How to Navigate This Market: 101
Brady Erickson | Realtor
In all likelihood, you’ll find yourself in the midst of some casual small talk in the coming days. We all experience the weather, so it may be the topic of choice for breaking the ice or quickly escaping awkward silence. As a Realtor, the [housing] “market” is often “the weather” of my conversations, since it tends to be a relevant part of almost all of our lives. Based on obvious observations, most people will broach the subject with something like, “crazy market out there!” I often concede that point, while knowing it’s usually not a very robust assessment of the market.
Musing about the general state of things doesn’t excite or help someone quite like trying to peer into the future does. Anyone can look outside and observe rain, but we employ weathermen and women to at least give us some sense of what is coming down the pipeline. So for all my curious, casual, market conversationalists, here is where I think the market is going and how it affects you.
To The Non-Owner/Renter:
If you are currently renting or posted up with family, your playbook is more dependent on your current financial situation rather than the market conditions. Can you afford to buy a home? Are you planning to be in the area for the next 3-5 years? Answering yes to both of these questions makes your call to action easy: buy a home… now.
Home prices in the Twin Cities are at an all-time high, yet there are no signs of this upward trajectory changing anytime soon. Predictably, the worst-case scenario will be a slowing of our appreciation rate from the current 11% YOY number (e.g. if you bought a median-priced home last year, you’ve gained around $30k in equity from appreciation over the last year). But, let’s just say we see about 5% appreciation in the next year… well, that still rounds out to a cool $15k on the median-priced home with no end in sight.
Waiting for a market “dip” is a sad mistake and a missed opportunity. The housing market is not cryptocurrency. The fundamentals are more secure, regulated, and predictable. Don’t let your biggest purchase be influenced by a mere hunch or some vague hearsay. Talk to a professional.
To The Current Owner:
If you are currently content with where you are living, perfect. There is great gain in contentment. However, if a move is something that might benefit you and your family, timing is important. Here are the biggest factors to consider:
- Current Home Value – Almost certainly, your home is more valuable than it has ever been. It is a tremendous time to realize your equity gains. Buyers will not only give you top dollar, but they will also bow to whatever additional terms make life and moving easier for you (closing dates, lease-backs, etc.). I liken this to a credit card points promotion. There is almost always a points bonus being advertised, sometimes it is just higher than others. This is a big bonus season.
- Interest Rates – If I told you that your home will be worth more money next year, would it be wise to hold off on selling? Not if you plan on buying another home. The true cost to own next year may be significantly higher than what we are currently experiencing in this year of interest jubilee. Here’s a basic, conservative scenario that assumes MEGER 3% price appreciation and a .5% interest rate spike:
- Buying now: $500k home at 3.0% = $2,353 mo.
- Buying next year: $515k home at 3.5% = $2,536 mo.
Now, perhaps $2,000 more a year in a housing payment doesn’t bother you. And ten years later when you go to sell again, that extra $20k you paid is small potatoes. However, if you are concerned about stretching your dollar and maximizing the profitability of your biggest asset, take the hint.
- Appreciation – As mentioned above, your home will likely appreciate this year. In the Twin Cities I see it cooling off from the rapid clip, but even if we end up around 5%, would you rather that 5% be applied to a $500k home or a $250k home? With the current state of the market, I’m quite literally advising clients to buy as expensive of a home as they can afford (nuance recommended). You’ll be glad you did.
In summary, it’s a challenging time to buy a home. But being challenging doesn’t make it worthless or unwise. Few good things come easily.
Curious how this can be applied to your specific situation? Reach out any time, day or night!
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