Mortgage

With rates of interest rising, is now a great time to purchase a house?

Will 2022 be the year you buy a home?

If you are looking to buy a home in 2022, you are probably watching the market closely.

Interest rates are rising. And home prices rose at a record pace in 2021.

Does that mean it's a bad time to buy a home?

Not according to Jon Meyer, The Mortgage Reports credit expert and licensed MLO.

"While it's always nice to get a better price and have a lower total monthly payment, it's never a bad time when you can afford the house," says Meyer. Here's why.

Find Your Lowest Mortgage Rate Before It Goes Up Any Further (Jan 5, 2022)

In this article (continue to …)

Is Now a Good Time to Buy? The central theses

As always, buying a home is subjective. It's more about your personal finances than the market.

Here are some of the top 2022 home trends to keep in mind:

With home prices still rising, it makes sense to buy sooner rather than later if you can afford it. House price gains should slow, but not reverse, in 2022. So it's not worth waiting for lower property prices. Mortgage rates are rising. But don't let that put you off. Even if they hit 4%, that's still less than half the historical average

If you can find a home you like and financially ready, 2022 is an excellent time to buy.

Check your eligibility to buy a home. Start here (January 5, 2022)

Higher mortgage rates on the way

After rates fell to all-time lows in 2020 and 2021, it's tempting to play the waiting game and see if they can go any further.

However, Freddie Mac's monthly 30-year fixed rate average was on the up for the last quarter.

“My mentor always said to me: 'The person who says they know where the prices will be in the future knows less than the person who doesn't,” said Meyer.

“He didn't mean that we can't gauge the market or have a good idea of ​​where prices are going. Its underlying message was that you can't chase the courses. "

Does Rising Mortgage Interest Mean Bad Time To Buy A Home?

The Federal Reserve announced on December 15 that American consumers should expect a number of rate hikes throughout the year.

From what we now know, it will likely be better to set a mortgage rate sooner than later in 2022. Plus, the longer you own a home, the more equity you build up.

"Even if rates rose 1 percentage point today, historically they would still not be viewed as high rates."

However, that doesn't mean that potential buyers should be put off by rising interest rates.

Historically, today's mortgage loans are still extremely affordable. And it should stay that way in 2022.

“Even if rates were 1 percentage point higher than they are today, historically they would still not be considered high rates. When my father bought his first house, he got a loan with an interest rate of 11.5%, ”added Meyer.

Home prices will continue to rise

With low mortgage rates and tight inventory fueling buyer demand, home appreciation reached unprecedented heights in 2021.

Average US sales price skyrocketed 14.6% annually for the four weeks ended December 26, climbing to a new all-time high of $ 361,171, according to Redfin.

While 2022 will be another strong year for the housing market, the pace of property price growth is expected to slow from the record highs seen in 2021.

However, a slowdown in price growth should not be misunderstood as falling prices. All indicators point to rising property values ​​in 2022, only at a slower pace.

“At least buyers benefit from low mortgage rates. But inflation could spill over to more consumer goods next year, ”said Redfin chief economist Daryl Fairweather.

"While our New Year forecast is for more offers and slower home price growth, other spending could make buyers feel so constrained that they have to cut their home budgets."

Is renting the solution?

Renting has its advantages, such as not having to pay property taxes or household insurance, especially if you are not yet tied to your place of residence.

But it's similar to leasing a car, says Meyer. "You pay every month to have nothing at the end of the day."

Due to the low number of offers and the continued rise in purchase prices, rental prices are also rising.

Now the average renter has an even higher monthly cost and appreciation rate than a homeowner.

Redfin found the average monthly rent rose to $ 1,985 in November, an increase of 6.8% monthly and 20.5% annual. By comparison, borrowers who dropped 5% had an average payment of $ 1,551, up 1.1% from October and 19.9% ​​year over year.

Summary of the rental marketNovember 2021Month to month growthYear-on-year growthAverage Monthly Rent 1.9856.8% 20.5% Average Monthly Mortgage Payment for Home Buyers with 5% Down Payment 1.5511.1% 19.9%

Source: Redfin

With housing costs soaring, inflation hit 6.8% in November, the highest since 1982.

Many consumers were removed from the retail market and then turned to the rental market. This increased demand and expected increased inflation rate will drive rental prices higher and could make it financially more difficult than buying.

“First came inflation for the home sales market, and now it's coming for the rental home market,” Fairweather said.

"Anyone who bought a home prior to this year can pat themselves on the back because their mortgage payments are firm, which means their largest recurring expenses are inflation-protected."

Gambling on interest rates and home prices

Some buyers might be tempted to wait for lower interest rates – or slower home price growth – before entering the market.

But if you, as a home buyer, wait for mortgage rates to drop to a certain range, you run the risk of:

To lose the house that you wanted
Be deducted from the offers that you could have afforded beforehand
Waiting for lower prices that may never happen

Meyer provides an in-depth hypothesis of how sustaining low mortgage rates or house prices can potentially harm you:

"If you wait for the right interest rate, you are gambling," he says.

Example of buying a house

"Suppose you are a borrower who qualifies up to a total of $ 2,500 monthly payment." If today's interest rate is 3.25%, your budget for buying a home could look like this:

Home price: $ 500,000 Down payment: 20% ($ 100,000) Monthly principal and interest payment: $ 1,740 Total monthly mortgage payment: $ 2,360

"You are qualified and can afford the home," says Meyer, "but you decide that you will wait until prices go back below 3%."

“It has now been six months and prices are still 3.25% and the original home you wanted is no longer available. An identical property in the same neighborhood is a listed building, but the market has held its pace and this house is listed at $ 530,000. "

Thanks to the higher price of this home, your monthly payments have increased and you are almost out of your budget. Your deposit amount has also increased.

Home price: $ 530,000 Down payment: 20% ($ 106,000) Monthly principal and interest payment: $ 1,845 Total monthly mortgage payment: $ 2,497

And this on the condition that you have not taken on any additional debt in the meantime, adds Meyer. "If you have an extra $ 1,000 in credit on your credit card and you cannot withdraw it, you will no longer be entitled to the house."

Risks in Waiting to Buy

"In terms of house price, I have personally seen customers price themselves out of the market they are targeting, only in the hope that house prices will fall a little and instead continue to rise."

"Then there is the other scenario that can happen," he says. "Prices never go down and keep going up."

If the mortgage rates are high enough, it could cost you your qualified monthly payment and the home you want to buy.

For these reasons, Meyer warns against chasing lower rates and / or lower home prices.

“It's not just hurting your wallet,” he says, “but more importantly, your ability to qualify for the house you want.

This underlines Meyer's overarching point that now is always the right time to buy if you are ready and can afford it.

Find Your Lowest Mortgage Rate Before It Goes Any Further (Jan 5, 2022)

What are the mortgage rates today?

Industry experts predict that the average 30-year fixed-rate mortgage will be paid off around 4% by the end of 2022.

And while predictions don't always come true, we know interest rates today are near historic lows. Should they fall in 2022, borrowers can always refinance with their lender to secure a lower interest rate and monthly payment.

Check your eligibility and current interest rates to see if getting a mortgage and home purchase is right for you.

Show me today's prices (Jan 5, 2022)

The information contained on The Mortgage Reports website is for informational purposes only and is not intended to be an advertisement for the products offered by Full Beaker. The views and opinions expressed are those of the author and do not reflect the policies or position of Full Beaker, its officers, parents or affiliates.

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