Recent spikes in mortgage rates have resulted in a significant pullback in buyer demand. For many potential buyers, these high mortgage costs have made taking on a new monthly mortgage payment untenable. A recent survey from Fannie Mae found that only 19% of respondents believe now is a good time to buy a home. Others are hoping that prices keep falling and so have adopted a “wait and see” approach—but savvy investors know the importance of gathering as much information as possible and strategizing their next steps. Let’s break down why “wait and see” isn’t an ideal strategy for the current housing market.
The Las Vegas market benefits those with long-term homeownership aspirations
As of September 2022, Las Vegas home prices were up 10.4% compared to last year, with homes selling for a median price of $404K. However, though September 2022 prices were higher than September 2021 prices, we have seen a substantial decline since June 2022 when the Median Sale Price was $435,000. News of a housing market slowdown usually results in concern, but for Las Vegas home buyers, this means opportunity. Lower prices mean more affordability, and even if prices continue to dip after the purchase of your dream home, housing in Las Vegas has a history of positive appreciation over the long term.
Take a look at this graph from the St. Louis Fed. Vegas homeowners who’ve stayed in their homes for the last 20 years are enjoying appreciation despite the 2008 housing crash. Even those who bought at the top of the 2006 bubble are seeing gains today if they stuck with their property. You’ll always have to wait for your property value to appreciate—but the longer you wait to get into the market, the longer you’ll wait to see significant gains.
We can’t help you find the perfect home if we don’t know you’re looking
If you try to “wait and see,” you might miss out on your dream home. As real estate agents, we’re always heartbroken when we have to tell home shoppers: “if only you came to us last month!” because that perfect home at the perfect price got scooped up by someone else.
John Walkrup at Forbes says, “the best advice [for buyers] is to know your price, know your market, and jump on opportunities when you can.”
As soon as you know that home ownership is something you’d like to pursue in the next year or so, talk to an agent right away.. That agent can then send you homes that meet your specific needs at the price you’re looking for. You can certainly afford to be picky and decline any home that isn’t perfect for you, but this gives you a chance at every opportunity as they become available.
Time in the market beats timing the market
CPA Amanda Han said in a recent Forbes article, that this year, “the average interest rate in a checking account is 0.03%. In a year that’s seen over 8% inflation, it doesn’t take a mathematician to realize that your money can’t win the game from the bench. While inflation punishes those who wait, it rewards those who invest in appreciating assets like real estate. Not only does real estate create a recurring revenue stream, but it tends to hold its own against inflation through appreciation.” Even if housing prices do dip in the months following the purchase of your dream home, you’re likely to see gains in the long term.
Historically, a 30-year fixed-rate mortgage has long been considered an excellent hedge against inflation. If you’re planning to buy your forever home, even substantial downturns won’t matter. Looking at the numbers from Robert Shiller, who put together a database of U.S. home prices from 1890 to present, you’ll see that the total return on investment for housing is .5% above inflation year-over-year since the end of the 19th century. If where you live is going to end up earning you even a small amount every year, that’s undeniably a better deal than leaving it in cash or throwing it away in a monthly rental payment.
Homeowners get to lock in a fixed monthly housing payment, whereas tenants are subjected to rising rents
If you’re stuck in a rental while you’re waiting to see about timing the market, you’re subject to rising rental rates. Your payments on a 30-year fixed-rate mortgage, on the other hand, will stay the same over the life of the loan—and if you get the chance to refinance at a lower interest rate in the future, you could even lower your monthly payment.
And if you get into homeownership now as a landlord, rising rental rates could benefit you. CPA Amanda Han says, “As housing prices rise, more consumers are looking toward renting rather than buying. Real estate investors can capitalize on this increased demand by charging higher rent while retaining lower mortgage payments. Not only does inflation create higher rental incomes, but it also creates new renters—a combination that real estate investors can benefit from.”
Homeowners enjoy immediate tax benefits as soon as they make their first real estate purchase
Homeowners also enjoy many tax benefits unavailable to renters. Some of the tax breaks property owners can enjoy include the ability to deduct mortgage interest, home equity loan interest, discount points, necessary home improvements, home office expenses, and mortgage insurance.
As a landlord, you can write off many of the expenses related to your investment properties, and you won’t have to pay taxes on any capital gains until you sell.
Additionally, Amanda Han says, “One of the most popular tax benefits for real estate investors is the ability to defer capital gains tax using a 1031 exchange. This tax benefit allows you to sell one investment property and defer the capital gains tax by immediately purchasing another investment property.”
If you “wait and see,” you may miss both the tax benefits and the chance to increase your net worth via homeownership.
Choosing now to begin living and owning property in Las Vegas is a smart choice to ride out inflation
Though home prices in Las Vegas have been climbing substantially since 2012, housing here is more affordable than in the rest of the country. The median amount spent on housing in Vegas is 18.2% of an individual’s income as opposed to the ultra-high 30% national average. Looking for a good place to ride out inflation? With the overall cost of living 3.1% less than the national average, Vegas is a wise bet when it comes to spending your hard-earned cash on a place to live. An added bonus? Las Vegas, like the rest of Nevada, doesn’t have an individual income tax!
High mortgage rates making you hesitate?
Many real estate investors prefer to buy a lower-priced home at a 7% interest rate, rather than a higher-priced home at a 3% interest rate. Why? You can always refinance when rates drop, but in general, real estate prices trend upward. As Amy Legate-Wolfe at Yahoo Finance says, “2022 might be the lowest prices you see for some time.”
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