deal with inflation, consumers who are worried about the economy and their jobs and, in recent months, the falling cost of eating at home. 

Add in that many fast-food chains took on more debt during the covid pandemic and that labor costs are rising, and you have a perfect storm of problems. 

It's a situation where Restaurant Brands International (QSR) has suffered as much as any company.  

Related: Wendy's menu drops a fan favorite item, adds something new

Three major Burger King franchise operators filed for bankruptcy in 2023, and the chain saw hundreds of stores close. It also saw multiple Popeyes franchisees move into bankruptcy, with dozens of locations closing.

RBI also stepped in and purchased one of its key franchisees.

"Carrols is the largest Burger King franchisee in the United States today, operating 1,022 Burger King restaurants in 23 states that generated approximately $1.8 billion of system sales during the 12 months ended Sept. 30, 2023," RBI said in a news release. Carrols also owns and operates 60 Popeyes restaurants in six states." 

The multichain company made the move after two of its large franchisees, Premier Kings and Meridian, saw multiple locations not purchased when they reached auction after Chapter 11 bankruptcy filings. In that case, RBI bought select locations but allowed others to close.

Burger King lost hundreds of restaurants in 2023.

Image source: Chen Jianli/Xinhua via Getty

Another fast-food chain faces bankruptcy problems

Bojangles may not be as big a name as Burger King or Popeye's, but it's a popular chain with more than 800 restaurants in eight states.

"Bojangles is a Carolina-born restaurant chain specializing in craveable Southern chicken, biscuits and tea made fresh daily from real recipes, and with a friendly smile," the chain says on its website. "Founded in 1977 as a single location in Charlotte, our beloved brand continues to grow nationwide."

Like RBI, Bojangles uses a franchise model, which makes it dependent on the financial health of its operators. The company ultimately saw all its Maryland locations close due to the financial situation of one of its franchisees.

Unlike. RBI, Bojangles is not public — it was taken private by Durational Capital Management LP and Jordan Co. in 2018 — which means the company does not disclose its financial information to the public. 

That makes it hard to know whether overall softness for the brand contributed to the chain seeing its five Maryland locations after a Chapter 11 bankruptcy filing.

Bojangles has a messy bankruptcy situation

Even though the locations still appear on the Bojangles website, they have been shuttered since late 2023. The locations were operated by Salim Kakakhail and Yavir Akbar Durranni. The partners operated under a variety of LLCs, including ABS Network, according to local news channel WUSA9

The station reported that the owners face a state investigation over complaints of wage theft and fraudulent W2s. In November Durranni and ABS Network filed for bankruptcy in New Jersey, WUSA9 reported.

"Not only do former employees say these men owe them money, WUSA9 learned the former owners owe the state, too, and have over $69,000 in back property taxes."

Former employees also say that the restaurant would regularly purchase fried chicken from Popeyes and Safeway when it ran out in their stores, the station reported. 

Bojangles sent the station a comment on the situation.

"The franchisee is no longer in the Bojangles system," the company said. "However, it is important to note in your coverage that franchisees are independent business owners who are licensed to operate a brand but have autonomy over many aspects of their business, including hiring employees and payroll responsibilities."

Kakakhail and Durranni did not respond to multiple requests for comment from WUSA9.

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Industrial Production Increased 0.1% in February

From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 p…

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From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 percent. Both gains partly reflected recoveries from weather-related declines in January. The index for utilities fell 7.5 percent in February because of warmer-than-typical temperatures. At 102.3 percent of its 2017 average, total industrial production in February was 0.2 percent below its year-earlier level. Capacity utilization for the industrial sector remained at 78.3 percent in February, a rate that is 1.3 percentage points below its long-run (1972–2023) average.
emphasis added
Click on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 78.3% is 1.3% below the average from 1972 to 2022.  This was below consensus expectations.

Note: y-axis doesn't start at zero to better show the change.


Industrial Production The second graph shows industrial production since 1967.

Industrial production increased to 102.3. This is above the pre-pandemic level.

Industrial production was above consensus expectations.

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