Letter from a Knowledgeable Experienced Local Lender – Zack Jones

                          What are You Waiting For?  Letter for Your Buyers    =     August 20, 2025

Hi Cindy-

      Following up on our conversation yesterday, I see a lot of people who are waiting for "something" to stir them to action in the real estate market, but I don't see a lot of people who can define that "something" into specifics. That concerns me because, as the old saying goes, "If you don't know what your target is, you'll miss it every time."

What people talk about most is affordability which really can be solved with math, so that part is not vague or ambiguous at all. it breaks down pretty simply into home price and interest rate on the mortgage loan. So if rates go down or prices fall, that solves the problem and people come rushing back into the market, right? Maybe.

      The math gets tough on this pretty quick so let's take rates first. A 30 year conventional loan with good credit is running around 6.5% right now as an average, and a lot of people would say that if rates dropped down into "the 5's" that would be good enough to get excited about buying a house. So if we projected that rates would fall a FULL % point to 5.5% within 12 months, that means that a median priced house around $450k to $500k with a $400,000 loan on it would cost about $286 less per month with rates at 5.5%. In my experience as a loan guy, most people are expecting a much larger drop than that. I also think it would be unusual to see rates very much lower than that, so that's the math on interest rates.

      On home prices, we may be seeing things a little flat here locally right now, but our market in middle TN gets pretty upset if annual appreciation values dip below 4% and that seems to be the number we are running right now according to the data. If you take that same $500K home and wait a year at 4% appreciation, it jumps in value by $20,000, now costing $520,000. That extra $20,000 on your mortgage loan adds $113 per month to your payment, so you saved $286 in interest but added $113 in higher price per month, cutting your monthly savings down to $178 per month and adding $20,000 in debt.

       If you add rent payments for 1 year to the cost of waiting, that digs the hole deeper by another $20,000 or more.

Things can work out a little better if you already own a home because you will enjoy some appreciation on that home while you wait, but most people will move up in price when they buy a new home so the offset is not as much as you might hope.

      One of the biggest wild cards in this example is what happens to home prices if rates fall and buyers start buying? Prices go up and they go up quickly. We have very recent experience with this during the recent pandemic where many homes doubled in value in the past 5 years.

      My advice to buyers is to concentrate on what they want in the house, AND to get their budget expectations in order. A drop in rates at some point in the future will not likely make THAT much of a difference when you look at the details on an example like I have lined out above...and I also don't believe that there is any data that supports a significant drop in home values.

Maybe this will help someone that you're working with to take some of the mystery and magic out of such an important financial and lifestyle decision - the math is the easy part of the equation.  

Best regards,    Zack

PS.  Interest rates are on their way down very soon!  Have your client call me for a personal conversation anytime.  My number is below.  I will talk with them personally even before they fill out the application – customer service is priority.