2022 Home BUYER'S GUIDE - everything you need to know

Rising interest rates, down payments and mortgage insurance, competition in the market, and where in the world will prices go? All that and more in this video.

Hello everyone, my name is Cameron Stephens, the entertainment industry’s real estate agent and the owner of Stephens Real Estate, a real estate experience tailored to the creative client.

Today I want to talk about what the 2022 market holds for buyers because I think everyone has one major question on their minds: with interest rates rising significantly and quickly, what is going to happen to prices?

I have good news and bad news, but most importantly, we have to start with this: the landscape of purchasing a home has changed drastically.

A short summary of how we got here. In 2020 we had a global pandemic and to avoid a major recession, The Fed cut interest rates to historic lows to stimulate the economy and encourage borrowing and investment. Supply of housing shrunk because people didn’t know what was going to happen and squeezed the already tight supply of houses in Los Angeles, but demand for housing skyrocketed because in an era of staying home, people all wanted, well…better homes. First time home buyers flooded the market and with supply at historic lows, and interest rates at historic lows, prices crept up and hit historic highs. 

But the Fed can’t keep rates this low forever, it’s only a short term stimulation tactic. So with the economy stabilizing, The Fed announced that they would be raising interest rates throughout 2022. Since mortgage rates are directly tied to interest rates, that meant mortgage rates would rise too. And they did. We went from most of my clients getting below 3% mortgages to now into the 4% range, potentially as much as a 2% interest rate increase. Now, these rates are still quite low in the context of history, but they are definitely affecting purchasing power.

For example, and I’ll run some more numbers later in this video, but for a $800k home with 20% down, at 3%, that is a monthly mortgage payment of $2,981. At 4%, that payment is $3,338, and at 4.5%, which is where rates are hovering at the time of this video, it’s $3,526. That’s $545 dollars more per month for the exact same house. That’s definitely not nothing. 

By the way, if you happen to like videos like these, hit subscribe, follow, etc, whatever platform you’re on, that way you can stay up on all sorts of great information related to Los Angeles real estate. 

Ok so interest rates have risen. All other things equal, what tends to happen to prices when interest rates rise? Well, they fall. It makes sense, people can afford less, their purchasing power is decreased with rising interest rates, so prices fall in accordance. 

But is that what we are seeing? Well, for the first part of 2022, no. What we are seeing is a flattening of prices, a slowing of the growth, but certainly no fall in prices. Instead, what we are seeing is that when my 2021 buyers had to compete with 10, 15, sometimes over 20 offers, now we are competing against 2 to 5 offers total. 

Essentially what is happening is that only the most financially fit buyers are the ones able to stay in the market. They are the ones that know they are ready to purchase a house, have gotten their finances in order to do so, and know that even though they missed out on the absolute lowest interest rates, interest rates are still rising and so their purchasing power is still better than it would be if interest rates go to 5 or even 6%

So let’s run some numbers. I’m going to go over a few different scenarios and their total monthly payment, that’s Principle Interest Tax and Insurance, for each as well as the total yearly amount you have to make to keep your housing payment 40% or less of your gross income.

For a $600,000 condo that is 20% down is $120,000 down and a monthly payment of about $3,025 per month plus HOA.

To afford this, you should have at least a total yearly household income of at least $93,000

For a $750,000 single family home that is 20% down is $150,000 down and a monthly payment of about $3,680 per month

To afford this, you should have at least a total yearly household income of at least $111,000

For a $900,000 single family home that is 20% down is $180,000 down and a monthly payment of about $4,400 per month

To afford this, you should have at least a total yearly household income of at least $132,000

For a $1,200,000 single family home that is 20% down is $240,000 down and a monthly payment of about $5,900 per month

To afford this, you should have at least a total yearly household income of at least $177,000

So the question I’m sure you’re wondering is: should I buy a house now?

I still stick by my two guiding principles. The first is, the right time to buy a house is the right time for you. 

And second, time IN the market beats TIMING the market. 

That means that if you’re in a solid financial place and you plan on staying in the house for a minimum of 4 years, it is still a great time to buy. We aren’t flipping these houses. Homes are a long term investment, and even if prices did go down, prices would likely go down as a direct result of increased interest rates. At that point, you may be getting a cheaper house from a total dollar amount standpoint, but you’ll pay more each month as a result of higher interest rates.

Remember, most of the gains in real estate are by buying your primary residence and holding onto it for an extended period of time to capture the tax benefits both in yearly deductions, and the State of California Prop 13 cap on tax increases, as well as year over year appreciation, and possibly any renovations and upgrades you do to add value to the home. 

The reality is, most people aren’t buying their dream home for their very first home in Los Angeles. Most people are getting into a place they like, live in it for awhile, maybe fix it up a bit, and down the line they sell it and buy that dream home. Some people might do this 3 or 4 times over the years before they get to that final dream dream home. And that’s ok, it’s part of the journey.

At the end of the day, you need a place to live, you may as well be building equity for yourself while you do it.

Ok there you have it! Thank you for watching, I hope you learned something about homes in 2022, some hard dollar amounts, some opinions about what is likely to happen, and how you can capitalize on it.

At Stephens Real Estate we specialize in working with creative professionals, entrepreneurs, and especially people in the entertainment industry because I spent 7 years of my life working in animation and visual effects. That is why I designed Stephens Real Estate to be tailored to the creative client.  

I also designed a few value adding programs for both buyers and sellers that no one else is offering. For buyers, we put together a full marketing plan that paints you as the right buyer for your dream home. We can help recommend local lenders that will fit your financing situation, even if you’re freelance. And don’t worry about the inspections, we’ve got you covered. They’re free, all of them, no questions asked.

And If you’re looking to sell your home, we offer the ability to REMODEL NOW, and PAY WHEN YOU SELL with Zero fees, no interest, no upfront costs. Plus, we pay for all of the aspects of digital marketing from photography, drone footage, videography, 3D walkthrough and virtual open houses, social media campaign, custom website, targeted emails and more.

So, if you like my energy and personality, and think my expertise and the programs I offer would benefit you, please don’t hesitate to reach out. Additionally if you know someone that would benefit from connecting with me, I’d absolutely love an introduction.

Thanks again for watching, and at the end of this video there will be a QR code you can scan to be taken directly to my website, or a link somewhere down there where you can click to learn more.