In the year 2023 housing prices have been soaring, with that mortgage interest rates have also been going up from the high 6% to a staggering 8%. To make it worse mortgage demand is the lowest it has been in over 30 years. (source: MBA Purchase Index)

This means that if nobody is buying a house and sellers are struggling to sell, what will happen to our real estate market? I’ve already seen desperate attempts into getting new buyers in the market. For example 1% down payment mortgages. While making it easy to qualify, you might get trapped in a mortgage you cannot afford.

Interest rates being high means that your payment will be higher due to interest. Real estate agents promising that rates will go down and that you’ll be able to refinance easily when they do. What happens if they don’t? You’ll be stuck with a house you can’t afford and nobody to sell it to. Causing you to foreclose and lose everything.

Waiting it out?

Waiting out the market might be a good idea, but in the long run might delay certain factors. For example, the area you want to buy in is developing quickly and you notice prices will soar in the next 10 years. Getting a loan with a high interest also might hurt now but if you can afford the payments right now, there’s a slight chance that rates might go down later and you can refinance and get an even lower payment in the future. This is not including the potential rise in home prices.

Some homes are even selling at a “discount” since the lack of buyers is making the inventory more widely available. This is the opposite of the issue we had back in 2021 when everyone had access to easy cash. This means getting your dream home might be less of a fight compared to 2 years ago.

Don’t jump in and get a home you will struggle to make payments on in hopes of interest rates going down. Go in with the ability to make on time payments, and if interest rates do lower then that will just be a bonus.

Preparing for the future

Start by thinking of the pros and cons of home ownership. You can read about that in a previous chapter here. Sometimes renting might be more beneficial to owning but that can vary in your situation.

Saving money is always a staple. You need enough for a down payment. Keep in mind that there are closing costs, commission costs and escrow fees to pay! Once you own a home, saving is crucial to have enough money to be able to pay off repairs, taxes, or the mortgage in the case of an emergency.

Keep your credit in check. Higher credit scores means lower interest rates. Start working on improving your score, and don’t make major credit purchases at least 1 year before applying for a mortgage. Lowering your DTI (debt to income) score significantly improves your chances of getting your loan approved, and having these good habits before actually thinking of owning a home will give you a huge advantage.

If you plan on getting a home in the next 5 years, keeping the money in a high yield savings account is important. Right now is a great time too as interest rates for savings accounts are around 5%. Investing the money can ruin your chances of getting a home. This is due to market risk and a small market crash can deplete a huge chunk of your savings. If the horizon is longer than 5 years then investing can be a great way to grow your housing fund.

Whatever path you decide to take you will come out ahead. If you are buying now just make sure you can comfortably afford the payments, and if rates lower you can take advantage of them eventually. If you’re waiting it out you’ll have a nice savings to make buying the house of your dreams all worthwhile.

Thank you for reading and I’ll see you next Sunday,
– Pablo