Thinking about buying a house? Lemme tell ya

Reader If you’re buying or selling real estate, or even thinking about it, it really is an “interesting” time.

I love real estate, as you already know. I’ve got four houses, three being rentals. I’m forever looking at the market to understand what’s going on with my properties or getting ready for my next purchase.

Right now, you may be seeing a lot of headlines predicting a housing crash. Or saying it’s a terrible time to buy. Or telling you to wait for interest rates to drop.

But when you dig into the actual data and talk to professionals, it’s more nuanced than that. There is a tug-of-war happening, with some factors pushing prices further up, and others bringing them down. Let’s dig into it.

This isn’t 2008. Don’t expect a housing crash.

During the 2008 housing crash and recession, there were tons of garbage mortgages given to people who couldn't afford them or understand them. And they were so easy to get. Even I grabbed a 0% down loan only two years after undergrad.

All these easy mortgages, requiring no money or income, put a bunch of buyers in the market. A bunch of buyers causes prices to rise through competition. Add to that, banks and lenders were doing everything to sell these bad loans and trick the uninformed.

Then things popped off. All these bad loans couldn’t get paid. Banks took the homes and put them for sale. But with so many homes for sale, and no one able to get a 0% down “if your mama says you can pay, I’ll trust you” loan anymore, prices tanked.

Tons of supply and no demand to bid for it.

Now banks couldn’t get their money back from selling the house (underwater and no down payment cushion). Holders of the mortgages, which had been repackaged and sold multiple times, lost billions. Banks went under, recession, depression, you’ve heard the story.

2022 ain’t 2008. Things are very different. People have good loans at low-interest rates. They bought houses with down payments, meaning they have a 10%-20% cushion for a value drop. Banks got their acts together (because the gov’t forced them) and fixed their lending practices to get rid of predatory mortgages.

The risk of massive foreclosures and flooding of the market is pretty damn low now.

But it’s definitely not all roses

Now listen, don’t fool yourself. Something is happening.

We’ve seen a huge run-up in housing prices over the last two years. Things got insane. We saw an increase in everyone wanting to relocate, an increased desire for more space, and no one wanting to sell and invite COVID into their house.

The price jump was due to a low supply of homes to buy, and an insane number of people trying to buy. This meant bidding wars.

Everyone finally understood the impact of a mortgage rate on their monthly payment. They’ll pay more in price if the rate is low and the payment doesn’t go up. And for us investors…well saving 2-5% of expenses because of low-interest rates felt like easy money. Everyone wanted a house with these cheap mortgages, adding to demand, raising prices.

But that’s changed. Mortgage rates jumped from around 3% to 7% in a few months. That means a $500k house went from a $2,108 a month mortgage to $3,327. 🤯

As you can imagine, a lot of people changed their minds (or their lender changed it for them) on how much they can afford. And now prices are starting to drop as buyers leave in droves, opting to rent or stay in their current home.

But wait … it’s not that simple. We are still low on housing supply, with no end in sight. Basically, we have been underbuilding homes in the USA for the last 10 years. Now, supply is tight, demand is high, and this drives prices up.

This is the tug of war. Mortgage rates are turning off buyers as houses become unaffordable, pressuring prices down with less competition. But with so few houses, prices get pressure to keep going up. This is playing out regionally, with prices and inventory changing significantly between locations.

So, is there a crash, correction, slow down, or more appreciation? It’s unclear.

Is now a good time to buy?

Maybe …

If you are looking for a personal home now, you’ll have to get over the fact you will have a 7% rate vs. a 3% rate.

These mortgage rates are here to stay

I’ve heard a lot of people say “I’ll wait until rates come back down” or “these rates are so high that something has to change”.

deep sigh

While it’s definitely a human condition to forget or romanticize the past (except for the music of my generation, clearly the best) and assume the future always returns to the past (No Limit records is making a comeback), there is very clear evidence that rates aren’t dropping.

For us millennials and gen Z’ers, we think mortgages at 5% is high, and 3% is normal. We have never bought a house with a 10% mortgage and we think that’s unsustainable and insane.

Truth is, 3% mortgages are crack-head rates (i.e. they are illogical and make no sense).

We were blessed. But the blessings have run out.

Interest rates, in my opinion, are going to be at this level for a long time, if not forever. We need to accept the new normal. Waiting for rates to drop is not pragmatic.

But with these higher rates, there is a lot of “sanity” that’s coming back to the market. This means prices are coming down, sellers are negotiating, and houses aren’t off the market in 2 days. Buying will be much more enjoyable compared to the last two years.

This is playing out regionally. For example, Austin, TX has a ton of houses for sale, but Chicago is still tight, based on this Bigger Pockets video analyzing real estate trends, impacting prices differently.

Expect more interest rate hikes from the fed. Mortgage rates will increase but housing prices should drop. 🤷🏾‍♂️

It’s about to be buying season for investors

When the goal of your real estate is to pragmatically put money in your pocket and not fulfill a life dream, a mortgage is a rational, deductible, and expected business expense. So rates rising sucks, but it can be modeled and planned for.

What’s more exciting is the fact we don’t have to fight tooth and nail for every deal and every home. Deals are becoming more abundant, negotiating is back, and it’s easier to get your bid accepted.

I am very actively getting ready to buy, and already looking at deals. The team is coming together and I’m stepping up my education to build wealth in this upcoming market. If you’ve been waiting on the market to cool down before buying your first investment, 2023 might be your year.

But the truth is … there is never a bad time to invest. Time in the market beats timing the market.

- Damien “Buying houses like it’s going out of style” Peters

P.S. Talking about real estate, I judged Zillow’s 2022 HBCU hackathon this year for the second time and loved it. Knowing an HBCU was going to get a big donation, and seeing what the students came up with was amazing. Check out my post on LinkedIn about the winners, MSU

P.S.S. Someone thought my real estate story was cool enough to put into a book. I’m one of 25 black real estate investors highlighted in the “Acres” coffee table book. I hate self-promotion (believe it or not), but watching my son point to my picture in the book was a top 10 proud life moment.