Bryan:

Hello and welcome back to Change and the Market, your weekly look at the changing real estate market. I'm your host, Bryan, joined as always by the other host, Mr. Chris Masiello. How are you doing this morning, Chris?

Chris:

Hey Bryan, good to be with you and good to be with everybody in our community.

Bryan:

Absolutely, Chris. We're going to get right into it. We've talked about this topic a little bit in the past, but only kind of just in passing. Today, you really want to focus on it. So with that, how has the market changed over the past week, and what is this topic you want to focus on today?

Chris:

So we had our awards event for our agents and staff in the last couple of weeks. And we were at our event in Maine, up in Portland, and we had this conversation as a group. And you know, we have touched upon this, but I think this is going to be very insightful for people, for us to be very focused on this one topic and that is that this market isn't really what it appears to be.

And here's what I mean by that: So, yes, interest rates have gone up. In fact, they're double what they were a year ago. So, yes, the cost of borrowing for the property that you're going to buy has certainly gone up. But here's what's also happened with interest rates going up: Property values have stayed fairly flat. They haven't gone down in value.

And as a matter of fact, they've probably gone up, depending on your market, somewhere in the low single digits. 2% - 3%, something like that. And that's against the backdrop of the last three or four years, where property values have gone up anywhere between, say, ten and 20%. So property values have been able to maintain themselves.

And because interest rates have gone up, the rate of appreciation has gone down. One compensates for the other. The cost of borrowing goes up so that the cost of the product—in this case, housing—the appreciation rate has slowed. It hasn't gone backward—like the stock market's off 20%—housing's not near that. The values have stayed the same.

But here's the caveat—and this is where I put this in the category of, "things aren't always what they appear to be"—interest rates have gone up and property values are flat. Interest rates are going to start to go down. When interest rates go down, property values are going to go up. Here's the difference in the Delta—the interest rate going up might be on an average mortgage payment, five or six or $700 a month.

I'm not saying that's a small amount of money for a family budget. But the average price of a home in the United States is roughly $400,000. If it goes up by 10%, that's $40,000. And so when you measure, let's say, a mortgage payment—mortgage payments have temporarily gone up maybe 7 to $10,000 annually—versus the cost of a house, which has gone up $40,000… you really can make a very solid argument that as long as you can handle that monthly payment—don't stay out of the housing market, and that would include a seller too.

A lot of people are sitting on low-interest-rate mortgages. And if they don't have to move, I get it. But if you're thinking about a move, it's the same thing—don't wait. Because whatever house you're going to replace your current house with is going to cost more money down the road. And so I think that's just a really important concept for people to understand because it's one of those things that requires sense-making—because on the surface, it doesn't tend to make a lot of sense.

But when you really peel back, the circumstance would really speak to the fact that waiting—if you don't have to wait—is really not a good idea because in the end, it will cost you more money down the road. Now's the time to get back into the market.

Bryan:

So putting a really fine point on it and just kind of to clarify, as advice for homebuyers, you're saying if you buy now, you may be saving money as opposed to buying six months from now, even though it may not appear like that initially.

Chris:

Exactly. I mean, look, I've been in the business a long time, so I look at a five and a half or 6% interest rate—well, I remember when interest rates were 18%, so it's all relative. But if you're used to interest rates being two or 3%, well five or 6% sounds like a lot, it's double. However, what we're missing is that we have a chronic housing shortage that's not going away anytime soon.

There's going to always be pressure on housing prices to go up because we're literally producing more families than we have places to put them. So housing is going to be an amazing value. It has been historically. It's outperformed almost every other index and it's going to continue to do so. And so even though, again, it's not intuitive and interest rates are higher, the monthly cost of the property has gone up … you have to compare that to appreciation rates—that when interest rates start to go down a little bit and there's a little more inventory, what's going to happen is that property values are going to go right back up again at a rate not in low single digits, but they could be in low to mid double digits. And at a $400,000 base value, it doesn't take much to all of a sudden eclipse the additional cost of the higher interest rate versus the additional cost of a higher purchase price.

Bryan:

Yeah, no, that's a very good point. Makes a lot of sense to me. So let's take that kind of concept and expand it out to our general advice. What do you have for people this week?

Chris:

It's really simple. Things aren't always what they appear to be, and you got to be—we've talked about this—you've got to be super curious about things, like when you take a look at something like this, this is not like we were just talking about was not necessarily intuitive, but not intuitive the way we've been socialized.

We've been socialized to look at something like higher interest rates on their own, having a higher cost. But what we haven't been taught is to look at higher interest rates, for example, and compare it to the cost of what we're buying over time. We're socialized to think about things in a very small window, and if you've got a five-and-a-half-percent interest rate now—or 5.85, I think is the 30-year fixed—you can refinance out of it later when rates go down. So things aren't always what they appear to be.

Bryan:

Yeah, I think that's a big point. Contextualizing information into the broader picture is something that's not easy to do necessarily, but it's always something that is very helpful.

Chris:

Yeah. Well, I've been dying to get this out, because I just feel like it's a focus and it comes up all the time. I hope everybody can get some benefit out of the thinking around it.

Bryan:

For sure. That's going to do it for this week's episode of Change and the Market. If you're enjoying the show, as always, make sure you like, subscribe, or follow us on whatever platform you're enjoying us on and join us back here next week for another brand-new episode of Change and the Market.

---

The Masiello Group is a second-generation family company that has been a trailblazer in New England real estate since 1966. With now more than 35 offices throughout northern New England, we're the largest residential real estate firm north of Boston to offer a complete suite of home services, including buying, selling, mortgage, title, insurance, relocation, and more.

Our agents are eager and excited to meet your real estate needs!

For real estate insight, market trends, and more, check out our weekly blog at  https://www.masiello.com/news-and-updates/.