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  • Writer's pictureJoseph Gunerman

Why Buy a House with 7% Interest Rates?

Our showing data for October showed that there were 50% less houses sold in the DMV, and over 50% less showings. This accurately reflects the sentiment I get when I call potential buyers on the phone, talk to friends, and monitor the news media. SO MANY people are sitting on the sidelines, with the simple reason of "I'm going to wait until rates come down." Seems fair enough... but is that really the best strategy?

I would say, instead, that this has been the best possible time to buy since I got my real estate license IF you can afford the monthly payment that comes with a house that you like. Why is that? Because there is only ONE way, especially in this area, to get a house for cheap and ALSO get a low interest rate. That is to buy when demand is low, meaning there's room to grind the seller way down on price, and then to eventually refinance into a lower rate.

Why is that the only way? First we must think about inventory, and why it will be inherently low for the foreseeable future. Where would we build a ton of new housing close to Washington DC? We don't have the empty land, and if you own a row home in or near the city, you own a very limited commodity. Factor that in with the fact that our area has a ton of built in demand, even when the market is slow. Millennials, the largest demographic in the area, are all entering home buying age. Virginia and Maryland have a ton of military personnel who move in and out every 2-5 years. Northern Virginia has become home to several major corporate headquarters. And DC is home to the federal government that seldom shrinks.

While you can't sit home and fix the supply problem, the one thing that you CAN control is whether you enter the market when demand is high or low. Timing the market is difficult, but if you do buy when the rates are squashing demand, you can get some shocking deals on prices. If you buy a home now in your neighborhood for less than all of your neighbors, when the rates do come back down, instead of re-entering the market to compete with all of the other folks who are waiting on the sidelines, you can simply refinance your property and watch the value rise as the bidding wars return.

In summary, timing the market is extremely difficult, but all markets come with unique opportunities. I would still buy tomorrow if I loved the house, could afford the monthly payment, and thought I would own it for more than 5 years. And I am wiling to bet that those who are buying right now while the other buyers are paralyzed and waiting, will be reaping the rewards in the future.

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