Like Sands Through the Hourglass…TICK, TICK, BOOM!
Why is it that when things are good, they are reallllly good...And when they’re not? So many around us seem to love focusing on the negative. As of late, that negative noise has been really hard to ignore in the world of real estate. High interest rates, high prices, low inventory…blah blah blah. But what if we reframed this equation…come on, humor me for just a second!
It’s November! The temperatures have dropped. The season has CHANGED! What if that change is exactly what we all needed to reframe our mindset and focus on the positives, even if just for that one second (which yes, I know expired a few words back!). After all, that mindset is, as Buddha says, exactly what we will become. So…take a deep breath and dive in…we think you’re going to be pleasantly surprised at what lies ahead.
The clock is ticking on 2023. Limited time remains to make those changes you’ve been dreaming of. But we get it, you’ve heard the noise, it’s been forced in your face for months and now is not the time. Too many variables are swayed in the wrong direction. But what if they aren’t? What if the opportunity is right here, ready for the taking? Carpe Diem, baby, no time like the present!
The real estate phenomenon that has developed since COVID changed our worlds in 2020 was really quite astonishing. Consumers realized that their enjoyment at home was critical for the periods in which we were forced to be there. Record numbers of pool installations and housing upgrades saw massive amounts of capital invested in both primary and secondary homes. Record low interest rates only increased these trends and even offered opportunities for many to purchase, upgrade or invest in areas that were previously considered outside their means. Consumers, Contractors & Realtors alike were all on the move! Life was good!
But at what cost? Dabo Sweeney recently talked about the culture change in the athletic environment at Clemson. After 35 years of not seeing a championship game, Sweeney and crew delivered two rings. During his 15 years of coaching, winning became the new norm. But what he noted was that some of the fan base’s response to this new found success was that their expectations now exceeded their appreciation for the program, the players, the coaches, the sacrifices, the growing pains, the challenges, the opportunities, etc.
Read that again….EXPECTATIONS EXCEEDED APPRECIATION.
Is it possible that this post COVID mindset shift has actually taken the fun out of it? Has it paralyzed us? Has it kept us stagnant in making proactive choices? Are our expectations of what the home buying or selling process should be like exceeding our appreciation of a stable real estate market?
Did you say STABLE Real Estate Market?
Yes, Yes we did. And we will say it over and over. Here in the Golden Triangle, we have been sheltered from the volatility that has been experienced in other markets in the last fifteen years. While our prices have been trending upwards, supply and demand has remained relatively level until recently. The LOW interest rates that preceded 2023 have made it a costly decision for many to move and leave their 3% mortgages. This means less inventory available for Buyers entering the market. And these Buyers are no longer able to maximize their dollar because a 4-5% upswing on interest rates impacts cash flow and can even reduce buying power.
I know, I know…where is the positive in this??? For that, we will need to compare a purchase with a 3% mortgage to one with a 7.5% mortgage …
3% Interest Rate:
- Refinances at an all time high
- Owners making improvements with extra cash flow from mortgage or cash out refinances
- Few Sellers…they have gotten comfortable, settled in and now have their financial picture in check…LOW INVENTORY
- Sellers are getting aggressive on pricing, cause they can. Many homes are selling at prices that EXCEED LIST PRICE & APPRAISAL. While this seems like a great scenario, these types of transactions can lead to market instability on the backside. We are fortunate that this is not the picture locally.
- Lots of new Buyers in the market…their dollar is going FAR…translation: LOTS OF COMPETITION
- More often than not, Buyers are in a MULTIPLE OFFER SCENARIO. In order for their offers to be considered, they are having to make BIG SACRIFICES, including:
- Waived inspection, accepting the property in as is condition
- Waived appraisal, purchasing at arbitrary numbers
- Guaranteeing additional cash to cover appraisal gap
- And while this sounds fantastic for Sellers…just remember that most sellers have to replace their sold house…they are left buying under the same conditions.
- Case Study: House listed at $400,000. Multiple Offers. Accepted Contract:
- Sales Price $430,000
- Appraised at $400,000
- Waived Inspection – unknown $2,500 in remedial work needed that must be completed within first 12 months
- Down Payment Required: $110,000 (20% of appraised value + $30,000 appraisal gap)
- Monthly Note (excluding taxes & insurance) $1349
- 1st year outlay (including note, downpayment & repairs): $128,688.
7.5% Interest Rate:
- While inventory is still limited, many of the houses that are coming to market have been improved over the last several years when cash flow was better
- Because Buyer’s dollars aren’t going as far, purchase prices are being put in check
- There is less competition with less Buyers in the market and fewer homes changing hands. This means that you are less likely to have to make big sacrifices just to be considered, and chances are good, you may not be in a multiple offer situation.
- Sellers are a little more motivated because homes are staying on the market longer. No one enjoys a lengthy listing period…they are Sellers because they want to sell.
- Case Study: Same House listed at $400,000. Single Offer. Accepted Contract:
- Sales Price $400,000
- Appraised at $400,000
- Inspection revealed $2,500 in remedial work which the seller agrees to pay for
- Down Payment Required: $80,000 (20% of appraised value)
- Monthly Note (excluding taxes and insurance) $2237
- 1st year outlay (including note, down payment & repairs) $106,844
So why BUY NOW?
Spend your money where it matters. In the two scenarios above, the monthly note difference is $888. It will take an additional 2 years to offset this difference in the first year outlay. But that’s not the whole picture…only a portion of that outlay is tax deductible: THE INTEREST! So all that additional down payment and repairs that are required while you are negotiating your dream home at all costs…that’s right, they are just costs. Not tax deductible costs. Not improvements that add value. Not investments that are working for you.
Increase your deductions for year end. Mortgage points, property taxes, interest…all deductions that will help offset your income tax liability.
File Homestead Exemption for 2024. If you have your eye on a property that does not have homestead exemption, you would need to close before December 31 and file for Homestead Exemption in January so that you can receive the benefit.
Move when you have time. Take that year end vacation and get settled in your new home. Use revised holiday work schedules to your advantage.
Because that house you love is on the market today. It may not be on the market in 6 months when rates (might) fall.
Know that nothing is forever. (Folks, we are talking real estate here…don’t come at us for that statement.) Not even your interest rate. While you shouldn’t expect to get a 3% rate in the future, chances are good you will be able to refinance to get a lower rate at some point. Just because the rates are high-ER, does not mean that they are HIGH or that they will be this way forever.
Love where you live. Appreciate the quality of our market and keep your goals at the forefront of your decision making. Expect a fun, efficient and effective home buying or selling experience. And call us when you’re ready!