Will I Be Able to Afford More House Next Year Than I Can Right Now?
When should you buy a home in the current market? There's no doubt this market is confusing, with one expert recommending selling now to get peak value for a home and others saying to wait for the market to correct. If you're buying, your perspective is much different. You want to save money but still have your pick of lots of property for sale. Confused? That's because this is a challenging market with many things to think about before you buy, especially home affordability.
When you work with your agent to break down how home affordability applies in your specific desired neighborhood and region, you'll have a better idea of the best move for you. These factors will help contribute to that decision.
The Pandemic Housing Boom Is Correcting
Beyond all other factors, when you consider home affordability, you have to focus on the changes brought by the pandemic. Suddenly, people were buying homes quickly, and due to the limited number of homes listed for sale on the market, the laws of supply and demand took over. That led to rapidly increasing home prices. The double-digit home price growth of the last few years isn't something the market can sustain. If you're tired of being outbid for a home you love, that could soon be a thing of the past. All of this demand led to an increased number of homes being built, a run on steel and lumber, and refrigerators becoming hard to find. I'm sure you've experienced some of these supply chain issues even if you aren't in the market!
The Federal Reserve took the reins in reeling in that excessive cost and rapid growth. To do that, they boosted the key lending rate, which is likely to lead to an increase in mortgage rates for some time although most analysts predict a strong purchase market in 2023 and a fall in interest rates in the next few years.
What Will Home Affordability Look Like in 2023?
If all goes to plan, the increase in interest rates could curb inflation quickly, and a result of that could include some improvements in overall home affordability for those who are looking to buy a home. There’s no way to know what could happen, but here’s what many expect:
- Interest rates: If you wait until 2023, interest rates on most mortgage loans will likely be higher - industry experts are expecting they will get worse before getting better. That means you may spend more to buy the home when it comes to the loan costs regardless of any change in sales prices.
- Home inventory: While there’s no way to say you’ll never be outbid again, the chances are lower in the next year as inventory becomes more predictable in most areas. With more inventory available now than we've had in the last two years, there are also fewer reasons that home values will skyrocket in those bidding wars. Higher inventory leads to better access to buying what you want.
- Home prices: It’s unlikely there will be a significant housing value drop in the coming year, but home values may stop growing as quickly. There is evidence of currently listed homes seeing price reductions right now, which does mean lower prices in some areas but that is only compared to our peak in pricing earlier this year as our home values are still UP since January.
Will You Be Able to Afford More House Next Year, Though?
There’s no crystal ball to tell us the future of what’s to come. If you can afford to buy a home today that fits your needs and is within your budget, buy now. Locking in your interest rates today and buying a home when the rest of the market conditions are in your favor means that you'll have the home and can refinance out of that interest rate if and when they do drop.
More so, inflation is a factor. Though it is unlikely that you will find home prices rising due to inflation, you are likely to find it a bigger pinch on your budget and with continued uncertainty around how the government will try to curb inflation, interest rates could get worse before they get better.
With mortgage rates on the rise, there’s no doubt that buying now if you qualify for a lower interest rate is the better option overall. It will save you money to secure even an interest rate that's even a fraction lower this year than next year. Plus, there's a ton of programs available now that allow you to step into a rate that might not be available next year.
If you can afford to buy a home now and have the financing to do so, there's no real benefit to buying next year unless you are trying to time the market and unfortunately you won't know the best time to buy OR sell until its not anymore. We expect price stabilization next year if not price improvement, inventory to increase before dropping again and recommend buying and waiting instead of waiting to buy.
Get the Help You Need
If you’re frustrated with the lack of access to homes for sale, talk to your agent about it. There is improvement in new listings, which could give you the perfect opportunity to buy what you want at the lowest interest rates for the foreseeable future. On the other hand, waiting too long doesn't seem to have the same benefits, and it could end up costing you.
Let's discuss your situation today so that you can start your home search with confidence.