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Does Buying Real Estate Make Sense?
Dated: October 25 2023
Many homebuyers left the real estate market last year when the interest rates began to rise. It’s understandable, considering that for every 1% increase in interest rates there is a corresponding 10% reduction in affordability so when the rates went from 3% to their current 8%, buying power has been greatly reduced. The combination of higher interest rates on loans and increasing homes prices force homebuyers to make the hard choice to wait or consider a smaller home, possibly even in a different location to enable them to invest and start building wealth through a home.
So, does this signal plummeting demand?
Given that the interest rate increases were the largest in the shortest amount of time in our nation’s history, and with the rates at 8% for well qualified buyers, one would expect that the market would be faced with historically low number of homebuyers. Yet, this is not what is happening. In fact, the number of homebuyers in the market today far surpasses what was seen in the years prior to the pandemic…. commonly referred to as a ‘normal market’.
The Federal Reserve increased interest rates to slow down rampant inflation, which at its height in 2022, reached 9%. Today, the inflation rate of 3.7% (Source: USA Today) is much closer to the desired rate of 2% though still not where the fed wants it to be. Many experts believe that interest rates will eventually come back down, though no one can predict when. And they could go up again before the end of the year.
Even though today’s 8% interest rates seem extremely high, when compared to their 52-year history, they are still at the average of 7.7%.
Would be homebuyers can take heart in knowing that purchasing real estate remains a good long-term investment. Tax benefits, home appreciation, leverage, and financial security are all good reasons for investing in real estate.
Home prices did drop earlier in the year, however there is a trend over the last few months of home price increases in Nashville so waiting for interest rates or home prices to drop could be costly as the home you want is likely to be more expensive next year. Also, interest rates could go up again so making a purchase now will guarantee today’s rate.
Home inventory and motivated sellers are two other solid reasons for homebuyers to believe that a home search is going to yield a nice property on their terms. The market is a far cry from the take it or leave it attitude of home sellers in 2021-22 when homebuyers were outbidding each other and chasing up home prices with unprecedented speed. There are more homes available to purchase, and whether it’s an older home or a brand new one from a home builder, there is more choice. Also, negotiations with sellers do happen today with buyers asking for, and receiving, concessions on pricing, home improvements, rate reductions, and more.
Home ownership remains the dream and most important investment strategy for most Americans. Homebuyers are smart and they know that over time the value of a home is going to rise and home ownership provides financial safety and security. A home is an asset that is different from a stock or bond. There is also an emotional connection tied to a home and for many, home ownership is a source of pride and accomplishment
I have a pretty unique background compared to most agents, which is one of the main reasons I’ve been able to help so many clients. One thing a lot of people don’t know is that I once had ....
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