late now than never later.
It’s the question that’s buzzing around real estate offices, mortgage companies, backyard barbecues, water coolers and passing conversations with neighbors.
The short answer is — we think so.
Yes, it is still a good time to buy.
The long answer is more complicated. Consider these four trends to help you as you make your housing buying decisions.
Higher home prices show no signs of reversing course.
Even before the pandemic, the supply of the housing market couldn’t meet the demand. In 2020, COVID-19 affected the housing market just like it did every other industry. However, we’d soon find out that the real estate market was a double-sided coin.
Let’s set the record straight. If you’re expecting the trajectory to result in a housing bubble ready to burst, reminiscent of 2008’s Great Recession, this isn’t that. The market variables that resulted in the 2007-2008 housing market crash don’t exist now. If higher home prices cause are causing you to hesitate, keep in mind that prices will likely continue to rise. Home prices were rising already before the virus, and multiple variables from the pandemic created greater demand in an already competitive market.
With the introduction of social distancing measures, many began to conduct the majority of their lives inside their homes and, unsurprisingly, wanted or needed more space. Many also sought financial security, preferring a traditional equity purchase that still carried relative liquidity amid the health crisis uncertainty. What better way to adapt to the new world than investing in your home: the very place you planned to ride out the epidemic? Many see it as a timely investment vehicle.
Buying gained popularity.
However, many other Americans had the same idea. Additionally, the COVID-19 pandemic affected the ability and access for individuals to go to work. Companies in the housing industry suffered, as workers were absent due to new mandates among other pandemic-related challenges. As the pandemic wore on, labor and building materials supply chains struggled further.
Earlier, I wrote that, before the pandemic, as well as in its beginning, housing demand had exceeded supply. The difference now is that the supply of home options is extremely low1 due to the factors mentioned above, which have resulted in climbing home prices. In fact, Zillow projects a 17% year-over-year rise in home valuations for 20222.
The effects of the pandemic only added more fuel to a white-hot market. Home prices aren’t going down any time soon, even if their rise slows.
Interest rates have started correcting to higher levels.3
At the beginning of the pandemic, in the face of a developing national health crisis, the Federal Reserve took action. They pledged (and proceeded) to buy debt and mortgage-backed securities (MBSs) in an effort to help the economy.4 This resulted in an artificially high demand for MBSs, driving down mortgage interest rates. For a time, this helped add stability to the economy. It made it easier access financial resources, investments, and loans — such as mortgages. It’s not surprising that so many individuals decided to pursue homeownership during the pandemic. Demand was already outpacing supply. The lower interest rates made a home purchase that much more attractive, tipping the balance further.
As inflation has risen, so too has the labor market. The Federal Reserve has noticed, and has claimed that they will begin selling some of their balance sheet. This move serves to correct mortgage interest rates back up to normal market levels.5
A more balanced market is good for the economy, in general. However, higher interest rates will only decrease buying power for home buyers. Additionally, home buyers who have waited for prices to fall just may see prices at least hold, if not increase.
The later you buy in 2022 and beyond, the greater your chance for a higher mortgage interest rate.
Rent price increases are breaking records6 and making headlines.
It is well-known that rent prices rise over time. This is due to a variety of factors: inflation, rising utility costs, location value, and the list goes on. With reduced supply of homes and renter instability during the height of the pandemic, rent prices are up 14% year-over-year, with some up over 30% in many major metro areas.7
Renting is a great option for those who want to stay flexible. But for those looking to optimize their finances, it’s helpful to remember that 0% of your rent payment builds your own equity. Since it’s not part of a home investment, you’ll never see any of that money again!
Although a down payment may sting at first, a fixed rate mortgage payment does not increase over time. Compare that to rent, as it continues its daunting upward climb. Renting gives no net worth gain, and leaves you at the mercy of your landlord and binding lease agreement.
In some cases, after the down payment, a mortgage payment may be lower than rent for a comparable space. Be mindful where your money is actually going. You may be able to gain some equity for your housing costs.
The cost of waiting may be higher than you expect.
For many home buyers, the down payment is the hardest obstacle to overcome. With the home price index rising8, it will become increasingly difficult to save enough for a down payment. Down payments are measured as a percentage of home pricing, and are often tens of thousands of dollars. It can be quite a challenge!
Upward trends in demand, interest rates, rent prices, and the Consumer Price Index (CPI) means saving could become more difficult. If accounting for normal expenses and goals wasn’t enough, you will also be contending with market forces beyond your control. Should these trends continue, It will be harder to save for a ~12%9 down payment.
Depending on your situation, you may need less for a down payment than you think. Building your equity sooner means you could actually benefit from rising home prices. Even in a sellers’ market, getting into a home you can afford now may benefit you in the long run. However, we’d still advise that you exercise due diligence as you determine the best real estate investment for your situation.
9 2021 median down payment: https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf
In the current housing climate, the cost of waiting to make a move in the real estate market will most likely cost you more in the long run.
Buying a home is a long-term decision that should be made with careful consideration. Financial decisions should be strategic. At Benchmark, we provide education to hopeful buyers regarding trends in the market and how they could affect future plans. We are committed to listening to your vision, and getting you the right mortgage for your future success.
Contact your local Benchmark branch. Contact us today for personalized information. Call me yourself or request a call from me. WeI would be honored to provide you with our famous excellent service for your new loan.
Benchmark brings you home.