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Are you holding out for a pandemic discount on your home? Read this first!

Stephanie Somers

Co-CEO of a successful 20+ person team, Stephanie Somers has been bringing her fierce loyalty, unrelenting work ethic, and constant pursuit of creativ...

Co-CEO of a successful 20+ person team, Stephanie Somers has been bringing her fierce loyalty, unrelenting work ethic, and constant pursuit of creativ...

Apr 23 6 minutes read

On the fence until Home Prices Drop? Think again.

Dear prospective Home Buyer, on the fence home buyer, and all other buyers of homes… I hate to be the one that breaks the news to you, but in Philadelphia, we will not be seeing discounted home prices any time soon. Certainly not dropping to the degree that will beat the tune of the real opportunity drum, which is the unprecedented low-interest rates we are enjoying right now. I’ll say it again. Prices will not be dropping significantly or at all in the immediate future. The low-interest rates are the precise reason holding out may not be a wise choice. 

3% is an unfathomably low-interest rate

A genuinely brilliant and successful lender friend said, “Homebuyers must be living under a rock" if they do not seize the opportunity right now to buy a home. During this current point in time, the window of opportunity is cracked open for a short while which opens up a rare hour to take full advantage of interest rates that are at a historic low! The 3% range is unfathomably low!

A lot of folks are thinking about buying right now but are experiencing some serious doubt. I have heard some qualified buyers say they are holding out for a Pandemic Discount. These buyers think the prices of homes are going to go down and waiting for that is their gamble. Do these hold out buyers really have all of the facts? Are they fully informed? Or, is their choice based on group fear and naysayers of doom which possibly shrouds their judgment? Will turning a blind eye to this occasion make them regret not buying right now when their buying power may well be at its fiercest?  Buying a home is the biggest and bravest decision of a lifetime and should be explored to the fullest. 

Would Have, Could Have, and Should Have 

How often have you heard people look back at a lost opportunity and said, “If I only…” Fill in the blank. If I only took that job, invested in that stock, or in essence overcome internal fear and doubt that paralyzed them. If I had a dollar for every person who has said to me, if I only bought in Northern Liberties, Fishtown… you know who you are. I too have said it. Would have, could have, and should have are the words of regret that we can not take back. Winners take action when there is an opportunity.

Low-interest rates are the reason to buy now. The low rates brighten your buying power. Low prices are great as long as the interest rates are low but based on history and Real Estate market behavior, those two components do not work together for our good. Even if the home prices go down in Philadelphia, they will do so at a snail's pace. Why won’t prices go down? 

3 reasons home prices won't go down

  1. Because sellers are and will continue to demand the prices we have seen over the last few years.
  2. There are still a ton of qualified buyers that have largely not been negatively impacted by the short term condition of the economy and job market.
  3. Philadelphia is still in the throws of re-development with the help of the tax abatement still being in place to varying degrees for the next 3 years.

If you are waiting for prices to drop, you are also waiting for the interest rate to soar. Higher interest rates and lower home values go hand in hand. And if that happens, you'll end up paying much more and get much less over the course of the loan. And to add salt to the wound, your buying power will be diminished comparatively. Here is what you should know.

Let’s take a look at how rising interest rates can impact the average buyer using a conventional loan. This simplified spreadsheet shows how interest rates impact your monthly mortgage amount and your buying power. 


Conventional Loan

Home Price

3% interest rate

4% interest rate

5% interest rate

200K

$1,259/mo

$1,371/mo

$1,483/mo

300K

$1,681/mo

$1,849/mo

$2,017/mo

400K

$2,103/mo

$2,326/mo

$3,253/mo

500K

$2,733/mo

$3,012/mo

$3,293/mo


Let's use 3% as your base interest rate. If you can afford a home right now at around a 3% interest rate, your buying power will go down dramatically by tens of thousands of dollars when the interest rates go up. Over the course of an average loan, you could be paying $100,000+ more just based on percentage points. 

Another way of putting it is if a person qualifies for a $300,000 loan today and can afford a monthly mortgage of about $1,650/mo. with a 3% interest rate. A 1 point increase adds about another $160 dollars/mo. Now $160 does not seem like much but over 30 years that is almost $60,000 more! That increase could mean you will need to make sacrifices as well regarding the condition, quality, and location of your dream home. A person pushing that 300K price point may need to buy a home closer to the 275K price range due to rate increases and that is a game-changer for many home buyers.

The false belief is that the home prices will go down and the interest rates will remain low. Not so. Maybe eventually prices could go down but not as fast as you think. According to many economists, home prices will largely stay the same in Philadelphia. If you are waiting for a huge drop in prices, you may be waiting for a very long time. And if you think 3% is the new normal for interest rates, you are only kidding yourself. The window of opportunity is cracked open for only a short while. 

Is buying this year something you have considered or is it something you’ve put on the shelf? If you are on the fence, I’d love to talk to you about the possibilities. 


Learn more about current mortgage rates in our video below with Jason Fallon of Loan Depot.

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