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It’s a Tough Housing Market. Home Buyers Shouldn’t Wait for It to Get Better.


For many Americans, house hunting has rarely been this unpleasant. Prices are high. Inventory is scarce. And mortgage rates are more than double what they were just two years ago.

Even though the economy continues to run hotter than expected, forecasters still predict that the Federal Reserve will cut interest rates later this year, pressuring mortgage rates lower.

So is it better to buy now or put off a purchase in hopes of getting a better deal later? We argue you should hold your nose and jump in.

Yes, present conditions are far from ideal. But the factors that have been driving up home prices nationwide are likely to persist. Millions of millennials are forming families and looking to buy homes. Unemployment remains low amid strong economic growth. Construction of new homes in the U.S. has failed to keep up with demand. And homeowners who locked in low mortgage rates during the pandemic are staying put, reducing the number of houses for sale. Nearly 80% of U.S. homeowners with mortgages have rates below 5%, according to Redfin. “You’re not moving unless you have to move,” says Paul Karger, co-founder of TwinFocus, a wealth management firm in Boston.

Data on home sales reflect these trends. Last year, existing-home sales, which make up most of the market, fell to the lowest level in nearly 30 years, while the median price reached a record high of $389,800, according to the National Association of Realtors. “Inventory is not bountiful by any means,” says Philip White, president and CEO of Sotheby’s International Realty.

One part of the equation that has already improved is mortgage rates. The average rate on a 30-year mortgage was 6.6% as of Feb. 1, down from a 2023 high of 7.8%, and Fannie Mae’s Economic and Strategic Research Group expects mortgage rates to decline further, potentially ending the year below 6%. Of course, forecasts differ. The Mortgage Bankers Association projects a 6.1% rate at year’s end. Either way, they aren’t getting back to 3% anytime soon.

Depending on how far they fall, lower rates could bring some potential buyers and sellers off the sidelines. But don’t expect a big shift.

“Even at less than 6%, we think rates will still have a significant way to go in order to meaningfully reduce the ‘lock-in effect’ experienced by homeowners who refinanced or bought during the pandemic,” says Doug Duncan, Fannie Mae senior vice president and chief economist.

Plus, if mortgage rates fall, home prices likely would rise, which means there would be little improvement in affordability—another reason not to wait. The Fannie Mae analysts expect home prices to rise 3.2% this year, compared with 7.1% in 2023. So you may see lower rates later this year but also some modest price appreciation—meaning it could be a wash as far as your budget is concerned.

“My thesis is that if you wait around, prices are probably going to be higher,” says White. “So I think it’s not a bad time [to buy].”

Although mortgage rates are currently higher than they have been in recent years, they aren’t abnormally high on a historical basis.

“When I was young and my wife and I bought our first house [in 1992], the rate was 8.5%,” says Tim Guthrie, founder and chief investment office of Bullseye Investment Management in Cincinnati. He remembers thinking that was a great deal. “It was like, it’ll never be this low again,” he says.

Of course, there are local nuances when it comes to house hunting—Miami is pricier than Milwaukee, for example—and your current housing situation is an important consideration. Are you renting? If so, could your lease jump dramatically when it renews?

There are also lifestyle and life-stage factors at play. Perhaps you desperately need a shorter commute to work. Maybe you’ve amassed enough wealth that you feel you can afford a second home and are ready for a splurge. You might be able to afford to pay in cash, but don’t expect a bargain price. The strong stock market of the past year has created a so-called wealth effect, says White. “I think that helped the higher end of the market do somewhat better than the general market.”

Or perhaps you are expecting a newborn. Babies are small, but they come with a lot of accessories. Or maybe you’re a retiree looking to downsize. Keep in mind that because rates and prices may be higher today than when you purchased your existing home, your total costs could remain high even if you move to a smaller abode.

Weighing all these variables is hard enough without bringing interest-rate projections into the equation. You may be better off focusing on what you need and want in a home and what fits your budget today. If you purchase a home now and rates fall in a year or two, you can always refinance and reap the savings.

“Have a plan and take the emotion out of it,” says Nick Holeman, director of financial planning at Betterment. If purchasing the kind of home you want at today’s prices and rates isn’t in the cards, “then let’s figure out how to implement a plan to get you there,” he says.

Today’s home buyers can take some comfort that even during the years of rock-bottom rates, shoppers struggled to weigh current opportunities against future possibilities. “Even then, people were wondering, ‘Well, the mortgage rate is 3.25%. Will it fall to 3%?’ ” recalls advisor Chip Munn, CEO at Signature Wealth Group in Florence, S.C. His counsel to home buyers today is to evaluate the opportunity before crunching the numbers.

“Be mindful of getting what you want at the price you can afford,” he says. “That advice doesn’t change.”

This article originally appeared on Barron’s. Written by Andrew Welsch.

With their Multi-Cultural Background, over 50 years of combined experience selling Real Estate and because they are Licensed in New Jersey, New York and California, Rahul, Smitha and their team can offer global reach. They have lots of experience representing a diverse group of clients, from Local New Jersey Buyers & Sellers to Relocation and International/Foreign Buyers, Sellers and Investors. Rahul and Smitha are exceptionally well-respected Realtors in the industry with high ethical standards and GLOWING REVIEWS. Their team offers a high level of expertise, innovative technology and cutting-edge real estate marketing and sales solutions.  They specialize in Morris, Somerset, Essex and Union counties. | |

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