Is it a Good Time to Buy a House or Should I Wait Until 2023-2024 (2023)

Is it a Good Time to Buy a House or Should I Wait?

Check out the latest housing trends for the previous month if you're unsure whether it is a good time to buy a house or if should you wait until 2023. It’s becoming harder to buy a house as prices are up year over year, and mortgage rates are soaring in 2022. At the same time, consumer prices on everything are also on the rise making it even more difficult to save money to buy a house next year.

In an effort to tamp down inflation, the Federal Reserve is raising interest rates. The Federal Reserve raised the target range for the federal funds rate by 75 bps to 3.75%-4% during its November 2022 meeting. It marks a sixth consecutive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008. The decision came in line with market forecasts.

Policymakers also said that ongoing increases in the target range will be appropriate and that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments when deciding on the size of further increases.

The message could signal a smaller rate hike in December but during the press conference Chair Powell also noted the ultimate level of interest rates will be higher than previously expected. The Fed aims to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2%, which remains elevated around 40-year highs.

The cumulative effect of these sharp rate increases has cooled the housing market and caused the economy to slow, but has done little to lower inflation. Although Fed doesn't control mortgage rates it has a ripple effect on the mortgage industry. The recent rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

Don’t expect much relief in the form of lower rates in the coming months. Therefore, it certainly does not seem to be a good time to buy a house as rates have risen much more rapidly in 2022 than most industry analysts and economists had initially predicted. But when it comes to the possibility of significant savings, looking for the best mortgage offer provides an outstanding return on investment. Because it only takes a little more effort to browse around for the greatest mortgage rate, why not take advantage of it?

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Is it a Good Time to Buy a House or Should I Wait?

Fannie Mae released a nationwide housing survey for October 2022 that reveals only 16 percent of respondents believe it is a good time to buy a house in 2022.

“The HPSI reached an all-time survey low this month, in line with expectations that the housing market will continue to cool in the months ahead,” said Doug Duncan, Fannie Mae Senior Vice President, and Chief Economist. “Consumers are increasingly pessimistic about both homebuying and home-selling conditions. Amid persistently high home prices and unfavorable mortgage rates, the ‘bad time to buy' component increased to a new survey high this month, while the ‘good time to sell' component continued its downward trend.”

The Home Purchase Sentiment Index® (HPSI) decreased in October by 4.1 points to 56.7. The HPSI is down 18.8 points compared to the same time last year. Five of the six index components decreased month over month, including those associated with home buying and selling conditions, as persistently high home prices and unfavorable mortgage rates continue to fuel consumers' housing affordability concerns. Year over year, the full index is down 18.8 points.

Is it a Good Time to Buy a House?

The percentage of respondents who say it is a good time to buy a home decreased from 19% to 16%, while the percentage who say it is a bad time to buy increased from 75% to 80%. As a result, the net share of those who say it is a good time to buy decreased 8 percentage points month over month.

Is it a Good Time to Sell a House?

The percentage of respondents who say it is a good time to sell a home decreased from 59% to 51%, while the percentage who say it's a bad time to sell increased from 33% to 42%. As a result, the net share of those who say it is a good time to sell decreased 17 percentage points month over month.

Home Price & Mortgage Rate Expectations

The percentage of respondents who say home prices will go up in the next 12 months decreased from 32% to 30%, while the percentage who say home prices will go down increased from 35% to 37%. The share who think home prices will stay the same decreased from 28% to 26%. As a result, the net share of those who say home prices will go up decreased by 4 percentage points month over month.

The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 9% to 6%, while the percentage who expect mortgage rates to go up increased from 64% to 65%. The share who think mortgage rates will stay the same increased from 20% to 24%. As a result, the net share of those who say mortgage rates will go down over the next 12 months decreased 4 percentage points month over month.

Is it a Good Time to Buy a House or Should I Wait Until 2023-2024 (1)

The HPSI is constructed from answers to six of 100 national housing survey questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions.

As of November 11, 2022, the average rate for the benchmark 30-year fixed mortgage is 6.91 percent (source: Bankrate). It is a decrease of 44 basis points from a week ago. Last month on the 11th, the average rate on a 30-year fixed mortgage was higher, at 7.20 percent. At the current average rate, you’ll pay a combined $659.27 in principal and interest for every $100,000 you borrow to buy a house. That’s down $29.70 from what it would have been last week.

The average 15-year fixed mortgage rate is 6.26 percent, down 25 basis points over the last week. At that rate, monthly payments on a 15-year fixed mortgage will be around $858 per $100,000 borrowed to buy a house. The larger monthly payment may be harder to fit into your budget than a 30-year mortgage payment, but it has huge advantages: You'll save several thousand dollars in interest and create equity much faster.

Let's compare the figures between now and eleven months ago when the buyers financed their houses with a mortgage. On a $300,000 loan, a 30-year, fixed-rate mortgage at December’s rate of 3.11% would have meant a monthly payment of about $1,282 (Principal & interest).

  • Loan amount = $300,000
  • Total interest paid = $161,923
  • Total cost of loan = $461,923

Today’s rate of 6.91% (30-year) brings the monthly payment to $1,977 (Principal & interest). That’s an extra $695 a month or $8,340 more a year and $250,765 more over the lifetime of the loan.

  • Loan amount = $300,000
  • Total interest paid = $412,688
  • Total cost of loan = $712,688

The Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group revised downward its forecast for total home sales growth through 2023. They now project 2022 total year existing sales to decline 16.5 percent from 2021, followed by a further decline of 13.3 percent in 2023.

Their forecast for 2022 purchase volumes remains at $1.7 trillion, essentially unchanged from last month. The group now expects purchase volumes to fall about 1.5 percent in 2023 to just under $1.7 trillion, a downward revision of $17 billion from last month’s forecast, driven by downward revisions to their forecast for home sales.

The rise in rates is having the Fed’s desired effect on housing, as house price growth began to slow in June. They expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates. The group continues to anticipate a strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand.

If the economy suffers a downturn, mortgage interest rates will very probably fall to about 4% or even lower. If it does, this could be a good time to put off buying a home and save some money, especially for first-time buyers. Fannie Mae forecasted at the start of the year that the average 30-year fixed mortgage rate will rise from 3.1% to 3.3% by the end of 2022.

The Mortgage Bankers Association was somewhat more optimistic about mortgage rates, projecting that the average rate will increase to 4% by the end of 2022. It is now evident that neither Fannie Mae's nor the Mortgage Bankers Association's predictions were even somewhat accurate.

The 30-year fixed mortgage rate, which hovered at 3% throughout 2021, is treading close to 7 percent, a steep increase from last year. It has almost doubled since last year. Some experts are forecasting that the 30-year, fixed-mortgage rate will vary from 5% to 7% by the end of 2022. According to Nadia Evangelou, director of Forecasting for the National Association of Realtors, rates may exceed 6 percent. They did momentarily before the Federal Reserve's June announcement of a rate rise, but have subsequently backed off.

The most likely scenario is that the Fed will continue to raise the fed funds rate to combat inflation and will continue to reduce its position in the market for mortgage-backed securities. The Federal Reserve is expected to continue its course of raising short-term interest rates and anticipate an additional 75 basis point hike at its September meeting, though markets are partially pricing in the possibility of a full 100 basis point increase.

As a buyer, you do not want to hear this because higher interest rates make home loans less affordable. Rising rates make homes more expensive for buyers, and, for prospective borrowers, steeper monthly mortgage payments. It will thereby reduce the demand for home purchases. The latest housing stats for August already point to an increasing inventory amidst moderating demand.

The mortgage credit availability again decreased in August as investors reduced their offerings of ARM and non-QM loan programs. With the overall origination volume expected to shrink in 2022, some lenders continue to streamline their operations by dropping certain loan programs to simplify their offerings, according to the Mortgage Bankers Association.

The MCAI fell by 0.5 percent to 108.3 in August. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI decreased by 1.0 percent, while the Government MCAI remained essentially unchanged. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.7 percent, and the Conforming MCAI fell by 1.2 percent.

The competition for housing results in fewer options, higher prices, and faster sales. In a seller's housing market, there are more interested buyers than available homes and that makes it difficult time to buy a house, especially for first-time buyers. According to the NAR, the national median price for existing homes sold in October was $384,800, up 8.4% from the same month in 2021.

This is the longest streak of year-over-year growth ever recorded, spanning 127 months. However, it was the third month in a row that the median sales price retracted after reaching a record high of $413,800 in June, the usual seasonal trend of prices declining after peaking in the early summer.

Is it a Good Time to Buy a House for First-Time Buyers?

According to a recent Fannie Mae survey, many consumers are hesitant to buy a home in 2022. About 67% of survey respondents expect mortgage rates to increase, and there are rising concerns about job stability and escalating housing prices. Some homebuyers will find the current market conditions easier, while others will find them more difficult to buy a house. The current upward trend in home prices is likely to continue throughout the year, which could price out some prospective buyers.

However, it is anticipated that prices will rise at a slower rate than they did in 2021. The current lack of entry-level supply and the rapid increase in mortgage rates appear to be negatively impacting potential first-time homebuyers in particular, as evidenced by the larger proportion of younger respondents (aged 18 to 34 years old) who believe it is a bad time to buy a house. The advantage of the historically low mortgage rate environment of the previous year appears to have diminished for first-time homebuyers, and affordability is projected to become an even greater constraint for them in the future.

In September 2022, first-time buyers were responsible for 29% of sales, unchanged from August 2022 and slightly higher than 28% from September 2021. According to NAR, the annual share of first-time buyers was 34% in 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 15% of homes in September, down from 16% in August, but up from 13% in September 2021.

In 2022, rising mortgage rates are piling onto record-breaking home prices, locking even more potential buyers out of the red-hot housing market. Historically, rising interest rates cause more prospective buyers to delay purchases, and the recent increase in financing terms has already resulted in a decline in mortgage applications.

The prices are not going down in 2022. The various forecasts from experts show that 2022 will remain a moderate sellers' housing market, and home values may still increase by single-digit percentage points. While affordability concerns continue to grow, low mortgage rates, increased savings, and a strengthening job market all contribute to making homeownership more accessible to a wide number of prospective buyers.

Realtor.com’s October 2022 data shows that the housing market is continuing to moderate. Homebuyers continue to cite high home prices and high-interest rates as primary deterrents. The housing data shows that listing price growth continues to moderate but is still in the double digits. In October, the median listing price of homes grew by 13.3% year-over-year, slightly down from a growth rate of 13.9% in September, but it remains elevated at $425,000.

Moreover, more consumers are still expecting mortgage rates to continue to increase in the next 12 months. The share of respondents who believe rates will go up is almost 11 times higher than the share of respondents who believe rates will decrease. However, more buyers are expecting home prices to decline within the next 12 months which negatively impacts current plans to purchase in favor of deferring plans to the future.

In October, theinventory of homes that are actively listed for sale continued to grow and caught up to 2020 levels. However, this growth in active inventory was primarily due to the typical home spending more time on the market than last year, as seller sentiment remained muted and fewer homes were listed compared to the previous year. Listing price growth remained within the double-digits but continued to moderate.

  • The median list price grew by 13.3% in October and is slowly decelerating.
  • Time on the market was 51 days, 6 days more than last year but 20 days less than typical pre-pandemic levels.
  • The national inventory of active listings increased by 33.5% over last year.
  • The total inventory of unsold homes, including pending listings, increased by just 0.5% year-over-year due to a decline in pending inventory (-30.0%).
  • Sellers are less active than last year, as newly listed homes declined by 15.9% on a year-over-year basis.
  • Midwestern metros led the charge in active listing price growth, growing by 12.9% on average over the past year.
  • Western metros saw the greatest increase in the share of price reductions (+18.9 percentage points), followed by southern metros (+13.6 percentage points).

Housing Markets that saw the largest year-over-year increase in listing prices in October 2022:

  • Milwaukee, where the median listing price grew by +34.5%
  • Miami, where the median listing price grew by +25.1%
  • Kansas City, where the median listing price grew by +21.4%

Housing Markets that saw the greatest increase in their share of price reductions compared to last year:

  • Phoenix (+35.9 percentage points)
  • Austin (+31.2 percentage points)
  • Las Vegas (+24.4 percentage points)

Conclusion: The Best Time To Buy A Home Depends On You

Higher interest rates pose a challenge to existing homeowners looking to buy a new home at the same time as selling their current home. Existing homeowners may benefit from lower interest rates than those offered right now because they already have mortgages. Their monthly expenses could rise dramatically as a result of the purchase of a new property.

In other words, if you don't have a specific date in mind for when you want to buy a new property, you may be better off waiting till it does. Every potential buyer's best time to buy a property is different, and the greatest time to buy a house is not the same for everyone. It’s essential to consider your financial situation and understand how buying will impact your bottom line each month.

Sources:

  • https://www.realtor.com/research/october-2022-data/
  • https://www.bankrate.com/mortgages/todays-rates/
  • https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales
  • https://www.bankrate.com/mortgages/will-mortgage-rates-go-up-in-july-2022/
  • https://www.fanniemae.com/research-and-insights/surveys-indices/national-housing-survey
  • https://www.mba.org/news-and-research/research-and-economics/single-family-research/mortgage-credit-availability-index-x241340
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