The Cost of Waiting to Buy

The Weekly Recap

US 30 Year Mortgage rates hit their lowest point since September. Banks are releasing their year end financials and some are living the dream (JP Morgan and BofA), others are hanging on (CitiGroup) and others really want to be living the dream (Wells Fargo, Blackrock). Janet Yellen warned of US default risk by early June as we hit the debt-ceiling. US existing home sales slid last year as rates surged. Mortgage Re-Finance demand has grown 5% and the head of Bank of America thinks we'll see a "soft recession".

The Cost of Waiting to Buy

Words like Inflation and Recession tend to scare people from doing things. Humans are emotional beings and the most intense emotion an individual can experience is fear. Fear of loss, of missing out, of making a bad decision. And rising interest rates flame fears of recessions which flame fears of an under performing economy and job market. If you're currently renting and trying to figure out the right time to buy, let me share what it will cost you in waiting:

• Return on Investment: to preface everything below its important to remember that Real Estate is an asset class responsible for 80% of global wealth and ROI in real estate is determined not by timing the market, but by time spent IN the market. The more time in a market, the higher the returns. Short term asset swaps are always risky.

• Rent Payments: Rent is the single largest net outflow of capital for any individual. For those of you concerned about interest rate payments of 5 or 6% on a mortgage, a rent payment is a 100% interest payment. You are paying someone else's mortgage and creating zero equity for yourself. If you pay $5,000 a month in rent, you are losing $60,000 a year.

• Interest Rates: Although rates have ticked down very slightly, the Fed has said they will raise rates again to continue to combat inflation although at a slower pace in 2022. Locking in a rate now HEDGES your bet against future inflationary drivers that increase interest rates. If you lock in 6.5% now, and rates go to 8%, you've hedged 150 basis points in increased rates. For every 1% increase in rates on a million dollar mortgage is another $180,000 in interest you will need to pay over the course of a 30 year fixed rate.

• Loss in Price Appreciation: If you decided to wait until rates drop again to where they were in the mid to low 4% range, you will be waiting awhile. Interest rates do not drop precipitously, they plateau and then begin the long decent down. It could take three maybe four years for rates to return to that level. In the four years you've waited you've lost out on four years of home equity and price appreciation. Unlike any other real estate market NYC's track record of appreciation outperforms all others. The same apartment that's a $1 million apartment today can be worth $1.1or $1.150 million in four years.

• Cost of Waiting: Between rent ($60,000), increase in rate ($180,000) and loss in price appreciation ($100,000), waiting to buy can cost you almost $340,000. There is a time value to money. Locking in a rate today hedges against future inflation. When rates come down, you refinance, exercising the concept of "date the rate but marry the home". Warren Buffet created his wealth in down markets. Now is your opportunity to do it as well.

Market Performance

Here are how some other asset classes performed this week as of this mornings opening bell.

Mortgage Rate Update

Rates tick down due to lack of demand and overall positive news that inflation is easing. The Fed continues to advise that although rate increases will slow down this year, they reserve the right to change their mind. This, brought to you by the people who called inflation transitory.

Real Estate News You Can Use

• US Mortgage Interest Rates Fall to Lowest Levels Since September Reuters

• Despite Easing Inflation, Economists Still See a Recession WSJ

• US Reached Its Debt Limit and Treasury Will Exercise 'Extraordinary' measures Reuters

• What JPMorgan and Other Banking Giants Say on a Recession Barrons

• How to Pick and Stick to your Work Goals CNBC

• Mortgage Refinance Demand Grows 5% with Drop in Rates CNBC

• Harvard Economist Thinks Home Prices Will Fall Over the Next Few Years NY Post

• US Existing Home Sales Slid Last Year as Rates Surged WSJ

• Yellen Warns of US Default by June Reuters

• Gen Z is Driving Luxury Sales as Wealthy Shoppers Get Younger CNBC

• What Inflation? Rolls-Royce sets 2022 sales record Reuters

• What One Finance Professor Thinks of Crypto NYT

The Deep Insight

Puppy of the Week

Meet Maximus! His favorite movie is obviously Gladiator. He speaks two languages and German is not one of them. The only thing more dramatic than Maximus is his owner and he only wants attention when he deems it required. He also hates goodbyes as he barks in disapproval when people leave. Maximus' ears are 9 feet tall.

Contact Me

Feel free to reach out to discuss more in-depth about your real estate goals, share your thoughts about my newsletter, or lobby me to have your dog featured as the dog of the week in my monthly newsletter. Looking forward to hearing from you!