There’s Never Been a Worse Time to Buy a Home

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Purchasing a home has traditionally been considered an intelligent financial move. It works as a forced saving account for many people since the principal is paid down with monthly payments. Historically, housing prices rise 2-3% per year, considered a good investment. If you put 20% down as a down payment, that 2-3% becomes 10-15% per year on your initial investment. Taking on debt for a home has traditionally been considered “good debt.”

In 2021, house prices were up more than 18% from the year before, pricing many first-time owners out of the market. Most homes are selling above the already high asking prices due to multiple bidders going after the same property. Last week, the average new mortgage was for $446,000, indicating that higher-end houses are available, not starter/first homes. Buying a “fixer-upper” has in the past allowed people to save money on a home. However, now that labor costs and the price of lumber and other building supplies are rising rapidly, it is increasingly expensive to do construction to rehabilitate a property. The number of homes for sale is down 28% from a year earlier, indicating that the supply is low, while demand has remained high.

Rates are still historically low, but with home prices so high, already elevated monthly mortgage payments are increasingly getting higher.

Many millennials have “failed to launch” out of their parents’ homes to get out independently. Rents have been increasing drastically, so it is even harder for those who are renting to save for a down payment to buy a home. In addition, as stated above, homes have not been available to purchase due to supply and demand issues. People feel stuck, especially younger adults.

Millennials stay at a job an average of 2-3 years, much less time than has traditionally been the case. When buying a house, the general suggestion is that a person should plan to be at that residence for about seven years to make the closing costs worth paying for when buying the house. If a person moves around frequently, it is harder to rationalize a purchase, especially at these high prices.

Fannie Mae did a national housing survey in January, confirming the current pessimism of would-be homeowners. 70% of respondents said that now is a bad time to buy a home. For those individuals 18-34 years of age, 83% said it is a bad time. People in this age range are presently negative on the economy in general, concerned that interest rates will continue to rise, further pricing new home buyers out of the market. 69% of respondents said now is a good time to sell. Only 25% said it is a good time to buy. These are record lows for this survey.

The news is not all bad for future buyers. As interest rates rise and the economy cools down, housing prices will stabilize. They may even drop some. Before 2007, it was commonly stated that housing prices never drop. In 2007 we had the housing crisis, after which it took about ten years for prices to recover.

Now is not a great time to buy a home, especially for younger first-time purchasers. Real estate does seem to be in a “bubble.” Prices are high, and mortgage rates are going higher. Homes aren’t available to cover the demand. People are worried about the economy and jobs more now than they were a year ago. There might be a better opportunity to buy in the next couple of years, perhaps at much lower prices and with more variety to choose from. Hang in there, potential buyers.