Over the last few weeks, I've encountered a few people who are interested in buying a home or investing in the real estate market, but are hesitant to do so. People are concerned with the upcoming election's potentially affects on the market and the fact that prices have been increasing over the past five years — which could mean they could be headed for a decline. No one can predict exactly what will happen or when it will happen. The market could change in a few weeks, months, or even years. However, investing in real estate now might still be the right move for a few reasons:
Home Prices Could Increase
For the past three years, right around this time of the year, many people thought the market was cooling down and were hesitant to buy a home. This time of the year does tend to be a little slower than after the holidays or the spring, but that doesn't necessarily mean that prices will drop drastically. Even though the market slowed for a few months in years prior, overall we've seen prices increase year over year.
Interest Rates Could Increase
If you talk to anyone who financed real estate in the 80s, 90s and even early 00s, they will tell you that the interest rates were through the roof. The fact that anyone can get a 30-year fixed $1M+ loan for 3.5% is a little nuts. It probably won't stay that way forever — even a small increase in interest rates could mean a jump for a mortgage payment. The principal and interest rate payment on a $1M loan is $4,490 at 3.5%. If rates go up by just 1%, or 4.5%, you're looking at a $5,067 for a $1M loan, which is $577 more per month.
Missing Out on Tax Deductions
If you're waiting to buy, here's one reason you might want to consider getting into real estate sooner rather than later. The tax deduction on owning real estate as a primary residence is pretty substantial. Most people in our area end up paying thousands of dollars per year in taxes because they own real estate. Combine that with investing your money in something you own instead of paying rent and it might make sense to buy something now. To get an idea of what your deduction would look like, contact your CPA or tax professional.
If you're concerned with where the market may be headed, but you'd like to get into real estate consider buying a home you can renovate or expand, or a home that you can live in for the next 10+ years.
Cliff Whearley has been a resident of Redwood City for 23 years and is a Realtor at Dwell Realtors, Inc. If you have any real estate questions, he would love to help!