The Expert Podcast

Many consumers have been waiting out the housing market to try to see if they can find a time where interest rates will be favorable and prices will be favorable. For the last two to three years, many buyers have been shut out of the market—first by bidding wars and lack of inventory, and now more recently by interest rates. In between, there was a period of time where interest rates were low and there was some availability, but then prices were high. Buyers have been looking for an opportunity where one or more of those three factors is not working against them.

There is now currently more inventory available. However, it’s not higher availability than what it was prior to the pandemic. It’s higher than it was in 2020 and 2021 but not higher than it was before that. At the same time, prices have spiked up 50%, 60%, 70%, or even more—depending on how far back you measure. Those prices aren’t necessarily going back down to 2015 or 2016 levels, but they’re not jumping up either. Some of the very highly marked-up prices are starting to have some discount or easing.

More importantly, buyers now have some opportunities to do mortgage contingencies or inspections—where you didn’t have that before—and maybe a few more houses to choose from. However, what’s still working against buyers is the interest rate problem. Interest rates have gone from 3% to 7% or 8% in some cases. That higher rate, combined with the price appreciation over the last 24 months, is putting many houses out of reach for buyers.

Now, some buyers can still physically afford the properties they’re looking at, but they’re holding off to see if house prices might go down. Some indicators you can look at include where the smart money is going. For example, a Yahoo Finance article highlights how JP Morgan, one of the largest financial institutions in the country, is now starting to buy single-family rentals, putting a billion dollars behind these acquisitions.

What does that mean? It means that big money from banks is, at least, backing the opinion that house prices have hit bottom or that they’re not going to drop dramatically. Certainly, there will be some pockets where prices might decrease further. However, if you’re a buyer waiting six months, eight months, or a year, you risk prices not going down. Additionally, it gives you another year of paying rent and missing out on building equity in a property, which could offset any potential discount.

For example, if house prices drop even 5% or 10%, a $400,000 house might only go down by $40,000 at most. Meanwhile, if you’re paying $3,000 to $3,200 a month in rent, in one year, you’ll have paid that same $40,000 in rent—a sunk cost. If you buy a house now, even if the price drops by $40,000, you break even because your money is going toward your house. While some of it will go to interest, that’s deductible, and at least part of it is going toward principal rather than being entirely lost to a landlord.

Additionally, there’s the possibility that interest rates could rise further. Rates have stabilized a little and maybe even ticked down slightly, but historically, interest rates have always been in the 7%, 8%, or 9% range for decades. The recent 3% rates were an anomaly.

The move by JP Morgan to invest in single-family homes acts as a “canary in the coal mine,” suggesting they believe now is the time to buy single-family real estate. Your opinion may differ, but this is one more data point to consider as you make your decision wisely.