If you are thinking of buying a home, you are probably very hesitant and unsure if you should buy now or wait.
I wish I could give you a clear answer but unfortunately no one knows where the market is going to be in six months or a year from now, especially when we look back at how unpredictable the past couple of years has been.
Here are some facts and information that may help you make that decision:
CURRENT MARKET INFORMATION
Inventory – As of July 16, there are 15,049 active homes compared to 11,821 in June 2022 and 7,730 year-overyear. That is an increase of 27 percent in just one month and 95 percent year-over-year. However, even with this dramatic spike in supply we are still below where we need to be for a balanced market.
Arizona’s housing deficit has increased 1,377 percent since 2012 — representing 122,683 homes — according to a report by Washington, D.C.-based Up for Growth. Some of the reasons we have such high inventory will likely go away in the next few months.
Summer is always a slow season for home sales, when our visitors are gone, and buyers are not out looking for a new home in 115 degrees unless they must.
Economy – With the talk of a possible recession and a mid-term election in October, some buyers are sitting on the sidelines waiting to see how it all shakes out. It is typical for the market to soften coming into an election, even a mid-term.
Demand – With inflation on the rise and employees’ ability to telecommute becoming more and more commonplace, states with higher costs of living (California, Washington, Oregon, Illinois, etc.) are still losing their populations as they relocate to affordable states like Arizona.
Interest Rates – Rates are higher right now than they have been in the recent past. However, an interest rate in a fixed rate mortgage is not a lifetime commitment. Waiting to see if the house prices are going to drop is one thing, but not buying because of the current interest rate is likely to hurt not help you.
The experts expect the Fed to increase rates again. No one expects rates to be falling anytime soon. But if they do, that’s fine as you can refinance and get the lower rate at that time. You can lock in today’s home price and refinance to a lower rate if they come down.
Pricing – With the rapid increase in supply and the pullback in demand, we have seen price reductions. The median sales price has dropped, and the big question is will prices continue to drop.
The current median sales price for the Phoenix metro area is $460,000 compared to $480,000 in June, which is – 4.2 percent.
The Cromford Report expects August median sales price to increase by 1.4 percent due to the relatively strong pricing we see in pending listings. Surveys show experts expected home prices will continue to increase over the next five years, just at a more regular pace.
Trying to time the market can mean missing out on your dream home. If rates continue to rise and home prices don’t drop enough to compensate for high loan costs, you could end up pricing yourself out of the market or paying a lot more to not only purchase a home but the monthly mortgage payment as well.
EXAMPLE OF BUYING NOW VERSUS WAITING
Buyer 1: The Adam Family
- They purchased a home for $500,000.
- They put down 5 percent ($25,000).
- Loan amount of $475,000 and are locked into an interest rate in the mid 5s.
- Their total payment for principal, interest, taxes, and insurance payment is $2,960.
- They don’t love the rate that they got since they know that they have been lower in the recent past but are excited to own a home and pay down their mortgage rather than their landlord’s. Their mortgage balance is about $461,250 after two years.
Buyer 2: The Bradley Family
- This family is also interested in buying a $500,000 house but decides to wait until the rates come down.
- The rates don’t come down for two years and during that time houses continue to appreciate at a rate of 5 percent per year (very conservative relative to the last few years) because there is still a strong demand for housing Valley wide.
- This means that a $500,000 house in 2022 now costs around $550,000 in 2024.
- Just like the Adam family, they also put down 5 percent ($27,500).
- Loan amount $522,500.
- Because they waited two years, the rate is now lower in the mid 4s, which is nice but because the loan amount is higher, their savings in their payment feels really watered down.
- Their total payment for principal, interest, taxes, and insurance comes out to $2,910.
The Adam family who purchased now has a mortgage payment that is $50 more but they also have an equity position in the home of $88,750 compared to the Bradley family equity position of $27,500.
- The difference in equity is $61,250.
- The Adam family also gets to take advantage of the lower rate by refinancing to the same mid 4s rate that the Bradley family is getting.
- Their new total mortgage payment would be about $2,600 compared to what it was at $2,960.
- They save $360 over their old payment and $310 over the family that waited.
- They also have a $61,250 greater equity position in their house.
For more information on the current market conditions, call Lorraine at (602) 571-6799.