As the real estate market changes, it’s important to have a running start on your home buying journey.
Here are three things to keep in mind — from mortgage rates to buying power — as you navigate the housing market.
What’s going on with mortgage rates?
As consumers, we have been spoiled with historically low interest rates that held out for an uncommonly long time. As interest rates begin to fluctuate, it is common to feel concern, especially for first-time home buyers.
Understanding the cause and effect behind rate increases can help reduce worry over market changes. Interest rates directly influence a buyer’s buying power. Real estate agents can help you understand what this means and what steps you can take to better prepare for it.
I often advise clients to check with the financing institution with whom they have a working relationship. This institution will already have your financial history and a personal gain in maintaining your business. They are best equipped to help you understand your buying power.
Know your buying power
Increased interest rates will increase mortgage payments, and this ultimately influences how much buying power you have. Knowing your buying power is an important factor when it comes to entering the housing market.
It is especially important to understand what you can afford monthly (in terms of payments) and how much of a down payment you need to get the monthly payments where you need them. Many people would rather look for lower costs vs. having to produce more of a down payment, but it is always good to have options.
Don’t be afraid to shop lenders
I have a working relationship with several lenders, and I encourage my clients to shop around for the best rate when going through the pre-approval process. A home is one of the largest purchases you will ever make, and even though refinancing is an option later down the road, you should feel confident in your purchase and the process of paying it off for the foreseeable future. Plus, it is always in the buyer’s favor to come to the market prepared.
Experts in the real estate industry use a number of terms when they talk about what’s happening with home prices. And some of those words sound a bit similar but mean very different things. To help clarify what’s happening with home prices and where experts say they’re going, here’s a look at a few terms you may hear:
- Appreciation is when home prices increase.
- Depreciation is when home prices decrease.
- Deceleration is when home prices continue to appreciate, but at a slower pace.
Where Home Prices Have Been in Recent Years
For starters, you’ve probably heard home prices have skyrocketed over the past two years, but homes were actually appreciating long before that. You might be surprised to learn that home prices have climbed for 122 consecutive months (see graph below):
As the graph shows, houses have gained value consistently over the past 10 consecutive years. But since 2020, the increase has been more dramatic as home price growth accelerated.
So why did home prices climb so much? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was high and supply was low.
Where Experts Say Home Prices Are Going
While this is helpful context, if you’re a buyer or seller in today’s market, you probably want to know what’s going to happen with home prices moving forward. Will they continue that same growth path or will home prices fall?
Experts are forecasting ongoing appreciation, just at a decelerated pace. In other words, prices will keep climbing, just not as fast as they have been. The graph below shows home price forecasts from seven industry leaders. None are calling for prices to fall (see graph below):
Mark Fleming, Chief Economist at First American, identifies a key reason why home prices won’t depreciate or drop:
“In today’s housing market, demand for homes continues to outpace supply, which is keeping the pressure on house prices, so don’t expect house prices to decline.”
And although housing supply is starting to tick up, it’s not enough to make home prices decline because there’s still a gap between the number of homes available for sale and the volume of buyers looking to make a purchase.
Terry Loebs, Founder of the research firm Pulsenomics, notes that most real estate experts and economists anticipate home prices will continue rising. As he puts it:
“With home values at record-high levels and a vast majority of experts projecting additional price increases this year and beyond, home prices and expectations remain buoyant.”
Experts forecast price deceleration, not depreciation. That means home prices will continue to rise, just at a slower pace. Let’s connect so you can get the full picture of what’s happening with home prices in our local market and to discuss your buying and selling goals.