Last year, buyers struggled to purchase homes for two key reasons. First, the real estate market was so empty that buyers were practically begging for homes to purchase. Secondly, home prices were extremely inflated, causing many buyers to get priced out.
But while last year's housing market was a tough one to crack, this year, buyers face even more challenges. And so, if you're thinking of buying a home, you may want to sit tight and wait at least a year.
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It's not a buyer-friendly market
In January, home prices were up 19.2% on an annual basis, according to the S&P CoreLogic Case-Shiller Index. And in some markets, they were up way more than that.
Now, it's one thing to pay a premium for a home when mortgage rates are nice and low, which was the case for all of 2021. But right now, borrowing is much more expensive.
Recently, the average 30-year mortgage topped 5% -- a level not seen in years. And so, when we combine much-higher-than-average home prices with higher mortgage rates, it sets the stage for buyers to get in way over their heads financially.
Even if you can swing a home at today's prices and borrowing rates, it probably won't end up being a very good investment. It's true that homes have a tendency to gain value over time. But if you buy one at such an inflated level, you'll run the risk of losing money should a need to sell arise a few years down the line. That's why you're better off waiting -- whether you're looking to buy a home to live in yourself or as a real estate investment.
Waiting could really pay off
Mortgage rates are likely to keep rising this year due to plans on the part of the Federal Reserve to raise its federal funds rate several times in 2022. As borrowing gets more expensive, buyer demand is likely to wane. That could, in time, lead to lower home prices.
Furthermore, since 2020, sellers have held off on listing homes due to economic- and pandemic-related uncertainties. If seller sentiment changes this year, we could see an influx of homes hit the market.
The combination of more inventory and reduced buyer demand could change the housing market from seller-friendly to buyer-friendly over the course of the next year. And so, unless there's a pressing need to purchase a home today, as a buyer, you're better off sitting tight and waiting for market conditions to improve.
Granted, waiting a year could potentially mean getting stuck with an even higher mortgage rate than what you'd pay today. But it could also mean spending 10%, 15%, or 20% less on your home's purchase price. That's a worthwhile trade-off.
Plus, if you attempt to buy a home right now, you're practically guaranteed to land in a bidding war. That's a stressful situation you just don't need -- so why subject yourself to it when waiting could mean paying less for a home and dealing with less aggravation?
