Is Now a Good Time to Buy a Home?

Logan Mohtashami for the Housing Wire wrote a great story on June 1st and I want to share some of it with you. First, when mortgage rates exceed 4% housing demand will weaken and months of inventory (days of inventory in our case) will increase causing home price increases to moderate.

Second home prices have soared because supply has plummeted, not because demand has soared uncontrollably. Logan believes we have reached the bottom for home inventory levels across the country and I hope he is right; but he provides no support for this idea or hope. I wonder if we will ever get back to even 2 months of inventory in metro Denver and we have been at 1 month or less for 12 consecutive months. What external event or item is going to cause inventory levels to increase? I can’t think of any. Can you?

Third, he finally answers the top question he gets, “Is now a good time to buy a home?” Logan says, “If you need to be told when to buy a home, then you’re not ready because it’s not about the marketplace—it is about you and your capacity to own the debt.” Do you have the financial wherewithal to make a monthly mortgage payment? If you can sleep with that mortgage payment every night, then buy a home.

Logan advises people to quit focusing on home prices and their upwards movement. For over 80% of homebuyers a home is SHELTER for you and your family and an investment second. Plus, owning a home and getting a fixed rate mortgage allows you to lock in your shelter cost for the next 30 years and you can’t do that when you are renting.

And for buyers who want to focus on the investment side or prices of homes we must remind them that housing is a long-term investment and that you should only buy a home if you will remain in your new home for a minimum of 3-4 years and preferably 7-10 years. And if you live in your home for 10 years, the national average you will build equity and wealth.

For example, let’s say you buy a $500k home today. For the last 50 years average Denver home prices have increased by 6.5% a year, if this continues then that $500k home in 10 years may be worth $938k in 10 years. So, in 10 years will it really matter if you paid $500k instead of $475k for your home?

Second, with mortgage rates at 3% it’s amazing how much equity you build by making every payment. For example, on a $500k home with 10% down at 3% your principal and interest payment is $1897 with $772 being paid to principal or your long-term savings account as 40.7% of your first payment goes towards the principal balance on your loan And after 10 years of payments your loan balance will be down to $342k.

So, even if home prices only rise 3% a year for the next 10 years to $671k your place of shelter will have increased your net worth by $330k!!! This is the difference between your home’s estimated value in 10 years and your principal balance on your loan in 10 years.

So, if you can sleep at night with your estimated new mortgage payment buy a home. This is why I have been asking my clients for 23 years this simple question, “What do you believe you can afford for a mortgage payment?” I want my clients, your clients, to be able to sleep at night.