The time to buy a house is now.

Many people were waiting for the elections to buy their house because there was some uncertainty. I myself saw the mortgage rates go up abruptly in the 2 weeks that followed the presidential elections and guessed that home prices would go down. It took only 2 additional weeks for the mortgage rates to come down and stabilize at the level before the elections.

Many of my clients that can buy won’t buy due to the uncertainty about home prices. They think that home prices are too high. Maybe I have the answer for them. There are many factors that affect home prices, but the most important is supply. Because we are at full employment and will stay like that for a long period, homeowners will be able to make their mortgage payments on time. We are in a regulated mortgage market now. There are no teaser-rate mortgages, balloon-payment mortgages, and variable-rate mortgages are rare. Additionally, everybody knows that there is low inventory (see chart bellow) and it should stay like that.

The other factor is demand. As more and more unemployed people got jobs, the demand for new homes increased (FHA allows borrowers with 1 month on the job after an unemployment of fewer than 6 months). So, with decreasing supply and increasing demand, prices would have to go up and they did.

Now, with the stability of full employment and low inventory, home prices should stabilize (actually the chart bellow shows slow growth since 2013). The economy can’t grow faster because it requires more workforce, and we are at full employment. The only way home prices will go down is if the economy goes down. The only way this will happen is if it grows too fast and the Fed has to raise interest rates to control inflation. So, before home prices go down, if they do go down, they will accelerate.

In the meantime, rents will keep going up. If you buy you will accumulate some equity, pay less income taxes, take advantage of the still historically-low interest rates, and have a fixed mortgage payment for the next 30 years; no matter the inflation.

The chart bellow came from Freddie Mac. Their economists only project 2 years, but it adds some numbers this story.






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