Closeup overhead view of a young couple sitting on the living room floor and looking at decoration brochures and choosing how to improve their new apartment.With all that is going on in the world, a global pandemic, supply chain issues, highest inflation in 40 years, the economic effects of a war in Ukraine, it can be overwhelming to think about when the right time is to buy a home.

With all that is going on in the world, a global pandemic, supply chain issues, highest inflation in 40 years, the economic effects of a war in Ukraine, it can be overwhelming to think about when the right time is to buy a home.

On a local level, there is a pent-up demand for homes that have been building for years.  Builders haven’t kept up with demand for new housing for almost 15 years.  Low inventory, especially in the past three years, have driven up prices nationally in 2021 by 20% and even though, the rapid appreciation seems to be moderating, in June, NAR reported that the median price home was up 13.4% from one year ago.

Then, of course, there are mortgage rates that have gone up by 2% since the beginning of 2022.  Appreciation and rising interest rates are a double whammy for people looking for their first home or to move up. It is completely understandable that many people are faced with so much that they are sitting on the sidelines waiting to see if things will improve.

Let’s look at a hypothetical situation where buyers have the money for a 10% down payment on a $400,000 home but have decided to wait for three years to see if things improve.  They need to park their money somewhere safe so that it will be available when they feel comfortable to buy but also earn as much as they can to ward off the effects of historically high inflation.

If they were to put the $40,000 into a certificate of deposit for three years that pays 2%, they would earn $2,448 in interest.  With current inflation at 8.5%, the purchasing power of their down payment would diminish.

A slightly riskier alternative would be to invest it in the stock market or a mutual fund.  Assuming they picked the right stock or fund that earned 7%, their $40,000 would grow to $49,002 in the same three-year period.

The problem is that homes are appreciating much faster and the buyers would either pay more to get the same home or to pay the same price in three years, the home would not have the same amenities.

If the buyer purchased the home today that appreciates an average of 5% per year, the equity in the home in three years would be $118,000 based on two dynamics: appreciation and amortization.  The wealth position at the end of the three years in the home is almost three times what it would be with the certificate of deposit and over twice as much as the stock investment.

Homes have appreciated more than inflation over the last fifty years.  The average home price appreciation from 1970 to 2020 was 7.16% compared to the average inflation for the same period which was 4.3%.  In 2021, home prices were up close to 21% nationally compared to 7% inflation.

Connect with your real estate professional to find out the facts about the market, the various mortgages available, what you can expect to buy, and if you have a home, what it will sell for.  Good information can make a difference in making a good decision.  Download our Buyers Guide.

Buyers are becoming discouraged there are not enough homes on the market, especially, in certain price ranges.  When they do find something they want, there may be multiple offers and they end up losing to another buyer.

Some buyers after experiencing several of these instances have decided to wait until the market changes.  It is understandable but it may be a very long wait as well as being a very costly decision.

Inflation is affecting all sectors of the economy; prices on food, cars, and electronics are going up as well as housing and mortgage rates.  Home prices rose 20.2% year over year in May 2022 over 2021, according to a recently released CoreLogic report.

The advantage to current homeowners wanting to move up is that their home is now worth more and it takes the sting out of the price they will have to pay for a larger home.

Unfortunately, first-time buyers and those who don’t currently own a home are seeing the prices continue to increase at a rate many Americans have never seen before.  Waiting is most probably going to make it less affordable.

It is true that housing inventory is at very low levels but over six million homes sold last year so there was enough inventory available for six million buyers.  For buyers, the problem was they sold fast and there was a lot of competition.  The advantage for sellers is they sold fast and there was a lot of competition that increased the price they received.

It may not be as easy as if there were four to six month’s supply of homes for sale but when you purchase a home, these same dynamics will be working in your favor to build your equity with appreciation.

Successful buyers are positioning themselves to act decisively when the new listings hit the market.

1. Working with a trusted real estate professional
2. Pre-approved by a local lender
3. Developed a plan to write a competitive offer
4. Determined their limits financially and emotionally.

Six million people bought homes last year and you can be among the fortunate ones who buy one this year.  Be committed to what it takes in a highly competitive market.  Surround yourself with a competent and confident team that will produce the results you want.

For more information, download the Buyers Guide and schedule an appointment with us to get the facts about the best plan to get you into a home this year.

The primary negotiation in a home purchase takes place when the contract is agreed upon that includes the price, closing and possession.   With inventory down over 19% in the past year and multiple offers being more of the norm than the exception, the first round of negotiations can be challenging.

Buyers and sellers alike feel relieved once it has resulted in an agreement, but experienced agents know there is more to come if there are contingencies for financing, inspections, or other things.  The competition for the home may be so tough that the buyer waived their rights for what would be normal contingencies.

Financing is one of the most common contingencies in normal situations but when multiple offers are involved, the cash offers tend to have the advantage.  If you don’t have the resources to make a cash offer, the next best position is to be pre-approved with a commitment letter from the lender.  Arrange for the lender to confirm the pre-approval directly with the listing agent prior to the listing agent presenting the offer.

There have been buyers who know they don’t have the cash to close and apply for a mortgage anyway and try to reinsert the provision outside of the contract.  Experienced listing agents will advise the seller to have the buyer provide proof of funds necessary to close and verify that they do indeed exist.

The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components to identify existing defects and potential problems.  The expense for inspections can be several hundred dollars and it’s reasonable for buyers not to want to spend the money before they find out if they can come to terms with the seller.  From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections because they could be losing time.   For that reason, inspection time frames are limited to a few days from acceptance of the offer.

Sometimes, buyers will expect sellers to make all the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until the other party accepts the offer on the table.

When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new.  However, it is reasonable to expect that existing homes, that are not new, have a different standard.  While it’s understandable that buyers would want to be aware about major items that are not in “working order”, normal wear and tear of components based on its age should be expected.

In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase.

The negotiations involved in a home purchase are not complete until the buyer and seller have signed the papers and the title has passed to the buyer.  Up until the closing is finished, any item that comes up could prolong the negotiations.

For this to be a WIN-WIN situation, both seller and buyer must feel good about the negotiations that led to transaction closing.  Neither party should feel that the other party had an unfair advantage over them.

Dollar moving up. Money finance growth chart graph stock market

In inflationary times, currently the highest in 40 years, the purchasing power of your money diminishes each day; essentially, buying you less.  The biggest threat is to be without capital assets, like a home, that are benefiting from the increase in prices.

Your money buys less gasoline now, than it did a year ago, by close to 50%. Beef prices are up about 20% since last year.  Used cars are about 35% more expensive than they were a year ago. Mortgage rates are near 5% after reaching their lowest of 2.65% in January 2021.

And then, there is the price of houses.  CoreLogic reports that home prices increased year over year by 20% in February 2022.  Their Home Price Index indicates an annual five percent increase in prices from 2014 to 2021.

For many people, the American dream of owning a home is slipping away.  Adjusting your expectations for the perfect home and when you expect to achieve it, can be a legitimate, long-term strategy to making the dream come true.  By delaying the gratification of getting everything you want in a home now and making compromises that would allow you to stair-step your way into the “forever home” could be the plan to incrementally reach your goal.

Owning a home in today’s market, even if it isn’t the ultimate home, provides a significant hedge against inflation.  Not only is the home appreciating faster than the rate of inflation, the mortgage on the home produces leverage that increases a homeowner’s return on their equity.

Homeowners have both the home’s appreciation and its amortization working in tandem to increase their equity.  Money in a bank account or the stock market can’t compare to the potential.

$40,000 invested in a certificate of deposit earning 1% would be worth $42,040 in five years.  If the same amount was invested in the stock market that earned 6% annually, it would be worth $53,529.  However, if the $40,000 were invested in a $400,000 home, with a mortgage at 5% for 30 years, that appreciated at 5% annually, the equity would be close to $180,000 at the end of the same five-year period.

Connect with us and let’s put together a plan to help you benefit from inflation.