It’s been tough out there for first-time homebuyers.
First, they must make a down payment of at least 3% of the sale price of a home. That equates to $11,760 of the national average selling price of $392,000 for a home in America.
Once they secure funding, they need to set current interest rates, with the first hikes in years being driven by Federal Reserve measures to curb inflation. And while interest rates are historically low in the 4-5% range, after years in the 3% range, they’re a bitter pill.
Often hampered by low supply, finding a home they like has been difficult for the last two years, especially if they are in a metropolitan area.
When they find something they want, bidding wars often ensue, and other buyers with cash offers are likely to win any battle over a home’s selling price.
It brings them back to where they started and makes them wonder: Is it always this hard? Is now even a good time to buy a home?
The answer to that varies depending on who you ask, what you’re looking for—and how quickly you need it.
Here’s what the experts are saying about buying a home right now
Dion McNeeley, a real estate investor who got into the market after the Great Recession and has since recovered $2 million on his investments, said that despite the market slump, now is a smart time to buy a home (but he’s not speaking as someone). who intends to live in the house).
“‘It’s always a good day to buy a lot. Point. Always,” he told TheStreet.
“When prices go up, you gain equity. When prices go down, you pay less tax,” he said. “I don’t care if my assets lose value. Rents are important to us. And I’ve never seen them go down in my life. Not even after 2008.”
Other market watchers said it really depends on your situation.
Kayla Bruun, an economic analyst at decision intelligence firm Morning Consult, told TheStreet that the data shows many people are pulling back while waiting for the market to cool down.
“The Morning Consult Consumer Sentiment Index has fallen in recent months, and much of that is due to the falling proportion of consumers saying now is a good time to make major purchases, which would include a home,” Bruun said .
But there are still plenty of people who need a home and are willing to take the leap from renting to buying, and they probably won’t be deterred by a few rising interest rates.
“You’re not going to get as much compared to a few months ago when borrowing costs were lower and prices were maybe even a little below where they are now, but it’s all relative,” Bruun said.
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“Whether it’s a good time to buy a home can really depend on a person’s situation at that point, including their specific needs and the alternatives.”
How is inflation affecting home buying?
Potential buyers should also not be too scared off by the current inflation rate of 8.5%, which has many people wondering whether they should wait before making such a large purchase.
“Inflation is your friend when you own value-added assets,” McNeeley said. “I made over $600,000 in net worth in 2021. Just because I owned real estate.”
Bruun also said that while inflation may be high now and the market will see dips and corrections, real estate will ultimately appreciate in value.
“Land is limited and prices go up in the long run,” Bruun told TheStreet. “There [are] Opportunity costs must also be taken into account.”
Are we in a real estate bubble?
But many investors, economists, realtors, and homebuyers disagree on whether or not we’re in a real estate bubble.
You can read a deeper dive into it here.
Technically, a housing bubble means that the homes on the market are overpriced, which means a price correction is inevitable and the market will eventually revert to more affordable options.
Bruun said that’s not happening now.
Instead, buyers are faced with a major supply shortage, either of new homes or homes that are not coming to market.
Bruun said that data from Morning Consult over the past year has shown that many more adults are trying to buy homes than plan to sell them over the next 12 months, leading to a kind of overseller market.
“There are real factors underpinning this demand, including demographics [like] Millennials starting families and wanting more space, and pandemic-related lifestyle changes [like] Remote working allows for geographic flexibility,” Bruun said.
McNeeley criticized that the offer was the main culprit for the overheated housing market.
“Offer is what a lot of people say, but that’s inaccurate. We had over six million transactions in 2021, which means the supply was there,” he told TheStreet. “Demand is the problem, with record wage inflation. People can pay more.”
He added that there are other unprecedented economic developments that many economists and other experts may not have explored.
“We have the highest ‘consumer confidence’ we’ve ever seen in my life. For decades people thought they would lose their house if we weren’t allowed to work,” he said. “But that turned out to be wrong. We had a pandemic. A real country closed.”
“What got us: A moratorium on evictions. Stimulus. Unemployment, extended and extra. Indulgence. With the missed payments being added at the end of the mortgage or the lenders offering a 40-year mortgage,” McNeeley said.
This longer lifeline for homeowners means more people than ever can stay in their homes, which has limited the number of homes available for purchase.
Should you wait for more supply before buying?
Bringing more inventory to market is probably one of the most important things that will bring home prices back to affordable levels.
But how do you persuade builders, who fear supply chain delays and rising inflation, to build more homes? Or entice longtime homeowners to put their homes on the market?
Bruun said strong demand and limited supply are driving house prices higher, but so is a tight labor market.
“That plus bottlenecks in new construction, which means it takes longer to deliver new homes and pressures builders to charge higher prices for new homes to cover their construction costs,” Bruun said.
So what can be done to bring more inventory to market? Perhaps sad for first-time buyers that will likely bring higher property prices, making it worthwhile to build for investors and builders.
There are signs of this beginning, although it is still in its infancy.
“Permits and housing starts have increased, so inventory will increase across the board,” Bruun said.
“Supply chain disruptions and a tight labor market are holding back the pace of completions, so easing restrictions on materials and labor could help expedite deliveries and expand the housing stock a little sooner.”