Mortgage Rates

Why ready till subsequent yr is not an excellent technique for pissed off homebuyers


Why Waiting Until Next Year Isn’t a Good Strategy for Frustrated Home Buyers

Although it has lost some of its thunder, the COVID-19 housing boom continues to reverberate across the US

Thanks to historically low mortgage rates and other factors, home prices have risen to levels that many first-time buyers cannot afford. In June, the median price of a previously owned home in the United States hit $ 363,300 – an incredible 23.4% year-over-year increase, according to the National Association of Realtors (NAR).

But home sales have calmed down a bit: they fell for four straight months before rising a modest 1.4% in June.

Some potential buyers may think that America’s real estate craze is exhausting and that 2022 will be a more opportune time to get into the market. Don’t count on it.

Will buying a house be easier in 2022?

Sarasota Florida January 15, 2007

Ann Marie Kurtz / Shutterstock

Whether during a pandemic and the accompanying economic crisis or in a more irregular year, property prices are determined by three factors: interest rates, housing supply and consumer demand. Change any of these significantly and you will see how local property prices react.

The question is whether in 2022 the elements will shift – enough and in the right direction – to make affordable real estate more likely for first-time home buyers.

The answer? Probably not, and here are three reasons why.

1. Interest rates will be higher next year

Miniature wooden houses and red up arrow.  The concept of rising mortgage rates.

@ andreyyalansky19 / Twenty20

Mortgage rates hit an all-time low in January, and the last few months of sluggish vaccination rates and mounting uncertainty about COVID-19 have limited their upward trajectory. According to mortgage giant Freddie Mac, the average for a 30-year fixed-rate home loan this week is just 2.87%.

But today’s low mortgage rates are unlikely to last. The Mortgage Bankers Association’s latest forecast suggests that the 30-year fixed rate will average 3.4% in the fourth quarter of this year – which means higher rates are coming. The MBA expects a 30-year average of 4.3% by the end of 2022.

Phil Shoemaker, President of Originations at mortgage lender Homepoint, says getting stuck until 2022 isn’t a winning strategy for homebuyers.

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“Waiting until next year to buy a home makes sense if you’re not really in love with any of the homes in the market, or if you’re not physically ready to move right now. But if you’re just looking at it from a financial perspective, now is a good time to buy, “says Shoemaker.

Any rise in mortgage rates will mean a decrease in purchasing power, notes Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, DC.

“On $ 500,000 lot with an 80% mortgage [for $400,000], the principal and interest cost at 2.75% is $ 1,633 per month, “says Burr.” At 3.5%, the same $ 400,000 loan has a principal and interest payment of $ 1,796 – one Increase by 10%. “

2. The housing supply will also be scarce in 2022

House sign for sale for large, bespoke luxury home in the suburbs of Vancouver, Canada.

Romakoma / Shutterstock

One reason property prices have been blasted into the stratosphere is the lack of properties for buyers to choose from. The resulting bidding wars have resulted in buyers paying far more than historical data suggests their homes are worth.

Any time a “sold out” sign appears on a lawn, it helps identify the closest seller’s list price and ensure the cycle continues. And that is unlikely to change in 2022 either.

“We’ve been supplying homes since [2008] Financial crisis, “says Shoemaker.” We have never seen a resurgence of builders doing justice to developments from a people’s point of view and it will take years to correct this. “

The pandemic is expected to continue disrupting housing construction in America by throttling the wood supply chain and driving up construction prices. Increased timber costs, as well as labor and land shortages, resulted in a 5.1% decrease in housing permits filed in June, according to the U.S. Department of Commerce.

But Burr is optimistic about home supply challenges for buyers. After all, it’s not just new buildings that come onto the market.

“I expect more inventory across the country in 2022. Many sellers who have been waiting years to capitalize on the price hike that has occurred since the Great Recession correction will choose to bring their homes to market, “especially older Americans, once the COVID threat subsides, he says.

3. Demand will remain strong

Row of Sold Home For Sale Real Estate Signs Isolated on a White Background.

Andy Dean Photography / Shutterstock

The problem with a bidding war between 20 house buyers is that 19 of them still need houses when the dust settles.

A number of new buyers will be hoping to hit the property ladder next year, in addition to any remaining buyers whose dream of owning a home was thwarted this year. According to an analysis by Enact Mortgage Insurance, there have been an average of more than 2 million first-time buyers in the last four years.

Assuming similar numbers for 2022, the country’s house supply doesn’t seem to stand a chance. The Census Bureau estimates that there were only 353,000 new homes for sale nationwide at the end of June, while the NAR reported that 1.25 million existing homes were on the market. The math doesn’t look good for buyers.

“The demand for housing will only increase as more generations of homebuyers enter the market and more people move to cheaper areas because of remote work,” says Shoemaker. “This imbalance between supply and demand is likely to keep prices high.”

So what should buyers do? If they can commit to three to five years of ownership – and actually find a home they like – Burr says, they should consider pulling the trigger.

“This should cushion any market correction right after a purchase and help the home increase in value offset the cost of buying and selling over time,” he says. “If a buyer’s time horizon is less than three years, I recommend renting until the life situation becomes clearer.”

This will increase your chances of becoming a homeowner

young couple giving five to each other with a new home

ASDF_MEDIA / Shutterstock

Interest rates, housing supply, and widespread housing cravings are beyond your control. But there are a few things you can do to improve your chances of buying a home this year or next.

  • Improve your credit score. The lowest interest rates are usually offered to borrowers with the most impressive credit history. When mortgage rates go up, you will have to put more work into finding a lower rate. Check your creditworthiness and see where it falls on the bad-good-wide spectrum. Then, see what you can do to improve it before you contact lenders.

  • Generate more money. Compiling a deposit is one of the biggest challenges facing you as a first-time buyer, so increase your income wherever you can. In today’s tight job market, there is a chance you can find a better paying job. Or, you can try chasing returns on the fiery stock market at low stakes using a popular app that lets you put in “spare money” from your daily purchases.

  • Destroy your debt. When you’re trying to save to buy a home, it won’t help to carry multiple high-yield debts – like credit card balances. Consider grouping these expensive debts into a single, lower-interest debt consolidation loan. You pay less interest and pay off your debts sooner to create a little more headroom in your budget.

And that’s probably what you’re going to need, depending on how things look for homebuyers.

This article is for information only and is not intended as advice. It is provided without any guarantee.