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Waiting For The Market to Cool? It's Gonna Cost You

As a Realtor® in one of the most competitive markets in the country, one of the most common statements I hear is, "I'm just going to wait until this market cools down, put some money away, and try again later when it won't be this crazy."  

Of course, I completely understand the sentiment.  After all, we are conditioned to avoid peaks and congestion.  We plan our driving around rush hour traffic.  It's why airlines get away with charging for fast track passes through  security and early boarding.  And it's why people share tips on the best time to fill gas at Costco, or which location isn't as crowded. Unfortunately, when it comes to real estate, this strategy can not only lead to more frustration, but it can actually cost you more!  

As mortgage rates rise to the highest levels in a decade, conventional wisdom leads us to project that at the market will cool.  And, we are already starting to see early signs of that.  Mortgage applications are down nationwide by about 1.5% from this time last year.  Homes are taking a little bit longer to sell.  And, most surprisingly, we are starting to see some homes (about 15%) taking price reductions  (gasp!).   Of course, this was inevitable as we start to shift back to a "normal" market. 

However, cooling of the market shouldn't be confused with a crash!  Put another way, if the temperature outside sits at a blazing 95 degrees for a week, and it suddenly cools off to 85, it may be "cooler", but nobody is rushing to bring out their winter coats and turn up the furnace, right?  Why?  Because it's still HOT out.  Just not AS hot.  Think of the market the same way.  We may be returning to pre-pandemic buying levels, but if anyone remembers, we had a strong sellers market even then, with 30-40% of homes getting multiple offers, and low double digit appreciation each year for the past 12 years.  

Why Waiting Will Cost?

There are multiple factors that impact the cost of buying, but the two main factors are the mortgage rate and the price of the home.   Both of these combined make up the biggest portion of your monthly payment, which unless you are buying a home in all cash, is how most of us will be paying our mortgage, along with our other bills. 

In January, the median price for a single detached home was $850,000 with interest rates hovering around 3.1%. If you were going to put 20% down on a conventional 30 year fixed loan (the most common type), then you would have expected to pay somewhere around $3800 per month.  

Since then, the median home price has jumped up 12% to almost $1M due to the highly competitive environment.  Had rates stayed the same, that same home would now cost you $4500 per month!!  That's $700 more per month just waiting for 3 months for a market that appreciated. 

Of course, the rates didn't stay the same.  They shot up to nearly 5.25%.  This means, that $1M home will now cost $5200 per month!  So in 3 months, your median home went from costing you $3800 per month to $5200 month with appreciation and interest combined!!  That's $1400 extra.  Per Month!  For the same house!  Ouch!

Naturally, as rates continue to climb, we do expect to see the rate of growth slow down, but again, not crash.  We may see homes appreciate less than the 20% annual price growth, but it's still price growth.  And, at a potentially higher rate.  And that is why sitting on the sidelines waiting for things to slow down may not be the best strategy. 

To read more, check out this great article on Fortune.com below!

Fortune.Com: The Cost of Waiting to Buy

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