If you are looking to buy a house, you should be aware of the latest trends in the housing market. On June 15, 2022, The Federal Reserve raised the interest rate by 75 basis points, the highest since 1994. The Federal Reserve’s activity does not directly dictate the mortgage rates, but it does affect the mortgage industry. So is it good to buy a house now? Or Wait?
Experts do not expect much relief in the coming months, so they do not think it is a favourable time to buy a house. They reason that the rates have increased much more than they initially expected.
On the other hand, looking at the chances of potential savings based on the best mortgage offers will give you a better return on investment.
Is It Good to Buy a House Now
Just a little browsing through the best mortgage offers can give you great returns. For a 30-year fixed mortgage, the average rate of interest is 5.80% which means that on every $100K you borrow, you have to pay $584.21 as part of principal and interest. Similarly, for a 15-year fixed mortgage with an average interest rate of 4.98%, you end up paying $532 for every $100K you borrow to buy a house.
For a 30-year mortgage, you can save thousands of dollars in interest if you can pay back larger monthly payments. But take this risk only if it can fit into your monthly budget. So don’t think much on is it good to buy a house now. Just plan properly and move ahead.
More reasons to buy a house
If the economy goes into recession, it will cause the interest rate to fall to around 4% or even lower. In that condition, it is better to postpone the decision to buy a house for some time. It is an excellent time for first-time buyers to save some more money.
Some industry experts predicted that the 30-year fixed mortgage rate would increase from 3.1% to 3.3%, whereas the Mortgage Bankers Association predicted it to be around 4% by the end of 2022.
But the 30-year fixed mortgage rate is now floating close to 6% from being close to stable at 3% in 2021. This steep rise proved the industry experts and Mortgage Bankers Association’s predictions wrong. The industry forecast says that interest rates are expected to vary between 5% and 7% by the end of 2022. Nadia Evangelou, Senior Economist & Director of Forecasting for the National Association of Realtors, says the interest rates will be more than 6% this year.
Whereas Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions, predicts that the average interest rate will be between 6% to 6.25% by the year-end. And so a question like is it good to buy a house now, doesn’t arise.
Why are interest rates increasing?
The Federal Reserve will have to raise the fund rates to curb inflation and reduce its position on mortgage-backed securities, which will cause the interest rates to rise further. It is not favourable for home buyers as with the higher interest rates, home loans become less affordable. It also increases the home prices, and buyers have to shell out more for their monthly payments.
With an increase in home prices, the demand for buying homes reduces. June 2022 figures show that the inventory of houses on sale is increasing, but the buyer demand is just moderate. The rates might finally come down and that answers your question – is it good to buy a house now?
Alongside, there has been a decline in mortgage credit availability, making it difficult for a home buyer to qualify for a mortgage loan. With a shortage of buyers and increasing home inventory, it seems to be a seller’s market for the time being. But comparing with the past, the home inventory is just two-thirds of what it was in 2020.
It is a seller’s market, and there are more buyers than available homes on sale. It is a difficult time for first-time buyers to buy a house. According to the data released by NAR, the national median price for existing homes sold in May 2022 was $407,000, which is approximately 14.8% more compared with May 2021.
Days on sale for houses are decreasing
Interestingly, more than 80% of homes sold were on the market for just 16 days in May 2022. This average was 17 days in April 2022. A nationwide housing study released by Fannie Mae states that only 83% of the respondents believed it was not a favourable time to buy a house.
Consumers expect their financial situation to worsen more as they are more worried about their job security, according to a statement by Doug Duncan, Fannie Mae’s senior vice president and chief economist.
In an April 2020 survey, consumers seemed more concerned about housing loan affordability and rising mortgage rates, while the HSPI remained constant after a decline of 0.3 points. Comparing the month of May in 2021 and 2022, the HSPI is down by 11.8 points this year. 79% of consumers do not find the current period suitable for buying a home.
In April 2022, about 76% of consumers did not find it the right time to buy a house. More and more respondents expect an increase in mortgage rates in the coming months.
Is it a good time for Home Buyers?
The percentage of consumers who did not find the current situation suitable to buy a home increased from 76% to 79%. Alternatively, customers who said the time was appropriate decreased from 19% to 17%. If we compare month over month, the net share of buyers who find the current time suitable to buy a house decreased by five percentage points.
Is it a Good Time for Home Sellers
On the sellers’ side, the percentage of people finding it suitable to sell a house increased from 72% to 76%. Those seeing the current time unsuitable for selling decreased from 21% to 19%. In a month-over-month comparison, the number of respondents who found it suitable to sell a house increased by six percentage points.
Expectations about Mortgage rates and Home Price
The survey revealed the percentage of people that expect home prices to rise further in the next 12 months increased from 44% to 47%. Alternatively, the rate of people who expect home prices to go down has decreased from 25% to 23%, while those thinking the home prices will remain stable reduced from 26% to 25%. In a month-over-month comparison, the respondents expecting an upsurge in home prices increased by five percentage points.
For the mortgage rates, the percentage of respondents who expect a downfall decreased from 5% to 4%. In contrast, those expecting an increase also reduced from 73% to 70%. The percentage of people expecting mortgage rates to remain the same increased from 18% to 20%. In a month-over-month comparison, the respondents expecting the mortgage rates to go down in the next 12 months increased by a meagre two percentage points.
So still wondering if is it good to buy a house now or wait further. If yes then you should read the article again. You will get the precise answer to your question.