I can’t believe what I’m hearing…
There are people very close to me and many in my industry that are giving horrible advice to prospective homebuyers. I know it’s easy to sometimes buy into the concerns or objections of the client, but the thing that really jerks my chain is that so many homebuyers are exiting the home buying scene without proper assistance and counsel. They are not considering all the facts as to how the alternative will affect them. This bad advice (see below proof) is coming from all over social media and then surprisingly corroborated by the very professionals that are supposed to best be able to advise them! Yeah, my blood is starting to boil.
Forgive me for the tough love, but I know that there is a lack of education and an ignoring of the facts as to the home buying scene. Additionally, many ‘bad advice givers’ have a complete lack of perspective. They are incorrectly pushing their own personal preferences or bias on to the person they are advising. Just because you wouldn’t do it doesn’t mean someone else shouldn’t! And, maybe you are wrong to think that way? Maybe you are misinformed? Finally, it all boils down to personal conviction. My dad gave me a beautiful truth. He told me that ‘before you sell anything, you have to be sold yourself’. The goal of this article is not to sell my point of view, but rather to help prospective home buyers (and those advising them) to make wise decisions and provide wise counsel regarding a home purchase.
The Elephant in the Room
It is time to address the elephant in the room. I make money when people buy homes and finance with me. That being said, one may think that I have this point of view because I am economically benefited to encourage people to buy, however this is not the case. Nobody gets anywhere in business, long-term, by pushing people to do something financially when they shouldn’t. I like how Proverbs 13:11 puts it in the Amplified Bible (AMP): ‘Wealth obtained by fraud dwindles, But he who gathers gradually by [honest] labor will increase [his riches].’
No, no… this is my fact-based, fully thought out, prayed about, full-board convictions. In my professional opinion, most every client should buy a home when considering the risks of the alternative.
With that said, the concept of me being in the loan business, knowing what I know, and to still suggest that someone would be better off renting is absurd. Do I really believe in my business? Do I trust my craft and love what I do? Because if I don’t, I might as well get out of the mortgage business and sell cars or something. I mean…do I really hear clients give me excuses for why they can’t (or won’t) buy and blindly agree with them? Before I answer that question, know that this is not a global statement. There are scenarios where it does make more sense to accept the alternative to buying. Most importantly, I am sympathetic to the state of the economy. I’m sympathetic to how expensive not only homes are with the recent appreciation spikes but also how costly mortgages are after the rise in interest rates. I get all that, but keep reading.
Let’s Consider Something Crazy
Let’s forget about mortgage rates for a second. Let’s ditch the argument that rates are going to fall (which they are), and that you will be able to refinance to lower your mortgage payment. Let’s pretend we are going to be in a 5.5% interest rate environment for the rest of our lives. With that in mind, what does it look like to buy?
A couple things come to my mind. The first is whether or not real estate is a good investment. Is the market crashing and should I buy now? The second thought is what my costs are going to be if I buy and how does that look compared to renting? Will it simply be cheaper for me to rent?
Buying vs Renting
Let’s tackle the latter first. We all know that renting is temporary right? You enter into a lease agreement for 1 maybe 2 years at a time. After your initial term, I’m sure the landlord out of the kindness of their heart agrees to lower your rent right? Yeah, NO. You see, rents go up. I find it absurd that we would ever compare the cost of renting to the cost of buying when we can LOCK in a 30 year fixed rate mortgage vs a rent payment that will continue to go up over time.
Another overlooked factor is the reality of being a tenant. Your landlord is under no legal obligation to let you stay in the home if they have a financial reason for an alternative. They could at any time choose to sell, or simply move to kick you out for any reason. Renting gives you little control over your life, your home and the location of your family. You can’t lay down roots, and are always are in limbo, which brings instability… especially for kids. I don’t know about you, but I hate the idea of my landlord having the thought of selling right before the school year is starting or worse (like in the financial crisis), your landlord decides not to pay their mortgage and you get a visit from the sheriff with an eviction notice.
I lived through the ordeal of 2008 and subsequent years while working at Bank of America and I cannot tell you how many renters got their ‘cash for keys’ and a week to vacate the premises. Side note; it seems silly that renters are the ones to give a large security deposit as well as get their credit checked. What about the landlord?! I would be like… dude you show ME that you are gonna keep paying this mortgage so my family doesn’t get thrown on the street.
Enough on that. Let me just say that it will hardly ever be cheaper (and definitely not safer) to rent versus own. If you still don’t believe me, let me run the numbers for you. I have a rent versus buying calculator that shows real numbers based on specific locations and situations. Numbers don’t lie. You can request it here.
The Housing Market
Now let’s talk about the housing market. Specifically, whether or not buying now is even a good investment. Forget investment, but rather, if I buy now am I going to be up a creek without a paddle? Is this market crashing like 80% of the YouTubers are click-baiting us into believing? Is that apparent overpriced $500k home that I'm looking at going to be worth $450k in 3 years?
Let’s be real… this is the fear of many buyers now. Not only are rates and payments higher than before, but the home prices of today are scary. Many clients have either experienced, or are educated on the financial crisis of 2008 when home values plummeted and millions of homes went into foreclosure. Without providing a lesson on the financial crisis, let’s just say that was then and this was now. There is no correlation between the financial crisis and the global pandemic that affected this crisis. Instead, we have actually experienced ridiculous and unprecedented appreciation from about March 2020 and continuing for about 2 years. Now things have cooled. Keyword cooled, not crashed. I did a YouTube video on this topic that you should definitely watch. A highly watched YouTuber, desperately looking for views stated that Zillow reported a “big housing CRASH,” citing some places in the country had home values falling 50%! In my video, I proved that home values did not fall, only the growth of housing fell. These are not the same! Growth fell 50%; in only a few areas mind you. So instead of a home appreciating 20%, it’s only 10%. Furthermore, by studying many markets across the US along with data crunchers such as Zillow Group, they still expect home values as a national average to be appreciating about 7.8% annually over the next year. They have since in the last month revised that down a little, but you get the point.
The bottom line is homes are not depreciating. Homes are still growing in value in most every city across the country. The larger cities are even more impervious to value declines which is what makes my point even more valid. If you wait, the same home will cost more in a year, period. The average family household income is not keeping up with the home prices and when you factor in the immense increase to the cost of living, I don’t see how anyone could keep up.
What Should You Do?
You buy now. Sure, rates may be higher and home prices are exaggerated, but data shows that these same homes are still appreciating. We also have years of market proof that mortgage rates don’t go up and stay up and they don’t go down and stay down. They ebb and flow; they go up and down. You will refinance when they come down if you are diligent.
To that point, make sure you are with a loan officer that watches over your loan and knows when to pull the trigger to refinance. Make sure your loan officer knows not only when, but how to refinance. What I mean by that is the way you refinance as rates are falling, as this is really important. Do not pay a ton of closing costs, keep those to a minimum. Never, and I mean never pay what’s called Lender Paid Mortgage Insurance (LPMI) or up front mortgage insurance when rates are trending down, or your expected tenure in the home is less than 5 years. It is a waste. Your Private Mortgage Insurance (PMI) will drop off as your equity increases and you pay down your principal balance.
The Conclusion of the Matter is Not Vanity
In summary, please buy now. I implore you. There is no down side besides the temporary monthly payment you may be paying over renting. But do remember that part of your payment goes to principal, that is, into your equity. It is not lost.
Here are all my thoughts in 3 simple points:
- Home prices are high and going higher, buy now.
- Rates are high, but going lower, buy now, refinance later.
- Renting sucks, so buy now.
Your truth speaking loan officer friend,