NEWS & INFO

By David McMillin / Bankrate

Buy now, or wait? That’s the question prospective homeowners have been struggling to answer in today’s housing market. Home prices have been skyrocketing recently, and the Federal Reserve’s work to tame inflation sent mortgage rates soaring, too.

The combination has led many would-be buyers to pick the “wait” side of the equation. The volume of was down 1.7 percent from January 2023 to January 2024, according to the National Association of Realtors (NAR). And, according to the released in February 2024, an overwhelming 83 percent of consumers believe it’s a bad time to buy a house.

However, after being at a constant disadvantage for the past few years, things have started to look better for buyers in many parts of the country. For example, days-on-market figures are way up, giving buyers more time to make an informed decision. NAR data shows that homes typically spent 36 days on the market before selling in January, a marked increase from 29 days the month before.

And January’s , one of the biggest real estate brokerages in the country, reported a sharp uptick in new listings as the spring homebuying season approaches. “It was encouraging to see the surge in new listings, as January stats can be a sign of things to come,” CEO Nick Bailey noted in the report. “If new listings continue to emerge and interest rates drop a bit over time, 2024 could be a year of great opportunity.”

So, is it time to ? Or is it better to wait on the sidelines, in the hopes that either prices or rates see a significant drop soon? And what if there’s a recession? Here are some key considerations to help determine the way forward.

Is now a good time to buy a house?

have backed off from the 8 percent highs hit in October, but they’re still around 7 percent. And home prices are high as well: January NAR data showed that prices have risen year-over-year for seven consecutive months. Together, these factors might dissuade you from buying right now, and that’s understandable.

No matter which way the real estate market is leaning, though, buying now means you can immediately. It also means avoiding the potential for additional mortgage rate increases later: Rising rates can spell serious trouble for your monthly budget, and they also result in paying more in interest over the life of the loan.

“If a buyer finds a property they would like to call home, they should not delay,” says Stacey Froelich, a broker with Compass in New York City. “You cannot time the market, and a home should be a long-term investment.”

“When mortgage rates drop and more buyers come back into the market, home prices will rise,” Melissa Cohn, regional vice president of William Raveis Mortgage in Connecticut recently told her newsletter subscribers. “Remember, you ‘Marry the house and date the rate.’” To put it another way, buy now if you find the right place — you can always refinance later.

In general, if you can answer yes to these three questions, now is a good time to buy.

Ultimately, the decision of when to buy a home is up to you. Life goes on, whether the timing is perfect or not. If you’re anxious to become a homeowner, you’ve met the criteria above and you’re financially stable, go ahead and start house-hunting.

If you’re holding out for lower mortgage rates, a bit of patience might be in order. They have been volatile lately, topping 8 percent in October before falling back below 7 percent, and now up above 7 percent again. That’s more than a full percentage point swing in just a few months.

While 1 percent might not sound like much, it can make a big difference in how much house you can afford over the long run. For example, Bankrate’s mortgage calculator shows that if you buy a $350,000 home with a 20 percent down payment, the monthly payment for principal and interest on a 30-year loan with a 7 percent interest rate is $1,862. The same loan at 8 percent brings those monthly payments up to $2,054 — $192 higher every month. That’s more than $2,300 each year, or $69,000 over the life of the loan.

Of course, it’s impossible to predict where rates will land by summer. But here are three instances in which it might make more sense to wait out the market for at least a while:

1. If home values in your area are dropping: The country’s median home price hit a record high in June 2022, according to NAR data. Since then, some hot metro areas have seen significant drops in median sale prices. Take Austin, Texas, for example: Redfin data shows that the median price in Austin in June 2022 was $620,000. By June 2023 that was down to $601,500, and by the beginning of 2024 it was down much further to $509,280. These declines may not be done yet, so it could pay to be patient for a bit longer.

2. If inventory in your area is increasing: When there are more properties on the market to choose from, buyers enjoy more bargaining power. Since many buyers have been sitting on the sidelines due to the interest rate environment, some areas have seen a jump in inventory. However, according to NAR data, the country overall had just 3.0 months worth of housing supply in January — much too low to meet demand.

3. If your personal finances could use some love: The biggest reason to wait is if your current financial situation is not ideal. For example, if you are expecting a sizable commission check or bonus, an inheritance or some other windfall that would make a big difference in your down payment, waiting until it arrives makes sense. And if your credit score is low, waiting is also smart. Take some time to improve your credit and pay down your debt so you can qualify for better loan terms.

Analyze your local market carefully

Deciding whether to buy a house now or wait depends a lot on where you want to call home. Regardless of national headlines, real estate is hyper-localized and can vary greatly from one market to another, even within the same state.

Consider this January Redfin data from Texas’ Dallas–Fort Worth metro area: In Fort Worth, the median sale price of a home decreased by 0.61 percent year-over-year. But in Dallas, just 30 or so miles away, the median shot up by 17.1 percent. That’s a massive difference, all within the same metro area. In today’s homebuying market, it’s more important than ever to find a real estate agent who really knows your local area — down to your specific neighborhood — and can help you successfully navigate its unique quirks.

What if there’s a recession?

The odds of a recession in 2024 now stand at 45 percent, according to Bankrate’s most recent survey. And as you might imagine, recessions are a risky time to buy a home. If you lose your job, for example, a lender will be much less likely to approve your loan application.

Even if the recession doesn’t affect you directly, if your area is hard-hit, that could have a serious effect on the local real estate market. Fewer people with the means to buy means a lower chance of homes selling, which could keep homeowners from listing and decrease your options as a buyer.

There are some potential upsides to buying a home during a recession, though, if you’re financially able to do so. Notably, there will be less competition, which could help you find a great property that you otherwise couldn’t and make a great investment in your future.

Next steps

Trying to buy a house right now might feel overwhelming, but waiting too long can present challenges as well. Review your finances in detail, and think about how much you’re able to pay upfront as a down payment. Be sure to take the pulse of the town in which you’re hoping to live. Then, talk with an experienced local real estate agent to figure out whether you should buy now or wait until the market is a bit more friendly to your bank account.

High interest rates and the dour commercial real estate market are weighing on the economy, and when a short-term federal loan program expires on March 11, they could weigh even heavier on regional banks.

“A lot of what’s been going on is people didn’t want to recognize how serious the problem was, but now it’s becoming pretty obvious,” said Desmond Lachman, an economist from American Enterprise Institute.

Regional banks hold more than two-thirds of the roughly $2.8 trillion in outstanding loans for U.S. commercial real estate properties. And, according to the National Association of Realtors, the historically low vacancy rates seen throughout 2023 aren’t expected to reverse themselves any time soon.

Tomasz Piskorski, a professor at Columbia Business School, noted that “everyone was playing the waiting game,” hoping interest rates would soon fall, but with the latest Consumer Price Index report showing inflation still above 3%, it’s unlikely that the Federal Reserve will approve cuts in March, leaving the current rate at 5.25% to 5.5%.

High rates have already destroyed about $2 trillion in asset value for banks, according to Piskorski, who contributed to the paper “Monetary Tightening, Commercial Real Estate Distress, and US Bank Fragility,” which takes a closer look at the number of properties where outstanding debts exceed listed values. Their research shows that currently about 14% of all CRE loans and 44% of all office loans are at high risk of default, and if that default rate were to reach 20%, over 380 banks would be at risk of insolvency.

All of this comes as the Federal Reserve has announced that it won’t be extending the Bank Term Funding Program, a short-term liquidity option for banks established in March 2023 in the wake of the Silicon Valley Bank crisis.

“A lot of what they tried to do after the SVB collapse was to create a perception that they, to an extent, will back the banking system,” Piskorski said. “It’s a confidence game at the end of the day.”

Lachman and Piskorski both also noted that the system is holding steady because of that confidence: Regional bank customers, unlike many last year, aren’t withdrawing deposits en masse.

This isn’t to say the one-year BTFP program was perfect, Lachman added. But given the current economic climate, he said he was surprised to see it ending outright instead of being updated or amended, partially because some regional banks were using BTFP loans at lower rates to earn interest elsewhere at higher rates. Piskorski said he was less concerned with the federal program expiring, with borrowers still having ample time to repay those loans.

However, both experts agree that the key issue is interest rates—both for their direct impact on banks and because of the pressure exerted on the commercial real estate sector. The Fed has been too focused on inflation at the expense of financial stability, Lachman said. And, Piskorki added, federal regulators remain too focussed on big banks and not regional banks, which could benefit from having higher capital minimums.

Fed Vice Chair of Supervising Michael Barr noted at a Columbia Law School Banking Conference last week that Fed supervisors are looking to ensure banks are managing risks, including those related to interest rates, but are especially focussing on CRE loans.

“Federal Reserve supervisors did not identify issues quickly enough,” Barr admitted, “and when we did identify risks, we were too slow to act with sufficient force to change management behavior.”

copyright Fortune Magazine 2023

LOS ANGELES (AP) — The highest mortgage rates in more than two decades are keeping many prospective homebuyers out of the market and discouraging homeowners who locked in ultra-low rates from listing their home for sale.

The dearth of available properties is propping up prices even as sales of previously occupied U.S. homes have slumped 21% through the first eight months of this year.

The combination of elevated rates and low home inventory has worsened the affordability crunch. Where does that leave homebuyers, given that some economists project that the average rate on a 30-year mortgage is unlikely to ease below 7% before next year?

Mike Miedler, CEO of real estate brokerage franchisor Century 21, recently spoke to The Associated Press about the challenges homebuyers face. He says the impact high rates are having on affordability and home inventory underscores the need for construction of more affordable homes. The interview has been edited for length and clarity:

Q: With the average rate on a 30-year mortgage hovering above 7% since August, is this the new normal or should buyers hold out for rates to ease?

A: You’ve seen the fastest run-up in mortgage rates that we ever have in history. And at the same time, I think we’ve got to recognize that they’re still right on par with what is probably the 50-year average for a mortgage rate in this country. But I don’t see anytime soon we’re going to be going back to 2% or 3% mortgage rates. I think we’re probably somewhere in this 5% to 7% range for the foreseeable future.

Q: The national home sales inventory has been inching higher, but remains very limited at around 1.1 million homes. What’s the solution?

A: If you look over the Great Recession from a real estate perspective here in 2008-2012, when so many people lost their homes to foreclosure and you overbuilt, what’s happened this last decade is anywhere from 3.5 million to 5-plus million homes that we’re short. We’re kind of going into a macro supply and demand issue, which is you’ve got the largest generations in U.S. history — millennials and Gen-Z — entering their main homebuying years, and we just don’t have enough property to sell and for people to move into. (Homebuilders) are developing more of what I would call high-end properties, but not enough creative first-time homebuyer situation properties. And I think that’s really the solve to all of this.

Q: After years of underbuilding, the pace of new home construction would need to ramp up sharply and remain elevated for years to make a dent in the housing shortage. Does that mean the housing market will be limited by a low level of homes on the market for the foreseeable future?

A: If there’s not a lot of movement in rates, where a move-up buyer can see getting into a bigger home, a more dream home, something that is going to get them more bang for their buck, then you’re probably going to see this inventory issue persist. And we may continue to see somewhere along the lines of plus or minus 4 million existing homes sold, year over year, versus the normal 5 to 5.5 (million) that we’ve seen over the last decade or so.

Q: Home prices skyrocketed during the pandemic and haven’t eased significantly despite the housing downturn that began last year. Are you optimistic more first-time buyers will be able to afford to buy a home in the next few years?

A: I think you have to look at just affordability in general. It takes about nine years for the current generation to save for that 10% down (payment). When boomers were doing it in the 80s and 90s, it only took you about five years. And so I think that’s why you’re seeing more and more people having to go to the ‘bank of mom and dad’ to borrow. But that’s also why you’re seeing a lot of drive into more affordable markets. People are moving to places where obviously there are jobs, but (also) inventory that they can afford.

(Copyright Associate Press 2023)

According to the California Association of Realtors (C.A.R.), existing, single-family home sales reached a total of 241,770 in October. This number, calculated on a seasonally adjusted annualized rate, exhibits a marginal increase of 0.3 percent from September. However, a notable decline of 11.9 percent is observed when compared to October 2022.

One of the pivotal indicators of the real estate market's health is the median home price. In October, the statewide median home price stood at $840,360. While this figure reflects a slight decrease of 0.4 percent from September, it marks a substantial 5.3 percent increase from the same period in the previous year.

Looking at the year-to-date statewide home sales, October reveals a 27.2 percent decline. This dip in sales reflects the overarching impact of various factors, including economic conditions and changing buyer sentiments.

As we dissect the numbers, it becomes apparent that the California housing market is navigating through a complex landscape. The marginal increase in October home sales suggests a nuanced response from both homebuyers and sellers in the face of prevailing challenges.

The muted home sales in October can be attributed to the influence of elevated interest rates. As the cost of borrowing rises, prospective homebuyers may adopt a cautious approach, affecting the overall transaction volume in the market. The delicate balance between supply and demand becomes more pronounced under these circumstances.

The economic backdrop plays a crucial role in shaping real estate trends. Understanding the interplay between economic conditions and housing dynamics provides valuable insights. A 27.2 percent decline in year-to-date statewide home sales underscores the multifaceted impact of economic shifts on the real estate sector.