7 REASONS YOU SHOULDN’T WAIT TO BUY A HOUSE

Our last blog addressed Why the Holidays Are a Good Time to Sell a House and now, in this blog, we want to address buyers. The housing market has been shifting steadily throughout the year, more so in the past 6 months, which can make it difficult to decide whether now is the right time to buy or if it would be better to wait. 

While the answer depends on your individual circumstances, here are 7 reasons why it can still be a good time to buy a house.

.

1. Fewer Buyers - Less Competition

Just as sellers tend to take a break during the holidays, so do many buyers. First, many buyers are waiting for the holidays to end as their time is more focused on family during this time. Second, many buyers have been scared by the market, the changes in interest rates and inflation and have sidelined themselves believing that they can jump in when there is a “dip” in home prices. 

The key factors affecting housing prices are inventory and demand and recently the inventory began to ease as more homes came into the market; yet buying demand remained strong. The increased inventory and rising interest rate have resulted in a slight cooling off from the meteoric rise in prices. Norada, the  resulted in an average of 20.4% increase from September 2021 to September 2022 in the DFW area. Presently, Norada is forecasting a 2 to 5% increase in home prices in 2023. Buying pressure has remained strong enough to keep pricing pressure moving upward. 

2. Sellers Listing During the Holidays Are Motivated

As noted previously there tend to be fewer homes on the market during the holidays as sellers are focusing on the season and their families. What this means is that those sellers that list during this period are motivated to sell. This can shift the balance of negotiating power as a motivated seller is facing a softening market and fewer buyers. For those sellers that need to sell due to job transfers or need to close before the end of the year for tax reasons or for financial considerations the price and terms can be much better for the buyer represented by a savvy Realtor. We have a number of really great homes that are ‘off-market’ at this time which can be a golden opportunity for a buyer as the seller can be even more flexible on price as they are not paying a listing agent.

3. Home Values Always Rise Over The Long Run

As noted above, prices are forecast to continue to rise modestly through 2023 so the threat of a market drop and home values falling is highly unlikely. In addition, home values have historically climbed over time with very few exceptions. In the long run, real estate has been an excellent investment. Even adjusted for inflation, home values today are multiple times higher than they were in the 1940s and 1950s. This, coupled with the forecast for continued upward price movement, provides assurance of positive price movement in a home purchase.

.

4. Your Investment Value Will Grow Faster

You can think of the money you spend on a down payment as an investment, just like a savings account. While it’s harder to access, the money is still yours — as equity in your home. And that down payment will likely grow in value much faster than money in a savings account. With inflation at 8.2% (per November 10 Federal Reserve announcement), a 40-year high and a savings account paying at best 1 to 2% you can readily see you are losing money monthly! Putting that money into a home provides more of a ‘safe harbor’ while actually providing opportunity for growth.

For example, say you put $20,000 in a high-yield savings account instead of using it for a down payment. The best high-yield savings accounts are currently offering around 1% APY. At that rate, your savings grow glacially. In five years, you’d have just $21,025.41 in five years, if interest is compounded daily.

Home values are appreciating significantly faster, meaning you’ll earn more money by investing it in a home. Say you used that same $20,000 to make a 5% down payment on a $400,000 home. At a relatively conservative 5% annual price appreciation rate, your home would be worth more than $510,500 after five years — netting you a profit of more than $110,000.

.

5. Your House Payment Builds Your Net Worth — Not A Landlord’s

Whether you buy a house or live in a rental, you’ll have a monthly housing payment. You might as well use those payments to build your wealth, not someone else’s.

When you own your home, a portion of the monthly payment goes to pay down the principal of your loan. This builds equity, the difference between what you owe on your mortgage and what your home is worth. You can access this wealth when you sell your home, or while you remain in your home through home equity loans or a cash-out refinance.

Rents in Dallas are up by 17% year-over-year and 22.8% since the start of the pandemic in March 2020, outpacing the national average on both accounts. With inflation continuing to rise toward 10% and additional Federal Reserve increases in the Federal Funds Rate the mortgage interest rate for a 30-year conventional mortgage that is around 6.7% is expected to rise to around 8.5%.  Depending on where you live, the cost of buying a starter home may actually be less than a monthly mortgage payment, according to research by the National Association REALTORS(R). Remember to compare the rent price to the ‘after-tax’ net price (after tax and interest deductions) of a monthly mortgage payment for a more realistic comparison.

.

6. Home-Related Tax Benefits Provide Additional Break

Owning a home also comes with ‘tax benefits’ that you cannot access as a renter. One of the major benefits is the ability to deduct home mortgage interest deduction, which allows you to deduct all the money you pay toward your mortgage on your federal taxes, provided your loan is less than $750,000 and you choose to itemize your deductions.

This can add up to significant savings. Using our example $400,000 home, you’ll pay roughly $18,000 in interest in the first few years of owning the home at a 5% interest rate. You may be able to deduct that full amount from your federal taxes, reducing your taxable income and saving you potentially thousands of dollars.

In addition, if you itemize your deductions, you may also be able to take a deduction for city and county property taxes you pay - Texas has no statewide property tax. In addition you can claim a Homestead Exemption on your property taxes and receive additional reduction in property-related taxes if you are over 65, a veteran or disabled or the spouse of a first-responder or service member who died in the line of duty. See our website at Property Tax Exemptions for more information.

7. Refinance In The Future

While mortgage rates seem high right now, they’re still very low by historical standards. For the last few years, the Federal Reserve held rates artificially low to bolster the economy during the pandemic. They’re coming up now as a way to reduce inflation and with expected increases in the Federal Fund Rate by the Federal Reserve in coming months the expectation is for further mortgage interest increases.

The old adage is that we should ‘marry the house but date the rate,’ in other words we should pick the house that we want but realize that we can change the rate by refinancing in the future. Once interest rates drop a point or more below your existing rate (unless you have an ARM) you could consider refinancing.

But even around 8%, mortgage rates are still below where they’ve been in recent years. In the 1990s, rates ranged between 7% and 9%, and in the 2000s they typically fell between 5% and 7%.

Mortgage rates are expected to continue to climbing over time toward a 9% or higher by 2025. You’re not locked into the rate on your mortgage forever. If rates go down, you may be able to refinance your mortgage to lower the interest rate you pay and reduce your monthly payment.

If you only plan to live in your home for a short time, between five and seven years, you may consider taking out an adjustable-rate mortgage to buy your home. These loans, commonly known as ARMs, generally have a lower interest rate than fixed-rate loans for an introductory period, often between three and seven years. 

After that, your rate will reset every year (in most cases, but potentially more often than that) based upon the movement of the financial rate index on which the loan is based.

At that point, you can consider refinancing to a fixed-rate loan if you haven’t sold your house already. See our website at Adjustable-Rate Mortgage vs. Fixed Rate Mortgage for more information on ARMs.

If you are ready to discuss your goals and options on buying a house simply complete the Contact Us form below and we will contact you for a brief chat to identify possible next steps toward your purchase of your dream home!

.

A Guide To Finding Your Next Home

In addition to strategies savvy buyers use to save thousands you will learn:

• The home buying process
• How to search for a home 
• How to shop for a loan
• Negotiation tips and strategies
• Plus hundreds more ideas from Geni's 40 years in real estate

Just click on the book to receive a FREE copy