Current Realities in U.S. Homebuying Trends
The home buying reality today is stark and record low inventory caused by high mortgage rates have “trapped” owners in their current mortgages. Experts don't predict home prices to revert to pre-pandemic levels anytime soon, so even those who were able to buy a home may find the idea unacceptable with their other financial goals.
Rising Costs, Limited Options
Warren Buffett once said, "Price is what you pay. Value is what you get." This highlights the essence of making a wise investment, especially in terms of buying and owning a home.
Today, however, Buffett’s advice above may be hard to swallow for would-be home buyers: the average house price is around $400,000, much higher than it was twenty years ago when it was roughly $170,000. Also, the interest rates for home loans are now higher than they've been in 20+ years.
Prior to the pandemic, a home buyer with a $2,000 monthly housing budget could have purchased a home valued at over $400,000. Now, that same budget can only stretch to a home valued at $295,000 or less with rates in the 7 percent range.
This Time’s Different
Usually, when mortgage rates go up, home sales slow down, and sellers lower prices to attract buyers, but, as the saying goes, “This time’s different.”
Despite the pent-up demand, with home sales decreasing and bidding wars becoming less common, prices are still going up due to a home inventory shortage. Many homeowners who locked in low rates in recent years are reluctant to sell and corporate investors accounted for 26% of all single-family purchases in 2023, up from pre-pandemic levels of less than 20%, per Business Insider.
These statistics for different regions in the U.S., provided by the National Association of Realtors (NAR), corroborate what so many people are experiencing in the market right now:
- Northeast: Median price $439,200 (up 7.5% from last year)
- Midwest: Median price $285,100 (up 4.2% from October 2022)
- South: Median price $357,700 (up 3.5% from last year)
- West: Median price $602,200 (up 2.3% from October 2022)
In 2024, according to Money Magazine, some semblance of a buyer's market in real estate could be on the way, ending a period of low inventory and record high prices.
Despite the Federal Open Market Committee indicating that no rate hikes are anticipated for 2024, and rates could begin coming down, don't get too excited.
Housing market predictions from real estate companies Redfin and Zillow show both companies forecast that buyers will see some improvements in terms of inventory and prices in 2024, both also say mortgage rates will remain stubbornly high. This will hamper the speed at which real estate will return to normalcy. Redfin predicted that rates will only drop to about 6% at best; Zillow said rates will have some definite "staying power."
A Keystone of Wealth
Understandably, many people feel discouraged or have given up on the dream of buying a home since moving to a new home with higher interest rates could mean paying hundreds of thousands more in interest over a 30-year loan. According to a Zillow report, current homeowners are likely to stay where they are until mortgage rates drop back to 4% or 5% before considering moving to a new place.
However, Suze Orman, a well-known financial advisor, emphasizes that "Owning a home is a keystone of wealth — both financial affluence and emotional security.” This might explain why, even with such high interest rates today, first-time buyers were responsible for 28% of sales in October 2023, up from 27% in September, and identical to October 2022. Overall, about one-third of buyers were first-time home buyers in 2023, according to the National Association of Realtors.
This may be due to mortgage rates dropping from recent highs, sparking interest in buying; not to mention the first quarter of most calendar years typically sees higher interest from buyers, making 2024 a strong period for selling if interest rates fall.
NAR's Chief Economist Lawrence Yun believes that after this winter, more homes will be available for sale, leading to more purchases. "Fortunately, mortgage rates have fallen…stirring up buying interest," Yun stated. "Though limited now, expect housing inventory to improve after this winter and heading into the spring. More inventory will result in more home sales."
Factoring in Renting and ARMs
Mortgage loan applicants in October signed up for a median monthly payment of $2,199, marking a 9% increase – or an additional $143 each month – compared to the previous year, according to the Mortgage Bankers Association. In contrast, renters are experiencing a decrease in monthly rents. The national median monthly rent in October was $1,978, down 1.6% from the previous month and a 0.29% drop year-over-year, as reported by Rent.com.
Adjustable-Rate Mortgages (ARMs) have resurfaced as a popular topic in the media, particularly due to their significant role in the Great Financial Crisis. In 2005, ARMs constituted about 45% of all mortgages. Despite offering potential short-term cost benefits, ARMs carry increased risks and have also seen a rise in costs this year. The popularity of ARMs has grown as mortgage rates have recently increased. By April 2023, ARMs represented 18.6% of the dollar volume of conventional single-family mortgage originations, a substantial increase from its January 2021 low, according to CoreLogic.
The usage of Adjustable-Rate Mortgages (ARMs) differs based on location and loan amount. According to CoreLogic, ARMs are more frequently chosen by homebuyers who take out larger loans. This is particularly true for "jumbo loans," as compared to borrowers with smaller loans. CoreLogic cites: “Among mortgage originations exceeding $1 million in April 2023, ARMs comprised 45% of the dollar volume, a 6 percentage-point increase from April 2022.”
Strategies to Overcome
The landscape of homeownership in America is undergoing a transformation, presenting obstacles for many aspiring homeowners. The decision about whether to rent or buy in today’s real estate market is largely dependent on what one can afford. Nevertheless, with careful planning and adaptability, achieving homeownership remains within reach.
In the face of today’s challenges, prospective homebuyers might consider several strategies to overcome the hurdles posed by the present housing market:
- First, thorough research and financial planning are crucial: use qualified brokers and mortgage providers to help guide your financial decisions.
- Second, assess your budget, explore different loan options, and consult with financial advisors to make informed decisions.
- Third, flexibility is key: consider a range of alternative locations or slightly smaller homes within your budget range.
- Fourth, stay informed about market trends and be patient: doing so could pay off in the long run. While the market may seem daunting today, the situation can change, and opportunities may arise.
Buyers should not hesitate to seek guidance from real estate or relocation professionals who can provide valuable insights and guidance tailored to your specific circumstances. By combining these strategies, prospective homeowners can better position themselves to navigate the current challenges within their individual financial situations and achieve their homeownership goals when the time is right.
If you would like to discuss this topic further, please reach out to your NEI representative at any time.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Current Realities in U.S. Homebuying Trends
The home buying reality today is stark and record low inventory caused by high mortgage rates have “trapped” owners in their current mortgages. Experts don't predict home prices to revert to pre-pandemic levels anytime soon, so even those who were able to buy a home may find the idea unacceptable with their other financial goals.
Rising Costs, Limited Options
Warren Buffett once said, "Price is what you pay. Value is what you get." This highlights the essence of making a wise investment, especially in terms of buying and owning a home.
Today, however, Buffett’s advice above may be hard to swallow for would-be home buyers: the average house price is around $400,000, much higher than it was twenty years ago when it was roughly $170,000. Also, the interest rates for home loans are now higher than they've been in 20+ years.
Prior to the pandemic, a home buyer with a $2,000 monthly housing budget could have purchased a home valued at over $400,000. Now, that same budget can only stretch to a home valued at $295,000 or less with rates in the 7 percent range.
This Time’s Different
Usually, when mortgage rates go up, home sales slow down, and sellers lower prices to attract buyers, but, as the saying goes, “This time’s different.”
Despite the pent-up demand, with home sales decreasing and bidding wars becoming less common, prices are still going up due to a home inventory shortage. Many homeowners who locked in low rates in recent years are reluctant to sell and corporate investors accounted for 26% of all single-family purchases in 2023, up from pre-pandemic levels of less than 20%, per Business Insider.
These statistics for different regions in the U.S., provided by the National Association of Realtors (NAR), corroborate what so many people are experiencing in the market right now:
- Northeast: Median price $439,200 (up 7.5% from last year)
- Midwest: Median price $285,100 (up 4.2% from October 2022)
- South: Median price $357,700 (up 3.5% from last year)
- West: Median price $602,200 (up 2.3% from October 2022)
In 2024, according to Money Magazine, some semblance of a buyer's market in real estate could be on the way, ending a period of low inventory and record high prices.
Despite the Federal Open Market Committee indicating that no rate hikes are anticipated for 2024, and rates could begin coming down, don't get too excited.
Housing market predictions from real estate companies Redfin and Zillow show both companies forecast that buyers will see some improvements in terms of inventory and prices in 2024, both also say mortgage rates will remain stubbornly high. This will hamper the speed at which real estate will return to normalcy. Redfin predicted that rates will only drop to about 6% at best; Zillow said rates will have some definite "staying power."
A Keystone of Wealth
Understandably, many people feel discouraged or have given up on the dream of buying a home since moving to a new home with higher interest rates could mean paying hundreds of thousands more in interest over a 30-year loan. According to a Zillow report, current homeowners are likely to stay where they are until mortgage rates drop back to 4% or 5% before considering moving to a new place.
However, Suze Orman, a well-known financial advisor, emphasizes that "Owning a home is a keystone of wealth — both financial affluence and emotional security.” This might explain why, even with such high interest rates today, first-time buyers were responsible for 28% of sales in October 2023, up from 27% in September, and identical to October 2022. Overall, about one-third of buyers were first-time home buyers in 2023, according to the National Association of Realtors.
This may be due to mortgage rates dropping from recent highs, sparking interest in buying; not to mention the first quarter of most calendar years typically sees higher interest from buyers, making 2024 a strong period for selling if interest rates fall.
NAR's Chief Economist Lawrence Yun believes that after this winter, more homes will be available for sale, leading to more purchases. "Fortunately, mortgage rates have fallen…stirring up buying interest," Yun stated. "Though limited now, expect housing inventory to improve after this winter and heading into the spring. More inventory will result in more home sales."
Factoring in Renting and ARMs
Mortgage loan applicants in October signed up for a median monthly payment of $2,199, marking a 9% increase – or an additional $143 each month – compared to the previous year, according to the Mortgage Bankers Association. In contrast, renters are experiencing a decrease in monthly rents. The national median monthly rent in October was $1,978, down 1.6% from the previous month and a 0.29% drop year-over-year, as reported by Rent.com.
Adjustable-Rate Mortgages (ARMs) have resurfaced as a popular topic in the media, particularly due to their significant role in the Great Financial Crisis. In 2005, ARMs constituted about 45% of all mortgages. Despite offering potential short-term cost benefits, ARMs carry increased risks and have also seen a rise in costs this year. The popularity of ARMs has grown as mortgage rates have recently increased. By April 2023, ARMs represented 18.6% of the dollar volume of conventional single-family mortgage originations, a substantial increase from its January 2021 low, according to CoreLogic.
The usage of Adjustable-Rate Mortgages (ARMs) differs based on location and loan amount. According to CoreLogic, ARMs are more frequently chosen by homebuyers who take out larger loans. This is particularly true for "jumbo loans," as compared to borrowers with smaller loans. CoreLogic cites: “Among mortgage originations exceeding $1 million in April 2023, ARMs comprised 45% of the dollar volume, a 6 percentage-point increase from April 2022.”
Strategies to Overcome
The landscape of homeownership in America is undergoing a transformation, presenting obstacles for many aspiring homeowners. The decision about whether to rent or buy in today’s real estate market is largely dependent on what one can afford. Nevertheless, with careful planning and adaptability, achieving homeownership remains within reach.
In the face of today’s challenges, prospective homebuyers might consider several strategies to overcome the hurdles posed by the present housing market:
- First, thorough research and financial planning are crucial: use qualified brokers and mortgage providers to help guide your financial decisions.
- Second, assess your budget, explore different loan options, and consult with financial advisors to make informed decisions.
- Third, flexibility is key: consider a range of alternative locations or slightly smaller homes within your budget range.
- Fourth, stay informed about market trends and be patient: doing so could pay off in the long run. While the market may seem daunting today, the situation can change, and opportunities may arise.
Buyers should not hesitate to seek guidance from real estate or relocation professionals who can provide valuable insights and guidance tailored to your specific circumstances. By combining these strategies, prospective homeowners can better position themselves to navigate the current challenges within their individual financial situations and achieve their homeownership goals when the time is right.
If you would like to discuss this topic further, please reach out to your NEI representative at any time.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
