Borrowing interest rate rises, Recession is imminent, Some future homebuyers are chilling. On the other hand, interest rates will almost certainly rise, so should you sign a contract with a home you love and buy a home now?
According to experts, it’s a tough call. why? “There are many moving parts in buying a home,” said Peter Parion, a certified financial planner based in Long Island, New York.
Mortgage rates, housing markets, personal savings, Credit scoreInvestment goals and job prospects are all important considerations.
It is difficult to time the housing market. Still, industry watchers have recently hinted that the red-hot housing market could quickly cool down in favor of buyers.
“I don’t think it’s going to bubbly like it used to be when summer is over and autumn is coming,” Parion said. “Anyone who can postpone and wait can probably win a better deal.”
In recent years, housing demand has far exceeded supply and prices have skyrocketed. Covid has pushed prices even higher. During the pandemic, it was difficult for realtors to showcase their homes, but demand still exceeded supply as homebuilders had to suspend construction. However, rising borrowing rates in the last few months could stall the flow.
Rising Mortgage Interest Rates: Should You Buy A Home Now?
June 15, Federal Reserve Rate hike Three-quarters of the basis points, the highest increase in almost 30 years. The Federal Reserve does not set mortgage rates, but changes in Federal Reserve rates indirectly raise or lower mortgage rates.
The 30-year fixed mortgage rate, which had been around 3% throughout 2021, is now approaching 6%.
As a result, Fed Chair Jerome Powell said, “If you’re a homebuyer or a young person trying to buy a home, I think you’ll need to reset a bit.”
It turns out that the consumer was already on the same page. Fannie Mae released a national housing survey on June 7, showing that only 17% of consumers report that it’s a good time to buy a home.
Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, said: statement.
House prices are still hot. Is the slowdown coming?
According to the National Association of Real Estate Agents, the median existing home sales price was $ 407,600, surpassing $ 400,000 for the first time in May 2022.
Kenneth Leon, Equity Research Director at CFRA Research, says it shows that it is still a highly competitive housing market.
“There are still many bids for existing homes,” he told IBD.
However, monthly sales declined in three of the four regions of the United States, and sales declined year-over-year in all four regions. The northeast was the only region that saw a rise between May and April.
Overall, pre-owned home sales in May fell 3.4% compared to April. It decreased by 8.6% compared to a year ago.
“Home sales have essentially returned to the levels seen in 2019 before the pandemic, after a two-year outbreak,” Lawrence Yun, chief economist at NAR, said in a statement.
Housing construction stock
CFRA’s Leon acknowledges that homebuilders are preparing for a slowdown in the coming months. He points out not only the outlook for homebuilders in the coming quarters, but also commodity prices.
At a recent financial results briefing with investors, Renner ((((Len) Management said traffic to the sales community has dropped significantly.
“So far in June, new orders, traffic and sales in many markets have been driven by soaring mortgage rates and headwinds from negative economic headlines,” said Richard Beckwitt, co-CEO. Incentives and cancellations are getting worse. “
KB Home ((((KBH) He also said that new orders are coming in at a slower pace.
“As the number of cancellations increased, there was a softening in May,” COO Robert McGibney said in a June 22 earnings announcement with investors. “I think June was similar to May, but it has been softening in the last few months.”
According to KB Home Management, price increases slowed in May, but incentives increased in certain regions. This is a good sign for homebuyers looking for a deal.
Meanwhile, as housing supply keeps up with demand, timber prices have fallen from a record high of about $ 1,400 per 1,000 board feet in March to about $ 600 recently.
“The story has changed,” he said. “Lumber has returned to its normalized level.”
Nevertheless, Homebuilder stock It is resilient in a volatile stock market and even as the housing market softens. According to the company, the share of Renner and KB Home, which dropped sharply from the 52-week high between late 2021 and early 2022, has rebounded in recent weeks. MarketSmith chart analysis..
The recession may be right there: should you buy a home now?
If the United States is heading into recession, the question is how bad it is. According to Leon, a short-term, mild recession will not have a significant impact on the housing market. However, a prolonged slump will almost certainly cause havoc.
“One positive thing is that employment is still strong,” Leon said.
But that could change as news of layoffs has skyrocketed in recent weeks. For homebuyers, it not only needs to assess the economic impact of unemployment, but it also means the possibility of moving to accept new offers.
Buying a home represents a major promise, says Parion.
“The situation has changed, so it’s not easy to leave next month,” he said. “Consider the stability of your employment and family situation.”
For those facing a one-third chance of moving to another part of the country within three to five years, Palion proposes to carefully consider options for renting instead.
How much can you really afford?
Mortgage rates are an important factor in calculating how much you can buy. So is your income, how much savings you have, your credit rating, and your ability to cover other regular and unexpected costs of owning a home.
One way to understand that is to look at NAR’s quarterly housing affordability indicators.The Latest data A typical monthly homeowner’s monthly payment for the first quarter of 2022 is $ 1,383, which represents 18.7% of family income. This accounts for 17% of household income, compared to the average monthly $ 1,237 for the fourth quarter of 2021.
Generally speaking, a 20% down payment is ideal, says Palion. Keep in mind, however, that it is not ideal to have all your savings in your down payment. Repairs and property taxes often sneak up on first-time buyers and incur more serious debt than expected.
Another way to reduce the cost of buying a home is to increase your credit rating. The higher the credit rating, the lower the cost of borrowing.
As mortgage rates rise, future homebuyers may wait a bit and choose to make more regular payments for their credit card balances and other debt such as car loans.
Where should I buy real estate?
In a perfect world, the places you want to live and the things you can spend are perfectly aligned. However, this is not always the case. Therefore, some house hunters choose to move to more affordable areas of the country.
According to the latest NAR dataThe West is the most expensive area for homeowners. The average monthly payment is about $ 2,200, which accounts for more than 28% of the family’s income, and the average family receives about $ 93,000. The median of existing homes in the west is almost $ 526,000.
The Midwest is the most affordable area to buy a home, with monthly payments of about $ 1,200, accounting for about 17% of the family’s income.
Need to buy a rental property now?
The purchase of investment property is “all other wax balls,” Parion said.
“There is a big difference between investment real estate and the main residence,” he said.
Buying the house you live in is to meet your personal taste, Parion explained.
“Investment real estate needs to be a business decision first and foremost. How much do you pay for this real estate and how much rent can you collect?” He said.
The time and money to continue investing in a rental property after purchase is also a big difference. Owning a rental unit means that, to some extent, you need to be involved in the daily details of managing a property, even if you are undertaking most of the management.
“We need to be able to answer the phone late at night about the flooding of the toilet,” Parion said.
If you want to be a completely hands-off investor, consider investing in a real estate investment trust (REIT) proposed by Palion instead. REITs are a collection of real estate that hires professional managers and trades like any other stock.
Whether you’re considering buying a major home or investment property, Palion has some final advice. “Calm down and feel at ease. Don’t rush to make a decision.”
Follow Adelia Serini Linecker on Twitter @IBD_Adelia..
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