Buying a home is one of the most significant financial decisions most of us will make. If you’re looking to buy a home, you’ve probably read the headlines about how expensive and competitive it can be. There’s no denying the challenges of buying a home in this market. However, it might not be as grim as it sounds. This year may be an ideal time to buy the house, as long as it works for you.
Real Estate Market Challenges
There are multiple challenges in today’s real estate market. These challenges may feel intimidating, but they don’t have to be. The obstacles shouldn’t necessarily stop you from buying your dream home, but it’s good to know what you’re up against.
Rising Mortgage Rates
After years of historic lows, 30-year mortgage rates have increased to the neighborhood of 5%. Most homebuyers don’t want to hear this. The lower mortgage rates go, the more affordable it is to buy a home.
As a point of reference, current rates are similar to what they were in 2018. When you look at the big picture, you see a different story. Rates today are significantly lower than they were in the 1980s, when annual average rates peaked at 16.63%.
While they’re not ideal for most homebuyers, there are some perks to rate increases. Higher rates may decrease demand and help slow home price increases. They may help ease competition among homebuyers as well.
Fierce Homebuyer Competition
It’s a seller’s market throughout the US this year. Buyer demand is sky high, and inventory is low. This imbalance creates fierce competition among homebuyers.
The competition forces homebuyers to settle for what’s available versus finding the ideal home. Fewer choices, increased prices, cash sales, waiving inspections, and other compromises can make the experience stressful for any homebuyer.
While rising mortgage rates should help reduce competition in the long term, it’s more important than ever to have a solid real estate agent to help you navigate the uncertain market environment.
Climbing Home Prices
The price of houses sold in the US spiked over the last few years. A 25% increase in median price over two years is nothing to sneeze at. However, the price hike may have peaked and could be starting to plateau. If the market is cooling, homebuyers are more likely to get better deals.
Timing the Market
With data showing that the real estate market could be cooling off, you may feel tempted to try to time the market. That could be a risky move. Playing the waiting game may result in years of missed equity building. You could end up waiting a long time for the market to shift. There is an opportunity cost that comes with timing the market. You may be paying off someone else’s mortgage by renting instead of building equity in your own home.
It’s important to discuss your options with an experienced real estate agent; they usually know the market better than anyone.
Buying vs. Renting
Since buying a home is such a huge financial decision, it may feel less overwhelming to rent. However, while renting may feel less stressful, it’s often not the best long-term financial decision.
On average, homeowners have a median net worth 40 times that of renters. When you rent, you are basically putting money into your landlord’s pocket and paying their mortgage. You will never get this money back. Rent prices are increasing as well, so price may not be the difference maker you think it is. In many cases, you can get a mortgage with payments comparable to or better than rent.
After paying off your mortgage, you’ll own a home where you can continue living.You’ll also have an asset you can sell later. While adding home improvements over time, you will increase the value of your home. For example, many homeowners update their kitchens and bathrooms with custom countertops. Not only does this make your home look nicer, it can add significant value.
Are You Ready to Buy a House in 2022?
Purchasing a house right now might not be the best option for everyone. However, it may be the ideal time for you to buy. Here are some questions to ask yourself to see if now is the best time to buy a house:
- Do I have a stable job?
- Do I have enough saved up for a down payment?
- Do I have location flexibility?
- Am I motivated to buy?
If you answered ‘yes’ to most of these questions, it might be the right time to buy a house. A stable job, savings, and flexibility are essentials in this market. Motivation is vital as it can still take quite some time to get an offer accepted on the home you want.
If you’re considering buying a home in 2022, it’s best to go in fully prepared. Here are some essential tips to get you started:
- Check your credit score – a good credit score is essential to buying a home. It proves that you have an exemplary track record of paying off past debts.
- See how much house you can afford – You’ll want to have an honest conversation with yourself about what you can actually afford. Buying a home involves more than just making monthly payments. Check out Homie’s affordability calculator to see how much home you can afford.
- Start saving for a down payment – The traditional down payment is 20%. However, there are multiple options available. A loan officer can help you decide what is best for you. Make sure you have enough saved to make your monthly payment affordable.
- Hire experts who have your back – A knowledgeable real estate agent who has your best interests at heart can be invaluable in this market. A good agent will help guide you through every step of the process.
- Get preapproved – Having a preapproved mortgage amount shows home sellers and real estate agents that you’re a serious buyer. A preapproval will give you an edge over other buyers who do not have one.
Buying a home is a big decision. The real estate market has its challenges, including rising mortgage rates, fierce competition, and high home prices. However, buying a home now still has advantages over renting. If you’re motivated and prepared, you can still find and buy a fantastic house in this market.