4 Powerful Signals why it may be the best time to buy a home right now

I will be highlighting 4 reasons why it may be the best time to buy right now. I’ll throw in the caveat that it is the best time to buy for long term purchases. With a possible recession looming, you may wonder, why should I buy now? No one has a crystal ball that can time the market. That being said, if you’re looking for an edge, here’s why I think its still a great time to purchase real estate.

Reason 1: Historically Low Interest Rates

We are currently experiencing the near lowest interest rates in our lifetime. The typical 30-year amortized loan used to purchase a home is at around 3.75% interest right now. Did you know that 30 years ago, the same type of loan commanded a 20%+ interest rate! The current 3.75% interest rate is an incredible rate to borrow at.

An additional aspect of interest rates to consider is the role of the annual rate of inflation on the amount you borrow. For example, if you borrowed $300,000 and the average annual inflation rate is 2%, your $300,000 loan will be worth 2% “less” after 1 year. After 5 years, your loan is 10% “less” in value – it’s effective worth is much lower than the initial. The longer you hold on to a loan, the more that inflation will erode at its value.

Reason 2: Don’t try to time the economic recession

In the big picture, yes, a recession will occur sometime in the future. It’s bound to happen. If someone tells you it’ll happen next week or in 6 months, or 1 year, that person is 100% full of baloney because no one can predict when the recession will start. It is best to purchase when you can get a good deal that is below market value whether it involves forced equity (renovating the home), smaller or restricted pool of buyers (less competition), or off-market purchases (the “we buy ugly homes for cash” signs).

Reason 3: Opportunities created from market inefficiencies

I believe the best time to buy is in the middle of a market swing (when a seller’s market starts to become a buyer’s market) or when a recession is bottoming out. Compared to your typical stock and securities markets where there are many, many transactions occurring daily with low barriers of entry and where the transaction price reflects all known knowledge regarding the asset, the real estate market is actually a very inefficient trading system. Every home sale requires time to prep the home, a 6% commission is paid when the sale completes, in addition to a 1.78% excise tax on the sale price. It takes a lot of time and money to complete 1 transaction. Because of this, when a downward correction occurs in housing prices, buyers stand to benefit the most. Why? Speaking in terms of supply and demand, there will be an over supply of homes for sale as buyers become naturally more cautious when home prices trend downward or perhaps even leave the home buying market altogether. This creates a lag in supply and demand, thus the inefficiency. More supply for you as the buyer means lower than expected prices.

Reason 4: Buy homes seasonally

Real estate has a buying season. You will, on average, pay more for the same home between March – September than in October – January. Here are a couple logical reasons: Sellers who plan to sell their homes will do so in the Spring or early Summer, some in hopes of upgrading to a new home. Many buyers also shop for new homes during the summer months when their kids are on summer break. Combining both, you have a sharp increase of buyer competition during the summer months.

Now, after September, the opposite occurs… kids are in school which makes it more difficult to move for families, Thanksgiving and Christmas are coming up which no one wants the added stress of moving during the holiday season. This means there are less buyers, less competition. However, be cognizant of the lower supply of homes for sale as well.

Here is a strategy I always tell my buyers: look for homes that are “Back on the Market” in October-December. These are failed sales due to a plethora of reasons such as failed inspection, failed financing, failed appraisals, etc. Often times, these sellers are desperate to sell because 1.) WINTER IS COMING and there’s a smaller buyer pool, 2.) They may be paying 2 mortgages because they already bought their upgraded home, but are having trouble selling their previous home.

Pro Tip: As a real estate agent, I should NEVER say this, but: DON’T PURCHASE YOUR HOME CONTINGENT ON SELLING YOUR CURRENT HOME. Just rent it out for now if you’re able to. I’ve heard this happening frequently where you find your dream home, overpay for it. Consequently, you undersell your current home because you really want that new house. That’s what I call winning the Triple Crown: overpay for the new home, undersell your current home, plus pay commission for the sale of your current home. All of this can be avoided if you can make your home become a rental.