Is now a Great Time to Buy a Home?
You Are Wrong. Now is a Great Time to Buy
Jeff: We’ve heard so many people say it… Now is a bad time to buy.
Sammy: Let’s take a couple minutes and debunk those myths and talk about why now is a great time to buy a house.
Jeff: But first, my name is Jeffrey Chubb, I am a retired investment banker, turned real estate agent that has sold more than 1,000 houses.
Sammy: And I am Sammy Iliopoulos of Guaranteed Rate. I am one of the top 10 mortgage brokers for Guaranteed Rate in the country.
Jeff: Alright Sammy, interest rates just hit a high point not so long ago. Give us some ah… Professional insight.
Sammy: Ha, Yes. Rates just hit a 24 year high with an average rate of 7.79%. But let's rewind a bit. The last time we saw these levels were in October of 2000. The first point to make is that what goes up, generally goes down.
Jeff: And I will point out that home prices went up in 2000! I think to understand why now is a great time to buy, we need to talk about why interest rates have gone up.
Sammy: Solid point! At this point we all know about inflation… We live it and feel it each time we go to the grocery store! The Feds don’t like high inflation. They aim for a 2% per year inflation rate. So in order to decrease inflation they need to slow down economic growth.
They do this by increasing interest rates. And that is what we have been living and experiencing as the FED jacks up rates and it trickles down through the rest of the economy.
Jeff: And it’s working… Well in some areas at least. But let’s keep our focus on real estate. The increase in interest rates have slowed down the housing market. And by slowing down the housing market the end result has been a slowdown in pricing.
Sammy, when was the last time that you have seen an offer that was accepted and was for $100,000 over asking price?
Sammy: It’s been a long time. At least a year plus.
Jeff: Exactly. The increase in interest rates are doing exactly what they were meant to do. To slowdown home price inflation.
Sammy: You meant appreciation, right?
Jeff: NOPE. I meant inflation. Because that is exactly what a lot of that housing price increase was in the last couple years.
Sammy: So let’s get back on track as to why now is a great time to buy.
Jeff: Yes, you’ve heard the saying that the best time to buy is when there is blood in the streets, right?
Sammy: More times than I can count. So basically you are saying that the best time to buy could be when everyone is saying it's the worst time to buy.
Jeff: Exactly. And that is what I did back in 2008. People thought I was an idiot to buy at that time. Single handedly that 2 family property will most likely be one of the best investments I will make in my life.
Sammy: And that is what we are seeing today. We are seeing time and time again with qualified buyers opting to rent instead of buying.
Jeff: And their reasons generally revolve around either rates being too high or their belief that housing prices are going to go down.
Sammy: The interest rate one really gets me. I understand if it’s centered around affordability. That is if someone can’t afford the house at a higher rate… But if you aren’t buying because you are waiting for rates to go down, then you aren’t really looking at the full picture.
Jeff: 100% agree. If you buy a house today at whatever the rate is then you essentially get to have your cake and eat it too. You lock in your cost of borrowing and thereby get financial security while always having the option to refinance if rates go down.
Sammy: Exactly, I don’t see too many landlords out there locking in rents for 30 years with no annual increases…
Jeff: Yes, landlords are not that generous. Plus the interest rate argument really doesn’t make a lot of sense in the fact that if or when interest rates go down then that means more buyers are going to rush to the marketplace. And what happens when you have more demand?
Sammy: You get higher prices. But talk to me about an example when higher interest rates would make it so that it doesn’t make sense to buy.
Jeff: Great point and great question. If you currently own a home and are locked into a low interest rate then it may not make sense for you to sell. I always use myself as an example in this scenario.
I live in a house with three bedrooms and just had my third kid. Naturally, we are the people who should be in the market to upgrade. But we aren’t. Because we are locked into a 2.75% interest rate.
Sammy: However that is a luxury that is easier for you as a single family home owner. You can’t do things like put an addition on a condo.
Jeff: Yes. Very true. But all in all. This is a great example of why now may not be a good time to buy.
Sammy: So let’s talk about those that are saying now is not a good time to buy because housing prices are going to go down.
Jeff: This is one that I have tried to show specific data points time and time again, but some are just being blinded by hope rather than evaluating the realities.
Sammy: So what are the data points that you are talking about?
Jeff: I love history. And I actually did a video on this one. I went back to the last time in history that we had high levels of inflation. So this takes us back to the 1970s… You know what happened in the 1970s?
Sammy: What happened?
Jeff: Prices went up every single one of those years. And the 30 year fixed rate average topped out at 11.2% in 1979.
Sammy: 11.2%! All of a sudden 8% doesn’t seem that bad. And it makes sense that housing prices increased in a high inflation environment. Inflation increases the prices of everything from food, to services… to HOUSING!
Jeff: EXACTLY! The definition of inflation is when you increase the money supply.
Sammy: Okay, so if what I think I am hearing is that you are saying that housing prices are not going down because of overall inflation in the economy.
Jeff: Correct. Once prices become elevated, generally they stay elevated.
Jeff: I say generally because we can have times of deflation. A great example of that is like we saw in the great depression.
Sammy: So what is the difference between now and 2008 then for home prices? Because those prices went down.
Jeff: Yes, those prices went down, but the price increases that we saw then were not due to overall economic inflation. They were do to a lot of things including irresponsible lending practices that led to a lot of unqualified people buying houses as well as a great deal of speculation.
Sammy: So it’s your belief that home prices won’t go down due to overall inflation. But what happens if our economy goes sideways and we go into a recession?
Jeff: Again, let's go back to the 70s when you had high inflation rates. Housing prices went up even in an environment of an 8.5% unemployment rate in 1975, 7.7% in 1976 and 7.1% in 1977.
But IF we were to go into a depression, then it’s a whole different story and quite frankly home prices should actually be the last of your concern. Quite frankly I would rather be in a house that I own than a rental… A landlord is going to get me out of that house a heck of a lot quicker than a bank would!
Sorry, I got sidetracked again…
Sammy: Those are all really great points. I agree with you that so many people that say it’s not a good time are being blinded by hope that prices are going to go down and not looking at the actual data points.
Jeff: Look. It makes sense. It’s human nature to think that now is the worst time in history and to use the most recent historical datapoint as an anchor point.
So people today are anchoring their hope of housing prices going down to what happened in 2008. But historically speaking recession and housing price declines do not necessarily work in tandem with one another. We have seen home prices go down in 2 of the last 6 recessions. We all know what happened in 2008… The other time housing prices went down was in 1991. And that was a 1.8% housing price correction.
Sammy: 1.8%? That’s hardly a reason to put off buying a property.
Heck, calculating the tax savings of a year of ownership probably outweighs that 1.8% housing decline.
Jeff: Couldn’t agree more.
Sammy: When you rent you have less financial stability due to a landlord always being able to increase your rent, you pay a 100% interest rate as you get no other benefits of renting and you miss the tax benefits that owning a home gives you.
Jeff: Writing off the interest expense on our house is a game changer every year.
And one more thing… to think about.
Sammy: Jeff, what’s that?
Jeff: Well we talked about inflation and what the increasing supply of money in an economy does… But we should also probably talk about the increase in the population.
Sammy: Great point. The growth of the population is far outstripping the new supply of houses.
Jeff: It’s all a simple supply and demand equation. More demand for housing, but yet supply is not meeting the new housing demand. We have a lot of people that have come into this country in the past couple of years… And we do not have enough housing for them.
Sammy: And we aren’t building it either.
Jeff: If you have any questions about the home buying process or are thinking about making a move, then we would love to chat with you.
Sammy: Yes, whether you are looking to buy or sell a house in Massachusetts or anywhere else in the country then we can help!
Jeff: I work with agents all over the country. And am happy to make an introduction to ensure that you get a quality agent that knows what the heck they are doing. And I am obviously happy to do this at no cost to you of course.
Sammy: And to that point, I can help anyone with a loan anywhere in the country. Single Family, condo, investment. Big or small… I do them all!
Jeff: You can find all of our contact information below or you can reach out to me at YouTubeRealEstateAgent.com.
Sammy: Until next time.