I’ve been asked many times during the course of this year whether it’s a good time to buy, a good time to sell, or a good time to sit and wait for what’s next.
Short answer – it all depends on your perception of a “good time”. For example, it might be a bad time to buy if you were hoping to flip your new property in the next six months for a quick profit. However, if you were looking to purchase your long-term home, now might actually be a great time.
Here’s a quick hypothetical scenario to better get my point across:
Couple A is looking for a home. They are told that they qualify for, and feel comfortable with a payment of $3,400 per month for principal and interest.
They find a home on the market for $1,000,000 and have a 20% down payment of $200,000. They obtain a loan for the remaining $800,000, and the payments are $3,373 per month, at an interest rate of 3% (taxes & insurance not included). They purchase the property this year and are happy and content.
Couple B (same qualifications as above) has also been looking for a home to purchase. Frustrated by the lack of supply, along with competing with multiple offers on homes, they decide to wait until spring of 2022 in the hopes that there will be a higher supply of homes (thus lower prices). They see the exact same model of home across the street from Couple A for sale at $900,000.
They also have a $200,000 down payment, which will leave them with a loan amount of $700,000. Driven mostly by inflation, interest rates have now spiked up to 4.5%. They feel that they did the smart thing by waiting and getting the same home for $100,000 less in price. Couple B still wants and can afford the same payment of couple A, of $3,373.00. However, with the higher interest rate, this actually drops their loan qualification from $800,000 to $667,000. With $200,000 to put down, they offer all they are qualified to borrow at $887,000 but lose the property to a full-price offer of 900,000.
The fact is that ‘good’ and ‘bad’ in this scenario aren’t dependent on the sales price of the home, but rather, the ability to borrow money. Although Couple B found the same house for 10% less than Couple A, their ability to borrow was hindered by higher interest rates, and ultimately lost them the bid.
.
This is not to say that the value or sales price of a home is unimportant, but people so often get fixated on the total cost that they forget about what really matters, the monthly payment. Getting a good deal on a sales price is worthless if you are uncomfortable with the monthly payment, or you’re no longer qualified for the loan amount necessary to secure the home loan.
With the inability to predict the future acknowledged, I’ll leave you with this – We can only make decisions based on the facts we have in front of us. If you’re in a position to be curious about anything above, feel free to reach out and call us. We’d be more than happy to review your current situation and discuss your potential options.
Best of luck out there,
NewDeck Capital
**The example above was meant for illustration purposes only. The rates you see above are based on a hypothetical scenario**