Real Estate the Ramsey Way - Why Home Prices Are Not Going Down

Episode Date: April 21, 2025

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate homeownership with confidence. James is with us in Salt Lake City, Utah. James, how are you? Good. I'm very concerned about the housing costs here in Utah. They've tripled since COVID.

I'm debt-free. I've been trying to save up 20% for a down payment on a house. It's gone from 40,000 up to 80,000. I'm struggling. Is it a good time to get in a house, or should I wait until I have the full 20% down payment so I can get a 15-year fixed, or should I get into 30 and then refinance?

Buy a cheaper house and get a 15-year without 20% down. It's just that there's not very, much out there for houses and all these houses I see are dilapidated and they're like just overly priced. What range are you looking at price-wise? I got I got approved for 300,000. I make $58,000 a year. I make what? I take home $2,400 a month and all that is going to go basically to... What are you putting money in. Interst rates. Whoa, whoa, whoa, whoa, whoa, whoa.

You make $5,000 a month. Why are you bringing home $2,400? Well, $1,700 every two weeks after taxes, $2,400. That's not $58,000. $58,000 is $5,000 a month. Okay. I'll make $28 an hour. I guess more is going.

Are you getting a huge tax refund? No, I'm actually paying into it. Like, the taxes are telling me. Are you putting a bunch of money in your retirement account? I am putting as much as I can. I have a lot of IRA that I'm going in through Robin Hood as much as I can in there. Is that going to help on taxes? No, that's not my question.

I'm trying to figure out where $2,500 a month is going. Well, $58, I mean, it'll be more like $4,000 after taxes. No, yeah, but I'm just saying you have $5,000 gross pay. That's $60,000 a year, okay? Yeah, but then you got to be taxes. You do not come home with $2,400. Yeah, $5,000, but minus taxes. You don't come home with half.

Would probably be... You don't come home with half. It's got half. So it should look more like four. Your take-home pay ought to be close to four, and it's close to two. Every two weeks, I'm getting what's coming in my bank, which is after taxes and everything, is $1,700.

So there's something, yeah. If I mention that money, I'm not to know where it's at and how I can get it. But this is what's coming in my bank. Take $1,700. Take $1,700 times $26, and you'll see it's nowhere near $58,000. Well, that's what I'm saying before. I know, honey.

But you're not in a 50% tax bracket. You're missing some money. You need to go find your money. Is Utah, does it have an income tax? Yeah, that may. They may. So, yeah, that's what you've got to look for is you've got to find that money. That's part of your problem is you're looking at a ridiculously small take home pay for $58.

I don't know whether you're getting killed with health insurance. You got a bazillion dollars going into your 401k, or you're getting a big tax refund. I'm not sure. Or maybe you're not making 58K, and you just thought you were. Somewhere in there. You need to figure out what's going on with that, and that's going to help you figure out the other thing. The answer to the question is housing prices are not going down.

Find a time in the last 100 years in America when housing prices went down and stayed down. And even though they balloons, James, or what felt like a balloon during the COVID years, the same in Nashville. I know Salt Lake City was a big hot market. Like, there were cities that felt more of an extreme growth than others, and you may have been in that, but that doesn't mean it's going to go back down. If anything, it continues to go up a smaller percentage. But that's the reality. So, James, I would take your down payment down to 5% and go ahead and get in the market. And do a 15-year fixed rate mortgage on a fourth of your take-on pay.

And I'm going to be honest, too. What's sad is the truth is in America today, making 58 grand and owning a home is difficult right now. Well, that's a below average household income. Yeah. So on average now what it takes. And so you're going to have a below average home. And the average home, the median house price in America is over 400 right now. And so, yeah, you're in a $300,000 marketplace when you make $60 grand.

Yeah. That's where you are. That's what the math says. And so your only other option is look at your career field. What can I do to get my income up permanently? keep it up. But here's the the essence of his question is their housing prices

coming down. The answer is no. We've had one time in the last 75 years in house prices went down and they were down for about six months in about five or ten markets. And that was in 2008. They actually went down

a little bit in Las Vegas which is one of the biggest blooms that popped. I was going to say there was a massive housing crisis. Yeah, but the prices did not go down, but in about five markets. And because there was like a balloon that popped, Phoenix, Vegas. Florida, you could go to Florida and get a... Florida, there were some deals.

A lot of vacation homes. The vacation strips always go. Resort properties always go crazy. That's not, I'm talking about single family homes you live in. Yeah. Okay. And overall, house prices hadn't gone down. Every single year, every single month, they go up.

Okay. And so if you're waiting around on the, this housing correction that you read about somewhere, I don't know who's writing that, but they're an idiot. There's not going to be one. You're not going to get, you know, you've got to get in and then write it up with everybody else. That's what we do. That's why home ownership is a good thing. It's your, it's your personal hedge against inflation. That's what you do. And Rachel, it's, there's a, there's a fine line. What happens to some people, in America today, when they feel boxed out, when they feel like they can't get in, that sense of

hopelessness, there's two possible reactions. Okay. I got that. I can't afford a house today. Okay. Reaction number one is just be mad at everything. And I'm pissed and I'm scared and I'm hopeless and life's just not fair. And I get that. I can, I can, I can, understand that. I've done that a couple times in my life, not much. But the other possible reaction is going, okay, the reality is I can't afford a house today. So what has to be true for me to be able to afford a house? And that's a career look. It's a location. Where do I live? I live in Los Angeles. Oh, well, you're going to have to move, maybe. It's one of the most expensive real estate markets in the entire freaking world. The fact that you can't buy a house

there is not surprising whoever you are. It's listening to this. You know, you can't buy one in Tokyo or London either. And there's some other expensive markets, probably not Singapore. You're probably going to miss out on Honolulu and you're probably going to miss out on Manhattan. Unless you make double or triple the national average income, those are markets that you're priced out of. So you can't live in Silicon Valley on $38,000 a year. So you've got to figure out where it is you can do that and figure out what you're going to do with your income because you can control those things you can't control the universe. Ted is going to kick us off in San Francisco. What's going on, Ted? Hey guys. Happy New Year. What up? Happy New Year, ma'am. What's going on?

Yeah, I have three financial advice questions I need from you guys, but let me give you the background about my history where I'm at. Right now, my wife and I make pretty good money in San Francisco. our combined income is $450,000. Awesome. We have... That's basic minimum wage in San Francisco, right? Pretty much. Pretty much.

We have a two-year-old, and we have another one coming in May this year, and we have zero debt, zero car payments. We locked in a 2.5 interest at a condo about four years ago. So we're saving a lot. We're maxing our 401k. We have emergency fund. We're putting money into education funds.

And we finally have enough money, saved up to buy a home and we want to move to southern California just because we have family, friends there. We don't have anyone here. So we're going to be close to family, get some help. But with the current, my first question, with the current interest mortgage rates and how expensive houses are, what's your advice or like your thoughts on reducing our savings a little bit, like our 401k, our normal savings and contain an expensive $8,000 to $9,000 mortgage? which basically goes from 20% of our income to 50% of our income. That's a lot of your income going toward a mortgage.

I would never do that. It is, yeah. So what does it take to get to that, you know, 25% parameter with the mortgage? Would that mean pausing, investing and waiting two years and stacking up cash? Well, I mean, we could go for a smaller home, but with two kids, like one coming, one kid now, one coming. We were wanting, like, a poor bedroom place, at least for, like, to invest in a few. future. So everything in cellar counseling is really expensive. I mean, we could maybe go cheaper and then renovate down the line. But, yeah, we were just kind of looking for something that's

moving ready because with the kid, we didn't want to renovate and we didn't want to do anything in terms of building our home. And you're in a condo now with how many bedrooms? It's a small two-bedroom condo. Okay. Well, for the first six months, the baby's going to be in your room probably, right? Yeah, so we're probably going to be here for maybe up to a year. Oh, sorry, we're talking like 2026 for a home purchase would be ideal. I think so. Either end of this year or sometime in early 2026. Okay. So if you paused investing, how much extra money could you stack up? If you guys just got real focused on a budget, cut the lifestyle down, how much could you save that 450 take home? So right now

Our all in expenses Is we need about $7,000 a month to survive And so we're taking almost roughly about $22,000 That's after putting in 401K Awesome So you have 15 to play with if you didn't pause investing Yeah, yeah exactly And how much do you have saved currently for the house

Uh 400,000 Awesome So you would add another $180K Over the next year If you didn't make any changes Correct And if you sell your condo How much you get for your condo?

$750,000. Okay. And what do you owe? Roughly about $520,000. Okay. You got about $200 equity? Yeah, about like $200,000, almost $250,000 in equity. Okay.

So let's call it $200 plus your $400 save, that's $600. Let's say you save up another $200 over the next year. Now we're talking $800,000 as a down payment for the next house. Would that get you closer to that 25% mark? Oh, I see. Well, the thing is, I mean, okay, so I guess here's another question. Since we locked in such a good way, we were just... Oh, no, Ted.

No, don't be that guy. Don't get greedy on us, Ted. So now you want to hang on to the condo, use it as a rental, while adding stress to your life as a long-distance landlord. While also taking out a mortgage with two young kids that is 50%, right when Sam Altman keeps tweeting out that he's changing everything in Silicon Valley by the minute. Why would you do that to yourself? I see.

was something most families in America I've never considered. I want you and your wife to imagine over the dinner table, what if we solved for peace? Not for maximum comfort, not for best ROI and not for we got a good interest rate so we can keep what would peace look like in our house

for the next five years where we have two toddlers, two kids under two, what would our life look like if we solved for peace? And by the way, that would mean you guys buying a two million dollar house. wham, right? Like, it's not like, oh, man. You get what I'm saying?

Like, if you'll solve for a piece, that way, if she says after a kid won, I don't want to go back to work. Or you have this, oh, conscious awakening, like, I want to be a stay-at-home dad, like, whatever. Y'all can.

You can do whatever you want. If you owe 50% of your, I promise you, you will regret that decision. I promise you, I promise you. Yeah, okay, thanks. And that's where our hesitation was coming from. We just wanted to see if that was even, a possibility because we are getting kind of cramped in here.

Okay, thanks. That's good advice. How does that sound? Is that deflating? Is that like a, do we just bum you out? It's controversial in the financial world, especially Silicon Valley. Like, bro, that would be a great investment property. It's two and a half percent.

You're basically robbing the bank here. Like, why would you? And we're going, your life is more than just a set of numbers. You got a family you're trying to take care of. You got a life to live, and I don't want you spending it worrying about a property that's hundreds of miles away. Okay. And all we're telling you is what we would do in our own house.

And it's what I have done. We sold our house. We didn't hang on to it. We could have. We said, we're going to sell it because we want peace. We want to get to total debt, freedom faster. And now we don't have a payment in the world. And so when my wife wanted to stay at home with our baby, it wasn't even a financial conversation.

It was just an emotional one if you're leaving your career. And so that's what I would love for you guys to have. Freedom, flexibility. Or suddenly podcasting like ended tomorrow. George and I like, it wouldn't be destitution. It'd be like, oh, this sucks. We've got to figure out something else to do. George would just start mowing lawns or something.

He wouldn't. He absolutely would not mow lawns. But do you what we're saying? I know it's super controversial to solve for peace and to live on less than you make. But did you have another question? Yeah, what was the other question, brother? I did. Yeah.

So if we're currently that $400,000 adjusted in in high-yield savings, just looking for advice between leaving it in high-yield savings or investing in money market funds. I think high-yield savings would have equal, if not better rates right now. so I don't think it's worth switching to the money market or even putting it in a CD because you're talking about a year timeline, that's just too short to be messing with things that lock up your money or invest your money.

So a money market acts like a savings account. There's not many more benefits other than sometimes you get to write checks out of it or you get a debit card attached to it. So I would just leave it with a high-ield savings account. Okay. Okay. Can I, Ted, can I give you one more piece of advice?

It's kind of, it's dark, tinged advice. Is that okay? Yeah, please. I would not make any big major purchases, moves, job decisions or anything until your second child is born and healthy and you'll know the road ahead. Too many people that I've talked to over the years make major decisions when pregnant and life just happens, man. Pregnancies are tough. There's so much that can be different than we thought it was going to be. Let this thing play out. Baby be born healthy.

You and mom are rocking and rolling and then start making new decisions and let that cash just pile. itself by mother. Thank you the call, man.