This might not be popular but what do you guys think about the military and it’s effect on housing prices? My uncle was in the military, super conservative we agree on 99.99% of things except this. He thinks that the military being stationed here has nothing to do with the out of control rent and housing prices. I disagree.
So just a little anecdote but me and my wife are trying to look for a bigger place for our growing family (2 kids now) and we found a nice little 3 bedroom townhouse that had a list price of $550k right in our price range so we decided to look. Had choke people at the sunday open house but we decided to just submit an offer anyway. Of course we don’t get it but we just found out the other day that the house went for $625k! Military family. Now that’s great and I have nothing against the military but consider the COLA and the 0 down for VA loans how is that not a problem?
Chicken and egg question.
Is the military COLA (Cost of Living Allowance) and HA (Housing Allowance) a CAUSE of higher prices, or are they a RESULT of higher prices?
The $0 down for VA loans is a non-issue. That exists for anyone who's served and was honorably discharged. I'm eligible for VA financing, yet I separated before I moved to Hawaii and have never used it for a HI property. The $0 down payment only covers homes with a selling price up to $822,375, as of this year's rules. That amount changes when the VA sees there is a need to make adjustments based on the market, available funds, etc. There are a lot of homes that amount won't cover and qualify for $0 down.
When you put $0 down, you are financing a larger amount. That means your monthly payment is much higher. Even though VA loans can save you a huge down payment, many military families save or use the equity from another home they just sold to make a down payment. It creates immediate equity in the home as a cushion against a drop in the market, and it lowers their monthly payment. Not every military family can afford a $625K mortgage with no money down unless both are making good salaries even with HA and COLA.
Given the fact that many military members have no idea where they will be in 5 years, most don't even try to buy a house in Hawaii. Besides the high prices, they may have to leave for a year or 2 deployed somewhere, and if they have family, could be forced to sell or rent the home and move to the mainland. Deployed military who are elsewhere for more than 180 days lose their HA and COLA, since they are being housed at their deployed locations. I'm not sure if those rules are still in effect, so maybe someone more recently affected can correct me? I just know, 180 days is the cut-off between a temporary duty location change and a permanent one. You get regular housing and COLA for your permanent station.
There are many in the military, especially the DINKS (Double Income, No Kids), who use the HA of the higher ranking spouse and the double COLA to buy properties. Landlords love military renters, and banks military buyers, because they have documented and dependable sources of monthly income. If a house goes to a military member, it might not be because their income sources alone made the difference, but it helps.
Having said that, many more choose to rent rather than take the risk they might be forced to sell when they get their next assignment. Unless they plan to retire in the location they get stationed in, they may never decide to buy a home while active duty.
As for the price of the home going from $550K to $650K, that's too common here. When a property is marketed, the asking price is a starting point, I negotiated a lower price for my current house because it had been on the market for over a year. But, I know after that (Dec 2001), people were offering insane amounts over the asking prices for other properties in the neighborhood. Interest rates were cut in half, and people were able to sell without being upside down. The market was on fire just a few months after we bought.
Apparently the housing market is again catching fire in advance of higher interest rate and other inflation-related concerns. For there to be bidding wars is expected. Trying to place the blame on certain groups who happen to be in a better position to take advantage of the market prices isn't useful.
I remember stories of the Japanese investors in the 80s driving up house prices by showing up and paying cash. No mortgages or financing needed. That did much more to inflate prices than the military, but the military was still blamed because COLA and HA increased to match the increased cost of living. Since local wages aren't always able to rise to the same level as quickly, it becomes a "sour grapes" issue.
Chicken and egg.