The Perfect Storm | Rates, Price and Buying Power

June 5, 2020


How many homeowners and potential homeowners have asked “Is now a good time to buy” or “Is now the time to add more space for our growing family”? These are important questions to ponder. However, much like deciding to wed, or to have children, if waiting for the perfect moment, it may never materialize. I will present a couple of reasons why I believe that this current market is the perfect storm for buying a home. We can touch on refinancing on another edition.

Reason #1- Rates… Duh

I have been in this business for nearly 24 years. Rates have been pretty good for most of my mortgage career. Ups and downs but pretty good, historically. While this is true, the current rate environment is the best it’s been, in my professional lifetime. For reference I will present a 300 k loan. A 1% increase in rate can easily equate to $150-$200 more every month. For the same house, just based on rate alone, one would pay 60k more over a 30 year loan.  While on a certain day, rates may dip, it’s not likely that this type rate environment will exist again in our lifetimes. The increased buying power with these rates is real. There are always one off exceptions, and unforeseen future global events, but in general rates have nowhere to go but up.

Reason #2- Inventory   

The shelter in place directives have had an impact here, but indications from my contacts is a lot of homes hitting the market in coming weeks. Many sellers and buyers, frankly, were waiting out COVID, and school, but school is out, and the country, at least the SE, seems to be opening back up. I’m only focused on my market.  This West Metro Atlanta market is seeing some new construction, and even though new homes are more expensive generally, we need more inventory, so this is a bonus for inventory and pricing. It’s expected by some economists that new construction is expected to take off and be the catalyst to re-energize the economy. I expect prices to hold fairly steady short term, but barring prolonged economic turmoil, that same house might be more expensive next year. Buying power is comprised of rate and price. It’s my opinion that, without deepening economic impact from COVID, prices have nowhere to go but up.  Using same example above, that 300 k loan would be 315 K if price was 5% higher. So, using the higher rate and price that same house is now 225-250 more per month. That’s now 81k more over 30 years, for the same exact house.

The perfect storm I refer to is this buying power. In our example, buying today could save $250 a month. I won’t do all the math, but think about an extra 3k annually without changing ANYTHING. Just taking advantage of the current environment. Seems like the perfect situation to buy.

Shea Shoemaker
Author: Shea Shoemaker