Mike and Whitney were extremely excited when they put their deposit down on the new build in Eagle, Idaho. Mike worked for law enforcement in a larger, more crowded state and Whitney was trying to make being a stay at home mom work, but the crime rate and danger associated with Mike’s employment were eroding their security, both physically and financially. They had a good nest egg and had owned their modest home for some time. Why not buy a new build, sell the existing house, take the savings up to Idaho and start over? That seemed like a great idea, until the real estate market and interest rates reversed course.
People purchasing new builds face a uniquely difficult decision. Because prices and contracts are negotiated upwards of a year in advance, buyers have to guess what the value of the home will be in a year. Appraisals are not done when the contract is signed. Like most home purchases that involve a mortgage, appraisals are done right before the conclusion of the contract. For years this was no problem as home prices were jumping up 10-20% year over year. The real risk rested with the builders, who were potentially locking themselves into sales prices that would seem like incredible deals when the homes were done. For many like Mike and Whitney, however, the exact opposite has started to happen.
Because they agreed to an aggressive price about a year ago, they did not have a lot of wiggle room when the market softened. What was worse was that interest rates jumped up at the same time, making their payments roughly 30% greater than what they were anticipating. Options for backing out of the deal were not tolerable. Builders more than home buyers understood the risks of an unknown future and structured contracts accordingly. Mike and Whitney were locked in unless they wanted to lose a giant chunk of their nest egg, and Mike wasn’t confident now that he would have ample employment opportunities when he moved.
Buyers across the nation are hitting the breaks for a multitude of reasons similar to Mike and Whitney. Rising interest rates, softening home prices, unknown financial future… This is not the first time the country has dealt with these three downward forces. Whenever this trifecta makes an appearance, buyers sideline themselves because they’re worried about timing their purchase properly, but the irony of this decision is that the wave of hesitation is always followed by a wave of regrets because the motivation to buy should never be what may or may not happen in the future. Mike and Whitney still don’t like their current state and community. They still don’t like Mike’s job. They still want better neighbors, calmer schools, a bigger house, and better prospects for life. They still have more than enough money to purchase the home and a huge nest egg to weather financial uncertainty. In short, the things driving them to move and making the move feasible are still solid, and that’s why they’re still moving.
Understanding the right time to buy versus the right time to buy FOR YOU is something that plagues home buyers constantly. The former is always an unknown, because to know what the right time to buy is requires you to know what the future holds. That’s impossible. The latter simply requires you to truly understand your financials, your motivations, and your needs. That’s quite doable. The more people focus on timing the market, the more regrets they’ll have. The more people focus on themselves and their situations, the more confident they’ll be in their actions either way. In this time of uncertainty, be sure to focus on yourself, your needs, your situation, and in doing so you’ll produce the best decision for you.
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