Richards: Time in the market, not timing the market
During the summer of 2007, just months before my wedding and at what felt like the pinnacle of my life, with a thriving fitness business, a booming economy, and the promise of holy matrimony on the horizon, my wife and I began our search for a new home.
I vividly remember stepping into a small office in Riverwalk to apply for a home loan. As first-time homebuyers, we were uncertain about what to expect. Within minutes, we had a loan pre-approval for up to $265,000. We provided two months of income history and the previous year’s tax return, along with a concerning amount of consumer debt and a laughable combined income.
We were unaware of the consequences of the commitment we were making. This marked the beginning of a series of events that ultimately cost me both my promising business and my marriage. It was truly the best and worst of times.
Home prices are not declining; in fact, they have not come close to the levels seen during the 2008 financial crisis. The mold-infested, water-damaged condominium we purchased in September 2007 for a staggering $245,000 was worth only $107,000 during the period from 2009 to 2012 — a nearly 60% decrease in value.
Here’s what you need to know: During the Great Recession, banks were approving loans for anyone with a pulse and a driver’s license. However, in the recovery years that followed, banks tightened their regulations, making it difficult to secure a mortgage. By around 2013, as economic indicators improved and interest rates remained low, the purchasing power of qualified homebuyers increased. The COVID-19 pandemic, coupled with interest rates dipping below 3% in 2020, created a massive disruption in the housing supply and demand, leading to home prices becoming unattainable for many locals in our region and across the country.
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Moreover, according to Gary Keller, the founder of Keller Williams, “one reason that ultra-low mortgage rates will not be returning anytime soon is that with such limited supply, the Federal Reserve understands that making financing cheaper will spur a rise in home prices — something they are keen to avoid while trying to control inflation. There are 4 million homes missing that we failed to build following the Great Recession, and as a result, we are not catching up. This is a significant problem.”
On a national scale, we face a housing shortage, and most homeowners who purchased in the last decade enjoy affordable mortgages and strong equity positions, even as wages have not kept pace.
These homeowners are not compelled to sell, and they lack viable housing alternatives due to high interest rates and unaffordability. Despite some softening in home prices, I do not see any economic indicators suggesting an impending fallout. Conversely, there is no evidence of any significant forces driving prices upward in the near future, especially not to the levels we witnessed when home prices surged in 2021. Currently, we are experiencing a balanced market that offers advantages for buyers, particularly for homes that may be slightly overvalued. The best time to plant a tree was five years ago; the second-best time is now.
Even though we lost 60% of our home value in 2009, we persevered and ultimately profited in 2019. A general rule of thumb is to buy and hold for seven years. We entered the market at its peak just before the most significant economic downturn of our lifetime, yet we still emerged on the other side. The best time to buy is when you can afford it. Over the long run, home prices in Eagle County have appreciated by nearly 8% since the mid-1980s. Always remember: although home values fluctuate, you do not realize gains or losses until you sell. Focus on time in the market, not timing the market.
Ryan Richards is the growth director and a luxury real estate agent at Keller Williams Mountain Properties. He is the founder and co-owner of the Bunkhouse, Vail’s first and only boutique hostel. You can find him at RyanRichards.com or at 970-401-0720.
