Opportunities in Real Estate: Learning from the Past
Remember your friends who bought a house right at the beginning of Covid 19? At the time, we thought it was risky, as time went on we see what an amazing opportunity it was to purchase. Similarly, we may be looking back at those friends who purchase in the first few months of 2024 in the same light. There’s hesitancy with Buyers right now between interest rates, an election year and uncertainty in the real estate market.
Our data points to a rising market. The Federal Reserve has already indicated they will ease interest rates in 2024. Waiting for lower rates, like the majority of Buyers will do, means you’ll likely pay more. That’s because as mortgage rates drop, housing demand will surge, driving prices up. As mortgage rates drop, Buyers will come flocking back into the market, driving up competition. So as prices rise, and competition rises, we will be back to multiple offers and Sellers back in the driver seat. There is a window now with a more balanced market. Over the next few months, Buyers don’t necessarily have to make a rushed decision with little due diligence period and reduced negotiating leverage, giving Buyers more time to make an informed decision.
Home prices in our area rose over 6% from the start of 2023. Home prices are expected to continue to rise throughout 2024. Several factors are contributing to home price appreciation in our area. Despite the new home construction that is going on all around us, the new home inventory is still falling short of the housing stock we need. This problem goes back to the recession of 2009-2011, home building came to a screeching halt. For 3 years, we didn’t see any new building, and builders haven’t closed that gap. Adding to that were supply chain issues caused by Covid 19, to some degree builders are still dealing with short supply and labor. There’s still not enough being built at a fast enough pace to meet demand. Couple this with the homeowners who are not willing to part with their 3% mortgage rate, there are not enough homes on the market. Supply and demand dictates prices. More supply of Buyers, less supply of homes equals rising prices. Additionally, we continue to have a healthy supply of Buyers relocating to our area from out of state, attracted to the lifestyle and affordability compared to many other metro areas. Many out of state Buyers purchase in the late Spring and Summer (choosing to move in between school sessions). Waiting will place you in direct competition with these Buyers who often have company support and a tight timeline, making for tough competition. Often they are willing to pay asking price or above to secure their housing quickly and get settled in their new job and state.
If you’re renting, and you’re financially able to purchase, you should consider buying now. The sooner you purchase a home, the sooner you start building equity through mortgage paydown and price appreciation. Your costs are fixed, unlike rent that is likely to be increased each year. And when mortgage rates fall, you can consider refinancing. There’s peace of mind having predictability with your monthly housing costs. Inflation, interest rates or a change in your landlord’s situation will not impact your housing or payment situation once you’ve locked into a fixed rate loan in your own home. There are tax advantages you may be missing as a renter as well. Consult with your CPA for how these tax breaks would apply to you as some income limitation may apply, here are a few common ones.
Mortgage Interest- you can deduct your mortgage interest.
Real Estate Taxes – you can deduct state and local taxes in the year you pay them.
Home Office Deduction – if you’re a small business owner who works from home and use part of your home exclusively for the primary place of business, you can deduct many home expenses.
