It’s unlikely you live under a rock, so you probably know that we’re in a hot real estate market. Well, maybe because of the real estate market and current home prices you are actually living under a rock! Home values increased around 17% in 2021 and we are expecting similar market appreciation in 2022.
While it has left many home buyers frustrated and increasingly disappointed, this is not the time to be giving up on the real estate market. Whether you’re a first time buyer just looking to get into your first home, an upgrade buyer looking for somewhere to settle down for the next few decades, or you’re ready for a lifestyle change completely, the market is providing you with some really amazing opportunities if you’re patient enough to jump in.
Here’s just a few reasons you should buy a new home in this market:
Fixed monthly budget:
If you don’t currently own a home, you’re most likely renting. Rental rates nationwide increased over 15% in 2021 and are on track to exceed that in 2022. Landlords, especially in the Texas market, are raising rents to offset increasing tax and insurance bills, but also to be competitive with the increased home pricing, labor, and repair bills. It is safe to assume that if you have $1,500/month rent today in 2022, that your rent will be $1,725/month in 2023, and $1,985/month in 2024. Unless your income rises at a similar pace, your housing costs in future years will continue to take up more and more of your available income. This limits your ability for discretionary spending as well as the potential to save and invest for the future.
Purchasing a home in today’s market locks in your monthly housing expense in your monthly budget permanently. If you know your income will rise in the coming years, locking in your long term monthly housing expenses today gives you greater ability for discretionary spending, saving, and investing into the future.
But what if you already own a home? Why should now be the time you jump into the market and buy that “forever home?”
Home Value Appreciation:
There are a dozen different items we could point to that are fueling this home value appreciation we’ve seen over the past few years, and especially the past 24 months. The “why” behind what’s happening isn’t nearly as important as the fact that it is happening and is going to continue at least for a few more years into the future. Real estate in Texas has a historical appreciation rate of 3% annually over the long term, even when factoring in market collapses like the 2009 housing crisis. Over the past 5 years or so we’re averaging 7% appreciation and over the past 2 years we are well over 12% appreciation.
So your $300,000 house today will likely sell for $335,000-$345,000 12 months from now. But that also means a $500,000 house today will likely sell for $560,000-$575,000 12 months from now. That’s what we saw happen in 2020 and we saw it again happen in 2021. If you’re not in the home you want to see your family in the long term, it is only getting more expensive the longer you wait. You can lock in your long term monthly housing costs at today’s rates and values and still have the benefit of long term home value appreciation.
Interest Rate Changes:
We had a really weird season right after Covid broke out in March 2020 where 30 year mortgage rates plummeted below 3% for the first time. While we’re not in those days anymore, mortgage rates are still at historic lows in the 4%-4.5% range as of this writing. With inflationary concerns impacting the markets today, it is anticipated to see interest rates climb throughout 2022 and be in the 5%-5.5% range by this time next year.
What’s that mean for you? On a $450,000 loan that’s a long term difference of $267/month for 30 years. It’s a $96,000 cost of interest difference between buying a home now and waiting as interest rates rise, in addition to whatever the cost of the home actually appreciates.
If you own a home today, it is likely you have substantial equity in your home. While it is impossible to time the “top of the market” this is a great time to sell your home to cash out that equity and put it to work in other areas of your financial life. You likely don’t need all of that equity to be put into your new home. You can instead use some of it for the down payment on your next home, and use the rest to pay off consumer debts, boost your emergency account, and look for other investment opportunities to grow your wealth even further.
Some of our clients this past year have used their equity to purchase their dream forever home, become debt free, and use the rest as the down payment on rental property where they can earn more cash flow each month and enjoy the financial benefits of owning multiple real estate properties. There are a ton of equity and wealth building opportunities this market has provided.
These of course are just a few of the basic reasons you should buy a home in this market. Your unique circumstance may include some other reasons too. If you’re considering a move in 2022, you should reach out to your Realtor to discuss what options are available to you and develop a strategy to make it happen.
We have several options for home buyers and home sellers to make the process convenient and the moving process seamless. We can help juggle the intricacies of selling your home in order to buy another home, find the perfect next place, and even arrange interim housing if necessary. Learn more about our team and how we can help you here.