| “It ain’t what you don’t know that gets you into trouble. It’s what you know that just ain’t so.”
– Mark Twain
It’s a new year. Resolutions will be made; resolutions will be broken. Here’s what I think about the housing market in the new year. You can decide if it is – or ain’t so.
A housing shortage will remain with us in the foreseeable future due to demographic pressure of home demand by Gen Z and Millennials and owners locked into low-interest loans. Some 80% of homeowners have a mortgage rate of 5% or less.
Because inventory is low and demand remains relatively high, I don’t see home prices falling. As I write, mortgage rates are hovering at 7%.
When rates were 4% and went to 7.75% all considered rates to be high. The 7.75% rate was actually an historic norm but compared to 4%…it’s high. People sit on 4% loans and don’t move. The result: a low supply of housing evidenced by sales at a 13-year low according to the Wall Street Journal
 Many homebuyers are waiting for mortgage rates to drop. Waiting for rates to drop is like trying to time the stock market. Being a “timer” in either (investing or homebuying) suggests the “timer” knows something others don’t. Unlikely and maybe foolhardy.
If your goal is to be a successful homebuyer (or home seller and buyer) it will require some self-reflection, a good life trait. Said another way:
“Knowing what you don’t know is more important than being brilliant. Knowing what you don’t know and understanding your circle of competence is critical.”
– Charlie Munger
If rates drop to 6%, many will consider that a “low rate.” As a math statement it holds true, but few people do math, most “feel.”
When homeowners begin to “feel” rates are low it may propel owners to sell. At the same time more buyers will be propelled to enter the market, due to low rates. Therein lies the flaw. When rates fall demand will rise. It’s why you should consider an alternate approach.
 A better approach is to discuss a strategy for buying or a strategy for selling and buying. I didn’t say begin looking for a home or put your home on the market, I said, “discuss a strategy.”
One part of that strategy may be the concept of inversion.
For the first time buyer inversion will require thinking not about what you are trying to buy but what you are trying to avoid…a home with major flaws or in a location with risk (vacant land nearby zoned commercial) or buying without an inspection contingency.
Aside: If you talk to an agent who says you must waive your inspection contingency to buy a home run away from that agent.
 The goal is to get the asset, the home, even at a rate of 7.75% – if you can afford it. This approach locks in the asset with the potential that if rates drop you can refinance your loan. A much better strategy than timing the market.
My opinion. Feel free to let me know “if it is – or ain’t so.”
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Thanks for reading,
Michael D. Holloway
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