The Expert Podcast

Look, the thing on everybody's mind is what's going to happen with real estate prices. Are they going up? Are they going down? Interest rates, prices—so here is one prediction from some high-level finance people: home prices will fall another 10 percent because interest rates are going to stay high. It's very likely that interest rates will stay high; they might bump up a little bit. Look, they came down slightly in the last few weeks to a month, but they're going to stay in this level—this 6 to 8 percent range. Traditionally, interest rates have been in the 80s, they went up over 10 percent, sometimes up in the teens. In the early 2000s, they were in the 3, 4, 5 percent range. Neither one of those is normal. The normal interest rate for real estate, residential transactions, is about the 7 to 8 percent range. So it's likely to be in that range. The Federal Reserve might boost it up a little bit to cut inflation, but expect 7-8 percent. Even if housing prices fall 10 percent from where they are, that's not going to put a big dent in affordability.

Look, if the median house is, let's say, $450,000 for a house, if the home price goes down 10 percent, that means the price drops maybe $40,000. The mortgage payment difference on $40,000 is only a couple hundred bucks—$250, $280, maybe $300 difference. So, if the price of a house was $480,000 and it went down to $440,000, your mortgage payment is only going to go down maybe $300. So it's not going to change the affordability of that house by a dramatic amount. If that $300 is what keeps you from buying a house, you're probably buying too much house. You probably need to back down a little bit so you're not right on the edge. The value of the house going up from even $350,000 to $450,000 changed your payment by $1,000, right? So the 10 percent fall is not going to be the thing that changes the payment that much. The mortgage payment difference from 3 percent to 8 percent changed your payment by $1,000. So saving $300 because the price went down a little bit isn’t going to put the real estate market genie back in the bottle of where it was in 2017.

Is the average price of a house going to go down 10 percent? Probably will. Maybe not quite 10 percent, but close to it. But even if it does, that’s not a crash, that’s not a collapse—that is a shaving of the sharp edge off of crazy, ridiculous real estate payments and maybe getting it more balanced between buyers and sellers. Remember, in order for prices to go down, you have to have both the buyer and the seller want to do this. If the buyer wants it to go down and stomps their feet and says it’s too much, that’s great. But until the seller agrees to it, because they have to, the price isn’t going down. Sellers, I think, are going to realize they’ve got to make some concessions. They can’t be up in the stratosphere on prices, but it doesn’t mean they have to cave and give away their houses either. As much as we want that to happen in wishful thinking, it doesn’t happen until the seller says, "Yes, I will, with a gun to my head, sell the house for cheap."

10 percent is a rounding error. It’s not going to make a big difference, especially when rates are up, so plan accordingly. Look for a house that you can afford, even if it’s 10 percent less at an 8 or 9 percent mortgage, and then you’ll be on the safe side. And holding back on a crash might cost you money.

Look, even if you think house price averages kind of go down by 10 percent in one year, you might be better off buying now than waiting for that 10 percent drop. Because during that year, you’re going to pay rent for a year. If your rent is $2,500 a month, that’s $30,000-something dollars in rent that you’re paying. If you’re going to waste that money on rent just to save maybe $40,000 on the price of a house, that’s only a $10,000 difference. And you can easily eat that up if the rate goes up again, or if you can’t find as good of a house. So waiting for that 10 percent off in a year might really be a break-even if you’re currently a renter or you have other expenses that offset what you’re going to save.