79% of Consumers Think it’s a Bad Time to Buy a House, but is that True?
Pros and Cons of Buying in 2024
Pros of Buying Now:
- Start building equity now
- Hedge against inflation
- Lock in your housing payment (rent keeps going up)
- Buy now and refinance later if rates drop
Cons of Buying Now:
- High mortgage rates (above 7%)
- High home prices which just surged in value over the past 4 years
- Appreciation has slowed down
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Housing Market Overview:
- Median US home value has increased by 3.5% over the past year, reaching $340,000 (Zillow), and is expected to 382,000 by 2030.
- Mortgage rates have decreased slightly since their peak in October 2023, with the average 30-year fixed-rate mortgage hovering around 7.1% as of May 2024 (Freddie Mac), and the Fed has alluded to lower rates before the end of the year.
- Inventory levels are slowly increasing, with a 21.6% uptick in new listings in March 2024 compared to February (RE/MAX).
- Total inventory remains relatively low, with a 3.3-month supply of existing homes for sale (National Association of Realtors).
- Sales have also slowed, with existing home sales down 4.3% from March 2023 to March 2024 (NAR).
- 65% of respondents expect mortgage rates to decrease in the next 12 months (Fannie Mae Home Purchase Sentiment Index).
For those who are reluctant now, statistics play an important role in the big picture. There are no guarantees things will improve anytime soon, and meanwhile, the real estate market remains the surest long-term investment there around. So, if you can afford to buy or are considering making a change, you might not want to wait. The popular tagline, “Date the Rate, Marry the Home,” is really true – you can always refinance for a lower rate if it becomes available but what you pay for a home can not be renegotiated after closing.
Here’s the bottom line: though the housing market remains challenging for buyers, now may be a good window to buy in the right markets. If you plan to stay long-term, it may be a good time to buy, but if your finances are not ideal or local home values are declining, it may be better to wait.
Driving Forces of Today’s Housing Market:
There are just too many buyers chasing too few homes. Despite predictions housing would loosen up to the point some feared a 2008-style decline, inventory has continued to be an issue for a couple of reasons.
First, every seller represents a buyer, as most homeowners who sell need a place to go and plan to buy. Then there is the issue of the home buyers who, in buying, don’t offer a home to ease the inventory issue, and that’s the first-time home-buyer. The largest generation in history, the millennials, and now Gen Z-ers, are rapidly entering the market putting more pressure on inventory than before. With dual incomes, affordability is not an issue. Further, due to the right housing market driving rents up, we see a trend of more home buyers are looking into how to keep their current home as an income property instead of selling, further pressuring inventory. For these reasons, fears of home values dropping rapidly as in 2008 are unlikely, especially since the 2010 Ability to Repay Act which requires home buyers to income qualify for home loans.
What many people don’t know is that this housing shortage has been a long time in the making. In the early 2000s, home buyers stayed in homes on average for 5-7 years, regularly enough that we often advised short-term fixed products to save money. Now, depending on the market, homeowners are closer to 10-14 years on average up to 18 in some states. This is partly to do with the Ability to Repay Act coming into effect, since now every home seller also needs to qualify as a home buyer for their next home. This has a compounded effect over the years as people’s circumstances change, including retirement or illness. We’re seeing the fruits of that now.
There is a myth that builders have not kept up with demand and that we will build our way out of this inventory crunch as soon as they get the message, but that’s not likely unless the federal government steps in. As real estate trend forecast expert Logan Mohtashami likes to say, “Builders are not the March of Dimes.” In other words, builders are in it to make money. It is not logical to think that builders function as an extension of HUD’s mission of housing for all. It’s a for-profit business, and had there been more profit to make, more houses would have been built. Materials costs happen to be skyrocketing, which is one issue, but even in a normal market, builders have no incentive to soften the market with inventory.
Conclusion:
Despite the ongoing challenges in the housing market, there are encouraging indicators of improvement. Prospective buyers must carefully consider their unique circumstances though, including lifestyle, affordability, and family and career obligations, when evaluating their options. Staying informed about inventory levels, interest rates, and expert predictions is also crucial for making a well-informed decision. Ultimately, the decision to purchase a home hinges on a thorough assessment of individual priorities and circumstances, and buyers must approach this decision with a nuanced understanding of the complex factors at play.
If you are planning to purchase now, it is vital that you work with a professional who can represent your financial interests in this competitive market. To discuss financing options or get pre-approved, speak with one of our Professional Home Loan Advisors, today.
WRAP UP:
BUY: If you have good credit, enough savings for a down payment, and plan to stay in the home for a while, now might be an excellent time to buy.
WAIT: If your personal finances are not ideal or home values in your area are declining, it might be better to wait.
