It appears by the response of our stock market this morning on April 25 that from what I have read and hear a 1/4 to a 1/2 point rise in the mortgage rate is automatically being built into stocks with the market now down by more than points. Will this be the bottom or will there be additional pain in prices?
Buying on the dips and/or cost averaging has been a very successful method for many approaching stocks in what I would call one of the safest paths to pursue. However, get well-educated about investing before (or hire and seek the assistance of a qualified, transparent and candid and upfront stock broker, if you can find one) before putting any of your hard-earned dollars into any stock.
Where is our real estate market currently heading, you ask? There will be those who have previously dropped out and more will continue to leave and jump back on the fence and either stay in their current rental or just consider renting for the time being. As the new rate is initiated, all forms of credit beside mortgage rates will continue to increase. So right now whoever has sufficient or excess cash will do well in real estate as many sellers will be most comfortable going that way as no bank will be involved and the worry of appraisals being short of the agreed selling price will then be eliminated.
If you are still very well qualified, I would be doing your own research at a feverish pace (or seek out the most knowledgeable, straight forward, transparent and candid Broker to assist you in finding your “next place to call home.”) Seek out your primary residence even if rates increase, because the benefit will outweigh the additional costs.
You have to analyze that if you are going to be in your home for at least 10 to 20 years or more. will you benefit long term? The answer is a resounding yes, as real estate has generally been a long-erm play, even though I do not consider your home to be an investment, based on what an investment is.
I have always said, unless you are earning a penny more than it costs you, then it is not an investment. Your home is a place to bring up your family, grow roots in your community, build relationships and friends and have an enjoyable life. When you are ready to sell, then you will realize and determine if any the gain or even breakeven point when you analyze all the costs over the years, e.g. mortgage, interest paid, monthly maintenance, upgrades and repairs etc., then subtract that total from your net proceeds. Then you will know whether you walked away with a profit or just broke even and lived for free over all those years.
Either scenario would be a plus in the scheme of your wealth, unless you are such an amazing investor that you could outperform the real estate market, which historically has increased by the inflation rate, according to Robert Shiller, who with his partner Karl Case created the Shiller-Case index. Robert Shiller had created a chart (not necessarily a perfect price analysis, as per Robert Shiller) that showed if you bought a home in 1950, that same home in 2000 was selling for $100,000 and a tad over $200,000 in 2018.
As you can see, prices have done very well for the majority of homeowners who had bought back then and eventually sold and even those who have bought in 2000 and beyond, especially with the huge effect the Covid-19 pandemic has had on real estate values.
No one can accurately predict the future, but luck is always about timing and nothing else. But being educated and smart will always go a long way in determining one’s future wealth. Seeking advice from a very qualified financial planner, CPA or elder care attorney will keep you in a much safer and stable position minimizing avoidable mistakes.
Bottom line, I would still advise purchasing a single or multi-family home, HOA, townhome, condo or co-op as they are not growing any more land to put them on, so it is a unique commodity that throughout history has held its value over time. Owning a home has been the No. 1 commodity that families have built their wealth on over time. Don’t let interest rates create this fear (fanaticized expectations appearing real) that will hold you back from becoming a homeowner as long as you are qualified and don’t go overboard.
Going a little above your budget is OK as long as you crunch your numbers and if it makes sense in the brain, then it should make sense in your pocketbook. Lastly, get sound and quality advice from a professional such as a CPA or financial planner etc.
Selling now would also be beneficial to cash out as rates go up and demand is reduced. Prices could soften (for buyers the interest rate will be a better savings than a reduced price over the length of the mortgage) but there will always be buyers buying and sellers selling. It’s just a point of how much you will end up with when selling.
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Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: [email protected]
