Will I Be Able to Afford More House Next Year Than I Can Right Now?
When should you buy a home in the current market? There's no doubt this market is confusing, with one expert recommending selling now to get peak value for a home and others saying to wait for the market to correct. If you're buying, your perspective is much different. You want to save money but still have your pick of lots of property for sale. Confused? That's because this is a challenging market with many things to think about before you buy, especially home affordability.
When you work with your agent to break down how home affordability applies in your specific desired neighborhood and region, you'll have a better idea of the best move for you. These factors will help contribute to that decision.
The Pandemic Housing Boom Is Correcting
Beyond all other factors, when you consider home affordability, you have to focus on the changes brought by the pandemic. Suddenly, people were buying homes quickly, and due to the limited number of homes listed for sale on the market, the laws of supply and demand took over. That led to rapidly increasing home prices. The double-digit home price growth of the last few years isn't something the market can sustain. If you're tired of being outbid for a home you love, that could soon be a thing of the past. All of this demand led to an increased number of homes being built, a run on steel and lumber, and refrigerators becoming hard to find.
The Federal Reserve took the reins in reeling in that excessive cost and rapid growth. To do that, they boosted the key lending rate, which is likely to lead to an increase in mortgage rates for some time. As frustrating as that may sound, as a home buyer who likely needs to buy a home with a loan, there are some key benefits to it.
What Will Home Affordability Look Like in 2023?
If all goes to plan, the increase in interest rates could curb inflation quickly, and a result of that could include some improvements in overall home affordability for those who are looking to buy a home. There’s no way to know what could happen, but here’s what many expect:
- Interest rates: If you wait until 2023, interest rates on most mortgage loans will likely be higher. That means you may spend more to buy the home when it comes to the loan costs. That doesn’t mean those prices are going to be significantly higher, but it could mean a few percentage points.
- Home inventory: While there’s no way to say you’ll never be outbid again, the chances are lower in the next year as inventory becomes more predictable in most areas. With more inventory available, there are also fewer reasons that home values will skyrocket in those bidding wars. Higher inventory leads to better access to buying what you want.
- Home prices: It’s unlikely there will be a significant housing value drop in the coming year, but home values may stop growing as quickly. There is some evidence of currently listed homes seeing price reductions right now, which could mean lower prices in some areas.
Will You Be Able to Afford More House Next Year, Though?
There’s no crystal ball to tell us the future of what’s to come. If you can afford to buy a home today that fits your needs and is within your budget, buy now. You may be better off buying now instead of waiting for the unpredictable real estate market of 2023.
More so, inflation is a factor. Though it is unlikely that you will find home prices rising due to inflation, you are likely to find it a bigger pinch on your budget.
With mortgage rates on the rise, there’s no doubt that buying now if you qualify for a lower interest rate is the better option overall. It will save you money to secure even an interest rate that's even a fraction lower this year than next year. For example, based on a $500,000 mortgage amount, the monthly principal and interest payment on a 30-year fixed rate loan at 6.5% could be $3,160, while it’s $3,496 on a 7.5% loan.
If you can afford to buy a home now and have the financing to do so, there's no real benefit to buying next year. Prices aren't likely to be much lower, though inventory may be a bit better. If you're able to find your dream home, it may be time to make your move now instead of waiting.
Get the Help You Need
If you’re frustrated with the lack of access to homes for sale, talk to your agent about it. There is improvement in new listings, which could give you the perfect opportunity to buy what you want at the lowest interest rates for the foreseeable future. On the other hand, waiting too long doesn't seem to have the same benefits, and it could end up costing you.
Let's discuss your situation today so that you can start your home search with confidence.