Buying a home is a big step in anyone’s life. Whether you are considering your first home, moving to a new place, or changing up your residence, purchasing a new home can be stressful and expensive. Picking the right time to take the leap can be a challenge. After all, what if a better home comes available next week or something changes in your personal life? However, sometimes the climate is particularly well-suited to buying a home – and that time is now.
Read on for our top reasons why you shouldn’t wait to buy a home in 2017.
1. Interest Rates are on the Rise
The first thing you need to know is that interest rates are rising. In June, the Federal Reserve announced its third short-term interest rate hike in six months. USA Today interviewed three economists after the increase. The each said that they expect interest rates to increase by another quarter-point before the end of the year – making for a full percentage point increase in 12 months. Right now, 30-year fixed mortgage interest rates are close to a seven-month low – buoyed by weaker central banks abroad – but the low prices will not hold. “Fixed-rate mortgage rates are likely to gradually edge higher over the next six to 12 months,” explains CoreLogic chief economist Frank Nothaft, “Rates are likely to rise to 4.25 percent to 4.50 percent by the end of 2017” – and that is only the beginning. Chief economist for the Mortgage Bankers Association, Mike Fratantoni, is estimating that 30-year rates will be over 5 percent before the end of 2018.
Nothaft put the mortgage rate increases into perspective: “For example, with fixed-rate loan rates up by 0.5 [percentage point] since last summer, and house prices in national indexes up at least 5 percnet, the monthly principal and interest payment is more than 10 percent higher than it was last summer, adding to affordability challenges for first-time buyers.”
2. The Federal Reserve Takes Action
But wait. There’s more. The Federal Reserve is not only increasing interest rates. It is also divesting many of its mortgage-backed securities. “During the financial crisis, the Fed lowered short-term rates to zero. In an effort to further stimulate the economy by lowering long-term interest rates, such as mortgage rates, it began buying mortgage-backed securities. Higher demand raises bond prices, resulting in lower yields,” writes USA Today. “The Fed now holds more than $1.7 trillion in mortgage-backed securities, about one-third of all those outstanding.”
By selling off some of its portfolio, the Fed can get back to business as usual. This might streamline things for the Federal Reserve but it could spell trouble for home buyers. When the Fed adjusts its balance sheet like this, it puts pressure on mortgage rates. This action could push interest rates higher even if the Fed makes only minimal hikes going forward.
3. Home Inventories are Shrinking
There is also an issue with regard to home inventories. As of November 2016, there were almost 1.9 million homes for sale (1.85 to be exact). It might sound like a lot but that is almost 10 percent fewer homes than the year before. Moreover, the decrease in home inventories is not a blip. The number of homes for sale in the United States has been on a steady decline since the housing bubble burst so many years ago – and it looks as though the decrease will continue.
“Real estate experts predict that inventory will continue to shrink, at least for the foreseeable future. That means that in most areas of the country, buyers have more homes to choose from today than they will next year. Or even next month” says Realtor. “Bottom line: Every day you wait to start looking for a new home, you face stiffer competition for fewer homes.”
4. Home Prices are Increasing
This leads to the next issue – home prices are on the rise. “We are at a very, very unusual and historic time again… if you recall, we were in a historic time when prices were falling and rates were falling and we had a lot of inventory, and so buyers sort of had their pick of the litter, right?” says Chicago Association of Realtors president Matt Silver. “Now it’s the exact opposite.” With more competition for homes, it becomes a seller’s market. While it’s impossible to predict just how high home prices will go, Charles Nathanson of Kellogg School of Management says that when prices start to rise in a given year, they usually continue to rise the next year by an average of 70 percent or so of the amount they rose in the previous year.
5. Missed Opportunities
It costs money to buy a home. In addition to your new mortgage payment, you have closing costs, home insurance, maintenance and real estate taxes to consider – and that’s after the down payment – but the cost of postponing buying a home can be even steeper. Realtor economist Jonathan Smoke says that waiting just one year will cost you almost $19,000 between rising mortgage rates and increase in home prices. Over three years, that benefit is just under $55,000. Now, put this cost over 30 years and compound it and the financial benefit of buying a home today is over $217,000.
With the Federal Reserve’s current agenda, shrinking home inventories, and rising real estate prices, there is a huge cost of missed opportunities when you postpone buying a home. So, what are you waiting on? Ovation Credit Services can help make sure your credit report is mortgage ready. Contact us today for a free consultation.
Bundrick, Hal, “What the Latest Fed Rate Hike Means for Mortgage Rates,” USA Today, June 14, 2017. [Accessed: https://www.usatoday.com/story/money/personalfinance/2017/06/14/nerdwallet-mortgage-rates-fed-rate-hike-home-buyers-sellers/397475001/]
Gordon, Lisa, “3 Crucial Reasons You Should Buy a Home Before 2017 Ends,” Realtor, January 23, 2017. [Accessed: http://www.realtor.com/advice/buy/reasons-buy-a-home-2017/]
McGuire, Nneka, “Should You Buy a Home in 2017? Here’s What 3 Experts Say,” Chicago Tribune, May 24, 2017. [Accessed: http://www.chicagotribune.com/classified/realestate/ct-re-0528-experts-say-buy-now-20170525-story.html]
Stults, Rachel, “$217,726: That’s What You’ll Save (Give or Take) If You Buy a Home Now,” Realtor, May 28, 2015. [Accessed: http://www.realtor.com/news/trends/financial-benefit-buying-a-home-now/]