Rising Costs: Is Now A Good Time To Buy A House?

Updated: Jul 19, 2022

2022 brought in higher mortgage rates disrupting the home buying market nationwide. So, we answer this question: “Rising Costs: Is Now A Good Time To Buy A House?”

KEY TAKEAWAYS

A debate is occurring amongst experts about rising interest rates and home prices making it a bad time to buy a house.
The Washington Post in a recent story advises not to buy.
A university in Denver says buy now.
Forbes suggests that some situations favor buying now and others to wait.
We offer three tips to save time and money for those wanting to buy now.

Some Experts Say Don’t Buy Now

Rising Costs: Is Now A Good Time To Buy A House?

The Washington Post on July 13, 2022, declared: “For many Americans, higher mortgage rates make this a terrible time to buy a house.”

Is this true? Maybe, yet different factors determine whether this applies to you.

The Post points out that rising interest rates and high inflation work together to make home buying a risky investment. Also, last “June inflation soared 9.1%, a new 40-year high, amid high gas prices”.

So, we are currently in high inflation with high-interest rates making mortgages more costly and difficult to qualify for.

That’s why the Washington Post recommends not buying a home “right now”.

Our broker recently published a post about the rising mortgage rates and how they will affect the housing market: “Rising Interest Rates: What It Means For Real Estate Market?” You will learn how to navigate this challenging market.

Other Experts Say Go Ahead and Buy Now

The Metropolitan State University of Denver (MSUD) recommends that “In the long run, buying a home will always be a winning decision.” Why?

MSUD uses a millennial with a young family as an example. If this family has enough funds to buy a first-family home and qualifies for a mortgage, they should buy now. Although the mortgage rates are higher expecting them to rise again so locking down the lower rate makes sense. Especially if the alternative is renting. Expect rental rates to rise too. Thus, they will get more for their money by buying.

Looking ahead for the long term allows the family to ride out blips in the market. Thus, when they sell later down the road, they will make more money than renting.

In conclusion, MSUD reasons that houses are predictable, solid, and most dependable investments.

Forbes Offers Pros and Cons If Now Is A Good Time To Buy A House

Forbes in a March 25, 2022 article looked at the “Pros and Cons Of Buying in the Current Market.”. Asking the question if first-time home buyers should buy a home in a time of rising inflation. Here are their Pros and Cons.

Pro: The Case for Buying a Home Now

With high inflation expect rents to rise too. Mortgages are predictable as you can lock them in for 30 years. However, rents can rise every year or when a lease renews.

Look at home buying as a hedge against inflation.

Homeowners generally enjoy a net worth much higher than renters. Even starting with a small home begins a path to building wealth. This gets accomplished by:

Appreciation – Your net worth increases as the value of your home increases;
Build equity over paying rent – Every mortgage payment you make builds more equity in your home. Unless a major housing crash occurs, your equity grows every month. Paying monthly rent only makes your landlord wealthier;
Deduct mortgage interest – The tax benefits of deducting your mortgage interest payments along with property taxes outweigh paying rent. Reducing your tax liability gives you more money to retire and for emergencies; and
Rising prices - Consider that in February 2022 home prices were up by 14% from a year ago. Don’t expect home prices to go down in the remainder of 2022.

You need to start somewhere to go where you want to go when you retire.

Buy what you can afford. Don’t get carried away with your dream house you can’t afford today. Start small, build your equity, and sell later during a hot housing market. Use your future profits to buy your dream home.

Find your sweet spot. Work with a Realtor to seek a balance between your ideal dream home and your first home in price, size, neighborhood, and features.

Con: What about Rising Interest Rates?

Forbes claims that experts agree that despite recent interest rate increases as long as they stay below 4%, it's alright to buy.

As of July 18, 2022, the median rate for a fixed 30-year mortgage is 5.85%.

Yet, Forbes compared the interest rates from the 1970s to 2022 and concluded the interest rates are low compared to the last 50 years even at 5.85%.

rising interests - rising rates - mortgage

Consider Buying a Home Now Under These Conditions

Forbes suggests looking at the following factors to decide if now is a good time to buy a home:

Your mortgage payments are less than rent – Do the math to see if renting or buying now makes sense. Use a free online buy vs. rent calculator to crunch the numbers;
You got a mortgage pre-approval – Getting a lender or mortgage broker to calculate your income, debts, credit score, and other factors to determine how much of a mortgage you qualify for. This tells you how much you can afford to buy a home;
You have your down payment saved up – Again, do the math to see how much you can put down on your home purchase, and its in cash or your bank; and
Be patient – You might put in several offers before having one accepted. Don’t feel pressured or rushed. Don’t end up overspending.

Learn about pre-approved mortgage letters in our post here titled: “Is It Hard To Get Pre-Approved For A Mortgage?”.

Consider Waiting to Buy a Home Under These Conditions

Forbes also suggests waiting under these conditions:

You don’t have a sufficient down payment – Wait until you have enough for a sufficient down payment;
Renting is a better deal than buying – If renting saves you more money than buying, save the difference every month to build up a good down payment;
You need more time to improve your finances – Pay down your debt, boost your credit score, and build up your savings for emergencies. These will help you get a better interest rate; and
You are too stressed out by buying and owning a home – Worrying about paying too high a price and making monthly mortgage payments? If so, wait until you feel better about home ownership.

Ready to Buy a Home Now?

If after following the suggestions above and crunching the numbers do you feel ready to buy a home in the current market?

Consider the following tips to help find your ideal home at an affordable price.

1. Do Your Research While Knowing Your Limits

Research the local market in the vicinity you want to buy in. Knowing your price range makes it easier to get a pre-approved mortgage for that price range. This will make your home search easier.

Don’t get over your head and waste time seeking and visiting homes you can’t afford.

Pre-approved mortgage letter impresses sellers who don’t want to waste time with unqualified buyers.

Online research saves you time. It shows you the current market for the type of home, age, size, number of bedrooms/baths, location, and features you want.

Using a Realtor saves you more time and could save you money. Experienced local Realtors know the market and can find ideal listings based on your wants and needs faster than you can on your own.

2. Look at Emerging Neighborhoods

Up-and-coming neighborhoods are more affordable than the “hot” ones. Consider broadening your search from the most popular “hot” vicinities attracting more buyers to compete against and driving the listed prices higher.

Avoid getting into a bidding war. Read about how to win a home bidding war.

Also, read about the advantages of up-and-coming neighborhoods and how to find them.

3. Become Flexible with Home Type

Sure, some architecturally designed homes or period pieces are popular. Yet, putting your heart into owning a Tudor or a historical classic home may cost you more than your think. Upkeep on older homes can turn a dream home into a money pit.

Flexibility with the type of home you are willing to buy gives you more opportunities.

Buying a lesser popular style home may still function well for you and your family. If you buy a small home with room to expand it can grow as your family does too.

Maybe single-family homes get multiple offers? If so, consider townhomes and condos. Read our informative post: “Should I Purchase a Condo or a Home?”

If this is your first home, you may consider starting small to build your equity for a larger single-family home when your growing family needs one.

Don’t forget, your first home won’t be your last. Building equity over time and waiting for a buyer’s market for reduced prices may make you happier.