Should You Buy/Sell a Home Now or Wait It Out?
2021 was a crazy year for real estate. Home prices rose at ridiculous rates, not enough homes to choose from, and if you found the home you wanted then you had to fight against 20 or more people who also wanted it. We are still witnessing some of those same trends here in 2022. Now we are getting the news that interest rates are going to be increased in hopes to slow down the waves of buyers and slowly build back inventory. Some are beginning to question whether they should buy a home now, or wait until the market cools down, however each path proposes it’s risks. Which is the better of the two?
Let’s turn back time to the 2007 to the 2008 real estate market. During that era, the mortgage industry was not well-regulated. Lenders were giving out loans like candy, homes were selling for high prices not in line with what the market was bearing, and we began seeing the early signs of this through many loans defaulting as people weren’t able to make the payments. Soon, we would witness the housing market crashing, house values dropping, millions of people becoming homeless, jobless, and a lost of faith with the housing market. Short sales and foreclosures were abundant as people sold what they could to stay afloat during those tough times.
Now let’s come back to 2022. People have been seeing somewhat similar trends with housing prices rise to essentially unreachable amounts. A lot of people are able to get financing options handed to them, however, they are being pre-screen and pre-approved before given the option to finance. There’s a shortage of available homes on the market which is a result of interest rates being low and home owner’s refinancing, and cash buyers that consist of corporations with hedge funds and investors. We are experiencing a nationwide housing shortage and an abundance of buyers that can’t compete with the cash buyers.
Why am I bringing all of this up? For the last 10 or so years, I’ve been told from the average buyer that they expect the market to crash within the next year as prices kept slowly rising. Each time they would bring it up, I would have to explain that the mortgage industry has been heavily regulated and making sure buyers qualify for financing, usually requiring at least 2 or more years of work history and a 620 credit score. People were also making their mortgage payments on time so the cases of short sales and foreclosures weren’t as common and was a reflection of financial stability with the average homeowner.
Some of those buyers were holding themselves back thinking they will eventually get a better deal on a home if they waited another year. This kept repeating year after year, until we are in 2022 and prices are at an all time high. On the other side, sellers are looking at the current market and feel betrayed that they sold too early and could’ve made more had they waited a little longer. The bottom line here is that there’s never a right time to buy, nor is their a best time to sell.
Currently I have buyers wanting to hold off thinking that the market is going to dive, which will allow them to scoop up a home at a much lower price. However, if interest rates keep rising at the pace we see now, then buyers will essentially end up paying the same amount on their monthly mortgage payment comparatively to buying a home at a high price but with a lower interest rate. Below you will find a chart that demonstrates how high and low interest rates affect your monthly mortgage payments:
As interest rates go up, along with the current housing prices, you will end up paying more on your mortgage with the increased interest on the loan. Looking at the chart, a home at $400,000 with a 3.75% interest rate is actually cheaper (as far as the mortgage payment) compared to a home that is $360,000 with a 5.25% interest rate. Even if housing prices were to come down in the future, rising rates will eventually either balance or exceed what you could’ve been paying while interest rates are low.
Although I do understand that there is always a possibility the market takes a turn for the worst, we should never try to predict the housing market to determine if now is the time to buy or sell. The best time to buy or sell is always when you feel ready to. Some buyers are kicking themselves for waiting on a supposed housing crash, and sellers are feeling remorse for selling too early thinking the same thing. As someone who has been in the industry for the past 11 years, trying to time the market has never yielded positive results. Oftentimes, people end up kicking themselves for trying to wait it out for the “right time.” Talk to your local realtor/marketing specialist to get an idea if now is the best time for you to buy or sell a home. The information and statistics they have access to is free to you and can give you the comfort in making the executive decision for yourself!