Buy Now or Later? Market Trend Analysis
Buy Now or Later? Market Trend Analysis
Let’s face it; the current housing market favors the seller and coming up against it requires grit and determination. Prices soar, prices drop, interest rates peak, and then might have a short downturn before they shoot up even higher. Houses you would consider looking at are over-priced and houses you love sell before you can get a tour! So feeling defeated, you decide to wait it out. You wait for stability, lower prices, more housing options, and lower interest; meanwhile, all of this waiting gives you time to build up your savings account.
You have convinced yourself that waiting will bring you more options, lower prices, lower interest, and overall stability compared to the market now. Have you considered whether this waiting game is truly credible? Granted, waiting has given you some time to build up more savings, but if the interest rates continue to climb, those savings will be quickly eaten away by the compounding interest accrued on your debts, not to mention the increases in other everyday costs such as groceries, gas, insurance, utilities, and tax. If you feel a bit unnerved considering the instability of the present housing market then consider what these experts have to say about the current market and what trends they predict over the next 18 months.
Interest Rates Through 2024
CBS MoneyWatch has reason to believe that interest rates will begin to decline in late 2023 through 2024. A May rate hike was accompanied by some information that leads analysts to believe that the increases may be coming to an end due to the weakening economy. The Fed made promises to evaluate whether future increases are prudent. Mark Fleming, the Chief Economist at the First American Financial Corp, states that even if rates continue to rise through the end of 2023, he believes that 2024 will bring more financial stability. Unfortunately, this does not mean that rates will drop. Mark refers to the low pre-pandemic rates as “yesteryear” and suggests that the current buyer should expect to pay approximately 6% interest as the new normal. Adam Sharif, CEO of nxtCRE for commercial realtors, agrees and concludes that a 6% interest rate is average based on an evaluation of the U.S. housing market and that buyers should not anticipate any significant drop in interest rates through upcoming years. CNBC Make It calculates that a 1% drop in interest rates could save the average buyer approximately $200 per month on their 30-year loan. Waiting for lower interest rates can be very tempting, but unfortunately, analysts don’t expect rates to fall significantly. Instead of waiting around for the interest rates to plummet, experts suggest making the purchase now and refinancing later if there is an unexpected drop in rates.
House Prices and Trends
Fortunately, there appears to be hope on the horizon for those that are waiting on housing prices to drop. Although the decrease is expected to be moderate, this will help to balance out the impact of rising interest rates. The housing market, which is currently booming, is expected to slow down to a more moderate pace as buyers continue to be overwhelmed by the affordability challenges and demand, according to Norada Investments. This means that the demand will gradually decrease for existing homes due to overall affordability as new construction recovers from the pandemic shortages. Norada estimates that although the market will gradually recover from the traumatic effects of the Covid years, it will take until at least 2030 to truly recover the skilled labor, materials, and land assets to reduce the high demand for homes. That being said, although there will be valid reasons for the cost of homes to decline, the decline will not reach its full potential due to ongoing demand. Prices in 2024 are not expected to drop dramatically, but they are predicted to remain flat (at the worst) or experience a small percentage of decline.
More Housing Options in 2024
New construction was severely stunted by the Covid years. Labor was hard to find, supply costs were through the roof, and many county offices were marginally staffed with incredible backlogs in permitting and inspection requests. Norada Investments predicts that the very high ongoing demand for housing combined with the affordability problems created by a higher interest rate and flat prices means that more families will be purchasing intergenerational homes by combining both their family tree and income. This will help to reduce some of the demand because purchases will be made jointly with siblings, parents, extended family, friends, or grown children. Zillow estimates that 19% of home buyers in 2023 will be co-buying a home to ease costs and many of these buyers are also choosing to rent out portions of their homes to attain additional income. Unfortunately, the market is not predicted to offer an uptick in available homes to purchase due to the rising interest rates, and although new construction has increased by 50% since 2020, the market demand is still gradually growing for new homes. There are many new homes still sitting on the market which reduces the incentive for builders to continue offering new products. However, the upside is that you might be able to get a discount on a home that hasn’t sold well due to the lack of demand.
To sum up these options, consider the following: If you are seeking to purchase a home for a large multi-generational family, know that builders and remodelers are building with you in mind! Expect to see more homes on the market that are built to share. If you wish to buy new construction, you might have limited options unless you are willing to purchase a home that was already designed and built, but not sold. Custom-built homes are not the rage in this current market and many builders are trying to offload their existing homes instead of focusing on up-and-coming designs. If you are seeking to buy a home that has been pre-loved, you will have more trouble gathering options due to ongoing low inventory caused by rising rates and reduced sales prices.
Is Waiting Really The Best Solution?
For some, waiting on the market to stabilize is the best option for their family. They would rather take their chances in the next calendar year with lower costs and average interest rates, although demand will still be high. For some, taking the extra year to get finances in order will allow them to improve their credit scores, pay off existing debts, and increase their savings to pay down on their new home. These are all good reasons to delay a purchase.
Those who are simply afraid of the instability of the housing market will not find much comfort in the next year. The interest rates should potentially stabilize, but they won’t be going down as many hope. Even if the rate does make a small decline, the monthly savings might amount to only $200 per month based on the average purchase price. Home prices might drop some over the next year, but the difference will not be dramatic because demand will not decrease substantially in most markets. Based on the analysis of many professionals, if you are in a position to purchase a home but are waiting out the market, it is better to take a deep breath, consult a realtor, and take the plunge! Although the demand is high, you CAN get the right home if you are aggressive and willing to get your finances in order upfront, create attractive offers, and keep a close eye on the ever-changing market.