I’m a first time buyer and I’m a little hesitant to pull the trigger. Are rates going to drop next year?

The thing to realize is it is *never* a great time to buy. There are always roadblocks, hurdles, and negatives. Let me just roll back through the last 20 years here.

2021 – 2022 – Interest rates were crazy low but cheap money meant HIGH competition. You had to be willing to go $20,000 – $50,000 above asking price to have a hope of buying a home, and prices climbed $15k – $30k every month.

2012 – 2020 – Interest rates 3.75%-6%, and home prices were low, but sentiment was “There’s no way these home prices can continue to keep increases” or in the early phases “Why would you buy a home that’s just going to probably drop in value again?”. So common sentiment was “I’m just going to wait a year or two for everyone to wise up and prices to drop”. I remember clients who balked at buying $250,000 2 bedroom beach front townhomes because ‘they have to drop in the next couple years’. Oops.

2007 – 2011 – Was *extremely* difficult to get a loan, as banks were protecting the easy money they were getting from the Fed for their salaries, bonuses, and shareholders. If you had cash or were the rare beast that could obtain a mortgage, home prices were in steady decline for years. Which sounds great, except now imagine that your the house you bought 7 months ago is now -$40,000 with no end in sight, and you will have to somehow come up with that money to sell your house. Not a great position to be in.

2001 – 2006 – Some similarities to recent history, big price runup (which we only eclipsed in 2018ish), but terrible loan products and extremely predatory practices meant when ARMs and Interest Only loans shifted / came due many people got foreclosed on. Interest rates were 5% – 7% at that time. The good thing about the recent surge is that the loans are pretty solid in a ‘able to pay it’ sort of way. Whereas 2001 – 2006 it was all smoke and mirrors, tons of $300k Ninja loans (No Income, No Job, No Assets).

Going way back to late 1970s early 1980s interest rates were 14% or more lol. https://fred.stlouisfed.org/series/MORTGAGE30US Granted, home prices then were mostly under $50-150k, but outlook was pretty painful at that point in time.

I was early to mid 20s in 2001 – 2006 so I completely understand the “missing out” feeling nowadays. I can say that I SHOULD have bought a house back then, knowing what I know now. Yes, would have almost certainly been ‘stuck’ and had downsides with the price drop, but the thing is that’s going to be true of the entire market, and I’d much rather have owned my own place and customized it how I wanted than renting for another 8 years.

It’s only possible to time the market in hindsight. So the best time to make a positive life change is “when you feel it is time”. The market is going to go up and down and no controlling that, and no knowing when or what tomorrow will bring. Bank loans could dry up 6 months from now… again you just never know.

In addition, not only are you paying someone else’s mortgage, you are also not insulated from the property tax, maintenance and insurance increases. The landlord uses the money you pay them to pay for all of that PLUS the equity gained in the home plus usually a decent annual profit.

If you are looking to maximize ROI in the next 1-5 years, that’s pretty much unpredictable and unknowable territory. Even investors I tell them it’s a crap shoot if they will build equity in that time. However if you see yourself living in the area for 10, 15, 20 years then historically it is as close to certain that both home prices and rents will rise in that time frame, while if you buy you lock yourself in at today’s prices.

Plus, spending an additional ~24,000 in rent is pretty tough for me to bet in favor of. People still really, really, really, really want to move to the Tampa Bay area.