Six great reasons to buy a home this spring
If you’re thinking about buying a home in the spring of 2022, the headlines you are seeing are depressing:
- Why you may want to wait out this spring’s real estate market
- “Insane”: Viral video captures frenzy at open house
- Rising mortgage rates will make it even harder to buy a home
Headlines like these may make you decide to put off buying a home until home prices come back down or mortgage interest rates head lower. Or at least until the real estate market isn’t so crazy with intense bidding wars and homes selling in less than a day for over asking price.
The problem with this kind of thinking is that it’s based on an assumption that everything will someday “return to normal.” The truth is, however, that there’s never been a “normal” in the real estate market. It used to be “normal” to get a mortgage rate in the 16% range, and now people can’t believe rates are pushing up against 5% when they were under 3% in 2021.
The folly in trying to time the market
As we’ve proved time and time again, making predictions about the real estate market is often a fool’s errand. There are too many variables that can affect the market to be able to account for all of them. And the evolving situations in Ukraine and with the COVID-19 pandemic have shown us that it’s impossible to know everything that could affect your homebuying decision this year.
So, while it’s very true to say that this is a turbulent time in real estate, that doesn’t mean everyone should sit on the bench and wait for things to calm down. And while you should take your own financial situation into consideration as you make this major decision, here are some reasons why it makes sense to buy a home right now.
1. Interest rates are still relatively low—historically speaking
If you look at a graph of average mortgage rates from the last 12 months, it’s heading up and to the right. That’s the wrong direction if you’re hoping to save on your monthly mortgage budget.
But, if you look at a graph of the last 12 years you’ll see that average mortgage rates are currently lower than they have been for most of that time. The difference is even more apparent in a graph of the last fifty years, which show today’s rates to be among the lowest in history.
So, while you’ll hear people complaining about mortgage rates going up, that’s really just in relation to the last year, when they were the lowest they had been in the 50 or so years that the Fed has been tracking this data.
Rates seem likely to go up
Also, rising interest rates are projected to stay on that trajectory for the foreseeable future. The Federal Reserve is expected to pull back purchases of mortgage-backed securities, and most expect that will cause rates to rise.
Lawrence Yun, chief economist at the National Association of Realtors®, has been predicting that average rates would rise since last year. The Mortgage Bankers Association predicts that as well. Since the invasion of Ukraine, rates have gone up faster than both of these predictions planned for, and then dropped a bit. This just reveals how much uncertainty there is in the market and how difficult it can be to predict where rates may go.
All of which is to say that you should take advantage of low rates when you see them now, as it seems highly unlikely that they’ll get much lower in the months ahead.
2. Smart searchers can take advantage of great tools
The current market is seeing a lot of competition for fewer homes. This leads to bidding wars. Fortunately, home buyers have more tools than ever at their disposal to help them stand out.
The issues that can trip you up when buying a home now are:
- Lack of information about the home—leading you to buy a house for more than it’s worth
- Biting off more than you can chew in your monthly budget—especially true when a bidding war pushes the purchase price higher
- Seller isn’t sure how much they can trust your offer—and maybe is considering an all-cash offer from someone else
- Financing moves too slow—and you can’t get the deal signed on the seller’s timetable
Fortunately, Rate offers high-tech tools to help you manage all of those scenarios:
- Our Home Valuation tool can tell you how much a home is worth using a proprietary algorithm that compares the house you’re looking at with others that have recently been purchased.
- GRaffordable is a tool that can help you find a loan that will fit your monthly budget. Just answer a few questions, plug in the purchase price and your expected down payment and it will recommend the loan that would work best for you. And if you’re in a bidding war, it will allow you to quickly update the terms of your offer so you know how your next offer will change your payments.
- The Rate PowerBid Approval* is a more qualified pre-approval. It includes a more detailed look at your credit history, financial background and includes underwriting of your loan. It tells sellers that you are likely to be approved for a loan, giving them confidence that if they accept your bid, the deal will almost certainly close without any surprises.
One of your best advantages you can have in this crazy market is the ability to move fast. Rate’s Digital Mortgage can speed up securing financing while simplifying the process, making it possible for you to get completely pre-approved in a few hours.
We can also help you close fast with our FlashClose® technology.† And our dedicated teams of mortgage experts work hard to speed you through the entire process. Together, these tools will help your offer stand out, ensure you’re clear to close on time and help you make sense of this crazy market.
3. Home prices won’t want to come down
You may hear other homebuyers say that they are going to wait out the market and reenter it when home prices come back down to where they were a year or so ago. They may be waiting a long time.
Home prices are characterized by something that economists call “downside stickiness.” That means the price of homes resist going down, and instead respond to harsh economic times by simply slowing their upward growth.
The one notable exception was the 2008-2009 recession, following the housing market collapse. But that was most likely caused by the fact that homes were overvalued during that time, and the housing market collapse that precipitated that recession forced homeowners who were in over their heads to sell.
Considering that the inventory of homes for sale is still so low, the prospect of home prices going down anytime soon seems highly unlikely. So, the price you see today may be the best price you’re going to see.
4. There are fewer homebuyers right now
This point may sound like good news, but it’s more like the silver lining of a dark cloud. There are fewer people in the market to buy a home right now, but the reason for that is because home prices and mortgage rates are high, and inventory is low.
According to the National Association of Realtors, pending home sales declined for three consecutive months at the end of 2021 and into January of 2022. Chief economist Yun predicts that, “given the situation in the market—mortgages, home costs and inventory—it would not be surprising to see a retreat in housing demand.”
While this does reflect the difficulties in the housing market right now, it also presents an opportunity to those who are committed to buy a home this spring.
5. New construction homes are coming on the market
Low housing inventory has been a problem for years now, long before we had heard about COVID-19. And despite the supply-chain issues many builders currently face, there is still a lot of confidence in the prospect of building more homes to meet the current, sky-high demand.
According to real estate firm Redfin, 34.1% of all single-family homes for sale at the end of 2021 were new construction, up almost 10% from a year before (25.4% of homes for sale in December 2020 were new construction). And that trend has been accelerating since the pandemic began and demand for more housing increased.
You can expect more and more new construction to continue to show up for a while, as well. In December of 2021, building permit applications were up 6.5% from December 2020, and up 9.1% from November. However, inflation and supply chain problems could slow the rate of new homes actually getting finished. The demand for new construction should remain high, but these issues give builders pause when it comes to how aggressively they build new homes.
6. It’s less expensive to own than rent
Owning your own home is better than renting in many ways, but one that most people don’t consider is that it actually costs less. And this isn’t just true now in these crazy times, when rents have been rising, but it’s generally true even before 2020. When you consider that the average monthly rent for a two bedroom apartment is $1,985 and the average monthly mortgage payment was $1,487, it’s clear just how much of a benefit it is to own your own home.
That’s before we get into the benefits of owning a home vs. renting, including the fact that you’re investing in your home’s equity with each payment and the potential tax benefits homeowners can take advantage of.
When you have a mortgage, you know what you’ll be paying every month for the next 30 years (or 15, or 10, depending on your loan). That’s not the case with rent, and many have found their rents have increased 10% on average over the last year—and are poised to go even higher in 2022. That sort of certainty in budget is priceless right now.
Buying prepared vs. buyer beware
Without a doubt, this is a tricky time to buy a home. Compared to a year ago, when it clearly seemed like the perfect time to buy a home, the current market offers more difficulties and confusion. Consider this, though: many homebuyers who bought last year felt that they had to rush their decision, and some are feeling buyer’s remorse. That just shows you that this is always a tricky decision, no matter what’s happening in the market.
That’s why waiting until prices drop or rates calm down may not put you in a better situation. What’s more, that time you spend waiting could be time that you’re building up equity in your home and putting down roots in a community. Those are benefits that you’ll have for the rest of your life.
Ultimately, it’s up to you to decide what makes the most sense for you. You have a lot to consider—your income, your savings, your current living situation and many other factors. Having a good understanding of all of those issues, and how owning a home will fit into your life, will help you know that you’re making the right decision about buying a home—this spring or at any time.
* PowerBid Approval (the “Approval”) is contingent upon receipt of executed sales contract, an acceptable appraisal supporting value, valid hazard insurance policy, and a re-review of your financial condition. Rate, Inc. reserves the right to revoke this Approval at any time if there is a change in your financial condition or credit history which would impair your ability to repay this obligation and/or if any information contained your application is untrue, incomplete or inaccurate. Receipt of an application does not represent an approval for financing or interest rate guarantee. Not all applicants will be approved for financing. Restrictions may apply, contact Rate for current rates and for more information.
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