Why You Can't Time The Market Around Interest Rates

Posted by Kevin Koitz on Monday, November 6, 2023 at 2:26:30 PM By Kevin Koitz / November 6, 2023 Comment

Local Real Estate Market Update!

From our monthly real estate newsletter, composed by the great, Jason Koitz & Gretchen Koitz :-) This month we wanted to do a bit more of a deep dive into the current market conditions so apologies in advance for the wordiness. But in this changing market we wanted to highlight a few misconceptions as well as a few advantages. In the Fall of 2022, as we saw interest rates rise, a catch phrase started circulating in the real estate industry: “date the rate, marry the home”. Last October our team sounded an alarm on that messaging in our monthly e-newsletter saying that the phrase was basic in its premise and potentially dangerous. We cautioned that our belief was that rates may not immediately be coming down but that this didn’t mean it was bad time to buy (as long as you could afford the current monthly payments, of course). We perceived a market where rates probably remained high and home prices continued to go up.

And here we sit a little over a year later. Rates are up over a full percentage point from where they were in 2022. And the median home listing price in Bethesda (as of August data) is also up - over 12% year-over-year. So by the numbers, your average mortgage payment today would be roughly 9% greater than it would have been if you bought the same house at the same price last year, and roughly 42% greater than if you had bought that house (again at the same price) in March of 2021.

So what does this mean for buyers and sellers today? Well, hopefully we’ve collectively learned from the above example that "waiting to time the market" to line up with the lowest interest rate is not always a wise endeavor. But you also shouldn’t feel as though you’ve missed the boat completely if you sat things out. NOW is actually a good time for both buyers and sellers, and let’s dive into why.

For buyers, while inventory is low (largely because of the paralysis on the part of many sellers due to the “golden handcuffs” created by their current low interest mortgage) there is far less competition than we have seen in a long time. This allows you to negotiate in many cases on great properties. And negotiation does not always mean just price; it can also mean the style and duration of both property inspections and contingencies (such as appraisal and financing) on your purchase. These contingencies, that used to be customary, went the way of the dinosaur from the spring of 2020 through the spring of 2023 due to the consistent climate of competition. But now we are back in a place where they can not only be had, but worked to your advantage. Buying with full knowledge of your home should be the norm, but in lower interest rate markets this is often not the case and will probably be the first thing to go again when rates come down.

For sellers, the low inventory mentioned above means exactly what it sounds like: less homes competing with yours for buyers attention. Well prepared, expertly marketed, and precisely positioned properties can still see competition and/or quick sales even in the current interest rate climate - especially single family homes (which are currently out producing condos). And if we look at that Bethesda market example, year-over-year your property is already up in value even without competition. However, we are fairly confident that most of you who are considering selling are not going to sell your home and then live on the streets. You still have to buy your next property!! So a savvy and well guided downsizing single family home seller (again, as an example..) can take advantage of the higher demand for their property, and capitalize on the slower current condo market in terms of their purchase. This is one of many examples of how some sellers can still do very well in the current shifting market.

We will never completely dismiss the timing element in buying or selling real estate. But in terms of our current market, timing is truly what you make of it! The process may have been quicker two years ago, but with all angles factored, your net may not have been as lucrative as it is now as a seller, and not as opportunity-ripe as a buyer. And if you are still sitting on the fence waiting for that rate drop, the biggest thing you should consider is that you are certainly not alone! So if/when that rate gets a 5 (or even a 6) in front of it again, you will assuredly be competing with multiple other parties on each home, escalating on the sales price, and waiving valued contingencies. As a seller, if you wait for that timing.. you might sell your home for more due to competition, but you will also more than likely be buying your next home in that same market, and as a result having to waive valuable contingencies like a full home inspection.

So while we never liked the “date the rate, marry the home” messaging, we do believe that "wedding yourself to a home you can afford" in the current rate climate will assuredly create a scenario where you love your home even more when you can refinance in the future! Again, timing is what you make of it, and given the slowed pace of things currently, we can help you analyze how to properly bend that time for the right opportunity.