After months of frenzied demand, with homebuyers scrambling to outbid each other and prices climbing to historically high rates, the housing market is showing signs of slowing.
“We’re witnessing a housing recession in terms of declining home sales and home building,” said National Association of Realtors chief economist Lawrence Yun in an August report.
If you’ve been thinking about buying a home, a cooling market might seem a sign to buy. Yet, as prices start to drop, interest rates are on the rise. You might be debating whether or not now is a good time to purchase a home.
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There are some other factors to consider first, however. You’ll need to look at housing prices and interest rates and whether you can realistically afford to purchase a home right now.
Here’s the breakdown of the current and forecasted market conditions, and what real estate experts are saying.
Buying a home in 2022
Housing prices have come down from their peak in June, when some buyers were making concessions and all-cash offers just to compete in a highly competitive market.
But the average 30-year fixed rate rose to 5.66% in the first week of September according to housing giant Freddie Mac. That’s still almost double than what the home loan rate was a year ago.
And the Fed raising interest rates means it’s also become more costly to borrow. The Fed’s recent Beige Book report notes that residential loan demand has been “weak” amid increased mortgage interest rates.
New home construction has decreased, due to the high cost of building supplies and consumers being priced out of the market. About 16% of home-purchase agreements were called off in July — marking the highest rate of cancellations in over two years.
“With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines,” said Doug Duncan, Fannie Mae senior vice president and chief economist, in a report released in September.
Duncan explains that homebuyers may be expecting home prices to decline. Meanwhile prospective home-sellers may be unwilling to relinquish their lower, fixed mortgage rates, which could result in home sales continuing to cool.
Reasons to buy a home now
Deciding whether or not to buy a home right now can depend on both your financial situation and whether it’s the right time.
Right season to buy
This time of year is actually ideal for home buying because you’re avoiding the mad rush in early spring and summer. Experts say the best time to buy a home is typically in late summer or fall. It’s not as competitive as earlier in the year, and sellers may be more likely to cut back on prices as the colder season approaches and demand slows.
Ability to negotiate
Since the national inventory has ballooned with homes staying on the market longer, sellers may be even more willing to negotiate prices that are lower than asking. Nearly one-in-five sellers slashed their asking price on homes in August, according to Realtor.com.
With less competition, homebuyers could have greater bargaining power.
Life changes
Aside from the timing and prices, you might also want to buy a home in response to a major lifestyle change, like a job in a different state or to prepare for a growing family.
Just make sure you’re in good financial standing first, since having a good credit score and debt-to-income ratio can help you get a better rate on your mortgage.
You need to calculate your monthly expenses as well. Your budget should factor in the monthly mortgage payments, utilities, property taxes and insurance and everyday expenses like groceries.
Why it might not be a good idea to buy now
If your finances aren’t in good shape right now, consider holding off until you can get a better mortgage rate. But even if you can afford today’s home deals, make sure you’re monitoring the market.
Almost three-quarters of consumers still say it’s a “bad time to buy” according to Fannie Mae’s recent National Housing Survey. There was also a substantial increase in the share of consumers who believe home prices may decrease over the next year.
Fannie Mae expects that the rate on a 30-year home loan will fall to an average 4.5% in 2023 — indicating consumers may get better rates if they wait to buy until next year.
Americans also aren’t buying as much right now, perhaps in hopes of further price drops. The median home listing dropped to $435,000 in August, but this is still 14% higher than the previous year, says Realtor.com.
Take a look at some of the forecasts in your desired area. It’s possible that prices and inventory in that specific market could improve in the future, and you could benefit from waiting too.
The housing market outlook (for 2023)
While some may be hoping for home prices to crash as an economic recession looms near, experts don’t foresee anything too drastic.
Goldman Sachs economists recently predicted price growth will slow and then flatline in 2023 in a paper titled “The Housing Downturn: Further to Fall.”
“While we think national home prices will likely avoid a correction in 2023, we expect 39% of metropolitan areas to experience price declines,” the report said, noting that large declines “seem unlikely.”
The firm also forecasts a plunge in new and existing home sales and housing GDP in both late 2022 and 2023.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Source: https://finance.yahoo.com/news/almost-consumers-bad-time-buy-130000630.html