18 Jul Should I Buy Now or Wait for Rates to Go Down?
Whether you’re an investor or a move-in homebuyer using mortgage financing, you’re probably wondering if you should buy now or wait for rates to go down. In mid-July 2023, the Mortgage Bankers Association reported that the average contract on a 30-year owner-occupied residential loan was 7.07%. On non-owner-occupied loans (for investors), the rates are even higher.
The conundrum is that should rates fall, housing prices may still go up! Why? Housing inventory in the U.S. is historically low, especially in the category of starter homes. (In many areas, those are the homes priced under $300,000). The number of units sold is down around 26% year-over-year, yet the average sale price in many areas is slightly higher over the same period. It’s a supply and demand issue. There are a lot of buyers, and they are gobbling up the limited inventory in a competitive sellers’ market.
Many would-be sellers have interest rates of around 3% to 4%, and unless there’s a compelling reason they don’t want to trade in their 3% rate for a 7% rate. So if rates only go to 6.5% or so, that may not be low enough to encourage those would-be sellers from deciding to put their house on the market. Given the concept of supply and demand, a dramatic increase in inventory would likely force housing prices down. At the very least, we would go from a strong sellers’ market to a balanced market.
Here are some things I believe:
- We won’t see mortgage interest rates below 5% again in our lifetime.
- Once mortgage interest rates go below 6%, we will see a great unlocking of inventory as many people choose to sell so they can buy their next home.
- As a real estate investor, you shouldn’t choose to buy or not buy because of the current interest rate. If you can receive a 20% return on investment (ROI), it makes sense in most situations to borrow money at 8%. You also receive numerous tax deductions, plus property appreciation over time. If you’re a house flipper, limited inventory is a blessing. If you can make $30,000 or more in a few months on a flip, why does paying 9% on a loan matter? You’re only paying interest for a short period of time.
- Focus on what you can control. You can’t control national interest rates. (You can influence your own rate a little by shopping around and offering to pay points to buy down the rate.) You can control the number of offers you make. You can control what you do with your investment properties. You can control who is on your team to help you.
- If you stick your money in a high-yield savings account (earning about 3.5% to 5.5% these days), you won’t get rich. You might stay rich with your money there.
- It’s possible that interest rates may continue to go up, and you’ll regret not borrowing money now. When interest rates were at 5% for investors, think of the people who chose not to buy anything because they wanted to wait until rates dropped back down to 4%. Instead, investor rates are now north of 8%. Besides, if you borrow money at 8% now and rates go down to 6%, you can get a new loan with either a rate-term refinance or a cash-0ut refinance.
- People aren’t good at timing the market. Play the long game to build wealth. Think of all the landlords who had the courage to buy homes in 2018 and 2019. They couldn’t foresee that housing values would go up 45 % to 65% over that period. They couldn’t predict that rents would would up even higher in that time-frame. You need to be in the game, owning real estate assets, so you can benefit from appreciation and rent increases. Don’t sit on your hands and wait for the perfect moment.
Drop me a line and let me know how your real estate journey is going!
Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania. He became a full-time real estate investor in 2004 after serving in the U.S. Navy. Tai made colossal mistakes in investing (and learned some things along the way). Tai has coached hundreds of entrepreneurs, real estate investors, and real estate agents on how to increase their income and net worth. He has helped hundreds of homeowners avoid foreclosure through successful short sales. Check out Tai’s books on Amazon.com. Tai may be available for coaching and speaking engagements on a variety of real estate topics. Send an email to tai@investandtransform.com.
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