If you’re reading this post you are at least are in the right mindset and are considering buying a home, which is a great place to be! You are also looking to see what the benefits of buying a home now, vs waiting. And you are also likely very hesitant due to recession fears, interest rates being higher, and a feeling of “missing the boat” with historically low interest rates seen in 2020 and 2021! I get it, the real estate market has been crazy these past couple years and many people feel there is a housing crash still looming! But no one, including me or any other expert can confidently tell you what’s going to happen with the real estate market in the next couple years. It’s impossible! As there are so many parts that affect what goes on in the housing market. Many people thought we were due for a crash in 2018 to 2020, but a pandemic that no one planned for came in and flipped everything upside down!
How can anyone say if today is a good time to buy or not?
They can’t. I can’t. But what I can do is advise you on the current market and review your personal situation to see if the benefits of buying now vs renting makes sense for you. And the current market is indicating it is a good time to buy. Yes, interest rates are high. And yes, you are reading everywhere about a recession and housing market crash. But if you take out the numbers for the past two years (2020-2021), the market is not showing any signs of a crash when compared to historical data. In 2008 we had a financial crash caused by poor lending practices, which lead to people being upside down on their mortgages. Then you combined that with increased supply, and voilà, we had a perfect storm and home values plummeted. However, since then we have had increased regulations and with the boom of the past couple years, very few people are underwater on their homes. According to a new report from real estate data firm CoreLogic, the average home equity for borrowers is now nearly $300,000 — a record high! And on top of having more equity, we also have a supply and demand curve that is almost the opposite of 2008. Right now we have more demand then supply. In a balanced market we have about 6 months of inventory, meaning it will take 6 months to sell off all the home homes on the market today (if no more homes are added). And right now we just increased to about 2 months.
What Advantages Do Buyers Have Right Now?
Since Sellers are now having a more difficult time selling compared to the past 2 years, they are offering generous benefits to buying now in the form of seller concessions or interest rate buydowns. And since many homes are sitting on the market longer, are we are also seeing price drops in the $20-50k range! And on top of lowering the price, many Sellers are now also paying for Buyers’ closing costs and/or to buy the interest rate down for the buyer. Sellers know that interest rates are keeping the buyers away, so many are now offering this interest rate buydown, or I as the agent can negotiate this into the deal if they are not offering it.
What Is An Interest Rate Buydown?
The interest rate buydown can come in several ways, with the most common being a 2-1 buydown. With this, the Seller pays to reduce your interest rate by 2% for the first year you own the property, and reduce it by 1% the second year. So you will not owe your full monthly payment until year 3. However, the goal is that by year 3, interest rates have calmed down and you can then refinance, essentially never paying today’s interest rates. There is also a 3-2-1 buydown which does the same thing, but starts by reducing the price by 3% the first year, and so on, for 3 years instead of two! You won’t find this information on the listing you search through on Zillow or other websites, it is most often negotiated into your purchase offer.
But With Today’s Interest Rates, I’ll End Up Paying More Than Twice The Purchase Price Of The Home!
When reviewing interest rate vs purchase price, you have to understand that it is very rare that anyone owns their home for 30 years. And while yes, you are paying a lot in interest over the life of the loan if you do not refinance and own it for 30 years. However, your interest rate while renting is 100% and you do not get tax breaks or any equity. For example, if you purchase a home with a $500,000 loan, at 7% interest, putting 5% down, over 30 years you will have paid $1,137,667 for the property! But hopefully you have refinanced during that period, which then makes that total payment much lower. AND in 30 years the home will also appreciate to at least that much, if not more. So you can sell and get that money back, if not more! With renting, a similar 3 bed home, for $2500 a month, you will have paid $900k over 30 years and do not get to sell it, no equity gained, and you walk away with nothing.
Should I Just Wait Until Interest Rates Come Back Down?
I haven’t heard any lender or market expert predict we will ever see interest rates in the 2-3% range anytime soon, if ever! As I stated before, the last 2 years were somewhat of an anomaly, as between April 1971 and November 2022, the 30-year fixed-rate mortgage rate averaged 7.76%! At the time of writing this they are below that. Most people looking to buy their first home the past couple years just have it in their mind that the norm is 2-4%, but that is unfortunately not the case. Yes, I do foresee them being in the 5% range again, but no one knows when that will happen. And if you are able to get the interest rate buydowns mentioned above, you will not pay today’s rate for 2-3 years or possibly ever if they drop before than and you refinance!
Still Thinking About Waiting?
Due to high interest rates and less demand, if you are considering buying a home now you are likely going to be finding some really good deals on homes that were $20-50k more last year! Yes, they may actually go lower, and if you think you can time the market (even most experts fail at that) then go ahead and wait. However, right now we know the market. And we know you can get a really good price on a home with little to no competition, get to pick the home the actually want (compared to the past 2 years where you just got what you could win), and get seller concessions to help pay for closing costs and/or interest rate buydowns. If you wait to buy until interest rates drop significantly, you can then expect all the buyers who have also been waiting to buy to also come back on the market, raising competition and eliminating those seller concessions. And while you cannot change what you paid for the home, you can always refinance to the lower interest rate. So even at worst case, you do not get a Seller paid interest rate reduction, you will hopefully only pay this interest rate for 1-2 years before you can refinance to a lower payment.
In What Scenario Should I Not Buy Now?
Every client has a different situation so there are many reasons that it may not be a good time to buy. But I would not want you or anyone to buy now if they cannot make the current monthly payments at the current interest rate indefinitely, however unlikely it is that those payments will remain where they are. Also, if you are planning on moving or selling the home in the next 1-2 years I may advise waiting. And the last big no to buying now is if your financial situation is such that buying now would exhaust all of your savings and/or the monthly payments are making you “house poor”, meaning that most of your income is going towards the mortgage payment so you can not live and enjoy life.
I hope this gave you a a little more information to help you make your decision whether buying a home now is right for you. I never want my clients to feel any pressure to buy at anytime, as it may not be the right time for their specific situation. But I do want you to be informed of the pros/cons so you can make an informed decision.
If you’d like me to review your personal situation or give you a more detailed explanation of any of the above, reach out! I’d love to speak with you over the phone or sit down with you over a cup of coffee any time. And if you have not purchased a home before and would like to know the steps, visit my page where I go through the Home Buying Process.
I look forward to hearing from you!