You, the buyer, put 10% down. Pre-regime: $40,000 + $360,000 @ a 3% interest rate = $1,518/mo. In the future: $36,000 + $324,000 @ 7% interest = $2,156/mo (+$638/mo)
Imagine the pre-regime buyer invests the difference. $0 upfront + over 30 years, at a conservative rate of 4% APY, that's: $442,000.
Assume, again, interest rates stabilize and drop to, say, 4% five years from now. The person holding the 3% mortgage does not refinance, because why would they?
The post-regime buyer invests the amount saved up-front, and refinances in five years. Their returns on that initial down payment investment, same 4% APY over 30y: ~$13,000. Their new monthly after that point would be $1458 (amortization schedule + reduced interest rate). They, also, invest the difference in their monthlies (+$698/mo @ 4% APY over 25 years); added on to the down payment savings returns: $371,000.
Two interesting points which extend out of this math:
1) The hypothetical home price reductions over the next months/years don't have to go far above 10% before the benefit flips in favor of the person who waited. I haven't ran the math, but I'd estimate somewhere around 15%.
2) This doesn't take into account, say, investing the down payment for the person who waited, over the past two years.
3) As interest rates recover, housing prices likely follow. But they're recovering from the bottom, not the top where many bought. Imagine, say, in ten years, this home is valued at $450,000. All else already described being equal, the person who waited can add even more to their gains beyond the person who bought early; closing the gap further (the exact amount of calculable, but I'm too lazy to figure out the amortization schedules).
None of this asserts that it was a "mistake" or something to buy early. Just that its not all doom and gloom "your financial future is fucked" for people buying now. Its really surprisingly close once you run the math; the people saying "I feel like I won the lottery with 3%" may retire, decades from now, ahead half a years salary.
Yes, it will take a little time for the supply and demand curves to adjust. And, of course, popular/richer areas may not adjust down as much as less popular/poorer areas.
> Even if not, there's risk that you won't gain off whichever investment is chosen.
This is political, but if the US government lets its stock market indices fall/stagnate over the long term (5 to 10 years), we probably have bigger problems to worry about.
> Even if not, there's risk that you won't gain off whichever investment is chosen. While paying off a home early (no matter the interest rate) is guaranteed to pay off financially.
FDIC guaranteed savings accounts are offering 2.5% to 3% these days. I presume a higher mortgage rate means higher guaranteed savings account rates.