Buying a house is a life-changing decision, so it stands to reason that buyers might play through the many “what ifs” before pulling the trigger. What if we buy now, but then mortgage rates drop? What if we buy now, but then home prices plummet? What if we buy a house, then get laid off?
What if, what if, what if?
These questions have always been part of the soul-searching people do before purchasing a property. Yet, today’s real estate market and the overall economy have been in such a state of flux, these scenarios have downright paralyzed some homebuyers.
“There are endless ‘what if’ scenarios in real estate, and we hear a lot of these from buyers and sellers,” says Amit Arora, vice president of investments at real estate site Opendoor. “All of which are completely valid, since buying or selling a home is one of the largest financial decisions people make in their lives.”
Valid though these concerns might be, the risk is that these potential scenarios might overwhelm you into doing nothing at all, taking a perpetual wait-and-see approach.
To help you manage, we’ve unpacked a bunch of homebuyers’ top real estate “what ifs” by providing some eye-opening, fact-based reality checks.
‘What if I buy now and home prices drop?’
According to a recent Opendoor survey of homebuyers and sellers, 93% of homebuyers think that current homes on the market are overpriced, and 72% list home affordability as a top concern.
As a result, some buyers are holding off to see if prices drop further so they can find a “deal,” according to Arora. But that might be a mistake, since there is still a shortage of inventory and homes are actually selling faster in 2023 than they were in 2019. Plus, home prices in many areas are still going up.
“There is no way to accurately determine when the housing market will reach its peak and enter a cycle of declining prices—though this periodically happens—but real estate as a whole has experienced steady appreciation over the long term,” says Jonathan Rundlett, regional owner of EXIT Mid-Atlantic, who cites statistics showing that since 2012, the average home price appreciation has been 7.7%.
Aside from real estate’s overall appreciation, “You don’t actually ‘lose money’ until you sell the home, so price/value fluctuations in the market are a ‘paper’ gain or loss that is not actually realized,” points out Mason Whitehead, a Dallas branch manager for Churchill Mortgage. “In short, don’t sweat the month-by-month or even year-by-year value swings. If you are a long-term owner, time is usually your friend in real estate.”
According to Whitehead, a good example of this “what if” are the people who bought a home in 2007 at the top of the market. Those homeowners might have felt some mental anguish for a year or two as prices dropped, but they did not actually incur any loss—unless they had to sell in that time period.
“If they kept the home and lived there or rented it out, they actually came out substantially ahead if they sold it five or seven years later,” says Whitehead. If they kept it until now, they came out way ahead!
Instead of the “what ifs,” Arora suggests you look at the home and ask these questions: Do you love it? Does it fit your needs? Is it within your budget? Can you afford the monthly payments?
If you can respond yes to all of those questions, there shouldn’t be much else holding you back from buying.
‘What if I buy now and mortgage rates fall?’
Today’s high mortgage rates were listed as the top real estate concern right now by 77% of the Opendoor survey respondents—both buyers and sellers.
However, what is interesting is that while mortgage rates might seem hyperinflated at the moment, it is likely only because people became accustomed to record-low rates in the early years of the COVID-19 pandemic.
“The average mortgage interest rate over the last 30 years has been about 7%,” says Rundlett. “So even though current interest rates hovering around the 7% range seem very high compared to [2022] interest rates in the 3% to 4% range, people need to understand that this is not an unusually high interest rate.”
The Federal Reserve implemented a policy that kept interest rates artificially low for an extended period of time in response to the financial crisis in 2007–08, but Rundlett predicts we will probably not see interest rates that low again for a very long time, if at all.
So, what’s a potential buyer to do?
One way to alleviate this concern is to take on an adjustable-rate mortgage, or ARM.
“But this product means that your interest rate—and monthly payment—could go up or down, so it’s not the best product for everyone,” warns Realtor.com® Chief Economist Danielle Hale.
Another option is to remember that you can always refinance down the line if rates markedly plummet.
“If mortgage rates drop by a big enough amount, especially if you are early in your loan, the savings from lower mortgage rates may mean that it makes financial sense to refinance,” says Hale.
There are some costs to refinancing, though, so a very small dip in mortgage rates may not warrant it.
“Generally speaking, you want rates to be about a point lower than your current rate to make financial sense,” says Whitehead.
Overall, experts agree that you shouldn’t let current interest rates prevent you from buying a home.
“Most lending guidelines require that the mortgage payment be not more than 28% to 33% of your gross monthly income,” says Rundlett. “If you can find a home that you like and you can keep the total monthly mortgage payment [including property taxes and homeowners insurance] to be less than a third of your gross monthly income, you should not wait.”
‘What if I don’t buy now, but prices and rates keep going up?’
In this scenario, Whitehead says the problem is that potential homebuyers might feel like they’re lagging when it comes to actualizing their homeownership dream.
“Home prices keep going up, so you have to save more and more for the down payment—and if rates also go up, then you just continue getting further behind,” explains Whitehead. This is especially true if you’re trying to keep your payment below a certain figure per month.
For example, let’s say you need to keep your payment at $3,000 per month. Today, with 5% down, Whitehead says you can probably buy a home for about $350,000 and achieve that. However, if prices go up 5% and rates go up a half-point (0.5%), your payment just increased about $250 per month and you need to save an extra $875 for the minimum down payment.
“For buyers on a budget—just about everyone—you just got put back four or five more months,” says Whitehead. “And things may feel like they are getting further out of reach, which is not a comfortable position.”
Still, speeding up the buying process requires some careful consideration.
“When rates began to rise sharply in 2022, this reasoning likely caused some shoppers to hasten their timelines to buy,” says Hale. “Those who hustled without breaking their budget are probably happy that they did, but homeowners who hurried and stretched their budget may end up feeling some regret.”
In fact, according to the July 2022 Anytime Estimate Home Buyer Survey, almost 72% of people who purchased homes in 2021 or 2022 have regrets about their purchase. Almost 30% of those people said they spent too much money and 26% wished they hadn’t bought so quickly.
“I don’t think the fear of missing out on homeownership is a good reason to rush into buying a home that isn’t a good fit for your needs or your budget,” says Hale. “A lot can change in the housing market and in your life. New career opportunities can change your income trajectory, or a move to a more affordable area could make homebuying possible.”
‘What if the property has hidden problems that cost a bundle to fix?’
Nothing can make a home feel like a mistake faster than when it becomes a money pit. The same goes for people who think investing in a fixer-upper might be the way to go.
More than half of buyers (55%) who responded to the Anytime Estimate survey said they bought fixer-uppers in 2021 or 2022, and that these properties actually ended up not being what they bargained for, or a bargain at all.
In fact, buyers who purchased a fixer-upper reported spending more than the average buyer. The price per square foot for a fixer-upper was $187, while a home in good condition cost $163 per square foot. What’s more, the average additional annual cost of owning a home is $15,405 for maintenance and other costs.
To prepare for this “what if,” Gerald Haynes, an Atlanta-based mortgage product manager for Georgia’s Own Credit Union, suggests that potential homebuyers create a budget and factor in unexpected expenses such as repairs or renovations. He also advises getting a home inspection to identify potential issues before making an offer.
Another option is to ask the seller to cover the first year of a home warranty.
“If they don’t cover it, consider investing in one,” says Haynes. “It may pay for itself in the long run.”
‘What if I buy a house but then lose my job or suffer a financial setback?’
This is a very real scenario people have experienced in recent years. To combat this concern, when you are looking to buy a house, you don’t want to end up so cash poor that you cannot keep the house in a worst-case scenario situation. A good rule of thumb is to have at least six months of your living expenses saved in case of an unexpected financial setback.
“Buy a home that fits comfortably within your budget, so that you can make your mortgage payments now and into the future,” says Hale. “Ideally, you’ll have a savings cushion after your home purchase, but if not, rebuilding your emergency fund after buying can set you up to continue to make your mortgage payments even if you face financial setbacks.”
But what if you already bought a house and then suddenly can’t pay for it?
“If you can’t make your mortgage payment, contact your mortgage lender and see if you can work out a payment plan,” suggests Haynes. “If you are upfront and honest with your lender, they will typically work with you, as the last thing they want is to foreclose on a property.”
‘What if I buy a house now and prices go up?’
Not all “what if” questions have negative consequences. So we thought it would be nice to end this one on a positive note. What happens if you buy a house now and prices go up?
You win!
“This is what homebuyers are hoping for, at least on the price side of the equation,” says Hale. “Buying now means that when prices go up, you see the equity in your home increase, which gives you more options whether you choose to stay or move. ”
With more equity, if you stay, you can tap into the additional value in your home (perhaps even with a home equity loan) to remodel if your needs change. Additionally, if and when you choose to move again, you can use the additional equity in your home to make a larger down payment on your next home.