By various measures, the US housing market has reached unprecedented levels of unaffordability. The prevailing advice is for buyers to wait patiently, hoping for mortgage rates to decrease or prices to decline.
However, there is a case to be made for taking action now if you manage to find something suitable, even amidst historically high mortgage rates spanning two decades and persistently inflated prices.
Despite a slight decrease in mortgage rates recently, the elevated costs of borrowing have deterred a significant portion of potential buyers. Surprisingly, the current situation might actually favor buyers more than in previous years, especially when compared to the peak of the pandemic. During that time, sellers had the upper hand, able to demand the removal of any contingencies, and buyers were hastily purchasing homes without even seeing them.
What’s more significant is that the current lack of competition implies that when borrowing costs eventually ease, buyers can anticipate a surge of pent-up demand flooding the market.
Barbara Corcoran, the “Shark Tank” investor and real-estate mogul, expressed her belief that the days of 2%-3% interest rates are gone and will not return. However, she predicts that rates will decrease in the future. Once rates drop to a level starting with a five, she expects a surge in market activity, resulting in a scarcity of available houses and a 10% to 15% increase in prices. Corcoran advises against leaving the market, emphasizing that this is an opportune time. While her estimate of price increases is on the higher side, other experts also agree that costs may not decrease anytime soon. The National Association of Realtors chief economist, Lawrence Yun, previously stated that there might be a more modest increase of 1%-2% in home prices once mortgage rates ease. Daryl Fairweather, the chief economist at Redfin, suggests that persistent buyers in the current market may find good opportunities. However, she warns that there will likely only be a brief period of improved affordability before prices rise again once mortgage rates decline.
“If you choose to wait and strategically aim for lower interest rates, there is a possibility of securing a more favorable rate in the future. However, accurately timing this can be quite challenging as it is a popular strategy among many. The market will adjust accordingly, causing prices to rise in a manner where mortgage rates alone may not suffice to enhance affordability,” explained Fairweather.
“If you choose to wait and strategically aim for lower interest rates, there is a possibility of securing a more favorable rate in the future. However, accurately timing this can be quite challenging as it is a popular strategy among many. The market will adjust accordingly, causing prices to rise in a manner where mortgage rates alone may not suffice to enhance affordability,” explained Fairweather.
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