Explaining The “Life Goes On” Home-Buying Cycle

Why the heck are home prices not going down more with mortgage rates so high? In many parts of the country, home prices are actually going up! The answer to this conundrum is partly due to the “life goes on” home-buying cycle.

Many folks put their lives on hold for one-to-three years during the pandemic. In the beginning, some might have viewed buying a new home as too risky given all the unknown variables. Therefore, many folks just keep renting or living in their existing homes.

Due to the pandemic, plenty of folks also delayed the following:

• going to college
• getting a graduate degree
• moving for a new job
• starting a business
• proposing to a significant other
• having children
• having more children
• retiring

However, guess what? Life goes on! We can’t put our lives on hold forever because we all eventually die. What a waste to never live your dreams and desires.

Can’t Wait Any Longer Until Mortgage Rates Decline

After mortgage rates surged higher in 2022, the demand for homes tanked. 2H 2022 was one of the slowest home buying seasons on record and 1Q2023 wasn’t too much better.

Mortgage rates have declined from its peak of around 7.25%, but they remain stubbornly high given the spread between mortgage rates and Treasury bond yields remain higher-than-normal.

Further, the Federal Reserve has indicated it may want to increase rates for the 11th and 12th time over the next six months, despite already raising by ten times.

Good things come to those who wait. However, it is increasingly becoming clear that people are getting tired of putting their lives on hold to get a lower mortgage rate. There is growing pent-up demand. By the time mortgage rates do come down, demand may surge.

Date The Rate, Marry The Home

The saying, “date the rate, marry the home” means that your mortgage rate is temporary, but your home is everlasting. You can always refinance your mortgage, but you can never change the purchase price of your home. If you miss out on your dream home, you might never be able to buy it again.

Given the logic, the argument is to not to let a high mortgage rate deter you from buying your target home once it is found.

In general, I agree with the saying given mortgage rates have been in a downward trend since the 1980s. Chances are high that any interest rate hikes and inflationary spikes are temporary – lasting no longer than two-or-three years.

Given you can take out a lower-rate ARM that has a fixed-rate introductory period of 5, 7, and 10 years, there are ways to save on mortgage expense. I’ve been a proponent of ARMs since I first started buying property in 2003. Over $500,000 in mortgage interest expense has been saved as a result.

Worth Being Cynical As Well

However, “date the rate, marry the home” is also a saying used by realtors to get buyers to transact. To the realtor cynics, it’s always a good time to buy or sell a home! Therefore, be careful getting too easily influenced by words without running the numbers.

Mortgage rates will most likely decline in the next 12-24 months given inflation is heading back down. If you can afford a temporarily higher mortgage payment, then buying a new home may be a good idea. See the historical U.S. CPI chart below.

A Constant Race Against Time

At 46, I refuse to waste time or wait for good things to happen anymore. If you listen to my podcast episode on debating with my wife about upgrading homes (Apple), you can hear how I’m itching to take advantage of opportunity.

I want to create the life that I want, not just let it happen. Here are some examples of taking action because time won’t wait for us.

Your Career – Life Goes On

Creating a better life is why I left Goldman in 2001 instead of letting them not invite me back for a third year. I had overheard my third-year analyst offer was in a precarious situation. If I didn’t leave for Credit Suisse, I may not have gotten another opportunity to relocate to San Francisco.

Wanting a better life is also why I decided to take matters into my own hands and negotiated a severance in 2012. Plenty of colleagues got let go during the seven rounds of layoffs during the global financial crisis.

I didn’t want to wait around to get bageled and then let go. That would have been depressing. Instead, I want to create a life of freedom an adventure sooner.

Your Net Worth – Life Goes On

To build above-average wealth we must be intentional with our spending, saving, investing, and tracking. We can’t just wing it to millionaire status. Nobody is just going to just give us money. We have to work hard for it and take advantage of opportunities.

I knew my days in banking were limited. Not only was I burning out I was also slowly burning some bridges. As a result, I got to writing on Financial Samurai on the side as a potential way out.

Today, Financial Samurai is an asset that generates online income to help build our net worth once we fake retired. I had delayed starting this site since 2006, when I first came up with the idea post MBA. But no longer was I willing to wait for the right time to start once the global financial crisis hit. Life goes on!

Starting A Family – Life Goes On

Human biology doesn’t wait for us to find the right partner before having kids. Instead, it becomes harder for women to have children after the age of 35. After age 40, it becomes almost impossible to have children naturally.

As a result, if you know you want to have kids, you may want to freeze your eggs. You may also want to spend more time on the dating circuit because you might one day regret choosing money over love.

Your body will begin to fail as you pursue your career because life goes on. Once your body is over the edge, there’s no going back. Waiting for ten years until you’re past 40 to find Mr. Right might not be feasible.

Upgrading Homes – Life Goes On

Currently, I have the opportunity to upgrade homes at a more reasonable price from 2022. The listing agent said the seller is coming back from overseas and will live in it for two years if nobody buys the home before August 2023. The seller’s daughter got into a high school as a junior.

In other words, life goes on for the seller whether they sell or not because high school is mandatory. For my family, I have to decide whether to buy the home now and enjoy it or wait for two years with no guarantees the home will be available to purchase then.

If home prices in two years are significantly higher, I will kick myself because this home may no longer be affordable. Who knows? Maybe the AI boom creates massive fortunes for those living in the Bay Area. There is a window of opportunity to buy a home in 2023.

Or maybe home inventory will finally rise once mortgage rates decline, thereby suppressing home price growth. The thing is, I’ve found the inventory I want so the current situation is a win! Ah, the trickiness of measuring the impact of supply and demand on home prices.

Remain Disciplined When Buying A Home

Even though life goes on, you don’t want to irresponsibly buy a home you cannot comfortably afford. It would be counterproductive to buy your dream home only to feel stressed about the payments.

My 30/30/3 home buying guide and my net worth home buying guide are good references to follow. They will hlep prevent your emotions from getting the best of your logical mind.

I’ve re-read both posts and concede that it would be better if we boost our net worth by another ten percent before buying a new home. Two years seems like a conservative amount of time to reach this goal.

However, it’s just hard to wait another two years for mortgage rates to decline further. If we do wait, that would cut off 17.3% of the time we have left with our children at home. And by then, real estate demand might go gangbusters again.

Reader Questions And Answers

Are you surprised by the strength of home prices despite a surge in mortgage rates? Do you agree a big reason why home prices continue to go up is due to a “life goes on” mentality where people are tired of waiting for mortgage rates to come down? What are some other reasons why home prices are continuing to increase?

If you’re looking to buy physical property, you want to hedge by owning real estate online to ride the price changes. Check out Fundrise. Fundrise primarily invests in residential real estate in the Sunbelt, where valuations are cheaper and rental yields are higher. The real estate firm currently manages over $3.5 billion with over 400,000 investors.

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