Buying a home is tough, but there are a few tricks to try
The deadly duo of high mortgage interest rates and high house prices has taken a hammer blow to the psyche of the American homebuying public.
While house prices have come down somewhat this fall, rising mortgage rates are a huge headwind for homebuyers. These buyers do not receive any price reductions, as the median listing price of a home in the United States is currently $425,000.
That alone is keeping many buyers on the sidelines heading into 2023.
“A deterioration in the economic outlook and a further rise in mortgage rates to a 16-year high in September means the housing market is poised for another slowdown,” said Capital Economics real estate economist Sam Hall. “We estimate that mortgage payments as a share of median income reached 26% in September. That’s more than the 24% peak in 2006 and 1989, both of which were followed by falling house prices.
The company said in a separate research note that while U.S. home prices will fall 8%, the combined plateau of still-high prices and soaring interest rates will mean home affordability in 2023 will be at its worst level since 1985.
Silver Linings playbook?
Mainly due to rising interest rates, inflationand weak demand, real estate gurus expect some market downturn in 2023.
“Due to persistently high prices and rising rates, the housing market will likely continue to cool over the coming months,” said loan tree Senior Economist Jacob Channel. “That could mean house prices will continue to fall in some areas.”
Still, the US real estate sector is light years away from a major decline.
“A full market crash still remains unlikely given how successfully current homeowners are continuing to make their mortgage payments – even in the face of high inflation,” Channel told TheStreet. “As inflation declines, rates could possibly start to come down next year.”
Even if prices and rates fall, housing is likely to remain unaffordable for many potential buyers. “Also, the record high mortgage rates of 2020 and 2021 aren’t expected to return any time soon,” Channel noted.
Other industry experts agree, noting that available inventory is a thorny issue heading into the new year.
“We will see a much smaller price decline nationally than many expect, and some regions will continue to see some price appreciation,” said Polunsky Beitel Green mortgage lawyer Peter Idziak. “Many industry economists expect national home prices to remain essentially flat in 2023, and a key reason is that housing inventory is extremely low.”
With a still strong economy, historically low foreclosure rates, and many homeowners happy to stay in a home with a mortgage around 3%, “we shouldn’t expect inventory to rise significantly over the next year,” Idziak noted.
Moreover, with the slowdown in inflation and the declarations of the Federal Reserve As the end of interest rate hikes approaches, mortgage lending has likely plateaued, although rates will not come down significantly in the next few months.
“There is some truth to the saying ‘marry the house and date the rate,’ Idziak told TheStreet. buying now even with high rates, and hopes to refinance in two to three years.”
Desperately looking for leverage
Is there wiggle room for buyers in need and can anyone get a good deal on a home?
Mortgage experts think so.
“Just as many individuals have to buy, many sellers have to sell,” Idziak said. “As the average time on market has increased, many sellers have started offering incentives to make the home more attractive to buyers, and realtors are reporting that sellers are even accepting offers below the list price.”
One incentive that is rapidly gaining popularity is a seller-paid temporary buyout that effectively lowers the borrower’s monthly payment during the first few years of the loan.
“For buyers who expect rates to drop over the next two to three years but want or need to buy now, a temporary buyout can make the first few years of homeownership more affordable,” Idziak added. . “This is done by ‘pre-loading’ the seller’s incentive while allowing a borrower to refinance later if rates drop.”
Additionally, a seller may have an existing mortgage, such as a VA or FHA loan, which can be assumed by an eligible buyer.
“The buyer will assume the mortgage at the current rate, which for many could be as low as 3%,” Idziak noted.
Buying property and building a prefab home can also be a good idea – under the right circumstances.
“Manufactured homes are a great option, but I wouldn’t settle if you couldn’t see yourself living there for a decade. You can get an amazing buy right now,” said the A&E home-selling show.Triple Digit Flip co-host Jamil Damji. “Don’t be afraid to make a low offer.”