Is now a good time to buy a home? [Answering common home buyer questions.]

Uncertainty can be a scary feeling, especially when it comes to finances. Homeownership is one of the most rewarding yet challenging endeavors in your life. Considering that purchasing a home may be the largest financial decision you'll make, it's understandable that you might be hesitant during a time when many knowledgeable professionals are giving mixed signals about the housing market.

We'll talk about what experts are saying about the current market, and some important housing topics to consider regardless of the market. If you're on the fence about buying a home, hopefully this offers some encouragement during a time of hesitancy. At the very least, I hope it can help to answer some of the pressing questions surrounding the current real estate market. 

Are the big, scary mortgage rates too high? 

This is the hottest topic in the industry in the past 6 months. I enjoy listening to podcasts and YouTube videos to stay current on industry trends. You can't listen to a real estate or mortgage podcast for 10 minutes without hearing about how the real estate industry is "red-hot" and listings are selling in extremely quick for over asking price. The combination of low mortgage rates and low inventory has caused the hot market. 

You may have heard about how the federal reserve (commonly known as The Fed) is rising interest rates in an attempt to cool down the market. Two things will help calm the market. Increased inventory (supply) of houses or higher prices that buyers are unwilling or unable to pay (demand). The easiest way for The Fed to impact the market is by adjusting the federal funds rate. Bankrate describes this as the, "interest rate at which banks and other depository institutions lend money to each other." For home buyers, this makes it more expensive to borrow money. In theory, less people will be interested in buying as the rate to borrow becomes more expensive. 

Consumers are seeing the rising mortgage rates, which begs the question: are mortgage rates too high? The short answer is "it depends." I know what you're thinking. What a diplomatic, cowardly answer! However, perspective is key here. Are you asking if mortgage rates are too high to buy right now, or are they high compared to similar historic periods? You will get a completely different answer depending on the basis for your question. 

Dating back to 1970, mortgage lenders were charging as high as 17 percent interest. This consistently declined to 8 percent by 2000, and reached an all-time low in 2021 by averaging below 3 percent according to Freddie Mac. Someone who has been in the industry for a while will suggest that current interest hovering around 5 percent is still extremely low. Of course, 2% over 30 years can amount to a significant chunk of cash. There is no doubt that borrowers from 2 years ago got a fantastic rate. 

If 5% is too high for your comfortability level, you might be waiting years before if it comes back down to the historic lows. One way to counter the higher rates is by refinancing. After a few years of paying down the loan, either rates will come down, or at the very least you will have some equity built up. You can renegotiate a lower rate, or get a shorter loan to accumulate less interest. 

The bottom line: for those who are considering buying in the near future, it's still a good time to buy. Rates are historically low, and they will likely continue to rise until the market is balanced. Planning to wait it out might cost you valuable years of building equity and living in your own house. Ultimately, everyone's financial situation is different. It's always smart to speak with an expert before making any decisions about applying for a mortgage.

Why is now a good time to buy? [Pros and cons of the current market]

The previous section talked about the slight increase in mortgage rates, while they are still historically low. Some buyers have been priced out of the market, or will need to save up a bit more money to afford the higher rates. In order to make the big decision to buy, the benefits must outweigh the downside of a slightly higher rate.

A fixed-rate mortgage allows you to lock in your rate. Generally, this is common knowledge, but it is even more crucial in an unpredictable market that some would argue is happening today. The Fed has stated that they will continue to gradually increase the federal fund rate until the market is more balanced. Locking in your rate protects you from the volatility that might occur once the market reaches a breaking point. The discouraging outcome that you want to avoid is buying at the peak price for a high interest rate. You could get stuck with an overpriced home, at a high interest rate. Refinancing would be much more difficult, or even impossible, if you made that mistake. 

Luckily, the market is still predicted to climb, as demand hasn't slowed much and inventory is low. With the rising interest rates, some buyers have chosen to wait and see if they will go back down. This means less competition for those that choose to stay in the game. As a result, home prices are starting to sell at more reasonable prices. It's too soon to tell if this means the market is slowing. Houses are still selling at record prices and with multiple offers. Simply, it is starting to trend in the right direction for buyers, and sellers are having to negotiate a bit more than the last few years. 

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9/8/2022

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