One of the questions I get asked most lately is “do you think house prices are going to go down?” and my answer is “nope, not right now”. Now I don’t have a crystal ball, but in this case, I don’t need one because I can back it up. I know that as long as there is more demand than supply, which there is, prices will continue to rise. Add to that, the all-time low-interest rates, and you now have people that may have initially been thinking they were a year out from buying, wanting to buy now to not miss out on locking in a low rate.
Prior to the Covid-19 pandemic, supply was already low, then as April came around we saw a lot of sellers taking their listings down because they didn’t want to expose themselves or their home to anyone that might be sick. “But Rob, a lot of buyers put off their home search because of the quarantine” Yeah, and then interest rates went down some more and realtors got better at doing virtual tours. Which gave buyers more confidence in re-entering the market. Now as the country begins to open up and people get back to work, more buyers will be flooding the market, and they will do so faster than the sellers putting them up.
Actually, prices have gone down if you think of it in terms of what you pay over the course of a 30-year mortgage loan. For example, assuming a conventional loan, if you were to buy a home last June for $285k at a rate of 4.04%, which is what it was this time last year, your total of payments over the course of the loan would be $394k. Whereas, if you were to buy that same exact house right now for $300k with the same 30 year conventional at 3.2% (at time of this writing), the total would be $374k. That’s a difference of Twenty Thousand Dollars! So that same house that was fifteen thousand dollars less on the price tag last year is now actually more than today’s $300k house. That is how powerful the interest rate is on the actual cost to buy.
So who does this favor, buyers or sellers? I say BOTH! Sellers are getting more for their homes, and buyers are saving in the long run on interest rates alone. I don’t know how long these interest rates will last, but as long as they do, and as long as there is not enough supply to satisfy the demand, prices will continue to rise steadily. That’s my bold prediction, what is yours?
By Rob OConnor