There’s a reason so many buyers have struggled to buy a home over the past year. Not only has housing inventory been extremely slow, but home prices have skyrocketed (and to be clear, these two factors are very much related). Add to that rising mortgage rates and it’s no shock that many people have been forced to put their home buying plans on hold and wait for the real estate market to stabilize.
In this regard, there is good news: the market has stabilized, at least to some extent. In late August, the S&P CoreLogic Case-Shiller indices released their latest data, which revealed that in June, annual house price gains were 18%, down from 19.9% the previous month. Meanwhile, the 20-City Composite of indices posted an 18.6% annual gain, compared to 20.5% the previous month.
Smaller increases in home prices are a good thing for buyers – there’s no doubt about it. But to be clear, just because home price growth is slowing doesn’t mean home prices have reached affordable levels. And it is very important that buyers note this distinction.
It’s still a bad time to buy a house
If you started your home search around this time last year, you may have been overwhelmed by soaring listing prices and a distinct lack of inventory. Fortunately, the two problems are beginning to resolve themselves.
Sellers are not getting away with the record prices we saw last year. And real estate inventory has slowly but surely increased, making bidding wars less frequent and necessary.
But while home price growth has slowed, as evidenced by the aforementioned data, that doesn’t mean we’re back to pre-pandemic levels. Not even close. The June figures mean that during this month of this year, house prices were 18% higher than they were in June 2021. And while this represents lower house price gains than those May, this does not mean that homes are now affordable.
In fact, one of the main drawbacks for buyers today is rising mortgage rates. Last year, it was possible to sign a 30-year mortgage at less than 3%. Recently, the average 30-year loan was over 6%. Since the typical buyer needs a mortgage to finance the purchase of a home, this puts those looking to purchase a home in a very difficult position.
Should you suspend your home ownership project?
If you’re in a stable housing situation – you can afford your rent, or you own a first home that you haven’t fully outgrown – then it could definitely be beneficial to put off buying a home for at least a few month more. . We have seen real estate inventory increase steadily over the past few months. If this trend continues, it should contribute to lower house prices.
Now, if you’re worried that waiting to buy might end up with a higher mortgage rate, the reality is that’s a risk you’ll have to take. It is difficult to predict where mortgage rates will be in a few months. But remember, we are now at a point where borrowing rates are high. And so if they increase modestly, it may not make a huge difference.
On the other hand, if house prices drop significantly, you could be financially off the hook even if it ends up costing you a bit more to finance your home purchase. So it’s something to keep in mind when weighing your options.
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