Today’s question is whether to buy a real estate property now or wait. Generally, many are understandably concerned and confused about the current real estate market with high prices and rising interest rates and don’t know if they should wait for a better time to buy a house or a rental. If you decide to wait, think again!
Property prices likely to stay high
- If the interest rate declines (not likely), real estate prices will rise significantly because everybody who has been waiting to buy a house will enter the market and overbid every house on the market.
- Historically, the median sales price may stay for a few years unchanged or slightly go down, but this happens only during recessions and crises like the recent pandemic. A recession was expected in 2023, but this did not happen, and “the Fed’s staff believes the US will avoid a recession.” 1
- The graph shows the median sales price since 1960. The price increase has been a lot steeper since 2012, partially due to the money poured into the economy during the Recession and the pandemic.
- With the interest rate rising, prices may hold the current level for a while, but it isn’t likely to go down to pre-pandemic levels.
Source:
Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US,
Interest Rates likely to stay high
- Mortgage rates were significantly low after the Great Recession (2008-2010) and during the pandemic (even lower than 3% for a while). However, these rates aren’t the expected levels in a strong economy.
- Moreover, the FED has been raising interest rates since the pandemic and likely will continue to do so to slow down inflation.
- Historical levels show that 30-year mortgage rates were between 7% and 18% for more than 40 years before 2002.
- So, if you decide to wait for rates to go below the current level, think again because we may not see such rates in the next decade.
Source:
Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US,
If you find a good deal, buy a property now
- Since prices continue to increase, it may be wise to consider buying if you find a property you like and the price is at the current market or below.
- If the interest rate goes down in the future, you can always refinance your mortgage. Moreover, you will save yourself from the bidding war that will come for those who waited for lower interest rates to buy a property.
References
1 Guida, Victoria. “U.S. Will Avert Recession in 2023, Fed Staff Says, Even as More Rate Hikes Loom.” POLITICO, 26 July 2023, https://www.politico.com/news/2023/07/26/fed-hikes-rates-again-and-leaves-options-open-for-more-00108303.
