Buying a home is a major investment, and the majority of house hunters need to rely on financing such a massive purchase. Yet today’s economic environment with its suddenly high mortgage rates certainly makes it a challenge for anyone looking to buy a new property. Here’s what you can do about it if you’re in the market for a new home.
Unprecedented increases in the average cost of a mortgage over the last year have left plenty of prospective home buyers feeling the squeeze. You might be kicking yourself because you waited too long to go house hunting as interest rates went from an average of 2.5 percent or so to up above 6 percent (or in some instances even 7 percent!), but don’t be too hard on yourself. The truth is that record-low mortgage rates were likely contributing to a big problem in house prices being more than a little over-inflated.
Think about it this way: when it was so easy to get a mortgage, plenty of house hunters were able to afford to purchase relatively expensive properties. This created a feedback loop in the housing industry that saw sellers increase the prices of their homes and then buyers meeting those new prices with mortgage loans of ever-increasing size. Now that it’s become harder to afford these larger mortgages, there won’t be as many buyers willing to pay the high ticket price of many of these homes still on the market. As a result, the cost of a new home is likely to decline slightly over the rest of 2023.
Similarly, by the end of 2023 there’s likely to be some good news in store for home buyers as well. The breakneck pace of interest rate hikes that have been instituted since March of 2023 is absolutely slowing, and that means that wave is about to crest. In fact, many industry insiders feel that the current high average interest rate is likely to decline slightly by November or December of this year, making it slightly more affordable to take out a home loan soon.
Truth be told, we’ll likely not see the ultra-affordable interest rates of 2022 again for quite some time. Yet even a slight easing of the cost of lending will go far in making it easier for house hunters to afford slightly more modest mortgages. This, combined with the downward pressure on housing prices expected to occur over time, will help the housing market return to a “new normal” that will make slower, more stable long-term growth a possibility once more. With stable markets good for both buyers and sellers, the future looks better than it has in months!