Is now a good time to buy? That seems to be the question on everyone’s minds right now. Not to sound ambiguous but… It depends!
What it depends on -is whether you already own a home or not.
Prudence Is As Prudence Does
If you are a first time buyer, I would say it’s not a great time to buy. Many in my industry have been saying it’s “Impossible” for prices to come down. The reasons they give run the gamut from, ‘there’s a lack of inventory’ to ‘the loans aren’t risky like in 2008’. Here’s the numbers - According to Zillow prices declined .1% in July!
https://zillow.mediaroom.com/2022-08-18-Buyers-gaining-time-and-options-as-housing-market-rebalances#assets_28775_137810-135. A 0.1%
What does it mean?
Decline is just a small reprieve for potential buyers considering that per the S&P case-schiller national home price index showed that prices rose 18.8% in 2021 alone. Interest rates have increased as well. The average rate on August 16th 2021 for a 30 year fixed rate mortgage was 3.06%. As of August 15, 2022 it is now 5.45%. [Source – Mortgage Bankers Association. **This is not a quote, only an illustration based on averages].
My point? Buyers are feeling an affordability crunch. These same folks, all the while, are spending more on groceries and energy and everyday items as well. I just saw a gallon of milk for over $10 yesterday. Hey, it was an organic milk brand, but I still had to pause in tracks and take that in!
But What is Affordable Now?
To illustrate my point about affordability, let me tell you a tale of 2 buyers.
I was working at a new housing development in Summer 2020. At that time, there was a popular model there that was selling for $475,000. By summer 2022 they were asking $750,000 for the exact same model.
For the buyer in 2020 with 5% down, using the average rate of 3.06% their total payment with principal, interest, taxes and mortgage insurance was $2,926. The payment today’s borrower using the new sales price and the average rate of 5.45%: $5,287 per month. The disparity is insane. These properties were in a part of California that had an additional property tax on top of the mortgage payment as well.. Again, this is an illustration using averages and not a quote, but you get the idea. This illustrates a 55% jump in payment expectation in just two years!
This isn’t sustainable. No one knows for sure what is going to happen…
If I was a first time buyer, I would want to wait and see how things look a few months from now.
Anecdotally, I have seen things slowly shifting towards being more friendly towards buyers versus sellers.
Now, for our current homeowner’s it’s a different story. If you own a home and sell for a high price it most likely means you are buying high as well. Of course, the opposite is true as well. If you are in California and have been in your home for a long time, you could be looking at a big increase in your taxes. So, if your taxes are much lower than the going rate thanks to prop 13 it’s something you will want to take into account. As a homeowner, you will also need to take into account that your interest rate will most likely increase. According to Redfin, 51% of homeowner’s have a rate under 4%.
BUT! if you need to move you need to move! I suggest you reach out to your trusted advisor to go over the numbers with you. If you don’t have one already, I would like to be that person for you!
Cheers,
Andrew
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