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Is Buying During COVID19 a Smart Decision?

 
Written by the opinion of Daniel Gat, mortgage lender; NMLS #261049.

I get this question asked of me a lot since the pandemic emerged and radically changed the world we live in. My response is opinion based and has some historic basis as well.

First, I should stipulate that my business in conducted in the Greater Los Angeles area and the East Bay area in Northern California and my opinion is based on these areas only and may not apply nationwide. 

Here are my main points to why I think now is a great time to buy:
 

  1. In the mentioned areas, historically prices have always gone up. There are periods of time where the prices have dropped (2008-2012) but they have always rebounded to be higher than previous within 7-10 years historically speaking. If you are buying a house and keep it 7-10 years or longer, I don’t think there is a time in recent history that exists where you could have bought and ended up underwater by the time you were ready to sell. For that fact alone, I consider any time a great time to buy as I believe that the investment you make in your own home will appreciate if you hold for at least 7-10 years.

  2. Interest rates are at historic lows, literally they have never been lower! Depending on the exact scenario of your purchase, with great credit we are seeing 30-year fixed rates from 2.750% - 3.500%, this is absolutely amazing considering the average 30-year fixed rate from 1971 – 2019 was 8%! This means you can now buy at higher prices and maintain lower monthly payments. This opportunity alone should push any potential home buyers off the fence and get them out into the market place to buy ASAP. How long will the rates stay at these historic lows? There is anticipation that the rates may remain very low through 2021 but one thing I have learned in the 15 years in this business is that guessing the future of interest rates can burn you as no one really knows and there are a lot of factors that go into rates. What we do know for sure though is that rates are at all-time lows now! We are in an election year now and depending on the results of the election there may be more or less confidence in the MBS (mortgage backed securities) markets which play the strongest roll in what happens to interest rates for mortgages.

But what if home prices drop and I buy now, shouldn’t I wait and see what happens with the market?

I get this question too and my simple answer is that each month you wait, you are giving away money that can go to your own equity to your landlord and you are risking that interest rates may rise. Yes, housing prices may drop or they may not but rarely will anyone time that perfectly and if you plan to hold long term, for the reasons I outlined, I don’t think you can time it wrong. 

I personally don’t think there will be much if any dip in the housing prices as the very low rates are creating a seller’s market with low inventory and tons of buyers eager to take advantage of low rates. 

That said, maybe prices do dip but most likely if that were to happen it would come along with higher rates coming out and slowing the pace of buyer’s interest. The immediate future is uncertain but what is certain is that rates are historically low now and each month a renter remains a renter and does not own, they are putting more money toward their landlord future vs. their own. 

Historically speaking, a house purchased today, regardless of what happens tomorrow, will be worth more than you pay in 7-10 years’ time. By this measure, waiting to buy, more often than not, will result in paying more for a house or if you consider the money spent on rent while you wait, even if prices dip slightly, are you really savings anything?



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