Home prices drop 50%
What’s on everybody’s mind is: what is going to happen with real estate prices.. Are they going up? Are they going down? Interest rates? prices?
So here is one prediction from some high-level financiers: Home prices will fall another 10 percent because interest rates are going to stay high. It’s very likely that interest rates will stay high. They might bump up a little bit, look like they came down slightly in the last few weeks to month but they’re going to stay at this level. The 6, 7, or 8 percent range is traditionally where interest rates have been in the 80s. They went up over 10 percent, sometimes up in the teens and in the early 2000s. They were in the 3, 4, 5 percent range, neither one of those is normal.
The normal interest rate for residential real estate transactions is about the 7 to 8 percent range. It’s likely to be in that range. The Federal Reserve might boost it up a little bit to cut inflation but expect 7/8 percent. Even if housing prices fall 10 percent from where they are, that’s not going to put a big dent in affordability. If the median house is let’s say 450 000 for a house. If the home price goes down 10 percent, that means the price drops maybe $40,000. The mortgage payment difference on $40,000 is only a couple hundred bucks, 250, 280, maybe 300 difference. So if the price of a house was 480,000 and it went down to 440,000, your mortgage payment is only going to go down maybe 300 bucks. It’s not going to change the affordability of that house by a dramatic amount. if that 300 is what keeps you from buying a house you’re probably buying too much. You probably need to back down a little bit so you’re not right on the edge.
The value of the house went up from even 350 to 450 that changed your payment by $1,000. The 10 percent fall is not going to be the thing that changes the payment that much. The mortgage payment difference from 3 percent to 8 percent changes your payment by $1,000 dollars; saving $300 because the price went down isn’t going to put the real estate market genie back in the bottle of where it was in 2017.
The average price of a house go down 10% probably will maybe not quite 10, but close to it. Even if it does, that’s not a crash, that’s not a collapse, that is a shaving of the sharp edge off of crazy ridiculous real estate payments. Getting it more balanced between buyers and sellers. Remember in order for prices to go down, you have to have both the buyer and seller want to do this. If the buyer wants it to go down and stomps their feet; says it’s too much, that’s great. Until the seller agrees to it because they have to, the price isn’t going down.
Sellers, I think are going to realize they got to make some concessions. They can’t be up in the stratosphere on prices. It doesn’t mean they have to cave and give away their houses either. As much as we want that to happen, in wishful thinking and all, it doesn’t happen until the seller says yes. I will, with a gun to my head, sell the house for cheap. 10 is a rounding error, it’s not going to make a big difference especially when rates are up.
Plan accordingly. Look for a house that you can afford. If it’s 10 percent less at a 9 or 8 percent mortgage, you’ll be on the safe side. Holding back on a crash might cost you money. Even if you think house price averages kind of go down by 10 percent in 1 year, you might be better off buying now than waiting for that 10% drop. Because during that year you’re going to pay rent for a year. If your rent is $2500, times 12 months that’s $30,000 in rent that you’re paying. If you’re gonna waste that money on rent just to save maybe forty thousand on the price of a house, that’s only $10,000 difference. You can easily eat that up if the rate goes up again. If you can’t find a good house for that 10% off in a year, it might really be a break even situation. If you’re currently a renter or you have other expenses that offset what you’re going to save.
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