Buying a home is an exciting step in life, but it’s important to make sure you’re ready before becoming a homeowner. If you’re not, you could end up spending a lot more money than you planned.
With inventory shortages in many markets and mortgage rates still high, among other things, now might not be the time to buy a house. While it ultimately depends on you and your finances, here are some reasons why you might want to hold off for another year or so before purchasing real estate.
Interest Rates Are Still High
The current average interest rate on a 30-year fixed-rate mortgage is 6.62%. This isn’t a major change from this time last year, but rates are still much higher than they were before the pandemic.
Some real estate experts expect rates to drop in the future months or years. However, there’s no telling when — or if — that will happen, or by how much.
“Despite the directionally positive comments from the Fed, and expectations that it is done raising rates and will begin cutting interest rates in the back half of 2024, interest rates will remain high throughout 2024 and into 2025,” predicted Joe Salerno, co-founder and chief investment officer at Yardsworth, an LA-based home equity alternative.
Salerno said interest rates could drop by another half-percent by the end of 2024. However, he expects they’ll still be in the 6% range throughout the rest of the year.
Since even half a percent can make a major difference in the cost of financing a home, you might be better off waiting until rates drop a little before entering the market.
The Cost of Real Estate Has Skyrocketed
Not only do high interest rates make it harder to afford a home right now, but housing prices are still high. The average sales price of a residential home in the U.S. is currently $513,400. A decade ago, that number hovered around $324,400.
Unfortunately, individual incomes haven’t kept up with these inflated prices. And with current economic and market conditions, affordability is a major concern for many potential buyers.
“Many buyers still find that their purchasing power has been curtailed by the combination of higher rates, albeit lower than they were a few months ago, as well as historically high home prices,” said Ari Harkov, licensed associate real estate broker at Brown Harris Stevens. “While prices are no longer rising at a breakneck pace, they have yet to fall in most markets across the country either.”
While some buyers can still reasonably afford to buy a home, others might want to wait until they have a larger down payment. Or they may want to look into a less expensive area.
Increased Competition Could Lead to Consistently High Prices
If interest rates drop, more buyers could swarm the market, leading to higher prices.
“I expect more competition in the 2nd and 3rd quarters of 2024, which means prices will probably stay hot,” said Lindsey Harn, an agent at Christie’s International Real Estate. “You will have to pay higher prices and maybe a higher interest rate than you would have in 2022. There could be competing offers, which can get tiring and frustrating.”
Marisa Simonetti, a real estate investor with Simonetti Real Estate Team, added: “The biggest disadvantage of lower rates in 2024 is that many other buyers will likely enter the market, causing increased competition.”
On the other hand, if there’s enough housing inventory to go around, the market could balance out.
Investors Are Also Still Driving Up Prices
Real estate has long been considered a solid investment. The downside of this is that there are still many investors on the market. These investors — particularly those paying in cash — can increase housing prices and cut out the average buyer.
“Cash buyers can drive up prices, as their ability to consummate transactions quickly makes them more attractive to sellers,” said Matt Dunbar, SVP of Southeast Region at Churchill Mortgage.
While the prevalence of investors might make real estate a touch too expensive right now, Dunbar predicted that this could change in the near future. As individual and institutional investors reevaluate their risk levels and portfolios, some of them might pull back from the real estate market. If this occurs, it might become easier for individuals to purchase homes.
Renting May Be Cheaper
Rent prices have also risen over the years. According to RentCafe, the typical rent for an 879-square-foot apartment is $1,702.
That being said, interest rates and other economic factors could make renting a more affordable alternative to buying right now.
“While rents are still close to historical highs, the rent vs. buy equation right now often tips towards renting for many prospective purchasers or renters in markets across the country,” said Harkov. This is due to a combination of housing prices, rates, and the ongoing costs of homeownership.
Inventory Is Limited and It’s Still a Seller’s Market
Housing inventory is still limited in many areas. Not only can this drive up prices and competition, but it makes for a seller’s market.
“Right now, limited inventory is keeping home prices high, and as stated, lower interest rates will further solidify a seller’s market,” said Chris Allard, mortgage broker at Chris Allard Mortgage Team. “Overall, it is costly to buy property right now, which means people have to put more money into housing costs, leaving less liquid funds for other parts of their budget.”
This doesn’t necessarily mean that it’s impossible to purchase a home right now — but you’ll need to consider your budget, situation, and goals first.
Election Year Could Bring the Unknown
It’s election year, and with that brings a lot of uncertainty in what’s to come. While this doesn’t necessarily mean it’s financially unwise to purchase property, there could be unexpected fluctuations in the real estate market.
If you’re thinking about buying a home in 2024, consider your long-term plan and timeline. This can make a major difference in whether now’s a good time to make the move.
“If you plan to stay in the property for 10 to 15 years, there should be no hesitation as the market always corrects itself,” said Maryanne Elsaesser, a broker/agent at Compass Real Estate. “If your plan is one to five years, it could be a little riskier should the market correct itself in a downward fashion.”
Elsaesser also suggested working with a reputable real estate agent who can help mitigate risk. And if you think you’re going to move within a few years of buying, look into areas that won’t be as impacted by dips in the housing market.
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This article originally appeared on GOBankingRates.com: Housing Market 2024: 7 Reasons It’s Too Expensive To Buy a Home Right Now