If you pay any attention to the U.S. housing market, you know that home values have continuously been on the rise in recent years. Lack of inventory has frustrated many buyers who are finding themselves in bidding war after bidding war. So it may seem counterintuitive to start the home-buying process when the market is heavily leaning in the seller’s favor, right?
Well, there are a lot of factors to consider when buying a home and, as it turns out, this summer might be the perfect time to score yourself a less expensive mortgage.
Interest rates are currently low, but many of the major housing authorities believe they will jump more than 0.5% throughout 2019.
Source: Cornerstone Home Lending, Inc.
This may not seem like much, but consider this scenario:
The average NW Ohio sale price for pre-existing homes was $149,228 in June of this year. If you put 5% down with a 3.99% interest rate, you will end up paying roughly $58 less per month than if you were to purchase that same home with a 4.49% interest rate. Over the course of the entire loan that’s $20,880. Want to see for yourself? Use the cost of waiting calculator on this page to see how payments vary with different interest rates.
Not only are interest rates on the rise, but prices will continue to go up for the time being. CoreLogic’s Home Price Index Forecast expects home values to increase 5.6% through May 2020. If you were hopeful that this seller’s market wouldn’t last for much longer, unfortunately that may not be the case. The average sales price of pre-existing homes in our area has gone up 4.5% between July 2018 and June 2019. If CoreLogic’s prediction is correct, that means the housing market will appreciate at an even higher rate in the next year. Therefore, a house that will cost you $150,000 this summer could end up costing you $158,400 if you decide to hold off. This is in addition to higher interest rates and larger sums needed for your down payment.
Despite an upcoming jump in interest rates and home values, there is currently less competition than in years past. According to Redfin, only 15% of offers created a bidding war in April of this year compared to 60% the year before. One reason, based on data from Trulia, is because the inventory for starter homes is up 3.5%. The starter homes are priced higher and the increase in new listings are minimal, but the overall inventory is expected to remain stable through the year. This slight inventory uptick has decreased multiple offer situations.
In addition, competition is less stiff due to buyer demographics. Millennials are driving the market. According to the National Association of REALTORSⓇ, Millennials accounted for 45% of all new mortgages in 2018 and more than half of those originated by Freddie Mac and Fannie Mae were first time homebuyers. Those who are just starting the journey into homeownership are in less of a rush and often need more time to consider purchasing as opposed to buyers who have previously gone through the process.
Cost of Rent
If you currently rent your home, now is the time to speak with a loan officer. The average cost of rent in the Toledo area jumped 6% in 2018, the largest increase in any of Ohio’s 6 largest cities. Toledo’s economic development surpassed Columbus, Cleveland and Cincinnati last year. As a result of this job growth, the demand for housing and the cost of rent has risen. Even if you don’t own a home, you’re still paying a mortgage. As a renter, you’re paying your landlord’s mortgage and then some. Why not put that money back in your own pocket by building home equity?
Think you can’t afford to buy? Many buyers aren’t informed of the grants and downpayment assistance options available through the Ohio Housing Finance Agency. Attaining homeownership is easier and cheaper than you realized.
Our Danberry agents are all well trained and knowledgeable on the market. Find an agent here. Happy house hunting!