Rachel Crews is the daughter of Dave Ramsey, the founder of Ramsey Solutions and a prominent financier. As one of her major contributors to Ramsey Solutions, Cruze recently posted an update on the site about the current state of the real estate market and her predictions for 2024.
Here are some of Mr. Cruz’s insights and how these real estate trends could impact you, whether you’re a homeowner or considering entering the market. to introduce.
Housing supply is increasing
One reason home prices continued to rise in 2022 and 2023 was low supply. Fewer homeowners were willing to sell in 2023, as many had low-cost mortgages with interest rates of 4% or less. With interest rates peaking at nearly 8% in 2023, it didn’t make economic sense to give up a 3% or 4% mortgage in exchange for a mortgage closer to 8%.
Basic economics tells us that when supply exceeds demand for any item, prices rise. With so many buyers chasing so few homes, prices inevitably rose. But Cruz points out that the number of available homes is slowly increasing, albeit at a slower pace. If mortgage rates continue to fall throughout 2024, as they have begun to do since the end of 2023, the backlog in housing inventory could begin to clear.
housing prices continue to rise
Although the situation is improving slightly for buyers, it remains difficult to enter the market. That’s why it’s more important than ever for buyers to only consider homes they can truly afford. For Cruze and the experts at Ramsey Solutions, this means three things to him.
- Ensure that your total housing costs, including principal, interest, property taxes, home insurance, homeowner association fees, and private mortgage insurance (if applicable) are less than 25% of your monthly take-home pay. please.
- Try to save at least a 20% down payment.
- Choose a 15-year mortgage.
Not all experts agree with Ramsey Solutions’ recommendations. For example, some people feel that a 30-year mortgage gives them more flexibility than a 15-year mortgage, but some people say they are fine with housing costs totaling up to 35% of their income. There are some too. But if you want to take the most conservative approach to buying a home, the Ramsey Method can certainly help you find a truly affordable home.
Mortgage interest rates remain high
Cruz always recommends buyers choose a 15-year mortgage over a 30-year mortgage because interest rates are generally lower. You’ll also always pay much less interest because you only have half the loan term. This is especially true in the high rate environment that currently exists. Although interest rates have started to fall from their peak, they are still more than double their 2020 lows.
Buying a home when interest rates are high isn’t ideal, but if you need a home, you need a home. Be sure to save up a large down payment and only buy a home that you can afford. Remember, if interest rates go down in the future, you can always refinance to a lower rate.
More online services now available
As with other areas of financial services, technology is making its way into the world of real estate. Traditionally, buying a home was a handshake business that required face-to-face transactions, but more and more services are moving online. But Cruz cautions against getting too carried away with the “latest and greatest” technology.
For example, there are several companies that now allow home sales to be conducted entirely online. We will buy your home and do everything from inspection and showings to repairs and treatment. However, you may actually have to pay more for these services than you would with a traditional agent, and you may end up paying less for your home than you would using traditional methods. .
Using a virtual real estate agent also allows you to pay far less commission than using a traditional agent. But Cruz says you usually get what you pay for in situations like this, and while the process may be easier, it’s better to opt for the in-person experience, which is much better.
Increased number of risky purchase options
Cruz advises against getting caught up in new purchasing options. This may sound appealing, but you run the risk of overdoing it. Specifically, Cruz warns about down payment loans and rent-to-own programs.
With a down payment loan, you can basically buy a home with a 0% down payment. This can be accomplished by borrowing the full amount of your home from two or more financial institutions. But Cruz says making a 0% down payment on a home is a terrible idea.
The same applies to RTO (Rent to Own) programs. Mr Cruz recommends that he never get “caught up” in an RTO, as part of the payment goes toward home ownership, so rent payments will always be higher than they need to be. He can either take the step of buying a home with a 10% or 15% down payment, or he can rent until he has saved up a sizable down payment.
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