3 Reasons Why American Real Estate Will Become Harder to Buy
By Terry Roberts
The Home Loan Hub
Published Dec. 29, 2022, at 2:30 p.m.
“Wall Street has $110B for homebuying spree” as referenced by The Real Deal, New York Real Estate News media outlet. Institutional investors have raised upwards of $110 billion with the intent to purchase or build single-family rental properties. With the intent to own nearly 40% of America’s 20 million single-family rentals by 2030, we may want to reconsider when the right time to buy a home would be.
With mortgage rates on the rise recently, the housing market continued to slide down another 4% in November, leaving an opportunity wide open for institutional investors to buy in bulk. This may be great for investors, but what will it mean for those who choose not to buy a home in the next 10-20 years?
The common question in today’s market seems to be, “should I buy now or wait until interest rates drop?”. If you can afford to buy today, then the answer is always BUY NOW. Attempting to time the market and buy a low price and low interest rate may cost more.
When rates are higher, it’s a buyer’s market. In a buyer’s market, sellers are more willing to negotiate. This means sellers are more willing to come down on price and they may also be willing to pay for some of all the buyer’s closing costs. Additional benefits to buying a home now include, the immediate opportunity to build equity, the opportunity to refinance when rates do go back down, realizing a mortgage payment that is less than rental fees, and finally, buying now will prevent you from feeling forced to pay overpriced rent from institutional investor-owned rental properties.
They’re not making more land
American soil is finite. Think of land and housing as the supply. The amount of land that exists is fixed and dictates the number of additional homes that can be built in the future.
Demand for real estate is increasing
Whether it’s a 1-bedroom condo or a 5,000-acre ranch, people are willing to pay more for American real estate now than ever before. Think of this as buyer demand.
Demand is greater than supply
As the gap between the supply of American real estate and the demand for American real estate broadens, it will become even more challenging to buy due to continued hikes in, i.e. price, interest rates, cost to maintain, taxes, insurance, covenants, etc…
If you’re buying now, yes, price and interest rates may feel a bit higher compared to the previous few years. However, real estate values may very likely appreciate beyond that of today’s perceived high purchase price and interest rates. Combine healthy real estate appreciation with the opportunity to refinance to lower rates later and you will have a healthy plan to owning a piece of the American soil that so many have fought for over, now.
Bottom line, if waiting to purchase your first or next home is the decision that you’re most comfortable with, due to prices and interest rates, prepare yourself for what might be a lost opportunity cost as a result of waiting. American real estate has been undervalued for decades and is finally appreciating to comparable international real estate levels. Buying later may likely be more challenging and more expensive.
Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. He has helped more than 10,000 clients start the homebuying process across America.