Is it a Good Time to Buy a House or Should I Wait?
Check out the latest housing trends for the previous month if you're unsure whether it is a good time to buy a house or if should you wait until the end of 2023. It’s becoming harder to buy a house as prices are up year over year, and mortgage rates are soaring. At the same time, consumer prices on everything are also on the rise making it even more difficult to save money to buy a house next year.
In an effort to tamp down inflation, the Federal Reserve is raising interest rates. The Federal Reserve raised the target range for the federal funds rate by 75 bps to 3.75%-4% during its November 2022 meeting. It marks a sixth consecutive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008. The decision came in line with market forecasts.
Policymakers also said that ongoing increases in the target range will be appropriate and that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments when deciding on the size of further increases.
The message could signal a smaller rate hike in December but during the press conference, Chair Powell also noted the ultimate level of interest rates will be higher than previously expected. The Fed aims to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2%, which remains elevated around 40-year highs.
The cumulative effect of these sharp rate increases has cooled the housing market and caused the economy to slow, but has done little to lower inflation. Although Fed doesn't control mortgage rates it has a ripple effect on the mortgage industry. The recent rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing. On the flip side, higher interest rates also mean savers will earn more money on their deposits.
However, since December data indicates that inflation is moderating, the Fed has signalled that future rate hikes will be more gradual and may even end once rates reach just above 5%. The Case-Shiller Index reveals that home prices are falling month-over-month, but are still elevated compared to a year ago. Possibly as a result of these alterations, a greater number of prospective homebuyers believe the affordability crunch will ease. However, if their optimism leads to an increase in demand, prices may increase once more.
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Is it a Good Time to Buy a House or Should I Wait?
Will the 2023 year-end be a good time to purchase your first house? According to the Fannie Mae Home Purchase Sentiment Index, which has recovered slightly from its all-time low in October, prospective homebuyers are becoming a little more optimistic that mortgage rates will decline, and a larger proportion of them believe now is a good time to purchase a home.
More than 100 questions were posed to approximately 1,000 homeowners and renters regarding their perspectives on home buying and the economy. At the lowest point of the Home Purchase Sentiment, only 16% of respondents believed it was a good time to purchase a home. In December 2022, however, 21% of respondents indicated that it was a good time to buy real estate. In December, the proportion of respondents who said it was a poor time to buy decreased from 79% to 76%.
“In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year – perhaps reflecting recently observed declines in mortgage rates and average home prices,” said Doug Duncan, Fannie Mae Senior Vice President, and Chief Economist.
Fannie Mae's Home Purchase Sentiment Index (HPSI) increased in December by 3.7 points to 61.0. The HPSI is down 13.2 points compared to the same time last year. Three of the index's six components improved month over month, including those associated with homebuying conditions, mortgage rate outlook, and job security.
Is it a Good Time to Buy a House?
The percentage of respondents who say it is a good time to buy a home increased from 16% to 21%, while the percentage who say it is a bad time to buy decreased from 79% to 76%. As a result, the net share of those who say it is a good time to buy increased by 8 percentage points month over month.
Is it a Good Time to Sell a House?
The percentage of respondents who say it is a good time to sell a home decreased from 54% to 51%, while the percentage who say it's a bad time to sell increased from 39% to 42%. As a result, the net share of those who say it is a good time to sell decreased by 6 percentage points month over month.
Home Price & Mortgage Rate Expectations
The percentage of respondents who say home prices will go up in the next 12 months remained unchanged at 30%, while the percentage who say home prices will go down increased from 34% to 37%. The share who think home prices will stay the same decreased from 30% to 29%. As a result, the net share of those who say home prices will go up decreased by 3 percentage points month over month.
The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 10% to 14%, while the percentage who expect mortgage rates to go up decreased from 62% to 51%. The share who think mortgage rates will stay the same remained increased from 24% to 31%. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased 15 percentage points month over month. Read the full research report for additional information.
The HPSI is constructed from answers to six of 100 national housing survey questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions.
As of January 26, 2023, the average rate for the benchmark 30-year fixed mortgage is 6.43 percent, up 7 basis points from a week ago (source: Bankrate). A month ago, the average rate on a 30-year fixed mortgage was higher, at 6.61 percent. At the current average rate, you'll pay a combined $627.47 per month in principal and interest for every $100k you borrow. That's an increase of $4.58 over what you would have paid last week.
The average 15-year fixed mortgage rate is 5.65 percent, up 2 basis points over the last week. Monthly payments on a 15-year fixed mortgage at that rate will cost around $825 per $100,000 borrowed. The larger monthly payment may be harder to fit into your budget than a 30-year mortgage payment, but it has huge advantages: You'll save several thousand dollars in interest and create equity much faster.
Let's compare the figures between now and twelve months ago when the buyers financed their houses with a mortgage. On a $300,000 loan, a 30-year, fixed-rate mortgage at December 2021's rate of 3.11% would have meant a monthly payment of about $1,282 (Principal & interest).
- Loan amount = $300,000
- Total interest paid = $161,923
- Total cost of loan = $461,923
Today’s rate of 6.43% (30-year) brings the monthly payment to $1,882 (Principal & interest). That’s an extra $600 a month or $7,200 more a year and $216,049 more over the lifetime of the loan.
- Loan amount = $300,000
- Total interest paid = $377,972
- Total cost of loan = $677,972
The Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group revised downward its forecast for total home sales growth through 2023. They now project 2022 total year existing sales by 13.3 percent in 2023. The group expects purchase volumes to fall about 1.5 percent in 2023 to just under $1.7 trillion, a downward revision of $17 billion from last month’s forecast, driven by downward revisions to their forecast for home sales.
The rise in rates is having the Fed’s desired effect on housing, as house price growth began to slow in June. They expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates.
The group continues to anticipate a strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand. If the economy suffers a downturn, mortgage interest rates will very probably fall to about 4% or even lower. If it does, this could be a good time to put off buying a home and save some money, especially for first-time buyers.
The Mortgage Bankers Association was somewhat more optimistic about mortgage rates, projecting that the average rate will increase to 4% by the end of 2022. It is now evident that neither Fannie Mae's nor the Mortgage Bankers Association's predictions were even somewhat accurate. Although the Federal Reserve does not control fixed mortgage rates, its actions have pushed them significantly higher.
The Federal Reserve is likely to continue raising interest rates, which could result in additional mortgage rate increases. On the other hand, if the Fed's actions result in a recession, mortgage interest rates could fall. Therefore, it is nearly impossible to predict the future of mortgage rates in 2023.
As a borrower, it makes little sense to attempt rate timing in this market. Regardless of current interest rates, our best recommendation is to purchase a home when you are financially ready and can afford it. Remember that you are not forever bound to your mortgage rate. If interest rates drop significantly, homeowners can refinance to save money at a later date.
Rising rates make homes more expensive for buyers, and, for prospective borrowers, steeper monthly mortgage payments. It will thereby reduce the demand for home purchases. Mortgage credit availability decreased in December according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) that analyzes data from ICE Mortgage Technology.
The MCAI fell by 0.1 percent to 103.3 in December. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI decreased by 0.1 percent, while the Government MCAI decreased by 0.1 percent. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.2 percent, and the Conforming MCAI was unchanged.
The competition for housing results in fewer options, higher prices, and faster sales. In a seller's housing market, there are more interested buyers than available homes and that makes it difficult time to buy a house, especially for first-time buyers. According to the NAR, the national median price for existing homes sold in October was $366,900, which is slightly lower than November's median price but still up 2.3 percent compared to December 2021. This is the longest streak of year-over-year growth ever recorded, spanning 130 months.
“Home prices nationwide are still positive, though mildly,” Yun added. “Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”
Is it a Good Time to Buy a House for First-Time Buyers?
According to a recent Fannie Mae survey, many consumers were hesitant to buy a home in December 2022. About 51% of survey respondents expect mortgage rates to increase, and there are rising concerns about job stability and escalating housing prices. Some homebuyers will find the current market conditions easier, while others will find them more difficult to buy a house. The current upward trend in home prices is likely to continue throughout the year, which could price out some prospective buyers.
However, it is anticipated that prices will continue to rise at a slower rate in 2023. The percentage of respondents who say home prices will go up in 2023 (in the next 12 months) remained unchanged at 30% in December. The current lack of entry-level supply and the rapid increase in mortgage rates appear to be negatively impacting potential first-time homebuyers in particular, as evidenced by the larger proportion of younger respondents (aged 18 to 34 years old) who believe it is a bad time to buy a house. The advantage of the historically low mortgage rate environment of 2020 and 2021 appears to have diminished for first-time homebuyers, and affordability is projected to become an even greater constraint for them in the future.
In December 2022, first-time buyers were responsible for 31% of sales, up from 28% in November and 30% in December 2021. According to NAR, the annual share of first-time buyers was 34% in 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in December, up from 14% in November but down from 17% in December 2021.
In 2022, rising mortgage rates were piled onto record-breaking home prices, locking even more potential buyers out of the red-hot housing market. Historically, rising interest rates cause more prospective buyers to delay purchases, and the recent increase in financing terms has already resulted in a decline in mortgage applications.
The prices are not going to crash in 2023. The various forecasts from experts show that 2023 will remain a moderate housing market, and home values are estimated to either remain flat or increase by single-digit percentage points. While affordability concerns continue to grow, low mortgage rates, increased savings, and a strengthening job market all contribute to making homeownership more accessible to a wide number of prospective buyers.
Realtor.com’s November 2022 housing data shows that the housing market continued to cool, with inventory, time on the market, and listing price growth falling below 10% for the first time in a year. This gradually cooling market is advantageous for homebuyers because they may have more options and more time to make a purchase decision.
The slight increase in the year-over-year decline in pending home inventory compared to the previous month may indicate that the market is stabilizing after pending listing declines worsened for 11 consecutive months. In the coming months, the housing market will continue to be influenced by the direction of inflation, mortgage rates, and overall economic growth.
The national median list price declined to $400,000 in December, down from a record high of $449,000 in June (-11.1%). This represents a yearly growth rate of 8.4%, which is lower than last month’s growth rate of 11.0%. This is the first time that listing price growth has fallen below double digits since December 2021.
There were 54.7% more homes for sale in December compared to the same time in 2021. This means that there were 244,000 more homes available to buy this past month compared to one year ago. While the number of homes for sale is increasing, it is still 38.2% lower than it was before the pandemic from 2017 to 2019. This means that there are still fewer homes available to buy on a typical day than there were a few years ago.
Housing Markets that saw the largest year-over-year increase in listing prices in December:
- Milwaukee, where the median listing price grew by +46.2%
- Memphis, where the median listing price grew by +34.0%
- Miami, where the median listing price grew by +20.4%
Housing Markets that saw the greatest increase in their share of price reductions compared to last year:
- Phoenix (+17.3 percentage points)
- Austin (+15.5 percentage points)
- Tampa (+15.3 percentage points)
Conclusion: The Best Time To Buy A Home Depends On You
Higher interest rates pose a challenge to existing homeowners looking to buy a new home at the same time as selling their current home. Existing homeowners may benefit from lower interest rates than those offered right now because they already have mortgages. Their monthly expenses could rise dramatically as a result of the purchase of a new property.
In other words, if you don't have a specific date in mind for when you want to buy a new property, you may be better off waiting till it does. Every potential buyer's best time to buy a property is different, and the greatest time to buy a house is not the same for everyone. It’s essential to consider your financial situation and understand how buying will impact your bottom line each month.
For many first-time homebuyers, it doesn't matter if loan rates are too high, if there aren't enough homes available, or if you don't have enough money in the bank. When the time is right to purchase a home, the time is right. First-time buyers can accomplish the American Dream of homeownership without a 20% down payment. The government offers several mortgage schemes with minimal or no down payment, as well as down payment assistance programs.