Several articles have been written recently that now is not a good time to buy. Here are the main themes and why I think they are wrong.
1. Interest rates are too high and they are going higher!
It’s true that interest rates have doubled in some cases and that has a direct impact on buyers’ pocketbooks. A client who bought a house last year for $2,250,000 with a 3.0% loan signed up for a monthly payment of $9,801. That same monthly payment will buy a house for $1,700,000 today with a 6.0% loan, for a monthly payment of $9,825. See the following table.
The arguments for buying now in the face of rising interest rates are:
- Qualifying for financing may be easier now than later when banks tighten their lending requirements.
- When the market rebounds, demand will go up and so will prices. Multiple offers may become the norm again.
- Interest rates will fluctuate in the future. Buyers can lock in lower property taxes now and refinance later when interest rates go down.
2. Prices will drop further!
It’s true that prices have decreased in San Francisco, but it’s questionable whether they will drop much more. Timing the absolute bottom of the market is usually a stroke of luck. Assume that prices will go down further, it’s unlikely that the best properties will already be taken. This is an opportunity to buy now with fewer buyers and less competition. And if you’re renting now at $4,000 per month and looking at buying with a $5,000 monthly payment, go for it! Over 3 years you would spend $144,000 on rent. Three years after buying, you will have grown equity in your home and enjoyed tax deductions for property taxes and mortgage interest. You will be financially ahead of the renters!
3. A recession is coming!
It’s possible that we could have a recession, but will it happen in a month, a year, or several years from now? At this writing, the collapse of Silicon Valley Bank is making everyone wonder how the banking and tech industries will be affected. But even if a recession results in 10% unemployment, that means that 90% of the workforce is still working, earning and spending money and 100% of us will go on living. All of us will continue to need a domicile to rest and nurture our loved ones. Rents will rise if the demand for apartments goes up. And we know from experience that the primary device that the Federal Reserve uses to fight inflation is to lower interest rates which will allow you to refinance and lower your mortgage payment.
Although we can feel whiplash from daily headlines, it’s important to adopt a long-term view of trends and events over time and how they affect your life decisions.
At the Haven Group, we are committed to being a calm and compassionate advisor to you. John and his team are dedicated to guiding you in all real estate matters.
