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How to Think About Buying a House in 2022/2023

 We've all see the headlines. 

INFLATION! 

MORTGAGE RATES SOAR! 

HIGHEST RATE JUMPS! 

IMPENDING DOOM! 

And to be fair, some of those are completely true. The last two years have led to insane inflation. The rates have jumped up at unprecedented levels. But in the grand scheme of things, if you are thinking of moving and still have the financial wherewithal to do so, there are still plenty of advantages for buying now.

Just remember, its about perspective - 

You want or need to move 

Your rate is still lower than previous generations saw 

You can refinance. You aren't stuck with the current rate forever 

Even if inflation drops down significantly year over year, home values, on average will continue to go up. So will rental rates. Unless your income will also go up annually to keep up with annual inflation, then now will be a better time to buy than 5-10 years down the line. 

If you've been a buyer in the market, on the fence or trying to get your foot in the door, now may be the time you've been waiting for. Changes to market dynamics will always offer opportunities, and this may be yours. 



What we are seeing right now


It's not news that interest rates have gone up at unprecedented levels this year. Conventional rates are floating around 7% (though they just dropped a tad!). The Fed is likely to add another, lower rate hike in Dec but there is some small hope these rate hikes are going to lessen with recent lower inflation data.

The Fed must curb inflation and the real estate market is collateral damage. That means many buyers who were interested, and able, at lower rates, are no longer. While inventory levels are still very low (1.65 months supply on average across Philly metro), pending sales have decreased significantly while days on market, on average, have increased. According to showing software data, buyer demand has dropped significantly recently. No surprise! 


We are seeing many homes see listing price drops for the first time in years. Sellers who had hoped to hit the crazed market this Spring or match their neighbor's price tag in 2021 may be desperate to sell now, after many days on the market. However, it should be noted that overall, pricing has not drastically dropped. Most areas are still seeing stable prices or gains for settled properties. In fact, for the month of Oct, across Philly metro median sales price went up almost 7% from Oct 2021. Meaning competition is lowering, but that doesn't mean there are huge "deals" to be had in prices right now. 


What this means for buyers


Focusing on your long term goals right now is the key.


Everyone has to live somewhere. If you are looking to move, whether it be in your first place or your next one, focusing on this goal is key. If you are a first time home buyer, you can either choose to rent or to buy. While it may seem expensive now, buying hedges against inflation. With rising rental rates that may increase more than 2-3% each year, buying can limit your expenses now or in a few years. Further, every mortgage payment adds to your equity, as opposed to a landlord's. While rising interest rates are pushing some buyers to try and wait it out, it's helpful to remember that rent is a 100% interest rate and the pros of buying right now also heavily outweigh those rising rates. 


This is the lowest amount of competition in the housing market that we have seen in a long time. Historically during a recession, interest rates will go down and when they do, the market will be flooded with demand again. However, unlike the Great Recession, the buyers waiting on the sidelines may have deeper pockets when that time comes. Many economists assume this may happen in the Spring of 2023.


The time to buy is when no one else is.

Buyers that make the move now, when others are nervous or playing the waiting game, will seize opportunity with low competition and sellers that are seriously negotiating and trying to find ways to help YOU buy their home. 


For those with a home to sell, taking advantage of the shifting market to purchase first and then sell at a later date, with increased demand and stable rates, may be the best of both worlds.






What are your options with rates right now 


Lenders are at low point too. They want to find you loan products and make what money they can. So many are creating solutions to high interest rate issues. 


ARM Products


An ARM is an adjustable-rate mortgage. It starts for a period, usually 5 or 7 years, at a lower than market rate and then increases for set periods after that, usually higher than market rate. While this is a riskier loan in that at one point you will likely be paying more than market rate, the idea is that you refinance before you get there. There is a pretty safe assumption that rates will come down from their current place in the next year or two. Thats when you refinance, but take advantage of the lower ARM rates for those first months/years. 


Jumbo Loans


A jumbo loan is anything above $715,000, as of 2023. That means anything below that number is federally backed but higher, is not, That is a riskier loan for lenders, but because its not tied to FHFA, lenders can offer what they want on those products. Over the last few years, we have seen some jumbo loan products have much lower rates. Obviously this is only an option for higher-end buyers, but for those around that price point, it may make more sense to go jumbo.  


Points and Buy-Downs 


Buyers can pay points, or an up front percentage, to lower their rate permanently. Helpful if you have the cash up front and want to limit your monthly expenses and are nervous doing an ARM. A seller can also pay for these points in a seller-assist at closing. 


Newer to the market is a specific, seller-paid program called a Buy Down. They are often done in time periods, like an ARM. For instance, a 3-2-1, means I’m going to buy down the effective interest rate, which makes my monthly payment lower by 3% for the first year, then 2% the second year, then 1% lower the final year until it’s back to that original rate we locked at the beginning. A 2-1 is the same idea, just 2% the first year and then 1% lower the second year. The interest rate isn’t really getting lower, it’s the seller’s concession money going into an escrow account that is used to help the buyer make their monthly payment lower for that length of time. 


You can also speak with your lender about a permanent buy down of the rate as well. Looking at all of the options is key when thinking through different strategies.



In Summary


There is never a perfect time to buy, and you certainly can't time the market, but if you're on the fence as to whether it's the right time for you to finally buy, make a change or invest, this Fall and Winter may be the opportunity you've been waiting for!


Call, email or text me to figure out your personal strategy or options! And, as always, if you know someone who could benefit from this information, please share and know that I am here for your referrals! 


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