Fear + Risk + Math + Potential
He finished his set and said, “I’m going to play my encore now so I don’t have to come back out,” and he played his encore. At the Pabst Theater. Transparent. Honest. Direct. It appealed to me. Of course it did.
I’ll do the same. My encore. When you’re finished reading what I’ve written you may think, “Of course he’s going to say that; it’s how he makes a living.” Know that two things can be true at the same time.
Truth 1: I’m suggesting now is a good time to buy a home.
Truth 2: We only make a living if you buy a home.
The headline read: “Mortgage rates hit 7.5% causing home buyers to pull back and delay their home search.” There’s concern and fear about buying a home when rates hit 7.5%. It’s immediate.
Sellers don’t react immediately but we’re seeing that not every (though many still do) home has multiple offers or an accepted offer in 3 days. Price reductions are occurring. Small tells that may present an opportunity.
It’s scary, but scary is different than dangerous. Buying a home isn’t dangerous if done right. To quote an old proverb: “Never test the depth of the river with both feet.” So put one foot in by asking questions and gathering information.
The math: A $400,000 mortgage at 7.5% is $2,796 monthly. At 6.5% it’s $2,528. A difference of $268 a month or $3,216 annually.
The market: It’s been crazy for the past 4-5 years. This summer I randomly looked at 50 homes priced between $300,000 – $600,000 that sold in Wauwatosa. Of those, 1% sold below asking price and the balance sold for $30,000 – $75,000 over asking price. I did the same for the North Shore of Milwaukee and the same can be said.
Example: If in the past 4 years you paid $25,000 more than asking price ($400,000) for a home, you had to remain in that home for 4 years to get back to even using the historical rate of real estate appreciation.
Today, if you don’t pay that premium, you are essentially at even 7.8 years into the home with that 7.5% rate. (The $25,000 you didn’t pay divided by $3,200 annual increase in payment.)
(“If you’d pay me the money you’re payin’ to have me stop robbin’ ya…I’d stop robbin’ ya.”)
– Butch Cassidy
When I discuss risk with younger homebuyers I note there is risk in life, you just want to minimize it. Some of my risks?
A. I quit a steady, good paying job to start Homebuyer Associates and my income fell 75% in year 1… but I’m here today.
B. Years ago I sailed across Lake Michigan and almost sank 41 miles out… but I’m here today.
C. A 6-day, 150 mile bikepacking trip on the Kokopelli Trail (Fruita to Moab) tested my risk tolerance with rim rides on an 8,500 peak… but I’m here today.
D. I bought my first home at age 28 with little money. I used 12-month free financing to buy appliances and carpet as I rehabbed the home. It was a struggle…but I’m here today.
Look, I don’t want to sound like that guy on T.V., you know “Don’t grow up to be your parents” so let me acknowledge it’s harder for young buyers today.
According to the Federal Reserve, between 2022 and 2025, wealth increased by 37% for American’s 75 and older. It declined 23% for people under 35.
The mortgage rate from 1971 – 2003 remained above 7% for 95% of the weeks of that period. The average rate from 2003-2023 didn’t hit 7%.
Young home buyers have only known rates of 7% or less. Today, buyers spend up to 45% of their income on housing costs. Before 2003 it was closer to 20%. The difference? Increased home values and stagnant income.
Buying a home isn’t easy but it’s worth the effort because it provides a place to live while creating long-term savings. It’s why we counsel buyers to see if home ownership “pencils out.” Fancy words for laying out what is affordable.
I like our approach to homebuying. Have coffee. Listen. Talk. Educate. Inform.
If it’s a good fit, work together. If it’s not a good fit, don’t work together.
Let us know if you want to have a cup of coffee. We’ll listen. We’ll talk.
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Selling? We don’t list homes for sale so contact us for an objective, independent opinion on price and the process of selling in today’s market.
We’ll give you the inside scoop on the good and bad practices in real estate.
Having helped over 1,800 homebuyers you learn a lot about the selling side. The goal: Make educated and informed decisions.
Thanks for reading,
Michael D. Holloway