After being on an absolute tear for the past two years, the real estate market has been cooling over the past few months.

While a cooldown is much needed, it has also brought about some confusion with conflicting headlines about a housing market crash, bursting bubbles, etc.

The bottom line is nobody knows for sure exactly what is going to happen, but everyone has an opinion😀

In this blog post, I’m going to share the latest information with you and give you 3 reasons why now might not be a good time for you to buy a home.

Continue reading below, or watch the following video;

Over the past 20 years, and more often than normal these past few months, the most common question I’m asked is “How’s the market?”

That question is often followed by “Is now a good time to buy?” or “is now a good time to sell?”

The typical real estate agent's answer is “the markets great”, which I’m sure you’re sick of hearing, because sometimes the market isn’t great and conditions to buy or sell are not as good as they could be.

While I personally don’t believe we are going to see a widespread real estate market crash or a large number of foreclosures hit the market, (see my recent blog post to learn more) the real estate market is correcting and will likely continue doing so.

With that in mind, let’s jump into the 3 reasons why you might not want to buy a home right now;

1) Home Prices

Home prices have soared over the past couple of years due to a perfect storm of sky-rocketing demand with very low supply.

This was before the multiple offer frenzy took hold which pushed prices up even higher as desperate buyers paid $10s of thousands, or more, above the list price to secure the winning offer.

We knew it couldn’t last, and it didn’t.

Home prices have started to correct (not crash) in many areas of the country. Here in Frisco, prices reached their peak in April 2022. By August 2022 the median sales price was down 17% from April’s high, but before you get too excited, know the prices in August 2022 were still 14% higher than in August 2021 and we are starting to see signs that prices are stabilizing. (Check out my Frisco Market Report for more information)

Home prices are seasonal and are always lower in late fall and winter than they are in spring and summer, so if you don’t have to buy a home right now you will more than likely see additional home price declines over the next few months.

Here is what the experts are predicting home prices to do in 2023;

The latest forecasts for home prices here in Frisco are in line with these national expectations. Zillow is forecasting price appreciation of 3.4%, while many of the local home builders are expecting to see prices appreciate between 3% and 5%.

2) Mortgage Rates

While mortgage rates were expected to climb in 2022, nobody forecasted rates to increase as quickly as they did through spring. No surprise, as mortgage rates increased, buyer demand decreased.

Let’s face it, a year ago mortgage rates were right around 2.75% and are about 6% today. A 1% rise in mortgage rates lowers a potential buyer’s purchasing power by about 10%. In other words, a buyer approved for a $500,000 purchase a year ago is only approved for $350,000 today, all else being equal. Considering home prices have continued to appreciate year-over-year that puts buyers in a very difficult position.

While mortgage rates of 6% might still good historically, do today’s buyers care about that? I mean a gallon of gas used to be $0.25 as well.

Mortgage rates today are higher than they have been at any time over the last decade. When all you have ever known is mortgage rates between 4% and 5%, besides the abnormally low rates in 2020 and 2021, it’s really expensive to buy a home right now.

Mortgage rates are expected to come back down and settle around 4,5%, but inflation is the enemy of long-term interest rates. Until inflation is under control and starts to come down, we shouldn’t expect to see a big decline in mortgage rates.

#3 Affordability

Due to rising mortgage rates, the average mortgage payment is 53% higher now than it was a year ago. With inflation running at a 40-year high, the price of everything, not just houses, has gone up. The more money you have to spend on gasoline, groceries, clothes, utilities, etc., the less money there is available to make a mortgage payment.

As a result, home affordability has fallen to its lowest point in over 30 years as shown on the following graph;

The dotted line on this graph represents a baseline of 100. A reading of 100 means the average wage earner can afford the average-priced home in the market. A reading below 100, which we have now, means that you need to earn more than the average wage in order to afford the average-priced home.

Not good when you consider how expensive it has become to rent as an alternative.

Silver Lining

There’s always another side of the coin. While now might not be a good time for some people to buy a home, based on the 3 reasons above, now does offer opportunities that haven’t existed for the past couple of years.

A number of buyers took themselves out of the market, not because of home prices or affordability, but because they were unable to find a house to buy or grew tired of the multiple offers and bidding wars. Those are pretty much gone, as is the need to submit offers with appraisal and contingency waivers.

The asking price of a home today is the maximum you are likely going to have to pay, not the starting point.

Many sellers, and especially the new home builders, are offering buyer incentives that can be used to buy down the mortgage rate. A rate buy down means points can be paid upfront to lower the long-term mortgage rate.

Some new home builders are currently offering 3.99% 30-year fixed-rate mortgages on all homes closed on prior to the end of the year, while others are offering a 2.99% rate in year 1, 3.99% rate in year 2, and 4.99% fixed for the life of the loan.

Additionally, if you need to sell your existing home in order to buy another home, contingent offers are much more likely to be considered.

If you have questions, would like additional information about new construction incentives, or just want to discuss your real estate goals to see if now is a good time for you to consider making a move, schedule a call with me. I’m always happy to talk to you and there is never any obligation.