So we just bought a house in the same zip code we currently own in. You are right, it is a bit like picking stocks, but there are some general rules you can follow that might help.
House prices are ballooning for two reasons right now- COVID and interest rates. COVID means you are going to pay premium regardless rightn now, interest rates are more interesting. Interest rates are up a bit from their bottom at the beginning of 2021, but are still historically low. Because so much of a house price is financed, if your time frame is long enough paying a premium on a house right now might be worth it now if you expect interest rates to rise. Using some VERY bad financial math, a $500,000 house financed at 3% for 30 years is "cheaper" than a $400,000 house financed at 5% on a cash flow basis.
Transaction costs for houses are high- expect to pay 8-10% of the price of the house to get is sold (this goes to real estate agents fees, taxes, prep work, etc.) If you aren't sure you are going to stay in the area for a long time than definitely don't buy- think of it as your house immediately depreciating by 10% when you buy it.
Traditionally, housing prices has also been considered a good inflation hedge, if you want to factor that into your calculations. However, that has been way less true post 2000 (where there hasn't been much inflation and housing prices have been way over the map.)
Finally though, housing isn't just a investment, it is also a consumption good. In my case that was probably the deciding factor for us- we choose to increase the amount of money we are spending on housing because that is what we wanted to buy.
Some more insight into our thought process:
1) We knew we wanted to buy a house in one of three neighborhoods and had always planned to move within within the 2022-2024 timeframe. We moved up our time frame by the year, but this was always happening for us.
3) We are already bought into the area, so we had already benefited from the overheated market.
4) We timed our interest rate lock just about perfectly- interest rates are now 0.5% higher.
5) The house that came on the market is across the street from friends of ours, we were willing to pay a premium to be near our social circle.
In the end, we bought a house I fully believe will be worth less next year than today, but will be OK (althought not great) as an investment in 20 years (which is our time horizon.) In your case, if you aren't super familiar with the area or aren't sure you have a 10+ year time horizon you might want to rent just to give you time to understand the new city your are moving to- the type of mistakes you can make in buying a primary residence aren't just that you lose money on the asset, but that you don't like where you live for years.
People are moving out of cities (where they were often renting) and into suburban/rural houses. People are moving into bigger houses. On the wealthy end of the spectrum people have even bought second homes outside the city.
Pretty much. Some additional insight I've heard is that COVID has restricted peoples ability to consume things other than housing, so people have the ability to consume more housing. If a family normally spent $7k on housing every year but didn't because of COVID, that is $7k more they have for a down payment, which means they can buy $35k more house.
One interesting question is how much of this is pulling in activity that would have played out in a similar way over the next few years. For example, it's not uncommon for young people who get married, maybe have kids, to move out of a city to the suburbs for more space and better schools.
To the degree it's actions that would have happened anyway, it probably implies there will be something of a dip after the current spike.
I'm not so sure we'd see a dip in housing, although we see the dip in luxury rental prices. The reasons for this is due to supply, or a lack thereof. There are new generations looking to settle down and do the above every single year. Every year more than the last are doing this, this is an expanding world. Yet, these areas where these people are moving to are not building the corresponding amount of housing required to meet demand. With not enough new housing built, prices rise, and people 'drive to where they qualify,' stretch out their car based commute, and we all deal with those externalities from the increased congestion and pollution no matter where we live in the city. It's a lose lose unless the US finally bends and start building housing, but they haven't done this in earnest since the boom after WWII (where we are still bidding on that hastily constructed housing stock today, because that's legally all there is in some neighborhoods).
The Orange County, California, rental market has seen a huge surge in demand. I listed a rental property, and after two days, I had to cut off listings and applications. I had over 40 inquiries. I have never seen anything like this. I have talked to other realtors and the consensus is that people are moving from LA because the density of LA is causing a Covid fear, people can work remotely now and choose to live better in Orange County, and last year's riots caused people to be fed up with urban areas.
What sort of rental property are we talking about? Single family home rentals I can see as getting more popular, but I wouldn't think a 200 unit apartment in OC to be much different than one in LA in terms of demand these days. IMO it's in OC, ventura, and san bernardino county that I see way more lax mask usage than in LA county, as well as more crowded restaurants due to a less strict health department.
House prices are ballooning for two reasons right now- COVID and interest rates. COVID means you are going to pay premium regardless rightn now, interest rates are more interesting. Interest rates are up a bit from their bottom at the beginning of 2021, but are still historically low. Because so much of a house price is financed, if your time frame is long enough paying a premium on a house right now might be worth it now if you expect interest rates to rise. Using some VERY bad financial math, a $500,000 house financed at 3% for 30 years is "cheaper" than a $400,000 house financed at 5% on a cash flow basis.
Transaction costs for houses are high- expect to pay 8-10% of the price of the house to get is sold (this goes to real estate agents fees, taxes, prep work, etc.) If you aren't sure you are going to stay in the area for a long time than definitely don't buy- think of it as your house immediately depreciating by 10% when you buy it.
Traditionally, housing prices has also been considered a good inflation hedge, if you want to factor that into your calculations. However, that has been way less true post 2000 (where there hasn't been much inflation and housing prices have been way over the map.)
Finally though, housing isn't just a investment, it is also a consumption good. In my case that was probably the deciding factor for us- we choose to increase the amount of money we are spending on housing because that is what we wanted to buy.
Some more insight into our thought process: 1) We knew we wanted to buy a house in one of three neighborhoods and had always planned to move within within the 2022-2024 timeframe. We moved up our time frame by the year, but this was always happening for us. 3) We are already bought into the area, so we had already benefited from the overheated market. 4) We timed our interest rate lock just about perfectly- interest rates are now 0.5% higher. 5) The house that came on the market is across the street from friends of ours, we were willing to pay a premium to be near our social circle.
In the end, we bought a house I fully believe will be worth less next year than today, but will be OK (althought not great) as an investment in 20 years (which is our time horizon.) In your case, if you aren't super familiar with the area or aren't sure you have a 10+ year time horizon you might want to rent just to give you time to understand the new city your are moving to- the type of mistakes you can make in buying a primary residence aren't just that you lose money on the asset, but that you don't like where you live for years.