The dilemma facing would-be buyers today is to wait until things settle down or move ahead in this unsettling economic environment. More specifically, the question should be, what are you waiting to settle down: mortgage rates, or prices or both?

Mortgage rates haven’t been this high since 2002, so it could be considered plausible that the high rates are temporary. That leads to the question of how long before they do start coming down. If we look back further, the average 30-year fixed-rate mortgage, dating back to April 1971 is 7.81%, so the current rate is lower than the 50-year average.

The other variable is waiting for prices to come down. That one is probably not as likely to happen. We have seen some softening of prices for homes on the market which is due to a decline in sales based on affordability and the resulting increase in inventory.

Sales reached a seasonally adjusted annual rate of 4.09 million in November which is down 35.4% from one year ago, conversely, inventory has increased to 3.3 months from 2.1 months one year ago according to the NAR Housing Snapshot of Existing Home Sales.

While listing prices may be coming down, sales prices are still rising from the same month a year ago. The National Association of REALTORS� reported the median sales price for November 2022 is up 3.5% from November 2021.

Homes are expected to continue to appreciate and not come down in value albeit at a much lower rate than was seen in 2021, and even currently in 2022. Historically, homes have appreciated at 4% annually on a national basis.

Nationally, the NAR reports 42% of homes are selling at or above list price while 58% of homes are selling for less than list price.

Lawrence Yun, Chief Economist for the National Association of REALTORS� at their recent annual conference, forecast home price appreciation for 2022 at +10%, for 2023 at +1% and 2024 at +5%.

Some experts are calling for a decrease in prices. Ivy Zelman, of Zelman & Associates, expects national home prices to fall 4% in 2023 and 5% in 2024. Goldman Sachs is expecting a 5-10% decrease in home prices from its peak. Fannie Mae is expecting a 1.5% drop in home prices for 2023. Freddie Mac predicts a 0.2% decrease in values.

Some consumers are anticipating another wave of foreclosures like the Housing Crisis in the Great Recession of 2008. While the number has increased, it is not expected to reach anywhere near those previous levels.

Homeowners facing difficulties with the labor market and affordability have a significant advantage over those during the housing crisis over a decade ago. Homeowners currently have record amounts of equity which give them options to borrow against the equity or to sell the home for more than is owed.

Returning to the dilemma facing many would-be buyers, "Wait until things settle down or forge ahead now?" Being able to afford a mortgage at today’s rates certainly factors into the decision. If inflation is brought under control and rates do return to "normal", or at least the new normal, a buyer would be able to refinance the home at the then, current rates.

Home price appreciation has been close or beaten inflation in each of the past five decades.

First time homebuyers represent 26% of sales in 2022 down from 50%, its high in 2009. This is the lowest it has been since NAR started the Profile of Home Buyers and Sellers in 1981. Desire to own a home is the prevalent reason 62% of first-time buyers cited.

Holding onto cash during high inflationary times is not good because the purchasing power of the cash dwindles because the same dollar is able to buy less. Moving money into hard assets, like real estate, allows the person to benefit from the inflation on a large asset. The leverage from using borrowed funds to finance the purchase creates leverage that additionally works in favor of the buyer.

Download our updated Buyers Guide and connect with your agent to discuss your options.

Inflation devalues the purchasing power of money and the interest earned on savings is almost always less than inflation. Tangible assets like your home consistently become more valuable over time. In inflationary periods, a home is a good investment and a hedge against inflation.

Borrowing money at fixed rates during times of inflation can be very advantageous…like buying a home. The rate stays the same over the term of the mortgage and so does the payment instead of going up at the rate of inflation.

In September 2022, rents rose by 7.2% according to NAR Chief Economist, Lawrence Yun and "rents are accelerating to higher figures with each passing month." The annualized rate for this year is 10.6%. Buying a home allows you to avoid rent increases while enjoying property appreciation.

The housing shortage that is fueling the price appreciation, as well as increases in rent, is something that has existed for over ten years, yet American home building has not kept pace with population growth.

When you are repaying the mortgage, you are using dollars that are worth less and less due to inflation. Home Price Appreciation has been close or beaten inflation in each of the past five decades.

*Revised predictions for 2022 home price appreciation are: Fannie Mae estimating 16%; Freddie Mac 12.8%; NAR 11.5%. Average of three projections is 13.4%

The funds for the down payment and closing costs that are sitting idle in a bank, while an otherwise qualified buyer waits to see what happens in the market, are having their value eroded by inflation. At the current rate of inflation, $48,000 would be worth $39,073 in three years. In seven years, it would be worth $29,697.

A 90% mortgage at 6.3% for 30-years on a $400,000 home that appreciates at 4% a year will have an estimated equity of $202,000 in seven years due to appreciation and amortization. That is a 22.8% annual rate of return on the down payment plus $8,000 closing costs. That is a significant hedge against a current inflation of 7.1%.

The borrowed funds in the mortgage produce leverage for the homeowner to enjoy the benefits as the value of the home goes up while the unpaid balance goes down with each payment made due to amortization.

Every day, a renter, who is otherwise qualified to purchase a home, is faced with a decision to continue renting or buy a home. Renters will ultimately be facing an increase in their rent, feeling an erosion of the purchasing power of their funds, and experiencing an opportunity cost by not benefitting from the appreciation and amortization benefits of buying a home.

Let’s connect and talk about what opportunities are available now and options that could benefit you, even considering the volatile economic atmosphere we’re all facing.