I often get asked if I had to give on last piece of advice to my customers, what would it be? Its a very simple answer that applies to everyone: don’t wait to buy real estate, buy real estate and wait. Real estate is a hard asset that can be purchased to build long term wealth and it can be a home or immediately cash flow. Even in a market like the one we’re in right now, you will be better served by purchasing real estate now than you would if you would wait.
REAL ESTATE AS A HOME AND AN INVESTMENT
For many Americans, purchasing a home is the largest investment that they will ever make, but many don’t see it that way. Almost everyone who purchases a home is using some form a financing to make the purchase. I often hear potential buyers tell me the market is inflated and it isn’t worth buying now. I would disagree with that train of thought.
First, you are making the purchase now, in a market where we see home prices still appreciating (more on that later), the increase in the home value over time adds to the equity in the home, therefore giving you a return on the money invested. Second, your mortgage payment should be viewed as a forced savings account. A portion of that monthly payment, goes towards the principal interest on the balance of the loan, thereby paying into the equity of the home. Now you’re building equity over the course of time AND through the monthly payments, and as time goes on, you will increase your return on investment.
Purchasing as a home isn’t the only reason to purchase real estate however. You cam purchase real estate for the sole purpose of making an investment to increase your wealth. There are a few strategies for investing in real estate, but the most common to build wealth would be to purchase properties as rentals. When you purchase a rental property, the idea is to purchase the property and make sure that the rents are higher than the monthly cost to maintain the property. Now, someone else is paying the mortgage, taxes, insurance, upkeep, etc., AND you have the leftover going into your bank account. Through this strategy you now have locked in your home value at today’s market value, increase in appreciation over time, the renter depositing money into your forced savings account, and the renter depositing money in your actual bank account, thereby building a greater amount of wealth at a faster rate.
WHY IS NOW A GREAT TIME TO ENTER INTO THE REAL ESTATE MARKET?
This is an excellent tie for buyers to enter the market. We have seen inventory jump this year from 1 month to 4 months. With more homes on the market, buyers have more options, and have more bargaining power. That means buyers can make competitive offers that are under list price, get seller concessions, repairs, and even closing costs paid.
Another reason now is a great time is locking in your value. Again, the current market conditions show we are still in seller’s market, which means values are going to continue to rise. From 2020 to 2021, we saw a massive jump in appreciation due to market response to the pandemic. Properties soared in our area roughly 20-24%. From 2021 to 2022, values rose again 10-15%. From 2022 to 2023, we expect a return to normal appreciation rates, but still appreciating. realtor.com currently predicts a 5% rise in property values this upcoming year.
SHOULD BUYERS WAIT FOR MORTGAGE RATES TO COME DOWN BEFORE MAKING A PURCHASE?
Honestly, waiting is probably the worst thing you could do in the current market. Yes, rates are higher than they have been in the past two years. But if you had been in the market when we had those record low rates, you would have been in endless bidding wars, with no negotiating power, and paying WAY over asking - increasing your initial investment in the property. The higher rates right now have eliminated that. Now you don’t have the bidding wars, you have time to make decisions, and you have the ability to negotiate betters terms.
Once if you were to compare your loan payment from 6 months ago when you went under contract for $50,0000 over asking price, versus the loan payment $25,000-$30,000 under asking price (even at the higher rates) there is barely a change in your total payment. Looking to the future however, as prices continue to rise, with the higher rate, will greatly affect your affordability moving forward. Hence, the best action is to move forward with a purchase now and lock in the value. Once rates drop (and they will), you can refinance into a lower rate and save yourself thousands long term.
ARE WE HEADED INTO A RECESSION?
In short, yes. However, this isn’t necessarily a bad thing. First, with the rapid growth we saw over the past two years, there was no way we were going to be able to sustain that kind go growth. Second, the recession is actually helping the economy by slowing it down. We aren’t anywhere near a grinding stop. We still have low inventory, it was just a matter of slowing everything down a bit. In four of the last six recessions, home prices continued to rise, while mortgage rates dropped in every single recession.
As we seen mortgage rates begin to decline again, buyer demand will increase starting the cycle all over again. Buyer demand will drive inventory lower than it already is. As inventory wanes again, prices will begin to climb back up. Better to lock in your price now before the value goes up, and then refinance when the rates inevitably go back down.
THE BOTTOM LINE
You don't need to fear the word recession. Most of us remember what is was like in 2008, but this isn't like that. According to the historical data, most recession will drive prices up and rates down. the best thing you could do is lock in your home price now and let that equity slow build.
If you're thinking about buying or selling a home, call the Abreu Group today so you can have a trusted real estate advisor that can give you expert advice on the housing market and what that means for your homeownership goals.
