Buying a house is always scary, given the amount you invest in it. A mortgage you will be paying off for years is a moderate commitment.
However, with the market and economy in turmoil, investing in a new house is even scarier than before, sending potential homebuyers, realtors, and economists into a tizzy.
It’s a fact that rates in the housing market have grown exponentially in the last few years, with double-digit inflation becoming commonplace.
The reasons for this are many—a larger population of potential homebuyers (all the kids have grown up), the pandemic stressing the importance of having your place, and the Federal Reserve raising interest rates to fight inflation, which has only served to make borrowing costs hit an all-time high.
Judging by how things are going, economists and policymakers don’t foresee a decrease in interest rates soon. So, should you buy a house now or wait in this stressful, expensive, and challenging economy?
Here’s everything you need to know.
Why You Shouldn’t Invest in a House Right Now
Several cyclical and structural factors make many Americans rethink their buying a house. Here are a few reasons to wait out if you consider owning a home.
An Uncertain Economy
The economy is highly uncertain with rising inflation and the risk of a Fed-induced recession to tame this. It’s unsure whether the economy will slow down (though it’s looking like it), which could lead to more people losing their jobs, declining business investments, and reducing purchasing power.
Add to this the volatile mortgage rates, and you have every reason not to invest in a house right now.
A Steep Rise in Mortgage Costs
Many houses across the country are seeing historic highs in their prices. People are dealing with a nearly 7% spike in the average 30-year fixed mortgage rate—a rate chilling at less than 3% just a couple of years ago.
The cost of financing houses and apartments has dramatically risen due to the increased borrowing cost.
A Dramatic Rise in Prices
Decades of underbuilding have led to the supply needing to be more manageable by the demand. Additionally, the number of listings has reduced, as sellers locked in a low-interest rate have no reason to sell, nor is the market hot enough to sell compared to a year ago.
Especially now, with older Millenials ready to invest and settle down and the onset of the work-from-home era, the demand for houses is higher than ever. The options are also much lower than they used to be, so potential homebuyers deal with higher costs and limited opportunities, leading to more waiting and searching.
As a result, prices have dramatically surged, with areas such as San Francisco and Honolulu seeing an average of one million for housing units. Single-family houses have seen a whopping 65% rise in prices since 2007, before the housing bubble crisis that swept the country.
A Decline in the Stock Market
Stocks are a significant source of income for a vast population of Americans, with many even relying on them as the primary source of funds for investing in a new home. The S&P 500 index saw a 13% fall in the year-over-year rate, and many tech companies, in particular, saw a drastic fall, too.
This has made house buying even more expensive and unappealing.
Who Should Buy a House Now?
The current economy isn’t fatal to everyone—it’s an excellent time for moneyed folks to buy houses. If you can put down a large down payment or pay cash upfront, you can consider buying a nice condo at the beach or a big house.
If your aswer to the below questions is yes, investing in a house right now may not be a bad idea.
Can You Afford the Down Payment?
If your savings are sizable and you have enough stocked away while being able to punctually pay your bills, you most likely have enough for a down payment. Instead of just letting the cash sit, you can consider buying a house, but make sure you’re not pouring all your savings into the investment.
Proof of your cash reserves can also make lenders feel more comfortable lending to you, should you need to borrow cash.
Is Your Credit Score Impressive?
The best mortgage deals are available to folks with a credit score of at least 740. Therefore, it’s a good idea to review your credit score and report and if necessary, work towards being a low-risk borrower whose payments are punctual. Such a credit background will increase your chances of landing the lowest mortgage rates.
Are You Going to Be Staying a While?
The one-time transaction costs involved in buying a house can be between 3% and 6% of the price of the property. If you’re going to be spending this much on closing costs, it makes sense to stay in the house for a while before moving again (unless you can rent out the property without going through financial distress or you’re rolling money).
The Impact of External Factors on Home Buying
External factors such as global economic shifts, political decisions, and even natural disasters can have a profound impact on the housing market. For instance, global economic downturns can lead to reduced consumer confidence, making people hesitant to make large investments like buying a house. Similarly, political decisions related to trade, immigration, or taxation can influence job markets and, in turn, the housing demand. It's essential to stay informed about these external factors and consult with experts to understand their potential impact on the housing market.
The Role of Real Estate Agents in the Current Market
Real estate agents play a pivotal role in guiding potential homebuyers through the complexities of the current market. With their in-depth knowledge of local markets, they can provide insights into neighborhoods that offer good value for money, upcoming infrastructural developments, and historical price trends. In a volatile market, their expertise can be invaluable in helping buyers make informed decisions.
The Importance of Financial Planning
Before diving into the housing market, it's crucial to have a clear financial plan in place. This includes understanding your credit score, setting a budget for the house, and ensuring you have enough savings for unforeseen expenses. Financial planning also involves understanding the various mortgage options available and choosing one that aligns with your financial goals and risk tolerance.
Renting vs. Buying: A Comparative Analysis
While the focus is often on buying, renting is a viable option for many, especially in uncertain markets. Renting offers flexibility, especially if you're unsure about settling in a particular area or anticipate frequent moves. It also frees up capital for other investments. On the other hand, buying is an investment that can offer long-term returns and the satisfaction of homeownership. Weighing the pros and cons of each, in the context of the current market and personal circumstances, is crucial.
Future Predictions: What Experts Are Saying
While it's challenging to predict the future of the housing market with certainty, experts analyze various indicators to forecast trends. Many believe that as the economy stabilizes post-pandemic, there might be a correction in housing prices. However, factors like continued urbanization, technological advancements in construction, and changing work patterns (like remote work) can influence these predictions.
In the current tumultuous housing market, potential homebuyers are grappling with the decision of whether to invest now or wait. Factors such as rising costs, an uncertain economy, and volatile mortgage rates make the decision complex. While some indicators suggest holding off on buying, there are scenarios where purchasing a home now might be beneficial. It's essential to consider external factors, seek guidance from real estate professionals, plan finances meticulously, and weigh the pros and cons of renting versus buying. As the market continues to evolve, staying informed and consulting experts will be key to making the right decision.
Frequently Asked Questions
Should I wait until the market crashes to buy a house?
It's challenging to predict market crashes, and waiting for one might mean missing out on good opportunities. It's best to base your decision on your financial situation and long-term goals.
Will 2024 be a good time to buy a house?
Predicting specific market conditions for 2024 is difficult. It's advisable to monitor the market trends and consult with real estate professionals closer to the time.
Will 2025 be a good time to buy a house?
Market conditions in 2025 will depend on various economic, political, and global factors. Stay informed and seek expert advice as the year approaches.
Is it even worth it to buy a house?
Buying a house is a significant investment and can offer long-term returns. However, it's essential to assess personal circumstances, market conditions, and financial readiness before making a decision.
How do global events impact the housing market?
Global events, such as economic downturns or political decisions, can influence consumer confidence, job markets, and overall demand in the housing market.
How can I ensure I get a good mortgage rate?
A good credit score, stable income, and a sizable down payment can increase your chances of securing a favorable mortgage rate.
How do interest rates impact the housing market?
Higher interest rates can lead to higher mortgage costs, making houses less affordable and potentially reducing demand.
What role do real estate agents play in the current market?
Real estate agents offer insights into local markets, provide valuable advice, and guide buyers through the complexities of the current market.
Is now a good time to sell my house?
The decision to sell depends on local market conditions, your property's value, and your future plans. Consulting with a real estate agent can provide clarity.
How does inflation impact the housing market?
Inflation can lead to increased interest rates, making borrowing more expensive and potentially dampening demand in the housing market.
What are the benefits of renting over buying?
Renting offers flexibility, requires less upfront capital, and frees up money for other investments. However, it doesn't provide the long-term returns that buying might.
How do I know if I'm financially ready to buy a house?
Assessing your credit score, having a clear budget, and ensuring you have savings for down payments and unforeseen expenses are indicators of financial readiness.
How do technological advancements impact the housing market?
Technological advancements can lead to innovative construction methods, smart homes, and virtual property tours, influencing buyer preferences and market trends.
How does urbanization impact the housing market?
Urbanization can lead to increased demand in urban areas, driving up property prices and influencing the type of properties in demand.
What are the risks associated with buying a house now?
The primary risks include potential drops in property value, higher interest rates in the future, and unforeseen economic downturns impacting one's ability to pay off a mortgage.