With rock-bottom mortgage interest rates, a scarcity of housing supply, and everyone wanting to migrate during the pandemic, it was a perfect storm that drove home sales to a 14-year high. And with the continuation of this trend, it was no surprise that new home sales reached 6.7 million in 2021, up 23 percent from the previous year.
So, if you missed out on homeownership in 2022, you may be wondering whether you should buy a property now? But, even if you could, should you, given the skyrocketing prices and senseless bidding wars?
Here's what the experts have to say — and what you should know if home buying is on your radar in the coming months of 2023.
Here's What the Experts Say About Buying a House Now
For many people the question is less, 'Is this the perfect time to buy?' and more, 'Is this the perfect time to buy for me?' However, there are still those that are concerned about a housing market bubble, and the subsequent pop that usually follows one. To answer that concern—our experts don't see a pop in our near future.
Reagan Williamson, Broker at Better Homes and Gardens HomeCity, advises that it's still a great time to buy (in Texas, at least). "The housing market may be cooling in some other parts of the country however, here in Texas, we are still experiencing record sales. Buying a house right now in Texas is a wise investment for the future." He continues, "Homes will continue to appreciate in a more aggressive and rapid manner, most likely outperforming the more traditional means of investing."
Is There a Housing Bubble, and Will It Pop?
There isn't an easy answer to this question, but there are factors you can look at to determine how stable the market is. Indicators that things aren't slowing down any time soon include job growth and population growth.
Williamson goes on to say, "Texas is on the map, businesses are moving to this state on a daily basis. Why? Housing and cost of living are still less than in many other major markets. Our weather is warmer and many new residents love the appeal of spending more time of the year in shorts and flip-flops!"
In other words, the more 'in demand' the location you're looking to purchase is, the more stable your investment will be.
Another thing to consider if you're concerned that rising prices are reflecting the crash back in 2007, is that real estate bubbles are actually very rare. The 2007 housing crisis happened because of a series of events and decisions that are not likely to occur today, such as the relaxation of lending standards, which have become much more strict in the years since.
After the crisis, several banks were fined huge amounts of money for their participation in lending fraud, so they’re not eager to repeat the same mistake any time soon.
Another thing to consider is that, because of these tightened restrictions, today's buyers are much more qualified for their home loans. There are much fewer instances of people buying homes they can't afford, as they were right before the 2007 crash. The state of our market is much more stable than back then, and demand is still outpacing supply, so a housing market crash is unlikely.
The Current Market Outlook for Homebuyers
The present market conditions are shifting, making it simpler for certain property buyers and more difficult for others. Here are some of the most important factors to consider regarding the current market outlook, especially for first-time home buyers.
1. Interest Rates Are Going Up
Interest rates fell to historic lows in 2021, making homeownership more appealing. To help battle inflation, the Federal Reserve is boosting interest rates for the first time in two years. In May 2022, the Federal Reserve raised interest rates by half a percentage point, the most in over 20 years.
Higher interest rates are never good news for borrowers since they represent a higher monthly mortgage payment. However, it's crucial to remember that these rising rates will still be lower than what many borrowers have locked in in the past.
2. Home Prices Will Likely Continue Rising
As a direct result of the coronavirus epidemic, mortgage rates fell in 2020. This propelled purchasers into the market and sparked a housing craze in areas like Texas, which was already experiencing population growth. However, with a limited supply in the state, the surge in demand caused prices to rise.
According to the Texas Realtors year in review report, months of inventory fell from 1.6 to 1.2 in 2021, and the average days on the market fell to 34, down 21 days from 2020. Because of the scarcity of housing, 21 of the state's 25 significant metros saw double-digit price hikes. The median price in the state grew to $300,000, up 15.7 percent from 2020. According to the report, the median price per square foot has risen 35.6 percent since 2017.
In 2023, it is no longer news that many potential homebuyers will be priced out of the market. Affordability is more likely to be a problem, which may lower demand in 2023, thereby bringing home buying rates back to more sustainable levels than before the pandemic.
3. It's Still A Seller's Market
Despite waning buyer confidence that now is an excellent time to buy a home, the number of families interested remains high. This is especially true for younger homeowners, many of whom are first-time buyers trying to save for a down payment as rents continue to rise to record highs.
Simultaneously, seller expectations for greater down payments appear to be rising, pushed by a still-competitive housing market and repeat purchasers with more equity. As a result, it's unlikely that the housing market will flip from a seller's to a buyer's market anytime soon.
According to the Texas Realtors year in review report, the months of inventory in the state of Texas fell from 1.6 to 1.2 in 2021, and the average days on the market fell to 34, down 21 days from 2020.
4. Credit Criteria Are Stringent
Although mortgage credit criteria have softened slightly since mid-2021, lender restrictions remain relatively tight. According to the Mortgage Bankers Association, mortgage loan availability was thirty percent lower in March than before the coronavirus outbreak. As a result, it may be more challenging to qualify for a mortgage due to decreased mortgage credit availability.
Is It A Good Time To Buy A House?
Rising housing prices make it difficult for people to buy, and most Americans believe that now is the time to wait. And, according to a new Gallup poll, only thirty percent of Americans say now is an excellent time to buy a property. Moreover, less than half of Americans thought it was a perfect time to buy for the first time.
People are worried about growing home costs, mortgage rates, and a restricted housing supply. Americans' poor perceptions of the present housing market may deter them from looking to buy, resulting in a decline in home sales. If this happens, it may lower the demand for houses and cause property values to fall.
Above all, no magic metric or forecast will tell you when it is an excellent time to buy a home. Regardless of home prices or interest rates, the most fantastic time to buy a house is when you are financially prepared. Don't allow friends, family, or internet "experts" to pressure you to make a decision you'll regret later.
If you're still interested in buying a home, especially in Texas, you should consider asking yourself the following questions to help you make the right home buying decision.
1. Are You Financially Prepared To Buy?
Making sure you're financially prepared to buy a house is one of the wisest things you can do before entering the market. The truth is that getting approved to become a homeowner necessitates a certain level of financial security. Furthermore, there are several fees associated with owning a property. So, before entering the market, be sure you're in good financial standing.
Mortgage lenders consider four major elements when determining whether or not a buyer is qualified to buy a home. They are as follows:
Two years' worth of W-2s, preferably from the same firm. This demonstrates that you have a steady source of income with which to repay the mortgage.
* A decent credit score. Mortgage lenders nowadays want a score of 540 or higher for FHA loans and 620 or higher for conventional loans.
* Low overall debt. To be eligible for a mortgage, you must have less than a 36 percent debt-to-income ratio. Add up all your monthly loan payments and divide the total by your entire monthly income to arrive at this figure.
* A savings account. To purchase a home, you'll need to make a down payment (3 to 20 percent of the purchase price) and pay closing charges (1 to 2 percent of the sale price). Make sure you have enough money saved to pay these expenses.
It's okay if you don't have all of these things in order yet. You might have to wait a little longer to be a homeowner. In the end, though, securing your finances will reward you handsomely.
2. Are You Ready To Settle Down?
Consider your life objectives, relationships, and interests. How long do you intend to stay in this location? In an ideal world, you'd stay in your house long enough for rising property values and your equity to outweigh the buying and selling expenditures, such as real estate commissions and mortgage closing costs. But unfortunately, this often takes several years.
If the home grows in value and you sell it within two years, you may be subject to capital gains taxes.
3. Do You Have A Rainy-Day Fund?
An emergency fund might help you get by if you cannot work or cover the cost of unanticipated needs. Most experts recommend having enough cash in a savings account to last three to six months — and homeowners may desire more.
Homes require care and repairs, especially older ones, and may require upgrades. Being able to buy a house without the funds to help with upkeep could put you in financial strain.
4. Are You Able To Make A Down Payment?
You may have heard that a down payment of 20 percent of the buying price is required to acquire a property. However, many lenders will accept down payments as low as three percent. In fact, according to Rocket Mortgage, the typical down payment in 2020 was six percent.
Bear in mind, however, that borrowers who put down less than 20 percent must pay private mortgage insurance. If you default, PMI prevents the lender from losing money. PMI is frequently added to your monthly mortgage payment and can cost anywhere from 0.5 percent to 2 percent of the loan amount.
Pros and Cons Of Buying in the Current Market
If you're on the fence about a home purchase in 2023, you should consider some advantages and disadvantages before getting your foot in the door of homeownership.
Why Should You Buy A House Now?
Rising prices result in more significant equity.
One of the primary advantages of having a home is that rising home equity can contribute to your net worth over time and provide you with a low-cost source of cash when needed. In addition, the opportunity to accumulate equity distinguishes homeownership from renting, which provides no return on investment.
Home buyers who buy now will likely witness rising property values and improved home equity. Moreover, because supply remains relatively low compared to buyer demand, property prices are expected to increase further.
Homeownership implies stable housing costs.
What's particularly appealing about using a fixed-rate mortgage to purchase a home is that, even if the value of your home rises, your monthly principal and interest payment will remain constant for the term of your loan.
Real estate ownership is still the most effective strategy to build generational wealth. However, when you combine this logic with the reality that rents are rising at an all-time high, it makes more financial sense to buy a property and build equity.
House prices are continuing to rise.
It could be quite long before the housing bubble explodes and what is currently a seller's market turns into a buyer's market. And with Zillow researchers releasing a revised forecast predicting that U.S. home prices would rise 14.9% between March 2022 and March 2023, the end is definitely not in sight. Even if a downward shift does occur, the issue of low inventories in several states in the US may remain unresolved.
Rents are increasing at an alarming rate.
While you may think renting a house may save you money in the short term compared to buying a home, monthly rent prices are at an all-time high. Not only do you have to spend more money on rents, you are missing out on building equity.
In fact, a recent study by RealPage shows that the typical rentals in the Dallas-Fort Worth area increased 18.7 percent over the previous year. Finding a property to rent in North Texas is becoming increasingly difficult, and it's difficult to see the situation improving anytime soon.
Why Should You Wait To Buy A House?
Housing prices are higher than ever.
According to the Federal Housing Finance Agency's House Price Index, property prices increased 18.5 percent over the previous year in the third quarter of 2021. That being said, housing prices have stayed fairly high since the start of 2022.
If you try to buy a home in 2023, you might end yourself with a bigger mortgage than you're used to. And while mortgage rates should remain relatively low into the new year, this may not be enough to offset increased prices.
Low inventory means less choice of homes.
Since the start of 2022, the housing market in the United States has been constantly faced with a depleted inventory. Unfortunately, things are unlikely to improve significantly by 2023, at least not in the first part of the year. Total housing inventory is still tight in Texas' four biggest metros. Both Austin and DFW remained below one month while Houston and San Antonio were slightly above.
Many sellers have delayed listing their houses because of the coronavirus pandemic and economic concerns. If new homes do not enter the market, prices will remain high, but you will also have a limited choice of homes. As a result, you may have to compromise on your desired features. Alternatively, it could force you to purchase a home that needs extensive renovations and repairs.
There is a great deal of ambiguity to contend with.
COVID variants and cases are still on the rise even with the introduction of several vaccines in the US. But while things are beginning to take shape (and hopefully) improve by the end of 2023, now may not be the best moment to make a significant financial commitment.
So far, there's no sign that extensive economic shutdowns will be undertaken to battle mounting COVID-19 variant cases, as was the case during the pandemic's early phases. However, that might change if circumstances worsen. And this could result in income loss, making homeownership even more difficult.
Your employment circumstances may change.
Because of the pandemic, many people are currently working remotely. Several major corporations had planned to return staff to the workplace in early 2022 but had to postpone those plans due to mounting cases and new variants.
You may not want to commit to buying a home until things settle back to normal. If it turns out that you'll be requested to report to a new location after workers return to the office, you may find yourself in a situation where you've agreed to a terrible commute and are stuck with it.
If you're in a great financial position to buy a home – say, you've saved a significant down payment and are confident in your work – you might want to proceed with plans to buy one in 2023. However, if you have reservations, delaying your purchase may be advantageous.
5 Tips For Buying a Home In the Current Market
For those looking to buy a house in today's seller's market, there is still much preparation to ensure you make an informed selection. Here are five pointers to help you find the home of your dreams:
1. Do Your Research and Know Your Limits
If you haven't gone through the mortgage pre-approval procedure, you may be in for a harsh shock when your dream home is out of your price range. However, you can avoid this heartbreak by analyzing your local market and determining your purchasing power before starting your property search.
You can utilize online real estate search engines to gain a good image of the market in the area where you wish to buy. Then, before you start looking, select a lender and get pre-approved for a mortgage.
Pre-approval will look at your overall financial picture and provide you with a loan limit that you may utilize to keep your housing search within your budget. Your real estate agent may require you to present your pre-approval letter with any offer you make in a competitive market.
2. Increase Your Earnest Money
If you're unfamiliar with the term, buyers are usually obliged to put down earnest money — also known as a good faith deposit — in the escrow process to demonstrate to the seller that they're serious about reaching a deal. Then, when escrow closes, the money is either used for your down payment or closing fees, or you can request a refund.
According to Chase, earnest money ranges from 1- 3 percent of the home's buying price in most markets. In addition, when numerous purchasers are interested in the same house, the seller may ask for a good faith deposit of up to ten percent of the purchase price.
Of course, you can also provide more earnest money than is required to make your offer stand out to the seller. If you don't have enough money right now, consider pausing your search until you have enough to put this tip into effect.
3. Make Your Best Offer First
According to the National Association of REALTORS, there were approximately five offers for every home sold in the United States in February 2022. As a result, it is critical to make your offer clear, strong, and concise.
When sellers have several offers to choose from, they typically do not want to deal with contingencies or minor details. Also, enter strong with your best offer because there may be no chance for you to raise it later. Another method to differentiate yourself is to provide the seller with more flexibility.
4. When You Like a Home, Move Quickly
Buying a home is likely the largest purchase you'll ever make, so taking your time and thinking about it makes sense. Unfortunately, however, you can't think about it for too long in this market.
According to Zillow, properties in the United States were on the market for 25 days in 2021. However, this is an average number, and the more desirable properties are typically snatched up much more quickly..
On that note, looking for properties that have been on the market for a while can help you save money. This is because home values fall the longer a home is on the market.
One trick is to ask your real estate agent to compile a list of properties you like that have been on the market for more than 40 days but less than 90 days. You may not have the cream of the crop to choose from, but you may find a diamond in the rough.
5. Choose An Experienced Agent
Hire a local real estate agent you can rely on who has a track record of success. When it comes to buying a home, you want an agent who is active and available 24 hours a day, seven days a week. In addition, look for a Realtor who will actively search for off-market listings.
A top-tier Realtor typically has an extensive network of broker contacts with whom they can share information about homes that are "coming soon" to the market. Again, this gives you an advantage over other potential purchasers.
There is no single ideal time to buy a property; the best moment for each prospective buyer will differ. Therefore, it is critical to assess your financial status and comprehend how purchasing may affect your monthly bottom line.
Are you ready to begin your home-buying journey in Texas? Then click here to find your perfect home in Texas.
