I wanted to share my experience with the current real estate market and ask for advice on my next moves in a seemingly impossible situation. Let’s take a trip back in time to 2017. At the time, I was married with three young children, and my then-wife and I were renters. We both did the best job we could with our education and experience, which wasn’t much at the time.
He brought home $2 an hour, plus tips, and waited tables at a nearby restaurant, while I worked at a marine supply store for $500 a week. We rented a small manufactured home in a mobile home community and paid $800 a month in rent. We were able to save for a year to take the next steps towards homeownership in 2018.
We found a house through my wife’s ex-colleague. It was a 1,400-square-foot home with three bedrooms and two bathrooms on 1.53 acres of land. We got a price of $145,900 from the seller. We were approved for an FHA loan with 3.5% down and an interest rate of 4.625%. It was all our savings, but we took a leap of faith and decided to move forward.
A single father who pays all the bills
We closed on the house and lived there for three years. We had some relationship problems along the way – mostly financial, as we were now paying $1,053 a month on a mortgage – and decided to divorce. Being a single father at home, I found myself with all the bills. With hard work and dedication I prevailed. It was difficult, but not impossible.
In 2021, I changed jobs and was making $23.10 an hour, working 60+ hours a week! Life seemed great. I was saving money, I could make repairs to the house and organize 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 fired from her manufacturing job and she began working in the only industry where she could find work: home sales. She has a degree in accounting, but for months she was unable to find work. So the bills began to pile up. Our credit card debt mounted and we began to drown.
“We stopped dead in our tracks”
We decided we could sell our house and walk away with more than we needed for 20% off a new house. So we put our house up for sale for $300,000. We sold it for $296,600. We began our journey towards purchasing land to build a barndominium, our dream home. But our joint income wasn’t enough and we stopped dead in our tracks. Moving in with my parents was our only option.
Now we are saving every dollar. Due to rising interest rates, selling our home is one of our biggest regrets, because we know that finding a single-family home on an acre for $150,000 is a thing of the past. We make more money now than we ever have, but we can’t afford a house big enough to accommodate our blended family. We should almost double our annual income.
The house we sold is about to go into foreclosure, but it’s way out of our price range. To say the market is disappointing is an understatement. Our dream of owning a home has slipped further and further away each month with rising rates and prices. Our American dream has turned into a nightmare. Yes, we have 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 doesn’t want to pay the mortgage. And now?
Dear Living,
Think of this moment as a chapter in your life, one that won’t last forever. This time you won’t be able to live with your parents again, so try thinking about other things while you save, work, and wait for interest rates to drop. 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 perhaps closer to 5% in 2025.
However, predicting a decrease in rates is difficult. “I think most experts expected the first rate drop to have already happened,” says Robert Seltzer, founder of Seltzer Business Management in Los Angeles. “While I have serious doubts that rates will return to the 2% or 3% range that exists in 2020 and 2021, I think rates could return to the 4% or 5% range.”
You got a great price when you bought in 2021, but you were also spoiled. In the 1980s, the 30-year fixed mortgage rate reached 16%. Some economists say 5% is the “magic number” that interest rates need to reach before more sellers feel comfortable moving and more buyers feel it’s the right time to pounce. Historically, that’s a pretty good rate.
Alternative to buying a second home
Time passes slowly when you want something to happen and when you think you’ve missed a window with the real estate market. You’re not the only one who was surprised by the rise in interest rates and prices, and you made the best decision you could at the time. The bright side is that you have some savings, so you’re not starting from scratch. If you’ve done 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’ll have to live at home and/or rent until your cash cushion grows for a larger down payment. “Hopefully, interest rates will come down by the end of the year and homeownership will become more affordable,” he adds.
Housing is a long-term prospect. “I always advise clients to do this Not you will buy a house unless you plan to live in it for at least five years; I hope to hold onto it for a long time,” she says. “It should be seen as an illiquid asset with many hidden costs of ownership and maintenance. While it can become an important asset in due time, it should not be considered an investment in your financial plan.
You 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 wife lost her job, but with any luck she’ll find a better job, and since you’re saving on rent and presumably not paying childcare costs, you might be surprised at how many money you can save.
Larry Pon, an accountant based in Redwood City, California, recommends that you park the money you earn from selling your first home in a money market account so you can earn interest while you plan your next move. “With higher interest rates, you should be able to earn more interest income to grow that nest egg for the purchase of your new home,” he says.
Compromise on your next home
Real estate is a long-term investment, especially considering that most people have to pay 6% in real estate agent fees, legal fees and other closing costs. “Create a budget to see how much you earn and how much your expenses are each month. This will help you understand how much you can add to your savings on a monthly basis,” says Pon.
“Instead of getting a fixed mortgage, consider an adjustable rate mortgage, as there is a possibility that interest rates will drop,” he adds. “Instead of building a condominium, how about looking for an existing property that suits your family? Children will have to share bedrooms and sleep in bunk beds. No one will have their own room.”
Accounting jobs are in demand, he says. In fact, the Bureau of Labor Statistics projects 4% growth in accountant and auditor jobs over the next decade, which is broadly in line with the average growth rate. “If your wife can put her accounting training to use, the additional income will definitely improve your situation,” Pon says.
Forgive yourself for past choices and don’t give up hope of getting your home back.
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 it cannot answer questions individually.
Previous articles by Quentin Fottrell:
“I don’t want my wife to lose everything”: I was diagnosed with dementia – suddenly I couldn’t write legibly
‘Things haven’t been easy’: My sister is a hoarder and procrastinator. You are delaying the succession of our parents’ estate. What can I do?
“I Gave Up a Job I Loved Passionately”: My husband secretly created a trust that includes our home and his investments. What should I do?
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