Apples vs Oranges/Low Rate vs High Rate

“We can’t be afraid of change.?You may feel very secure in the pond that you are in, but if you never venture out of it, you will never know that there is such a thing as an ocean, a sea.?Holding onto something that is good for you now, may be the very reason why you don’t have something better.” – C. JoyBell C.

What are the biggest issues in housing today??Affordability and Interest Rates.

I grew up in Boise, ID, where I still reside today.?Idaho, as a State, has always been a low-to-moderate income State and our cost of housing reflected that…until the last few years.

Idaho has the distinguished honor of being atop many #1 Lists for “Places to Move to” the past few years.?I can’t say I disagree with that assessment.?I’ve lived here since I was 8 years old, so nearly 30 years.?I’ve traveled abroad and always come back to Idaho.?The scenery, the recreation, and the people are all amazing things that make Idaho unique and desirable.

But, now Idaho, and the Boise metro area specifically, is considered a “Zoom Town”, where people from high-cost areas around the country, who are able to work remotely, are moving here to take advantage of the lower cost of living while maintaining their out-of-state wages.?Again, I cannot say I blame them.?What that’s done, though, is push housing costs higher.?Couple that with the lower interest rates the past few years and it’s created a housing market that is pushing out local prospective home buyers consistently.?Add in the fact that most people who bought their 1st home with a 2% or 3% interest rate, and don’t intend to “move up” as they normally would, creates a “rate lockdown” environment, effectively decimating most of the “starter home” inventory. Now, interest rates are as high as they’ve been in a decade.?So, what’s the solution for those new prospective home buyers?

In a word…Foresight.

Let’s go back 1-2 years when rates we’re at their lowest.?What did that housing market look like??Something like this?

• Every listed home had multiple offers (many times 10+ offers).
• Many times, a winning offer was significantly higher than the listing price.
• You had to make a decision right away.?Many times, a listing would go active on Friday and have an accepted offer by Saturday morning, for example.
• Most sellers were not willing to negotiate on price or provide any type of seller credit.

All in all, when rates were lower, it was a strong seller’s market, which made competing for a home extremely difficult for FHA/VA borrowers and ones needing down payment assistance.

Now, let’s look at the market today –

• Contracts are consistently being accepted at or below the listing price.
• Most listings are not getting multiple offers and are in fact sitting on the market longer, giving you time to make a decision.
• Sellers are willing to negotiate on the home’s price and provide seller concessions/credits towards the buyer’s closing costs.

Today’s market is a more buyer-friendly market, even with higher interest rates.?

So, where do we go from here??Let’s break it down.

Currently, Consumer Pricing Index (CPI) and Jobs data is not matching up with housing data.?The unemployment numbers are in the mid 3% range and consumer spending is up – both of these things represent a strong economy.?But, that’s what’s so confusing right now.?Every day, we see big companies laying people off, inflation is high, and with many people I talk to, they “feel” the market contracting and heading to a recession (some of which say we’re already in).?

But, let’s look deeper.?Unemployment data doesn’t take into account gig workers and those who are not looking for work and the data is lagging behind.?A lot of consumer spending activity is being put onto high-interest credit cards, increasing national consumer debt to new highs every day.?Ultimately, we will “officially” be in a recession and once the data begins to reflect that, interest rates will come down as money from the Stock Market flows into more secured investments such as bonds and mortgage-backed securities.?

This leads me to my last question.?What will happen once mortgage interest rates decrease??For every 1% decrease in interest rates, approximately 5 million more potential buyers enter the market.?As more prospective buyers enter the market, there is more competition for each listed home.?Since housing inventory is still at very low levels, it’s simple economics.?When you have more demand for less inventory, housing prices will continue to rise at a quicker pace.?You’ll see more multiple-offer situations and sellers less willing to negotiate.

If you’re looking to buy a home right now, you may not like your estimated mortgage payment your Loan Officer is quoting you.?But, can you manage it for 1,2, maybe 3 years until it makes sense to refinance to drop your payment??When you purchase a fixed-rate mortgage, your payment stays the same and has the ability to decrease if you refinance.?If you continue to rent, you have ZERO control over when and by how much your rent payment increases.?And, after 10 years, if you had bought a home, you’d be enjoying the equity you’ve built simply by making your housing payment.?After 10 years of renting, your rent payment may be significantly more than what a mortgage payment is today with no ability to change it and no equity accrued.?Remember, a 7% interest rate may be considered high, but a rent payment is 100% interest.

I’ll leave you with this – very few people have the ability to “time the market”, most just get lucky.?If you are looking to purchase your next home, you have an opportunity right now with the market “taking a breath” before ramping up again to get a home at a good price with reduced costs before interest rates come down and millions more prospective home buyers come back to the market.?If you’re comparing the 2021 housing market with the 2023 housing market, you’re comparing Apples to Oranges.?Respectively, if that’s the case, you should load up on Vitamin C.?