Why the time to buy a home is NOW!
Kendall Caputo | BHGRE Synergy Logan Mohtasami’s presentation at Owner’s Retreat inspired me to create an essay that our agents can use as talking points with their buyers who are waiting for a market crash. I thought I would share it here in case anyone else thinks it would be useful to share with their agents. Over the past several weeks we have seen a change in home buyer sentiment. Buyers are taking much more time deliberating over their purchase decision. Dire predictions from the national media about a housing crash understandably scares people. No one wants to buy at the top of the market and no one wants to make a mistake. But inaction has consequences too. Every 1% increase in mortgage rates reduces a borrower’s purchasing power by 11%. A buyer who started look for a home at the beginning of September could have closed on home with mortgage interest rate of about 5.25%. By the end of October that same mortgage product would be over 7%. Home prices would have had to fall by roughly 25% to making waiting a good decision. So what is the likelihood that prices will fall, and if they do by how much? House prices don’t always fall during a recession, but they do drop more often than not. According to the Joint Center for Housing Studies at Harvard University, housing prices dropped in four out of five recessions that have occurred since 1980 but the average house price dip was only 5%. Even in the Great Recession, the average home price drop was around 13%. That still would not have made up for the increase mortgage rates over the past two months. Let’s assume for a moment home prices will regress in 2023. The question is by how much? Prospective buyers are hoping for a significant correction but here is why we don’t believe that will happen. Banks learned their lesson and lending practices are much better today. As the chart below will show there really are no “sub-prime” mortgages anymore. The overwhelming majority of borrowers in recent years have credit score over 720 and there are almost no more originations for households with scores under 650. As a result of better lending practices the number of borrowers who are currently delinquent on their mortgages is historically low. Less than one half of one percent of mortgages in the U.S. are more that 30 days late. If you need more evidence look at the number of new foreclosures and bankruptcies in the U.S. They too are at historic lows. Based on all this data we are much more likely to believe that any home price regression in a possible 2023 recession will be on the low end of the historic range. So if home pricing is not a reason to wait to purchase home are mortgage rates a good reason? We say no. Interest rates are cyclical. You will have the chance to refinance your mortgage to a lower rate in the future when the federal reserve loosens monetary policy. Most industry analysts we follow believe that will begin in late 2023 so you do not need a 30 year fixed rate mortgage. Today you can get a 7 or 5 year adjustable rate mortgage at 6.25 or 6.00% respectively. Marry the house, date the rate!