Don't Make This Real Estate Mistake

 I want to explain the ONE mistake that many future homeowners are making.

Updates at the end!!

People have this idea that if they wait to buy a home they are going to have an advantage in the market. Like, by waiting a year or more, the market will correct itself enough that they are going to save a bunch of money on a house.

But that's just likely not going to be the case. Simple housing supply vs demand forecasts say otherwise. But if we do see a decrease in housing prices, it doesn't necessarily mean housing will be more affordable. People tend to lose sight of overall affordability only considering prices and not considering mortgage rates into the affordability equation.....let me show you: right now, the average home for sale in Richmond is about $360,000 and the average interest rate is 3.6%. To make things simple, if a buyer puts 20% down (meaning 20% of the total purchase price), the 30 yr monthly mortgage payment (principal and interest) would be about $1310.

But wait....you're smart. You're waiting for the "market to correct itself". There are a few supporting variables why we likely aren't going to see a decrease in housing prices anytime soon. However, for example sake, let's say you wait a year and theoretically there's some sort of increase in housing supply over demand, causing a decrease in housing prices and able to get a home for less than you could right now. You pay $335,000 instead of $360,000. However, if interest rates increase (as expected) and hypothetically are higher (say 1%) and you still put down same amount, your new monthly mortgage payment is now closer to $1375.

In other words, in this hypothetical example, if you wait 1 year, you may pay less for a home, but your monthly payment will be more expensive because interest rates are predicted to increase. And you'd be paying a lot more in interest over the life of that 30 year mortgage. Rates have a much larger impact on affordability.

No one has a crystal ball. But, experts forecast ack to normal single digit price appreciation and likely higher interest rates to battle increasing inflation. In other words, waiting will not save you money on actual affordability.

My advice is to not give up even though inventory is low. Find a good realtor who will help you stay competitive in the market and take advantage of these low interest rates because the longer you wait, you will waste more money on rent and the interest rates will likely only continue to rise.

The best hedge against inflation is securing "cheap money" low interest debt to acquire appreciating assets, such as a house, especially if it's your primary residence and you intend to hold for long term.

NOTE: this was originally posted on our FB page in early 2022. Hopefully some people listened and bought before the rates soared to 7% and above. Luckily now, in March 2023, rates have stabilized somewhat but unfortunately they're still running above 5%. Real estate will always be a good investment but it's all about timing really. If you can buy when prices/rates are low and hold, you'll always make money. But sometimes life dictates when we need to buy and/or sell and that's when there's a possibility of losing money.

Update! Here we are July of 2024, a little over a year since this was posted. This is still true!! Rates are slightly above 6% and the cost of the median home in our area is up 5% since this time last year, that price is now $431,380. I hope you took our advice to heart and went ahead and bought a home last year, otherwise I guess you're still waiting for that "market correction"