10/31/2022
This is a post for everyone who is currently buying a house.
Hello! I recently saw a thread on one of the Russian-speaking groups asking what's going on in the real estate market, and quite a few people wrote that it's still a good time to buy. The hair on my back is trembling in horror! I want to share an insight into what is happening so that you can make an informed decision and not torture yourself for 10 years that you succumbed to people saying, "Houses never get cheaper!" They do not get cheaper as long as they do not get cheaper, but they get cheaper steadily every 10 years.
If someone does not know me, then I am a realtor; I write articles and shoot videos on Real Estate related topics. If you are interested, you can subscribe. I sincerely work to help people, and I kept a memo on the wall in my room for a long time, where the first point was "client is first!" Friends will not let me lie. I'm not one of those realtors who, entering the house with a client, begin to praise him non-stop. Instead, I try to find all potential problems and look everywhere I can. So I am writing to you sincerely because I believe it will do you good.
The mortgage rate is already 7.1%, and the FED is going to a new meeting tomorrow, still determined to drive rates up until the market is completely out of breath. This is not a speculation but their goal. By spring, we will most likely see figures in the field of 9%.
The market is already going down. I got the stats for October (the official one will be out tomorrow), and we keep seeing prices drop. The peak was in June, and by today, they have fallen by almost 5%. At the same time, the average age of the house or the size does not change, so we can really talk about a fall, and not about a change in preferences (like they stopped to buy big and expensive houses, and switched to savvy small and old ones - instead, people buy everything the same, they just buy it cheaper today).
There is one very popular phrase that everyone in the industry says like a mantra, but which is a manipulation - marry the house and date the rate. The idea is that you take the house for a long time and get rid of the rate at the first opportunity. What they don't tell you is that in order to refinance, your mortgage must be 95% of the price of the house or less, and if prices fall, the mortgage can very easily and quickly be higher than the market price of the house. If you bought a house at the market price in June with a 5% down payment, then today you have no money under the house at all, and today you would not be able to refinance even if rates fell right now.
Moreover, if you decide to sell now your house, which you bought in June, you would need to bring in a substantial amount to get rid of it. You would not receive money; on the contrary, you would pay! Therefore, people in a crisis surrender their houses back to the bank to avoid bankruptcy. No one wants to own a mortgage that is significantly more expensive than a house.
If you buy a house now, be prepared to keep it for at least 5 years until prices return to the current level. Moreover, be very careful about planning to buy for rent out - the old folk wisdom that rent never goes down also only works as long as the rent goes up.
Another thing that no one wants to take into account is that a crisis is coming in the country, and I personally expect it here for two years. Demand for everything will fall, and your income may not be as stable as you think. Have IT people always made good money? White-collar workers can go first to the exit. Do truckers never sit without work? If the demand for everything and everywhere falls, then transportation will fall. Do not focus on the demand for your specialty in the last two years - everything that could grow has grown, and now the recession has come.
I give this advice to my clients:
1. Watch the market, rate, prices, and sales - the real estate market reacts very slowly to what is happening. The FED started raising the rate at the beginning of the year, and the market turned around only in June. So far, every month we see that prices are falling, and the mood of buyers is very gloomy. When you see a shift, that is when you start moving - a hurry is needed when you shouldn't eat that burrito, and you already feel it! Most likely, we will also see positive movements for the half year before everything goes up again.
2. The real estate market has an annual cycle - everyone wants to buy in spring and summer; in winter, the number of transactions halves from the peak. So look forward to spring! Most likely, it will already be clearly visible what is happening with the market - maybe it will go up, or maybe it will be in a fly straight to the bottom accompanied by terrifying screams of sellers. In addition, you yourself will understand more clearly how your work adapts to the new reality.
3. My personal predictions are as follows - if you have cash, buying in the spring-summer of 2023 will seem like just poaching on trout lakes! Everything will be accessible and easy, and opportunities will open up that you won't see until the next crisis! I will try to make a video about it soon. We will reach the bottom of the crisis in a year, in 2024, but there will already be a depression, and the rates will slowly come to life. There will be better prices, but there will not be these opportunities.
Another thing is – I met multiple people who want to invest the money as soon as possible because inflation is high. It's a good point, but think about this - inflation is 8.2% for the year, according to the latest data. And houses have fallen in price by 5% in 4 months (i.e., the rate is now minus 15% per year). In this season, it is more profitable to keep money in cash than in real estate! And this is just the beginning.
Another argument that lenders are actively pushing is that the rate goes up, which means you can buy a house later for a lower price (maybe or not) but at a higher rate (guaranteed), and in the end, you will have to pay even more for the same house.
At first glance, this statement is solid as a rock, but there are also a couple of problems here:
First, if you buy at the bottom, you can refinance without any problems when the rate falls. Secondly, at the bottom, the rate will no longer be at peak (for prices to go up, the rate should already be reasonable, maybe 6%, otherwise there will be no demand and, accordingly, growth). Thirdly, as I said, if you buy a house at today's price, you will be stuck with it, and the rate until prices return to today's prices, or you pay off enough of the loan (so that the mortgage is 95% of the market price of the house or less).
One caveat - FHA and VA loans can be refinanced without a new appraisal, i.e., regardless of the market price.
So don't rush to buy now. Prices are slowly falling, half of the houses have already reduced their expectations, and many of them not for the first time. The crisis is coming, and with it unemployment goes, so first make sure that you yourself are sitting steadily on your bottom before climbing into an extremely expensive mortgage. Listen to smart people and make informed decisions. Someone will now rush and go bankrupt, while incredible opportunities will open up before someone else.
Listen to your heart! (I was once pecked in the comments for ending a post like this, so I couldn't resist doing it again)
