How to invest wisely in an upside down market.
Welcome to the Team Cool Murphy 2023 Annual Market Overview, an in depth report.
This year's issue is focused on comprehensive strategies to navigate this unusual real estate market. In this report, you will learn a few secrets most REALTORS don't want to share, including:
What we can learn from 2022, including why it was such a unique market and in what ways it was exceptional
What a "normal" real estate market looks like at large across the U.S. and here in New Orleans
How far off the 2023 real estate market from being a "normal" real estate market
How to acquire (more) property in 2023 without being duped, stressed, or overwhelmed
How to make smart investments this year by making 2023's real estate market work in your favor
Is this Right for You?
Is reading this report worth your time? That's up to you. If you identify with any of the following statements below, you will find the information in this report helpful.
I want to purchase property soon, but I'd like to know how to make the current market conditions work in my favor.
I'm open to purchasing property, but I'm still deciding whether to put my money into the current market or wait for more favorable conditions.
I want to improve my current living situation, but I can wait until the market is more "normal."
I need to move on, and I want to know how to do so wisely. I don't want to make any stupid moves.
I've been looking at property prices, news, and information on the real estate market, and now is not the best time to invest or sell.
If any of the above feels familiar, or if you're seeking to help someone you've heard make similar statements, you've come to the right place.
In the chapters below you'll find facts in the form of charts and data, pretty listing pictures, insights in the form of quotes from Harvard PhD's, and happy ever afters.
You'll also learn the role both the market and your own mind play in your chances of investing wisely. You'll discover the difference between scared and smart buying. And you'll finish by understanding exactly what you need to be a smart buyer in 2023 and how to get started immediately.
TABLE OF CONTENTS
Use the following table of contents below to follow the report start to finish as the author intended or to jump into each section however it pleases you to do so. The adventure is yours to begin.
I. An Introduction: Congratulations You Survived 2022
2022 began like a scene from the Hunger Games. Twelve buyers vying for one title. Rates were low, and so was inventory. I received an offer on a listing that - I kid you not - read, "may the odds be forever in our favor."
Over the course of the summer and then fall, things changed. The odds were not in anyone's favor. Or so it seemed.
Inventory remained tight. Prices began to normalize. But monthly payments on new purchases skyrocketed due to increased interest rates, increased property insurance policies, and increased flood insurance.
The competition cooled, and the victories didn't feel as sweet. Buyers became timid after hearing rumors of housing recessions and worse.
It was a tough market to navigate, and the victors won the spoils, or so it seemed. 2023 brings good news. And it isn't on the horizon. It's there for the taking right now by savvy buyers with a smart agent. Allow me to show you.
[Keep reading. Get started now. Or jump back to the table].
II. A Bit About Me, Your Author
Why might you benefit from my strategy? I know a thing or two about unusual markets, who benefits, and how they do it.
The year was 2007, and I was researching mortgage tranches. Why? At 25, I was the youngest account supervisor at the world's top agency and oversaw the bulk of Morgan Stanley's advertising campaign.
Morgan Stanley had just acquired Dean Witter. They were rebranding. Set to be the biggest and best.
My job was researching and comprehending complex financial strategies to break them down into simple concepts that were marketable to the general public. These concepts included everything from microlending to credit swaps. Sitting through interviews with Phillip Purcell and later James Gorman was my Tuesday.
I poured through the pages of Power Broker, through Q&A's with Jamie Diamon, and had the Financial Times, Barrons, and The Wall Street Journal delivered to my desk every morning. When I conveyed the strategies of the mortgage industry each day in layperson's terms, it felt a bit like describing a game of hot potato. Everything would be fine if it kept in motion. What happened when it didn't?
We know the answer to this. By 2008 my contemporaries at Lehman boxed up their desks. The Gormans and Diamons of the world were about to get major bailouts. The world would ask, how did this happen, and could this happen again?
Most prayed it would never happen again. Savvy investors, however, asked themselves, "how can I make this once-in-a-lifetime situation work for me today?" They asked, and they profited.
I, myself, had been poached by The Wall Street Journal to focus on developing a new product aimed at entrepreneurs. My focus was a smidge less financial. My appreciation for entrepreneurs navigating a rocky market deepened.
How did some turn an upside-down market into a possibility? How did they see obstacles as positives while others drowned in indecision?
[Keep learning about the market and how your bias may be your biggest set back. Or jump back to the table].
III. Understanding Your Mind and The Market:
The Basis for Your Strategy
If you want to understand how 2023 won't be like 2008, you can find that information on nearly any REALTOR's Instagram, YouTube, or Facebook. Every news site has covered this. Every site owned by Zillow and Move, Inc. has a heap of blogs covering this topic from every imaginable angle.
But that's not why you came here. You came here to learn how to take an upside-down market and make it work FOR you. You're smart and looking to get smarter. Go you!
The excellent news about upside-down markets is that they CAN work for you. You've got to work with someone who can research, comprehend, and convey complex things. You need someone who sees obstacles as possibilities and who can help you defeat excuse-driven indecision.
In the following paragraphs, you will learn how 2023 differs from 2022. You'll understand why the prevailing doom and gloom narrative could mean savings for savvy real estate investors. And you'll learn how to make an upside-down market work in your favor.
Let's begin by understanding the difference between 2022 and 2023. As well as how we got here and how to make it work for us.
Understanding 2022: Scarce Inventory, Low Rates, High Competition
The major characteristics of the 2022 real estate market included:
Limited inventory
Lots of demand
Low-interest rates
Competitive offers
Buying frenzy
Let's begin with understanding the supply of homes for sale. This handy chart from TradingEconomics.com shows how many thousands of homes were available for sale each month across 2022.
For context, looking at the years 1982-2022 (ironically, the exact amount of time this REALTOR has been alive), the highest inventory was 4,040,000 homes. The lowest was last January 2022, with just 860,000 homes. Supply hit record lows, and it hovered near there for months.
Here's another way to look at that data. Notice how the inventory shortage in 2022 stands out as exceptional when you look at the patterns over a more extended period?
New Orleans data only goes back to 2003 but follows a similar trend. Waves of highs and lows and a Mariana Trench hitting in 2021-22.
Why did this happen? If you follow the chart above closely, you will see that the offset is in early 2020.
When there is a global pandemic afoot, people do indeed hunker down. At least, they do where home sales are concerned. Unfortunately, the rising cost of supplies and messy global supply chain issues also contributed to a significant deficit in new construction.
The selling of homes went down. The building of homes went down. The pace of the economy went down. People had fewer opportunities to spend money. They tended to stash it away instead.
To spur spending and thus spur a stagnant economy, the Federal Reserve lowered interest rates to all-time lows. These lows had not been seen since the birth of interest rates and the opening of America's first bank. Simply put, these were the lowest interest rates ever seen.
Lower rates spurred spending by Americans across the country. And spend they did, on housing. They took those stashed dollars and put them towards properties. They bought mortgages with low-interest rates. It was a "great time to buy!"
Understanding mortgage payments
A mortgage payment is comprised of three parts:
Payment for the property (principal)
Payment toward taxes & insurance
Payment toward interest
When one of these three components goes down, so does the monthly payment. For Example, the lower the interest rate, the lower the monthly payment.
Thus, in 2022, you could acquire a bigger house in the same condition and neighborhood and spend less (on your mortgage) each month.
Suddenly a home that cost well above $3,000 a month to own dipped into the mid and even low $ 2,000's. Renters everywhere looked at their rent, their landlords, and their properties differently. Many chose to use their stashed savings to become homeowners and even landlords themselves. And nearly half of all existing mortgages were refinanced to take advantage of lower monthly mortgage payments.
Problem! A wave of buyers hit the market. But the supply wasn't there. Remember what I mentioned earlier about hunkering down?
If only there were more homes for the flood of newly motivated property owners to buy. Alas, we know there weren't. And this is where and how the real estate hunger games began. Twelve buyers willing to do whatever it takes to land one title.
[Keep reading and learn how one smart buyer made 2022's competitive market work in her favor. Get started now. Or jump back to the table].
Smart Buyer Case Story 1: Julia from Bywater
Take, for example, one young ER doctor, Julia. Julia and her two dogs and cat lived comfortably in a beautifully renovated home in Bywater. Julia found time between shifts to participate in multiple Mardi Gras Krewes and enjoyed walks to Parleaux Brewery, Bacchanal, and a host of fabulous eateries nearby.
Then COVID hit, and the neighborhood shut down. Julia's shifts got longer and more frequent and more active. In addition, she was faced with nursing a parent through a terminal illness which meant a lot of emotional burden and long trips back and forth to Texas. Nevertheless, she came to enjoy her mother's quieter neighborhood and the tranquility of her swimming pool which kept Julia busy while her mother slept.
After her mother's passing, Julia recognized her priorities for herself changing. She wanted something new and different for herself. She needed more space, more peace, and come to think of it; a pool would be nice.
We found it. A midcentury home facing the levee in Lake Vista. 30% larger, much quieter, an easier commute, and with an inground pool. We took a tour and learned there were multiple offers already on the table.
In fact, we were to be the sixth offer, and we had less than 60 minutes to get our offer in. We called my VIP Lender, and we got some sound advice. We made the offer non-contingent on selling her current home, built contingencies in the seller's favor, and bid generously over asking. It was the heat of Summer, and it would prove a hot and heavy race amongst solid competition. But Julia and I both knew this was her dream home.
Less than a day later, we learned we had the winning offer. Inspections were scheduled immediately. We were onto the second race, a fast sprint to close before our three-week deadline was up, and the sellers went with a backup offer. Inspections identified some old systems. They also uncovered a broken sewer line which was corrected before closing but left no room for additional negotiations.
While Julia was thrilled to get her keys, the whirlwind spun her head. She had won! But only now could she begin to process it all. And she had to list her Bywater home quickly. So we did, and we got fantastic offers. It moved quickly.
The good news, Julia made some money on the sale. The great news? With lower interest rates, her new home's monthly mortgage payments were nearly identical to her Bywater home.
Within the first week of ownership of her new home, her air conditioner broke. She soon learned her pool motor needed replacing, and there were some leaks. She managed these all while getting updates about her Bywater listing and juggling her increased hospital hours.
In the end, it was worth all the stress. Julia had Team Cool Murphy shoulder the work. Plus, she and her pets had more space, more peace, and an extra nice pool with a spa.
[Keep reading and learn how you maybe unwittingly holding yourself back from reaching your goals. Get started now. Or jump back to the table].
Understanding YOUR Bias
Did you know that we are all victims of subjective recall? Subjective recall is when our brains rewrite facts to put them into neat, tidy storylines so we can move on with our days. Every single one of us does it, some more than others. But unfortunately, those who wrestle with doing so have a more challenging time moving forward.
So is subjective recall a good thing? Yes and no. Yes, it can be good for our mental health and well-being. But, unfortunately, it can often compromise our ability to spot details within the facts and data that can inform our next strategic move.
Two other biases also color our recollections of the past.
Positivity bias
Our "positivity bias" means we tend to hold onto the good and forget the bad or less good. It's perfectly normal, and we all misremember all the time.
"Misremembering happens all the time... our memories are crowded more with emotional events than with ordinary things from our daily lives — and these tend to be biased toward the positive, while negative memories slip away."
- Harvard psychologist Daniel Schacter.
In the instance of the purchase of Julia's Lake Vista home, we romanticize the win and overlook the fight to win the race. We forget the hours spent pouring over pricing data before attending our first open house. We forget the stress the night before learning whether our offer won. We neglect to recall the nail-biting timeline or the stress of listing the current home and waiting for those offers to roll in, all while navigating repairs and work.
We recall the victories instead. We remember the home appraising above value. We brag about our agent and our lender. We take it all in from our oversized pool floaty as we toast to our palm trees and French doors.
Anxiety and short-term memory
The second bias has to do with anxiety and short-term memory. When we are anxious - before we make a big life decision - we often seek threats and gravitate towards long-term negative memories. It causes us to question things which is good. But it makes us more susceptible to negative narratives over good.
"Anxiety has been linked with an attentional bias toward threat, distractibility, and reductions in short-term memory (STM) capacity."
- Marie-Laure B Lapointe, National Institute of Health.
For example, while Julia was anxious about being worthy of winning her new home, buyers in 2023 may be worried about being duped into buying during a market with unfavorable interest rates. They may also fear they'll purchase a home today that will be valued less in the months ahead.
If you're feeling a short-term memory bias resulting in your belief that it would have been better to make real estate moves a year ago and you fear the road ahead, you're normal. Not because there isn't opportunity in this market, but because you are wired to stress and collect reasons not to take action before taking on something big and stressful, in this case, buying a home. And you're inclined to believe that it would have been more comfortable to do so in the past.
It is important to recall that if you're thinking of buying now, you likely didn't believe it was safe to buy in 2022. Ask yourself why or why not?
Perhaps it was your mindset. What was your brain telling you then? The truth is we are hard-wired to stay in place because it is safe to do so. This behavior could have been further reinforced by literally needing to remain in place for our safety in 2020.
In conclusion, your brain is biased to look for the immediate negative and romanticize the past. The good news is you are in control of your brain.
Last year real estate professionals witnessed two types of clients. Some clients refused to bid on properties they loved because they were fearful that bidding wars were, in fact, unnecessary and dangerous. Others decided to seize the day and benefited from historically low-interest rates.
Who benefited most? I'll let you be the judge. One nola.com article shares that housing values across the city have increased an average of 25% since 2019.
The median sale price across the metro area for a single-family home in average or better condition was up 7.8% last year [2022] over the year before to nearly $277,000, and up more than 24% over 2019's pre-pandemic price of $219,400.
- Nola.com
However, real estate professionals are witnessing two new types of clients today. First, many clients are scared to take action to pursue their home-buying goals because interest and insurance rates are historically high. They believe that 2023 is a foolish time to shop. And they romanticize the past two years of lower rates while failing to recognize that rates are not historically high but rebounding from historic lows.
They assume that rates will dip back to record lows without any guarantee or indication that this will happen. They stake their finances and emotional well-being on hypotheticals instead of facts. And they are entirely normal for doing so. Normal, but not strategic.
Romanticizing the past and looking for immediate danger is how we're programmed. But unfortunately, left unchecked, it will prevent you from reaching your goals. But it doesn't have to.
You don't have to give tens of thousands of dollars away to another property owner in the form of rent. And you don't have to stay in your current home either. Why? Because 2023 is an excellent time to buy or sell. And smart buyers are seizing this new opportunity today.
[I'm ready to seize the opportunity now. Or keep reading and learn the ropes of 2023's real estate market. Or jump back to the table].
Understanding 2023: Low Inventory, Higher Rates, Less Competition
Let's look forward at the 2023 Market. If 2022 was like The Hunger Games, 2023 may be said to feel a little bit like "The Upside-down." Several influences are already contributing to this feeling and the anxiety that comes with it. They include:
Limited inventory
Less demand
Higher interest rates
Some competitive offers
Normalization
While it may seem like there is loads and loads of real estate inventory near you, there isn't as much on the market today as in 2019, pre-pandemic.
Let's look at that New Orleans area real estate inventory chart one more time.
Inventory is back on the rise, but there aren't an abnormal amount of homes on the market. If anything, there are still too few.
If you're brain is telling you this can't be true and asking how is this possible? Two things may be tricking it. Firstly, homes are staying on the market longer. So you see more yard signs.
I confess I had listings this past year that got in contract before we could put a sign up in the yard, so we didn't.
This year homes are more likely to be on the market 30-45 days before going into contract and then take a month to close. So all those signs hung in that 30-75 day window have a negative compounding effect on your brain.
Secondly, as we discussed, our brains want us to look back at the past with rose-colored glasses. A buyer with a bias towards romancing this past might assume, "Wow! There's so much available; maybe I should wait." Meanwhile, a seller with a short-term memory bias might look at the immediate negative and think, "oh no, there's so much competition and so few buyers!"
Meanwhile, the data shows that we still have a limited inventory. Of course, there is more than last year. But there is less than in pre-pandemic 2019.
Let's look at this another way. Your short-term biased-based anxiety brain will make the Days on Market chart below seem like a negative story. Homes flew off the market in the past, and now they're taking forever, right?
It may tell you that, but it would be factually incorrect. When we look back at ten-year trends, we see again that we are not back at 2019, pre-pandemic, normals yet in New Orleans. There is less inventory than "normal."
All that praying for normalization back in 2020-2022 still needs to pay off entirely, which can be a good thing.
[Keep reading to learn how to avoid making major mistakes in 2023. Or jump back to the table].
IV. Scared vs Smart Buyers
Scared Money Doesn't Make Money
There's an old saying, "scared money doesn't make money." It holds a lot of truth. In 2008 most of the world held its breath. Savvy entrepreneurs did not. Airbnb and Sirius XM were founded in 2008. Parish Brewing Company was registered in 2009.
Some humans are more inclined to move forward in an upside down market than others. Understanding the opportunity within the 2023 market begins with understanding where we were and where we are. The next step is waking up!
Take the 2023 real estate market for example. Interest rates are still low to normal when we look at data going back a few years. Yet, many buyers use rates and other excuses to continue to float in a holding pattern. They feel stuck. They say they're waiting to "see what happens" before making their move. They're drowning in the overwhelm. Let them.
Their hesitation creates an opportunity for smart buyers like you.
A scared buyer lets anxiety take the wheel. They wait for the big trend lines to look or feel normal again. But, as people become used to the current situation, a sense of normal will happen with time.
Notice that I didn't say it will feel normal again once rates and inventory change. Why?
Because feelings are not based on facts. They're based on emotions and emotions are colored by time. Thus, it is inconsequential whether the rates dip if they stay static at the current interest rate (or near it), it will feel normal over time. Our long-term romantic brains will color the story that it's OK, perfectly normal, and even reasonable the longer we go without change. The scared buyer will grow less scared with time, and competition will return.
The renewed competition will signal to others that it "must be a great time to buy." Ironically, this will, in turn, create unfavorable conditions as demand increases. Scared buyers will sadly become the change they wish to see; thus, they will miss an opportunity by sitting and waiting.
A smart buyer, however, sees increasing inventory and, thus, increasing options. They see inactive buyers and therefore see limited competition. More options, less competition. The smart buyer realizes that this is the time to go out and hunt! This is the time to understand, comprehend, and lead negotiations.
And smart buyers that do so will reap benefits. How? And where does one begin?
[Keep reading the and learn exactly how one couple made 2023's real estate market benefit them when they bought this January. Or jump back to the table].
Smart Buyer Case Story 2: Brian and Julie of Colorado
Take, for example, Brian and Julie. Brian and Julie are in their early 50s, earning a modest income. Their motto is a cross between "slow and steady wins the race" and "don't be afraid to roll up your sleeves." This approach - and a smart multi-year real estate investment strategy - has benefited them with a home in Colorado and two investment properties, one back home in Colorado, the other a tri-plex in the St Roch neighborhood of New Orleans.
But the tri-plex started as something other than a tri-plex. It began as a double camelback with an accessory dwelling unit (ADU). All three "units" were in rough shape.
The couple spruced up, reroofed, leveled off, resided, and made both sides of the double livable and got them leased by full-time tenants. Over time they worked to convert the ADU (an old laundry building) into a small cottage they could enjoy during their visits to New Orleans.
"Five years, we said!" they told me when we met. It had been six years.
Their five-year plan? Turn the double into a triplex and have it generate enough income to pay the note. Then, grin and bear staying in a tiny cottage for a while (for free) while visiting New Orleans. Accrue the equity and savings and later upgrade from the cottage to a vacation condo in The French Quarter.
Their dream was a place with a street-facing balcony, a perch to people-watch in the thick of the French Quarter action. And they were willing to tolerate short-term pain for long-term gain to get there.
"We will know we have arrived when..." they shared.
At the off-set of year six, they gave me a call. They shared their story, fears, concerns, and vision. Their goal? Work with a realtor who understands the market and can devise an intelligent strategy. Did they need to sell the tri-plex? Had they lost the window to finance at a low-interest rate? Would this end up killing them financially?
This story has a happy ending.
Brian and Julie, and I went and toured a listing. It was modest. It was sensible. It was too far into the residential part of the Quarter. Too quiet. They wanted to be in the thick of the action. They wanted a street-facing balcony.
We found one. It was next door to their favorite bar with views of the French Market and river, but it was almost $100,000 more than their initial budget. It had also been on the market for nearly six months. So what was wrong with it?!
We toured it just in case. The only thing wrong with the place was that it could stand to shave a little off the price or add a little value. We did both.
Brian and Julie could picture their new life in the walls of this St Philip jewel box. The next day the listing expired, but Brian and Julie's vision didn't. We reached out to the agent and worked it all out.
Brian and Julie took a few days to prepare their finances and offer.
This extra week gave the couple time to explore everything from multiple mortgage products and strategies to different decorating schemes. They priced out what it would cost to furnish and how. What their net investment would be, and more.
Our offer was accepted. Almost ten thousand below asking with minor repairs made before closing, and furniture included! Even better, the closing date wasn't for two months, which gave them plenty of time for inspections, questions, and another visit when they were in town. Even better, the inspection came back excellent, and the appraised value exceeded the purchase price.
Slow and steady, roll up your sleeves, and short-term pain paid off for Brian and Julie. You may think this mentality would also make them conservative buyers. It didn't. They had a plan and worked the plan. And they had excellent representation.
Brian and Julie's approach saved them $10,000 in the sales price of their home, thousands of dollars in their down payment, and thousands of dollars (and stress) on furnishing the place. It even gained them some money in their home's equity before opening their new front door. It also freed up more of their savings than they imagined.
The best part? We worked out a financial plan with my VIP lender that meant they didn't have to sell their beloved tri-plex. Renting out the cottage gained them an additional $500 a month.
[Keep reading and find out exactly what you'll need to benefit from 2023's real estate market. Or get started following your own dream right now. Or jump back to the table].
V. Seven Steps to Make the Upside-Down Market Work in Your Favor
It starts with your perspective. There are many buyers today watching the market like hawks. I know this because views and saves on my listings on the MLS and sites like Zillow are higher than ever. But watching the market is like watching Powerball. If you don't play, you can't win. And you never know when someone else will snag that winning ticket, and it's game over for everyone else.
This watching and waiting is what's happening with listings. Buyers are waiting for the price to decrease to a predetermined number they've (often arbitrarily) decided is "acceptable." The property either gets snatched up or is withdrawn from the market before it hits this number. Or the buyer loses interest and focuses on the next sexy set of interior photos they browse.
This results in the buyer staying where they are and someone else benefiting from the current market conditions. The original buyer won't know until the sale is closed whether or not their estimation of the ''appropriate'' sales price of the home was accurate. Like the watch-and-wait Powerball player, they can't win because they didn't play.
Instead, intelligent buyers know to write offers with the price they've got in mind. Acting in this manner puts them in a leadership position regarding price negotiations. It also eliminates the competition that may come as the listed price decreases over time. And they get to learn the seller's ''floor'' with little to no risk involved.
The trick to doing this well? You guessed it: a great realtor and the right mindset.
Here are the seven steps you need to take to get your mind right and take advantage of the current real estate market.
Recognize that 2023 is different than 2022, and this can be a good thing.
Recognize that limited competition and more days on the market means sellers are more likely to be flexible on pricing than they have been.
Recognize that 2022 sales prices were often driven above listing prices because of competitive offer situations.
Realize that you can now offer below the listing price. Starting the conversation with a negotiation instead of a competition lets you take the lead.
Recognize the results: lower price means less mortgage, which will offset some of the monthly payment increases from insurance and interest. You can negotiate other terms in your favor, like a longer time to close or inspect, including appliances and furnishings, repairs before closing, etc.
Get wise about ways to have the seller help you financially, like contributing to your closing costs or buying down your interest.
Get a great realtor who knows the ins and outs. Team Cool Murphy is available. We've done the research, we comprehend the market, and we can make it simple for you.
These steps are easier said than done, but you've got what it takes. And we are here to help. Feeling under prepared? Go back and read the full report and learn exactly what to do to make each step worthwhile and simpler.
[Ready to talk so we can build your plan? Click here. Or keep reading to see a play by play example of to come out ahead when buying property in 2023. Or jump back to the table].
Smart Buying Breakdown
Let's apply this mindset and look at some actual data. How does the math differ between 2022 and 2023? You can save by buying in 2023 for more than the first four years of your mortgage. How?
Listing vs sales price
A property listed for $500,000 in 2021 or 2022 could quickly end up closing for $550,000. Why? Multiple offers meant bidding wars. Like in the example of Julia's new Lake Vista home, buyers may one-up each other again and again to get a property. Remember, in 2022, there were too many buyers and insufficient inventory; too many buyers and not enough options.
However, if a buyer were to make an offer on a $500,000 property today and pay the full asking price, they'd be $50,000 richer off the bat by missing out on the bidding war!
Less Cash to Close
This same buyer would also save cash upfront with a smaller downpayment. For example, a 20% downpayment on $500,000 is $10,000 less than a 20% downpayment on a $550,000 home. As a result, you require less cash to acquire the same home.
The savings continue. Because the home costs less, the loan is for less money. A smaller loan means the financed portion you're paying interest on is smaller. For example, on the $500,000 loan, you'd be financing just $400,000 compared to $440,000 with the $550,000 purchase in 2022.
Because the loan price is lower, your closing costs and prepaids will also be about $500 lower.
All of this nets you savings of more than $10,000 in cash at closing!
The Truth About Interest Rates
But what about interest rates? Fair point.
While interest rates are higher this year, your monthly mortgage payment at 6.394% interest is just $184 higher a month than it would have been with last year's 4.49% interest.
It turns out it would take fifty-four $184 payments (or four and a half years) to spend that $10,000. So you would be saving money on your mortgage payments by buying the same home in 2023 at $500,000 for four and half years before the interest rates "caught up with you."
This is BEFORE we consider the $50,000 you just saved on the purchase price.
Think about that. In 2023 you just came out ahead on your mortgage for the first four and a half years!
Additional Savings
Plus, your home value is lower, so you may benefit from lower taxes and insurance. You may also benefit from instant equity when your negotiation skills are sharp, and your appraisal is higher than your agreed-upon sales price. And you are unlikely to spend additional cash post appraisal to close any gap between the appraised and sales value.
Using Time to Your Advantage
A lot can happen in five years. For starters, the home value can increase and increase considerably. Your income can increase. And the Federal Reserve can lower interest rates. You can then refinance your home with that newer, sexier interest rate when the time is right.
Most homeowners refinance every five years. Doing so would be expected. Thus, many banks are incentivizing purchases today by waiving future refinance fees. Buying today means you just locked in additional savings five years from now.
[Take the first step to build your plan now. Or keep reading to learn how to time the market and when to get started. Or jump back to the table].
VI. When to buy?
So is it a terrible time to buy? No. Is it stupid to buy when the rates are high? No. When should you buy? When the timing is right for you!
Last year, my buyers, who took advantage of low rates, often complained about the stress of acting quickly. They worried about making rash decisions. They were concerned they overpaid. And they had to come to the table prepared for a fight and sometimes flush with cash. So it wasn't a fit for everyone.
Buying today, however, may result in the following:
more time to shop
fewer price hikes from bidding wars
less stress from bidding wars
more room for negotiation and more things to negotiate
longer windows from offer to close
It can also result in less remorse, more time to inspect and plan, and less drama. Doing so soon may save or even make you money in the long run! And there's absolutely no guarantee we will ever see a real estate market like 2022 again, but we do know exactly how to make the market work for us right now.
How's that for the odds being in your favor?
Get Started Now
So now that you're smart, what do you need to do to get started? Easy. Sign up for a 15-minute free consultation with Team Cool Murphy, and let us show you how to make 2023's real estate market work for your unique vision, goals, and circumstances.
Are you thinking of selling? Sign up for a 30-minute, free home evaluation. During this evaluation, Team Cool Murphy will seek to listen and understand your goals and take a look at your place. Then, we will follow up with a strategy to help you save time, stress, and money by focusing on the best projects before listing. Instead, we will build a customized plan to present your home and get you top dollar.
We've done this before, and we love what we do. So we'd love to hear from you.
[Get a customized plan to start making money in real estate by clicking the button above. Or jump back to the table].
Voted Neighborhood Favorite by Nextdoor, Team Cool Murphy is a top-producing, licensed real estate team based in New Orleans, brokered by Cool Murphy, LLC.
Celebrated for her next-level creative approach to real estate, Elisa Cool Murphy is an award-winning, top-performing agent in New Orleans and the founder and leader of Cool Murphy, LLC.
Contact Her -
email: cool@coolmurphy.com
Facebook: @homeinneworleans
IG: @coolmurphynola
YouTube: @coolmurphynola
phone: 504-321-3194
Comments