There is overwhelming news and media coverage regarding today's real estate market. It seems that, based on most coverage out there, it's both a great time to buy and a great time to sell. Social media is the same narrative, everything is great for everyone. When the world is telling you to have your cake and eat it too, something isn't right. So what is the truth?
Let's take off the rose colored glasses for a moment and look at the numbers and what's driving them, interest rates. In less than a year, rates went from historic lows in 2021 to 30-year highs today. To illustrate the effect of rates on today's market, let's examine what your mortgage payment will be in three different mortgage scenarios. Fair warning; you will be grossed out
Numbers don't lie, and laid out this way they show an ugly truth. Rates are up and because of that your buying power is down, due to more of your payment going towards interest. What this means in real terms is that on a $300,000 home you are paying $770 more per month in interest, or two car payments for your average driver. It gets worse as the price point goes up, $500,000 is around $1200, and $1,000,000 is a staggering $2000 more in interest every month. That's a lot of money. That in itself could be a mortgage payment.
People now are left with hard choices dictated by high rates. Buyers have to choose between high rents and high mortgage payments, and for some the high rent is a smarter choice. Sellers who bought in the last few years have to choose to give up their low rates in favor of a new home at a much higher interest. Even downsizing could potentially cost more after interest is factored in. That bears repeating. You could sell your home to buy a smaller one, and pay MORE. (We told you it was gross)
Simply put, the market's not that great for anyone. That's okay though, as long as you examine your situation and act accordingly. It may be a good market for someone who would still save over renting, even if their buying power is lower. Maybe an addition instead of selling is a better option for some to soften the blow of high interest rates. The important thing is, look past all the hype out there about the great market and work with an agent who will tell you hard truths. Maybe it's best to wait awhile before you go after that bigger place, or maybe putting off downsizing is smarter in the long run. Find a good support team of agents, accountants, and lenders who will help you realize your vision in this challenging market, not pull the wool over your eyes.
-Andrew O'Reilly & Kyle Schrader
Posted by Kyle Schrader
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