A number of prospective home buyers have dipped their toes in the market, but have not jumped all the way in. Some are suffering from sticker shock after watching home prices reach all-time highs. Today’s high home prices are causing many to sit on the sidelines and try to wait it out. The idea is that there are a number of factors that might cause home prices to decrease and their patience will pay off with buying a house at a discount. This seems to especially be the case with first-time home buyers. The number of existing home sales increased during the month of August by two percent. At the same time, only 29 percent of the purchases were from first-time home buyers. Although it might seem logical to wait until home prices fall before buying a home, the truth is that waiting to buy could cost you more. 

Buying a Home Now is Better than Waiting

If youa re thinking buying a home now is simply too much, you should think long and hard about what it might cost in the future. When you are buying a house there are two major factors that need to be considered. First, you need to consider the price of the house. If you think that waiting is the best approach then you believe that prices will go down in the near future. Second, you need to consider mortgage rates. Mortgage rates rose slightly last week, but they are still hovering slightly above record lows. If you are in the camp that it is a good strategy to wait to buy a house, then you are betting on mortgage rates remaining at bargain levels. Unfortunately, anyone who is thinking that home prices will suddenly drop or that mortgage rates will remain the same, will probably be proven very wrong. 

Home Prices Will Continue to Increase

Waiting for housing prices to drop is a fool’s errand. The price of any good or service is a product of supply and demand, and right now, there is no supply. It would be disingenuous to say that strong demand from home buyers has had nothing to do with the dramatic rise in home prices. After all, today’s rock-bottom mortgage rates have motivated many people, especially first-time home buyers, to purchase a house. However, the lack of supply has been the biggest factor in the rise of home prices. Over the summer, we saw housing inventory reach record lows. While it has crept up slightly since then, it has not increased anywhere near necessary to cause a decline in home prices. In fact, the rise in inventory has not even been sustainable. In August the number of homes available for sale dropped compared to January. 

In order for prices to make a reversal, home inventory would have to increase dramatically. Some people believe that is a possibility due to the lifting of the foreclosure moratorium. However, the numbers just do not support it. While there are many homeowners in the process of foreclosure, more and more homeowners are avoiding foreclosure with each passing month. The number of homeowners seriously delinquent continues to decline. At the same time, many lenders are sticking by their word that they are trying to work with homeowners and avoid foreclosure. 

Another hope for people who believe that inventory will increase dramatically are new home builds. Unfortunately, many of the problems that hampered new home construction are still around. New home starts are facing the twin challenges of material shortages and labor shortages. Homebuilders are having a hard time trying to find the materials they need to build homes, such as lumber and alluminum. At the same time, they cannot find enough skilled laborers to put those materials to good use once they find them. Building materials and labor markets also operate according to supply and demand, just like the housing market. The shortage of building materials and skilled labor is causing the cost of them to skyrocket. So, not only is new home construction slowed because it is hard to get what is needed to build them, but it's also more expensive. This isn’t a recipe for declining home prices. 

Mortgage Rates Will Continue to Increase

We have already seen mortgage rates increase from their all-time lows and we should expect this trend to continue. If you do not believe us, listen to the lenders. Fannie Mae projects that mortgage rates will be 3.2 percent in 2022. Freddie Mac thinks they will be even higher and are projecting mortgage rates to be at 3.8 percent. The analysts at the Mortgage Bankers Association have even worse news for home buyers who are waiting. They are projecting mortgage rates to be at 4.2 percent in 2022. 

Many of these projections are based on what lenders think will happen with the Federal Reserve. The Federal Reserve slashed interest rates in order to stimulate the economy in the early days of the pandemic. However, as the economy recovers from the pandemic, the Federal Reserve has a new worry that they have to contend with, inflation. At their latest meeting, the Federal Reserve tried to assure everyone by claiming that inflation is transitory. Regardless of whether or not that is true, in that same meeting they also admitted that they plan to raise interest rates in 2022. In turn, lenders will be forced to raise mortgage rates, which means that home buyers won’t get a better deal on a home loan by waiting. 

Final Thoughts

The bottom line is that any home buyer expecting a discount by waiting to buy a home will probably be sorely disappointed. Home prices will probably rise and so will mortgage rates. So, not only will you pay more for a home, but you will also be charged more to finance the purchase. This is a double-whammy for home buyers and pretty much guarantees that you will have higher mortgage payments if you wait than if you buy now. 

The message for home buyers is simple; if you want to buy a house, you should do it now. Waiting around in hopes of stumbling into a better deal will most likely cost you more money in the end. If you are tired of renting and you want to be a homeowner, there is no better time than the present. Instead of letting fear get in the way of your dreams of being a homeowner, seek out an expert and get all the facts. 

If you have ever thought about buying a home, take the first step and contact us. The mortgage brokers at Peoples Choice Mortgage will give you an honest assessment of where you are financially and see if it makes sense to buy a house. Chances are that you are not going to be any happier renting tomorrow than you are today. What is just as likely is that you will dislike paying more for a house tomorrow than you would today. So, do not let that happen. Do not wait around for a bargain that never materializes. Instead, act now and realize that even at today’s prices, buying a home now is still buying at a discount.