Buying Smart in Today's Market: Why Waiting Could Cost You More

What happens when interest rates finally drop? Garrett and Shelby explain how increased competition, bidding wars, and rising home prices could make waiting more expensive than buying today.

Transcript

SPEAKER_00 0:00

Welcome back to the Idaho Life Show Real Estate and Community, Garrett Phil and Shelby Matson, and we are talking about rates, concessions, and the strategy that every smart buyer, and we're turning buyers into smart buyers, right, Shelby? That's right. And I want to flip the strip just for a few minutes and talk about what happens when, not if, when rates eventually will come down. We don't know when it's gonna happen, but I'd say it's it's a it's a win.

SPEAKER_01 0:27

Bring it on, right? Yeah. This is the part nobody on the sidelines is thinking through because everyone is so focused on the rate dropping as if it's the finish line. And I don't think they realize that the moment rates drop is the moment the market gets dramatically harder for buyers.

SPEAKER_00 0:44

We've seen this a few times, even with little rate drops, it just gets it's ma'am. So let's lay out the picture. So there are millions of people across the country right now, and a meaningful chunk of them right now are here in the Treasure Valley who have been sitting and waiting, we call it on the sidelines, for two to four years. And some of them are renting, some of them are living with family, some are in a starter home and you know, that they have outgrown, but they're staying put. Right. They're staying put, but they don't want to give up that 3% or 4% mortgage rate.

SPEAKER_01 1:19

It's so true. And those people are not going to wait forever. They're simply not. They have a number in their head, and the second the rate hits that number, they are going to flood the market. If, and that's a big if rates go down to that dream number again.

SPEAKER_00 1:35

Everyone's got their own little dream number in their head. So at the same time, Shelby, you know, you have homeowners who are are locked into these, you know, pandemic era rates and they're refusing to sell, which I I get it. And that is what economists are calling the lock-in effect. And it is the single biggest reason the inventory has stayed pretty tight for the last three years.

SPEAKER_01 1:57

Yeah, the day rates drop into the fives, like they did for a day, maybe two, Garrett. We hit a 5.99, I think it was, right? I can't remember if it went that low. But if and when that happens again, those sellers unlock, they put their homes on the market, inventory goes up, but demand goes up more. Way, way more.

SPEAKER_00 2:20

I think it was. I think we all got so excited. I think it was a day in February of this year. It was exciting for a hot moment. So demand goes up faster than the supply can answer. And the thing about real estate is that the buyers are mobile and the sellers are mobile, but the houses aren't. You know, the supply takes time to actually show up. The listings have to come live, inspections have to happen, sellers have to find their next place. You got all these things that happen.

SPEAKER_01 2:47

Yeah, which means there is a window, a short, brutal window, usually somewhere between 30 and 90 days after a meaningful rate drop, where every single price point in the valley sees multiple offers, bidding wars, houses going for tens of thousands of dollars over list price, and buyers waiving contingencies that they never should be waiving.

SPEAKER_00 3:08

I mean, we saw a little bit about that, you know, in February. We had an early spring market in February and March. It typically comes in April, but that little drop, all it took is that I think that magic number that some a lot of people I should say had in their head was a five. And because it hit a 5.99, they got off the sidelines.

SPEAKER_01 3:25

Cray, cray.

SPEAKER_00 3:27

So yeah, when this when this happens, I mean, it can look exactly like 2021 looked. If if you remember and you were uh if you're a listener and you were in the market at that time, it it looked kind of it's the same dynamic. It's a wall of this pent-up demand hitting limited supply at the same time. And the buyers who are still trying to get in for the first time are the ones who get steamrolled because they're competing with everyone who's been waiting. You know, they're competing for fewer homes than were on the market when nobody else wanted them.

SPEAKER_01 3:57

Yeah, and that's the paradox of waiting for the rate. The rate you were waiting on may show up, but it shows up at the exact moment the house becomes harder and more expensive to actually get.

SPEAKER_00 4:08

And that's why we keep telling our buyers if you're financially ready and the payment fits, getting in sooner than later is always a smarter play. Not not because we think that rates will stay where they are forever, but uh because you would rather be the buyer with equity when the interest rate market shifts than the buyer who's trying to break in.

SPEAKER_01 4:31

Yes, Garrett. And here's the part of the math that nobody runs. Let's say you buy today at 6.75% with a two-one buy down. You get into a house in Meridian, $450,000, and you live there.

SPEAKER_00 4:46

Okay.

SPEAKER_01 4:47

The market does what the Treasure Valley market does.

SPEAKER_00 4:49

You know what that is.

SPEAKER_01 4:50

Over the next two years, that house appreciates 4% a year. 4%. That's $36,000 in equity on top of the principle you're paying down.

SPEAKER_00 5:00

And meanwhile, you know, the buyer who waited is now competing with what, eight other offers for a house that used to sit on the market for three weeks.

SPEAKER_01 5:09

And they're paying over list, which more than wipes out the rate that they were waiting on.

SPEAKER_00 5:15

And that's is this a hard part to grasp? And I and I and I totally understand that. You know, the other thing that I want to mention here, and this is important. When you buy now, you also get to actually shop, right? And when I say shop, it's you get to shop for not just more homes, we get to to get inspections, you get to negotiate concessions, you get, you know, a process, you know, actual real process, because in a frenzied market, all of that goes away. You know, you have buyers unfortunately writing these insane offers, offers that we would never encourage, you know, ones with no inspections, no contingency, crazy stuff.

SPEAKER_01 5:52

Scary.

SPEAKER_00 5:52

You know, 20 grand over list, and then you kind of hope and pray for the best.

SPEAKER_01 5:56

Yeah, which is how buyers in 2021 ended up in houses they regretted. The market was so hot that the buying process was a bidding war. There was no negotiation happening, there was no leverage, and the seller had it all.

SPEAKER_00 6:09

Yeah. And I remember the conversations from that stretch. I mean, buyers writing love letters to the sellers, you know, saying, this is how much our family likes it. Here's our here's a picture of our beautiful family. Yeah, please, please, please. Agents pulling every trick in the book, people putting in offers on the houses that they had seen for five to ten minutes. I mean, everyone was making decisions in this panic mode.

SPEAKER_01 6:31

They were. And the houses that ended up with the most buyer remorse, the ones where people called us a year later asking what they should do. I hate that. I know. Were the houses bought in that frenzy? Seriously, they were bought in chaos. Not because the houses were bad, because the buy-in process didn't give people the room to actually decide.

SPEAKER_00 6:51

That's that's so bad. Yeah. It's tough. It's tough to see too. And you know, at least right now you have leverage. You know, in the market that we're in today, here July 2026 in the Treasure Valley, you've got some time. You know, things are moving, but you have more time than pandemic times or when rates just take this dramatic drop. You have inventory to choose from, you get those inspection contingencies, you have appraisal contingencies, you know, you have sellers who are negotiating concessions because they want to get their house sold.

SPEAKER_01 7:20

They do. And that doesn't last forever. It probably doesn't last another full year in some price points. So the buyer who steps in now with the right strategy is buying the house under significantly better terms than the buyer who waits and tries to time the rate.

SPEAKER_00 7:36

You hit it right there, the better terms that really matters. And one more piece on that surge when it comes, it's not going to announce itself. That's a thing. It there is not going to be a clear signal that says, here it is, you know, this is the day to buy, this is the day that the rates are going down. By the time the buyer on the sideline reads about it in the news, the market's already done its thing. You know, the houses that we're sitting are getting multiple offers in 24 hours, the concessions are gone. Even contingent sales, if you have a home to sell, that goes away now, too. It does go away. I mean, the seller leverage flips right back.

SPEAKER_01 8:12

And the Treasure Valley real estate market has lived through this cycle many times. It never happens slowly, it happens over a weekend. Seriously. People wake up Monday morning and the market has changed.

SPEAKER_00 8:24

It's no joke. Yeah, the buyers who who get the best outcomes are the ones who are already through the door before the music changes. You know, they close in a calm market, they negotiated, they got the inspection, they got maybe the concessions, and now the market shifting only benefits them because their equity is just going straight up.

SPEAKER_01 8:44

That's true. And this is which why the lesson is from every cycle. The buyer who acts in the quiet part of the market does better than the buyer who waits for the obvious part.

SPEAKER_00 8:54

Yeah. It's like an old quote that Warren Buffett had. So, anyways, uh, you know, I I wanted to make one more point about the equity story because we've been talking about as if it's hypothetical, but our brokerage has hundreds of past clients whose stories make this concrete. We have buyers that we helped purchase two or three years ago who are now sitting on tens of thousands of equity because they did not wait. And they're definitely happy about that.

SPEAKER_01 9:19

You're so right. And those same buyers, when life changes, when they need to move up to a bigger house when they're going from two kids to four, that equity is what makes the next move possible. That's true. They have something to put down now. They are not starting from zero a second time.

SPEAKER_00 9:36

That's a good point. Yeah, you're right. That the equity from your first house, it basically funds the down payment on your second, right? It does. And that is how the generational wealth gets built in real estate. And it cannot start until you actually own something.

SPEAKER_01 9:50

Yes. And the longer you wait, the longer that wealth building clock isn't running for you. The first house is the hardest one. Once you're in, everything else gets easier.

SPEAKER_00 10:01

Yeah. And we have not even gotten into how that strategy sets play yet. So because every buyer is different, the play for the first-time home buyer is not the same play for the move up family. And that's what we want to go through after this break.

SPEAKER_01 10:15

This is the conversation we have at the kitchen table with every buyer Idaho Life works with. What matters most to you? And how do we structure the offer to actually get it? That's coming up.

SPEAKER_00 10:27

You're with the Idaho Life Show Real Estate and Community with Garrett and Shelby. We will be right back.