Should I Buy a House Now?
Check out the latest housing trends if you’re unsure whether it is a good time to buy a house or if should you wait until 2023. It’s becoming harder to buy a house as prices are up year over year, and mortgage rates are soaring in 2022. At the same time, consumer prices on everything are also on the rise making it even more difficult to save money to buy a house next year.
In an effort to tamp down inflation, the Federal Reserve is raising interest rates every month. The Fed hiked interest rates by three-quarters of a percentage point, following a similarly aggressive rate hike in June which was already weighing on housing, business investment, and consumer demand. The Fed has raised interest rates in less than four months which it took three years to do the previous time.
The cumulative effect of these sharp rate increases has cooled the housing market and caused the economy to slow, but has done little to lower inflation. Although Fed doesn’t control mortgage rates it has a ripple effect on the mortgage industry. The recent rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing. On the flip side, higher interest rates also mean savers will earn more money on their deposits.
Don’t expect much relief in the form of lower rates in the coming months. Therefore, it certainly does not seem to be a good time to buy a house as rates have risen much more rapidly in 2022 than most industry analysts and economists had initially predicted. But when it comes to the possibility of significant savings, looking for the best mortgage offer provides an outstanding return on investment. Because it only takes a little more effort to browse around for the greatest mortgage rate, why not take advantage of it?
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Is it a Good Time to Buy a House or Should You Wait?
As we write this, the average rate for the benchmark 30-year fixed mortgage is 5.47 percent (source: Bankrate). It is a decrease of 23 basis points from a week ago. At the current average rate, you’ll pay a combined $561.53 in principal and interest for every $100,000 you borrow to buy a house. That’s down $15.07 from what it would have been last week.
The average 15-year fixed mortgage rate is 4.71 percent, down 16 basis points over the last week. At that rate, monthly payments on a 15-year fixed mortgage will be around $517 per $100,000 borrowed to buy a house. The larger monthly payment may be harder to fit into your budget than a 30-year mortgage payment, but it has huge advantages: You’ll save several thousand dollars in interest and create equity much faster.
Let’s compare the figures between now and six months ago when the buyers financed their houses with a mortgage. On a $300,000 loan, a 30-year, fixed-rate mortgage at December’s rate of 3.11% would have meant a monthly payment of about $1,282 (Principal & interest).
Loan amount = $300,000
Total interest paid = $161,923
Total cost of loan = $461,923
Today’s rate of 5.47% brings the monthly payment to $1,697 (Principal & interest). That’s an extra $415 a month or $4,980 more a year and $149,655 more over the lifetime of the loan.
Loan amount = $300,000
Total interest paid = $311,578
Total cost of loan = $611,578
The Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group revised downward its forecast for total home sales growth in 2022 to a decline of 15.6 percent, compared to a decline of 13.5 percent predicted last month, but revised upward its home price appreciation forecast to 16.0 percent year-over-year-growth in 2022 from the previously projected 10.8 percent.
The group continues to anticipate a strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand.
If the economy suffers a downturn, mortgage interest rates will very probably fall to about 4% or even lower. If it does, this could be a good time to put off buying a home and save some money, especially for first-time buyers. Fannie Mae forecasted at the start of the year that the average 30-year fixed mortgage rate will rise from 3.1% to 3.3% by the end of 2022.
The Mortgage Bankers Association was somewhat more optimistic about mortgage rates, projecting that the average rate will increase to 4% by the end of 2022. It is now evident that neither Fannie Mae’s nor the Mortgage Bankers Association’s predictions were even somewhat accurate.
The 30-year fixed mortgage rate, which hovered at 3% throughout 2021, is treading close to 6 percent, a steep increase from last year. Some experts are forecasting that the 30-year, fixed-mortgage rate will vary from 5% to 7% by the end of 2022. According to Nadia Evangelou, director of Forecasting for the National Association of Realtors, rates may exceed 6 percent. They did momentarily before the Federal Reserve’s June announcement of a rate rise, but have subsequently backed off.
Between July and September, expect rates to keep rising, albeit more slowly, with averages somewhere between 6 percent or 6.25 percent, says Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions. The most likely scenario is that the Fed will continue to raise the fed funds rate to combat inflation and will continue to reduce its position in the market for mortgage-backed securities. Both of these acts will increase mortgage interest rates. The next meeting of the Federal Reserve and subsequent rate decision will occur at the end of July.
As a buyer, you do not want to hear this because higher interest rates make home loans less affordable. Rising rates make homes more expensive for buyers, and, for prospective borrowers, steeper monthly mortgage payments. It will thereby reduce the demand for home purchases. The latest housing stats for June already point to an increasing inventory amidst moderating demand. The mortgage credit availability has already dipped for three consecutive months, largely due to shrinking refinance loans, according to the monthly Mortgage Credit Availability Index.
MCAI fell by 0.9% to 120 in May, the lowest level since July 2021, according to the Mortgage Bankers Association. A decline in the availability of mortgage credit can also make it more difficult to qualify for a mortgage and buy a house. Not to mention it is a seller’s market across the country due to the high demand and low supply of homes. Although the inventory of homes for sale increased again in June there are a little less than two-thirds the number of homes available compared to June 2020, and less than half compared to June 2019.
The intense competition for housing results in fewer options, higher prices, and faster sales. In a seller’s housing market, there are more interested buyers than available homes and that makes it a difficult time to buy a house, especially for first-time buyers. According to the NAR, the national median price for existing homes sold in June was $416,000, up 13.4% from the same month in 2021.
This is the longest streak of year-over-year growth ever recorded, spanning 124 months. Also, the price exceeded $400,000 for the second time. 88 percent of homes sold were on the market for less than one month and they typically remained on the market for 14 days, down from 16 days in May and 17 days in June 2021.
Fannie Mae released a nationwide housing survey in July 2022 that reveals only 20 percent of respondents believe it is a good time to buy a house.
“In June, a survey-record 81% of consumers reported that the economy is on the wrong track, suggesting to us – and corroborated by other recently released consumer confidence measures – that people appear to be growing increasingly frustrated with inflation and the slowing economy,” said Doug Duncan, Fannie Mae Senior Vice President, and Chief Economist.
The Home Purchase Sentiment Index® (HPSI) decreased 3.4 points in June to 64.8, its second-lowest reading in a decade. The HPSI is down 14.9 points compared to the same time last year. 75 percent of consumers indicated that it is not a good time to buy a house in 2022. If you compare it with the previous month’s survey, 79 percent of the consumers responded that it is not a good time to buy a house.
In addition, 67 percent of respondents in June anticipate that mortgage rates will continue to rise over the next 12 months. The consumers reported challenging homebuying conditions due to the budget-tightening effects of inflation, rising mortgage rates, and substantial home price appreciation.
Is 2022 a Good Time to Buy a House?
The percentage of respondents who say it is a good time to buy a home increased from 17% to 20%, while the percentage who say it is a bad time to buy decreased from 79% to 75%. As a result, the net share of those who say it is a good time to buy increased 7 percentage points month over month.
Is 2022 a Good Time to Sell a House?
The percentage of respondents who say it is a good time to sell a home decreased from 76% to 68%, while the percentage who say it’s a bad time to sell increased from 19% to 26%. As a result, the net share of those who say it is a good time to sell decreased 15 percentage points month over month.
Home Price & Mortgage Rate Expectations
According to the survey, in June, the percentage of respondents who say home prices will go up in the next 12 months decreased from 47% to 44%, while the percentage who say home prices will go down increased from 23% to 27%. The share who think home prices will stay the same decreased from 25% to 23%. As a result, the net share of Americans who say home prices will go up decreased 7 percentage points month over month.
The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 4% to 5%, while the percentage who expect mortgage rates to go up decreased from 70% to 67%. The share who think mortgage rates will stay the same increased from 20% to 21%. As a result, the net share of Americans who say mortgage rates will go down over the next 12 months increased 4 percentage points month over month.
Source: Fannie Mae
The HPSI is constructed from answers to six of 100 national housing survey questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions.
Is it a Good Time to Buy a House for First-Time Buyers?
According to a recent Fannie Mae survey, many consumers are hesitant to buy a home in 2022. About 67% of survey respondents expect mortgage rates to increase, and there are rising concerns about job stability and escalating housing prices. Some homebuyers will find the current market conditions easier, while others will find them more difficult to buy a house. The current upward trend in home prices is likely to continue throughout the year, which could price out some prospective buyers.
However, it is anticipated that prices will rise at a slower rate than they did in 2021. The current lack of entry-level supply and the rapid increase in mortgage rates appear to be negatively impacting potential first-time homebuyers in particular, as evidenced by the larger proportion of younger respondents (aged 18 to 34 years old) who believe it is a bad time to buy a house. The advantage of the historically low mortgage rate environment of the previous year appears to have diminished for first-time homebuyers, and affordability is projected to become an even greater constraint for them in the future.
In June 2022, the first-time buyers were responsible for 30% of sales, up from 27% in May and down from 31% in June 2021. According to NAR, the annual share of first-time buyers was 34% in 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in June 2022, unchanged from May and a slight increase from 14% in June 2021.
In 2022, rising mortgage rates are piling onto record-breaking home prices, locking even more potential buyers out of the red-hot housing market. Historically, rising interest rates cause more prospective buyers to delay purchases, and the recent increase in financing terms has already resulted in a decline in mortgage applications.
The prices are not going down in 2022. The various forecasts from experts show that 2022 will remain a sellers’ housing market, and home values may still increase by double-digit percentage points. While affordability concerns continue to grow, low mortgage rates, increased savings, and a strengthening job market all contribute to making homeownership more accessible to a wide number of prospective buyers.
Realtor.com’s June 2022 data shows a significant turning point in inventory. The number of homes actively listed for sale has increased by the biggest margin in the history of the statistics compared to the previous year, indicating a second consecutive month of inventory improvement. This inventory reversal is the result of sellers entering the market and demand slowing.
Compared to the recent past, a greater number of newly listed residences joined the market in June (+4.5 percent year-over-year), but at a little slower rate than in May (+6.3 percent year-over-year). In June, pending listings, decreased significantly (-16.3 percent year-over-year) as compared to the same month last year.
In spite of this, homes remain on the market for a shorter duration than they did a year ago, and prices continue to rise, driven in part by an increase in newly listed bigger properties and delayed revisions in seller expectations.
In June 2022, the nationwide median listing price for active listings was $450,000, an increase of 16.9 percent year over year and 31.4 percent compared to June 2020.
In large metros, median listing prices grew by 13.3% compared to last year, on average.
Nationally, the typical home spent 32 days on the market, down 4 days from the same time last year and down 37 days from June 2020.
The national inventory of active listings increased by 18.7% over last year.
The total inventory of unsold homes, including pending listings, still declined by 1.4% due to a decline in pending inventory.
More new listings entered the market in June compared to last year, though slightly down from May’s new listing growth.
Newly listed homes were up 4.5% nationally compared to a year ago, and up 3.1% for large metros over the past year.
Sellers listed at roughly the same rate as in 2017 to 2019, prior to the pandemic, up slightly by 1.0%.
Sellers are responding to a softening of demand. The share of homes having their price reduced increased from 7.6% last June to 14.9% this year but still remains 3.2 percentage points below typical 2017 to 2019 levels. In June, all but one of the top 50 metro areas witnessed an increase in price decreases. Price growth in the nation’s largest metropolitan areas has been slower than in other regions, but much of this can be attributed to new inventory introducing relatively smaller homes to the market in 2018.
Housing Markets that saw the largest year-over-year increase in listing prices in June 2022:
Miami, where the median listing price grew by +40.1%
Orlando, where the median listing price grew by +30.6%
Nashville, where the median listing price grew by +30.6%
Housing Markets that saw the greatest increase in their share of price reductions compared to last year:
Austin (+24.7 percentage points)
Phoenix (+22.2 percentage points)
Las Vegas (+20.1 percentage points)
Large western metros saw the greatest increase in the share of price reductions (+14.3 percentage points), followed by southern metros (+7.7 percentage points).
Conclusion: The Best Time To Buy A Home Depends On You
Higher interest rates pose a challenge to existing homeowners looking to buy a new home at the same time as selling their current home. Existing homeowners may benefit from lower interest rates than those offered right now because they already have mortgages. Their monthly expenses could rise dramatically as a result of the purchase of a new property.
In other words, if you don’t have a specific date in mind for when you want to buy a new property, you may be better off waiting till it does. Every potential buyer’s best time to buy a property is different, and the greatest time to buy a house is not the same for everyone. It’s essential to consider your financial situation and understand how buying will impact your bottom line each month.
References
https://www.bankrate.com/mortgages/todays-rates/
https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales
https://www.bankrate.com/mortgages/will-mortgage-rates-go-up-in-july-2022/
https://www.fanniemae.com/research-and-insights/surveys-indices/national-housing-survey
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