Is now a good time to buy?

It can’t be both a great time to sell and an awesome time to buy at the same time. It is a tough time to buy, but things are getting better.

Mortgage rates have almost doubled since 2021 and home prices are up big. In combination, this means that the average homebuyer’s monthly mortgage bill is up 60–70% compared to a few years ago. So yes, many buyers are kicking themselves for not acting sooner.

That said, buyers are starting to regain some negotiating power. As demand has fallen, inventory levels and days on market are rising. Prices are declining month-on-month, and in some previously hot-hot-hot markets, prices are already down year-on-year.

Keep in mind that time is your investment friend. If you buy a house now, you can be fairly confident that in 10 years’ time the value will be significantly higher, even if the price declines in the short term.

Why are mortgage rates so much higher?

One word: Inflation.

Inflation is currently running at a 40-year high. One of the two main jobs of the Federal Reserve is to control inflation, and they’re failing right now. As a result, the Fed has been hiking short-term interest rates at an unprecedented pace and is warning consumers and businesses to expect more “pain” until “the job is done.”

When the Fed lifts interest rates, it’s effectively raising the “cost of money.” This discourages people and businesses from borrowing money to buy things (like houses), and ultimately slows the economy down.

Keep in mind that the Fed doesn’t set mortgage rates. Other interest rates (bank account deposit rates, CDs, bonds, etc.) “build” off the Fed Funds Rate. Mortgage rates and the Fed Funds Rate can move in different directions in the short-term (days/weeks), but in the medium and long-term (months/years), they move together.

Should I just continue renting until home prices and interest rates come down?

That’s a decent argument, but……demand still exceeds supply in most markets. That suggests that prices aren’t likely to have a huge drop. And while most forecasters do expect that mortgage rates will start to decline in 2023, it’s unlikely that they’ll get back below 4%.

And, of course, rental rates are currently rising at a faster rate than home prices.

In the longer term, it’s almost always financially better to buy than rent. But personal circumstances play a huge role in the buy vs. rent decision. If you’re planning on moving cities in the next 1–2 years, have a lease, or don’t want to deal with home maintenance, you may want to keep renting (and saving) for a while.

Remember:  “The best time to buy a home is always 5 years ago.”

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Source: ListReports.com | Scott Bradley Brixen