Are Home Prices Falling?

The current real estate landscape in the Valley suggests that home prices are unlikely to decrease any time soon. Our county stands as one of the fastest-growing regions in the entire United States, yet there's a notable decline in permits for new home constructions. As the population continues to grow, along with the demand for housing, prices are on an upward trajectory. While some may oversimplify weak demand as a sign of lower prices, it actually results in slower sales. However, the crucial factor affecting prices is the supply, which remains significantly below the standard level. To achieve market equilibrium, we would need the supply to nearly double.

Many potential homebuyers with the means to make a purchase are holding out for the perfect circumstances—perfect home, perfect timing, perfect price, and perfect mortgage rate. However, a considerable number of individuals regret not buying a few years ago, assuming waiting would lead to cost savings. Experience shows waiting rarely yields financial benefits.

At present, prices are stable, demand is somewhat reduced, and inventory is gradually expanding. For those considering entering the market now, the median home price in the Valley is $440,000, a $40,000 reduction from its peak in May 2022. With a 10% down payment and a 7.25% interest rate, the monthly principal and interest payment equate to approximately $2,701.

Owning a home offers the possibility of refinancing and lowering monthly payments if interest rates decline. If rates remain steady or rise, being a homeowner would prove a wise decision. Additionally, it's noteworthy that many lenders are currently offering free refinancing should rates decrease.

Suppose you opt to wait for interest rates to drop to 6%. However, it's uncertain when or if this will happen. Assuming a conservative 5% appreciation in the next year, delaying your purchase would lead to an additional cost of $22,000 for the house. This increased cost affects your mortgage and accumulates thousands in additional interest payments over time (assuming a refinance).

Delaying your decision by a year might save you around $2,500 when interest rates drop to 6%. Nevertheless, your home cost and mortgage will rise by nearly ten times that amount. It's prudent to prioritize the bigger picture over small savings.

As the saying goes in the lending world, "marry the house, date the rate." Home values generally appreciate over time. While it's undoubtedly an investment at the moment, one should consider how much more costly it may become in a year, two years, or three years. It's time to commit and embrace your next home.