In this article, we will discuss whether you should buy a house now or wait for prices to drop. We will explore the factors affecting the real estate market and provide tips on how to make the right decision.
The Current State of the Real Estate Market
Currently, anyone looking to buy a home is facing significant challenges, as home prices have risen sharply and mortgage interest rates have also increased. Therefore, you are not alone in wondering whether to wait or jump into the real estate market now before interest rates rise further. Unfortunately, I do not have a crystal ball that provides a definitive answer to this question.
However, even without the ability to read the future, I know that one should not rely on a collapse of the real estate market like what happened more than a decade ago. In fact, households are in a better financial position now than they were back then, making it unlikely that many homeowners will be unable to afford their mortgage payments. Another reality is that despite the sharp rise in interest rates, a significant percentage—up to 90%—of homeowners have fixed-rate mortgages. Even with rising interest rates, their monthly payments will not change, making it unlikely that they will need to sell their homes or that their mortgage would enter foreclosure.
Nonetheless, this does not mean that home prices will not decline. While home prices in April rose by 20.4% compared to last year, the rate of price increase has slowed somewhat compared to the previous month, where home prices were 20.6% higher than in 2021. Moreover, some experts say that home prices could drop by 5% to 10% over the next year in certain regional real estate markets.
The Impact of Rising Interest Rates
This might make you think that waiting could be the better option. But don’t forget that the Federal Reserve is trying to reduce inflation by raising interest rates. The higher the interest rates, the more expensive loans become. It is likely that the Federal Reserve will raise interest rates again. So if you think interest rates are high now, you might be surprised by an unpleasant increase in the coming months.
Ultimately, you should ask yourself whether the value of declining home prices will offset the higher amount you will have to pay as interest. Therefore, it is advisable to check with a real estate agent and mortgage lender in your area. Ask them about the trends they see in the neighborhoods that interest you. Prices are rising in some cities and towns at a slower pace than others.
There is also an unknown factor, which is the possibility of a recession. During a recession, both home prices and interest rates tend to decrease. But there is no guarantee that we will go through a recession or how long it might last if it occurs.
So, should you stay or go? Staying flexible may be the best option for now, with a one-year lease binding you to a period that makes it difficult (but not impossible) to leave if you find a place you love. And with rental costs rising across the country, you might end up spending more than you would like.
I recommend getting pre-approved for a mortgage. This way, you will know how much the bank can lend you and at what interest rate – you might be surprised by the loan offer. Pre-approval typically lasts for up to three months, so you will be able to make a quick decision if you find a home you love. If you decide to sell and wait, consider renting monthly or with a more flexible lease so you can leave if the real estate market becomes more favorable for your situation.
Good luck!
Happy!
– Christine
If you have questions about money, Christine is here to help. Submit an anonymous question and she may answer it in a future article.
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Sources:
- The Federal Reserve Bank of Dallas. “Real-time market monitoring reveals signs of a housing bubble in the United States”.
- S&P CoreLogic. “S&P CoreLogic Case-Shiller Index report shows annual home prices up 20.4%”.
Source: https://www.thebalancemoney.com/should-i-buy-a-house-now-or-wait-for-prices-to-crash-5525641
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