Is it Doom and Gloom for Home Buyers?

For the last few years it has been downright difficult to be a home buyer. At the beginning of the COVID 19 Pandemic, interest rates dropped to the lowest point in history, somewhere around 2.5 to 2.57%. This opened the door for an incredible opportunity for home buyers. The buying power just incredibly!

The only thing holding most home buyers back from getting into the home of their dreams was the ability to find one. While interest rates were are historic lows, so were inventory levels. Buyers in the market quickly found out how difficult it was to compete when competition was a record levels.

Frustration mounted as buyers continually got beat out in multiple offer situations. For buyers using financing, they often would have to make up the difference between the appraisal, which was often lower, and the sales price. For many buyers, it was taking 6 months of more to find a house!

However, the market is shifting. But does that mean there is any better environment for potential buyers? While buyer demand has lessened in the recent months, interest rates have risen and so have home prices. Why on EARTH would anyone want to buy a home now?

And that is why I am writing this BLOG. Because right now buyers have a unique opportunity that will NOT last long.

The first thing we need to do is put things back into perspective.

Interest rates have risen- from a historic low of 2.75%, currently rates are closer to 6% for most buyers. Yes this is higher than what it was 2 years ago, BUT the historic average for interest rates since the 70’s has been about 7.7%. So, even with current rate increases, we are still at a lower average interest rate than is typical.
Your buying power HAS diminished- 2 years ago that $2000 a month payment would have gotten you closer to a $400,000 home. Now, your are probably looking at closer to a $225,000 home. And sure, its not the home you saw 2 years ago, but what alternative do you have, continue to rent.
Continuing to RENT is a losing proposition- Explain to me how it makes sense to continue to pay off someone else’s mortgage hoping that home values and/or interest are going to come down over the next few years. See, when you continue to rent you lose out on the potential equity gains, even at the lower home value of $225,000, that you could have been benefiting from to put yourself into a better position.
Property value will CONTINUE to rise- Historically, property value tends to outpace inflation. Which means if Inflation in one decade was 6%, property values were climbing at 9%. Owning ANY property now is better than owning NO property now, if for nothing else, to provide a hedge against inflation. Use the property value growth over the next few years to build equity that will allow you to get into a more fitting house in the future.
Take advantage of that leverage position that Real Estate Offers- To give an example on this, lets say you purchase a $100,000 home using $5,000 of your own money and $95,000 of the banks money. If the value of that home increases, say 10% to $110,000, what is your cash on cash return of investment? In this case, $15,000 for your initial investment of $5,000. This is absolutely one of the best ways MOST Americans can maximize their returns, by owning Real Estate.

There is DOOM and GLOOM on the Horizon, but not where you think. There will likely NOT be a market crash in the Real Estate Market. There will likely NOT be a significant reduction in property values. But what WILL happen is interest rates will continue to rise and so will property values.

Simply put, those who wait will continue to see the opportunity for home ownership get farther away. Those that take action NOW, may not have gotten the best deal (2 years ago was the BEST deal), but they can get into a position to let the market start to work for THEM to better their situation.

This biggest issue is LACK of information. And I hope that today, we gave you something to think about when it comes to taking action NOW instead of waiting.