I just bought a house! Like, literally yesterday. And I was recently quoted in the Wall Street Journal regarding my home buying process:
https://www.wsj.com/articles/home-buyers-are-finding-creativ...Someone in the comments there made a metaphor about "catching a falling knife." I respect this skepticism, and suspect I may have safely caught such a knife. More thoughts:
- If interest rates rise, the asset price bubble may deflate. This suggests the house's value on paper will fall — but unless the economy collapses, overall rents ought to be stable, and the cost of living on a typical property ought remain broadly similar. In the meantime, prices are still rising substantially in the area where I bought the house, notwithstanding recent headwinds in the mortgage market.
- I expect real rents to rise over the next few years, due to general supply-and-demand issues and the dearth of new construction. I expect this nationwide; I further expect them to rise in the city where I bought. This should mitigate the pressure on the value of my asset.
- I locked in a 4% interest rate. With a conforming loan of $647,200 that's something like $2200/mo in debt that's evaporating due to inflation. This is a substantial portion of the monthly payment. You will not get this good a deal, because rates are already going up. However, at current rates, you will still get free-money financing -- just not as much or for as long.
- I sold stocks to pay for my down payment. The stock market fell a good little bit since I sold. If your equity is still in equities you have already taken a hit that I avoided. (I got lucky, I guess; I also sold company stock at a very attractive price.) And note that even though stocks have fallen, they are by many measures still somewhat overpriced by historical standards, particularly if rising rates brings about a recession, which it might. If my real estate is at risk from rising rates and falling asset prices, it has lots of company. (Even a nice safe bank account is losing value daily.)
In conclusion, a lot depends on the specifics of where you're buying, how you're paying for it, and what you would do with the money instead. If you've got a wad of cash and wanted to make an all-cash offer, I'd preserve as much as you can against inflation, and save it for the recession in a year or two; you'll probably come out ahead.