It Will End with Boom, Not a Whimper
Howdy-doodles fellow passenger of Planet Earth,
When is it good to be just like everyone else? I’d argue, unless the Gestapo is rounding up beatniks, never. Especially when it comes to markets and investments, there is very little wisdom in the crowd.
Everyone I meet professionally and privately has the same mantra right now when it comes to buying a home:
“I’m going to wait for lower rates.”
Repeatedly, I hear people say 7.5% is too high, and when rates go back down to 5-6%, they will have timed the market well.
Bear in mind that the average mortgage rate in the United States since 1970 is approximately 7.1%. Rates are not high; they are where they should be. That aside…
I know it’s a holiday, but let's do some math 😭
We'll use a $1,000,000 home to keep it simple.
Say it takes two years for rates to go down to 5.5% before you refinance. That means you overpaid $26,400 for that loan (ignoring the fact that while you waited, you lit money on fire paying rent).
The better way of looking at it is you paid an extra 2.6% for the home.
Is 2.6% worth waiting two years to buy a home?
Yes? Okay, let's keep going to the second-order thinking.
High rates = low prices. Currently, homes are sitting on the market an extra 60-90 days. That means sellers are not getting multiple offers. They are taking the buyer they can get.
Fast forward to Spring 2025. Rates have dropped to 5.5%.
What happens to that $1,000,000 home? You and my other 15 clients all “waiting for low rates” try to buy the same property at the same time.
The seller has 5 offers and thus begins the bidding war.
That million-dollar home sells for $1,100,000 or 10% over the asking price.
What just happened? Because you wanted to save $26,000, you overpaid by $100,000 (lost $74,000).
Cheap is very expensive, and the penny pincher always pays twice.
This is how markets function. The crowd is almost always wrong. Groupthink is why a handful of people make all the money, and everyone else gets the same return.
Picture this scenario instead:
Today, we offer $900,000 on that million-dollar home. You are the only person offering, so you get it for $950,000 (5% discount).
You just discounted four years of the higher interest payment into the present.
Said another way: after four years, you would have given back the 50K you saved on the purchase price and be at net neutral.
When rates drop, the home reprices up to $1.1M, and you’re sitting on a 14% profit.
When rates drop, you refinance the home down to 5.5% and get the same loan as everyone around you.
The only difference is while they are talking about getting outbid on homes and how stressful the market is, you’re sitting with your feet up and making cruel fun of their stupidity - or not 🥺
You made $140,000 because you went shopping when the mall was empty and the vendor was late on their rent.
I know it doesn't feel like it, but this is a buyer's market.
Are you like everyone else? Do you think I’m a BS salesman trying to drum up business? Or do you believe me when I say I just refinanced my own home to go and buy Manhattan because the getting is good in the here and now?
In my next newsletter, I will explain how Manhattan has remained flat for the last five years despite a recession, the largest exodus in American history, a global pandemic, riots, a demographic shift to the boroughs, and exploding interest rates. Any other city would look like Kill Bill after that blitz of economic bombs. Resilient is the word… The Brooklyn and Queens boom is over; people are coming back to the only island on Earth that matters… that story is for another time…
Take a look at this one-bed I found on the UES. If you make $125K and have $125K saved, you can buy this. At only $505,000, it’s a steal. When rates drop, this reprices to $600K, easy.
There’s money lying on the floor; all you have to do is pick it up.
Anyway, fuel for an argument at the family dinner tonight. Happy Memorial Day.
Respectfully,
Azari
P.S. My cats are still available for adoption, and I’m mad at all of you for not taking their buzzbutts into your forever home.
