Buy in a buyers market or wait for interest rates to go down and prices to go up?

[Nadia Daggett]

As the broker of Investing N Florida, I frequently encounter clients who prefer to wait for interest rates to decrease before purchasing a home. With your experience, would you recommend buying a home now at a higher interest rate with a $100K price reduction in a buyer's market, or waiting 6 months for lower interest rates and the potential return of bidding wars?

[Russell Brazil]

If you but now, and rates go down you can refinance.

If you buy now and rates go up, now you have a below market interest rate.

Basically, whether rates go up or down in the future, the outcome of buying at the current interest rate is almost always going to have a positive outcome. (Assuming fixed rate interest rate)

[Jay Hinrichs]

Quote from @Russell Brazil:

If you but now, and rates go down you can refinance.

If you buy now and rates go up, now you have a below market interest rate.

Basically, whether rates go up or down in the future, the outcome of buying at the current interest rate is almost always going to have a positive outcome. (Assuming fixed rate interest rate)

in most the markets i work we are not seeing 100k price reductions.. my project in Oregon new builds I have actually raised prices over the last 18 months to all time highs.

[Vic Iyer]

I would recommend buying now and refinance when interest rates go down significantly. When interest rates move down there will be an influx of buyers and the prices will go up. You need to factor the cost of refinance (average $7K which may change depending upon the price of your home)

[Jacopo Iasiello]

buying now with a $100K reduction in a buyer's market, the real estate market is dynamic, and staying flexible with options like refinancing can help you navigate changes effectively.

[Eric James]

To me the interest rates are a minor issue. The main issue is that we are way overdue for a correction in the real estate market cycle. And unemployment is starting to tick up.

[Jay Hinrichs]

Quote from @Eric James:

To me the interest rates are a minor issue. The main issue is that we are way overdue for a correction in the real estate market cycle. And unemployment is starting to tick up.

seems like the MF market is in the middle of a big correction right now.. from the posts we see on BP from limited partners.

[Doug Smith]

Hey from Tampa as well. We need to schedule coffee in Tampa and chat about Real Estate. I've posted this chart before, but I think it helps with your question. Let's take the last major crash as an example. If you would have purchased at the very peak of the market and sold at the very, very bottom, you would have lost 19%. If you would have simply held on and collected rent for 72 months, you would have been up money...and that is buying at the peak right before the biggest real estate bubble in modern history. If you're positively cash flowing with a prospective property, don't wait. As a 33 year lender that's seen the high-highs and low-lows of the market, I realy don't see rates falling dramatically. Rates are actually historically good right now. Taxes and insurance...not so much, but rates are not bad historically. If you wait like everyone has for rates to come down, you'll likely miss out. If I'm wrong and there is a draconian drop, so what...refinance. Good luck...and I was serious about grabbing coffee in Tampa. 

[John Clark]

Quote from @Nadia Daggett:

As the broker of Investing N Florida, I frequently encounter clients who prefer to wait for interest rates to decrease before purchasing a home. With your experience, would you recommend buying a home now at a higher interest rate with a $100K price reduction in a buyer's market, or waiting 6 months for lower interest rates and the potential return of bidding wars?

Where are you finding a buyer’s market? Yes, it has softened lately, but outside of some niches (condos) I’d not call the US housing market a buyer’s market.

[Nadia Daggett]

@Doug Smith yes please! Let’s definitely get together to discuss real estate!

[Dan H.]

Core logic states SFH are up 4% YOY. Prices are at all time high and interest rates are near 20 year high. The combination is that high LTV financed RE is not only at an all time high but in terms of inflation adjusted cost is at greater than 40 year high. There is no way I would refer to all time most expensive or least affordable in over 40 years as a buyers market (note this is not to imply that it is a great sellers market).

However, this is not my main concern about purchasing most MLS properties in this market. Of greater concern is the gap between purchasing a high LTV mls property and the market rent has possibly never been worse. I have seen 2 recent studies comparing initial cost of renting to purchasing. One stated that it was cheaper to rent than buy in 97 out of the 100 most populist cities. The other study showed cheaper to rent in 95 out of the 100 most populist cities. Rent to purchase price ratios of MLS SFR in my market is virtually always below a 0.5% ratio. On residential MF, you can find just over 0.5% ratio. With the current rates, 1% ratio is negative cash flow when using realistic expenses on a high LTV purchase. In my market this implies the negative cash flow on mls properties is 4 digits per month.

It is a tough RE investment market. In my market there are only a few strategies that can work. 1) patience. P&i is usually fixed. Property tax is near fixed. Over the long term rents rise and RE appreciates. I would expect a hold of 10 years or more. I am not this patient 2) value adds. If you add enough value, the negative cash flow could be trivial. My last purchase is up over $540k over purchase and rehab costs. A little negative cash flow is not going to kill the returns on this investment. This is the option I typically take 3) alternate rent strategies such as STR, MTR, rent by room, etc can result in significantly better cash flow. I have 4 local STRs but pay a PM so my return is not significantly better than LTR. if I was self managing, it would significantly help my cash flow but would require time and effort and my time is worth significantly more than what STR PMs charge.

I would not choose to buy a non value add, rent ready property in my market to LTR. Not sure if the future will present a better RE investment market but I know that non value add, rent ready, LTRs do not project the return that I expect for the effort and risk of residential RE.  

Best wishes. 

[V.G Jason]

It's not a buyers market, yet. So you want to buy when or where inventory is up-- irrespective of rates. And the properties of the city see sustained growth. So right now, cities like Austin are a buyers market and a target of mine EOY '24, top of '25. Or cities where inventory is moderately increasing but it's below median house price in the nation with a growing population and could attract businesses. 

[Nadia Daggett]

@John Clark here is a good article of what is happening in the Tampa Market https://www.floridarealtors.org/news-media/news-articles/2024/06/sellers-cutting-prices-these-florida-cities?utm_campaign=6-27-24%20Florida%20Realtors%20News&utm_source=iPost&utm_medium=email

[Adam Bartomeo]

Always buy now and hold for the long term. The numbers always work as long as you buy in an area that continues to be desirable.

[Henry Lazerow]

Chicago priced up now down and still going up up up. I wish we had $100k discounts haha

[Jorge Vazquez]

Hi Nadia, my advice to your clients is to consider buying a home in Florida now, as high interest rates mean less competition and more stable prices. They can always refinance next year when rates are expected to drop, potentially lowering their mortgage payments and giving them some extra cash. Also, they should stress-test their properties to handle any potential equity changes or loss of rent. This approach is perfect for using private financing initially and then doing a DSCR loan later to maximize their investment strategy. COVID-19's effects are still being felt, with massive migration to Florida making it a prime market. Plus, insurance premiums are expected to go down by up to 50% due to the El Niño effect, which means fewer hurricanes are expected to hit Central Florida, and new legislation reducing fraud provides another great advantage.

[Theresa Harris]

Give how 'easy' it is to refinance in the US, hands down, I'd buy now and refinance when the rates come down.  House prices (unless you are talking very expensive homes or apartment complexes) are unlikely to drop $100K.

[Carlos Ptriawan]

Quote from @Nadia Daggett:

As the broker of Investing N Florida, I frequently encounter clients who prefer to wait for interest rates to decrease before purchasing a home. With your experience, would you recommend buying a home now at a higher interest rate with a $100K price reduction in a buyer's market, or waiting 6 months for lower interest rates and the potential return of bidding wars?

 Buy later , Florida has too many inventory anyway and bottom is not yet there depending on the city 

[Jonathan Klemm]

The time to buy is always NOW, when you find the right deal and if you are in a good cash position.

With interest rates higher there is less competition and you refi if rates come down.  @Nadia Daggett

[Amber Stout]

It's a GREAT time to buy right now. If you or your clients can structure a creative offer, it'll be a win/win for all. Many sellers at this time are not willing to reduce their price by a large amount; however, they may be more willing to give a large seller credit. The lender can then strategically buy down the rate so the deal will cash flow for the investor. As a lender, this is what I am doing with all my clients/realtors right now, and they're able to get deals done.

Here's an example: a $495,000 property reduced by $10,000 will save $62 per month. However, $10,000 in seller credits for a rate buy-down will save approx. $269 per month, thereby providing the investor with the cash flow to make the deal work and seller still nets close to the amount they want. Win/win! Reach out if you want to discuss further. 

[Obed Calixte]

....."time in market beats timing the market"

[Carlos Ptriawan]

Quote from @Obed Calixte:

....."time in market beats timing the market"

 For me timing the market to buy at the bottom is more important than buying as sucker …

Timinh in market always beats any FOMO buyers , I don’t want to become victim of realtor bad advice

[Obed Calixte]

Quote from @Carlos Ptriawan:

Quote from @Obed Calixte:

....."time in market beats timing the market"

 For me timing the market to buy at the bottom is more important than buying as sucker …

Timinh in market always beats any FOMO buyers , I don’t want to become victim of realtor bad advice

 

Agreed that being able to buy at bottom is better than at the "top".  Do note I made no mention of FOMO or insinuating irrational purchasing.  There are deals in every market cycle.

Good on you for being able to time the bottom of the housing market. Please educate all Realtors on how to do so, so we can avoid giving bad advice.

[Carlos Ptriawan]

Quote from @Obed Calixte:

Quote from @Carlos Ptriawan:

Quote from @Obed Calixte:

....."time in market beats timing the market"

 For me timing the market to buy at the bottom is more important than buying as sucker …

Timinh in market always beats any FOMO buyers , I don’t want to become victim of realtor bad advice

 

Agreed that being able to buy at bottom is better than at the "top".  Do note I made no mention of FOMO or insinuating irrational purchasing.  There are deals in every market cycle.

Good on you for being able to time the bottom of the housing market. Please educate all Realtors on how to do so, so we can avoid giving bad advice.

Just look at Zillow home index , when it creates a new wave I purchased , flat curve is good ….

[Dan H.]

Quote from @Obed Calixte:

Quote from @Carlos Ptriawan:

Quote from @Obed Calixte:

....."time in market beats timing the market"

 For me timing the market to buy at the bottom is more important than buying as sucker …

Timinh in market always beats any FOMO buyers , I don’t want to become victim of realtor bad advice

 

Agreed that being able to buy at bottom is better than at the "top".  Do note I made no mention of FOMO or insinuating irrational purchasing.  There are deals in every market cycle.

Good on you for being able to time the bottom of the housing market. Please educate all Realtors on how to do so, so we can avoid giving bad advice.

Typically when financed housing (non-commercial residential RE) is the most expensive in inflation adjusted dollars for ~40 years, that is not an ideal time to buy a rent ready property off the MLS. Financed homes today are the least affordable since the 1980s. Actual Price is all time high. Rates are multi decade high.

I can find properties to flip but that is a job. Stop flipping, stop earning. I am having difficulty in my market even acquiring good BRRRR candidates because after the finance, they are cash flow negative. This is because the rent to purchase price is at an all time worse. A study showed it is cheaper to rent than own in 97 out of top 100 markets. Note when you owner occupy 1) there is no vacancy 2) there is no PM 3) maintenance/cap ex is usually lower than with a tenant. This implies the numbers for an RE investor are worse than for an owner occupied purchaser. I question if there is any large city market in the US where the typical financed purchased rent ready listing is not cash flow negative when using legit underwriting of expected expenses for small unit counts.

Take both those facts together and this is near the worst time ever to purchase a financed, rent ready unit.  Those facts are also good indicators that now may not be the best time to buy a rent ready residential property. 

I do not require a crystal ball to look at these facts and realize that many residential purchases purchased at this time will need some good fortune (luck) to provide the returns I seek.  I prefer to purchase based on underwriting conservative performance and not to underwrite requiring low probability outcomes.  

Best wishes