Why buy a home in this market?

You may have heard in the press that now is not a great time to buy a home. This is based on the rapid increase in interest rates since the beginning of the year, as well as the continued fast paced appreciation we have seen in our market. So, given these concerns why would someone still want to buy under these conditions?

Homeownership is still the primary means for building wealth and being able to pass it down to future generations. Home price appreciation is cooling off but still running at over 10% year-over-year (down from 20% year-over-year increases seen previously). Nationally, it is expected to normalize around 5% for 2022. Even at a rate of home values increasing 5% each year, a home purchased now for $500,000 would be worth $638,000 in 5 years. At Verity, we have home loan options that allow you to buy that home with no down payment. And a first time buyer program that only requires 3% down payment. Even if you are required to put down 3% on that $500,000 home, at the current home price appreciation, your $15,000 investment could earn you $138,000 in equity. Where else can you get a return like that?

Also consider that rents in the Seattle market have increase 20-30% over the past year. With a mortgage, you can lock in your monthly payment (with the exception of property tax increases) for the long term. You may also benefit from the tax deductions that home ownership provides.

Some people are getting scared off due to interest rates in the 5-6% range vs. the 3-4% rates we have seen over the past few years. A mortgage with a 5% rate is much more in line with historical averages. Those who are old enough will recall interest rates well into double digits, with highs reaching 18%. People continued to buy homes during those times and they will continue to buy now. As a homeowner, you have the ability to refinance your mortgage when the time is right, saving significant interest over the life of the loan. For this reason, you shouldn’t consider the rate you may pay now to be permanent.

There is currently a cooling in our local market with more homes listed, more days between listing and pending, and even some price reductions. Sellers are even allowing contingencies again (inspection, appraisal and financing). However, homes in the lower end of the price spectrum will remain the most competitive with first time buyers looking to obtain homeownership. First time buyers who are hoping prices will reduce may not want to wait—prices at the entry point are unlikely to go down, even during a moderate recession. The Seattle economy and labor market are very strong and will support the demand for housing even in more challenging times. Industry experts do expect less competition and price softening at the median or higher end of home values.

So, besides the obvious benefits of being a homeowner, it likely still makes good economic sense to stop renting and buy if possible. This is still your best path to building generational wealth and having security.

Courtesy of J. Brian Pouch, president of Credit Union Home Mortgage Solutions (CUHMS). CUHMS is co-owned by Verity and Harborstone credit unions.