This year, many prospective home buyers are waiting for more favorable conditions before making bids. With mortgage rates stubbornly stuck around 7% and home prices rising year-over-year, 2023 is not a great time to buy a home.
Inflation soared earlier this year, prompting the Federal Reserve to quickly raise interest rates. At the same time, a lack of available housing has driven up prices in many markets across the country. But as the new year approaches, the burning question on people’s minds is whether 2024 will bring more favorable conditions for homebuyers. If so, do more favorable conditions mean you should wait to buy, or is buying now the right course of action?
The question has taken on added significance as the Fed kept interest rates unchanged this week but revised its outlook to include three cuts next year. The move is widely expected to bring an end to the central bank’s 11th rate hike since March 2022. Markets are even pricing in the possibility that interest rates will start cutting by May, but some economists think it could come sooner.
There is no one-size-fits-all answer to whether now is the right time to buy a home. It’s a big decision that fits you and your financial situation. There is also no way to accurately predict what the market will do in the near future. However, there are several scenarios to consider to determine what action is best for you in 2024.
Maybe it’s a job opportunity, a change in family structure, unmanageable costs on your current property, or an expiring lease. No matter what your needs are, you’ll need to choose between finding a new place to rent or buying a home.
Renting is always an option, but for those who are financially ready for homeownership, it’s often better to buy now than wait. Buy now to secure a permanent home and start building wealth. Owning a home also allows you to take advantage of other homeownership benefits, such as tax deductions from interest paid on your mortgage, property taxes, and other home repair-related expenses.
If you can buy at the current rate and maintain your monthly costs, it’s better to buy now. If interest rates drop, you always have the flexibility to refinance to lower your future monthly payments.
Jeff Ocasio, a loan officer at Fairway Independent Mortgage Corporation in Tampa, Florida, said, “Recent indicators indicate that experts believe interest rates will reach the mid-6% range by the fourth quarter of 2024.” I predict that will happen.” “Markets, values and interest rates are constantly changing, so it’s important to make the most of the moment. If you’re on a lease and eligible, now is the perfect time to take the leap.”
Maintain your credit score, stay employed, and avoid making mistakes that will hamper your refinancing strategy when interest rates drop.
Renting is the perfect solution for those who have not yet decided where to buy. For example, if you recently moved to a new city and aren’t sure where you want to live long-term, are considering a new job that requires relocation, or are anticipating a major change in your family structure, consider this path. You may choose. We may move again within the next year or two.
But for those who don’t plan on moving soon, buying now is definitely a better choice. Stevie Carter, a real estate agent with Rogers, Healey & Associates in the Dallas-Forth Worth, Texas area, consistently maintains that now is the right time to buy if you are financially ready. . “Over the past 10 years, the Dallas metropolitan area has averaged 7% to 8.5% year-over-year appreciation,” Carter said. “This means that the home you bought for $500,000 in 2014 has nearly doubled in value. If home values continue to rise, the home you inherit now will become more expensive the longer you wait. Let’s go.”
If prices continue to rise, you will be building equity with each mortgage payment. Since you plan to live in your home for the long term, you don’t have to worry too much if the price goes down. This gives the price more time to recover in the event of a sale and ensures that your financial position remains stable. Either way, instead of leaving your rental home with nothing to show for it, you can step into building equity.
Buying a home is more expensive than renting. Not only do you need to save up a lot of cash for a down payment and closing costs, but there are usually higher costs associated with owning than renting. This is true even in what is considered a low-cost housing market.
US News Housing Market IndexPlus closing costs, based on a 7% interest rate on a $217,000 30-year fixed-rate mortgage, your monthly payment, before taxes and insurance, would be $1,442. Meanwhile, the median rent in Cincinnati is just over $1,500. Renting is more financially affordable because you eliminate additional maintenance costs, property taxes, and insurance.
If the combination of mortgage payments and the operating costs of a home will put a strain on your income or budget, it may be wise to wait before purchasing.
Housing inventory is gradually increasing. According to the latest data from Redfin, there was a three-month supply of homes for sale in October 2023. While this is a move in the right direction after the pandemic-induced housing frenzy that left housing in supply for less than a month, it remains an undersupplied market. Approximately six months’ supply is considered a balanced market.
Insufficient inventory means many buyers are having a hard time finding homes that meet their needs at a price they can afford. If you’re having trouble finding a suitable home due to a lack of supply in your local market, consider waiting until inventory increases in the future.
“Housing inventory and demand could increase as interest rates fall,” Carter said. Many homeowners secured a mortgage when interest rates were 2% or 4% and are stuck waiting for a time when they can re-enter the market at a more affordable price. If interest rates fall, people may return to buying homes, which could lead to an increase in inventory.
If you are finding it difficult to get approved for a mortgage based on your current employment, debt-to-income ratio, outstanding debt, or the average price of a home at current market rates, you may be better off waiting to buy. . “While you wait, focus on preparing yourself financially. Take steps to reduce your debt and improve your credit score. You never want a home purchase to burden you financially.” Carter says.
There are some scenarios where it may be better to wait, especially if mortgage rates retreat, as is currently expected. But remember, no expert has a crystal ball to predict exactly what will happen in the housing market next year. Many experts predicted that house prices would fall in 2023, but the opposite happened. According to the Housing Market Index, the average home price in the U.S. is up 2.2% year over year.
Many experts had predicted that mortgage interest rates would fall in 2023, but instead they rose.
Timing the market perfectly should not be your goal. This decision should be determined by your personal needs, financial means, and the time needed to find a suitable home.