I wanted to share my experience with the current housing market and ask for advice on my next steps 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 each worked the best jobs we could for our education and experience, which wasn't much at the time.
She brought home $2 an hour, plus tips, and waited tables at a nearby restaurant, while I worked at a marine store for $500 a week. We rented a tiny manufactured home in a mobile home community and paid $800 a month in rent. We were able to save for a year to take our next steps toward homeownership in 2018.
We found a house through my wife's ex-coworker. It was a three-bedroom, two-bathroom, 1,400-square-foot home on 1.53 acres of land. We got a price of $145,900 from the seller. We were approved for an FHA loan with an interest rate of 3.5% and an interest rate of 4.625%. This was all our savings, but we took a confident step and agreed to go ahead.
A single father pays all the bills
We closed on the house and lived there for three years. We had some problems in our relationships along the way — most of which had to do with finances, as we were now paying $1,053 a month on our mortgage — and decided to divorce. As a single parent at home, I was left with all the bills. With hard work and dedication, I won. It was difficult, but it was not impossible.
In 2021, I changed jobs and was making $23.10 an hour, working over 60 hours a week! Life seemed wonderful. I was saving money, being able to make repairs at home and saving my kids Christmas. I met a woman and we had a blended family of six children. We moved into the house together at the end of 2021.
Last year, our world was turned upside down. My second wife was let go from her manufacturing job and started working in the only field she could find work in: home-to-home sales. She obtained a university degree in accounting, but for several months she was unable to find a job. So the bills started piling up. Our credit card debt skyrocketed and we began to sink.
“Stop dead in our tracks”
We decided to sell our house and get more than we needed for a 20% discount on a new home. So we listed our house for $300,000. We sold it for $296,600. We started our journey towards purchasing land to build our dream home. But our combined income was not enough, and we stopped in our tracks. Moving in with my parents was our only option.
We now save every dollar. As interest rates 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're making more money now than ever, but we can't afford a house big enough to fit our blended family. We would have to almost double our annual income.
The house we sold is now going into foreclosure, but it is way out of our price range. To say the market is disappointing is an understatement. Our dream of home ownership has declined every month as prices have risen. Our American dream has turned into a nightmare. Yes, we've learned that nightmares are dreams too.
What do you suggest we do?
Living with my parents
Related: My husband left me and our two children and did not pay the mortgage. What now?
Dear living,
Think of this time as a chapter in your life, one that won't last forever. You won't be able to live with your parents this time, so try to think about other things while you save, work, and wait for interest rates to fall. They will fall, it's just a matter of when. Many economists expect interest rates to fall to 6% in mid-to-late 2024 and perhaps closer to 5% in 2025.
However, predicting a decline in the rate is difficult. “I think most pundits expected the first rate cut to have happened by now,” says Robert Seltzer, founder of Seltzer Business Management in Los Angeles. “While I have serious doubts that interest rates will move back to the 2% or 3% range that existed in 2020 and 2021, I believe interest rates could return to the 4% or 5% range.”
You got a great price when you bought in 2021, but you were also spoiled. The 30-year fixed mortgage rate rose to 16% in the 1980s. Some economists say 5% is the “magic number” that interest rates must reach before more sellers feel comfortable moving and more buyers feel it's a good time to jump. Historically, this is a very good rate.
An alternative to buying a second home
Time flies when you want something to happen, and when you think you've missed a window with the real estate market. You are not the only one who has fallen into the trap of 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've done it before, you can do it again.
Brian Coderna, CFP and author of What Should I Do with My Money? He says that, in hindsight, you could have gotten a HELOC and paid off your credit card debt and still kept your home, but what's done is done. He also says you'll have to live in the home and/or rent to grow your cash portfolio for a larger down payment. “We hope that interest rates will come down later this year and home ownership will become more affordable,” he adds.
Housing is a long-term possibility. “I always advise clients that they should no Not to buy a home unless you plan to live in it for at least five years; “Hopefully we can stick with it a little longer,” he says. “It should be viewed as an illiquid asset with a lot of hidden costs of ownership and maintenance. While it can become a major asset in time, it should not be considered an investment in one's financial plan.”
Don't say if you're an only child, but maybe you could use your savings to renovate your parents' house instead of finding another one. It's unfortunate that your spouse lost her job, but with luck you'll find a better one, and since you're saving on rent and presumably not paying for childcare, you might be surprised at how much money you can save.
Larry Boone, a certified public accountant based in Redwood City, California, advises you to deposit the money you earned from selling your first home into a money market account so you can earn interest while you plan your next move. “As interest rates rise, you should be able to earn more interest income to grow the nest egg to buy your new home,” he says.
Bargain on your next home
Real estate is a long-term investment, especially since 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 make and how much you spend each month. This will help you know how much you can add to savings on a monthly basis,” Boone says.
“Instead of getting a fixed mortgage, consider getting an adjustable-rate mortgage, as there is a possibility that interest rates could fall,” he adds. “Instead of building a barndonium, how about looking at an existing property that suits your family? The children will need to share bedrooms and sleep in bunk beds. No one will get their own room.”
He says accounting jobs are in demand. In fact, the Bureau of Labor Statistics projects 4% growth in jobs for accountants and auditors over the next decade, which is broadly in line with the average growth rate. “If your spouse can put her accounting education to work, the extra income will definitely improve your situation,” Boone says.
Forgive yourself for your past choices, and don't give up hope of owning your own home again.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
The Moneyist regrets that he cannot respond to questions individually.
Previous columns by Quentin Fottrell:
'I don't want my wife to lose everything': I was diagnosed with dementia – suddenly I couldn't spell or write legibly
“Things weren't easy”: My sister is a hoarder and a procrastinator. It delays probate of our parents' property. what can i do?
'I gave up the job I loved so passionately': My husband secretly set up a trust that included our house and his investments. What should I do?
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