Regardless of what current trends and research show, the real estate market is notoriously unpredictable. Changes in supply and demand, unforeseen events, interest rates, and a fluctuating economy can all impact home sales.
Between 2021 and 2022 alone, house prices jumped nearly 15%. While this is good news for home sellers, it makes finding another property difficult.
If you’re thinking of buying or selling a home, you may be waiting until the market settles. But the old adage, “What goes up must come down” isn’t always true. Especially when discussing real estate.
In this article, we’ll discuss why now is as good a time as any for selling a home or buying a new one and why waiting out the current housing market conditions may not be in your best interest.
A Glimpse at the Current Market
Utah’s housing market is currently experiencing historically low interest and unemployment rates. The state’s median home prices have also skyrocketed to $460,000.
In 2022, Utah’s market was ranked number one in the nation for job growth, fewest mortgage delinquencies, lowest mortgage rates, plus low state and local taxes. This is due mostly in part to its solid economy.
Experts predict that mortgage rates will continue to rise in the coming months, which may force homeowners to reduce the sale price of their homes. As of now, buyers in Utah seem more than happy to pay exorbitant sticker prices for a slice of the northwestern pie.
There’s also no concrete evidence to suggest that house prices will come down just because interest rates are rising. Although Utah is currently experiencing a seller’s market, no one knows how long it’ll last. This is why waiting out the current market could mean waiting indefinitely.
Now let’s get into the specific reasons why waiting to buy or sell a home won’t save you money in the long run and could actually, set you back financially.
Why Interest Rates Matter When Buying or Selling a Home
When it comes to mortgage interest rates, a general rule of thumb is that every 1% gives you 10% buying power. Unfortunately, this same equation applies to rising rates. For every 1% that interest rates rise, your purchasing power will decrease by about 10%.
That means that if you once qualified for a $450,000 home when interest rates were at 3.5% if they jump to 4.5%, your budget just decreased by $45,000. Buyers who want to keep the same monthly payment in the face of rising rates need to start looking at cheaper homes.
Unfortunately, cheaper and more affordable homes are slim pickings in today’s explosive market. It’s a waiting game to see if prices will fall as interest rates rise or if homeowners will stick to their asking price, despite the rising rates.
Another cost to consider if you wait too long to buy or sell is how much interest you’ll pay on your loan. For example, let’s say you purchase a home for $400,000 with 5% down ($20,000). The borrowed amount is now $380,000.
If you made this purchase when interest rates were at 3% and they increased just 1% to 4%, you could pay as much as $50,000 more in interest over the course of 10 years.
Whether you’re buying or selling a home in today’s market, considering interest rates is important. However, basing all your future decisions on these unreliable figures isn’t advisable.
Buyers might be better off securing their dream home today for a more reasonable price and at a lower interest rate. These rates can spike at any time (more on this in a minute), and if you wait too long, the house you want may be out of reach.
What Causes Interest Rates to Rise?
As you sit around and wait to see what the market is going to do, interest rates may rise overnight. There are countless factors that impact these rates including inflation, housing demand, lender limits, and a strengthening economy.
Inflation is everywhere, with rates hitting 8.6% in 2022. As the cost of living rises, so do house prices and, potentially, interest rates. The cost of goods and materials impacts wages, building costs, and production.
There’s also a high demand for houses. Ironically, this started following the Covid-19 pandemic as mortgage rates plummeted. Now that there are fewer houses available, prices are increasing. Many experts predict it’s only a matter of time before interest rates follow.
The average interest rate right now (in mid-2022) is between 5% and 6.5% depending on your circumstances. And with no evidence that the Utah housing market will slow down anytime soon, waiting to buy or sell could be a costly decision.
Mortgage lenders are also struggling to keep up with the influx of applicants, with some companies running out of funds. As the economy continues to sore, the risk of higher interest rates only becomes more apparent. With a stronger economy comes increased spending and more buying power.
Warning Signs the Spike is Coming
If you’re still waiting for a sign that now is the time to buy or sell, there are a few things that may indicate an interest rate spike is on the horizon. Historically, the federal government will make general announcements about an expected increase. Also, keep an eye out for a halt in the government purchasing mortgage bonds, which is another sign of an upcoming spike.
One thing to keep in mind, though, is that the real estate market is often ahead of the game. This means that some mortgage lenders may already have protection plans in place as a safeguard against expected hikes. One indication of this is the slow and steady rise in interest rates you’re used to.
Raising rates gradually prevents a major, unmanageable spike that negatively impacts homeowners, buyers, and sellers.
What Does History Tell Us About Today’s Market?
With today’s interest rates hovering right around the 6% mark, they’re still lower than average. Historically, a 5% to 6% interest rate is still considered fairly low and affordable. That means that even if rates increased by 1%, most homeowners would still be in a good position to buy or sell.
The Utah housing market is historically very strong, with only four years of declining prices in the last 20. Even during the worst year (2011), Utah only saw a 9% dip in housing prices, which is still less than the budget cut buyers would endure if rates rose above 6%.
Utah continues to attract families with children, entrepreneurs, professionals, and retirees. Its picturesque mountains, low unemployment rates, and strong economy are driving factors. All of these variables indicate that housing prices aren’t going to decrease enough to impact your bottom line.
Chances are, the only thing waiting for housing market conditions to change will do is put you at greater risk of paying higher interest rates.
Will House Prices Drop Soon?
There’s no crystal ball to indicate whether housing prices will come down, interest rates will go up, or things will remain the same. When making a decision about buying or selling a home, you need to consider your current circumstances.
Calculate the value of your current home, your budget, and what type of home you want to buy. Location, job opportunities, and the local school system all play a role in housing prices and quality of life.
The only thing worse than making a “bad” decision is not making one at all. The last thing you want to do is wait too long to commit to your future and be left with regret over the life you could be living.
Today’s market is boasting lower than average interest rates, which means a higher-priced home may still be within reach.
Why Timing the Real Estate Market Doesn’t Work
Trying to predict what the real estate market will do or time upcoming changes is nearly impossible. Even the most seasoned mortgage lenders advise clients against this risky waiting game.
Even industry experts claim they can’t guarantee an increase in interest rates or a continued incline in housing prices. You can only make decisions based on what you know now, in the current moment and climate.
A common fear of many homeowners is that they’ll buy a house at the top of the market, right before it crashes. While this is a legitimate fear, there’s no way to know for sure if it’ll come to fruition. This is just one more reason you should buy your next home based on your current budget and needs and not on “what ifs”.
It’s also important to note that even if the market takes a crash, it will likely recover and you’ll land on your feet once again.
Make a Decision Based on Today’s Market, Not Tomorrow’s
No one can predict the future. Not even real estate and mortgage experts with years of industry experience. If you’re selling a home or looking to buy, now’s the time.
Evaluate your current situation and make an informed financial decision based on that — not on what you think might happen down the road. Waiting too long to sell your home or buy a new one could leave you with massive regrets and financial headaches.
If you’re still not sure if making a move is the right decision for you, contact the Porch Light Team and let us walk you through the process. Our team of professionals has years of experience working with homeowners just like you. We can calculate the value of your home, and your buying budget, and provide information on current interest rates.
So, what are you waiting for? Click here to get started today!