Are Home Prices Dropping. When is the best time to buy a house.
Several home sales have gone down in the first six months. There are more homes on the market, yet there are multiple offers. Interest rates have gone up, yet their people are buying at full price. And there’s a concern about recession. Stock prices are down. So where is the market headed?
If I was a buyer, I’d have the same concern. Yet if you want to buy, you need to make the right decision to buy and decide whether you want to buy now or you want to wait till 2023, or 24 or 25, or 26. Tough choices, but the choice has to be made.
The first thing that happened when the interest rates went up is that a lot of the buyers panicked and slowed down on buying. A lot of the buyers were out of the market. They could not afford to buy what they wanted to buy anymore because the rates went up. So how does the interest rate affect your affordability? Or your payments? Or your chance of qualifying for a loan and for the house that you want in a specific area or a specific neighborhood at a specific price?
If you take a million-dollar home and you put 20% down, so the loan amount is $800,000 at 3%, your payment, which includes principal interest tax and fire insurance, would be approximately $4,500. Today, if you were to buy the same million dollars home, let’s say today’s rate is approximately 5.5%, July 7, 2022. So the payment on a million-dollar home with a 20% down at 5.5% would be approximately $5,600 a month. The house at the same house at 3% was 4500 a month. So your payment just went up $1100 a month for the same house. So your affordability has gone down. Lenders may look at it and say, hey, you can not afford this house at $1 million, so you may have to buy a $900,000 house. So the affordability index has gone down as soon as the interest rates went up. So when the rates go up, the affordability index goes up as well. That means your chances of buying a home get smaller and smaller and that affects the housing market, which it has. And we’ll talk about that as we go along.
Here are some charts and graphs we are going to visit so we can get a better understanding of what’s happening in the next year next six months or next couple of years. So you can get an idea why, or you should wait, or you should not even buy and wait a few more years when the prices go down, or the rates go down if they go down.
Let’s look at chart number one. It talks about the existing home sales in 2021, with 6.5 million homes sold in 2021. And in 2022, the projected sales of home sales is almost 5.4 million homes. So there’s a significant drop in the number of home sales. And of course, the idea or the thinking behind that is there’s a shortage of homes. And of course, it could be because the rates went up, but there’s a significant drop in the number of home sales. So let’s look at chart number two. So here is a chart of existing home sales and the median sales price. This shows the percentage of change year over year. And this data is from the National Association of Realtors. As you can see, as of May 2022, the home price is up 14.5% compared to last year. So even though the interest is high, prices have gone up in the first four or five months of 2022, and projections are they’re going to go up. So let’s wait and see what happens. One of the other factors that are of concern to buyers like yourself, whether to buy now, wait or not buy at all, is the looming concerns about a recession. People are thinking about a recession coming up in the spring of 2023. Only in the 1990s, there was a 2% drop in the recession. And in 2008, in the major housing bubbles, there was a 20% of a price drop in the recession of 2008. But if you look at the other four recessions, home prices went up on an average of about 4%. So just because there’s a recession coming or recession looming doesn’t mean that there is a housing crisis. The way that is right now, with a lot of home equity and a shortage of homes, there may not be a price drop. One good news about home buyers is that more listings are coming on the market compared to last year. Let’s look at numbers. In January 2022, 326,000 new homes came on the market in January. In May, new homes came on the market was $546,000, according to the National Association of Realtors, which is good news for the buyers for several reasons. Number one, if you’re a buyer and when there’s more inventory, it takes longer to sell. That means you don’t have to write an offer the first day you see it. You can have a few days to think about or compare that home to other homes. The second thing is when there are a lot of homes on the market, or more homes on the market, they probably won’t 2030 offers that used to get last year. They may just get one or two or just get one offer. So the bidding was reduced when there was more inventory, which means that the prices are not jumping.