By Kevin Haas
Rock River Current
ROCKFORD — The old adage in real estate is that there are three things that matter: location, location, location.
But, in an ultra-competitive housing market that has pushed prices to all-time highs while homes sell at the fastest pace ever, a new aspect has entered buyers’ mindsets: timing.
Some would-be buyers wonder whether to wait for the market to cool off to capture lower prices. Others worry the skyrocketing prices foreshadow another housing market collapse like the nation underwent roughly 15 years ago.
“I think it’s in the back of everyone’s mind, particularly with the last recession and how hard things took a downturn,” said Conor Brown, CEO of Rockford Area Realtors. “I can understand with that being so fresh that people may think that could be looming out there.”
Brown sees significant differences in the recent real estate surge from the prerecession runup in 2007-08. There are stronger mortgage qualification requirements than existed in 2007. Plus, people are putting more money down and there are more cash buyers.
“The market’s not always going to be this,” Brown said. “That doesn’t necessarily mean it’s going to be a crash, either. It could be a soft landing.”
So, is now the right time to buy?
That depends largely on what you can afford, the value you can get and how long you plan to live in the house, Brown said.
“People could say, ‘I want to wait another year.’ At that point you’re rolling the dice, thinking that prices may decrease,” he said. “If you’re looking at higher interest rates in terms of borrowing, that could easily eclipse what your overall payment would be today.”
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Mortgage math
Here’s how you could end up paying more even with lower prices in the future.
The three-month rolling average price of a home sold in the region in July was 174,073. Let’s say you put 20% down – $34,815 – and got the July interest rate of 2.87%. In that scenario your monthly payment would be $577, not including taxes, insurance or other fees.
Now let’s say you wait for home prices to fall 10% and you buy for $156,665, again putting 20% – $31,333 – down. If mortgage rates had then increased to 4.5%, the average in 2018, your monthly payment would be $635. That would cost you roughly $20,900 more over the life of the loan. The total cost would be $17,400 more when factoring in the smaller down payment on the cheaper home price.
To have the same monthly mortgage payment you did in July with 4.5% mortgage rates, prices would have to fall 22.5% to the July 2018 average of $142,003.
Timing the housing market
Low interest rates are appealing to buyers now, especially since it’s difficult to predict where prices may be in the future, said Brittany Stiffler, a Realtor with Dickerson & Nieman.
“Ultimately we don’t know the market tomorrow. We don’t the market in a week. We don’t know it in a month,” she said. “We only know the market now, so that’s all we can go by.”
Renown investor Jack Bogle, the founder of Vanguard, often warned investors against trying to time the market, saying no one had done it with consistent success.
It’s similarly difficult to pick the perfect time in the housing market, Brown said. Instead, homeowners should consider the time they plan to spend in the home.
“If it’s less than two years, you probably shouldn’t be buying a house right now,” Brown said. “If you expect to live in that house seven-plus years, with interest rates this low, you may want to take a hard look at what’s out there.”
More real estate news: ‘Just let me buy a house’: Hot Rockford real estate market creates bidding wars for buyers
This article is by Kevin Haas. Email him at khaas@rockrivercurrent.com or follow him on Twitter at @KevinMHaas.