The massive run up in the real estate market over the last 2 years is understandably causing some buyers to ask: “Should I rent and wait for prices to come down?”
Here are 3 reasons why waiting and trying to “time the market” isn’t a great strategy…
and 1 reason why waiting may be right for you.
1. Home Prices:
Home prices are up approximately 19% year-over-year as of July 2021. Those who partook in the “wait and see” strategy in 2020 now need home prices to fall more than 19% just to get to where prices were a year ago. During The Great Recession, home prices fell 19.7% nationally in what was the worst housing crisis in our history fueled by long-gone loose lending practices. The chances of that happening again are very slim.
2. The Forecast:
The vast majority of experts forecast home prices to continue up for the next several years (as well as interest rates). Yes, there are always outliers who predict a market crash hoping on the off chance they turn out to be correct, they can get a book deal out of it 🙂
3. The Rental Market:
The rental market has skyrocketed too. A typical Conejo Valley home may cost as much as $5k a month. That will cost you $60k in one year. For a $1 million dollar home, prices would have to come down about 6% just to break even. It’s much more likely that prices will do the opposite and go up only compounding your loss. Additionally, that $60k would have been used to reduce your mortgage rather than wasting away on rent. And your rent may increase in year 2 if you decide to stay, but your mortgage payment will stay the same.
Chief Economist of the National Association of Realtors, Lawrence Yun on the National Market:
“Home price growth will be in the single digits in 2022. More inventory will show up as home builders ramp up production and from the winding down of the mortgage forbearance program. A home price decline is unlikely. However, should it occur, since price gains have been unusually large, it will be a short duration.”
Now for the one reason it may make sense to rent rather than buy…
If you are new to the area and really want to get acclimated before you make a decision, then renting for a short period of time may make sense. The challenge is that short term rental houses are few and far between. Most are 1 year minimum. You can find short term apartment rentals, or another strategy is to jump around in a few Airbnbs to test out some areas. The Conejo Valley is rather small; it typically doesn’t take a lot of time to hone in on the right neighborhood. That’s where I can help!
The Bottom Line
Nobody knows for sure what the future holds. Those who bought in 2007 had no idea they were buying at the top and those who bought in 2012 had no idea they were buying at the bottom. The decision to rent or buy should be based on your personal needs rather than trying to time the market.
As my favorite saying goes:
It’s not timing the market, it’s time in the market.