Home buying in a tough market
If you have been shopping around for a home, you’ve likely encountered challenges along the way.
High mortgage interest rates and home prices hurt affordability, pushing many prospective buyers to the sidelines. A lack of housing inventory can only add to your frustration.
Due to these conditions, you may even decide to put your home buying plans on hold, at least temporarily. Learn more about the complications borrowers face today, the pros and cons of postponing a home purchase, reasons you should still attempt to buy now, and forecasts from housing experts that can help guide your decision.Check your home buying options. Start here
In this article (Skip to…)
- Housing market difficulties
- Why you should pause your home shopping
- Drawbacks of a home buying pause
- Good candidates for purchasing now
- Will conditions improve in 2024?
Housing market difficulties
Today’s wannabe home buyer confront several headwinds that jeopardize their ability to find and afford a home.
First, continued high interest rates for benchmark 30-year and 15-year fixed-rate mortgages (FRM) put home affordability out of reach for many. In August, the average 30-year FRM hit the highest level since April 2002, according to Freddie Mac.
Adding to the problem is the fact that housing prices haven’t dropped in most areas across the nation, and the inventory of homes for sale remains woefully low. U.S. home prices rose 1.8% annually in July to a median price of $422,137, according to Redfin.Find your lowest mortgage rate. Start here
“The supply of homes has been constrained due to various factors, including lack of new construction needed, increased demand, and potential sellers being hesitant to list their homes due to the competitive market or higher interest rates,” explained Carlos Sturrock, lead loan officer with Gapital Mortgage. “This limited supply puts upward pressure on home prices, making it harder for some buyers to find affordable options.”
Over the past few years, home prices experienced substantial growth and outpaced wage increases, making it more challenging for many prospective buyers — especially first-time purchasers — to afford a home.
A 73% share of Americans don’t think homes are affordable right now, and 60% underestimate the median home price, according to Clever Real Estate.
“Just 14% know that the median price ranges between $400,000 and $499,999. Most think it’s lower than that,” said Steve Nicastro, content team lead at Clever Real Estate. “And only 12% of Americans are aware that the current interest rate for a 30-year mortgage has been hovering between 6% and 7%.”
Why a home buying pause could be a good idea
Putting your home search on hold could be a smart idea right now, according to Patrick Freeze, president of Bay Property Management Group.
“It may be a good time to pause your search because of rising prices and limited supply. This can also allow more negotiating power once the market cools down,” he said.Check your home buying eligibility. Start here
Nicastro echoes those thoughts.
“While waiting for more favorable housing conditions can be somewhat of a gamble — since no one truly knows where the housing market is going — it may be a good idea to wait until next year to purchase. That’s especially true if you are worried about overpaying for a house right now, paying too much for a mortgage, or having trouble finding the home you want,” he noted.
Pausing can also enable you to save up more for a bigger down payment on a home.
“Saving up so you can put 20% down, for example, offers some key benefits – potentially a lower mortgage rate, a lower monthly payment, and the ability to avoid paying private mortgage insurance, which is required on most loans when you put down less than 20%,” Nicastro continued.
Furthermore, taking a buying breather can help improve your financial position in other ways.
“You can work on improving your credit score, which can result in a better mortgage loan deal with a lower rate and more preferred terms. And it gives you time to take a closer look at what you can truly afford monthly by tracking your spending and focusing on cutting out unnecessary expenses,” suggests Sturrock.
“The pause can also give you time to decide on lifestyle needs for you and your family. Do you need to be close to work? Do you need to switch school districts? Do you want to acquire a home for the next 10 years, or can you get a cheaper starter home a little outside your chosen area so you can start building equity sooner? There are many questions you can assess while taking a pause.”
Drawbacks of a home buying pause
On the other hand, putting your home buying goal on the backburner has several potential disadvantages.
For one, you could be missing out on a residence you really love, possibly leading to regret for not pulling the trigger on making an offer. Indeed, lost opportunities can come back to haunt you.
“Some markets will continue to appreciate in the months ahead, causing home prices to continue to rise. And if mortgage rates come back down, home prices will only increase more — causing you to pay even more for a property in the future and miss out on the equity that could have been gained if you bought sooner,” Sturrock cautioned.
Additionally, mortgage rates are not guaranteed to drop.
“The Federal Reserve has indicated they may cut interest rates next year, but that doesn’t mean mortgage rates will automatically fall back down to pre-pandemic levels,” said Nicastro. “In fact, rates could continue to escalate even higher in 2024.”
Lastly, sitting out now can result in you missing out on generating wealth for yourself in the future.
“Building equity by owning a home is one of the fastest ways to increase long-term wealth, but you can’t build equity until you own something,” added Sturrock.
Good candidates for purchasing now vs. pausing your home buying search
The home buying process can be overwhelming, with the main barrier for many being a lack of knowledge of the process, according to Patricia Maguire-Feltch, national sales executive for Chase Home Lending. That’s why those who need to beef up their financial literacy/education could be good candidates for a pause.
“Some buyers may decide to step back this year to better educate themselves. Fortunately, there are many resources available to help prepare buyers for the process, such as online articles, courses, and even podcasts that serve as a guide to homebuying,” she said.Check your home loan options. Start here
Other pause-worthy prospects include those facing financial pressures and difficulty paying their bills.
“With the current job market, it’s also best to take time to pause and reconsider if you anticipate changes in your employment status anytime soon,” suggested Freeze.
If you lack the savings for a minimum down payment, it’s likely in your best interest to shelve your buying ambitions until you can put more away. Every mortgage loan program has different down payment minimum requirements.
VA and USDA loans can be had for 0% down if you qualify. Otherwise, FHA loans require as little as 3.5% down, and some conventional loans — like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs — allow 3% down with extra flexibility for income and credit qualification. But as mentioned earlier, it’s best to put down as large of a down payment as you can afford so that you can build equity more quickly and avoid paying private mortgage insurance.
“Of course, if you are going through a job transition, job relocation, divorce, or a major life transition, you should also put purchasing on hold until some stabilization begins to happen,” advised Sturrock.
Then again, the professionals believe you may have a green light to proceed now if you are in a strong financial position — meaning you enjoy good job security with sufficient current and expected future earnings, have a healthy credit rating and score, have reserve funds in the bank for emergencies, and plan to stay put for a while.
“If you are really confident in your financial situation and plan to purchase and live in the house for a long term — meaning 10 or more years — short-term market fluctuations in home prices and interest rates are much less of a concern. Remember that you can always try to refinance to a lower mortgage rate in the future if and when rates drop,” said Nicastro.
Will conditions improve in 2024?
It’s still fair to ask if you should wait things out in the hopes market conditions and mortgage rates will improve next year. Here’s what our experts had to say.
“My gut says we probably won’t see mortgage rates back down to the mid-5% range until late 2024. So if you can lock in a rate and a home purchase now, you can always pursue a refinance in the future so that you get the home you want now,” said Sturrock.Verify your first-time home buyer eligibility. Start here
Nicastro also envisions mortgage rates easing a bit in 2024 as the Federal Reserve hits the brakes on its rate hikes and potentially cuts rates.
“We might also see more housing inventory enter the market as more existing homeowners list their homes, partially due to lower rates, and as new construction inventory hits the market,” he said. “However, I think it’s safe to say that housing affordability will remain an issue next year, and we likely won’t see a major housing correction.”
Freeze believes we may see a decline in home prices nationally in 2024 while rent prices will continue increasing. That’s a good recipe for pondering a purchase pause until next year.
The bottom line
It’s important to weigh the advantages and disadvantages of buying a home in 2023 versus 2024, while assessing your current financial health and ability to afford the costs of homeownership.
If you don’t feel secure moving forward with a purchase right now, don’t beat yourself up: Consider putting your home hunt on hold and revisit this significant transaction down the road. But if you do, homeownership is how many people build wealth.
To devise a strategy that’s best for your unique situation, enlist the help of nearby professionals, including an experienced Realtor or real estate agent and lending expert.Time to make a move? Let us find the right mortgage for you