Buying a property now at 7% mortgage rate VS wait until the rates start falling

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Buying a property now at 7% mortgage rate VS wait until the rates start falling

Hwan Kim
Investor · San Antonio, TX · Member since 2023 · 4 posts · 2 votes

For the first option, I anticipate paying a higher interest rate, but I believe there may be fewer competitors in the market presently, potentially leading to good deals. Additionally, I assume housing prices are to rise (if they haven't already) once the rates start dropping.

On the other hand, with the second option, I'll pay less interest but I anticipate a surge in demand as many others may have the same idea and wait. So when the rates do drop, there could be a significant uptick in competition. Nonetheless, I also suspect there will be more supply, which might help balance out the demand.

I'm curious about the perspectives of others on this site regarding this matter

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y

Problem is if the rates go down a bit, more people will buy and prices will go up.  Find a place where the numbers work and get it.  If the rates do drop, you can always refinance.

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    This is the great debate. The best hedge is to dollar cost average into properties, kind of like if you invested in equities. $X amt of capital every year or every 18 months, so you're exposed to all ends of it-- good & bad.

    Everyone's theory is different. We know the principle of tbills paying 5%>negative cash flow, but we also know when rates go up usually underlying assets go up. And when rates go down, cash gets employed. So it leads to the question of supply vs. demand, how much supply picks up when rates drop and will it be more than supply. That all depends on regions. Just bet on a good property in favorable landlord law area, judge the land value and the cost to build, then allocate capital conservatively and don't stress it. 

    1Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    3y

    The low rates we had the last decade or more were an anomaly. I'm not expecting rates to fall much in the foreseeable future. But what do I know?

    3Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Bjorn Ahlblad:

    The low rates we had the last decade or more were an anomaly. I'm not expecting rates to fall much in the foreseeable future. But what do I know?


     I think that's a safe bet. The low rate era is done. Fed funds will stick between 2-4% until the next full pledged recession. 

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    Problem is if the rates go down a bit, more people will buy and prices will go up.  Find a place where the numbers work and get it.  If the rates do drop, you can always refinance.

    4Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Theresa Harris:

    Problem is if the rates go down a bit, more people will buy and prices will go up.  Find a place where the numbers work and get it.  If the rates do drop, you can always refinance.


     Some would argue more people will put their house on the market, and it'll create more supply. It'll bring more buyers sure, but I think people are forgetting the supply aspect will pick up ten fold. I'm fully betting on that in areas where people are primed to move but just won't cause they do not want to sell their 3.5% for 7%. Tell them it's now 5.5% and you got a lot of people putting their house for sale. 

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  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    3y

    @Hwan Kim If you find deals that work today with the rates you are currently getting then there’s no reason not to invest now. However don’t buy negatively cash flowing deals, that’s not smart. Even if you think they’ll appreciate, there’s always the possibility that the market will drop and your value drops and there’s little to no appreciation.

    All deals must positively cash flow in most investors opinions.

    3Reply
  • Kristen L GarnerBusiness Member
    Lender · Phoenix, AZ · Member since 2021 · 451 posts · 287 votes
    3y

    Hi Hwan! It's hard to time the market but a strategy I am seeing play out well right now is the aggressive use of seller concessions. I would ask your agent to consider this strategy when making offers. You can use those funds for closing costs but you can also do a seller-paid rate buy down where the seller concessions reduce your mortgage interest rate, either for the duration of the loan or just for the first few years. Best of luck.

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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    3y

    Agreed with the above responses. Our goal for next year is to BRRR-ish another rental or actually flip property. Safe to assume rates will be high. Giving that situation we will trap funds if we go for a LTR. I don't see other options (conservative investors) given these market conditions.

    0Reply
  • Johann Villalvir
    Real Estate Consultant · San Francisco, CA · Member since 2023 · 109 posts · 71 votes
    3y

    Buy now you can always refi is rates fall lower. Not sure if they will any time in the near future from looking at inflation

    0Reply
  • Vlad B.
    Member since 2019 · 90 posts · 56 votes
    3y

    I'm struggling with this too. Many of us have real estate goals and with the current market, they are not easily achievable...unless you buy a negative cash-flowing property. Not a good play in any market.

    Then there is the easy cash argument of Bonds, Money markets, and CD's that are >5%. No hassle, guaranteed. But then what is the bank investing in with my money? What do they know that I don't? Plus there isn't any upside, just a flat rate.

    Some buy for appreciation, others buy for cash flow or a hybrid of the two. In my current market with these rates, there is no guarantee for either at the moment. 


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  • Jeremiah Dunakin
    Member since 2022 · 186 posts · 192 votes
    3y

    I’ve seen rates go out of control the last 3 years. This 100% due to policy. Rates have been goin up almost 1.5% a year.There is no sign of slowing rates down at all. The feds have signaled that more rate hikes are probably comin. The US credit has been downgraded. Also due to current policy. The high rates and inflation are not goin anywhere. At least for another 1.5 years at best. People with a 2.5% intrest rate are not gonna sell and get a 7/8% rate and buy less house for more money.  (correct me with you got a 6.1% rate last week with no closing cost and a free cup of coffee) .This is causing a major housing shortage. Also the price of building new houses has at least doubled also due to policy. A couple years ago a 2x4 was a 1.79 all day long and a family pack of chicken breast was 8/9$. Those same things are are almost 4$ and 18$. Intrest rates are not gonna substantially come come down any time soon nor is gas food or building materials. One does not need a crystal ball to predict this. Factor in regulation on appliances building code and unneeded bureaucracy and you have an answer. As long as policy stays the coarse we will not see good rates again. In 3 years we have almost a true inflation rate that doubled regardless of what numbers say. What does your wallet say.

    If you can get something in todays market that make sense then I would say go for it and hope rates go back down. However to wait for rates to become more manageable is a long wait period nothing currently goin on points to that happening. At best we can hope they only go up moderately or stay the same

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  • Hwan Kim
    OP
    Investor · San Antonio, TX · Member since 2023 · 4 posts · 2 votes
    3y
    Quote from @Alecia Loveless:

    @Hwan Kim If you find deals that work today with the rates you are currently getting then there’s no reason not to invest now. However don’t buy negatively cash flowing deals, that’s not smart. Even if you think they’ll appreciate, there’s always the possibility that the market will drop and your value drops and there’s little to no appreciation.

    All deals must positively cash flow in most investors opinions.

    When you say "cash flow" I assume you are considering everything from maintenance, tax, insurance + 7% mortgage? I am gonna have hard time finding one haha 
    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    3y

    What if rates dont fall? What if next year, and for the following decade rates are 9%? Then todays 7% rate will look pretty good.

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  • Jeremiah Dunakin
    Member since 2022 · 186 posts · 192 votes
    3y
    Quote from @Russell Brazil:

    What if rates dont fall? What if next year, and for the following decade rates are 9%? Then todays 7% rate will look pretty good.


     Agreed there is not one thing pointing to lower rates. If anything signs are pointing to higher rates. Even if the basis points gets dropped a little it’s not gonna be a big enough change to make mortgage rates fall enough to make a difference. 

    0Reply
  • Timothy Howdeshell
    Investor · Fresno, CA · Member since 2016 · 222 posts · 237 votes
    3y

    @Hwan Kim Ultimately, only you wil be able to make the right decision as there are many factors. For instance, do you have a high income and are simply purchasing property to offset tax liability? Do you have an investment thesis (overall and for real estate)? 

    We can provide talking points and things to consider, but you'll have to decide for yourself your risk tolerance, your future projections (on the wider economy and real estate), and your personal financial decision and goals. 

    In general I agree with your supply/demand comments and what rate changes will do to prices. But the problem is that no one knows the timing of these things. Rates may stay high for a couple of years or more. Most economists seem to be projecting a decline, but will they be meaningful enough to swing the market wildly? 

    In general I'm a fan of action today and course correcting later if needed. Best of luck! 

    0Reply
  • Tracy Ross
    Member since 2022 · 75 posts · 73 votes
    3y

    Hi Hwan,

    IMO Rates in the 2's and 3's are going to be an anomaly of our time. and something like 60% of homeowners have a rate below 4%. I think even if the rates come down in the next few years we are not going to see more supply. People are holding onto these rates. I actually think it's a great time to buy. There's not a ton of competition, prices are high and it can be hard to cashflow but if rates drop and we see more competition and low supply we are in 2020 all over again. 

    0Reply
  • Simon Ashbaugh
    Realtor · Columbus Ohio, Cleveland Ohio · Member since 2022 · 849 posts · 830 votes
    3y
    Quote from @Hwan Kim:

    For the first option, I anticipate paying a higher interest rate, but I believe there may be fewer competitors in the market presently, potentially leading to good deals. Additionally, I assume housing prices are to rise (if they haven't already) once the rates start dropping.

    On the other hand, with the second option, I'll pay less interest but I anticipate a surge in demand as many others may have the same idea and wait. So when the rates do drop, there could be a significant uptick in competition. Nonetheless, I also suspect there will be more supply, which might help balance out the demand.

    I'm curious about the perspectives of others on this site regarding this matter


     Depends on where you go. My personal opinion is that with inflation and appreciation, you'll end up paying about the same if you wait. You'll also miss out on building net worth and passive income along the way. 

    0Reply
  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes
    3y

    Hello @Hwan Kim,

    Waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, leading to a significant decrease in your acquisition cost and debt service.

    The two major factors are interest rates and prices.

    Interest Rates

    I have asked many of our clients for their thoughts on the future of interest rates. One opinion that I found more credible than most concerns politicians.

    “Politicians only care about getting elected or reelected. Whether their policies hurt or help the people they claim to care about, is not relevant. However, we can count on politicians to act in their own self-interest. And, unless interest rates fall before the presidential elections, voters will vote with their

    In my opinion, interest rates are likely to reach 5% within three years. However, like everyone else, I have no basis for this assumption.

    What do I expect to happen to interest rates in the short term?

    The Fed last increased the interest rate by 0.25%. And, according to what I read, there may be another interest rate increase in the near future.

    So, waiting for interest rates to fall does not seem to be a viable option.

    Prices

    Property prices are driven by supply and demand. What drives demand is the change in population. If you are invested in a city with significant and sustained population growth, prices will rise in the future. If the population is declining or static, prices will rise little or even fall.

    As mentioned in the thread, part of the problem is lack of inventory. Part of the cause is people unwilling to give up a 3% mortgage for an 8% mortgage. As interest rates start to fall, more sellers will enter the market and more people will be able to buy, resulting in rapidly rising prices.

    So, whether prices will rise significantly in the future, depends on the city’s population growth rate.

    What We Are Doing Today

    We have changed our purchasing process for our clients. Now, once we get a property under contract, we obtain interest-rate buy-downs from multiple lenders, as illustrated below.

    We then select the best option and move the loan to that lender. This method converted negative cash flows to positive cash flow or, at worst, break even cash flow. It is unlikely to have a positive cash flow at a 7% or 8% interest rate.

    In Summary

    As I mentioned, waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, resulting in a significant reduction in your acquisition cost and debt service.

    I expect interest rates to rise in the short term, so waiting for them to fall is not a viable option.

    How much property prices will change in the future depends on population growth where you invest.

    • If the populations is static or falling, I do expect property prices will increase significantly.
    • If there is sustained and significant population growth, I expect prices to rise significantly, so waiting is not a viable option.

    Hwan, I hope this helps.

    [email protected]702-358-8884
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