Last week, Fannie Mae released their Home Purchase Sentiment Index (HPSI). The survey showed 77% of respondents believe it’s a “good time to sell.”
But, it also confirms what many are sensing: an increasing number of Americans believe it’s a “bad time to buy” a home. The percentage of those surveyed saying that hit 64%, up from 56% last month and 38% last July.
The reason? Affordability, especially among first time homebuyers. Even the number of renters who say they are planning to buy within the next few years has declined.
So, let’s look closely at the market conditions that impact home affordability.
A mortgage payment is determined by the price of the home and the mortgage rate on the loan used to purchase it. Lately, monthly mortgage payments have gone up for two key reasons:
- Mortgage rates have increased from 2.65% this past January to 2.9%.
- Home prices have increased by 15.4% over the last 12 months.
Based on these rising factors, a home may be less affordable today, but it doesn’t mean it’s not affordable.
Three weeks ago, ATTOM Data released their second-quarter 2021 U.S. Home Affordability Report which explained that the major ownership costs on the typical home as a percent of the average national wage had increased from 22.2% in the second quarter of 2020 to 25.2% in the second quarter of this year. But this is still below the standard 28% of income that lenders say homeowners should pend on mortgage, insurance and property taxes.
What does this mean for buyers?
As a buyer, while you may not get the deal someone you know got before the virus crisis, that doesn’t mean you shouldn’t still buy a home. Here are your alternatives to buying and the trade-offs you’ll have with each.
Alternative 1: I’ll rent instead.
Some may consider renting as the better option. However, the monthly cost of renting a home is skyrocketing. According to the July National Rent Report from Apartment List: rental prices have grown a staggering 9.2% this year! In previous years, growth from January to June is usually 2-3%.
We know that here on Cape Cod, the monthly cost of rent is as high as a mortgage payment, if not higher.
If you continue to rent, chances are your payment will keep increasing at a fast pace. That means you could end up spending significantly more of your income on your rental as time goes on, which could make it even harder to save for a home.
Alternative 2: I’ll wait it out.
Others may consider waiting for another year and hoping that purchasing a home will be less expensive then. Let’s look at that possibility.
We’ve already established that a monthly mortgage payment is determined by the price of the home and the mortgage rate. A lower monthly payment would require one of those two elements to decrease over the next year. However, experts are forecasting the exact opposite:
- The Mortgage Bankers Association (MBA) projects mortgage rates will be at 4.2% by the end of next year.
- The Home Price Expectation Survey (HPES), a survey of over 100 economists, investment strategists, and housing market analysts, calls for home prices to increase by 5.12% in 2022.
We have also talked to potential buyers, who are waiting for those who took advantage of mortgage forbearance to be forced to sell their homes. What this strategy ignores is that the average American homeowner has more than $200,000 in equity in their home. As people return to work and can afford the monthly mortgage payment, refinancing will eliminate any past due amount.
As we’ve noted in previous posts, the Cape market has calmed down over the last several weeks. Open Houses are generally not as busy; offers are not as numerous, and total dollar amounts — while still at or above asking price — are not as what-are they- thinking high. (But there are still exceptions.)
Interest in negotiating incentives — like waiving home inspections — also seems to be fading.
What is clear is that whether you’re a seller or a buyer continuing to sit on the fence waiting to make your move may not be the best strategy.
As always, we’re happy to help you review your options. Please contact us at 508-568-8191 or firstname.lastname@example.org. Thanks.
Mari and Hank