Recently I over heard a conversation between two gentleman about buying a home. Both men felt the best bet was to "wait until the market goes down again."
I chuckled to myself. Indeed home prices are moving up and so are interest rates, but waiting until the market goes down again will be a long wait. Due to the dynamics of economic and political forces coupled with the specter of the Great Recession its unlikely that home prices will be what they were just two years ago in the next decade and if they are interest rates won't be that low.
A recent home value report I read showed that homes in the 93534 zip code have risen 7.4% in the last year. The median home price is now $229,4000. According to YCharts the current interest for a 30 year fix home loan is 4.6% compared to a year ago where interest rates averaged at 4.02%.
Compare that to interest rates this week in 1988 at 10.01% and in 1998 7.1%. The collapse of the lending market in 2007 lead to a dramatic drop in interest rates from which we have barely seen an increase in the decade since the market crash. The point is that for millenials: THESE INTEREST RATES ARE HISTORICALLY LOW. Our parents bought homes with interest rates that were almost double what they are now.
Of course home values averaged in the mid $140,000s in the Antelope Valley twenty years ago, however twenty years ago there was plenty of trades people, raw materials and less regulation to build new homes in California. Our current market is being driven by a lack of skilled tradesman, raw materials, the new requirements for new homes and a significant lack of inventory to meet the demand. The lack of skilled labor and raw goods is driving prices on homes across the country, but other states do not have the kind of regulations we do. Read more about that here.
Waiting for the market to "go down" is will be a long wait because our market is responding to the high demand for housing, rising costs to build, a reduced supply of materials, tradesman and lack of inventory. For the price of home to go down to the levels seen in 3 years ago will likely be caused by a significant down turn in the nations stock market triggering a recession. As there are multiple factors that drive up the value of homes, there are also multiple factors that affect the final cost i.e., what you actually pay. Local tax rate, mortgage interest rates and additional special tax assessed for community facilities, aka "Mello-Roos."
Currently in the Antelope Valley, homes are lasting longer on the market than they did at the start of 2018. With that being said, homes are only on the market an average of 48 days before being sold. I recently closed on a home that was listed 2 days before the offer I wrote was accepted. While I can only speculate why there has been a slowing, you can start watching for are slight price reductions in order to entice buyers. Those reductions may amount to 2-5% of the original list price, but are not a price reduction negating the 7-8% overall increase of the home value from last year. What has NOT been reduced is interest on mortgages. An interest rate in the high 2% - mid 3% range will be something we will fondly look back on and wistfully recall that "those were the days."
The Federal Reserve slashed interest rates in response to the Great Recession to stimulate the economy. The economy is predicted to grow 2.8% this year and on track for steady growth in 2019. The Great Recession was a once in a generation market crash and the tools to pull the nation out of it were once in a lifetime. We will never see 30 year fixed mortgage rates as low as we saw in the last 8 years. Even if the average cost of a home levels off or drops, interest rates are not going down.
The number one myth is that it takes 20% down to buy a home to afford to buy.
False: FHA loans require 3.5% and there are opportunities to qualify for down payment assistance programs.
To avoid pay PMI (private mortgage insurance) you need to put 20%. In the year you have been trying to save up 20% for a home, the purchase increased and interest rates rose .75 - 1%.
For our average home in 93534, you would have needed $38,717 down to avoid PMI. Today, that figure rose to $45,880. If you were thinking of buying last year, waiting has cost you money.
Many realtors work with lenders to keep up to date with current rates and products for prospective home buyers. There are no strings attached to meeting with a lender, letting them analyze your current financial health and let you know what products fit your needs. Lenders can also provide a plan to put you on the path towards home ownership if your financial health needs some time to improve.
Bottom line: Waiting to buy a home will only cost you in the long run. We may see slight reductions, but with the lack of supply and high demand for housing, our homes prices will likely stay where they are for sometime.