What Is In Store For Home Buyers In The New Year?
As the new year approaches it can be an exciting while also an uncertain time for everyone especially home buyers who are in the market for a home this year. What will happen on the jobs front, where will mortgage interest rates be in 3, 6, 9 months will they be higher or lower. What will the economy be like, will it start to grow or slow down in the new year. The stability of the world markets and the political situation around the world can also have a real effect on mortgage rates for new home buyers. The new year always brings a certain amount of optimism as one year comes to an end, people making new year resolutions, setting goals and promising to improve something in their lives. Making the single biggest purchase of your lifetime usually covers all of those admirable achievements and more. Buying a home at anytime is a big deal that requires plenty of homework and due diligence and shouldn’t be undertaken lightly and should not be rushed into just because it’s a new year or you hear stories about interest rates going through the roof. The almost constant chant from many real estate agents and mortgage brokers for years has been… this is the “best time to buy a house” which if repeated over and over makes people question the logic. The truth of it is, the best time to buy a house is when the time is right for you. It really doesn’t matter if interest rates are the lowest they have been in years if you don’t have the down payment or if your credit score is not high enough you won’t be able to buy a home anyway. What if there are no houses to buy or the houses for sale are too expensive or too far away from where you want to live. I always tell buyers that all real estate is local and the house that’s right for you is out there and you will find it even if not right away.
Mortgage Interest Rates
Mortgage interest rates have a direct effect on the housing market as most home buyers will take out a mortgage to buy a home. If interest rates rise so do monthly mortgage payments and if they rise enough it forces buyers to look at less expensive homes or smaller homes or stop looking at homes altogether. Because debt to income ratios must be within certain guidelines if the mortgage payment goes up too much buyers no longer qualify for the loan. It’s a good idea to get your mortgage professional to show you what a rate increase will do to your monthly payments and how it will affect your ability to buy a home. If it looks like rates are going up and likely to continue going up it may make sense to pull the trigger on the home now and lock in the lower rate. If interest rates have been historically low for a long period of time it could signal a rate hike but the fear is that raising rates will cause an economic slowdown is very real. There was a time when interest rates were in double digits and people still bought houses and builders still built new homes. Get the facts from a mortgage professional and don’t listen to fortune tellers and speculators who seem to come out of the woodwork at this time of year.
Lack of Inventory
Since the recession in 2008 when builders built a fraction of the homes they would normally, it led to a shortage of new homes in parts of the country when the subsequent increase in demand for housing kicked in. With the typical build time of a single family home anywhere from four to nine months it doesn’t take long for a backlog to occur. Builders may also have a harder time getting credit from their banks who still remember the housing crisis and there is more competition for skilled labourers and sub-contractors. Add to all that the fact that Winter is typically a slower time for new home construction as weather conditions cause delays which can have a snowball (pardon the pun) effect as one trade must wait for the other before proceeding. In a tight inventory market to begin with home buyers can find themselves with even less inventory to choose from and if the demand is there for those homes prices will continue to rise until the market stabilizes. Just as home buyers look to the new year to make their buying decisions sellers also start thinking of the Spring as the time they should sell. The fact is winter is often a better time to sell with less inventory and more serious buyers. So because of these factors buyers who are in the market for a new home early in the year often have fewer homes to choose from.
The economy plays a big role in how well the housing market does and how confident buyers feel about taking that leap to homeownership. On the flip side the housing market has a huge impact on the economy. During the housing crisis and recession consumer confidence was at an all time low and housing came to a grinding halt. In a robust economy many buyers feel better about making big financial decisions and big purchases like houses and cars. Of course it is all local and while one area may be booming another may not be doing so well. The local economy dictates much of how the local housing market is doing. The growth of a particular area, if people are moving to the area for jobs, quality of life, family generates demand for housing. Jobs and housing go hand in hand as employers want to open their businesses where their employees can find affordable housing, good schools and job seekers look for shorter commutes and convenient shopping and entertainment. You don’t have to look far to find a story about “The Best Place To Live” or “The Best Place To Raise A Family” or “The Best Place To Open A Business” along with facts about where people are moving to and away from, what towns and cities have increased their population and which ones have lost population. It is common to see the same cities and towns in the top ten year after year.
Before you buy a home in an area it’s good to know what the future holds and there are a couple of clues as to where the area is heading. One way to know how an area is doing is to look at the infrastructure, are roads being built, are towns and municipalities investing in the future expanding their facilities for residents and future residents. A town expecting to grow has to do a lot of planning and they get to hear of big projects way before anyone else does. Major highway or transportation programs take years of planning and massive amounts of investment and it normally means that the growth is coming and will continue to come. Depending on what stage of development each project is at will affect housing demand and prices. A combination of large scale public and private projects will not only provide jobs during construction but likely long after as well. Knowing that growth is coming but may be five years, ten years or more down the road should make buying a home now a good investment and the longer you stay the better it may become. Diversified industries offer the best chance for stability over one large industry the whole area depends on.
Certain loan programs have allowed home buyers the opportunity to be eligible to get a mortgage through either less strict credit requirements, down payment assistance and other benefits to home buyers. Loans such as the USDA Rural Development Loan has been the go to loan for many home buyers who meet the income requirements, the home is in an eligible area and falls within the guidelines for pricing. These types of loan programs do change over time, some are only for a limited time or the criteria changes or the fund they pull from gets used up. They also get extended and new loan programs can be introduced to take the place of another. Home buyers need to be aware of any changes that may be coming to a loan program they plan to use especially if they are limited to that program. Home buyers should always try to increase their odds of being eligible for as many loan programs as possible and that may include waiting a while to save some more money for a down payment or spend six months to a year to pay off credit cards or student loans. Waiting to improve your buying power can really save you some money over the course of a thirty year mortgage. Always always talk to a mortgage broker or credit specialist for free before trying to improve your credit and get better qualified. There are some instances where doing what you may thing is the right thing is the exact opposite. Here are some more articles related to getting a home loan and buying a house that may come in useful if you’re going to be buying a home in the new year. USDA Loans In North Carolina by Eleanor Thorne Top 10 U.S. Markets For Real Estate Discounts by Realtor.com Should I buy or Rent A Home by Paul Sian