Many Americans, who have spent years making enough money for a down payment to buy a home, are now sitting on the sidelines until mortgage rates and home prices drop.
Mortgage lenders expect to complete 49% fewer single-family mortgages in 2022 than in 2021. Mortgage rates rise 7% Home prices still high, buyers often leave down payment low yield account, financial advisors say. Although relatively safe, funds often collect more dust than interest.
A typical homebuyer who took out a mortgage in July paid a down payment of $62,500, up 13.6% year-on-year. This is almost double the July 2019 median down payment of $32,917.
The bright spot for today’s buyers: Down payments have fallen slightly in recent months, as rising mortgage rates have cooled home competition and buyers no longer have to pay so much to win a bid.
Jennifer Harris and her husband Rob Harris wanted to buy a home in South Carolina in August. , has decided to defer the purchase to the second half of next year or until 2024.
“Everything is holding us back,” said Harris.
Meanwhile, the couple is adding to a $60,000 down payment fund. I am considering moving to a monthly or 12 month fixed deposit certificate.
Seasoned buyers say they struggle to get a decent return on their down payment. If the funds are to be used in the short term, keeping a down payment in cash may be preferable to a volatile stock market, but there may be better options than a regular savings account, he said. Financial Advisor says.
Dan Driscoll and his wife, Jenny Driscoll, feel they sold their four-bedroom home in Montgomery, Ohio this spring for a market-leading price of about $535,000. The couple then rented the first apartment they found in the area.
They hope to buy a home near Cincinnati within the next 6-9 months, but are waiting for housing prices to drop. Driscoll doesn’t like himself sitting on cash, but he’s not quite sure how to play it out.
The stock market seems too volatile for earnings from previous sales he marked as a down payment. $250,000 in a bank savings account that pays about 0.03%. “Inflation is not my favorite,” he said.
If you have a lot of cash and want a house, waiting is one strategy. Continued interest rate hikes by the Federal Reserve should ultimately lead to higher returns for savings accounts. But the postponement is not without risks, says his planners at Financial. It may take years for mortgage rates to come down. Home prices continue to rise year-on-year, even though the pace of its price increases has slowed.
Taking the plunge is another approach.
Betterment financial planner Sarah Karsman says if you can afford to pay your monthly mortgage estimate even with rising interest rates and keep your total debt-to-income ratio below 36%, you’re more likely to buy. may make sense.
Financial advisers say anyone planning to buy a home in the next year or two should keep their down payment in a safe and easily accessible place. “Rather than gambling with your money, be prepared to act when prices stabilize and interest rates fall,” says Joanne Burke, a financial planner in Vienna, Virginia.
Buyers can align their investment horizons with home-buying timelines, according to Los Angeles financial planner Noah Damsky. If you think you might buy before the end of 2023, consider 6-12 month Treasuries with a yield of about 4%. Vanguard Cash Reserves Federal Money Market Fund (VMRXX) with a yield of about 2.8%. Money market funds such as treasury bills are a less tricky option for those who don’t want to worry about buying Treasury Bills. said Damsky.
Richard Cook, a financial planner in Fishers, Indiana, likes I-Bonds for buyers who plan to wait a year or more to buy a home. 9.62% rate and safetyThe US government backed I-Bond can be cashed out after 12 months, but if you cash out in the first five years you will be penalized with three months’ worth of interest. According to Cook, the benefits of the bond outweigh the potential for small penalties. There is a limit of $10,000 per person per year, A Specific Strategy to Exceed That Cap.
John Boyd tells customers that if they can still save money, pay their bills, and stay in their home for at least five years, they shouldn’t wait to buy. Boyd, his planner at Financial in Scottsdale, Arizona, said he could refinance his mortgage at a lower interest rate later.
“You can’t time the housing market any better than you can time the stock market,” he said.
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