Why Choosing a Home Now with Higher Rates in Tennessee Is a Smarter Long-Term Investment
In today’s real estate market, many home buyers are fixated on securing low interest rates, and understandably so. Owning a home with a low interest rate can result in significant savings. However, it is crucial not to overlook current housing trends and where prices may be heading. By taking a closer look at the bigger picture, we can gain valuable insights into why choosing a home now, even with higher rates, can be a wiser long-term investment.
To accommodate buyers facing higher rates, home prices have adjusted in many areas, making less expensive homes more affordable. This adjustment has led to a shift in developer focus towards rental properties, which have seen increased value due to rising rental rates. With fewer people opting to buy or being forced to rent, combined with advantageous tax incentives and loopholes, being a landlord, especially on a larger scale, has become more profitable.
A Long-Term Perspective – While short-term trends are important, it is essential to consider the long-term implications. At some point, as we enter a high probability or actual recession, rate hikes will likely recede. This could potentially prompt those unaffected by the economic downturn to re-enter the buying mode. Pent-up demand has a powerful influence on markets, as witnessed in the recent past. For instance, in 2021/2, it drove prices skyward.
Factors Driving the Market – When we factor in pent-up demand, which has caused a significant drop in sales volume year over year (around 25-30%), along with millions of younger individuals entering the home buying market, retirees purchasing additional homes, an extended lifespan leading to longer working years, substantial in-migration (both legal and otherwise, totaling in the millions), a massive transfer of wealth due to trillions in stimulus packages, and elevated building and labor costs, the current housing market reveals a compelling case for long-term investment.
Supply and Demand Imbalance – Adding to the equation is the fact that we are already facing a shortage of millions of homes. The average home is over 30 years old and requires renovations or repairs. This imbalance between supply and demand further strengthens the case for purchasing a home now, despite higher rates.
Drawing Insights from Other Industries – History has shown us the impact of supply disruptions in other industries. Just consider what happened to oil and gas prices when the world realized its increased demand while a war broke out among two major producers, leading to a significant supply disruption. This analogy reminds us that market dynamics can have a profound effect on prices.
The Big Conclusion – While it may seem more expensive to buy a home now due to higher rates, it is crucial for buyers to exercise caution. The eventual decline in rates, even if not as low as 3%, could potentially reawaken the housing market dramatically, much like the post-COVID lockdown scenario. We are well aware of the price surges that accompany such market movements. By considering the long-term potential, buyers can make an informed decision and secure a smarter investment in Tennessee’s real estate market.
