"I'm NEVER Moving Again!" and Other Lies Home Buyers Tell.

The Market is Changing. Here’s Why That’s a Good Thing!

If I had a dollar for every time I sat next to a client at a closing table and had them turn to me and say, “After this house — we are never moving again,” I’d finally be able to plunk down an all-cash offer on that beach bungalow I’ve always dreamed of. In my twenty years as a real estate broker helping buyers and sellers with their most personal and expensive investments, I’ve learned that people’s lives change — a lot — and often quite unexpectedly. And when their lives change, their housing needs often change too. People get married. And sometimes they get divorced. They have babies. Those little ones grow up and move away. Homeowners upsize their addresses and then downsize again. They follow work and love to new cities, or they want to get closer to family or further away. It’s a challenge for people to stay in one place for too long. I often wonder if human migration is ingrained in our DNA.

At the start of the pandemic, the government and experts all said, “Stay put.” So, what did we do? We jumped up immediately and went out to upgrade our digs, causing the already tight housing market to explode with buying activity. Why? If we were required to stay in one place indefinitely, we wanted that place to be NICE. Some of us even bought a second home…because, well…humans can’t stay put easily.

Here’s What Happened Next

All that movement, combined with virtually free money in the form of historically low-interest rates, along with a sudden influx of first-time home buyers, created a real estate frenzy over the past two years. The problem? Low inventory in the real estate market resulted in bidding wars and caused home prices to rise. At the start of the pandemic, home sellers dragged their feet when it came to putting their homes on the market, worried over pandemic-related health concerns. They also became anxious they wouldn’t be able to find a suitable replacement home if they sold. Homebuilders struggled to get new homes built quickly enough to meet demand due to labor shortages and material backorders brought on by the pandemic. And just like your economics professor taught you it would — with high demand and low supply, home prices rose, with sellers seeing ten to twelve offers within days of putting their homes on the market. Often, those offers were 10–20% over their asking price. Buyers were forced to waive any and all contingencies. Home inspection? Forget about it. Appraisals? Offer to pay over the appraised value of the home. Financing? If a buyer wasn’t flush with actual cash, they stood no chance against an all-cash buyer.

Mortgage Rates Double

So far this year, the average mortgage interest rate has doubled from 3% to 6% and may nudge even higher as the Federal Reserve weighs next steps in its battle to beat back inflation. They want this overheated market to cool off. As a real estate broker, you’ll probably be surprised to hear me say this — but frankly, so do I. Why? It troubles me to see buyers sidelined from buying a home because their mortgage timeline and contingency can’t compete with cash. I have difficulty getting behind any offer that waives an inspection or an appraisal. I hate to see my buyers rushed through the home shopping experience with little choice but to make offers on houses they don’t love and may come to regret owning. I prefer a real estate market with more equilibrium between buyers and sellers, where everyone has time to think and evaluate (and pack!), even if that means fewer transactions.

What’s a Hopeful Home Buyer to Do Now?

Considering all the changes in the housing market, what is a hopeful home buyer to do right now? With rising interest rates and climbing home prices — is now really a good time to buy a home? That depends on your own unique situation and housing needs. If you have a steady job, need a home, and plan to stay a few years, now could be a great time! And if the market cools as expected, right now may be a more hospitable time to be a home shopper than last year, giving you more control over your purchase and time to evaluate the property before you close on it.

Nevermind. I’ll Just Rent.

With median rent rates in the 50 largest US metropolitan areas climbing to $1827 per month, buying may be the best way to control your housing costs while providing some tax savings. Think of your house as a piggy bank, building equity while you live there. And while rising interest rates do chip away at your purchasing power, lenders often offer extended rate locks while you shop. Although we haven’t needed to buy the interest rate down for some time now, you could evaluate the costs of doing so with your lender to see if paying a fee for a lower interest rate at closing makes sense for you. And you can always re-finance later if the interest falls again in the future.

But if I Buy Now, am I Overpaying?

Over the past twenty-five years, home prices have risen nationally by 3–5%, which considers the rare and nominal dips in the market, including the major drop experienced during the housing recession of 2006–2008. In many markets, within two to three years of the dip, those same homes that lost value regained their footing and began to rise again. According to the National Association of Realtors, as of 2018, the median duration of homeownership is 13 years. Even on the low side of 3% annual home price appreciation on a $350,000 property, that puts over $100,000 in your pocket for just a decade of ownership.

The Take-a-Way

As a real estate broker, am I worried about a housing recession? Sure. No one loves to see business slowdown. But one thing surviving the real estate bust of the Great Recession taught me is that the true driver of the housing market is life change. And change is something we can always count on. And despite all the current changes in the housing market right now, buying a home remains the best way for the average person to build wealth for themselves.

Happy Home Shopping!