Excited About Buying A Home This Year? Here’s What To Watch
Tessabella Jelten
I help Real Estate Agents make more money! Founder of The Neighborhood, House of Agents Academy, and Scottsdale Real Estate Professional with REAL Broker.
Happy New Year!
As we kick off the new year, many families have made resolutions to enter the housing market in 2019. Whether you are thinking of finally ditching your landlord and buying your first home or selling your starter house to move into your dream home, there are two pieces of the real estate puzzle you need to watch carefully in 2019: interest rates & inventory.
Interest Rates
Mortgage interest rates had been on the rise for much of 2018, but they made a welcome reversal at the end of the year. According to Freddie Mac’s latest Primary Mortgage Market Survey, rates climbed to 4.94% in November before falling to 4.62% for a 30-year fixed rate mortgage in the last week of December.
Despite the recent drop, interest rates are projected to reach 5% in 2019.
The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.
What the heck is purchasing power? Well, to put it simply, it is the amount of home that you can afford to buy for the budget you have available to spend!
What does that mean for you? It means, that as rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.
For example, with each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000).
Inventory
A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale in order for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 3.9-month supply (still well below the 6-months needed), which has put upward pressure on home prices.
Home prices have increased year-over-year for the last 81 straight months.
The inventory of homes for sale in the real estate market had been on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018)
This is a trend to watch as we move further into the new year! Don't worry, I will keep you posted!
If we continue to see an increase in homes for sale, we could start moving further away from a seller’s market and closer to a happy, neutral market.
Moral of the story?
If you are planning to enter the housing market, either as a buyer or a seller, make sure that you have an experienced agent who can help you navigate the changes in mortgage interest rates and inventory.
A question we get ALL the time is... "Well should I just wait until its cheaper?"
My recommendation? We don't see it getting much cheaper in the near future, instead of thinking in that way... imagine if we continue to increase, how much equity you'll be able to accrue when purchasing now. There are still incredible deals out there, its just a matter of finding the perfect one!