Why “Waiting to Buy” Will Cost You Big $$$
Implications of Waiting to Buy:
What drives home price appreciation?
Prices reflect supply and demand
What does it cost to wait?
Watch the video to get the full breakdown
I'm hearing this every day from people right now, “Mike, I'm going to wait for the market to slow down and to drop.” We need to visit some basic economic concepts here. Let me jump into the data and tell you why this is not going to happen. I'll share with you exactly how much it will cost you. If you waited to buy a home from one year ago today to right now, it's a startling amount of money. It's six figures plus.
What drives home price appreciation?
I was looking at our price appreciation and our market right here in Snohomish County. Residential real estate prices went up an eye-popping 22% year over year. The average price one year ago for a home in Snohomish County was $589,000. Today, one year later, it's $711,000. That's a huge price increase.
I understand the concept of trying to time a real estate market. But you have to look at the driving factors that are causing this price appreciation to better understand why prices are not going to drop.
Real Estate Prices Reflect Supply & Demand
When there is a lot of inventory in any business, not just in real estate, prices flatten or decrease. When inventory drops, prices go up. It's that simple. It's very, very basic economics. That is exactly what's going on right here. That is the foundational concept. And it's the reality you have to face as a buyer in our market. It's not going to go down - it's not even going to flatten for that matter - until the inventory level drastically goes up. Every month.
In my market report video I share with you a statistic we call “months of inventory supply.” What that mean is simple: If no other homes came on the market after today, it would take this many months to sell every home currently on the market.
Most economists agree that a six month inventory supply of homes equals a balanced market - not in favor of either the buyer or the seller. That is where normal price appreciation is likely to occur. Three to 4% a year, maybe 2%. But not the crazy 22% that you've seen in Snohomish County in the last year.
We have 0.4 months of inventory supply. Right now in Snohomish County, we have 5.6 months to go to get back to a neutral balanced market. Guys, face reality: it could take years for that to happen. It could be 2025, 2026 before that happens.
That would be thousands and thousands of houses to get back to a so-called “neutral market.” When we get back to that six-months’ supply, then you will see prices flatten and you'll see gradual price increases.
But guys, this isn't 2008. We don't have an eight-month inventory supply of houses. Prices are not going to go down because our inventory level is that low. It's very, very basic. And it's very, very important to understand this.
What Does it Cost to Wait?
If you made the decision a year ago just to kick the can down the road and say, “Hey, we're gonna rent for one more year, we're gonna put off buying a house.” Well, like I shared with you earlier. $711,000 is the average today, $589,000 back one year ago. That's a $122,000 difference. That comes out to a mortgage payment difference of over $700.
Can you afford 700 extra dollars on your mortgage payment? Most people can't.
You're seeing people that decided to wait a year ago today being priced out of the market and unable to buy a house. They can't afford a home in this market now. And I don't want that to happen to you. So if you think you want to buy sometime in the next couple of years, I would get going sooner than later because price appreciation is going to continue. It may not continue to 22%. But it's going to keep going up. And can you really afford to have a $700 increase in your monthly payment.
If you put 5% down, the mortgage payment at $711,000 is about $4,489 with taxes and insurance. At $589,000 with taxes and insurance the mortgage payment comes out to right around $3,700 a month. That’s a $700 increase in their mortgage payment. That's a huge difference for most families, a difference most families cannot afford. That's the cost of waiting.
If you're thinking you're going to wait a year to buy a home, then you have to wrap your head around the concept that you could pay $500 to $700 more a month, the same time next year. Prices definitely will not go down over the next 12 months, I can assure you of that. They may go down in the next five to eight years, they may flatten in the next five years. But of course, long term, they're going to go up.
Look at 2008. Prices dropped in 2009 and 2010. Then they got back up with 2008 levels again by 2012 or so. So if people just simply kept their home and were able to keep their house, then eventually they had no loss on their equity, no loss in their appreciation, no loss in their value.
You have to deal with reality. You have to understand it's just not reality to think prices are gonna go down. Santa Claus is not real. (Don't show tell your kids.) This is reality. We have to be truth-tellers and unfortunately, prices are not going to drop.
The cost of waiting is $500 - $700 a month between now and one year from now. So can you afford that?
Are you ready to take the next steps toward buying or selling your home?
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