A Good Time to Buy Real Estate?!
With everything that’s affecting America’s economy right now, is it a good or a bad time to buy a home?
Nineteenth century businessman, Baron Nathan Rothschild, is credited with saying, “The time to buy is when there’s blood in the streets…” referring to making investments when those around you are pessimistic or even fearful. While the statement may be apocryphal, it coincides with similar advice about how to act during fluctuating markets. Warren Buffett said, “Be greedy when others are fearful.” Another piece of advice about what to do when uncertainty is the trend.
Their point is when others in the market fear spending money to make money that’s the time to act. Like the old adage, “Buy low, sell high,” when markets are uncertain, that’s when the most successful investors make moves to be in the best position when uncertain times pass.
Take, for example, the real estate market in 2020-21. Interest rates were at an all-time low and home sellers had lines of interested buyers clamoring to make an offer. As a result, home prices soared to never before seen levels and many new home buyers paid too much for their home. Even with good interest rates, many home purchases proved to be bad investments. Buying a home or land is more than just a purchase, it’s a financial investment and one that’s best done with the long-term in mind.
For years many potential home buyers have been saying they’re waiting for the market to fall or crash, for the bubble to burst, or for home prices to fall to levels that haven’t been seen in a while (and may never be seen again). It’s possibly a hope in something that went away and isn’t coming back. I would love to buy stock in Apple when it was ten dollars a share but should I wait for those prices to come back again to invest? A bubble isn’t going to burst and as soon as mortgage rates look appealing (in the 5% range), home seekers will once again become active buyers. What will the result be with all of this consumer positivity? Home and land prices will increase with demand outpacing supply (especially good single family homes) and everyone will want one of their own.
The market will move in a different direction and fear will be replaced by hope and optimism. Those emotions will cause home prices to go beyond what many hopeful buyers are able to pay and, like the rest of us, they will ask themselves, “Why didn’t I buy a home before now?” Most people don’t feel bad for not buying property last year but wish they had done so five or ten years ago. This current market may not improve in the near future but you might be happy you invested five or ten years down the road.
Nowadays, investors are reluctant to buy a home or land, waiting for things to improve. This environment makes it a good time to purchase real estate for several reasons…
1. Home prices have fallen to levels last seen in 2022. As home prices rose too high a few years ago, the market is regulating itself back to more realistic numbers
2. Many home owners who must sell are willing to negotiate terms favorable to buyers. Reasonably lower offers are being accepted by sellers along with other concessions such as paid buyer closing costs, home repairs, and other credits at closing
3. Mortgage lenders are also helping home buyers with their own reduced fees and concessions. Talk to your lender about origination fees and interest rate buy downs.
4. Homebuilders are offering their own major incentives such as price reductions and free add-ons. I know builders who are giving away third car garage spaces, fully landscaped and fenced yards, additional kitchen appliances, and home security systems.
Home prices have declined but not to pre-2020 levels and they may never be that low again but they are lower than the last few years, so that home you wanted to buy a few years ago may be within reach now. Many home sellers need to downsize from their larger homes and, realizing they aren’t getting the equity they thought they would, are realistic about what they can sell their home for. Thus, they’re more willing to work with you on a home price that will benefit both parties.
Along with Rothschild’s quote about investment timing, he added, “…Even if the blood is your own,” which meant that most investors would feel the pain of short-term loss when taking the risk of investing. Almost every investment is risky and not everyone can take big risks for big gains. So, what should you do during these risky times? Investment managers always say past results aren’t always indicative of future ones. But oftentimes they are.
Properly assess the market and see when previous investments netted adequate gains. Many home buyers jumped in when home loans seemed almost too easy to get and simply forecasting your future income was good enough to qualify for a loan. The market crashed with the 2008 recession and many buyers foreclosed on their homes. Not long after, other home buyers were getting solidly backed loans and were buying homes – and hanging onto them – and saw amazing equity gains.
Listen to what your friends and family are saying and consider all of the options. If everyone is saying the market is prime, investigate what downsides there might be, if not for today then possibly for next year or the year after. Heed advertisers’ claims about investing in their products and consider what they’re trying to sell you.
Set the rules when buying a home or land. Offer the reasonable price you want to pay and ask the seller for reasonable concessions and do the same with mortgage lenders, interior designers, and home repair specialists.
Look for homes sellers who might be open to seller financing including homes with assumable mortgages (taking over existing mortgages with lower rates) and direct down payments and loans.
Take advantage of government grants for down payments and home loans.
As always, contact me for more information about real estate investing and selling. I’m happy to answer all of your questions.