If you feel like you are experiencing deja vu with the real-estate market Due to factors such as lack of supply and high prices (similar to the state of the market in 2021), it is not far away.
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The truth is that buying a home right now can be a daunting task due to multiple factors. Read on to understand why this is so. It’s hard to buy a house right now. and find out what you can do about it.
Why is it so difficult to buy a house right now?
“The main drivers of the difficulty in purchasing a home in the current market have been the extreme lack of supply of homes for sale and concerns about affordability due to rising rates,” said Nirvan Ghosh, CFA, portfolio manager at The Palisades Group. “We know that supply will not come from existing homes, due to the ‘lock-in effect’.
“More than 80% of homeowners have mortgage rates below 5.0%, making them reluctant to sell their homes. New home sales have been on a positive trajectory here in 2023, but keep in mind that they are historically a small minority of total sales; From 2000 to 2019, new homes accounted for only 13% of total home sales.
“Affordability has also been affected by continued increases in mortgage rates,” Ghosh added, “with the 30-year fixed rate now at 7.32%. “This translates to mortgage payments being more than 50% higher per month on average for the typical homeowner buying in this market compared to January 2022.”
Isaac Lidsky, CEO of Housing Construction Collectivehas some additional thoughts on why housing supply is so low right now.
“Securing finance for new home construction is a challenge for the independent builders who build the vast majority of new homes, as very few lenders specialize in this area,” he said. “It is noteworthy that regional banks traditionally provide more than 70% of the financing; Today, some estimates hold that almost half of those banks are insolvent due to the most recent banking crisis. Third, the increase in institutional investors buying homes to rent has further reduced the availability of homes for sale.”
What can potential homebuyers do to overcome the challenges?
Ghosh and Lidsky offer advice on overcoming the challenges of home buying.
Be prepared to make your move
“For those looking for a new home, stay alert for new properties for sale, have a pre-approval letter from a mortgage lender on hand and be prepared to act quickly when a home meets all the requirements,” Ghosh said. “With multiple buyers looking to bid on the same home, there is less opportunity to sit idly in this market.
“The advantage of buying a home right now is that the market has cooled down a bit from the frenzy that took place in 2021, allowing homeowners a little more negotiating power once they have a home under contract” .
Adjust your expectations
Lidsky said the sad reality is that prospective homebuyers aren’t prepared to do much more than adjust expectations regarding affordability.
“This means that many home buyers will purchase fewer homes (square footage and other amenities) than they would have otherwise desired,” he said. “House prices remain stubbornly high despite interest rate increases, which we believe highlights the predominant problem facing the housing market: millions of people want to buy homes that don’t exist.”
What could happen to the real estate market in the future?
“There is hope that 2024 will be a better market for prospective homebuyers,” Ghosh said. “There has been an increase in single-family home permits combined with an increase in homebuilder sentiment. This will hopefully translate into an increase in the inventory of new homes on the market next year.
“On the existing home sales side of the equation, 23% of homeowners surveyed are considering selling their home in the next three years or having their home currently listed, which is a 50% increase from the previous year. . As homeowners adjust to the new paradigm of mortgage rates and life events taking place (job changes, death, divorce, etc.), the impact of the lock-in effect could become a little more moderate, allowing certain increase in supply on the resale market. .
“Unfortunately, when it comes to mortgage rates,” Ghosh added, “the long end of the curve is the story of the day, with Fitch downgrading the US long-term rating from AAA to AA+ and the US bond to 30 years”. reaching the highest level since November with 4.292%. “It is too early to know whether prospective homeowners can expect relief in their mortgage rates in 2024.”
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This article originally appeared in GOBankingRates.com: Real estate market 2023: why it is so difficult to buy a house right now and what can be done about it