Should you Wait to Buy your Next Home?

As the Fed continues to increase interest rates to combat inflation, we're seeing more buyers get cold feet to approach the real estate market.

Adding to the chaos is the current volatility of the stock market that many are facing. Not only are we dealing with higher mortgage rates, but potential down payments may dwindle as falling stock prices reduce portfolio values and erode stock options.

Some buyers are playing the waiting game, hoping that rising interest rates will drop property prices to the point where they can regain market share. Others are moving quickly, hoping to pick up deals from sellers who are experiencing less demand than in the previous two years.

Regardless of the cause, the number of buyers actively searching for homes has declined significantly, as demonstrated by a decline in multiple offers and the number of people attending open houses.

The market is undoubtedly evolving. Those who comprehend the market's driving forces and act accordingly will have the upper hand; below are some of the most common objections we're getting to entering the market.

"I want to wait for prices to come down; homes are too expensive."

Even if home values begin to decline, it is anticipated that the declines will not be significant enough to offset the rise of mortgage rates due to a lack of inventory. The most important number is not the home's purchase price but the monthly mortgage payment.

Second, despite the apparent reasonableness of this justification, it doesn't make sense if you look at the historical values of homes, which are the most prominent investment vessels and source of wealth for many. The long-term average increase in home values is just around 4% annually. Over the past two years, we've seen a dramatic increase in these rates, so values are expected to slow down but not stop rising.

Third, homeowners in the United States have substantial tax advantages. Although various attempts have been made to repeal the mortgage interest deduction for homeowners, the deduction persists and further encourages homeowners to accumulate wealth while renters cannot do so.

As the stock market fluctuates, real estate has long been regarded as the most secure and lucrative long-term investment. While some investors have generated short-term profits in the housing market through flips and similar transactions, most investors make money through buy-and-hold strategies.

During the financial crisis of the mid-2000s, one of the hard lessons was that homeowners could not use their homes as ATMs. Those who survived the crisis unscathed avoided market speculation and prepared for the long term. Although property values plunged during the recession, the market rebounded, and current values are significantly higher.

The lesson is straightforward: the purchase price is irrelevant if the objective is to buy and hold. The only factor is the owner's capacity to make the monthly mortgage payment.

The objective is to acquire a home, not speculate on its potential value. History has abundantly proved that individuals who buy and keep their investments outperform those who attempt to time the market.

"I'm Going to Keep Renting Until The Market gets Better."

In many instances, having unreasonable expectations prevent people from purchasing a home. It's significantly harder with all of the changes happening so quickly. Remember, though, the objective is to enter the market, not necessarily to get the ideal home immediately. By buying and building equity in a home that isn't as desirable, you set yourself up in a better position to swap homes in the future.

"I can't afford to Buy in The Area I want."

Our recommendation is to locate a region of the country where you can afford to buy and purchase a rental property. Numerous tax advantages are accessible to individuals who invest in real estate; therefore, we advise you to at least participate in the market in some capacity.

There is little doubt that higher interest rates have caused a shift in the market. Wise investors recognize that there is tremendous money to be made during a market change by those who see the potential advantages and enter the market rather than waiting it out. Your future self will be grateful for today's investments.

In Conclusion

If you're in a position to do so, we always recommend buying rather than renting. When you understand the market at a historical and macro-level and plan on holding onto your home for a long enough time it's been proven to be the better option. If you have any questions, we're happy to help.