Is buying a house now, the right choice?
When looking at buying a house, real estate in that matter, or even anything. I think the right question is: Is this the right time for me to buy a house/investment/car….. anything?
I am writing this blog in mid-January of 2021 when nothing is certain and the real estate market in most areas is soaring except for major cities and some travel destinations. The rates are also at historic lows making it possible to take a loan in some cases below-average inflation rates. Some people are calling it “free money”.
The question arises is it a good time to buy a house?
HISTORICALLY LOW RATES Rates on average throughout the country are the lowest they have ever been in some places hitting sub 2.5%. A rocket mortgage/quicken loans article explains the rates from 1970 to the current market.* This will vary based on multiple reasons the time, location, the lender, and your personal qualifications. The below example is based on a recent experience on the same exact home with 30 year fixed rate conventional loans based in Long Island, NY.
2018
4 Bedroom 2 Bath
Outdated Hi-Ranch
Price After Reno $500,000
Loan Amount $400,000
Rate 4.375%
P & I Monthly Payment $1,997.14
2021
4 Bedroom 2 Bath
Renovated Hi-Ranch
Refinanced Appraisal $575,000
Loan Amount $460,000
Rate 2.75%
P & I Monthly Payment $1,877.91
To some it up because of the difference in the rate of 1.625% the monthly price is $120 less expensive for a house worth $75,000 more now than in 2018. You're making fewer monthly payments and less interest, in the long run, allowing you to buy a more expensive home for a cheaper price. The question then arises, what happens when the real estate market drops? Which it can but it is hard to speculate when and how much. The market then will only affect you if you decide to sell but if you have in mind to live there or hold it for a longer period of time then your actually going to receive a better deal long-term at a lower rate. That is where you need to make a decision on how long you plan to stay at that home and will you be able to hold off the “crash”, which may or may not come due to the recent change in lifestyles and concerns.
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Demand Why are homes receiving 30+ showings in a day with over 10+ offers with multiple over asking price, and in contract within a couple of weeks? People want to leave the cities and move out to the suburbs to escape the tight living conditions during the COVID-19 pandemic and strict city restrictions. People are taking advantage and qualifying for loans they would never have before because of the low-interest rates. This can really be exhausting and frustrating for a buyer and their agent especially with the care for the safety and new restrictions on showings.
Uncertainty The fear of the unknown that we are facing now due to the pandemic makes it difficult to make long-term decisions especially home buying which tends to be one of the largest purchases a person makes in their lifetime.
Higher Home Values Due to the high demand and low supply the prices of homes are up each month. According to NAR, the median home price is up 14.6% from November 2019 to November 2020 in the four major regions of the country.*
Conclusion You need to ask yourself are you ready to settle in? How is your job security? Are you financially prepared? Is this what you had planned before the pandemic? What is your credit score and savings situation? Everyone’s decision will be different based on their own situation and personal goals. The best advice we can give is to sit down with yourself and your loved ones and make a plan, make a positive and negative sheet & run the numbers.
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https://www.rocketmortgage.com/learn/historical-mortgage-rates-30-year-fixed
https://www.nar.realtor/research-and-statistics/housing-statistics
About the author: Lukasz Kownacki is a licensed real estate agent and personally invests in real estate and has been throughout the pandemic. He is not a mortgage broker and advises you to do due your own due diligence before purchasing any real estate or making investment decisions.
