So, just today actually I was having a conversation with a client about her reservations to buy right now in the market when house prices have soared 30% in, quite literally, just a few months. Her very legitimate concern was, "Well, I don't want to pay $30, 40....50k or more on a house than I could probably get it for a year from now. I think maybe I just need to wait." Here is why I am writing this blog. You guys that know me know - I am a pretty straight forward, honest, "what ya see is what ya get" kinda person. I want to explain in this blog why, depending on your situation, her statement could be 100% right but could also be 100% wrong and how if you are in a certain situation, you could STILL come out on top in this market!
Let's begin with the first of those statements; the people for whom her statement could absolutely be 100% right. If you do not have a house to sell and you are simply a buyer - her statement, in all honesty, could be 100% correct. In this market, any serious buyers need to have considerable leverage to have a shot a locking down a home. Double the earnest money, ability to pay $10-15k over asking, ask the seller for no closing costs, and enough financial resources to even offer to pay above appraisal if necessary are all components that WILL come up when your agent is recommending what to offer to make your offer competitive. So, if you are living with people or are somehow in a place where the rent is down and affordable, you probably do need to stay put for now. However, here's the one caveat to that scenario. Any smart landlord is doing their homework and adjusting their rent accordingly. Consequently, I know of several people that have a smaller home, 1200 sq ft, 2/2 or 3/2 who are paying $1700-$2000 a month for rent! With mortgage rates still remaining at historic lows, that's about a $300-325k house! So even if you had to pay a little more right now for a home, if you've got to pay a significant payment every month, wouldn't you rather have a home?
Now, the meat of this blog. How could my client's statement above be wrong and how could you actually be missing out by NOT buying right now? Let me break down her situation so that you have a clear picture. Let's call her "Jane". Jane hasn't been in her current home very long and as of now still owes in the neighborhood of $370k on her house. In this market, her home would safely sell for somewhere around $440k. Now, right now, buyers are paying closing costs so the only "big" item she has to pay are the real estate commissions which in her case would total 5% which comes to $22k. So, let's say there are some miscellaneous fees and she ends up having to pay around $25k in total closing costs. After her mortgage is paid off, she is still netting $70k on her house! Now, in her particular situation, the house she was looking at that she wanted was $285k. In all honesty, it's probably in a normal market, a $250k home. BUT - look at the bigger picture! Yes, she did pay more for the house she was buying, but she would have more than made it up by what she was making off her current residence! So, what she has to see is that it's not just the house she is buying that costs more, her current house would sell for significantly more as well! Ok, so she kinda breaks even...maybe makes a little bit...but why not still wait for the market to "settle down" a little bit? Keep reading!
Let's say she goes the route of waiting and we are now in the summer of 2022 and, sighhhh, thing are back to normal. Jane calls me, "Hey, Will! I am now ready to buy!" I respond, "Great, Jane! I've been waiting! Let's see where you are!" So, let's just use the house above as the example. Let's say the same house at $285k is now at $250k - great! She saved $35k by waiting! Go, Jane! Oops - one problem. Now we still have to sell her house. Now, she still owes $360k on her home and now, the market suggests we need to list her house at $390k (different areas and pricing determine price, I didn't skew the numbers!). Ok, well she still has $30k profit, what's wrong with that? Well, now the market is more normal and there is plenty of inventory and she isn't getting a ton of interest so a buyer comes along after a couple weeks and makes Jane a solid offer of $380k and Jane contributes half of closing which is roughly $5k. So, now after she pays her total amount of closing costs including commissions, she pays $24k in her part, pays off her mortgage and she is left with $6,000 profit. But what if she got an even lower offer and she ended up owing money at closing just to get out from under her house?
Now, it must be said, these are rough numbers and I did not do exact math but the numbers would be pretty close. So at the end of the day, Jane waited a year to save $35k on the house she purchased but in return lost nearly $70k of potential profit she could have made on her house had she sold it now! Annnd...even though the purchase price of the new house was lower, the interest rates have went up and over the life of the loan actually ends up costing her more!
In conclusion, this is my point. I'm not trying to sell you (no pun intended) on buying a house right now and "use me because I'm the best agent around!" I promise you, I am not a salesmen at heart - not even close. My point is look at the big picture because even in this kind of market where it does appear to be at the advantage of the seller, there is still a way to come out on top ESPECIALLY if you need to sell your home to get into something else!
Regards,
Will