Entering the housing market for the first time can feel overwhelming. These days, with the high cost of housing, recent interest rate fluctuations, and limited inventory, it might even seem near impossible.
One of our main goals at Market Source is to present all the information you will need in order to make an educated decision as you move forward in your real estate investing journey.
This may mean, it’s time for you to wait, while you gather information and make a plan.
Alternatively, it could mean that you are actually in a far better position than you thought you were to make owning a home a reality for yourself in the very near future.
So, let’s bring your most positive mindset, grounded in reality, to the table as you read this article. Here, we’ll help you gather enough information to understand how to move forward whether it be slowing down and strategically implementing a long-term plan or recognizing that now might in fact be the very best time for you to move forward with your dream of owning a home.
First, and foremost, let’s look at the state of the market today.
Please bear in mind, this article was written at the end of November 2022. The housing market shifts frequently. If you are reading this more than 30 days later, take a peek at our latest market insight on Instagram or Facebook for a more accurate reflection of what’s happening now.
Just six months ago, historically low-interest rates led to a housing market frenzy where aggressive bidding wars became the norm and home prices were pushed far beyond asking.
Then came concerns over inflation, which is a general increase in prices and fall in the purchasing value of money. To combat this rising threat to the economy, the Federal Reserve announced the first in a series of interest rate hikes. These hikes would affect all interest rates either directly or indirectly, from savings accounts and CDs, to stocks and bonds, to credit cards to mortgage loans. As a result of the rate hikes, we saw mortgage loan interest rates rise quickly from around 3% to 6.5% in a matter of months. A higher interest rate mortgage generally means a greater monthly mortgage payment, making houses less affordable for many and therefore slowing down the housing market. Basically, that $450,000 house you were looking to buy went from roughly $1700 a month to around $2500 a month.
This may all sound fairly discouraging for those of you wanting to buy a home for the first time. However, there are some key nuances to understand that may help you to see the situation at hand with a little more clarity.
First, investing in a home is historically a long game. This means, you’ll want to be in your home for no less than five years, or ideally 7 years before you are likely to see a true return on your investment. This is based on historical housing market data and even takes into account the great recession of ‘08. The first few years of owning a home may feel financially daunting, but with thoughtful planning, it is possible and can save you money down the road. Saving money comes in when we consider inflation and the rising cost of rent.
Rent in Salt Lake City is projected to rise 8% this year alone. Since your typical choices for a place to live are, buy, rent, or live rent-free in Mom’s basement, this fact will affect anyone who has not yet entered the housing market. An 8% increase in rent, on the Salt Lake City average of $2500 for a 2-bedroom apartment means roughly $200 a month or $2400 a year you are losing to rent. Meanwhile, those of us who have purchased our home, have locked in our monthly payments with a non-variable mortgage. This means, while everyone else’s rent is going up, our cost of housing is staying roughly the same and even dipping below our friends who are renting.
Meanwhile, we are investing our monthly housing payment into the equity that builds on our home. While home values will not see the yearly return of just recently that was pushing 24%, housing market experts are predicting a roughly 2.5% increase just this year. Why? Because housing inventory is still relatively low, meaning homes are still valuable.
A recession does not equate to a housing market crisis. The great recession of ‘08 was due to a very specific set of circumstances that has since been remedied through changes in banking regulation.
One key thing to note. Currently, we are seeing the market shift from an aggressive seller’s market into much more of a buyer’s market. This means houses are selling for up to $10,000 below the asking price, houses are staying on the market for an average of 30 days or more, and sellers are more willing to pay closing costs and waive certain contingencies. Additionally, lenders are responding to hiked rates by launching more creative programs to entice first-time buyers into the market, making it more possible than a few months ago to get into a home.
Learn more about this in the video below, where we interview Mountain America Credit Union’s Mortgage Loan Officer Koleen Faddis about one such first-time home buyer program that would allow you to get into a home with as little as $1000 down.
The last, and most important point, is that experts are predicting a slight fall in interest rates coming soon. What does this mean for you? It means those who are waiting for interest rates to come down before they purchase a home, will hit the market in the spring. We still have a low inventory, meaning not that many listings on the market. More people looking to buy as interest rates come down may mean a shift into more of a seller’s market once again as more buyer’s come up against a small amount of available homes.
Additionally, as the value of homes continues to rise, waiting may not make the most sense unless it is truly not a financially advantageous time for you personally to buy.
The bottom line? Do your research and take a hard look at your financial realities. If you can reasonably afford the associated costs of buying a home and paying slightly more than rent now is something you can manage in order to fix your costs in the future, getting into the market this winter, while inventory is low and sellers are more desperate to sell, could be your best strategy.
If however, inflation is causing undue strain on your finances, your job situation feels precarious, or you don’t have long-term plans to stay where you are, now may be more about assessing your financial picture and meeting with a lender in order to make a step by step plan to get into a home at the best possible time for your goals.
Feeling ready to take the next step? Meet with one of our real estate experts to create your personalize home buying strategy.
