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This can be difficult for someone in the military that may move to a different base every two to four years. Here are some housing considerations for those in the military:

• Plan to live in your home long-term if buying. It is very difficult to plan to live in a home longer-term when serving, but if you want to buy a house, we do want you to be in the house for at least five to seven years.
• Keep total housing costs below 25% of your income. The lower your housing costs are, the less of a negative impact it could potentially have on your financial life.
• Renting is not throwing money away. When you buy a home, you pay for maintenance, repairs, homeowners insurance, and more. In the early years of your mortgage, much more is going to interest than it is building equity in your home. Renting is not throwing money away, but paying for flexibility which can be invaluable for members of the military. There is even more flexibility available through the Service Members Civil Relief Act, which allows military members to terminate leases early without penalty under certain conditions (such as a PCS move or deployment orders).

Know what’s covered

Members of the military have access to VA home loans, which allow you to put less than 20% down without needing private mortgage insurance (PMI). If you do buy a home while in the military, using a VA loan can help lower your monthly costs if you put less than 20% down on your home. The Basic Allowance for Housing, or BAH, provides a monthly tax-free subsidy for rent or mortgage payments. You can use the online calculator here to estimate your BAH by zip code, year, and pay grade.

When you are required to move, the military does cover some of the costs. Depending on your rank and how many dependents you have, your dislocation allowance (DLA) ranges from around $1,000 to over $5,000. Temporary Lodging Expense, or TLE, is an allowance to pay members of the military for lodging and/or meal expenses incurred while moving. Percentage reimbursement ranges from 100% for military members and decreases for dependents, and expenses are limited to $290 per day for up to 7 to 14 days, depending on whether your move is within the continental United States or out of the continental United States.

TLE applies right before or after you are physically moving, while permanent change of station (PCS) per diem applies while traveling. This rate is currently $157 daily and if traveling in a “convoy,” you may receive a smaller daily allowance for your spouse and/or dependents. Generally one day of travel time is allowed for each 350 miles of official distance of ordered travel. For example, if you are moving 1,000 miles, you are allowed three days of PCS per diem (not including TLE which may apply before and after traveling).

Members of the military have a moving weight allowance which increases with rank. Cost to move items beyond the limit will be charged to the service member, so try to stay within these limits if you want the military to cover your move. If you drive your own vehicle when moving, you are eligible for a monetary allowance in lieu of transportation, or MALT. Rates are $0.22 per mile as of July 1, 2022.

Navigating financial decisions when you are in the military, like buying a home, isn’t easy. Fortunately the military has programs in place to make buying a home and moving a little bit easier. There is nothing wrong with renting, especially if you serve in the military and aren’t sure where you will be living in the next five to seven years.

Buyers can not afford to pay the same prices they were paying in 2021 or 2022; with mortgage rates at 7.49% as of August 22nd (levels not seen since December 2000), a family with a $400,000 mortgage would owe $2,794 each month in principal and interest alone. That’s 47% of the median household income of $70,784. The market has been dropping, but will it continue to drop? What do buyers and sellers need to be keeping an eye on?

Inventory is still a problem

The drop in home prices can not be attributed to more inventory. There are currently about 646,698 homes for sale in the United States, give or take a few. Before 2020, the number of homes for sale had not dipped below one million, according to Federal Reserve data. However, the monthly supply of homes, as related to demand, has been very high (at levels not seen since 2009, in the aftermath of the housing crisis). It is very unusual to see a low absolute number of houses for sale, but a high amount of homes for sale when measured against demand. It just means that sellers are not selling and buyers are not buying: everyone is waiting it out. With 62% of outstanding mortgage rates below 4%, it is not hard to see why many are staying put.

When will this end?

The stalemate we are currently experiencing will likely come to an end when mortgage rates drop. The number of homeowners with mortgage rates under 6% has only dropped from 93% to 92%; buyers are staying put and potential sellers are staying locked into low interest rate mortgages. Mortgage rates were under 4% at the beginning of 2022, and interest rates at those levels may spur increases in demand and supply. It is difficult to say what effect this could have on the housing market. If both supply and demand increase significantly when interest rates drop, prices might not change substantially.

What should you do as a homeowner?

If you currently own a home but are interested in moving, it might be difficult to come to terms with losing out on a low interest rate mortgage. Assuming you can upgrade to a new home for the same price as your current home, which is a very big assumption, going from an interest rate of 3% to 7% would increase your total mortgage payment by 58%. Your current home probably seems a lot nicer if a comparable new home will cost 58% more!

Waiting to buy a home might be a good option if you can afford to wait, but not everyone has that option. If you have a growing family or other needs, you might need to buy whether it’s a “good” time to buy or not. Just make sure to familiarize yourself with our housing guidelines to help ensure buying a home doesn’t negatively affect other areas of your financial life.

What should you do as a buyer?

While home prices are dropping, higher interest rates mean housing is still out of reach for many potential first-time home buyers. The average age when Americans buy their first home has risen to 36, and only 26% of homebuyers last year were first-time homebuyers. This is the lowest percentage ever recorded, so first-time buyers are clearly struggling to get into homes.

Just because it is a “bad” time to be a first-time homebuyer does not mean it’s a bad time for you! Buying a house is not an investment decision but one based on a need for you and your family. Our guidance on purchasing a home for first-time homebuyers is largely the same as for those looking for a new home: now might be the right time to buy if you need a home. Just make sure you download our home-buying checklist and don’t let a home keep you from achieving your other financial goals.

The housing market was turned upside-down during the pandemic, and rising interest rates have certainly not helped the market return to “normal.” We do not know when interest rates will decrease or if housing prices will continue to decrease or reverse course. We do know that buying a home is usually a needs-based decision and should not be primarily driven by trends in the market or what direction you think the housing market is headed in.

This is definitely a “measure twice, cut once” moment with housing decisions. The more time you can commit to living in a new home, the less these uncertainties will matter over the long-term. On the other side of the coin, if you are going to live in the home for a short period of time, you may find yourself on the wrong side of this unique time to be buying and selling a primary residence.

In this highlight, Brian and Bo discuss if it is a good idea to roll over closing costs into your loan. Brian shares some insight based off of his experience why that may or may not be a good idea.

If you want to make sure you are maximizing every dollar that comes your way, check out our Financial Order of Operations course.

Public opinion, and expert opinion, couldn’t be more divided. Some are predicting a housing crash while others strongly believe that housing prices will not decline at all. Experts on both sides are selectively presenting data to tell the story they believe to be true; those calling for a crash point towards the sharp rise in prices, unaffordability, and drop in demand as reasons that housing prices must crash. On the other side of the fence, those that believe prices will not fall point towards a lack of inventory and rarity of housing price declines as reasons to expect prices to continue to rise or stay flat.

Let’s dive into the data and examine claims made by both sides. Separating fact from fiction will give us a better idea of where the housing market has been and may give us a better idea of where it is headed.

Claim #1: Don’t expect a housing market decline because home prices almost never drop.

One big financial influencer recently said, “If you’re waiting on prices to come down, you’re not going to buy a house, ever; prices are not coming down.” Later, he added, “We’ve never seen house prices go down in modern America since the 1930s except one time, and that was for about six or eight months in 2008.”

Time will tell on the first claim, but fortunately the second is easy to prove or disprove with data. The below chart shows the quarterly percent change in home prices in the U.S.; all points below the red line indicate a quarterly decline in housing prices. As you can see, quarterly declines in housing prices are very common.

While quarterly price declines are very common, prices can and often do bounce back in the same year. The chart below shows rolling annual percent changes in housing prices, going back to 1964. All data points below the red line indicate annual declines in home prices. Declines are less frequent than the above chart since they indicate prices have been declining for longer (over the course of a year rather than quarterly).

Still, it’s easy to see that housing prices have declined several times since the 1960s, with declines lasting longer than six to eight months. Post-2008, real estate took years to find stable ground. In some parts of the country, it was not until the recent spike in values that houses reached the levels of pre-Great Recession (Brian has shared that his south Atlanta house lost over 50% of its value between 2008-2010).

Quarterly declines in home prices are very common, but it is true that annual declines in home prices occur much less frequently (about once a decade). However you slice it, though, declines in home prices in the U.S. are not as uncommon as some would have you believe.

Claim #2: Housing prices will not drop because inventory is still extremely low.

Extremely low levels of housing inventory in the United States is often cited as a reason prices may not go down. Housing inventory is very low, but there’s a bit more to the story. The chart below shows the number of active listings in the U.S., with estimates through July of 2022.

Housing inventory is very low and way below where we were at pre-pandemic. However, inventory levels are rising quickly, and at their highest levels since the summer of 2020. Buying environments are completely different than they’ve been in the past few years, so it isn’t fair to compare apples to oranges here. 800,000 homes for sale at mortgage rates over 5.50% will not create the same frenzy we saw in late 2020 with 800,000 homes for sale and interest rates under 3.00%. When accounting for lower demand, supply is pretty high right now. The following chart, using data from the Federal Reserve, shows the monthly supply of new homes in the U.S., based on inventory and the number of new homes being sold.

The supply of new homes for sale is the highest it has been since 2010 in the aftermath of the housing crisis. Looking more at local markets, we can see that inventory levels are rising fastest in cities that are more “overvalued.” Overvalued in this context compares household incomes to home prices. The more overvalued a housing market is, the higher the ratio of home prices to household incomes.

Bottom line: inventory levels are currently low, but when accounting for decreased demand, the amount of housing supply available is fairly healthy. Inventory levels are rising the fastest in more “overvalued” cities, which indicates home prices, if they were to drop, could drop first in these cities. It will be interesting to watch what side of supply and demand wins. Are there enough folks moving to these hot markets to overcome the damping impact of rising interest rates and new inventory coming on the scene?

Claim #3: There is going to be a really bad housing market crash, like 2008.

History shows us that drops in home prices aren’t all that uncommon, although longer declines fortunately occur only about once per decade. A decline in home prices nationwide is far from certain. A 2008-esque crash is even more uncertain, yet that is where some think we are headed. Are they right? Or does a housing crash in the U.S. seem improbable, if not impossible?

Homeowners now have locked in low fixed-rate mortgages, they are less burdened by debt, and balance sheets are healthier. The unemployment rate in the country remains near all-time lows. Homeowners are simply not currently likely to get in financial trouble that would cause them to lose their home. The mortgage crisis in 2008 was fueled by subprime mortgages given to borrowers who could not afford homes and were at high risk of defaulting. In 2006, 23.4% of all mortgages were subprime. By 2008, one out of five subprime mortgages were delinquent.

Overall delinquency rates peaked at over 11% post-2008. Now, mortgage delinquency rates are just 2.13%, the lowest they have been since before the housing crisis. Another contributing factor to the 2008 crash was overbuilt homes. New home starts peaked at 2.27 million in January of 2006 and haven’t reached that level since. Homebuilders have been more conservative, even with higher home prices, to avoid a repeat of 2008. Home starts appear to have peaked this cycle at 1.81 million in April, before falling to 1.55 million in May and 982,000 in June.

There are signs that home prices could decline in certain markets in the near future. Rising mortgage rates are causing a decrease in demand, which is driving up supply. If supply outpaces demand, it is possible for housing prices to drop – but don’t expect a housing crash like in 2008. Homeowners are in much better shape financially than they were back then, making mass delinquency and foreclosures appear unlikely.

What happens to home prices in the short-term can and will affect affordability of homes for those looking to buy, but it shouldn’t necessarily change your course of action. There are a few simple rules you can follow to successfully buy a home in inflationary times. Make sure you plan to be in your home for at least five years. It wouldn’t be a bad idea to plan to be in your home for longer if it is your first home and you are putting less than 20% down. The housing market can take years to recover from a decline, so buying with a long-term mindset will help you stay above water on your home if prices decline.

As demand cools, buyers should have an easier time doing due diligence like appraisals and inspections. At a minimum, get a pass/fail inspection so you can walk away from a home if it is in bad shape. Buying a home is often a multi-six figure decision, or even a seven figure decision, so it’s important to get it right and know what you are buying. Guardrails, like aiming to keep total housing-related payments below 25% of your gross income and maintaining a full emergency fund, can also help you stay on-track when buying a home in inflationary times.

It’s frustrating, for homeowners and those looking to buy, to not know where the housing market will go next. Homeowners don’t want to see their home decline in value, and those looking to buy are hoping prices stabilize and common sense due diligence allows them to have time to ponder and research the big decision that home ownership is in this crazy financial world. While you don’t have control over the housing market, you can control your personal finances. Following a few basic home-buying guidelines can help you buy a home (or not buy a home) the right way, no matter what the market throws at you.