2 Reasons Why Suze Orman Says You Should Be 'Really Careful' About Buying a Home Right Now
KEY POINTS
- Suze Ornan says housing inventory is finally starting to pick up, which could help bring prices down.
- At the same time, she insists that today's buyers need to proceed with caution.
- The combination of higher home prices and higher mortgage rates makes it a tough time to be in the market for a new home.
It's still a very difficult time to buy.
To say that 2022 has been a tough year to buy a home would be an understatement. Granted, the same can be said for 2021, when housing inventory was unbelievably low and home prices shot up through the roof.
But this year, buyers have faced the challenge of not just high home prices, but also much higher borrowing rates. At this time last year, it was possible to sign a 30-year mortgage at under 3%. These days, you're looking at upward of 7% for that same mortgage. That's a world of difference.
It's for these two reasons -- higher home prices and mortgage rates -- that Suze Orman cautions today's home buyers to be really careful about making an offer. But does that mean you shouldn't do it? Not necessarily.
You can buy a home today -- but crunch those numbers first
In an early November podcast, Orman acknowledged the U.S. real estate market is finally starting to soften. And after two solid years of soaring home prices, that should help buyers breathe a sigh of relief.
That said, mortgage rates are so high right now that they're offsetting any reductions we may be seeing in home prices. That's right -- sellers aren't getting away with commanding the same ridiculous prices they were earlier on in 2022 or in 2021, but home prices are still up.
This year, the supply of available homes has increased modestly. There's still not enough inventory to fully meet buyer demand, and we may not reach that point until well into 2023 (if it even happens then), but at least there are more homes to choose from now than there were a year ago. And when more inventory hits the market and the competition increases, sellers lose part of their edge and buyers gain bargaining power.
As such, home buyers today can take their time when they see a listing they're interested in hit the market (as opposed to last year, when many buyers were making offers sight unseen). That's because buyers aren't clamoring for homes the same way they were when mortgage rates were at 3%.
But if you're going to make an offer today, be sure to run the numbers carefully first. You might still be looking at paying a premium for a home compared to what it would normally sell for, plus a high mortgage rate on top of that. And so you'll need to make absolutely sure your housing costs don't exceed 30% of your take-home pay, as that could result in a true financial crunch.
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And when we talk about housing costs in this context, it's not just your mortgage payment you need to consider. Rather, that 30% limit should include peripheral expenses like property taxes and homeowners insurance.
Proceed with caution
Although the housing market seems to be cooling, it's still far from buyer-friendly. If you're financially stable and have funds on hand for a down payment, you may decide to move forward with a home purchase -- and there's nothing wrong with that. Just make absolutely sure you can afford the home you're drawn to before putting an offer on the table.
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