Should I buy a house now or wait til 2023?
It’s been a bit tricky to predict when is the best time to buy a house. The last couple of years have seen home price increases in the double digits in some areas. But, rents have risen, too. Now, mortgage interest rates have begun to creep up. It’s hard to tell what effect that will have on home prices, or how it will affect whether it’s the right time to buy. But here are some things to consider as you think about, “Should I buy a house now, or wait til 2023”?
When is the right time to buy a house?
The right time to buy a house is when it makes sense financially for you and for your lifestyle. You’ll want to do a calculation of the total cost of ownership to see if it makes financial sense for you. You can compare your cost of your current situation, whether it’s renting or owning a different home, to what the picture would look like if you bought a new home today.
Perhaps you are considering buying in order to get more space or move to an area that costs more? Then you can evaluate whether it makes sense for you to own or rent in the current climate.
In any environment, if the costs of renting outweighs the cost of homeownership and your finances are solid, then the case for homeownership is strong.
Consider the rental market – are rents going up?
Though the home buyer market has been heating up over the last few years which may cause home buyers to get cold feet, the rental market has also been climbing. In some urban areas for example, rents are up 33%. Buying a house is an opportunity to lock in a fixed housing cost, if you choose a 30 or 15 year fixed rate mortgage. So when you consider renting versus buying, consider that a fixed rate 30 year mortgage keeps your housing costs stable for 30 years, except for property tax increases.
What about rising interest rates?
The Fed announced it would bump up interest rates by a half a percent in order to counteract inflation. Is this a bad thing for the home buyers?
First of all, mortgage interest rates are different from federal interest increases. Mortgage rates are related to the 10 year treasury note, not the federal rate. So in order to keep an eye on the mortgage interest rates, just focus on what the mortgage rates are doing. Even with recent increases in mortgage rates, check out this article to see that current rates are low when you look at where they’ve been in the last 10 to 20 years. So don’t get spooked by slightly higher rates in an era of historically super low rates!
At the end of the day, the same rules apply as in any market: does the math make sense for you? Getting fixated on a mortgage rate independent of other factors is just going to trip you up.
How long will you stay in a house if you buy?
If you are planning on staying in a house for more than 7 or more years, then that makes the case stronger for buying. At least as long as it makes financial sense for you now, considering the above factors. That is because the longer you are in the house, the less economic ups and downs will effect your investment.
Consider people who bought homes in 2006, for example, and decided to sell in 2009. They would have bought at the height of the market and sold at the bottom. But take that same person who bought in 2006 and sold in 2013. By the time they sold, the market had recovered from the Great Recession in most places.
The longer you are in your home, the more benefits you get from having a stable, fixed payment and the more your investment evens out over economic bumps.
Consider how homeownership impacts wealth
If you are new to home buying, it might be wise to brush up on some known benefits of homeownership, even if you decide to wait. In this article, Wealth and Homeownership, you can see the major factors that contribute to homeowner wealth. Homeownership is correlated to higher net worth and substantiality more intergenerational wealth.
Being aware of financial benefits of homeownership will serve you well, no matter what year you buy in!
To recap, deciding to buy a home always requires an analysis of whether it makes good financial sense. You can look at various factors, including your own financial health and think about the overall cost of renting vs buying, while taking into consideration the rising rents and home prices.
While interest rates may be on the rise, they are still at historical lows, and if you do decide to buy and choose a fixed rate mortgage, you essentially lock in your home costs for years to come. And, planning to stay in the house longer helps even out any economic bumps along the way.