The year was 2021. Mortgage rates hit historic lows and the housing market had its strongest period in 15 years. But some of us first-time homeowners didn’t get a chance to take advantage of the low rates, either because we weren’t prepared financially or because someone with deeper pockets outbid us.
Now mortgage rates are rising, inflation is making everything, including housing, more expensive, inventories remain low, and some suggest we are in the next housing bubble.
So you might be wondering, “Now is a good time to buy a house, or should I wait?”
Let’s find out.
The current state of the housing market
Before we answer the question of whether now is the right time to buy a house, let’s take a quick look at what’s going on in the housing market today.
Mortgage rates are rising
The Federal Reserve announced that he would raise interest rates a total of seven times a year to fight high inflation.
With mortgage lenders use the federal funds rate to set the bar for your own interest rates, Nadia EvangelouSenior Economist and Director of Forecasting at the National Association of Realtors®, says she expects mortgage rates to continue rising through the end of the year.
At the time of this writing, the average interest rate on a 30-year fixed mortgage is 4.72%. according to Freddie Mac – almost 1% higher than a month earlier.
While Evangelou says rates will continue to rise at a much slower pace than in March, she notes that “rising mortgage rates will impact the housing market and hurt affordability, making it even harder for some to buy a home. ”
Lending standards are tightening
According to the Mortgage Bankers Association, the Mortgage Affordability Index, which measures the recommendations set by most lenders for lending to borrowers, declined in March. When the index goes down, it means that lenders are tightening their loan requirements.
For mortgage loans, you usually need a credit score of at least 620 and debt to income ratio no more than 43% to get approved for a regular loan. However, Latest report from ICE Mortgage Technology showed that the average credit score required to approve a mortgage now stands at 734 and the average debt-to-income ratio has dropped to 38%.
Income requirements have also increased. Evangelou says that a year ago, you needed a family income of at least $61,000 to buy a house at the median price. You now need an income of at least $82,000 to qualify.
Houses are more expensive
We sort of already knew that—or at least those of us who were looking for homes already knew that houses are now more expensive than they were a couple of years ago.
Latest data from Zillow says the median home value in the US is $337,560 — nearly 21% higher than last year.
“Normally we expect higher mortgage rates to push home prices down, but this time we don’t really expect local prices to fall,” says Evangelou. “We will see a slower increase in house prices, but not a fall in prices.”
In other words, house prices will continue to rise throughout the year, although not as sharply as they have been in the past few months.
Competition remains high in some areas
“Despite rising mortgage rates, demand should remain strong thanks to generational demographics: a huge wave of millennials are aging into their prime years to buy a home, and baby boomers are more active in the housing market than previous generations,” says Jeff Tucker. senior economist at Zillow. .
However, Frank Iacovinia REALTOR® veteran at RE/MAX, notes that competition will remain especially high in suburban housing sector, and urban markets will begin to cool.
He specifically recalls a listing he recently had in New Jersey that lasted only two days on the market, with numerous offers, and sold for more than the asking price.
“On the other hand, I had several listings in January — two that I would consider first-time buyers — that didn’t sell or get any offers,” Iacovini says. “So you start to notice a little fragmentation in the market. But it’s still hot in some areas because supplies are very low.”
Is now a good time to buy a house?
After reading the above, you’re probably thinking, “This is definitely the worst time to buy a house.” And we don’t blame you if that’s your thinking.
Actually, it was heavy speculation that we are entering a housing bubble and that the best thing you can do is wait so you can take advantage of lower prices when it all collapses. But Evangelou of the National Association of Realtors® says that’s unlikely to happen.
“This is not a bubble. People should not assume that current conditions are the same as they were in 2008,” says Evangelou.
“Back in 2007, there was an oversupply of houses. There are currently less than 900,000 homes for sale. This housing shortage is the main reason why we do not expect housing prices to fall.”
That’s why, if you have a stable job, modest savings, and an excellent credit score, Evangelou recommends fixing this rate as soon as possible.
And she’s not the only one.
Iacovini of RE/MAX says that “if you wait, there is no guarantee that there will be enough stock in your price range. There is no guarantee that rates will be lower—in fact, they are likely to be higher, and there is no guarantee that home prices will even out.”
In other words, if you are financially ready, now is the right time to buy a home.
Tips to make your home search smoother
Get pre-approved before you buy
Let’s face it. Most of us don’t have $400,000 worth of cash in the bank. Thus, you will most likely have to finance the purchase.
Yakovini says that before looking for homes, you first need to get pre-approval. Getting pre-approved will not only give you an idea of how many houses can you afford but will also allow you to make an offer for a house faster.
If you don’t know where to start looking for lenders, we recommend visiting sites such as Credible.
Credible is a loan marketplace that allows you to compare offers from multiple lenders by filling out a single form.
The best part?
It’s completely free and you won’t get any dents in your credit score as the company only uses soft loans to get your initial offers.
Hire a real estate agent
Once you have received pre-approval, the next step is hire a real estate agent who knows your local housing market to a tee. This will help you narrow down your search to areas that fit both your budget and lifestyle needs.
In addition, Iacovini says having a real estate agent can help speed up the home buying process as they can make offers as soon as a property matching your criteria is on the market, plus they take care of all the negotiation for you.
Expand your horizons
Finally, Evangelou advises not to overlook certain areas just because they don’t fit your ideals, as they may be more accessible and less competitive.
This is especially true for those who work remotely and do not have to take into account the way to the office.
Summary
Things don’t look as bright and shiny as they did in previous years if you’re looking to buy a house. However, this does not mean that you should refrain from buying property. If anything, delaying your purchase could cost you more in the future.
The most important thing is to evaluate whether you as a person are ready for the next step financially.
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