Why haven’t home prices come down when mortgage rates are so high? House prices are actually rising in many parts of the country. Part of the answer to this conundrum is due to the “life goes on” home buying cycle.
During the pandemic, many people put their lives on hold for 1-3 years. Initially, one might think that buying a new home was too risky given all the unknown variables. As a result, many people continue to live in rented or existing homes.
Due to the pandemic, many have also postponed:
- going to college
- get a graduate degree
- move for a new job
- start a business
- propose to someone important
- have children
- have more children
But what about? life goes on! We all die at some point, so we can’t put our lives on hold forever. It’s a shame not to be able to realize your dreams and aspirations.
Can’t wait any longer for mortgage rates to drop
As mortgage rates surge in 2022, demand for housing has slumped. The second half of 2022 was the slowest homebuying season in history, but the first quarter of 2023 wasn’t much better.
Mortgage rates have eased from a peak of about 7.25%, but rates remain high given the still-higher-than-usual spread between mortgage rates and government bond yields.
It also suggests that the Fed could raise rates 11th and 12th in the next six months, even though it has already hiked rates 10 times.
Good things happen to those who wait. But it’s becoming increasingly clear that people are fed up with putting their lives on hold to lower mortgage rates. Stay demand is increasing. Demand could soar by the time mortgage rates drop.
The date is the price, the marriage is the house
The saying, “Marry the interest, marry the house” means that the mortgage interest is temporary, but the house is forever. You can refinance your mortgage at any time, but you cannot change the purchase price of your home. If you miss your dream home, you may never buy it again.
Given this logic, the argument is that once you find the home you want, don’t let high mortgage rates deter you from buying it.
Given that mortgage rates have trended downward since the 1980s, I generally agree with this statement. Rising interest rates and spikes in inflation are likely to be temporary and end within a few years.
Given the availability of low interest rate ARMs with introductory terms of 5, 7 and 10 year fixed rates, there are ways to save on mortgage costs. I have been an ARM supporter since he first started buying properties in 2003. As a result, more than $500,000 in mortgage interest expense was saved.
Being Cynical Is Worth It
However, ‘set the rate and marry the house’ is also a maxim that realtors use to get buyers to deal. For real estate cynics, now is a good time to buy or sell a home. So be careful not to be too easily influenced by words without running numbers.
Mortgage rates are most likely to fall over the next 12 to 24 months, given that inflation is trending downward again. If you can afford a higher mortgage payment for the time being, buying a new home might be the way to go. See historical US CPI charts below.
constant race against time
Now that I am 46, I no longer refuse to waste time or wait for good things to happen. If you listen to my podcast episode, Discussing house upgrades with my wife (Apple), you can see I’m itching to take the chance.
I want to create the life I want, not just make it work. Time won’t wait, so here are some examples of taking action.
Your Career – Life Goes On
To build a better life, I left Goldman in 2001 without being invited in my third year. I overheard that the job offer for a third-year analyst is in jeopardy. Without Credit Suisse, I may not have had the opportunity to move to San Francisco again.
Wanting a better life is also why I decided to take matters into my own hands and negotiated my retirement in 2012. Many of his colleagues were laid off during his seven layoffs during the global financial crisis.
I didn’t want to wait until I got my bagel and then let it go. It would have been depressing. Instead, I wanted to create a life of freedom and adventure sooner.
Your Net Worth – Life Goes On
Building above average wealth requires intentional spending, saving, investing and tracking. You can’t just aim for billionaire status. No one just gives you money. We have to work hard for that and take advantage of the opportunities.
I knew my days as a banker were limited. Not only did I burn out, but I was slowly burning some bridges. As a result, I ended up writing about Financial Samurai as a side job as a potential way.
Now Financial Samurai has become an online income generating asset to fake retirement and build net worth. The launch of the site has been delayed since 2006, when he first came up with the post-MBA idea. But after the global financial crisis hit, I was no longer willing to wait for the right time to start. life goes on!
Start a Family – Life Goes On
Human biology does not wait for the right partner to be found before having children. Rather, it becomes difficult for women to have children after the age of 35, and naturally it becomes almost impossible after the age of 40.
As a result, you may be tempted to freeze your eggs if you know you want children. You might want to spend more time dating because one day you might regret choosing money over love.
Life goes on, so as you pursue a career, your body begins to uncooperate. Once the body has exceeded its limit, it cannot go back. It may not be possible to wait 10 years until you’re over 40 and find the right person.
home upgrade – life goes on
Now, starting in 2022, you have the opportunity to upgrade your home at a more affordable price. According to the property broker, the seller has returned from abroad and if no one buys the house by August 2023, he will be living there for two years. The seller’s daughter has boarded the house. high school as a junior.
In other words, high school is a compulsory education, so the seller’s life continues whether the product sells or not. You have to decide whether to buy a house now and enjoy it for your family, or wait two years with no guarantee that you will be able to buy a house then.
I’ll kick myself because if house prices go up significantly in two years time, this house might be out of my reach anymore. who knows? Perhaps the AI boom will create enormous wealth for people living in the Bay Area. In 2023, there is an opportunity to buy a home.
Alternatively, housing inventory may finally rise as mortgage rates fall, thereby limiting the rise in house prices. Or rather, I found the stock I wanted, so the current situation is a win! Ah, it’s hard to measure the impact of supply and demand on house prices.
Be Disciplined When Buying a Home
Even though life goes on, you don’t want to be irresponsible in buying a house you can’t afford comfortably. Buying your dream home just to stress about paying for it is counterproductive.
My 30/30/3 Home Buying Guide and Net Worth Home Buying Guide are good references to follow. They help keep emotions from getting the most out of logical thinking.
I re-read both posts and admitted that I’d be better off increasing my net worth by another 10 percent before buying a new home. Two years seems like a modest amount of time to reach this goal.
But it’s hard to wait two more years for mortgage rates to fall further. If we waited, we would have lost 17.3% of the time we spend at home with our children. And by that time, real estate demand may explode again.
Reader Questions and Answers
Were you surprised by the strength of home prices despite soaring mortgage rates? Do you agree that it’s due to the ‘continue’ mentality? What other reasons are there for house prices to continue to rise?
If you’re looking to buy a physical property, you’ll want to hedge against price fluctuations by owning the property online. Check out Fundrise. Fundrise primarily invests in Sunbelt residential properties with low valuations and high rental yields. The real estate company currently manages over $3.5 billion with over 400,000 investors.
For more nuanced personal financial content, join over 60,000 other users and sign up for our free Financial Samurai newsletter and email submissions. Financial Samurai is one of the largest independent personal finance sites launched in 2009.